Politicians ‘playing chicken’ with each other over the triple lock on the state pension

17th June 2013

Politicians just don’t seem able to not discuss the triple lock on the state pension or maybe it is journalists who can’t stop asking. This time, the FT interviews pension minister Steve Webb who says he cannot guarantee whether it will be in the next Lib Dem manifesto although he would like it to be.

The pink paper also talks to the Conservatives who say likewise. They can’t promise it will be in their manifesto either.

Nor has Labour made such a promise, though they have denied plans to unpick it due to their overall cap on welfare spending which will include pensions. Once again, it seems pensioners will be left watching politicians’ words carefully. If it goes in a manifesto, it becomes very difficult – though not impossible – to break that promise when in Government. The possibility of another coalition does change the calculations a little however.

The triple lock, as currently constituted, means that the state pension will rise at a reasonable rate – either by average wages, the consumer price index or 2.5 per cent whichever is the greater.

That may not sound like much, but it isn’t too bad a deal at all over time. Yet it isn’t set in legislative stone, even with the Pensions Bill being debated in Parliament today.

This following is from Tom McPhail, the pensions expert at Hargreaves Lansdown who crunched some of the numbers and gives some analysis in italics below.

The Pensions Bill provides for the state pension to be increased in line with earnings, not the triple lock. In fact the triple lock guarantee has no statutory underpin, it is based purely on the coalition agreement. It can be withdrawn at any time.

Ed Balls has spoken about pensioner benefits in recent weeks, he has expressed support for the triple lock, without nailing his colours firmly to the mast.

Without reform overall Exchequer spending on state pensions is due to rise as a proportion of GDP from 6.6% of GDP in 2016 to 8.5% by 2060. The single-tier reform reduces 2060 costs to around 8.1% of GDP.

The state spends £110 billion on pensioner benefits (including the state pension) while according to the DWP’s own impact assessment, the triple lock is set to cost the government an additional £45 billion over the next 15 years.

McPhail adds: “Politicians may end up playing chicken with each other over this issue; none of the parties will want to make unsustainable spending commitments but neither will they want to be the ones attracting the ire of pensioners for cutting their inflation proofing.”

Mindful Money thinks is definitely one to watch, especially if it is one of the issues that might just decide your vote. A reasonable flat rate pension, that increases reliably over the years, is a very handy underpinning to any investment and retirement strategy.  But if you were basing your general election voting decision solely on this issue, it isn’t very easy to work out where to put your cross just yet.

24 thoughts on “Politicians ‘playing chicken’ with each other over the triple lock on the state pension”

  1. Forbin says:

    Hello Shaun,

    Following DaveS observations regards our UK and indeed Western economy.

    Its the wider political games that are going on that affect the wages of the UK peasants. sorry working class, The game changed around the time China was allowed into the WTO . Thus “Globalization ” had new set of poor but well educated , workforce to exploit and a willing Government to enforce control ( ref: last Fridays post – Ghana and Africa do not have effect Law and Government to do this so will remain poor )

    Thus as China industrializes she takes all those gritty , cheap ( to us ) jobs and makes millions. The game is that she will use up her resources and those she can “borrow” ( Australian coal for instance , a clear sign that Eco warriors can’t think , tax coal heavly in Oz so you can’t use it – but export it to China where it gets burnt anyways and they can then undercut your industries …… again look who’s making the money here , anyway I digress )

    Cheap labour and cheap resources – nobody said Capitalizism was friendly and nice. Thus our western industries either offshored or collapse or were sold off lock stock and barrel – Ie Rover Group.

    So whats the plan now ? we’ve pumped up the debt burden , another fine mess Stanly , but we’re in the vise of we cannot allow wages to rise – because we cannot stop all those jobs going abroad . and we’ve mis -allocated resources into housing bubble and uni degrees for tat subjects!

    Progrock – is right we,re bu@@ered .

    Now throw in 26billion for oil and gas we have to import ( thats on top of everything else ) and you can see we are heading to on place only

    Poverty ( sure we’ll rename it , what shall we call it in today speak ? differently financed ? Socially Rich ? )

    Don’t get me wrong , economically speaking we can mitigate a lot of the potential problems , just i don’t see anyone recognising the issue yet along trying to do anything about it , except fill their own boots

    Just like the top rich people that run Ghana I guess …

    Forbin,

    PS: pulls up the comfy chair , opens bag of popcorn….

    1. Anonymous says:

      Hi Forbin

      Such thoughts are what are behind my suggestions that we may be about to fall into a negative interest rate trap. The ECB has only tiptoed into it but what as the recovery has so far looked weak we have the question of what it does if things dip away again?

      If we move to the world of science fiction then in the Foundation saga Hari Seldon decides he cannot stop the crash of society but he can reduce the period of mayhem and suffering.

      1. Paul C says:

        Hi Shaun, You are on the nail there. Article today in FT about reduced aggregate demand in Portugal 0.7%. ECB will have to push the button. I’m sure you will update us tomorrow after those bank runs in Bulgaria today.

