The triple lock on rises in the state pension could cost the government up to £20 billion in a single year in the wake of the coronavirus crisis, according to internal government figures.
Rishi Sunak is considering breaking the Conservative’s manifesto commitment to a “triple lock” on increases in the state pension amid mounting fears about the cost of the coronavirus crisis.
Officials are concerned that pensioner incomes could rise by as much a fifth in 2022 under the triple lock while millions of people are losing their jobs.
A government source said: “The unspoken story is if we don’t reform triple lock this is the baby that eats you out of house and home.
“When everyone else is going to be poorer and inflation is going down as well, pensioners will be seeing huge increases in their income. It’s unaffordable and unfair.”
The Conservatives recommitted in their manifesto to raising the state pension in line with whichever is higher: wages rises, inflation or 2.5 per cent. The policy was introduced by David Cameron in 2010.
However ministers are concerned that the bill could soar because of an artificial dip in wages caused by the government’s furlough scheme, which pays nine million people 80 per cent of their wages.
Once the scheme ends, average wages will increase in 2021 leaving the Treasury paying very large increases to pensioners in the following year.
Mr Sunak is arguing that the triple lock needs to be suspended for two years.
It is understood that the state pension bill, which is currently about £100 billion a year, could rise by between £12 billion and £20 billion.
Many senior Tory MPs have reservations about the sustainability of the triple lock, which was first introduced in 2010 by David Cameron.
Steve Baker, a Tory MP who sits on the Treasury select committee, said: “We can’t afford it. Obviously we need to look after pensioners but in the current environment a double lock on earnings and inflation would be far more affordable.
“We are now looking at it running into three or four parliaments. We are looking at the public finances being in a genuinely catastrophic state. We are all going to have to make very hard choices. In a deflationary environment, a fixed minimum on pensions increasing will produce anger in those not seeing those benefits.”
Mr Sunak and Mr Johnson have declined to rule out tax rises as the government considers how to reduce the long-term impact of coronavirus on the economy. Asked about the triple lock by MPs last month, Mr Johnson said: “We are going to meet all of our manifesto commitments. Unless I specifically tell you otherwise.”
The prime minister has ruled out austerity, leaving little room for manoeuvre. Cabinet ministers and senior Conservatives have warned against tax rises and said they could significantly hamper Britain’s economic recovery.
They have argued that additional borrowing should be treated like a wartime debt and paid off over a long time.
Last month an internal Treasury document concluded that the pandemic would cost the exchequer almost £300 billion this year and could require income tax rises, a two-year public pay freeze and an end to the triple lock.
