As Britons head to the voting booths today, they will not only be choosing a party to lead the country into unchartered post-EU territory, but they’ll be deciding which party will be the better steward of the nation’s wealth.
However, the choice may not be so clear for voters as neither the incumbent Conservative Party, nor the challenging Labour Party are “properly spelling out consequences of their policy proposals,” according to analysis by the UK’s Institute for Fiscal Policy (IFS).
“In one sense the two main parties have rarely offered the British such a clear and substantial choice,” said Paul Johnson, director of the IFS. “But neither is being really honest with the public.”
The IFS also noted the contrasts between the two parties concerning pensions, and pointed out that the main difference is that the Conservative party said it would eliminate the so-called triple lock in favor of a double lock, while Labour would not. The triple lock was introduced in 2011, and stipulates that the basic state pension will at least rise annually by the highest of inflation (as measured by the Consumer Price Index), average earnings growth, or 2.5%. Under the double lock, pensions would rise in line with the highest of either the earnings that pay for them, or inflation, and the 2.5% option would be eliminated.
According to the IFS, the double lock would likely benefit pensioners as much as the triple lock, and cost exactly the same in the near term. However, it said that in 50 years “we would expect the double lock to reduce spending by less than £5 billion relative to the triple lock, but still leave it costing almost £15 billion more than increasing the state pension in line with earnings.”
The Labour Party, on the other hand, has pledged to maintain the triple lock, and also vowed not to raise the state pension age beyond 66. According to the IFS, this would be “immensely expensive in the long run – up to £50 billion a year in 50 years time relative to raising state pension age in line with longevity and increasing the pension in line with earnings.”
Johnson also said that “it is likely that the Conservatives would either have to resort to tax or borrowing increases to bail out public services under increasing pressure.” As for the Labour Party’s fiscal plans, he said it “would require higher taxes that affect many of us. Labour should not pretend that such a step-change could be funded entirely by a small minority at the very top.”
The IFS said that when dealing with the inevitable trade-offs, policymakers need to have three key questions in mind:
- Is the financial support offered to pensioners by the state in retirement sustainable in terms of the burden it places on the working population?
- Are the mechanisms by which the private financial sector helps people save for retirement sustainable in the sharing of risk between employers and employees?
- Is the way in which the state and private systems interact sustainable in the sense that the combination promises people a reasonable degree of financial security without creating unduly powerful disincentives for them to work and save?”
Tags: Brexit, British election, Pension, triple lock