The state pension triple lock is set to soar to £15.5bn a year – three times more than original predictions. A new report by The Office for Budget Responsibility (OBR) shows soaring inflation and financial instability will cause the annual figure to balloon from £5.2bn by the end of the decade, to three times that amount by 2030.
The triple lock means the state pension rises each year in line with either inflation, wage increases or 2.5% – whichever is highest. The OBR’s new fiscal risks and sustainability report now warns that an ongoing volatile economy, fuelled partly by the u-turn on welfare bill reforms, could increase the costs by a further £43bn a year by 2070.
The State Pension accounts for the greatest proportion of Britain’s spiralling welfare bill – it is paid from current tax revenues.
The report states that Labour’s recent reversal of welfare bill reforms, as well as the winter fuel allowance u-turn, have significantly added to the ride in government debt.
The report said: “The UK’s fiscal position is increasingly vulnerable by both historical and international standards, limiting the scope to respond to future economic and other shocks.
“While most advanced economies have seen their deficits and debt increase since the pandemic, the UK stands out for running persistent large deficits and a relatively high debt stock in the face of rising interest rates, slowing growth, an ageing population and rising geopolitical and trade tensions.”
It added: “Planned tax rises have been reversed and, more significantly, planned spending reductions have been abandoned. The more persistent fiscal deficits and ratcheting up of debt that resulted have been accommodated by successive loosening of the fiscal rules.”
The OBR said that the state pension cost has risen over the past eight decades from around 2% of the economy to 5%. According to the report, it is forecast to increase to 7.7% by 2070. This is due both the triple lock and the increased number of people above state pension age.
Chair of the OBR Richard Hughes said the triple lock “pushes public spending upwards steadily over a number of years”.
He said: “When you project trends in both pension spending and health and other age-related spending forward, the UK public finances are in an unsustainable position in the long-run.
“The UK cannot afford the array of promises that are displayed to the public if you leave those unchanged based on a reasonable assumption about growth rates in the economy and in tax revenues.”
