(Commonwealth_Europe) (Millions of pensioners in the UK are on course for a pay rise next spring, with state pension payments set to climb by 4.7%—a boost that will put extra money in people’s pockets but also heap further strain on government finances. For those living on fixed incomes, the increase will be welcome relief, but for Rachel Reeves and her Treasury team, it poses a new dilemma as they prepare for the autumn budget and consider whether higher taxes may be needed to cover the costs.
The reason for the increase lies in the so-called “triple lock,” a pledge introduced in 2010 that guarantees the state pension rises every year in line with the highest of three measures: 2.5%, inflation, or average earnings growth. New figures published on Tuesday show that wages, including bonuses, were 4.7% higher in the May-to-July period compared with a year earlier. With inflation currently at 3.8% and unlikely to rise above it by September, earnings growth will determine the uplift in pensions.
What this means in practice is a sizeable boost for retirees. From April, the new state pension is expected to rise from £230.25 to £241.05 a week—an annual gain of more than £500. Those on the older, basic state pension will see weekly payments climb from £176.45 to £184.75. For many pensioners, particularly those already struggling with household bills and energy costs, that difference will feel significant.
The government has been quick to stress its commitment to protecting pensioner incomes. Pat McFadden, the work and pensions secretary, confirmed on Tuesday that Labour would keep its election promise. “That’s a commitment from the Labour government to the UK’s pensioners,” he said firmly. “It’s something we said we’d do at the election and something that we will keep to.”
But behind the reassuring words lies a growing concern over the affordability of the triple lock. Successive governments have found it politically impossible to row back from the pledge, even as the financial implications mount. Projections from the Office for Budget Responsibility suggest that the cost of state pensions could rise from around 5% of GDP today to 8% by the 2070s. Half of that increase is linked directly to the triple lock, raising questions about whether such generosity can be sustained while pressures on other public services, from healthcare to social care, continue to grow.
Some economists believe the policy has already gone too far. The Institute for Fiscal Studies has argued for scrapping it, warning of both spiraling costs and the unpredictability it creates for future planning. Heidi Karjalainen, a senior research economist at the think tank, explained, “The triple lock has so far been much costlier than initially expected, and it creates a lot of uncertainty in terms of future spending. If the economy is doing well, then it won’t cost more than increasing the state pension in line with average earnings growth. But in volatile periods, it can become very costly—as we have seen in the last decade and a half.”
The announcement comes at a time when the wider jobs market shows signs of cooling. Official data reveals that pay growth has slowed and redundancies are creeping upward. The Office for National Statistics reported that regular earnings, excluding bonuses, rose by 4.8% in the three months to July—down from 5% in the previous period—while the unemployment rate remained at 4.7%, its highest in four years. Separate HMRC figures showed a decline of 8,000 in the number of employees on company payrolls, reflecting growing caution among employers.
Workers are already experiencing this slowdown. After accounting for inflation, the increase in regular pay decreased to 1.2% from 1.5% in the previous month. Businesses, meanwhile, say they are being squeezed by higher costs, pointing to Reeves’s earlier decisions to raise employer national insurance contributions by £25bn and to hike the national living wage by 6.7%. Many employers warn that these measures, while popular politically, have left them with no choice but to cut back on hiring or pass on costs to consumers. Daisy Cooper, the Liberal Democrat Treasury spokesperson, accused Labour of committing “self-sabotage” by creating conditions that she said were “pushing more people out of work and putting even more pressure on already stretched public services.”
For the Bank of England, the picture is equally complicated. Strong wage growth has been one of the factors fuelling inflationary pressure, making it harder to deliver further interest rate cuts. The Bank has already reduced its base rate four times in the past year, but with the economy appearing to slow, policymakers are now walking a fine line. Keeping rates too high for too long risks worsening the downturn; cutting too quickly risks reigniting inflation. For now, the expectation is that the Bank will hold its base rate steady at 4% when it meets on Thursday.
All of this leaves Reeves with difficult choices. On one hand, Labour has tied itself to the triple lock, a promise that offers reassurance to pensioners. On the other hand, every rise in pensions adds billions to the government’s bill at a time when tax revenues are under pressure and economic growth is faltering. The autumn budget will show how she plans to balance those competing demands. For pensioners, the immediate outlook is brighter, with a bigger check arriving in April. However, the government continues to debate the sustainability of the triple lock.
