The Prime Minister Liz Truss today said she is “completely committed” to the pensions title lock at the Prime Minister’s question time today which means she is standing by her commitment to increase state pensions in line with inflation. This is contrary to what new chancellor Jeremy Hunt said on Monday when he did not rule out the triple lock being suspended as he refused to make any commitments on individual policy areas until he delivers the rest of the medium term fiscal plan, alongside an OBR forecast on 31 October.
Do we believe the Prime Minister Liz Truss today? Given the number of u-turns she has made since she has arrived in office it is hard to trust what she says, plus the fact Jeremy Hunt made no commitment on individual policy, the threat of another u-turn on this commitment to the triple lock cannot be ruled out.
What is the triple lock? The triple lock is the formula used to determine the annual government pension increase. It was brought in 12 years ago to guarantee a fair rise for retirees every year and takes effect every April.
It is calculated by taking the highest out of the below and this is then applied the following April to the state pension:
•September’s inflation rate
•Or average wage rises in the previous July every April.
Last year this was paused because of skewed wage rises during Covid and the pensions only went up 3.1%.
Today the Office for National Statistics (ONS) announced the rate of inflation rose to 10.1% in September after food prices soared – up from an annual rate of 9.9% in August.
It is interesting to look a little deeper into these numbers, when you do you see food and non-alcoholic beverage prices rose by 14.6% in the 12 months to September 2022, up from 13.1% in August. The largest upward effects came from BREAD and CEREALS, MEAT PRODUCTS and MILK, CHEESE and EGGS (basically the food essentials. The yearly rate of inflation for food and non-alcoholic beverage has continued to rise for the last 14 months consecutively from a negative 0.6% in July 2021. The current rate is estimated to be the highest since April 1980.
What does Gaffsy think? … High inflation is going to be here for a while and the cost of living is going to increase putting pressure on households, likely sending more people below the breadline and increasing food poverty. Why do we think that? Because prices are going to stay high for a while as the action the Bank of England takes does not work immediatley. The Bank of England’s number one goal is to target 2% inflation that means it will continue to raise rates until it gets inflation under control. These higher rates make borrowing more expensive as you have seen with the rise in mortgage rates at the same time it encourages saving as bank’s start paying interest on your saving accounts. This reduces how much people spend and in-turn that is how inflation is lowered. But the problem for you and I is that it takes time for it to work and while we wait for it to filter through into the economy it feels to those without saving and a need for borrowing that there living crisis is compound especially as mortgage rates will continue to rise as will overdraft charges and interest on credit card bills.
On top of this with no end in sight to the war in Ukraine and sanctions against Russia energy prices are likely to remain elevated. We agree with the National Institute of Economic and Social Research which expects annual CPI inflation to increase further mainly driven by higher energy prices from October onwards. Whilst the energy price guarantee will give some support to the economy for the rest of the year, shortages in gas supplies are unlikely to abate and Chancellor Jeremy Hunt’s policy to revisit the energy price guarantee in April 2023 definitely increases the risk of continued higher inflation next year. The Bank of England predicts that the average British household will see its expenditure on energy increase to over £4000 by January 2023 (the average in 2021 was £1250).
A total of 9.7 million adults, 4 million children experienced food poverty in September and 54% of households on universal credit experienced food insecurity according to the Food Foundation’s latest statics. It is clear with the rising inflation and cost of living crisis more people will move below the breadline.
Finally there is some speculation that rather than raising benefits next April in line with the convention that the Government will instead raise them by 5.4%, in line with September 2022 earnings rather than the 10.1% ONS number just released. Whilst Gaffsy sympathises with the governments fiscal dilemma, the triple lock and universal credit needs to be honoured there are 12.5 million pensioners who receive the state pension, 5.6 million on universal credit and they will suffer greatly if the money coming into the house does not go as far as it did due to price rises and cost of living changes.