The pensions triple lock could be under threat as the government attempts to claw back some of the billions it has pumped into coronavirus support.
Breaking the guarantee features in a menu of options drawn up by the Treasury’s Fiscal Statistics and Policy unit, according to reports in The Daily Telegraph.
The government has already estimated that it will have to ratchet up public spending by some £300bn as a result of Covid-19 under its base scenario, with the bill potentially as high as £500bn.
The Telegraph reports that, as part of a “medium term” analysis Sunak requested from the team on how the bill could be paid, savings of £8bn were identified should the pensions triple lock be revised.
Canada Life technical director Andrew Tully says: “Recent above-inflation increases to state pensions have been a very welcome boost for the many retirees who are looking to balance household budgets. However, there has been much debate over recent years about the long-term sustainability of the triple-lock. There is no doubt the commitment comes with a huge cost attached, and this is only going to increase as the number of over-65s in the UK increases.
“There is also a question of fairness, as the triple lock suggests pensioners’ income is growing faster than the rest of the population and spending on state pension has increased by more than other benefits. But we need to also recognise the UK state pension is not particularly generous compared to other nations.”
However, other measures are also under discussion, ranging from public sector pay freezes and an NHS and social care tax “surcharge”, to income tax, VAT, national insurance and corporation tax hikes.
It remains to be seen whether this will be compatible with previous Conservative promises that the party would not raise headline tax rates.
One suggestion is for Sunak to use the summer to outline a medium-term public finance plan, but the Treasury officials urge caution on firmer long-term commitments, the paper reports.
The briefing also raised concerns of a revised “worse-case” scenario of an L-shaped economic recovery, as opposed to the U-shaped one which is currently the government’s base scenario.
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