A new report has urged scrapping the State Pension triple lock and freezing payments for the next three years. A revamped system linking pension increases to inflation would then be introduced.
The paper published by Policy Exchange is urging sweeping cuts to social security and the NHS. It suggests that £115 billion of annual savings are “staring us in the face.”
The State Pension is once again sharply in focus after millions of people are set to get a larger-than-expected rise next April. Under the triple lock guarantee, the State Pension increases every April in line with the highest of three factors: total earnings growth from May to July of the previous year, Consumer Prices Index (CPI) inflation in September of the previous year, or 2.5 per cent.
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The final figure in the triple lock mechanism was announced on Wednesday, October 22. The Consumer Price Index (CPI) figure for September was 3.8 per cent, which means the State Pension will rise in line with earnings growth of 4.8 per cent. As a result, those on the full New State Pension will get £241.30 per week from next April, while people on the full amount of Basic State Pension will receive £184.90 per week.
Roger Bootle, author of the 129-page Police Exchange report, says approximately £22 billion could be saved annually if the State Pension triple lock were to be abolished and payments remained static for three years before being tied to CPI inflation.
The paper also states that the State Pension age should be raised to 70 and public sector pensions should be converted to defined contribution (DC) schemes.
Bootle further suggests that up to £30 billion annually could be saved if benefits for working-age people were frozen at current rates and the broader welfare system was reformed to reduce the number of people claiming Personal Independence Payment (PIP) and out-of-work benefits.
The report, which has received endorsement from former Office for Budget Responsibility (OBR) chairman Robert Chote, calls for substantial spending reductions to the welfare bill to help cut Britain’s public borrowing burden.
Huge cuts to foreign aid and significant reductions to housing benefits, international development, green subsidies and the NHS – including making patients pay for GP appointments – contribute to the £115bn figure outlined in the radical economic report.
Bootle remarked: “Government debt is much too high and needs to be brought much lower. Yet taxes are also much too high and this is having a serious effect on the economy. The solution is staring us in the face.
“The bulk of the savings should be used to reduce the budget deficit but about a quarter could be used to reduce taxes. In the long term, taxes can come down much further but for the time being, reducing the deficit and bringing the debt ratio down must take absolute priority.”
Recommendations in the report urge the Government to use half of the proposed spending reductions to cut the deficit. A quarter should be allocated to boost spending on security and defence, while another quarter would enable tax cuts, including stamp duty and corporation tax.
Robert Chote, the former head of the fiscal watchdog and official forecaster responsible for assessing government policies and determining the financial leeway of Chancellors, said the report would help politicians decide on reforms due to the worsening state of public finances.
“The situation is not yet such as to require policymakers – and would-be policymakers – to think the unthinkable,” the ex-OBR chief commented. “But they certainly need to ponder the unpalatable, and this paper will help them do so.
“Partly as a result, the UK Government is having to pay an uncomfortably high interest rate to borrow, which makes the dynamics of the public finances that much more challenging.
“Like the deterioration in the budget deficit and the debt ratio, this is partly a reflection of global shocks and policy decisions that have hit the UK relatively hard. But it likely also reflects a lack of confidence not just in the current government’s willingness and ability to take difficult fiscal decisions and make them stick.”
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