  2. Londoner says:

    House prices can continue to rise if you continue to support BTL with Help To Buy and ultra low interest rates and continue to allow this so-called ‘business’ which is nothing more than a taxpayer funded daylight robbery, to thrive.
    If you continue to have uncontrolled immigration then presumably, a 2 bed house can easily house 12 refugees or 6 European Union immigrants.

    Of course, when the bubble bursts, there will be a BIG MESS. But then, BTL landlords have decided that the government will no doubt bail them out again with ZIRP and HTB or some new form of insanity.

    1. forbin says:

      the further support for house prices will in the short term come from pensions

      then we’ll have the Great Pension Scandal

      When just like PPI we’ll see more money pumped in

      crazy isn’t it?

      Forbin

  3. arrbee says:

    It would be interesting to know how the mortgage providers are modelling future real wage growth when making their loan decisions.

    1. Anonymous says:

      Hi Arrbee

      That is a very good question also for the Financial Planning Committee of the Bank of England. I wonder if they have updated their models? If pressed I would guess no…

    2. Anonymous says:

      The interests of the bank and the interests of the bank employees are not aligned.

  4. Forbin says:

    too true , Daves

    but its a series of short term political fixes that both sides have contributed to

    it always make me laff theses days , when I see the MSM flap about “affordable” housing and shouldnt we be doing something about ?

    Well I heard that old record for 30 years or more

    Nobody will do anything about it – it suits those in charge , those who own the land .

    sorry , I’ll correct myself , they allowed the UK to grow from 50 million to 64 million people , and its project to goto 70 million , and still didn’t build houses .

    And now this wage thing , like I’ve said , for reasons that remain cloudy , its HMG policy to repress wages and to allow the peons to make up for it by borrowing .

    Follow the money – who’s winning out of this?

    Its certainly not me , or my kids , I’m not in the hoi oligoi …..

    ( If I was I’d be doing exactly what they are doing surely ? )

    interesting times …..

    Forbin

  5. Anonymous says:

    In our history, protestant work ethic combined with a church that didn’t persecute heretics allowed science and engineering to flourish. This led to great improvements in living conditions for first world citizens.

    Prior to the 1970’s oil shock, first world countries had it very good. Globalisation does create labour competition, lowering first world workers real pay. The flip side is that many East Asian countries have greatly improved living conditions and pulled millions into the middle class. It also creates competition for resources including crude oil. I think the USA had 1% of the world’s population using 25% of it’s resources. This is an uncomfortable truth for our politicians – tell us we’re poorer and lose elections. Hence they prefer to avoid the issue and run up debts in order to wallpaper over the cracks.

    Blaming gloablisation won’t fix anything. There are pending issues that our politicians should be tackling.

    1 ) world over-population. There is conflict in some over-populated countries spilling over. A changing climate might worsen the situation.
    2 ) Housing costs. The UK has become a freeloading rent-seekers paradise. Rents and housing benefit is spiralling out of control. higher rents are directly related to lower living standards.
    3 ) Electricity generation – they should be acting to mitigate the reduce of a gas supply crunch.
    4 ) Excessive govt spending

  6. Paul C says:

    Hi Dave, a great summary but not widely acknowledged. If only the capital was of better quality then there might be something to salvage. Your commentry is of course most true for the youngest economic partjcipants. If I was of the conspiratorial mind I could say we’ve raised them “dumb” and consuming of virtual goods and rentier training on purpose. When they are celebrity obsessed, social media junkies and lov’in the Macdonalds they dont’t have time to calculate that they can’t buy a terrace home for £7k and expect it to be worth 170K.
    If only those terrace homes were better built, less costly to run and exportable….

  7. DaveS says:

    Absolutely – both sides to blame – but thats another lie – both sides are the same – we’ve been fooled into thinking we have a choice – democracy these days is just a pretence to make us feel like we have some power.

    Economists are to blame for giving the whole lie a veneer of academic truth – sadly they are part of the whole system.

    I walk every day into the city from Islington – and believe me they are building flats like there is no tomorrow. I am sure they are being scooped us as fast as they are built by buy-to-let or buy-to-leave investors.

    So building more houses is a popular theme on the blog but really I can’t see it achieving anything except continuing to distort the economy towards the housebuilding industry – we can’t export houses.

    And if we want house prices to drop them we best be careful as to what we wish for – because I have no idea how this fake economy can survive a housing crash – it won’t be a system reset – it will be a disorderly permanent shutdown.

  8. Paul C says:

    Forbin, Absolutely right about land being the limiting factor. I built the housing solution, it turned out that no one wanted a zero-bills product They wanted the house on land and I didn’t have any. Well I fixed that and now I got some land but it was really really hard. I was naiive and the clear message is that the supply is constrained to maintain the property asset bank ponzi.

    http://Www.ergohome.com

  9. DaveS says:

    Overall wealth is indeed a function of our science and engineering. But it was very unevenly distributed until the changes that took place after 1918.

