Liz Truss has been forced to abandon plans to raise pensions by average earnings alone next year, which could have saved the government as much as £5 billion a year.
The prime minister and Jeremy Hunt, the chancellor, confirmed earlier this week that they were considering scrapping the “triple lock”, which raises pensions in line with inflation, earnings or 2.5 per cent, whichever is highest.
The move would have resulted in millions of pensioners facing a £400 drop in their income next April, with the inflation figures yesterday reporting price rises about double the rate of earnings. In another U-turn after a revolt by Tory MPs, however, Truss confirmed yesterday that the triple lock would remain in place and that pensions would rise next April by the consumer price inflation, now 10.1 per cent.
It means state pensions will increase from £185.15 to £203.80 a week, or £969 each year. The basic state pension, paid to those who reached state pension age before 2016, would increase from £141.85 to £156.10 a week.
Truss told MPs that she was “completely committed” to the triple lock, which was one of the Conservative Party’s manifesto pledges in 2019.
“We’ve been clear in our manifesto that we will maintain the triple lock,” she told the House of Commons. “I’m completely committed to it — so is the chancellor.”
Downing Street said the decision was taken “jointly” by Truss and Hunt yesterday before her appearance at prime minister’s questions. Her official spokesman said it reflected the “unique position” of pensioners, who are unable to increase their income through work.
“She and the chancellor have discussed and agreed the position the prime minister set out this morning,” the spokesman said.
The decision to stick with the triple lock will make life harder for Hunt as he tries to fill the £40 billion black hole in government finances.
The Resolution Foundation, an independent think tank, said that linking pension increases to earnings, rising at about 5.5 per cent, rather than inflation, would have saved £5.6 billion next year and a further £2.4 billion if applied to working-age benefits.
Government sources insisted, however, that Truss had no choice but to act after Tory MPs warned in public and privately that they would not support the measure.
The move will increase pressure on Truss to agree to a similar increase to benefits, which are also due to rise in line with inflation. So far Downing Street has not ruled out increasing benefits in line with earnings alone.
As she faced prime minister’s questions for the first time since her economic plan was ditched, Truss gave a public apology. She said: “I have been very clear that I am sorry and that I have made mistakes. The right thing to do . . . is to make changes, which I have made, and to get on with the job.”
Sir Keir Starmer, the Labour leader, mocked her, asking: “What’s the point of a prime minister whose promises don’t even last a week?”
He referred to a book being written about her. “Apparently it’s going to be out by Christmas,” he said. “Is that the release date or the title?”