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British ministers are considering changing the “triple lock” rules to limit next year’s increase in the state pension to less than 8.5% of general income, amid concerns about the country’s public finances.
Officials said the government is considering adjusting the guarantee, which has been in place since 2010. The guarantee stipulates that the annual increase in the pension will be the greater of income growth, consumer price inflation, or 2.5%.
The future of the triple lock is one of the most sensitive issues in British politics, but Chancellor Rishi Sunak at the weekend declined to say whether a pledge to maintain the triple lock would be included in the Conservative party’s manifesto for the next election.
Data released by the Office for National Statistics on Tuesday showed that the annual growth rate in average weekly wages, which is normally used to set the income part of the triple lock from May to January, was 8.5%.
But officials have now suggested the government may choose to exclude bonuses paid to NHS workers and civil servants in June from pension calculations as it attempts to resolve pay disputes.
As a result, the pension increase will be closer to the 7.8% increase in regular pay, excluding bonuses, also reported in ONS data on Tuesday.
A lower profit figure would still be a relevant indicator for the triple lock, as it would be higher than both 2.5% and July’s consumer price inflation rate of 6.8%.
However, the Treasury is still bracing for a larger increase in the state pension than it had planned for when drawing up the budget in March.
A decision has not yet been taken, but if Work and Pensions Secretary Mel Stride presses ahead with the move, the new state pension will be capped at £219.80 a week next April, rather than £221.20.
The current maximum price for 2023-24 is £203.85 per week.
Government insiders say the move would not technically break the “triple lock” guarantee, as the Work and Pensions Secretary has leeway to define what “income” means.
They added that no special legislation is needed this fall, unlike the 2021 move to suspend the “triple lock” following significant pandemic-related distortions in revenue numbers.
Ministers and officials argue this year’s floodgate changes are justified because headline measures are not the best guide to real profit growth.
The ONS said on Tuesday that the metric had been “impacted” by “one-off payments” in June and July.
If the government chose to raise the state pension through ‘regular’ wage increases, it would save hundreds of millions of pounds a year.
Officials argue that this saves money each year because triple locks have a ratcheting effect that increases each year and is exacerbated by future price increases.
DWP had planned to cost the state pension £134bn in 2024-25, but more spending will be needed next year anyway as profit growth is outpacing the OBR forecast in March It will be.
The £134bn figure is based on calculations that the government will increase state pensions by 6.2%, and even if they were increased by 7.8%, costs would still rise by more than £2bn next year.