According to a Treasury document dated May 5, seen by the Telegraph, chancellor Rishi Sunak has been advised to break one of the Conservatives’ manifesto pledges and scrap the pension triple lock on state pension rises.
Under current rules, the state pension is increased by the triple lock which is the highest of earnings growth, price inflation or 2.5 per cent a year.
According to the Telegraph, the document forecast Britain will have a £337bn budget deficit this year, due to the amount of support offered by the government throughout the Covid-19 crisis.
Mr Sunak has also been told he may have to backtrack on the Conservative’s promise to not raise taxes this year.
The document stated it would be “very difficult” to fill the gap in public spending without breaking the tax lock and suggested to raise the revenue needed the government would either have to hike income tax, VAT and national insurance or reform pensions tax relief.
Other suggestions included public sector pay freezes, an NHS and social care tax surcharge or a new carbon/green tax.
According to Andrew Tully, technical director at Canada Life, scrapping the triple lock would be seen as unfair as pensioners would be a lot worse off in the future.
Mr Tully said: “Recent above inflation increases to state pensions have been a very welcome boost for the many retirees who are looking to balance household budgets. However there has been much debate over recent years about the long-term sustainability of the triple-lock.
“There is a question of fairness, as the triple lock suggests pensioners’ income is growing faster than the rest of the population and spending on state pension has increased by more than other benefits.
“But we need to also recognise the UK state pension is not particularly generous compared to other nations.
“Any changes to the triple lock need to be well thought out and preferably have cross-party support so we have a sustainable long-term policy and people are clear how the state pension remains the bedrock of their retirement income.”
Meanwhile, Alistair McQueen, head of savings and retirement at Aviva, said it could be tricky to scrap the triple lock as this time..
Mr McQueen said: “Stronger wage growth has meant that the third lock (+2.5 per cent) has been redundant for much of the past five years. That is about to change. Wage growth is set to stall in the wake of the coronavirus crisis, giving the 2.5 per cent lock real value.
“Regardless of the rights or wrongs of the triple lock, it will be politically harder to remove it now that it would have been before.”
Last month (April 14), a think tank called on the government to replace the triple lock with something more affordable as a way of reducing the deficit that has built up due to Covid-19.
It was suggested the triple lock could be replaced with a double lock which would tie increases to earnings of inflation (whichever is higher).
amy.austin@ft.com
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