The UK state pension could go up next year by almost 8 per cent, with Prime Minister Rishi Sunak committed to maintaining the “triple lock”.
The state pension is uprated in April. Under the triple lock, it is based on inflation, wages or 2.5 per cent, whichever is higher.
At the moment, wage growth is currently the highest of the three, reaching 7.8 per cent in June compared with the same period 12 months earlier.
Mr Sunak said the government was “committed to its policy on the triple lock”.
Asked by ITV News during a visit to Leicester on Wednesday whether he was uncomfortable with potentially uprating the state pension by almost 8 per cent, Mr Sunak said: “No, I think the most important thing is that we continue to bring inflation down more generally.
“But while inflation is higher than we would like, I also believe it is right to step in and help people with the pressures that it brings.”
Listing financial support given to the public, including assistance with energy bills and cost-of-living relief payments, the Conservative Party leader said it was “right” that the government helped the “most vulnerable through a tough time” while tackling inflation.
Mr Sunak has made halving inflation by the end of the year one of his top five priorities ahead of a likely general election in 2024.
He committed to bringing down Consumer Prices Index inflation to about 5.3 per cent by the end of the year.
On Wednesday, the Office for National Statistics said the CPI was 6.8 per cent in July, down from 7.9 per cent in June.
But rising wages could lead to a jump in inflation as a result of increased spending.
Inflation around the world – in pictures
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People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP -
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters -
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA -
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP -
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP -
A person walks by a sign showing interest rates at a bank in New York. EPA -
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP -
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters -
Price tags at a market in Nice, France. Reuters -
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters -
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters -
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters
While outside of the 2023 time frame set by the Prime Minister for his target, an increase in the state pension could also fuel inflation for similar reasons.
Mr Sunak said pay rises needed to become “sustainable” but said the government would not “intervene” in private sector salary increases.
“I want people to be paid more, but that means we have to have a growing economy where productivity is rising,” he said.
“That is how you have sustainable long-term increases in people’s pay packets.”
The ONS on Tuesday revealed that regular pay growth, which excludes bonuses, reached a record 7.8 per cent compared with a year earlier for the quarter to June.
The base state pension rate is currently worth £203.85 ($258.44) per week.
An increase in line with 7.8 per cent wage growth would lead to a £15.90 weekly rise.
The triple lock is based on average earnings growth measured from May to July each year, meaning it is likely to be figures published next month that could dictate the state pension rise in spring 2024, as long as it is higher than the inflation figure in September.
Steve Webb, a former pensions minister, said it was likely that Chancellor Jeremy Hunt would need to find £2 billion more for pensions than he had expected in March, with the spring budget anticipating a 6.2 per cent rise.
The former Liberal Democrat MP said the triple lock wage growth measure included bonuses, taking a possible rise beyond 8 per cent.
The ONS reported that wage growth stood at 8.2 per cent in the quarter to June, compared with 12 months previous, when bonus payments were factored in.
In April, the application of the triple lock saw retirees given a 10.1 per cent increase to match inflation.
Work and Pensions Secretary Mel Stride in May said that the triple lock pension commitment would remain in place until the next election.
But the cabinet minister said he was not sure whether it would feature in the next Conservative manifesto.
The triple lock was introduced by the Tory-led coalition government in 2010 as a way of ensuring pensioner income did not lose value in real terms by offering state pension increases at least in line with inflation.
It has become seen as an important offer to older voters.
