Scrapping The Triple-lock Will Be Good For Everyone – Even State Pensioners

It is hard to paint a more difficult picture than that which faces Andy Burnham and John Healey as they prepare for next month’s Budget.

Economic indicators are flashing that would keep most chancellors awake at night: sticky inflation, rising debt interest costs, downgraded growth forecasts, stubbornly high borrowing figures, falling net migration numbers, sky-high business costs, a record tax burden and a huge spike in energy bills expected in January.

And to add one more possibly ominous portent, Healey’s maiden conference speech as Chancellor came exactly 50 years after Britain was unceremoniously bailed out by the IMF in 1976.

The stark reality today is that we now face the highest cost of government debt in the G7. As we will always need to borrow money from the financial markets, something radical must be done to reduce the cost of that borrowing.

Provided he is true to the 2024 manifesto, Burnham has no choice but to look at reducing spending. But where Labour is unlikely to follow sensible ideas from the Conservatives and Reform UK to bring down increasingly unsustainable levels of welfare – witness Sir Keir Starmer’s failed attempt to trim just £5bn off the bill – another opportunity has arisen for the Government: the state pension.

It is hard to identify any serious economist who argues that the “triple lock” – which guarantees that the state pension rises each April by the highest of earnings, inflation or 2.5 per cent – should continue in its current form. Despite succeeding in its original goal to reduce pensioner poverty when introduced in 2011, the Office for Budget Responsibility now forecasts the policy to cost £15.5bn by 2030 – three times its original estimate.

Different alternatives will be floated in the coming weeks, ranging from linking the annual increase to a “single” or “double” lock to setting a target level for the state pension expressed as a share of average full-time earnings.

Indeed, recent political history shows that this path is fraught with risk. I was part of Theresa May’s manifesto team in 2017 that ambitiously attempted to remove the 2.5 per cent floor of the triple lock, contributing to a general election outcome in which she lost her majority.

However, on the other hand, Rishi Sunak’s Treasury team successfully suspended the wages element of the policy during the Covid-19 pandemic when the closure of furlough artificially sent earnings growth to temporarily elevated levels. It is obvious to point out that state pensioners overwhelmingly vote in high numbers – but with enough political will, history shows that it can be done.

Yet, even if scrapping the triple lock is able to fund a significant portion of what a new national care service might cost – some estimates are as high as £18bn a year – the Government will need to go further if we are to reduce overall spending and provide the much-needed signal to international investors that we are serious about living within our means as a country.

Speak to any financial trader or analyst who constitutes the amorphous grouping known as “the markets”, and a consistent theme emerges: Britain has to reduce the amount of money it spends every year if it wants lower bond yields, and a corresponding lower amount of annual interest on that debt.

If John Healey truly wants to fulfil his conference speech rhetoric to give people “hope again”, the Chancellor must begin setting out his plans now, rather than kicking the can further down the road and watching our daily debt interest bill continue to soar.

Our present predicament demands radical action if we are to avoid the spectre of another 1976-style financial crisis. Fortune does indeed favour the brave: we will see if Healey’s Budget provides any indication that he is up to the task of confronting trade-offs.

Escaping the doom loop we find ourselves in by cutting overall spending, even if it means scrapping the triple lock, would benefit not just taxpayers and the Government, but ultimately pensioners as well.