By Professor Glauco De Vita and Dr Harjit Sekhon, Centre for Business in Society
On the 22nd of November 2023, as part of the Chancellor’s Autumn Statement, the Sunak administration confirmed that in April 2024 the state pension will rise – in accordance with the rules of ‘triple lock’ – by a bumper 8.5%, in line with the headline wage growth figure including bonuses. The decision, which doubtless will be welcomed by many pensioners, not only fails to help Jeremy Hunt find ways to try balancing Britain’s books, it also utterly ignores the warning we [De Vita and Sekhon] raised in our August Blog in this CURB platform about the affordability and sustainability of the Conservative policy in question.
What we wrote in our August blog on the ‘triple lock’
On the 23rd of August 2023, we posted a Blog titled “Is the state pension ‘triple lock’ sustainable?”, alerting readers and policy makers alike to the fact that the ‘triple lock’ (which ensures that the state pension rises each year in line with whichever is highest out of wage growth, inflation or 2.5 per cent) is not sustainable in the medium to long term. To us it seemed inevitable that – despite a delay due to the manifesto pledge – at some point the Government would need to alter the policy.
In that Blog, we went as far as characterising the state pension as a sort of Ponzi scheme. Specifically, the fact that the UK has an ageing population means that at some point in the not-too-distant future, there may simply not be enough workers to pay for the upkeep of the state pension.
New evidence casting doubt on the sustainability of the ‘triple lock’
The evidence available corroborates our argument. In the Government’s latest ‘State Pension age review 2023’ (an analysis required by the Pension Act 2014), it is predicted that by 2070 the number of UK pensioners will rise to almost 4 for every 10 working people, a ratio which will put an unbearable strain on public finances.
The ‘triple lock’ is already costing the public purse an exorbitant amount. The Institute for Fiscal Studies estimated that the policy could cost between £5bn and £45bn a year by 2050. This not only means that the ‘triple lock’ – defined by the Office for Budget Responsibility as a “financial risk” – costs the Treasury an unaffordable fortune, it also means that it will continue to generate intergenerational unfairness by penalising especially people of working age who are now facing rising prices amid the cost-of-living crisis.
What does the latest Autumn Statement decision on the ‘triple lock’ means?
We view the Chancellor’s decision in the latest Autumn statement to keep the ‘triple lock’ intact and not to temper its formula by stripping out public sector bonuses (which would have at least reduced the figure for the rise in the state pension to 7.8%, the average earnings growth figure for salaries-only excluding bonuses), as a missed opportunity.
The case for using the lower figure was strengthened by the wage inflation-beating impact of bonuses arising from one-off public sector pay settlements in the health service and civil servants last summer which back-dated pay increases. But it is equally clear to us that neither the Tories nor the Labour party are prepared to commit to the triple lock, as it is, in any future manifesto.
The writing’s on the wall for the triple lock policy
That the ‘triple lock’ policy will have to be at least tweaked, is written on the wall. The question is how, not if, as the problem of the sustainability of the policy is here to stay and is now inextricably intertwined with the debate about yet another rise in the state pension age. There is a distinct possibility that in time we will see both, but not now; not with an election on the horizon.
Through understanding the impact of organisations’ activities, behaviours and policies, the Centre for Business in Society at Coventry University seeks to promote responsibility, to change behaviours, and to achieve better outcomes for economies, societies and the individual.
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