Sunak Commits to Pension Increases Despite Cost to Budget

Prime Minister Rishi Sunak during a visit to Cofton Park, near Rednal, Birmingham, on July 24, 2023. Ben Birchall/PA Media

Prime Minister Rishi Sunak has confirmed that state pensions could increase next year by almost 8 percent, with the government committed to the triple lock system.

Under the triple lock system, the size of pension is determined by whatever is highest: the rise in wages, the inflation rate, or a floor of 2.5 percent.

Given soaring inflation and the latest wage growth data, which are both higher than the 2.5 percent benchmark, pensioners could see an increase in payments by up to 8 percent from next April.

Speaking to ITV during a visit in Leicester on Wednesday, Mr. Sunak said that “of course the government is committed to its policy on the triple lock.”

“But while inflation is higher than we would like, I also believe it is right to step in and help people with the pressures that it brings,” the prime minister said.

Faced with the cost of living crisis, Britons saw food and energy prices grow this year, with only the most recent Office for National Statistics figures indicating a slowdown in prices. While the inflation rate has come down to 6.8 percent in July, from 7.9 percent a month earlier, the cost of services and transport has gone up.

Wage growth, excluding bonuses, was recorded at 7.8 percent in the period from April to June.

In order to protect the state pension from fluctuating, the calculation of the triple lock is based on wage growth measured from May to July each year, and CPI, which is measured in the year from September.

This means that next month’s wage growth figures could dictate the pensions rise in 2024, if they are higher than the inflation rate in September.

In comparison, in the previous financial year, the state pension went up by 10.1 percent, in line with the rate of inflation in September 2022.

Britons receiving a full-rate state pension got £203.85 a week, up from £185.15. Those on a basic state pension received £156.20 a week, up from £141.85.

Former pensions minister Steve Webb said that the government is likely to need an extra £2 billion to fund the pensions rise next year, pending the next wage growth data, to be published on Sept. 12. He added that the Spring Budget is likely to see a 6.2 percent hike.

Grey Vote

Mr. Sunak’s commitment to maintaining the triple lock system comes ahead of a likely general election in 2024. Age was a key indicator of how people voted in the last general election. A YouGov poll showed that in the 2019 election for every 10 years older a voter was, their chance of voting Tory increased by around nine points.

With the Conservatives relying on older Britons for their votes, Mr. Sunak may not be in a position to suspend the triple lock system, despite the cost to his budget.

It is also unlikely that Whitehall moves to abandon the system, given that the government had to suspend it in the 2022/23 tax year owing to distorted wage growth figures as a result of COVID-19 lockdowns.

Breaking a commitment to a system that supports the financial security of older voters twice in five years may not be a strategy the current government can afford, given the looming general election.

Mr. Webb has argued that a fiscal upside to rapidly increasing wages may bring relief to the Treasury, faced with an increase in pension payments next year.

“With income tax thresholds frozen in cash terms, rapidly rising pay means bumper tax revenues. In particular, more people (including pensioners) will be dragged into paying tax, and more will move up to the higher and additional income tax bands, further boosting revenues,” Mr. Webb said in an opinion article for The Indepedent.

The triple lock was introduced by the Conservative/Liberal Democrat coalition government in 2010. After its suspension following the dip caused by lockdown and the furlough scheme, it was reinstated in November 2022.