The Organisation for Economic Cooperation and Development (OECD) has urged Labour to abandon the triple-lock pensions promise, arguing it puts undue pressure on UK public finances and adds significant fiscal risks. In its latest survey of the UK economy, the Paris-based club of industrialised nations called for an end to the pledge, which increases the state pension each year by the highest of wage growth, inflation, or 2.5%.
OECD warns of fiscal risks from triple lock
The OECD’s experts stated in a special chapter on pensions policy that the triple lock “puts upward pressure on public expenditure and adds significant fiscal risks by exposing public finances to supply shocks, thus requiring a timely reform.” However, they acknowledged that public support would need to be built for any change.
Speaking at the report’s launch on Wednesday, Pensions Minister Torsten Bell indicated that Labour could drop the policy after the next general election. “The government’s manifesto commitment is to the triple lock throughout this parliament,” he said. “That is going to happen.”
OECD broadly positive on Reeves’ record
As Chancellor Rachel Reeves prepares to leave the Treasury after two years, the OECD was broadly positive about her record, noting that Labour’s pro-growth agenda “provides a strong basis for a gradual recovery.” The assessment was launched at a press conference in London on Wednesday, following Reeves’ final Mansion House speech where she defended her decisions, claiming she had “proven the doubters wrong.”
However, the 140-page assessment repeatedly highlights the need to repair public finances. “Modest growth, high public debt, high interest payments and increasing spending pressures from ageing, climate and defence are limiting fiscal space,” it says, adding that Reeves’ plans from last year’s spending review “leave limited room for manoeuvre.”
Thinktanks and OBR also call for reform
Thinktanks such as the Resolution Foundation and the Institute for Fiscal Studies have also called for reforming the triple lock, introduced by the Conservative-Lib Dem coalition in 2010. The independent Office for Budget Responsibility has flagged it as a risk to long-term fiscal sustainability, noting it has cost three times more than anticipated.
The OECD suggests replacing the annual increase with an average of earnings and inflation, estimating this could save 2% of GDP in the long term. Other recommendations include improving hospital productivity, as spending on the NHS is high by international standards. “There may be scope to improve the efficiency of hospital operations,” the report says, suggesting better coordination of patient discharges.
Caution on tax rises
With a new chancellor expected next week as Andy Burnham takes over as prime minister, the OECD cautioned against raising tax rates. “Tax reforms should prioritise strengthening efficiency and revenues rather than raising headline rates. The tax burden is already high, while the system remains complex and distortionary,” it said. However, it suggested increasing VAT could raise revenue quickly if finances worsen significantly.
Bell dismissed the VAT idea but argued that Labour’s tax increases are helping fix public services and invest in infrastructure. “Now is not a good time to raise VAT, as we’ve just been through a cost of living crisis and the Bank of England is trying to return inflation sustainably to target,” he said. “The people who think that a collapsing NHS – which is what we inherited – is good for growth haven’t met companies that aren’t seeing their workers turn up because they’re stuck on NHS waiting lists. And that’s what we inherited. So making sure we rescue our public services is the pro-growth choice.”
