By Simon Clarke

Copyright cityam

It is becoming devastatingly clear that public clear that public spending is on an unsustainable path, and while much focus is on welfare reform, we need to start saying the unsayable on the pensions triple lock too, says Simon Clarke

How do you earn permission to say the unsayable in a democracy? That’s the exam question for European leaders – and arguably nowhere more so than here in the UK.

In August, German Chancellor Friedrich Merz gave it a good try, warning, “The welfare state that we have today can no longer be financed by what we produce in the economy.” It was a stark admission from the government of Europe’s richest country. But he couldn’t be more right.

A fiscal crisis looms in Britain’s future. Heading into the autumn, the Chancellor is facing a range of unpalatable choices if she is to maintain the confidence of the country’s creditors. In August alone the UK borrowed £18bn – £270 for every man, woman and child in the country. Of this, £8.4bn went straight onto debt interest.

Often, we approach this growing crisis through the lens of welfare reform – which is clearly critical. Post-Covid, far too many people are parked on various forms of health and disability benefit, exacting a needless moral and economic cost to our society. Restoring proper welfare conditionality could not be more important, and it is deeply tragic and unsustainable that the government here was forced to retreat this summer by its own MPs when it tried to simply curb the rate of increase in our soaring benefits bill, let alone actually reduce it.

We need to talk about pensions

But we also need to talk about pensions. Because this is the side of the ledger that’s even harder to talk about, but is just as devastating for the public finances. Everyone should have dignity to enjoy retirement, but our escalating commitments and stagnant growth are creating extraordinary outcomes right across Europe. In France, astonishing OECD data crunched by John Burn-Murdoch of the LSE shows that pensioners now have higher incomes than working-age adults, despite typically facing many fewer of the costs that people in working life have to pay for, from mortgages to dependent children to commuting.

Here in the UK, we have the triple lock, introduced by the coalition government in 2011 to end the disgrace of pensioner poverty. This guarantees the state pension rises by the higher of 2.5 per cent or inflation or average earnings. But it is becoming devastatingly clear that we are on an unsustainable path. The Office for Budget Responsibility confirmed in July that it has already cost three times more than the Treasury anticipated. The Institute for Fiscal Studies projects that by 2050, the government will be spending an extra £18bn per year due to the triple lock, which equates to adding roughly 2p to both the basic and higher rates of income tax.

Now that the triple lock has given such a strong boost to pensioner incomes, there is a clear case centred on fairness that future increases ought to correspond to increases in average earnings among the working population – the very definition of us all being in it together

This is not an argument for going back to the situation under Gordon Brown, where pensioners were expected to be grateful for a 75p annual increase in 1999. But it is an argument that we need to begin an adult conversation about how we can ensure that we are fair to all parts of our society, and indeed ensure we can afford to offer a state pension in the future. Now that the triple lock has given such a strong boost to pensioner incomes, there is a clear case centred on fairness that future increases ought to correspond to increases in average earnings among the working population – the very definition of us all being in it together.

But this is very difficult to say in a democracy. But we owe it to the public to be honest, and to have a proper debate about a full societal reset, including of social care, of which thoughtful and sensitive pensions reform should be a part.

Sir Simon Clarke is the Director of Onward, the centre-right thinktank. Onward published The Statejacket this summer: Statejacket | Onward