Burnham Targets Triple Lock Reform to Help Fund National Care Service

Prime Minister Andy Burnham has proposed a significant overhaul of the state pension triple lock from April 2030, arguing that a revised system could help support funding for a future national care service.

The current triple lock, introduced in 2011, guarantees that the state pension rises each year by the highest of CPI inflation, average earnings growth or 2.5%. Apart from a one-year suspension in 2022, when the Government opted for a 3.1% CPI increase rather than an earnings-linked rise of 8.6% following pandemic-related distortions, the mechanism has remained intact.

Under Burnham's proposal, state pension increases would instead be based on the higher of:

• CPI inflation;
• 2.5%; or
• The increase required to ensure the state pension keeps pace with cumulative average earnings growth since the new regime began.

The approach differs from proposals previously advanced by the Institute for Fiscal Studies (IFS), which has advocated a smoothed earnings-link model similar to that used in Australia. Burnham’s version retains the 2.5% underpin, increasing its long-term cost relative to a pure earnings benchmark.

Analysis suggests the proposal would reduce some of the “ratchet effect” created by the current triple lock, under which periods of strong earnings growth permanently increase the pension base. However, the inclusion of the 2.5% floor means costs would remain above a simple earnings-linked approach whenever inflation and wage growth fall below that level.

Historical modelling indicates the savings generated by the revised formula may be modest initially. By 2021, the gap between pension increases delivered under the existing triple lock and the Burnham proposal would have been only around 2.5%. Furthermore, no meaningful savings would emerge until earnings growth falls below both inflation and the 2.5% minimum increase. The last four triple lock upratings, including the increase scheduled for 2027, would not have produced any reduction under the revised framework.

According to IFS estimates, the existing triple lock has increased annual state pension spending by around £16 billion by 2026/27 compared with a system linked solely to average earnings growth. The Burnham proposal would have reduced that additional cost to approximately £7 billion.

Comment

The proposal is welcome, we have been calling for the triple lock to be renoved for years as it is too difficult to sustain indefinitely.  However, while the reforms could moderate long-term pension spending, they are unlikely to generate substantial short-term savings.  As a result, the proposal may fall well short of providing a near-term funding solution for a national care service.

Please Break 'Crazy' Manfesto Promised and Increase Income Tax Rates

We still believe all the standard rates of income tax in England, Wales and Northern Ireland of 20%, 40% and 45% should be increased by 2% or even adopt Scottish Rates of Income Tax (SRIT) nationwide, where lower incomes have lower tax rates of 19% and higher incomes start paying higher income tax rates at 42%, (and then 45% and 48%) from £43,663 rather than 40% at £50, 270.