Chancellor Healey’s focus on growth in ‘every postcode’ is encouraging. But what about growth across ‘every age group’?
In the Q&A following his speech, Chancellor Healey was asked about reforming the triple lock on pensions to support younger workers. Unfortunately, he avoided answering the question. In truth, it should be at the top of the government’s list of priorities.
The triple lock, which ensures pensions rise each year by the highest of inflation, wage growth or 2.5%, has shielded pensioners from the energy-driven ‘cost of living’ crisis over recent years. But it hasn’t shielded the UK economy as a whole. Instead, it has simply shifted the burden of adjustment onto younger workers – particularly those in the private sector – who have seen their real living standards eroded by higher taxes, higher interest rates and below-inflation wage outcomes.
There were understandable reasons for introducing the triple lock in 2010. But times have changed. Pensioners are now the least likely group to experience poverty in the UK, with only 16% in relative poverty compared to 21% of the overall population. Aside from children themselves, the group now most likely to experience poverty is working-age adults with children. Since 2010, overall prices and average weekly earnings have increased by around 60% and 70%, respectively, while the state pension has increased by around 90%.
Policy Exchange’s recent modelling estimated that reforming the triple lock could save around £23 billion annually by the end of this decade. Importantly, this doesn’t mean reducing pensions. It just means slowing the pace of growth. A broad range of organisations across the political spectrum have made similar points, including a report by the British Chamber of Commerce earlier this week.
Combined with reforms to non-pension welfare payments and the UK’s Value Added Tax (VAT), which has a baffling array of carve-outs, Policy Exchange estimate the government could abolish employers’ National Insurance. Employers’ National Insurance is a payroll tax that disincentivises hiring new workers. It also fails to capture non-wage earnings such as pensions and dividends. Abolishing it would kickstart a significant hiring boom in the labour market.
As we saw in the post-pandemic hiring boom, younger people are typically the biggest winners of labour market recoveries given they are the most marginally employed workers. Unfortunately, this dynamic has meant younger workers have also borne the brunt of the downturn in the UK’s labour market over the past few years, with the unemployment rate among 18 to 24 year olds rising from an all-time low of around 8% in 2022 to around 15% currently.
The government could also lower the rate of stamp duty on both property and stock transactions, kickstarting a recovery in the UK’s housing and capital markets. Younger families who bought property several years ago and are now looking to upsize are much more likely to be stuck in negative equity – where the value of their mortgage is above the value of the property – than older downsizers. While official data is limited, a recent survey suggested that over 50% of homeowners aged between 25 and 44 were expecting to fall into negative equity over the coming years, compared to 15% of homeowners aged over 65.
Of course, all of these reforms would require Healey to shift away from Labour’s 2024 manifesto pledges. But he must be bold. It will always be harder to deliver tangible outcomes than to deliver speeches. The UK urgently needs growth across all age groups as well as all postcodes. There is no time to lose.
William Nixon is a Senior Research Fellow at Policy Exchange and a former economist at Goldman Sachs, the Reserve Bank of Australia, and the Australian Treasury.