The Organisation for Economic Co-operation and Development (OECD) has urged the UK government to abolish the state pension triple lock and consider eliminating certain VAT exemptions to generate additional revenue for public spending. In a new report, the Paris-based think tank described the triple lock—which guarantees annual increases in state pensions by the highest of inflation, wage growth, or 2.5%—as "unusually generous" compared to other countries.
Triple Lock Under Scrutiny
The OECD warned that the triple lock indexation "puts upward pressure on public expenditure and adds significant fiscal risks by exposing public finances to supply shocks." It called for "a timely reform that overcomes political economy constraints." The report emphasized that the government should focus on "setting the ground for lasting reform" while explaining how a new approach to state pensions would be effective and fair to ensure public acceptance.
This recommendation echoes similar concerns from the Office for Budget Responsibility (OBR) last week. The OBR estimated that the triple lock will add approximately £15.5 billion to state pension spending annually by 2029–30, up from the originally costed £5.2 billion per year, calling it a "substantial pressure on public spending" over the longer term.
Government Response
Pensions Minister Torsten Bell addressed the report at a launch event, stating: "The Government's manifesto commitment is to the triple lock throughout this parliament, and that is going to happen." He noted that the government is instead focused on reforming the private pensions system to encourage more people to save for retirement.
Regarding the OECD's suggestion to review VAT exemptions, Bell said: "Right now is a good time to reform the private pensions system, and that's exactly what we're doing. It's not a good time to raise VAT when you've just been through a cost-of-living crisis and the Bank of England is trying to sustainably bring inflation to target."
Tax System Review
The OECD also recommended reviewing the current tax system, suggesting that if raising tax becomes a "last-resort necessity," then "raising VAT seems the most prudent option." However, it advised against further increases in national insurance contributions, as recent hikes have already raised labour costs.
Bell acknowledged the consequences of recent tax rises, saying: "I'm not hiding from the fact that there are consequences from the change in national insurance, the Chancellor has been very clear about that." He argued that the tax system is supporting investment and functioning public services, adding: "Making sure we rescue our public services is a pro-growth choice."
The OECD report underscores the need for fiscal sustainability and long-term reform, but the government remains committed to its manifesto pledge on the triple lock for the current parliament.
