Theresa May is seriously considering replacing the “triple lock”, which guarantees a minimum increase in the state pension each year, with a less generous “double lock”, and spending some of the money saved on social care.
The existing system guarantees that the basic state pension will increase each year by whichever is the largest of inflation, average earnings, or 2.5%, but it has become expensive to fund during a period when prices and wages growth have been low.
It is understood that Downing Street is weighing up whether a more affordable “double lock”, which removed the 2.5% minimum annual rise, would be politically sellable.
May hinted that the policy, introduced under the coalition, was under review at prime minister’s questions. She would only say that “pension incomes would continue to increase” under a Conservative government, in response to a direct question on the future of the triple lock from SNP’s Westminster leader, Angus Robertson.
Labour would leap on the abandonment of the triple lock as a raid on pensioners’ finances. Andrew Gwynne, Labour’s campaigns chief, said on Wednesday: “At today’s prime minister’s questions, Theresa May talked about the triple lock like it’s a thing of the past and, under the Conservatives, it risks being consigned to history.”
Labour has promised to uphold the triple lock in a deliberate play for older voters, who overwhelmingly backed the Tories in 2015, and shadow chancellor John McDonnell included the promise on “pensioners’ pledge cards”, launched earlier this month.
With inflation and earnings growing only slowly in recent years, the policy has seen pensioners fare better than many other groups. The IFS recently found that between April 2010 and April 2016, the value of the state pension increased by 22.2%, compared with growth in earnings of 7.6% and growth in prices of 12.3% over the same period.
This has pushed the value of the basic state pension up to its highest share of average earnings since April 1988. The flat rate pension now stands at £155.65 a week. The cost to the Treasury has been about £6bn a year more in 2015–16 compared with uprating in line with earnings alone, and £4bn more than uprating in line with inflation. Senior Tories argue that the policy has become increasingly unaffordable, and that reform could be presented alongside a more generous system of funding social care for the elderly – a key concern for many older voters.
Lord Willetts, the Conservative former cabinet minister, said: “If you look at any pictures of where public spending is going in the future, the protections for pensions are pushing up the share of public spending that is going on pensions, and then that means when resources are limited, other areas of spending will suffer.” He said a double lock could be allied with “a proper policy on social care” – perhaps an update of the recommendations of the Dilnot commission, which reported back in 2011 and argued for a cap on the overall amount each family would have to spend on social care.
The Dilnot proposals were eventually ditched as too politically controversial by the Conservative government, but with the social care system creaking under the strain of rising demand, Willetts suggested now might could be time to revisit it.
Former pensions minister Baroness Ros Altmann is another advocate of the double lock. She said: “There is a strong case for reform. The triple lock has done its job. There’s strong support for getting rid of it – the big question is when, and how.
“From an economic or social perspective, the 2.5% element never made any sense; it was arbitrary,” she said, arguing that there were better ways of ensuring that pensioners’ incomes kept up with the cost of living. She added that only some elements of the state pension were protected and that they did not include the pension credit that the poorest pensioners rely on.
Many economists also have their doubts about whether the policy will continue to be affordable in the long term. Paul Johnson, the director of the Institute for Fiscal Studies, which scrutinises all the party’s manifestos, said he would be glad to see the policy abandoned because of its arbitrary nature. “The problem with the triple lock is that it results in the pension increase being a random number, because it depends on how earnings, inflation and 2.5% relate to one another in a given year,” he said.
The Treasury would like to abandon the pledge. It was introduced by the coalition government to tackle pensioner poverty and prevent retired households from falling behind. But recent evidence suggests that on average, retired people have tended to fare better than low-income working households since the onset of the financial crisis.
The Conservatives believe that their commanding poll lead, and the fact that most people have less confidence in Labour’s economic competence, creates the political space for them to wriggle out of some of the most costly pledges in the 2015 manifesto.
Philip Hammond, the chancellor, created a stir last week when he appeared to suggest that the party would not repeat the sweeping promises it made in 2015 not to increase income tax, national insurance or VAT. He was forced to abandon an increase in national insurance contributions for self-employed workers, the centrepiece of his first budget, earlier this year after a backlash from backbenchers who felt that the policy breached the Tory manifesto pledge.
Former CBI chairman John Cridland used a recent report on the state pension age to argue that the policy should be dropped, and the work and pensions select committee also recommended an alternative without the 2.5% floor.
It also emerged that the prime minister may stick with her position that now is not the right time to withdraw from the European convention on human rights while the Brexit process is ongoing.
She said during the referendum campaign that she would like to withdraw
from the treaty, which is entirely separate from the EU and governs a
series of rights and freedoms.
But she dropped that ambition when running to be Conservative leader, saying there was not a majority for such a move. A Tory source suggested there had not been a change in her view since then.
The ECHR is disliked by many on the right of the Tory party because rulings restricted the ability of the UK to deport Islamist cleric Abu Qatada and found against a ban on prisoner voting.
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