How do you deal with a problem like the Triple Lock? We all know that raising pensions by the highest of wage growth, inflation, or 2.5 per cent is not sustainable in the long-term. The Work and Pensions Secretary admitted as much on the World at One.
Unless a future government goes the full Logan’s Run, we are going to continue to have old people. They are going to continue to retire. They are going to continue to expect that the taxes they have paid during their lives can sustain them in their old age. And they are not going to like to be told that their state pension will continue to rise in the manner to which they have become accustomed.
To state the blindingly obvious, this is not music to the Treasury’s ears. The Office for Budget Responsibility already predicts expenditure on the state pension and other pensioner benefits are set to rise from 5.6 per cent of GDP in the current decade to 9.6 per cent by 2071.
The Triple Lock exacerbates this by being a ratchet. Wages might fall during a downturn, but thanks to the Lock, pensions continue to rise. They therefore take up a continually growing slice of spending. Our aging but shrinking population would mean that a growing number of OAPs would be financed by a shrinking number of working-age taxpayers. This is the sort of demographic disaster our ‘Reducing the Demand for Government‘ series exists to counter.
This would pose enough of a problem even if the economy was humming along nicely. But at a time of stagnant productivity, when Jeremy Hunt is scrabbling down the back of the Number 11 sofa for every spare penny he can find, it is a disaster for the Government finances. The state pension is the largest single item of welfare spending. It is an obvious target for cuts.
Despite frequent evidence to the contrary, our politicians are conscious of this. Hence Mel Stride’s comments today. Hence consternation in the Treasury at the expectation that it will rise by 8.5 per cent in April thanks to the hike in wages. And hence also – perhaps more intriguingly – William Hague’s piece in The Times this morning arguing much the same thing.
The former MP for Richmond (Yorks) is known to have the ear of the current one. When the former Tory leader, Angelina Jolie chum, and drinker of 14 pints a day suggest the Lock is ‘unsustainable’, that the two main parties should collaborate to give ‘several years’ notice of change’, and commit to a review, the words may echo ever-so-slightly in the Number 10 press office.
When asked on the way back from India by the assembled hacks as to whether the Triple Lock would remain in the next Tory manifesto, Rishi Sunak refused to go into detail, and said only that it had been a “long-standing policy”. Similarly, Angela Rayner would only commit to Labour examining it ahead of the next election when asked at today’s Trade Union Congress conference.
The mood is also changing amongst once and future Tory MPs. David Gauke, our columnist (and an ex-Works and Pensions Secretary), has suggested the affordability of the Triple Lock should be looked at and the State Pension reformed. So does Rupert Harrison, the former Chief of Staff of George Osborne and the candidate for Bicester and Woodstock at the next election.
In a basic sense, it is also a policy that has outlived its use. In 2010, pensioner incomes were lower than average. Yet whilst general wages have stagnated, the Triple Lock has ensured that pensions are now less likely to be in poverty than the rest of the population. The situation of the early 2000s has been reversed.
As Sam Ashworth-Hayes has highlighted, the proportion of individuals 65 or over with total wealth of £1 million or more has quadrupled since 2008. That’s while – if you can hear me at the back – young people have struggled to get on the housing ladder, settle down, and make the facts of their lives more Conservative. Cutting the lock to cut their (and my) taxes would not be unwelcome.
Unfortunately, the immediate problem that Sunak, Stride, and Hunt confront is a political, not economic one.
You can point to a spreadsheet saying the policy will bankrupt us in fifty years’ time. You can get angry at the ludicrous prospect of spending more on pensions than education, policing, and defence combined, whilst schools crumble, shoplifting proliferates, and war rages in Europe. And you can hanker after a big Party Conference announcement to prove you can make tough choices.
But to misquote Helen Lovejoy, will someone please think of the voters? Dominic Cummings may be a tad snide, but he’s onto something when he suggests encouraging the Prime Minister to make the right but politically painful choice is difficult a year out from an election. That is especially when ditching the Triple Lock would put off a large chunk of the remaining Tory vote of over-55s.
Sunak previously suspended the Lock in 2021, when the bounce back from Covid would have produced an 8 per cent rise. Levelling with the voters – and courting the wrath of his key constituencies – is something we have encouraged the Prime Minister. Suggesting scrapping the Triple Lock is easy to do from the comfort of an op-Ed, but rather more difficult to do if you really want to win the next election.