The author is MP for Arundel, founder of the Campaign for Economic Growth, and the former Chief Operating Officer of Sky plc.
Would you keep £50 if you found it lying in the street? Most Britons say that they wouldn’t, and quite rightly. As a nation, researchers regularly find us in the very upper echelons of honesty.
No one would wish to profit from the unprecedented Covid pandemic. But that moral scruple is what lies at the heart of the debate about the so called ‘triple lock’ which currently gives recipients of the State Pension the higher of inflation, a guaranteed 2.5 per cent every year or annual growth in wages.
In an unexpected twist of fate, without an amendment to the current rule, today’s pensioners stand to benefit from the misfortunate of others. Not, to be clear, at their own instigation but as the result of the unique volatility in wages which fell sharply last year as millions, predominantly in the private sector, suffered from the shuttering of businesses and collapsing demand in many sectors.
In theory, election manifestos ought to come with an insurance-policy style page of disclaimers: “excludes acts of nuclear, chemical and biological warfare, large scale cyber terrorism or, as in this case, a global disease pandemic without precedent in modern times and which has left no country on the planet unscathed.”
Perhaps in future they will. But it would be sophistry to ignore the difficulties of the last eighteen months, and pretend that an event which saw cross-party support for Parliament invoking emergency powers didn’t happen. I don’t even believe that most pensioners would wish this.
Pensioner poverty for many is real – although, thanks to past increases in both the state pension and the pension credit, there are 200,000 fewer pensioners in poverty today than a decade ago. As a Member of Parliament, I know the burden felt by those on fixed incomes of annual council tax increases above inflation – ironically, often to put another log on the fire of funding someone else’s final-salary local government pension. But we should not conflate this longstanding issue with an indiscriminate, across the board increase on the back of a Covid19-induced distortion.
Unnoticed in the understandable focus on Afghanistan, last week the Office for National Statistics published wage growth for the three months to June of a record 8.8 per cent. Growth in July – the basis of any annual pensions uprating – is expected by some to be even higher. Demand for staff has been squeezed by the recovery for those businesses able to operate whilst the widely admired furlough continues to protect jobs elsewhere.
The result is a labour market that is so tight you can hear the rivets starting to pop. Using this statistical anomaly of a near double-digit rate of wage growth to increase pensions would, I believe, be wrong.
The Government has been bold and decisive in many of its measures during the pandemic, stepping outside the usual parameters. Similar logic and confidence should pertain to the approach to the April 2022 pension uprating. One example: applying the higher of the rate of inflation or 2.5 per cent would deliver a healthy increase of at least five per cent across the two years of the pandemic, protecting pensioners against the rising cost of living whilst shielding those of working age from what would be an unfair additional tax burden.
One of the positive aspects of the crisis was the collaborative way in which Parliament came together for the common good of the nation. In the summer heat of recent weeks, that has dissipated somewhat. As colleagues return to Westminster in the cooler air of the autumn, I hope that we can build consensus on what should not really be a subject of controversy but a sensible and pragmatic response to post pandemic management of the economy.