Liz Truss is almost exactly the leader the country is desperate for. Britain needs someone to take painful decisions and even alienate voters in order to get growth going. Given that the next election is probably lost anyway, there is a case to be made that Truss should serve as the sin-eater for Conservative policy, implementing necessary but unpopular actions before she’s deposed. Last night rumour had it that she was planning to break the triple lock on pensions, instead bringing in a below-inflation rise. Perhaps this was to be one of those unpopular but necessary policy decisions? Not a bit of it. At PMQs, she told the Commons: ‘I’ve been clear, we are protecting the triple lock on pensions.’
The triple lock says that each year the state pension will increase by inflation, average earnings, or 2.5 per cent, whichever was highest in the year before. It is hugely popular with the Conservative party’s elderly base. It is also a fiscal and economic millstone around the British government’s neck.
The last two years have amply illustrated the basic problems with the design of the scheme. The first is that it was clearly not created with unusual economic circumstances in mind. In 2021, wages dropped in a short but deep recession. The next year, they went back up again. In economic terms, very little had changed. The rule used by the triple lock, however, treated this like a period of strong economic growth. If it had been left untouched, pensions would have increased by 8 per cent. And thanks to the ratcheting effect of the triple lock mechanism, they would have retained that boost against UK GDP into the long term.
In the end, the government ended up suspending the triple lock for a year, only to fall right into another unusual situation: stagflation, where economic activity stagnates but inflation skyrockets.
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