Pensioners could lose the triple lock next year amid mounting concern in Government over the “unfairness” of hiking taxes on young people to pay for Boris Johnson’s £10 billion social care reforms.
Senior Government sources have revealed that discussions between the Treasury and No 10 have been held about suspending the guarantee on pension increases alongside raising national insurance contributions (NICS) by one per cent.
Mr Sunak has previously signalled that the triple lock could be temporarily set aside if average earnings – one of three measures used to determine pension increases – is artificially skewed by the pandemic.
However, it is understood that in recent weeks conversations have also centred on the “optics” of maintaining the triple lock while increasing NICs, which are no longer paid once people reach retirement age.
One well-placed source said: “They are having conversations about this and whether the two things can come together. They are being considered together and that’s certainly what people want to do.”
Final decision on triple lock may be deferred
Others suggested that a final decision on the triple lock may now be deferred to a later date, although they did not deny that the two issues had been linked together in discussions.
They added that any change would depend on whether the latest data on average earnings, due in the Autumn, continued to show high levels of distortion.
The disclosure comes after Mr Johnson, Rishi Sunak and Sajid Javid last week agreed on a new social care levy, which will be used to fund long-awaited social care reforms, including a cap on individual lifetime care costs.
The social care plan, which was due to be announced by the trio in a joint statement on Tuesday, was delayed after the Health Secretary tested positive for Covid-19, forcing Mr Johnson and Mr Sunak to self-isolate.
State pension "triple lock"
It means that Mr Johnson has now missed the window before the second anniversary of his entry into Downing Street, when he vowed to finally fix the social care crisis that has plagued successive governments.
It comes as the Conservatives’ lead in the polls tumbled this week, suggesting that Mr Johnson’s so-called “vaccine bounce” is fading amid criticism of the chaotic lifting of lockdown restrictions in a series of Cabinet rows.
A YouGov poll published on Friday put the party on 38 points, down six points on the previous week, while support for Labour was up four points to 34 per cent.
The intention to hike the tax is now likely to be announced in the Autumn, potentially outside of the Budget, as part of a wider package of reforms to social care.
However, Mr Johnson must first overcome widespread opposition in the Cabinet over the plan to increase national insurance – a breach of the 2019 Conservative manifesto – with The Telegraph aware of five senior ministers who are privately opposed.
‘This is far from over’
Signalling a major row when Parliament returns in September, one Cabinet minister warned on Saturday: “This is far from over.”
Meanwhile, with Mr Sunak concerned that hiking taxes during the pandemic recovery will hurt working families, a temporary suspension or tampering with the way the triple lock is calculated is increasingly seen as inevitable.
There is concern that the increase in national insurance will be seen as a tax on younger workers, who have been hit hardest by the pandemic.
The prospect of pensioners, who do not pay national insurance, receiving a windfall while national insurance is increased for workers is also seen as “grossly unfair” by a number of Cabinet ministers, with one stating last night: “It has got to go”.
Sir Andrew Dilnot, the economist whose decade-old recommendations for social care are Mr Johnson’s favoured blueprint, has suggested that pensioners pay NICs to fund the reforms. But this is seen as complex, with insiders also warning that it fails to raise enough money.
At present, the state pension increases each year in line with the Consumer Prices Index (CPI), a measure of inflation, increasing average wages, or 2.5 per cent, whichever is highest.
Due to earnings being artificially boosted as a result of millions of workers returning from furlough, the state pension is currently on course to increase by as much as eight per cent.
‘Youngsters have had a hell of a time, they’ve had a clobbering’
“You are excluding the people who actually need this [social care reform] while hiking taxes on the young, so there is a difficulty in the optics of that,” one Cabinet minister said.
A second said: “Youngsters have had a hell of a time, they’ve had a clobbering, we’ve got to think about them. Why should they be picking up the tab at the moment.”
However, any move to suspend the triple lock is unlikely to prevent a major Cabinet split over the planned increase in national insurance, with Kwasi Kwarteng, the Business Secretary, this week publicly stating he does believe the hike will go ahead.
Colleagues privately described the Business Secretary as instinctively opposed as a “low tax Conservative”.
Others said they believed it was a clear breach of the manifesto pledge not to increase income tax, national insurance or VAT as part of a triple tax lock.
“It’s not agreed, end of,” one Cabinet minister said. “We’ve got a Cabinet government and we will see what is agreed. We need to think this through. This is far from over.”
Another added: “I think it’s difficult when there is a clear manifesto commitment not to raise national insurance.”
Separately, Downing Street is facing a major backlash from business groups over the national insurance hike, which is expected to fall on both employees and employers, with one prominent industry figure describing it as a “jobs tax”.
In a clear warning shot, they added that increasing NICs after corporation tax at the last Budget meant the current Conservative administration was the “most anti-business” in recent memory.