UK cannot afford triple lock pension, OBR says
The UK government cannot afford to keep the triple lock pension, the Office for Budget Responsibility (OBR) has warned.
Chancellor Rachel Reeves has faced staunch opposition from within her own party and seemingly from the wider electorate over cuts to welfare spending as she bids to meet fiscal rules that prevent high borrowing from further damaging the public finances.
But the OBR has warned that spending on the triple lock has surged by as much as three times the figure projected in 2012 when former Chancellor George Osborne introduced the policy, which is that the state pension rises by a minimum of 2.5 per cent and by a maximum of whichever is the largest increase in inflation or wage growth.
Richard Hughes, chair of the fiscal watchdog, questioned whether the welfare state could be funded by taxpayers.
“The UK cannot afford the array of promises that it has made to the public,” Hughes said.
“We produce these reports to draw attention to these issues, and our hope is that there is some attention paid to them,” Hughes said,
“Precisely what the government does in response to these pressures and the choices that ultimately every country is going to have to make about how they afford their welfare states and their wider public services commitments are issues for politicians.”
Its new report on the risks to the UK economy suggested public debt as a share of GDP could surge to 270 per cent in 50 years while borrowing could rise to 20 per cent due to extra spending on welfare.
Large jumps in spending are projected to come from the triple lock, which alone could increase to 7.7 per cent of the UK economy by the early 2070s.
Triple lock pension is ‘unsustainable’
The volatility of inflation, which is affected by global energy price shocks and other supply chain disruptions, and the increase in life expectancy mean the government could “not sustain” its spending, Hughes warned.
The Institute for Fiscal Studies (IFS) last week called on the government to abolish the triple lock in favour of a more sustainable pension system that encourages employers to pay into workers’ pension pots.
The OBR said the lack of savings made by people meant the triple lock would still keep around 10 per cent of people below a minimum living standards benchmark, even as it cost the government £15.5bn a year by 2030.
The independent body’s report also included several warnings about the costs of net zero in the long term, with the fiscal costs of the energy transition to come to £800bn by 2050.
The costs are set to be high due to public investment in residential buildings while falling receipts from taxes such as fuel duty would also reduce revenues for the government in the long term.
In the worst case scenario, net zero could add three per cent to public debt as a share of GDP by the early 2070s.
OBR board members were downbeat about the near term risks to growth and the “vulnerable” UK economy during a presentation, setting Rachel Reeves up for a cataclysmic Autumn Budget.
“We look less resilient to those risks than several other advanced economies which have got their public finances in a more sustainable position,” Hughes said.
Shadow chancellor Mel Stride commented: “Under Rachel Reeves’ economic mismanagement and Sir Keir’s weak leadership, our public finances have become dangerously exposed: vulnerable to future shocks, welfare spending rising unsustainably, taxes rising to record highs and crippling levels of debt interest.”