State pension payments increase every year under triple lock rules and while this commitment may prove costly for the state, the current government made it a manifesto promise not to remove the triple lock. However, this promise was made before coronavirus emerged and given its economic impact, some experts are questioning how Rishi Sunak can justify the increases.
Recently, the Chancellor laid out his spending review which, somewhat surprisingly, was light on tax and benefit changes.
Despite this, many feel substantial changes could be on the horizon as the government’s options are reduced.
The triple lock could be targeted for said change, as Rachel Griffin, a tax and financial planning expert at Quilter, explained: “Sunak will try his hardest to keep the Tories manifesto commitment to not raise income tax, VAT or national insurance.
“And having legislated to increase the state pension in line with the triple lock next year, Sunak has limited options at his disposal to increase the tax take.
In theory, state pensions could rise even higher if the economy makes a strong recovery as the triple lock assures payments will rise by the highest of the following:
- Earnings – the average percentage growth in wages (in Great Britain)
- Prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
- 2.5 percent
Currently, the full state pension provides £175.20 per week.
With the 2.5 percent increase oncoming, state pensions will soon pay around £179.58.
If a 4.1 percent rise does come into place, state pensions could pay around £186.94 per week in 2022.
These increases may be hard to justify given the current levels of government spending and debt which was illuminated by Rishi Sunak in his spending review speech.
As the chancellor detailed, debt in the UK has reached eye watering levels and this will leave state support of all kinds in a precarious position.
Given the billions due, Rishi acknowledged tough choices would need to be made in Parliament: “Mr Speaker, the economic impact of coronavirus, and the action we’ve taken in response, means there has been a significant but necessary increase in our borrowing and debt.
“The UK is forecast to borrow a total of £394billion this year, equivalent to 19 percent of GDP. The highest recorded level of borrowing in our peacetime history.
“Borrowing falls to £164billion next year, £105billion in 2022-23, then remains at around £100billion, 4 percent of GDP, for the remainder of the forecast.
“Underlying debt – after removing the temporary effect of the Bank of England’s asset purchases – is forecast to be 91.9 percent of GDP this year.
“And due to elevated borrowing levels, and a forecast persistent deficit, underlying debt is forecast to continue rising in every year, reaching 97.5 percent of GDP in 2025-26.
“High as these costs are, the costs of inaction would have been far higher. But this situation is clearly unsustainable over the medium term.
“We could only act in the way we have because we came into this crisis with strong public finances.
“And we have a responsibility, once the economy recovers, to return to a sustainable fiscal position.”