According to Rupert Harrison, George Osborne’s former special adviser, the triple lock on pensions was a Liberal Democrat demand for the Coalition agreement in 2010, which was accepted by the Conservatives on the basis that it would just cost £50m. The triple lock has meant that the state pension has been increased by the highest of earnings, inflation or 2.5% since 2010.
Analysis by the Centre for Policy Studies shows that this decision has been one of the most costly and long-lasting decisions taken by the Coalition Government.
The report further highlights that the policy has been one of the main causes of growing inter-generational inequality. Key conclusions include:
- Since 2010, welfare spending on pensioners is up by 10% in real terms but down by 5% for workers and children. On a per household basis, welfare spending is up by 4% per pensioner household and down by 10% for children and those of working age.
- Had the state pension been uprated in line with CPI inflation instead of the triple lock – which would have maintained its purchasing power – the Treasury would now be around £8.6bn a year better off.
- The opportunity cost has been large. This sum could have paid for a cut of 2 percentage points in the basic rate of income tax or increased spending in areas of greater need.
Daniel Mahoney, head of economic research at the Centre for Policy Studies and author of the report, said:
“Nick Clegg’s insistence on the triple lock policy during the Coalition negotiations has increased intergenerational unfairness and caused huge fiscal problems for the Government.
“Had the state pension’s purchasing power stayed the same since 2010, the Government could have implemented a series of growth promoting tax cuts for all demographic and income groups, as well as given additional funds to areas that require more resources – all the while being in a similar, if not better, fiscal position.
“Of course, political realities mean that removing the triple lock will be difficult. However, at the very minimum, the guarantee in the triple lock should be dropped to 1.5%. This would still be a triple lock but would guard the Treasury from additional fiscal burdens arising from a situation where inflation and earnings growth hover at around 2%”.
NOTES FOR EDITORS
- Daniel Mahoney joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians.
- The Centre for Policy Studies was founded in 1974 by Margaret Thatcher and Keith Joseph and develops and promotes policies to limit the role of the state, to encourage enterprise, and to enable the institutions of society to flourish.
- ‘Did Clegg create the conditions for Corbyn?’ is available to download from the CPS website.
Head of Economic Research
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Date Added: Thursday 19th October 2017