The triple lock is a drop in the ocean – so why are we using it to attack old people?

This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here. The drumbeat of calls for an end to the triple lock on pensions grows louder by the day. The British Chambers of Commerce has recently joined the OECD, the Tony Blair Institute, the Institute for Fiscal Studies, the Resolution Foundation, the Adam Smith Institute, the Centre for a Better Britain and many more in calling for the Government to abolish the link between the state pension and whichever is the highest of three markers: average earnings, inflation and 2.5 per cent. It’s true that most mainstream politicians, doubtless mindful that there are 13.2 million people getting the state pension, say they will keep it. But Labour has committed to do so only for this Parliament, and if Andy Burnham goes for an early election, this may not be very long. The official Conservative line is that the party will keep the policy, but several senior Tories, including Sir Mel Stride and Tom Tugendhat, have spoken out against it. And while Sir Ed Davey, leader of the Liberal Democrats, is solidly in favour of it, Sir Vince Cable, a minister in the coalition government that introduced the policy in 2011, called for it to end at a fringe event at the Lib Dem conference this week. So, the debate has become polarised between the economists and former politicians on the one side, and the current politicians on the other. Given that public finances are under huge pressure – we’ll learn more about that in the Budget, now only five weeks away – it seems inevitable that there will have to be big cuts in public spending in the next couple of years. And if that happens, well, the triple lock is an obvious target. There are, however, two huge problems. One is that ending it wouldn’t actually help much. And the other is that it would stir up the already serious, and destructive, tensions between the young and old. The first is simple maths. The pension bill is certainly huge, around £154bn this year, but national insurance contributions, which are supposed to pay for it, brought in over £200bn last year. We will get an update in the Budget but it looks like the figure will be around £220bn this year. It is true that the IFS reckons that the annual bill is £12bn to £16bn higher than it would have been had the pension been uprated since 2011 by earnings or inflation alone. But that controversial increase in employers’ NICs that Rachel Reeves brought in more than pays for it – it is bringing in around an extra £25bn a year. Besides, in the context of the Government’s deficit – which the markets expect to be between £125bn and £135bn – while an extra £12bn to 16bn a year is certainly material, the underlying problem is vastly bigger. Ending the triple lock now and just linking pensions to earnings and inflation might save £5bn a year by 2030. But it wouldn’t fix the yawning gap that the Chancellor faces in his Budget. The second danger, were this Government, or indeed any government, to end the triple lock is the impact on the relationship between the young and old. Older people, who have paid high rates of tax during their working lives, faced much higher unemployment in their working lives than now. Aside from a small minority, they did not have the benefit of going to university and feel they have earned their pensions. They are aware that the UK state pension is still one of the least generous in the developed world. If, as a result of pressure from the clever young people who work in the think-tanks, a future government is forced to give up that commitment made by the coalition, then how will they regard politicians in general, and young ones in particular? The tragedy is that there is a way though the issue, a win-win solution. That is to encourage older people to stay longer in the workforce, contributing to the total tax take, and in addition experiencing better health outcomes from continuing to be employed. The number of over-65s in paid work has increased by a million since 2000. But to build this number further requires the young and old to get along. You cannot have a harmonious workplace where people sneer at each other – with the young resenting older people because they think, rightly or wrongly, that they had it easy, and resenting paying their pensions, and the old thinking that young people are snowflakes compared with what they had to put up with when they started out. So, let’s stop this destructive debate. Keep the triple lock, and instead put much more effort and imagination into finding ways of keeping older people in the workforce – and paying more tax to help narrow the fiscal deficit. Need to know It’s difficult to discuss the jobs market without taking into account the impact of AI, and while this is all very, very new, it does seem that insofar as AI is disrupting the labour market, it is displacing younger workers rather than older ones. There’s a link here to the discussion on this, and a paper from researchers at Stanford University in the US. Young people are clearly more worried about AI than older ones. There was a piece on CBS News last month that found that Gen Z (those aged between 14 and 29) felt it would hurt their careers and job prospects, while Gen X (aged 46 to 61) were generally positive about it. Baby boomers (aged 62 to 81) were also positive, which might seem a surprise, but remember that this is American data and many of these will have significant share portfolios that have done well out of the high-tech investment boom. So, AI boosts their income, and since they are winding down their workload, that more than offsets any damage to their earnings. I also checked to see if there was any evidence of what the Silent Generation, those aged 82 to 98, thought about AI, and one study found that they were both the least concerned and the most unsure. But then, not many of them are still in the workforce – 96-year-old Warren Buffett stepped down as chairman of Berkshire Hathaway last Saturday – so they are seeing this issue in overall national terms, rather than as a personal challenge or opportunity. What I do find encouraging, though, is that AI does not seem to be damaging the already uncertain job prospects for people in their late fifties and early sixties, who find they are made redundant and have to get some income to see them through until they reach retirement age. The problem there is already huge, but at least AI is not making it worse. What needs to be done about helping people at this, often tough, stage of their lives is an enormous issue, and I hope to get back into it in future columns. A final footnote on this subject of age: the Resolution Foundation, which claims to be the leading research organisation on researching the elderly and intergenerational inequality, has an unusually young staff. According to the data tracker On Think Tanks, the typical age of its employees is 31 years old.