Rishi Sunak has come under further pressure to suspend the state’s triple lockdown on pensions after salary figures showed the Chancellor was on track to pay retirees an increase of more than 8% next year.
Sunak is reportedly considering telling Britain’s 12 million state pension claimants that the pandemic has artificially inflated official salary figures and that a new formula is needed to calculate the increase in the state’s basic pension for next year.
The ten-year-old triple lockdown, which Boris Johnson’s government pledged to uphold in the 2019 election, is underpinned by a pledge to pay either 2.5% or the rate of inflation or the level of earnings recorded in the July employment figures.
In the latest official figures for June, profits rose 8.8%, including bonuses, and analysts said they were set to stay above 8% next month, setting the stage for a political battle over the triple lockdown.
Sunak responded to calls for a 2.5% pension hike or a follow-up to inflation – which is expected to hit 4% this year – by saying he would leave a decision until the fall.
Julian Jessop, economic adviser to the free market think tank, the Institute of Economic Affairs, said each percentage point increase in income growth would add around £ 900million to the annual pension spending of the State, next year and years to come. An increase based on the latest official figures would therefore cost the Treasury at least £ 5 billion more than an increase of 2.5%.
“Salary data has been distorted by the pandemic in a way that no one could have predicted,” he said. “Unless the triple lockdown is changed, this will provide an unintentional boon to retirees that is increasingly difficult to justify. “
The Office for National Statistics said a more accurate reflection of wage growth would be between 3.5% and 4.9%, as official figures were “affected by temporary factors that inflated the increase. of the overall growth rate ”.
The figures are based on salary data from a year ago, when incomes fell 1.3% due to people on leave getting only 80% of their salary. Widespread job losses amid the pandemic for low-wage workers have also meant that fewer low-wage packages have been counted in the official figures, raising the average wage level.
Considerations for Sunak will likely include the expected £ 105bn cost of the state pension this year, which has risen 35%, while average incomes have risen 27% since the introduction of the triple lock in 2012.
It also comes after the government offered NHS staff a 3% pay rise and freeze the pay of other public sector workers, alongside plans to cut universal credit benefits for working-age adults by £ 1,000 per year from October.
A spokesperson for the Treasury said it would confirm next year’s state retirement rates in the fall, adding: “We will continue to support retirees while ensuring future decisions are fair. for retirees and taxpayers. “
Employment figures covering the three months to June showed that the UK labor market continued to rebound from the pandemic thanks to a wide range of measures as government restrictions were relaxed.
According to the latest snapshot from the ONS, the unemployment rate fell to 4.7% in the three months ending in June, down 0.2 percentage points from the previous quarter. Data for July showed the number of job vacancies topped 1 million for the first time, a sign of reported difficulties by companies finding staff as the UK emerges from lockdown.
The figures still show that the proportion of the labor force without a job is higher than before the pandemic, when unemployment was 3.9%, but the reopening of the economy and growing demand for workers in some industries have made it increase the number of active people.
Separate figures for July from HMRC also indicated a strong recovery in the labor market, even as nearly 2 million people remained on leave, after the number of employees registered on companies’ payrolls increased by 182 000 to 28.9 million.
The numbers beat forecasts by city analysts, who expected the job market to recover more slowly as lockdown restrictions eased.
Samuel Tombs, UK chief economist at Pantheon Macroeconomics, said strong job growth this year and rising wages should not change the opinion of the Bank of England, which predicted growth in Wages would run out of steam as the economy returns to more normal activity levels.
“We continue to believe that the labor market will lose its current momentum, allowing the monetary policy committee to wait until the first half of 2023 to raise [interest rates], ” he said.
Hours worked remained nearly 5% below pre-pandemic levels, and the number of employees also remained below 201,000 from February 2020 levels, indicating that many workers self-employed workers who lost their jobs in the previous 16 months were still unable to return to the workforce.