Lies, damned lies and statistics

In less than a fortnight British parliamentarians break up for their summer hols having tied up all the loose ends.

Er, if only. Sure, their summer recess begins on 22 July and runs until 1 September, and MPs probably can't wait to get away. Unfortunately, though, while they're running for the hills, they're leaving behind them a mountain of problems from which they can run but can't hide. The problems will be waiting for solutions, with increased urgency, when they return to the green benches for the gruelling autumn term.

Government MPs will need to brace themselves for the upcoming budget and the Office for Budget Responsibility (OBR) has just fired a broadside in the form of its Fiscal Risks and Sustainability Report. The OBR produces this assessment of the state of the nation's finances once a year and it is generally met with a determined collective effort from our political leaders to ignore it as being too problematic. This year, that might not be possible.

As the watchdog’s chief, Richard Hughes, said yesterday: “We produce these reports to draw attention to these issues, and our hope is that there is some attention paid to them.” Hope springs eternal and this year might be the one where the 'issues' are so urgent that they can no longer be ignored. Rachel Reeves has had a bruising time of it recently but things could be about to get even worse for her.

Let's start with a subject of existential interest to me as a pensioner - the state pension. After all the hoo-ha and backtracking over the Winter Fuel Payment cut, Mr Hughes' assessment that the state pension triple lock is utterly unaffordable certainly ought not to be ignored. Having trebled in cost to more than £15bn a year the status quo is on course to cost more than 7% of the country's GDP within 50 years. Could another 'screeching U-turn' lie ahead this autumn?

The triple lock is a mechanism guaranteeing annual increases to the state pension by the highest of three measures: inflation, average earnings growth, or a flat 2.5%. This ensures that the state pension keeps pace with the rising cost of living and doesn't fall behind average wages. It was introduced in 2011 by George Osborne to ensure the state pension did not lose value over time. As such, it was a key part of the Tory-led coalition government's reforms to the state pension system, aiming for a more generous and simpler system. 

Scrapping it will inevitably lead to the rising tide of public anger and resentment against Rachel Reeves and the Labour government turning into a tsunami. With many backbench Labour MPs having got the taste for rebellion during the recent welfare reforms debacle and with 'mid-term' local elections due next May, it is understandable that the government will not wish to grasp this particular nettle right now, but they will not be able to avoid it indefinitely.

The UK state pension, hardly generous as it stands - the proportion of pre-retirement income replaced by it being around 54.4% for average earners, lower than the OECD average of 61.4% - is probably overdue reform. Other European countries have a range of schemes for paying for their pensions and the UK's system of National Insurance (NI) contributions, with all the demands of an aging population, needs to adapt.

It's axiomatic that turkeys don't vote for Christmas so I'm not anxious for the triple lock to be scrapped, especially after the winter fuel fiasco, but I acknowledge things can't go on as they are indefinitely. To be frank, while nice to have, I don't actually need the £200, though many pensioners clearly do. While I think the government's initial argument that, with the triple lock, most pensioners would be better off held water, the way they went about it was disgraceful. 

Had the government trusted the public sufficiently to have that conversation in a measured way things might have turned out differently. Instead they (or Ms Reeves and the Treasury) steamrollered through a policy that was not in their manifesto and then seemed blindsided by the reaction. Their strategy (so far as one was discernible) was probably to get bad news out of the way early in a new parliament. This was naïve at best.

Now, having painted themselves into a corner, it is hard to see how they can escape without paying a severe electoral penalty. The combination of spending on healthcare and welfare could push public debt above 27% of GDP by 2070. According to City AM's analysis of the OBR report, the full cost of climate change mitigation and the net zero transition is estimated at £803bn between now and 2050, or £30bn a year. 

But, long before that, the nation will have to confront the fact that “the UK government faces the third-highest borrowing costs of any advanced economy” and that, with demographics and structural conditions as they are “the UK cannot afford the array of promises that it has made to the public.” There is, of course, the option of a 2% tax rise on wealth over £10 million which could raise £24 billion annually. Then again, perhaps not.

In which case, the sooner government broaches the awkward subject with the people the better.