Why the PM could finally drop the triple lock pension pledge
Source: BBC Business โ
Andy Burnham said that he would make tough decisions to fund a new national care service. The timing of the PM's new social care plan sparked suggestions the government could be about to signal the death knell to the state pension triple lock after 16 years. Andy Burnham said he will put forward tough decisions to fund a new national care service as part of Labour's next general election manifesto, seeking a mandate to make the changes next Parliament. The triple lock, which in theory expires at the end of this Parliament, means state pensions rise every April by at least 2.5%, or in line with the highest of prices or earnings. Earlier this month, BBC News put this precise question about changing the triple lock in the next Parliament to Chancellor John Healey, who replied "the PM has said, like I have, that we must bring down welfare costs". It was a non-denial reflecting the fact that the PM has been besieged with advice, including from some of his favourite economists, that scrapping the triple lock, or even signalling it is a future possibility, is a golden opportunity for Britain's economic policy at a tricky moment in the bond markets for all heavily indebted nations.
The UK specifically is seen as a place where successive governments have shirked tough long-term decisions. Could this be Burnham and Healey's attempt to shift that perception, even in the slightly wild markets for government borrowing? The politics are trickier. Reform's leaders see the policy as a key potential dividing line with Labour. Many in Westminster privately agree the Osborne-era policy is unsustainable economically, but argue it is politically impossible to unpick. Many pensions campaigners point to the fact that even after increases, the UK's state pension is not generous by international standards, though other countries have very different systems and rates of private provision.
Former ministers point out that the quid pro quo of redeploying the pension cash savings towards an in kind care service could shift the argument. The lock is costing ยฃ15.5bn a year, treble original estimates of the 2030 cost, especially because of the volatility of prices and earnings. Reverting to an earnings link could save tens of billions of pounds a year in the long run. It is the sort of saving that could plausibly fund some form of national care service, potentially with cash left over as a buffer in a volatile world - but that depends on the ambition of the care plan, the generosity of any replacement for the triple lock, and how volatile prices are in the long term. It had been deemed politically unthinkable, but the government now seems to be thinking about it, at least for the future.
โก Effects Interpreter
๐World Economymedium impact
What this means for you
- โถRipples from this can reach factories and ports far away.
- โถCurrency desks often move first, long before economists publish anything.
๐๏ธLocal Economymedium impact
What this means for you
- โถYour council tax and utility bills can indirectly track big economic swings.
- โถFamily finances close to home can feel a soft drag from this kind of news.
๐ฆRates & Banksmedium impact
What this means for you
- โถRate-setters usually take their time digesting news like this.
- โถLenders usually hold their nerve until a clearer trend appears.
โค๏ธHealthlow impact
What this means for you
- โถNeighbours and families may feel more anxious until the dust settles.
- โถNews like this can nibble at everyday calm more than people expect.
๐ทWealthmedium impact
What this means for you
- โถShort-term wobbles like this tend to even out given enough time.
- โถA quiet review of where your savings sit rarely does any harm.
๐ Housingmedium impact
What this means for you
- โถLandlords and tenants alike rarely feel sudden shifts from this kind of news.
- โถA patient seller usually fares better than one rushing to react to headlines.
๐ Effects for your country
The U.S.'s central bank rate currently stands at 3.75%, so a global rates move like this could feed through to local borrowing costs. The U.S.'s economy is growing at 2.3% with inflation at 3.2%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the U.S.'s own central bank rate closely. With the U.S.'s unemployment at 4.4%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone โ the real impact in the U.S. depends more on local healthcare capacity than the figures above.
The UK's central bank rate currently stands at 3.75%, so a global rates move like this could feed through to local borrowing costs. The UK's economy is growing at 0.8% with inflation at 3.2%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the UK's own central bank rate closely. With the UK's unemployment at 5.6%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone โ the real impact in the UK depends more on local healthcare capacity than the figures above.
France's central bank rate currently stands at 2%, so a global rates move like this could feed through to local borrowing costs. France's economy is growing at 0.9% with inflation at 1.8%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track France's own central bank rate closely. With France's unemployment at 7.9%, personal-finance effects like this land on a labour market that is already under strain. Health-system effects are harder to localise from economic indicators alone โ the real impact in France depends more on local healthcare capacity than the figures above.
Romania's central bank rate currently stands at 6.5%, so a global rates move like this could feed through to local borrowing costs. Romania's economy is growing at 0.7% with inflation at 7.8%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track Romania's own central bank rate closely. With Romania's unemployment at 6%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone โ the real impact in Romania depends more on local healthcare capacity than the figures above.
The UAE's central bank rate currently stands at 3.65%, so a global rates move like this could feed through to local borrowing costs. The UAE's economy is growing at 3.1% with inflation at 2.5%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the UAE's own central bank rate closely. Health-system effects are harder to localise from economic indicators alone โ the real impact in the UAE depends more on local healthcare capacity than the figures above.