U.K.’s Sunak May Have to Break Pensions ‘Triple Lock’ Pledge
(Bloomberg) -- U.K. Chancellor of the Exchequer Rishi Sunak faces a choice: breaking his Conservative Party’s pledge to boost funding for state pensions, or raising retirement incomes at a cost of billions of pounds.
The quandary stems from the “triple lock” -- his party’s longstanding pledge to raise the state pension every year by the annual growth in average earnings, inflation, or 2.5 % -- whichever is highest.
The problem for Sunak is the effect that furloughing millions of workers and then returning them to work is expected to have on earnings. The Office for Budget Responsibility forecasts average earnings will fall by 7.3% this year, only to rebound by 18.3% in 2021. That implies the state pension, which already costs the government about 100 billion pounds ($127 billion) a year, will have to rise substantially.
“The triple lock is going in its current form, at least temporarily, unless some of you are planning to support very generous increases in state pensions next year,” Resolution Foundation Chief Executive Officer Torsten Bell told members of Parliament’s Treasury Committee on Tuesday. He said the government is unlikely to increase pensions by nearly a fifth in a year.
Since 2011, successive Conservative-led governments have promised to keep the so-called triple lock on pensions and Prime Minister Boris Johnson reiterated the commitment in his manifesto for December’s general election. Johnson last month told senior lawmakers that his government “won’t be blown off course.”
‘Dignity and Respect’
To be sure, the dilemma isn’t immediate for Sunak: the next pension rise is due in April 2021, and the earnings figure factored into that calculation will reflect the decline in earnings triggered by the lockdown. But the April 2022 pensions increase will then likely be affected by people returning to their old earnings levels.
The Office for National Statistics, which produces the weekly earnings figures, classifies those on furlough as currently in employment, meaning their reduced wages, as well as any subsequent increase, will be reflected in the headline figure.
The Treasury said in a statement that the government is “committed to ensuring that older people are able to live with the dignity and respect they deserve.”
“As with all aspects of government policy, we will keep spending under review,” the Treasury said. “Any decisions on future changes will be taken as part of the annual Budget process in the context of the wider public finances.”
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