Triple lock at risk after Andy Burnham’s spending splurge | Personal Finance | Finance
Andy Burnham’s spending splurge puts the triple lock at risk as he has no room to borrow more, a report suggests. The National Institute of Economic and Social Research (NIESR) urged the Prime Minister to raise taxes or cut public spending to fund new cost-of-living and defence commitments. The think tank warned there was no scope for extra Government borrowing.
Stephen Millard, NIESR’s Deputy Director for Macroeconomics, said there was “clearly no scope” to increase borrowing, so cost-of-living measures should be funded by spending cuts or higher taxes. He said the welfare bill is an obvious place to look, adding: “The triple lock on pensions, that is very, very expensive, and will get more expensive as we age.”
The triple lock guarantee increases the State Pension every April by the highest of inflation, average earnings growth or a flat 2.5%.
Figures from the Institute for Fiscal Studies show the triple lock costs the Government an estimated £12billion to £12.6bn per year.
NIESR said the Government will be squeezed by more persistent inflation as a result of the United States and Israel‘s war with Iran.
The organisation is expecting Consumer Prices Index (CPI) inflation to rise to a peak at 3.8% in February 2027 and take longer to slow to the 2% target level in early 2029, rather than a previous forecast of 2028.
Its forecasts show the Bank of England keeping interest rates held at 3.75% through this year and next.
Mr Burnham pledged to lead a “cost-of-living Government” when he entered Downing Street as Prime Minister last week.
Since then, he and newly appointed Chancellor John Healey have announced a raft of support measures, including a promise to cut VAT from electricity bills in October and to cap bus fares at £2 throughout 2027.
Mr Burnham has reiterated that the Government stands behind its previous pledge to spend 3.5% of gross domestic product (GDP) on defence by 2035.
He said he and Mr Healey were working towards ensuring the defence investment plan was “fully funded” ahead of the Budget in the autumn.
Besides the triple lock on pensions, another measure suggested by Mr Millard is reforming council tax to move towards a land value tax system or scrapping some VAT exemptions.
NIESR’s expert said that even after taking all those measures, he would then look at breaking a Labour manifesto pledge and re-examine the rate of income tax.
Labour’s manifesto pledge was to not increase taxes for working people, which Mr Burnham has pledged he will stick to.
NIESR’s forecasts also show the UK economy growing by 1.1% this year, higher than the 0.9% projected in spring due to stronger-than-expected data published in recent months.
But according to the think tank’s analysis, the UK economy has lost out on an estimated £15bn worth of GDP as a result of the Middle East energy shock.
