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State pension to rise due to record wage growth but Jeremy Hunt warns tax cuts ‘unlikely’

The bumper wage growth will also pile pressure on the Bank of England to raise interest rates yet again later this month

Archie Mitchell
Tuesday 12 September 2023 09:57 BST
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Chancellor Jeremy Hunt attempts to explain rising inflation with coffee cups

Pensioners are set for an 8 per cent boost after record wage growth continued – but Chancellor Jeremy Hunt has dampened hopes of a pre-election tax cut.

After pay including bonuses grew 8.5 per cent in the three months to July, an uptick from 8.2 per cent three months earlier, meaning the state pension will increase by the same amount in April because of the triple lock - which commits the government to increase the state pension by whichever is highest, wage growth, inflation or 2.5 per cent.

While it will see a significant boost to pensioners’ incomes, the increase will mean billions more in public spending, with former Tory leader William Hague warning the triple lock is “unsustainable”.

Angela Rayner refused to commit to keeping the triple lock in place if Labour wins the next election.

Labour’s deputy leader and shadow levelling up secretary said she would not make “unfunded” spending commitments.

Speaking to BBC Breakfast, Ms Rayner promised Labour “will make sure pensioners and children and everyone in the UK can get on”.

But despite a spokesman for Sir Keir Starmer saying the Labour leader is committed to the triple lock, the party has indicated that if the Tories renege on their own pledge to keep it in place, it too could drop the policy.

A Labour Party spokesperson said: “The Conservative Party promised to maintain the triple lock at the last election and we have urged the Government to stick to that commitment.

“As Angela said, all future spending commitments for after the election will be laid out in our manifesto when we know the state of the public finances, as is usual practice.”

Rishi Sunak has refused to commit to maintaining the triple lock on state pensions in the next Conservative manifesto, saying only that it has been “a longstanding policy” for the Tories.

Speaking to reporters during his trip to the G20 summit in India, Mr Sunak said: “We’re not going to speculate on the election manifesto now. I’ve got plenty to get on with between now and then.”

Tuesday’s bumper wage growth figures will also pile pressure on the Bank of England to raise interest rates yet again later this month.

The squeeze on public finances, combined with sticky inflation, has also led Mr Hunt to warn it is “unlikely” there will be spare money for tax cuts in his autumn budget.

The chancellor said bringing down inflation remained his priority, and cutting taxes risked making matters worse.

In an interview with Bloomberg TV, Mr Hunt warned: “We have to be careful not to pump extra money into the economy, into people’s pockets, as that will pump up inflation.

Asked whether tax cuts were affordable, he said: “I think it’s unlikely because since the spring budget, when the last numbers were published, we’ve seen inflation stickier than was forecast at the time and that means that interest payments are high.”

Responding to Tuesday’s wage growth figures, Mr Hunt said: “Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation.”

Think tank the Institute for Fiscal Studies said the basic state pension is set to rise from its current £156.20 per week to £169.50.

A full new state pension – which those who reached state pension age since April 2016 can receive – would rise from £203.85 per week to £221.20, it said.

Associate director Jonathan Cribb said: “Since its introduction in 2010, the triple lock, together with the introduction of the new state pension, has significantly increased the generosity of the state pension relative to earnings.

“But this comes at a cost to public finances.”

The triple lock has added £11bn to public spending in 2023-24 compared to increasing the rate in line with prices or just earnings, the IFS said.

Tuesday’s figures will mean an extra £2bn of public spending next year, it added.

Writing in The Times, Lord Hague said: “The triple lock — the commitment to increase the state pension by the annual growth in average earnings, or prices, or 2.5 per cent, whichever is higher — is ultimately unsustainable.

“Somehow the main political parties have to give themselves, and each other, the space to amend it.”

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