Return pension rise if not needed, suggests Coffey

Extra £1,000 from hike linked to inflation ‘can easily be returned’ says minister in face of criticism

WEALTHY pensioners should consider paying back the £1,000 extra coming from an inflation-linked rise in the state pension, the Cabinet minister overseeing the policy has said.

Thérèse Coffey, the Work and Pensions Secretary, yesterday said it is “very straightforward” to return the money to the Government, as she rejected criticism of the increase.

The remark came after Lord Clarke, the former Tory Chancellor, said that the Government’s focus should be on the poor rather than well-off pensioners like himself.

Downing Street and the Treasury faced fresh scrutiny over their decision to increase the state pension and benefits by inflation but refusing to do likewise for public sector pay – a stance that has in part led to the rail strikes.

Rishi Sunak, the Chancellor, defended the position, saying increases in wages were more likely to push up inflation than pension rises. He argued firms paying higher wages may in turn raise their own prices, known as a “wage price spiral”.

The Prime Minister’s spokesman also doubled down on the stance, saying it would be “reckless” to give public sector pay increases in line with inflation, arguing those same people would suffer if that locked in steep price rises.

Yesterday it was announced that inflation in May was 9.1 per cent, according to the Office of National Statistics, up from 9 per cent in April. It is forecast to hit 11 per cent this year.

The spokesman declined to say whether the increase in state pension next April - which could amount to an extra £10billion of Treasury spending – would fuel inflation.

Lord Clarke criticised the inflationlinked state pension rise on Radio Four’s World at One, saying ministers should “protect the poor – stop giving me money to pay my power bills”.

Ms Coffey responded: “When politicians make decisions, we think about the individuals that are there. We think about the people who are worrying about whether or not they’re going to have enough money to heat their homes. Those are the sorts of issues we are tackling. There’ll be some like Lord Clarke who’ve got substantial amounts of money, I’m conscious of that.

“But nevertheless, in order to deliver this payment effectively, it is a comprehensive payment, and frankly I’ll ask Ken Clarke to send a cheque back to HMRC if he feels that strongly against it.

“This is about helping people in a really challenging situation right now.”

Asked to clarify whether other people should give back the state pension increase, she said: “I am always encouraging people who seem to think that they don’t need money given from the Government to return it.

“There’s a very straightforward way they can return that, and of course other people often give it to other charitable donations as well.”

From next April the state pension, which is received by about 12 million people, will rise by the inflation figure in September. Early forecasts suggest it could be about 10 per cent.

A rise of 10 per cent would add £18.50 per week to state pensions, or £962 annually, and increase the pensions bill by about £10billion. People can pay back money given to them by the Treasury via the government website, with bank transfer one option.

Lord O’neill, the former Treasury minister, said the decision to raise pensions by double digits while workers face a real terms wage cut is “ludicrous”.

Asked why pensioners are getting such a big rise, the crossbench peer told the BBC: “I have no idea… it seems to me pensioners, given the pressure on fiscal policies and these inequality issues now for the past decade and beyond, the constant protection of pensioners seems ludicrous in itself and in these circumstances particularly crazy.

“I am talking as somebody who is getting on a bit of course.”

Mr Sunak was asked to explain why the state pension increase was not inflationary during an interview yesterday.

He said: “Well, it is right that we reward our hard-working public sector workers with a pay rise.

“But that needs to be proportionate and balanced with the need not to make the inflationary pressures worse and also to see what is affordable for the taxpayer. The slight difference with pensions is pensions are not an input cost into the cost of producing goods and services we all consume, so they don’t add to inflation in the same way.”

‘It is right we reward our public sector with a rise. But that needs to be balanced with the need not to make inflationary pressures worse’

The latest inflation figures confirmed that prices are rising at their fastest rate in 40 years and will soon head into double figures. The Bank of England has predicted a peak of 11 per cent later this year but since it did not see the current acceleration coming this may turn out to be an under-estimate. The consequences in terms of labour relations are clear, with the rail strike partly motivated by a collapse in real wages.

But one group loses out more than most and that is people on fixed incomes, notably pensioners. The so-called “triple lock” guarantees that the old age pension will rise by either 2.5 per cent, or the average annual wage rise or the consumer price index inflation rate, whichever is greatest. The earnings element was suspended this year after wages rose faster than expected during the pandemic. Now it is prices that provide the outlier, with Rishi Sunak, the Chancellor, under pressure once again to limit the increase.

Mr Sunak indicated yesterday that he would revive the triple lock for next year which would mean a 10 per cent rise in the state pension based on September’s expected consumer price index figure. As he rightly observed, many in receipt of the state pension are the poorest and most vulnerable people in society. But with employees being limited to 2 or 3 per cent pay rises, this will be a hard political line to maintain.

Welfare benefits are also set to rise by 10 per cent but there are arguments for treating these differently from the state pension since recipients are in a better position to get jobs. It is astonishing that more than 5 million people are on out-of-work benefits when there are more vacancies than ever and a national shortage of workers in key sectors.