While Andy Burnham’s government will be left looking at ways to cut its spending as costs continue to rise, one quick win could be to remove the triple lock pensions system which could save the Treasury £3.3 billion.
The triple lock pension system promises to increase state pension payments each year in line with either inflation, wage growth or 2.5% – whichever is higher.
The system was introduced back in 2010 by the Lib-Dem coalition government, and successive governments have since promised to keep it in place.
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But, 16 years on, it is considered one of the most expensive measures in place, draining government finances.
The British Chambers of Commerce (BCC), which represents more than 50,000 businesses in the UK, said the mechanism should instead rise in line with Consumer Prices Index (CPI) inflation each year.
The BCC is calling on the chancellor to address it in the Autumn Budget, arguing that the policy should be scrapped to fund a cut to employer National Insurance contributions (NICs) for businesses taking on younger workers.
Why should the government remove the triple lock?
The BCC said ditching the triple lock and uprating the state pension in line with the CPI would raise £3.3 billion for the Treasury over two years.
This money could instead be used to extend the existing zero rate of employer NICs to workers aged 21 to 24-years-old. This would lower costs for businesses employing entry-level staff and could get more young people into work.
In his first speech as chancellor, John Healey addressed the NEET crisis, which is young people ‘not in education, employment or training’.
With over one million young people labelled at NEETS, he acknowledged that the government and businesses had a moral duty to get young people into work.
Though, when asked about whether he would consider an alternative for the triple lock, Healey simply said he agreed that youth unemployment was an issue.
“We will outline our plans based on the outcomes and recommendations made by Alan Milburn,” he said.
He made no comment about replacing the triple lock.
In a snapshot poll, 74% of MoneyWeek readers said they believed the triple lock was vital for pensioners while 22% agreed it was unfair and expensive.
In its submission to the Treasury, the BCC also proposed lowering energy costs and business rates for businesses while increasing support for firms wanting to export globally.
Shevaun Haviland, director general of the BCC, said: “Pro-growth choices have never been more important. The chancellor must use his first budget to cut the cost of doing business, allowing everyone to reap the economic benefits.
“Piling more taxes on firms, would be a road to ruin. The quickest way to destroy business confidence.”
Triple lock under pressure
The triple lock has been called into question by numerous think tanks in recent years, and now the BCC, due to its ever-increasing cost.
The Office for Budget Responsibility (OBR) projects the state pension will cost 9% of GDP by 2075/76, up from 5% now, in part due to an ageing population but also the cost of the triple lock.
But despite the soaring costs, policymakers are hesitant to touch the mechanism because it is so popular among voters, namely older ones.
Speaking on the recent MoneyWeek Talks podcast, Steve Webb, the former pension minister who was in place when the triple lock system was introduced, strongly defended the triple lock, saying it was there to do a job.
“The problem with that is if you earn and earn and then stop earning, then the thing you fall onto when you stop earning needs to be connected to some proportion of what you were earning. Otherwise, you just fall off a cliff and your standard of living crashes,” Webb said.
“So, the state pension needs to be pegged to a proportion of what people are earning and for 30 years, [prior to the triple lock] that had not happened.”
You can watch the full interview here – or listen to it on any podcast platform.
