State pensioners are being warned that one of the Government's biggest spending commitments could come under pressure after a leading economic think tank questioned how ministers will pay for a series of new cost of living measures.
The warning comes after Prime Minister Andy Burnham announced a package of support aimed at helping households, including plans to scrap VAT on household electricity bills from October and extend the £2 bus fare cap throughout 2027.
Economists question affordability
But economists have warned that paying for those promises, alongside other commitments, could become increasingly difficult in the years ahead. The National Institute of Economic and Social Research (NIESR) said there is "clearly no scope" for the Government to fund its plans through extra borrowing, meaning ministers may eventually have to look at raising taxes or reducing spending.
One area highlighted by the think tank is the state pension triple lock. The policy guarantees that the State Pension increases each year by whichever is highest out of inflation, average earnings growth or 2.5%.
Triple lock costs billions
Stephen Millard, deputy director for macroeconomics at NIESR, said: "The triple lock on pensions, that is very, very expensive, and will get more expensive as we age."
According to the Institute for Fiscal Studies, the triple lock currently costs between £12 billion and £12.6 billion a year. That's why the think tank identified the policy as one area where savings could potentially be made if the Government needs to reduce spending in future.
Other revenue-raising options
Alongside the warning over pensions, Mr Millard suggested there are other ways ministers could raise money. These include replacing council tax with a land value tax, removing some VAT exemptions and eventually reconsidering income tax, despite Labour's election pledge not to increase taxes on working people.
Since taking office, Mr Burnham has said his Government will focus on helping people with the cost of living. The VAT cut on household electricity bills is due to come into force on October 1 and is expected to save a typical household around £45 a year. The Government has also confirmed the £2 bus fare cap will stay in place throughout 2027.
Business Secretary Jonathan Reynolds said the VAT cut would give families some "breathing space", while Mr Burnham said the measure would put more money back into people's pockets.
NIESR also believes inflation will remain above the Bank of England's 2% target for longer than previously expected. It forecasts inflation will reach 3.8% by February 2027 and does not expect it to return to the target until early 2029.
