Chris Whiteside: Scrapping the pensions triple lock would be wrong, but not reforming it would be a missed opportunity

12 Jul

Cllr Chris Whiteside MBE is an economist and member of the Cumbria Pensions Committee; he is also Deputy Chair (political) of the North West region of the Conservative Party.

The principles behind the pensions “triple lock” are as relevant today as when it was introduced, but perceived balance of economic justice between generations has reversed in the intervening years. The policy needs updating.

In a few months, because of the Covid rebound, the triple lock as it currently stands would require the Chancellor to make a huge payment many people will see as unfair and unaffordable.

To scrap the triple lock would be economically and morally wrong, but not reforming it would be a missed opportunity. There will never be a better chance to make changes which are needed. If it’s not reformed this year, sooner or later a future government will have to scrap it altogether because it will become unaffordable.

To explain the need for reform, let’s start with why David Cameron made the promise in the first place, and why it made sense then.

Today many people are concerned that the younger generation have lost out, but in 2010 the generation perceived to have lost out badly in preceding decades was pensioners. Both views are massive generalisations – some pensioners suffer hardship today, some young people did in 2010 – but there were real economic facts justifying both perceptions.

The government whose term was mercifully ending when the “triple lock” promise was made had undermined pensioners from start to finish, treating their savings and investments like a piggy bank it could raid at will.

Gordon Brown’s first budget included a £5 billion a year raid on pension funds which did enormous long-term damage to the stability of pensions. Consequently, as Frank Field, pointed out, Labour inherited the best-funded pensions in Europe and finished among the worst. That wasnt the only damage Brown inflicted on pensioners.

Brown implemented a hundred tax rises: many of these, particularly massive rises in council tax, impacted disproportionately on pensioners.

Labour added insult to injury with the lowest annual pension rise in history, just 75 pence for a single pensioner.

By 2010 the relative incomes of many pensioners had dramatically failed to keep pace with those of people in work. To stop this Cameron promised basic state pensions would increase each year by whichever was highest of:

  1. 2.5 per cent (never again a derisory increase like 75p)
  2. Rate of inflation (protecting the purchasing power of pensions)
  3. Average increase in wages (never again would pensioners fall further and further behind those in work.)

Each element of that promise looks reasonable: but the whole package was only fair because the pensioners had fallen behind wages and the aim was to help them catch up.

Over a full economic cycle this set up a ratchet guaranteed to improve the relative position of pensioners. If wages and salaries fall behind inflation or drop during a recession, real incomes of the working population will drop but pensioners are protected by the 2.5 per cent minimum increase or the inflation element of the triple lock. When the economy grows again, wages cannot catch up to the previous relative position no matter how fast they increase because of the single-year earnings lock.

However, it isnt sustainable to permanently guarantee any section of society a relative income which can never get worse but can and ultimately will keep improving. Eventually either political consensus will emerge that the correction has gone far enough, or the policy will become unaffordable. The triple lock may have reached that point.

During 2020 the Covid-19 recession shut down huge chunks of the economy, put millions on furlough, and those in work generally received little or no pay rise, sometimes a pay cut. Average incomes crashed for those of working age.

The state pension did not: the triple lock protected pensioners, exactly as it was meant to.

This year wages recovering from Covid will generate an extreme example of the triple lock ratchet.

Those of working age who were clobbered last year and now experience some recovery won’t see it as a pay rise, but getting back what they lost last year. The triple lock algorithm won’t treat it that way.

Year-on-year figures for average earnings are likely to show a rise of about eight per cent. Under current rules pensioners will also get an eight per cent rise to match the bounce-back from last year’s drop in income which they didn’t suffer. Some of the £3 billion cost of that rise will come from taxes paid by workers who did suffer that drop in income.

Rather than scrapping the triple lock altogether, or the earnings component, we should ask whether there is a fairer way pensions could keep pace with wages.

There is.

Instead of basing the earnings component of the pensions lock on the year-on-year change in wages, we should base it on an index of cumulative change in wages. This will still guarantee pensions cannot fall behind earnings, without the ratchet.

Set a base year – the year before the pandemic hit would be a possible choice – for an index of earnings, and a pension index. The earnings component of the triple lock should then require the cumulative change in pensions to be at least as high as the cumulative change in earnings. Pensions cannot be a lower proportion of average earnings than they were in that base year.

The reformed triple lock would guarantee the state pension increases each year by the which highest of

  1. 2.5 per cent
  2. Rate of inflation
  3. Increase necessary to ensure the cumulative state pension index is at least as high as the cumulative earnings index.

If average earnings are up by 25 per cent since the base year, the pension must be at least 25 per cent up on that year. This respects the spirit of the “triple lock” promise,

Here’s how a modified triple look based on an earnings index compares against the current version:

Whatever the Government does about the triple lock will upset someone. I am convinced that putting the earnings lock onto an index rather than year-on-year basis is the fairest, most sustainable option they could go for.

Chris Whiteside: Why Britain’s first new coal mine for decades should open in the ward I represent

23 Feb

Chris Whiteside MBE is County Councillor for the Egremont North & St Bees division of Cumbria County Council, and also Deputy chairman (political and campaigning) of North West England region of the Conservative party.

ConservativeHome readers will know of the controversy over proposals for Britain’s first new coal mine for decades, in Copeland, West Cumbria.