    Partly it was due to the labour movements but personally I suspect the real driver was the birth of mass manufacturing – even uber-capitalist like Henry Ford realised they had to pay higher wages in order to have consumers for their products. Globalisation gave them a way to break their uneasy contract with labour. So yes it is largely to “blame” for our current predicament – or rather the frightening predicament of the younger generations – we took the bribes and spent them.

    But didn’t want to give the impression that I was offering a solution ! I think that is very unlikely – even if it was possible the ruling classes are making far too much money to want to change anything. Despite all the crass talk – they have rushed to re-instate all the debt fuelled excesses that caused the 2008 crash. Its shocking to watch.

    No, they won’t change anything – we will bounce around from financial crisis to financial crisis with more money being printed each time to douse the flames. Now they have free reign to print then they can keep this game going a long, long time.

    The game ends not with a financial crisis but with an energy crisis – and there is no solution to that one – thats physics, not economics.

  10. Anonymous says:

    I regard the energy crisis as solvable – though not cheaply or easily. Food shortages kicked off the Arab spring, and food shortages could trigger riots in Britain. Food shortages are a bigger threat to stability.

    Britain’s property fetish combined with boom/bust cycles is destructive and causing decline. Some first world countries are thriving with globalisation. Blame the politicians and the voters who elect them.

    Raghuram Rajan says elevated asset prices are a major threat to global economic stability – and he proved Larry Summers wrong last time.

  11. DaveS says:

    Food inflation – kicked off Arab spring, caused by energy shortages that led to $100 oil – but food is energy

    We did have a narrow window of opportunity with nuclear fission – but that window closed with Fukishima – costs have since escalated to make it almost unviable – unlikely to save us now. Look at fiasco over Hinckley C and I notice they had to shut down Heysham (my old workplace) and Hartlepool for boiler repairs. Our AGR fleet is rusting away – big problem building there.

    Anything else energy wise is just drips and drabs – won’t change the outcome – but problem with energy debate is there is always some promised saviour – shale, solar, fusion, sea-bed methanes – the list is endless and part of the reason why nothing will get done on the one thing that might have saved us which is fission.

  12. Anonymous says:

    Hi ExpatInBG

    If I may move the subject is Corpbank (KTB) making waves in Bulgaria. I do not necessarily expect Fridays missed bond payment to be that big a deal yet as there is a 7 day grace period. But depositors protesting in the street that they cannot get their money? That is the opposite of the central banking playbook in such a situation…

  13. Anonymous says:

    Hi DaveS

    I just wanted to reply on the house building front to say that the situation is exactly the same in Battersea. In my area every scrap of land is being used for building and they do even seem to be doing something with the power station. In the 20 odd years I have lived in the area there have been so many failed promises about Battersea power station and finally perhaps something will happen…

    I suspect though that this is pretty much a London thing.

  14. Anonymous says:

    see my Ghana comment – politicos here more interested in their own and their cronies wonga – they don’t give a !”£$ about the people.

    I have previously commented on the banking sector here, that I regard Raiffeisen BG and Unicredit Bulbank the most stable and best run banks. The bar isn’t very high.

    NZD is painfully high, but I’m trying to open a savings account to stash a small emergency fund there. They’ve got a sensible interest rate, sensible deficit and even newspaper commentary describing the need to allow high-rise affordable housing in densely populated Auckland in order to avoid destructive boom-bust property cycles. A little island of sanity in a crazy world.

  15. Anonymous says:

    The rumor mill has some senior politicians deposited 800K and more. Dupnitsa council allegedly lost lots & various govt type accounts too. And the KTB owner has disappeared.

  16. Anonymous says:

    I disagree. The AGR design can be re-used and Britain could join in the fourth gen gas cooled VHTR research/design. (EU plan an experimental reactor in the Visegrad countries) Yes, costs are higher after a 20+ year period of inaction.

    The AGR is one of the few fission reactor designs fit for purpose, I’m on record as saying I think it’s just a matter of time until another watercooled reactor melts down.

  17. Paul C says:

    Dave, Your energy focus is quite right. Summer is not the most popular time with the recent heat wave but every winter its worse. The pricing from Russia with love ..will ensure that those who use it most WILL use less. :-)
    There are solutions for those who wanna use less. http://Www.zero-bills.co.uk

  18. DaveS says:

    Our nuclear construction industry was decimated in 80’s – I used to work in it. The engineers that designed and built the AGR fleet are all retired or dead. We rely on foreigners to build reactors for us now and they certainly won’t be building AGRs.

    But my point is that we can theorize till the cows come home but the Hinckley C fiasco proves to me it won’t get done – it will be lucky to be on grid by 2030 and I very much doubt our AGR’s will last until then.

    So sadly nuclear was our best option – but Thatcher killed in the 80’s with privatisation – private companies preferred gas. Our politicians have let us down badly – but no surprise there.

  19. Eric says:

    Absolutely DaveS, As an ex-employee of the UKAEA (SGHWR & PFR) I’m appalled to see how we went from world leaders to nothing in a generation.

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