Government urged to scrap triple lock by Labour-linked think tank | Personal Finance | Finance
Pressure is mounting on Labour to rethink one of Britain’s most popular pension promises after a think tank with close links to the party called for the triple lock to be scrapped.
The Resolution Foundation says the guarantee, which ensures the state pension rises each year by whichever is highest of inflation, wage growth or 2.5%, has become unaffordable and should be replaced with a less generous earnings-based formula. Its concerns have been echoed across the political spectrum with, for example, former Conservative chancellor, Jeremy Hunt, recently arguing the triple lock is unaffordable in its current form.
The Resolution Foundation warns Britain has been hit by a £330 billion-a-year fiscal crisis caused by a toxic combination of weak economic growth, an ageing population and rising levels of ill-health.
It argues ministers will face increasingly painful choices unless they overhaul the public finances, including ending the triple lock, introducing new taxes to replace falling fuel duty revenues as motorists switch to electric vehicles and investing more in public services.
The Resolution Foundation has long been regarded as influential within Labour circles. Former chief executive Torsten Bell left the organisation to become a Labour MP and now serves as a Treasury minister, while the think tank’s work has frequently shaped debate around economic policy.
Its report comes at a politically sensitive time, with Labour repeatedly insisting it remains committed to the triple lock despite growing concern over the long-term cost.
According to the report, maintaining the triple lock will cost an extra £12.6 billion in 2026-27 compared with simply increasing pensions in line with average earnings.
Instead, the foundation argues that pensions should rise under a “smoothed earnings link”, which would still protect pensioners while avoiding what it describes as the ratchet effect that steadily pushes pension spending higher. The report paints a bleak picture of Britain’s finances almost two decades after the financial crisis.
It says weaker economic growth since 2007 has reduced annual tax revenues by the equivalent of around £240 billion, while the combined impact of an ageing population and worsening health has added another £90 billion to the pressure on the public finances.
Overall, Britain is facing an annual fiscal hit of around £330 billion, according to the analysis. The report says governments have filled the gap through what it describes as an “unholy trinity” of higher taxes, cuts to public services and rising borrowing.
Britain’s tax burden has climbed to its highest level in 75 years, adding around £90 billion in extra annual tax receipts since 2007-08, while day-to-day spending on public services is almost £140 billion below the path it would have followed before the financial crisis.
At the same time, public sector net debt has almost trebled. The foundation also warns that another looming problem is the rapid growth in electric vehicles.
Fuel duty raised £24 billion last year, but those revenues are expected to shrink sharply as drivers abandon petrol and diesel cars. It says the Government will have to go much further than reforms already announced if it is to replace the lost income.
The report also argues that greater investment is needed to improve the productivity of public services, warning that under-investment is storing up bigger problems for the future. Meanwhile, it cautions that the Government has little room for manoeuvre.
It estimates that higher energy prices linked to conflict in the Middle East may already have reduced the Chancellor’s fiscal headroom from £23.6 billion at the Spring Forecast to around £6 billion, leaving little capacity for additional spending without tax rises or cuts elsewhere.
Simon Pittaway, senior economist at the Resolution Foundation, said: “Britain has been hit by a triple whammy of weak growth, rising ill-health and an ageing population over the past 20 years. Collectively these three hits are costing £330 billion a year and are being paid for by more borrowing, the highest tax burden in 75 years, and huge cuts to public services.
“Britain needs to break out of its fiscal funk and get the public finances back on a sustainable path. Otherwise the choices over which taxes to raise, which public services to ration and how much more we spend on servicing our debt will get even more painful.
“An incoming PM and Chancellor offer the perfect opportunity to start afresh. But they will need to level with the public that popular policies like the triple lock ratchet are simply unaffordable. Sounder public finances will also require honesty about the limits of what the state can do, and that everyone needs to pay their part through a more efficient, broad-based tax system.”
