Does Rishi Sunak risk losing the Tories’ core voters?

The triple lock on pensions was a key plank in the manifesto, and ditching it could lead to embarrassment, writes Sean O'Grady

The chancellor has extenuating circumstances but this may not ease the pain (Reuters)

According to the media, the chancellor the Exchequer is desperately seeking ways to limit the damage the coronavirus crisis is inflicting in the public finances. It is rumoured that Rishi Sunak is looking at the retirement pension, one of the largest items in public spending. Apparently he wants to limit future rises under the extraordinary conditions now prevailing; with extremely low inflation, wage stagnation and much hardship to come from unemployment, but a guarantee to push pensions up by 2.5 per cent still in force. Mr Sunak is said to want to cut the rise in the state pension bill “without screwing pensioners”. This will be tricky.

Of course such kite-flying by HM Treasury is standard practice, testing out how vociferous the resistance will be to an unpopular policy before adapting it, or not. This was last seen, for example, a few weeks ago when a faster exit from the furlough scheme was canvassed. It did not come to pass.

Pensioners form a significant part of the Tories’ core support (and for Brexit), and they turn out to vote. The issue is political as well as financial, and raises again familiar issues such as intergenerational fairness, the crisis in care and the disproportionate impact of Covid-19 on older citizens.

It would also represent the biggest Boris Johnson U-turn so far. Embarrassment might well follow. If pensions, for the sake of illustration, were uprated with prices now, a single pensioner would revive a rise of just 94p a week (on the basic rate of £134.25 a week to live on). That would recall the 75p weekly rise when Gordon Brown was chancellor (in 2000) that forced a more generous approach, and the establishment of the current minimum 2.5 per cent rule.

One of the Conservatives’ most important pledges in its 2019 general election manifesto read as follows:

“On entering government in 2010, the Conservatives acted decisively to protect the UK’s pensioners. The ‘triple lock’ we introduced has meant that those who have worked hard and put in for decades can be confident that the state will be there to support then when they need it. We will keep the triple lock, the winter fuel payment, the older person’s bus pass and other pensioner benefits, ensuring that older people have the security and dignity they deserve.”

Mr Sunak could plead “force majeure” but it would still be a break with a long-standing policy.

The Conservative manifesto, though, was more or less silent on a further increase in the qualifying age for the state pension, towards 70, or on the vexed issue of paying for social care, a neglected area that has come into painful focus this year. Those too might help resolve the chancellor’s dilemma. It might also help politically if it was to be a time-limited change, with the usual policy restored in a year or two (though that would defray the benefits).

Historically the British state pension has been usually linked to the rise in prices. That was first made a statutory duty for governments in 1973, and none have broken it, give or take a little rather shabby cheating. In 1974 it was uprated to link to earnings, but that link was broken by Margaret Thatcher in 1979, before New Labour eventually restored it, under popular pressure.

A bold move for Mr Sunak for the long run would be to return to only linking pensions with the rise in prices, normally lower than the rise in earnings or economic growth. Thus ministers, in such a regime, can always claim that they have maintained the purchasing power of the pension, year in, year out, which sounds acceptable.

However, over a long period of time, it means that pensioners become relatively poorer and have less of a share of the national “cake”. The upside is that it saves the state correspondingly large cumulative amounts (and was one of the main ways the Conservatives cut public spending as a share of GDP between 1979 and 1997). The downside is a gradual but unmistakeable increase in rates of pensioner poverty, and the current level of the pension is still only around 26 per cent of earnings.

It is true that more people will receive (non-guaranteed) money-purchase private pensions in future, but fewer will receive the old-style company pensions linked to salary. Many Britons have little or no savings and scant provision for their old age. Mr Sunak and Mr Johnson will have difficulty making their case either to existing pensioners or those approaching retirement. If recent history is any guide, Mr Johnson will opt to borrow his way out of trouble.