A thinktank has warned that Prime Minister Andy Burnham's spending commitments cannot be funded through additional borrowing, putting the state pension triple lock at risk. The National Institute of Economic and Social Research (NIESR) urged the government to raise taxes or cut public spending to pay for new cost-of-living and defence pledges.
No scope for extra borrowing
Stephen Millard, NIESR's Deputy Director for Macroeconomics, said there was "clearly no scope" to increase borrowing. He argued that cost-of-living measures should be funded by spending cuts or higher taxes, adding: "The triple lock on pensions, that is very, very expensive, and will get more expensive as we age." The triple lock increases the State Pension each April by the highest of inflation, average earnings growth, or 2.5%. Figures from the Institute for Fiscal Studies show it costs the government an estimated £12 billion to £12.6 billion per year.
Economic forecasts and pressures
NIESR forecasts that the government will face more persistent inflation due to the US and Israel's war with Iran. Consumer Prices Index (CPI) inflation is expected to peak at 3.8% in February 2027 and take until early 2029 to slow to the 2% target, later than previously predicted. The Bank of England is expected to hold interest rates at 3.75% through this year and next.
The UK economy is forecast to grow by 1.1% this year, up from a spring projection of 0.9%, but has lost an estimated £15 billion in GDP due to the Middle East energy shock.
Government pledges and potential reforms
Since entering Downing Street, Burnham and Chancellor John Healey have announced measures including cutting VAT on electricity bills and capping bus fares at £2 throughout 2027. Burnham has also reiterated a commitment to spending 3.5% of GDP on defence by 2035, stating the plan would be "fully funded" ahead of the autumn Budget.
NIESR's Millard suggested reforming council tax into a land value tax system or scrapping some VAT exemptions. He added that after those measures, he would consider breaking Labour's manifesto pledge not to increase taxes for working people and re-examine income tax rates.
