Double-digit rise for state pension and benefits
Inflation-linked increases to go ahead despite calls for workers’ pay restraint
THE state pension and benefits are set to rise in line with double-digit inflation, despite the Government telling workers to accept a real-terms pay cut.
The Treasury yesterday confirmed that the pension triple lock would be reinstated after it was put on pause during the pandemic, taking the annual payout for retirees beyond £10,000 for the first time.
Benefits will also rise in line with inflation for about six million people.
The two decisions will cost taxpayers as much as £20 billion. However, Downing Street has insisted that the working population should accept pay rises below inflation, which is expected to hit 11 per cent this year.
Boris Johnson and Rishi Sunak, the Chancellor, yesterday stressed the need for “fiscal discipline” as they put on a united front in a private meeting of the Cabinet.
But No 10 sources struggled to explain how it would not be inflationary to allow pensions and benefits to rise in line with prices, when they had already warned that it would be if it applied to workers’ pay.
It came as the country’s train services all but stopped yesterday as railway workers walked out for the first of three days of industrial action over pay, with more strikes coming tomorrow and on Saturday. Today, commuters will face a Sunday service with around 40 per cent of trains not running.
The triple lock ensures state pensions rise each year by whichever is the highest out of inflation, pay growth or 2.5 per cent. This year it is all but certain that inflation will be the highest.
The state pension, which is paid to around 12million people, and Universal Credit, which goes to around six million people, will rise by the inflation figure in September.
The Bank of England’s forecasts suggest inflation will be about 10 per cent.
The proposals were confirmed yesterday by Simon Clarke, the Chief Secretary to the Treasury.
Speaking in the House of Commons, he said: “Next year, the triple lock will apply for the state pension.
“Subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s consumer prices index which, on current forecasts, is likely to be significantly higher than the forecast inflation rate for 2023-24.”
The Prime Minister’s official spokesman denied that a significant income boost for pensioners would be inflationary. He said: “I think the Chancellor needs to consider it all in the round. I think the view is we can meet that commitment without stoking those inflationary pressures.”
However, Downing Street and the Treasury have repeatedly warned against inflation-level pay rises for workers.
Mr Johnson said on Monday: “Too high demands on pay will make it incredibly difficult to bring to an end the current challenges facing families around the world with rising costs of living. Now is the time to come to a sensible compromise for the good of the British people and the rail workforce.”
A similar message was delivered in Cabinet yesterday, according to an offi- cial summary released by Downing Street. One line read: “The Prime Minister, Chancellor and Chief Secretary to the Treasury led a discussion on the importance of fiscal discipline.
“The Prime Minister said the public would expect the Government to stick within their means at a time of global cost of living pressures.
“The Chancellor emphasised that the Government had responsibility to not take any action that would feed into inflationary pressures or reduce the Government’s ability to lower taxes in the future.”
The triple lock plan was met with
scepticism from some within the Government last night. A Whitehall source told The Daily Telegraph: “I think this sounds bonkers.
“If you are going to stick to the line on inflation, you have to show restraint across the board.
“People will start to see through the contradictions. If we confine ourselves to this gerontocracy, it obviously doesn’t have a very long lifespan.”
David Davis, the former Brexit secretary, said: “We are not just facing inflation, we are facing stagflation. The only way of defeating any aspect of it is by encouraging high levels of growth in the private sector, which will lead to higher productivity.
“While it is perfectly reasonable to protect the poor, the Government must encourage growth.”
Jonathan Cribb, associate director at the Institute for Fiscal Studies, said the policy is “unsustainable in the long run” and continues to put upward pressure on the public finances “in a way that is almost unpredictable for government”.
He added: “An inflation shock, such as this, which reduces the value of real wages, tends to benefit both people on
benefits whose incomes tend to go up in line with inflation and state pensioners. That’s the consequence of providing inflation protection.”
Sir Nick Macpherson, the former Treasury permanent secretary, said in a tweet: “If the real wages of those in work have to fall, as [the Government] and the Bank of England argue, this can only mean those in work having to pay more tax to fund the pension increase.”
It is also unclear how increasing benefits in line with inflation while warning against similar rises in pay helps achieve the Government’s public ambition of encouraging more people into work.
A rise of 10 per cent would add £18.50 per week to state pensions, or £962 annually, and increase the pensions bill by around £10billion.
For those on the full new state pension, their annual payments are set to top £10,000 for the first time, or £21,000 for couples.
The average figure for a 10 per cent benefits rise is difficult to calculate, as it depends on an individual’s circumstances.
But estimates suggest that it could cost the Treasury close to another £10billion in total.