The Organisation for Economic Cooperation and Development (OECD) has urged Labour to abandon the triple-lock pensions promise, arguing that it places undue pressure on UK public finances and introduces significant fiscal risks. In its latest survey of the UK economy, the Paris-based organisation added its voice to a growing chorus of experts calling for reform of the policy, which annually increases the state pension by the highest of wage growth, inflation, or 2.5%.
OECD's Warning on Fiscal Risks
The OECD's special chapter on pensions policy states 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, it acknowledges that any change would require building public support. The report was launched on Wednesday as Chancellor Rachel Reeves prepared to leave the Treasury after two years, with the OECD broadly positive about her record, noting that Labour's pro-growth agenda "provides a strong basis for a gradual recovery."
Pensions Minister's Response
Speaking at the report's launch, Pensions Minister Torsten Bell indicated that Labour could reconsider 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." The triple lock was introduced by the Conservative-Lib Dem coalition in 2010 and has been criticized by thinktanks such as the Resolution Foundation and the Institute for Fiscal Studies, as well as the independent Office for Budget Responsibility, which notes that it has cost three times more than anticipated.
Proposed Alternatives and Savings
The OECD suggests replacing the triple lock with an annual increase based on the 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 to address capacity constraints in out-of-hospital care.
Cautious on Tax Increases
With a new chancellor expected next week as Andy Burnham takes over as prime minister, the OECD cautioned against raising tax rates, stating that "tax reforms should prioritise strengthening efficiency and revenues rather than raising headline rates." It noted that the tax burden is already high and the system remains complex and distortionary. However, it suggested that increasing VAT could raise revenue quickly if government finances worsen significantly. Bell dismissed the idea, arguing that tax increases under Labour are helping to 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," he said, adding that rescuing public services is the pro-growth choice.
