The Labour party is ahead in the polls. The Conservatives are in disarray. And Tony Blair is back on the scene. British politics is starting to feel a bit Britpop. Sadly, if there were a theme tune to capture the mood of the country today, REM’s Everybody Hurts would be more appropriate than D:Ream’s Things Can Only Get Better.
One statistic, more than any other, tells this story: a staggering 72% of British people believe their kids are going to be financially worse off than them. This is profoundly concerning because it goes against an iron law of liberal democratic politics: each generation is supposed to do better than the one before it. Now, however, younger generations have seen lower wage growth and are less likely to own a home than their parents at the same point in their own lives.
This is, of course, partly the result of the wider economic circumstances that young people are growing up into. When and where you are born really is a lottery. But it’s also because of deliberate choices made by successive governments to pursue policies that favour older over younger voters.
The most obvious example of this apparent age bias is the pension “triple lock”. This guarantees that the state pension rises each year in line with average earnings, inflation or 2.5% – whichever is highest. This has meant that pensions have risen by 60% in cash terms since 2010, compared with average earnings that have gone up by just 40%. In turn, benefits for working-age people have failed to keep pace even with average earnings, because politicians have successively chosen to increase them only in line only with inflation.
Given this, perhaps it is unsurprising that the triple lock is under growing scrutiny. Tory grandees such as William Hague have called for it to be scrapped. And Rishi Sunak is said to be considering it. Labour, too, has declined to commit to it.
At first glance, scrapping the triple lock may seem like a good idea. It will certainly help the chancellor make a quick buck. Our estimates, at the Institute for Public Policy Research, suggest that uprating the state pension merely by inflation, unhitching it from earnings, could save more than £1bn next year alone. But Sunak and Starmer should tread carefully.
The beauty of the triple lock is that it creates an automatic mechanism by which the generosity of the state pension grows. This saves politicians the pain of repeatedly having to make the case for pension increases. By comparison, working-age benefits have never had the same institutional approach to uprating – and as a result, benefits such as universal credit have become ever more inadequate. The result is unsurprising but tragic. One statistic summarises our plight: the UK now has more food banks than it does branches of McDonald’s. That should shame us all.
Instead of ending the triple lock for pensioners, then, politicians should be seeking to create something similar for working-age benefits: a “triple lock” for workers. You can already hear the screams from both parties: how could we pay for it? This is where some small tweaks to the design of the pensions triple lock – but not to its existence – could fit the bill.
Notably, the triple lock is subject to something called the “ratchet effect”. This means pensions grow by whichever is highest – average earnings, inflation or 2.5% – and therefore, over time, grow by more than each measure individually. This made sense when the generosity of the state pension was low, as it was in the 1990s and early 2000s, because it allowed the value of pensions, relative to earnings, to catch up. But pensions are now relatively generous compared to working-age benefits. A pensioner today gets more than £200 a week, while a single person on universal credit gets less than half that.
The solution is wonkish but effective: uprate state pensions by earnings or inflation – whichever is higher – but don’t allow them to rise beyond a fixed proportion of average earnings. This would keep pensions growing, but not disproportionately to wages or inflation. The resulting savings, likely to total billions a year, could then be unleashed on one of the greatest challenges of our time: rescuing the “stagnation generation” from its present poverty of hope.
• Harry Quilter-Pinner is director of research and engagement at the Institute for Public Policy Research
