Thirteen long years of increasingly far-right policies have left the UK visibly broken: we have a cost-of-living crisis; our NHS is on its knees and our schools are crumbling; and we have rivers flowing with sewage and an unaddressed climate emergency.
Our government’s response to all these issues is to reduce public spending in the name of fairness and responsibility. The latest such suggestion is to remove the triple lock on pensions because, as former pensions minister William Hague claimed:
“It is unfair on younger taxpayers who face increasing financial pressures of high prices and the future costs of changes to the energy market. … They should not be asked to pay for a runaway train in spending that the triple lock would become.”
This is deeply misleading (as all the government’s arguments for reductions in spending tend to be) on three counts:
- There is no reason to suppose that the triple lock represents a “runaway train” in spending;
- Maintaining the triple lock need have no impact on struggling taxpayers;
- The biggest losers from removing the triple lock would be the very same younger taxpayers that Hague claims to be concerned about – it would in fact condemn them to an old age of poverty.
No Runaway Train
The triple lock – guaranteed in the Conservative Party manifesto – assures pensioners that the state pension will rise at the highest of three rates:
- The rate of inflation;
- The rate of average earnings.
How could this be a runaway train?
If the highest rate was 2.5%, that would mean that inflation was well under control, and real wages might or might not be growing slightly. As long as economic growth was positive in real terms, there is no reason to suppose that the triple lock would cause a runaway train.
If the highest rate was the rate of inflation, that would be an indication of profound policy failure by the government – it would mean that real incomes were failing (as they have done over the last 13 years) to keep pace with inflation. But, again, as long as per capita economic growth was positive in real terms, that would still not constitute a runaway train – in fact it would probably mean that pensions were a declining percentage of GDP.
If the highest rate is the increase in average earnings, as in a well-run economy, it should be, the triple lock would prevent pensioners from slipping into relative poverty (defined as having a household income less than 60% of the median). But that would not be a runaway train – it would merely mean that pensioners were sharing in the economic success that the rest of the population was enjoying.
No impact on Struggling Taxpayers
That is not to say that at no time might government decide it wanted to raise taxes – particularly during inflationary periods, this can make sense.
But then the obvious course of action would be to raise taxes on those who are not struggling. Equalising the tax rates on dividends and capital gains with those on earnings – so that those who benefit from unearned income pay the same tax rates as hard-working taxpayers would be an obvious first step. And of course closing tax loopholes like the carried interest loophole on Private Equity and the non-domiciled loophole for the very wealthy.
None of these measures would hurt struggling younger taxpayers.
Condemning the Younger Generation to an Old Age of Poverty
But the biggest deception in the proposal is the suggestion that this is rebalancing pensions in favour of the younger generation. That could not be further from the truth. Abandoning the triple lock is more likely to condemn today’s younger generations to an old age of poverty.
The chart below illustrates the long-term impact of unlocking pensions.
Today’s state pension is up to £203.85 a week for the full flat-rate state pension. The chart indicates how this would change with the lock (assuming that average earnings grow at 2.5% per year and inflation returns to its 2% target) and without the lock (assuming that pensions merely keep pace with inflation). The grey line at the bottom shows the weekly cost of removing the lock, which would grow to around £50 per week by 2050. And the red line shows, on the right-hand axis, the cumulative cost of unlocking over 25 years. Different assumptions would of course change the picture, but not enough to alter the overall message.
Now let’s think about real people. A pensioner might – if life expectancy does not continue to fall – hope to draw a pension for around 25 years.
If you became eligible for your pension this year, you might be drawing one until your death in 2048. By that time your pension would have drifted to being 13% lower than it would be with the lock. And the cumulative cost of the unlocking over that time would be around £25,000. That is quite a cost.
But if you are young today and start to draw your pension in 2075, you would need your pension to increase 46%, by the time of your death in 2100, just to match what it would have been with the lock. And the cumulative cost to you of the unlocking over that time would be around £380,000. That is dramatically more than the cost to today’s pensioners.
So while unlocking would cause hardship to many of today’s pensioners, it would be a disaster for younger people. Nevertheless, Sunak has refused to commit to keeping the lock in the next manifesto.
As with most ‘cost-saving’ policies, the victims are precisely the people the government claims to be trying to help. If the government really wanted to help younger people, it would take a look at how this kind of cost-cutting over the past 40 years has progressively weakened the UK’s social contract; it is always younger people who have to live longer with – and suffer most from – any worsening of the ‘deal.’
To help younger generations, we need more affordable education and housing, and better working conditions and pay. And we should repair the damage done by Brexit. But those things would not play well with this government’s donors.
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