Why the Pensions Triple Lock guarantee should be removed

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April 26, 2017 by Paul Goldsmith

triple lock

On the first draft of the 1979 Conservative manifesto, Margaret Thatcher scrawled “Hostage!” or “hostage to fortune’ on any commitment that seemed too specific. She was determined to set out a course for the Government that resulted, without tying her hands. It would be sensible for Theresa May to do that with the 2017 Conservative manifesto. I mentioned yesterday how she should do away with the ‘tax lock’ that was nothing more than a political gimmick in 2015 but proved to tie her Chancellor’s hands in the recent budget. Today I want to talk about doing away with another ‘lock’ that had far more honourable intentions but is now out-of-date and too restrictive.

The Pensions triple lock guarantee was introduced in 2010 by the Coalition Government. It committed to raise the state pension every year by whichever is highest of inflation, average earnings or 2.5%. It aimed to make sure pensions were not eroded by rises in the cost of living and also didn’t end up being raised by meaningless amounts like the infamous 75p a week rise granted by Labour Chancellor Gordon Brown in 2000.

On the face of it, this is only fair. Pensioners are faced with a particular challenge as they are, at the end of their career and earning power, unable to change easily to adapt to economic policies that affect them. Young people could change jobs or take different degrees to respond to changing realities. Pensioners can’t. In most cases they have spent their whole life paying taxes and National Insurance and now deserve to reap the benefits, and safety net, of that contribution.

Politically it makes sense too, because the over-65s are the age group that turn-out in the highest proportions. Therefore, upsetting them could mean them changing their vote, or not voting at all, and in the case of the Conservatives this could be crucial in winning many marginal seats in a normal election.

Only, it isn’t a normal election, is it? Theresa May is up against a Labour Party in such disarray that it is likely she will get a free run at this election in terms of winning. Jeremy Corbyn may have claimed he will protect the triple lock, but other possible policies, such as a tax on wealth like the mansion tax, as well as a general need to find money from richer voters mean that the over 65s are very likely to stay with the Conservatives come what may (no pun intended).

There are also some sensible arguments against the triple lock. It costs an extra £6.5bn a year, and pension are at 6% of GDP at the moment but will be over 8% of GDP in 2060 given we have an ageing population. It is also causing considerable inter-generational tension, given that the triple lock was brought in at the same time as tuition fees were tripled (for an age group which is less likely to vote).

No-one is saying that pensioners should be scrabbling around to feed themselves. Changing it to a double lock – with pension going up by whatever is the higher of inflation and earnings would add some flexibility. The 2.5% guarantee is actually the problem when others’ earnings are going up much slower. That said, the entire concept of a ‘lock’ should be done away with. They are an admission that Government can’t be trusted to keep its promises.

Corbyn may think the triple lock can still continue, but then again one has to consider how his entire programme is funded. Either he can lean on the Bank of England (ending their independence) to print money, or he can do what every government has failed to do for many years and reduce tax avoidance. Or raising the tax rate for the rich will not have any negative consequences (more tax avoidance, moves abroad, less work hours). These funding options negate the need for hard choices.

Hard choices need to actually be made for the Conservative manifesto, as it is the one most likely to have a mandate for Government. There should be no more ‘locks’, there should be maximum flexibility too. As I will explain in future blogs, that includes with Brexit, where I don’t think May should commit to any future solution like withdrawing from the Single Market as she just doesn’t know what will need to be conceded to get the best deal.

Mrs Thatcher, in the forward to the eventual published manifesto, wrote that it “contains no magic formula or lavish promises”. That will do for Theresa May in 2017 as well.

 

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