The Organisation for Economic Co-operation and Development has called on Labour to abandon its triple-lock pensions promise, warning that the policy puts upward pressure on public expenditure and “adds significant fiscal risks” to the UK’s already strained public finances.
In its latest survey of the UK economy, published on Wednesday, the Paris-based club of industrialised nations added its voice to those demanding an end to the pledge, which each year raises the state pension by the highest of wage growth, inflation or 2.5%. The OECD’s experts said reform was “necessary to reduce fiscal risks” and that the guarantee was “unusually generous”, exposing public finances to supply shocks.
“OECD urges Labour to scrap triple-lock pension pledge, warning it adds 'significant fiscal risks' to UK finances.”
The intervention comes as Rachel Reeves prepares to leave the Treasury after two years as chancellor, and Andy Burnham readies to take over as prime minister. The OECD was broadly positive about Reeves’s record, saying Labour’s pro-growth agenda “provides a strong basis for a gradual recovery”. But its 140-page assessment repeatedly returns to the need to repair the public finances, noting that “modest growth, high public debt, high interest payments and increasing spending pressures from ageing, climate and defence are limiting fiscal space”.
Torsten Bell, the pensions minister, left the door open for a future change, but insisted the manifesto commitment stood for now. “The government’s manifesto commitment is to the triple lock throughout this parliament,” he said at the report’s launch. “That is going to happen.”
Thinktanks including the Resolution Foundation and the Institute for Fiscal Studies have already called for reform, and the independent Office for Budget Responsibility has highlighted the triple lock as a risk to long-term fiscal sustainability, noting it has cost three times as much as anticipated when introduced by the Conservative-Lib Dem coalition in 2010.
With Reeves having used her final Mansion House speech to defend her decisions, the OECD warned that the spending plans she pencilled in last year “leave limited room for manoeuvre”. The question now is whether Burnham will risk a confrontation with pensioners or heed the international body’s call to act.