‘Linking state pension to earnings would save £6bn’

Money-Cash-Coins-GBP-Pounds-UK-700x450.jpg

Abandoning the Government’s triple lock pledge on the state pension to link payouts to earnings along would save £6bn over 10 years, according to a think-tank.

The Government has committed to uprate the state pension based on average earnings, inflation or 2.5 per cent, whichever is higher.

The Resolution Foundation, which is chaired by former universities minister David Willets, instead recommends linking the pension purely to earnings.

The think-tank says if such a programme had been in place throughout the last parliament and  this parliament, it would result in £6bn of savings.

The proposal was part of a raft of measures put forward by the think-tank aimed at finding savings in place of Chancellor George Osborne’s planned cuts to tax credits.

The triple lock on the state pension has previously come under fire from economists, who have questioned its value as a policy.

The Office for Budget Responsibility previously estimated it would cost £2.9bn for 2014/15 alone. But in a report that was published in error, the Government Actuary’s Department put the cost of the triple lock at £6bn.

Other proposals include reversing the increase to the inheritance tax threshold to £1m by 2020.

Together with increases to the rate of corporation tax, the Resolution Foundation estimates the Chancellor could add as much as £3.4bn to the public purse.

Similarly, the think-tank says linking the personal allowance or the basic rate of tax to inflation, rather than accelerating either as currently planned, could save £4.9bn or £1.3bn respectively.

Resolution Foundation senior economic analyst David Finch says: “If the Government is serious about providing more help to working families, its only option is to reverse the cuts. Fortunately there are plenty of ways to fund this move – such as cancelling tax cuts targeted at better off households.

“With a surplus of close to £12bn pencilled in for the end of the parliament, the Chancellor can afford to cancel the tax credit cuts and still eliminate the deficit.”

It comes after Work and Pensions committee chair Frank Field suggestd reducing pensions tax relief as an alternative to cutting tax credits.