Scrapping the state pension triple lock could save taxpayers around £60billion, according to a major international economic body.
The Organisation for Economic Co-operation and Development (OECD) has urged incoming Prime Minister Andy Burnham to gradually reform the policy, arguing the UK’s pension system has become “unusually generous” compared with other advanced economies.
In its latest assessment of the UK economy, the Paris-based organisation said linking annual state pension increases to either inflation or average earnings, rather than whichever is higher, could generate long-term savings worth the equivalent of two per cent of GDP, or around £60billion.
Angeline Ong, senior investments analyst at IG, said: “The OECD has added its voice to a growing chorus questioning the long-term sustainability of the triple lock, but politics remains the biggest obstacle to reform. Mr Burnham has effectively boxed himself in by committing to preserve it, making any near-term changes highly unlikely.”
The triple lock currently guarantees that the state pension rises each year by the highest of inflation, average earnings growth or 2.5 per cent.
However, Mr Burnham has pledged to keep the policy, making any immediate changes unlikely despite growing calls from economists and international organisations to reform it as pressure on the public finances continues to mount.
Alongside its recommendations on pensions, the OECD also urged ministers to review more than £12billion of tax increases introduced by former Chancellor Rachel Reeves, warning that repeated tax rises were adding to the cost of living.
It specifically called for a rethink of higher employer National Insurance contributions, describing the £25billion tax increase as one that risks pushing up prices for consumers.
The report also said higher minimum wages and expanded employment rights introduced under Angela Rayner were increasing labour costs and weighing on business competitiveness.
According to the OECD, policies including higher employer National Insurance contributions and day-one employment rights are contributing to domestic inflationary pressures by increasing the cost of employing staff.
Ms Ong added: “That means investors should focus less on whether the triple lock survives this parliament and more on where the government ultimately looks to absorb the mounting fiscal cost. If one area of spending remains politically untouchable, the pressure inevitably shifts elsewhere.”
The think tank cautioned that Britain had little room for additional tax increases, noting that higher earners already contribute a substantial proportion of total receipts.
Instead of raising statutory rates further, the OECD recommended that fiscal consolidation should focus primarily on controlling expenditure and improving tax efficiency.
The report also warned that potential increases to capital gains and property levies, favoured by some in Mr Burnham’s circle, could prove particularly harmful to economic growth due to inefficient tax bases and strong behavioural responses from taxpayers.
Britain already imposes some of the highest property taxes among industrialised economies, the think tank observed.
Ms Reeves’s decision to extend the freeze on income tax thresholds for an additional three years, prolonging a Conservative policy originally introduced by Rishi Sunak, means fiscal drag will continue for a decade, pulling more workers into higher tax brackets as wages rise.
Despite its concerns about fiscal policy, the OECD endorsed Mr Burnham’s ambitions to shift power away from Westminster to the regions.
The think tank said deeper devolution was essential for giving local institutions the authority and certainty needed to boost regional productivity.
Mr Burnham has pledged to establish a “No. 10 North” in Manchester as part of his efforts to rebalance resources between the capital and other parts of England.
The OECD’s economists argued that local authorities required greater institutional capacity through improved staffing and training to make effective use of their expanded responsibilities.
Looking ahead, the forecaster predicted economic growth would slow to 0.9 per cent this year, down from 1.4 per cent in 2025, largely due to elevated energy prices stemming from the US-Iran conflict.
The economy is expected to recover modestly, expanding by 1.1 per cent in 2027, while inflation should ease from 3.7 per cent to 2.4 per cent over the same period.
