Spiteful calls to rein in triple lock must be ignored

Telegraph

10-07-2025

'The triple lock is a political luxury that the Treasury simply cannot afford,' said the Adam Smith Institute this week, in an echo of similar warnings that have been ongoing for the best part of the past decade.
As if to confirm the think tank's analysis, the Office for Budget Responsibility (OBR) identified the growing cost of the state pension as a key threat to the public finances in its latest 'Fiscal Risks and Sustainability Report'.
Personally, I don't argue with the idea that some kind of reform to the way in which the state pension is upgraded to keep pace with prices and incomes is both necessary and desirable in the long run.
But there is a spiteful undertone to much of the current complaints about pension entitlements that paints them as in some way an undeserved indulgence.
Wholly objectionable is the growing chorus of voices arguing that the state pension per se has become 'unaffordable', that it should be significantly curtailed in the interests of younger cohorts expected to pay for it through their taxes, and that pensioners are somehow a cost to society which we could easily do without.
Both economically and morally, all these arguments are false. Next, they'll be advocating age-related euthanasia; as in Aldous Huxley's dystopian novel Brave New World, once devoid of our usefulness, we'll be shuffled off to some version of the Park Lane Hospital for the Dying and quickly dispatched in a haze of soma-induced oblivion.
Looked at objectively, the UK state pension is, as a matter of fact, perfectly affordable. Pensioners are big voters, but sustaining their entitlements is not just a matter of political expediency; it is an essential hallmark of any civilised, high-income society. Of all the items of state spending that might be cut, the state pension is the least justifiable.
Already it is one of the meanest there is among the OECD group of higher-income economies – this is despite the fact that the UK is one of its richest in terms of GDP per head.
Against the miserly 4.7pc of national income the UK spent in 2019 on the state pension and other pensioner benefits, Greece and Italy spent 13pc, France 12pc, Germany 10pc, and even the United States nearly 7pc. The numbers may have changed a bit since then, but not by much.
The idea that the UK cannot afford such spending is ridiculous, and an insult to those who have worked hard most of their lives to make the UK as prosperous as it is today.
The concern that the OBR highlights is that, under the current policy setting, spending on the state pension is expected to rise markedly over the decades ahead, both in absolute terms and as a proportion of national income.
But what really surprised me, looking at the OBR's analysis, is quite how little it rises given the obvious pressures from an ageing demographic.
Under the OBR's central projection, which assumes no change in policy, the cost of the state pension rises by around three percentage points of national income to just shy of 8pc in 45 years' time when the demographic pressures are at their most extreme.
This is admittedly a lot, and in the OBR analysis, the second largest increase in non-interest spending after health. In any case, it dwarfs the additional spending the Government plans for defence.
But all spending decisions are about priorities, and in that context, the costs remain reasonable and manageable.
One of the reasons that the costs of the state pension flattened off throughout much of the 1980s, 1990s and noughties is that the Thatcher government deliberately abandoned the earnings link, so that despite the growing numbers reaching the age of entitlement, the cost of the pension eroded relative to national income.
This was good for the Exchequer, but very bad for pensioner poverty. By the time Gordon Brown began to address the issue, Britain had some of the most shameful levels of pensioner poverty in the OECD. The Cameron government went further still by introducing the so-called 'triple lock'.
By stipulating that pensions must be upgraded by inflation, earnings growth or 2.5pc a year, whichever is greatest, the triple lock has helped close the gap in living standards between retirees and those in work.
If the lock were abandoned, and pensions once again began to lag growth in the economy, relative pensioner poverty would soon rise anew, and the Government would find itself in many cases having to top up state provision with pension credits and other forms of benefit. The net savings might therefore be relatively modest.
It's true that the costs of the triple lock thus far have proved markedly higher than originally anticipated. But this is largely because of increased volatility in inflation and earnings growth. Get inflation under control and the problem would not be nearly as severe.
Some argue that the solution lies in means-testing of the state pension, but quite aside from this being a politically suicidal policy to adopt, means-testing already, in effect, exists.
Better-off pensioners will pay part of their entitlement back to the Exchequer in income tax. In the case of additional rate taxpayers, it will be nearly half.
The system is therefore already reasonably progressive. Moreover, some pensioners continue to work, and thus help pay for their own entitlements.
But even among those who do not, the state pension cannot in macroeconomic terms be described as a 'cost'. Virtually all these monies are spent, and are therefore recycled into supporting the wider economy.
There has long been a fairly obvious solution to the seemingly ever-rising costs of the state pension, and though nothing these days seems to command a political consensus, it ought to be an approach that commands cross-party support.
This would be, as the Institute for Fiscal Studies has suggested, to set a target for the state pension as a proportion of average earnings. Once achieved via the triple lock, the state pension would then be indexed to earnings alone, thus maintaining its ongoing spending power relative to those in work.
Set at, say, a third of average earnings, it would take some years before the threshold was reached, but once achieved, it would reduce the ongoing rise in expected costs by around half.
It's not going to help Rachel Reeves, the Chancellor, meet her fiscal rules, but it would provide certainty and limit the costs to acceptable levels.
Fiscally, Britain is heading for the rocks, with the third-highest ongoing deficit in Europe, the fourth biggest debt-to-GDP level, and the third-highest cost of borrowing of any advanced economy in the world.
But woe betide the Government that puts the state pension first in line for the required sacrifices.
Mind you, the present lot seems to have abandoned the tough choices altogether. They spend like Gordon Brown, only without the money for it.