For a government to break a manifesto commitment is a serious matter which, quite rightly, is sure to rebound at the ballot box. But there is one commitment in the Conservatives’ 2019 manifesto which has simply got to go: the promise to maintain the ‘triple lock’ on pensions which sees the basic state pension increased each year by either inflation, average earnings or 2.5 per cent, whichever is the highest.
At the time the party made this promise it could not have foreseen the peculiar circumstances which would result in today’s remarkable ONS figures showing that average earnings are up over the past 12 months by 8.8 per cent. Unless next month’s figure falls appreciably, which is unlikely, pensioners can look forward to a huge boost next April – as the government uses September’s average earnings figure to determine the rise in the state pension seven months’ later. Taxpayers, by implication, face a huge hit.
Granting pensions the full 8.8 per cent increase would have horrible repercussions
The government appears to be contemplating a fiddle by which it would notionally stick to the triple lock but play around with the average earnings figure itself. Last month, when the 12 monthly rise in average regular earnings was 6.6 per cent, the ONS published a blog which argued that the ‘underlying’ rate of earnings growth was between 3.2 per cent and 4.4 per cent.
It is possible that the government could try to use this to calculate the rise in pensions next April, arguing as the ONS does that official earnings growth is at present artificially high as a result of the pandemic. At the beginning of the first lockdown last year a disproportionate number of low-paid workers were furloughed, dragging down average earnings. This time last year the ONS estimated average earnings growth at minus 1.2 per cent. Hence today’s figure is a rebound from a low base.
But here’s the thing: pensioners didn’t have to put up with a cut. Rather, in April this year state pensions increased by 2.5 per cent – as a result of one of the three prongs of the triple lock. State pensions, in other words, have been allowed to ratchet upwards as a result of turmoil in the labour market. Under the triple lock there is never any danger of state pensions falling: they would increase by 2.5 per cent even if the country were experiencing rampant deflation.
The triple lock always was a foolish promise because it didn’t take account of the possibility of deflation or any other shock to the system. While no-one could have foreseen the pandemic, the possibility of some kind of economic turmoil should have been considered. The Chancellor can’t rewrite his party’s 2019 manifesto now, but he could and should admit that the triple lock was ill-conceived because it allowed the government no exit route in a crisis.
Rather than fiddle with the average earnings figures he should instead ditch the triple lock altogether and go back to increasing state pensions with inflation – with the possibility of higher one-off rises if the economy is doing well.
Would the government suffer electorally? Almost certainly. But then it will suffer even if it fiddles with the average earnings figures. As for granting pensions the full 8.8 per cent increase that would have horrible repercussions. It would become politically impossible, say, to hit working age people with tax rises, or to deny public sector workers wage rises of at least inflation if pensioners were seen to profit from the pandemic.
Ultimately, the government will be punished far more if it loses control of public spending now. The least-damaging option would be to bite the bullet now and admit that it got it wrong with the triple lock – and abolish it for good.
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