I am county councillor for the division which includes most of the application site.

Almost to a man and woman people in the vicinity are in favour, while almost all the opposition comes from people living many miles away. The most vocal opponents live on the far side of the deepest and longest lakes, and the highest mountain, in England.

Copeland

Copeland moved from the red to the blue column two years before the rest of the former “red wall” seats, but is typical of traditional communities in Northern England which voted Labour for generations but finally lost patience with that party while it was led by Jeremy Corbyn.

When elected to Cumbria County council, I was the first Conservative councillor in history to represent parts of my division. Voters in West Cumbria who elected Conservative councillors like me, and Conservative MPs like Trudy Harrison and “Workington Man” Mark Jenkinson, lent us their votes. We have no more automatic right to their continued support than our Labour predecessors had. Local people expect us to fight harder for them than those predecessors did.

We will.

The historical context

I was a student during the 84-85 miners’ strike. With Iain Dale, I was a ringleader of a campaign to sack a Labour student union president who misused used union resources to support the strike.

I now have more sympathy for comments made to me in 84-85 by students from traditional mining communities – like the area I now represent – than either I or those who made them would have imagined possible at the time. Particularly about affluent middle-class people from many miles away trying to take jobs from a less affluent community which they knew little about and probably couldn’t find on a map.

Woodhouse Colliery is expected to provide 518 jobs and fifty apprenticeships in a community which includes some of the worst pockets of deprivation in Britain. Spending will also boost the local economy and supply chains, on ONS multipliers providing a further estimated 380 jobs.

The facts about the mine

The proposed mine will not produce coal to burn for energy. It is specifically restricted, in the proposal itself and planning conditions, to mining coking coal to make steel, mainly for the British and European steel industries.

If you want more renewable energy, you need steel – It takes lots of steel to make a wind turbine. Britain needs steel for many other purposes too.

Currently there is no economic way to make new steel without coking coal. More than 85 per cent of scrap steel in Europe is already recycled so there’s limited scope to increase the 39 per cent of steel currently coming from recycling.

Ironically, the same Lib-Dem MP who leads opposition to the mine also calls for more steel to be made in Britain. Only a Lib-Dem could so comprehensively face both ways at once as to call for more steel to be made here while effectively working to ensure it’s made with imported coal. Most coal used by British and European steelmakers today comes from the USA or Russia.

Technology will change. There may be improvements which remove need for coal: or in carbon capture technology to use coal without damaging the environment. But the steel which this country needs in the immediate future will be made with metallurgical coal.

Better to make that steel in Britain and Europe with coal mined in an environmentally sensitive way here, than to use steel made with coal from Russia and America, often strip-mined in the Appalachians and shipped over the Atlantic.

Council votes about the mine

Councillors have voted for the mine three times: all three votes demonstrated cross-party support among Conservative, Labour, Lib-Dem and Independent councillors. Two votes were unanimous. At the third meeting, one councillor from each of the three parties went against but there was a four-to-one margin in favour including majorities of votes cast from each party.

It’s nonsense to suggest that councillors who voted for the mine hadn’t considered the environment, didn’t know what they were doing, or can’t be trusted to make the decision. Such comments are an attack on local democracy.

The council’s officers went through the proposals in exhaustive detail during a process which lasted literally for years. Each report to committee ran to hundreds of pages describing all the objections and every imaginable issue, including lengthy consideration of the impact on Britain’s carbon footprint. A hundred conditions were attached, including a time limit of 2049, the year before Britain’s target to go carbon neutral. Another condition limits greenhouse gas emissions.

Before voting on the plans, councillors listened to hours of presentations from officers and representations from objectors and supporters.

Most of those who attack the committee sound like the bloke in the pub who, because he’s read an account in a tabloid newspaper of a court case lasting weeks, is confident he knows better than the jury who sat through the whole thing.

The latest developments

When Robert Jenrick declined to “call in” the mine and said the decision should rest with Cumbria County Council, most people expected permission would swiftly be granted in line with the October decision. Instead the council is putting it back to committee for a fourth time.

The objection the council received to granting permission is public domain because the group responsible, South Lakes Action on Climate Change (SLACC) – published it on its website.

SLACC argue the decision should be revisited because, since it was made, the advisory committee on climate change published proposals for the UK’s sixth carbon budget.

That document comprises recommendations to ministers, as those who study it will quickly find. Although anyone reading the letter from SLACC’s solicitors who didn’t know better might get the impression that it’s already legally binding, it isn’t.

Fifty Conservative parliamentarians and local government leaders, including most of the MPs representing Cumbria, the mayors of Copeland and Tees Valley, and many “Northern Research Group” MPs wrote to the Leader of Cumbria County Council on 18th February supporting the mine. Their letter made a convincing case that SLACC’s arguments misrepresent the sixth carbon budget.

Conclusion

This saga raises deeply concerning issues. It shows how vulnerable Britain’s planning system can be to high profile, articulate pressure groups even if they have negligible local support.

Anyone who has a serious objection to a proposal should be entitled to have their concerns properly investigated, once. But when similar points are brought up again and again, there comes a point when we are witnessing the attempt to frustrate a democratic decision through delay.

But delay is not the best way to decide whether planning proposals should go ahead. Delay from those who can’t win a democratic vote but use every trick in the book to obstruct what they cannot defeat is the worst of all.