Boris Johnson and Rishi Sunak are said to be at odds over changing the so-called triple lock on pensions due to the economic impact of the coronavirus pandemic.
The triple lock, which was a Conservative manifesto pledge in 2019, means the state pension increases each year in line with either wages, inflation or 2.5 per cent, depending on which of the three figures is highest.
Mr Sunak has publicly expressed concerns about an “anomaly” in the system which could see the state pension soar as wages are forecast to fall due to the UK’s lockdown and then increase sharply in the next year.
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The chancellor is reportedly considering plans to temporarily suspend the triple lock to help public finances through the pandemic.
However, Mr Johnson is said to be against the move because “the optics” would be bad for older voters who have overwhelmingly backed the Conservative Party in recent elections.
“The prime minister hates [changing the triple lock] because it was a manifesto pledge,” a government source said, according to The Times.
“He really doesn’t want to do it. The optics are terrible for older voters.”
The Office for Budget Responsibility, the government’s budget watchdog, has forecast that wages will collapse by 7.2 per cent this year before rebounding 18 per cent in 2021 – an outcome which would lead to a huge increase in the state pension.
Mr Sunak briefly acknowledged the issue during an evidence session for the Treasury Select Committee in July.
“Your committee on the triple lock has had evidence from others which has pointed out the anomaly in the way that it might work, depending on the very particular trajectory of earnings declines and the rapid rises over the next few years,” the chancellor said.
However, he insisted he could not comment on “future policy” at that time.
The Office for National Statistics published figures on Friday which showed UK government debt had risen above £2 trillion for the first time due to major increases in spending during the pandemic.
Mr Sunak said the figures were a “stark reminder” of the need to return public finances to a sustainable footing and noted this would require “taking difficult decisions”.
If the government does not reform the triple lock, it may be difficult for them to raise revenue at a time when public finances are already stretched.
In July, Mr Johnson also stood by a manifesto commitment to not raise the rate of income tax, VAT or national insurance before the next election.
“I don’t normally talk about fiscal stuff because I leave that to Rishi [Sunak] the chancellor but what is in the manifesto is in the manifesto,” the prime minister told The Yorkshire Post.