The Chancellor’s Triple Lock Dilemma
For the duration of the current Parliament, the United Kingdom (UK) Government has pledged to up-rate the basic State Pension (bSP) and new State Pension (nSP) in line with the ‘Triple Lock’, something that has never been put into legislation.?This was in the 2019 Conservative Party Manifesto.
The Triple Lock means that the bSP and nSP will increase by the higher of:?
The question, therefore, is ‘what is earnings inflation’??The Social Security Administration Act 1992 (section 150A) in Great Britain requires The Secretary of State to increase pensions in line with a review of the general level of earnings over a review period.?The Social Security Administration Act (Northern Ireland) Act 1992 (section 132A) says that Northern Ireland may make an Order corresponding with that made in Great Britain.
Yet, there is no statutory definition of earnings inflation, just that the Secretary of State ‘shall estimate the general level of earnings in such manner as he sees fit’.?By convention, the Government has compared the Nominal Average Weekly Earnings (AWE) from the Office for National Statistics (ONS) for the three months to July in one year and compared it to the following year (i.e. for the rates in 2022, looking at May to July 2020 compared to May to July 2021).?
The Office for Budget Responsibility (OBR) was created in 2010 as the UK Government’s official, yet independent, provider of an analysis of the UK’s public finances.?In late 2020 and again in early 2021 it predicated that earnings inflation would be 4.6%.?
However, their July 2021 Fiscal Risks Report indicates that ‘pandemic-related fluctuations in earnings growth’ was 5.6% in the three months to April 2021.?It mentions that ‘some expect’ (meaning a Bank of England suggestion) this to increase to 8% in the three months to July 2021.
If this was a reality, the bSP and nSP Triple Lock would mean that percentage increment is applied to the current values (￡137.60 and ￡179.60).
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The OBR says that every one percentage point is equivalent to ￡0.9 billion in additional public spending.? An 8% earnings inflation rate equals around ￡3billion more than previously anticipated.? This has, once again, opened the argument of whether the Triple Lock is fair, let alone sustainable:
A very strong indication that a Manifesto commitment might not manifest itself into reality for pensioners.?
Of course, we will have to wait until publication of the earnings growth figures (to July 2021) and the September value of the CPI, however, it’s not a ‘fairness’ balancing position that I would like to be in.?
Especially given his October 2020 comment on LBC Radio when asked about the future of the Lock:
I thought that it would be fascinating to have a look at the operation of the Triple Lock over the last few years showing the increases that have applied, highlighting the factor that was used (i.e. earnings, CPI or the 2.5% Lock).? This is based on the House of Commons ‘Briefing Paper’ dated February 2021:
Director at Paywright Limited
3 年Were the increase in state pension for 2022 to be unusually high (eg due to a quirk in the calculations of increase in earnings), I think many state pension recipients like me would say the money would be better spent on giving NHS staff a good well-deserved pay rise.
Chartered Payroll Professional
3 年Maybe they need to use a different measure of wage inflation? The 8% figure must be a quirk of the way the figure is calculated, and the effect of the pandemic on this. Common sense says that the average British worker hasn't seen their basic rate of pay increase by 8% in the last year!