Good morning from New Economy Brief.
Recent changes in inflation and average earnings figures have subtly changed the politics of social security uprating this year, intensifying scrutiny of the state pension ‘triple lock’.
This week we explore how those changes feed through the uprating system and ask whether working age social security payments should have a ‘triple lock’ of their own - a policy which new polling shows has broad political support.
Falling inflation, rising wages? Last week, media headlines celebrated the biggest six-month fall in inflation in over three decades, proclaiming we’d reached a turning point as monthly CPI showed ‘record pay growth’ outpacing inflation for the first time since the cost of living crisis entered the political lexicon.
Pensions will be uprated by (misleading) rising pay growth figures. One consequence of rising headline earnings and falling inflation is that the state pension may be uprated by a higher percentage than working age benefits later this year, because of how the uprating mechanism works. Essentially, under the triple lock, pensions rise each April by whichever is highest: the rate of pay growth (measured in July the previous year), inflation (September figures), or 2.5%. This has protected pensioners’ incomes from inflation since being introduced by the Coalition government in 2010.
Triple lock for social security? The government should seek to recreate the success of the triple lock policy by applying it to working-age social security payments, as well as the state pension, argues Paul Waugh in the i. Waugh says the policy’s costs over time would be modest, and that it could “cut child poverty as effectively as it has cut pensioner poverty in recent years”.
Influential thinkers. In the first instalment of a new regular column for LabourList, IPPR’s George Dibb examines the economic thinkers shaping Labour’s economic agenda. Citing Marianna Mazzucato, Dani Rodrik, Janet Yellen and Heather Boushey, Dibb notes that many of these thinkers are also shaping Bidenomics in the USA.
National Energy Guarantee. Labour MP Clive Lewis has tabled an amendment to the forthcoming Energy Bill calling for the introduction of a National Energy Guarantee scheme, which would ensure that everyone can access a basic amount of energy. The scheme is based on a proposal from the New Economics Foundation.
Profits rising. UK firms continue to boost their profit margins amid claims of price gouging during a cost of living crisis, according to the Guardian’s Philip Inman. Inman argues that continuing strong profit data will put pressure on the Bank of England and make their dismissal of warnings over profiteering “increasingly contentious”.
Sick man of Europe. The UK lags behind peer countries on almost every healthcare measure, argues Professor Dame Sally Davies in the Guardian. Davies, a former chief medical officer for England and chair of the IPPR Commission on Health and Prosperity, makes the point that “sickness is not only a matter of life and death, but of livelihood and opportunity too.”
Pension risk. Pension funds could be putting the savings of millions at risk by not properly pricing in risks associated with climate change, according to a new report from Carbon Tracker. The report finds that many funds rely on models that predict few adverse economic effects even with 5 or 7 degrees centigrade of warming - even though climate scientists warn that this would be an existential threat to humanity.
Does debt slow growth? The evidence for a threshold above which high public debt starts to harm economic growth is “extremely weak” according to a new analysis from Philipp Heimberger from the Vienna Institute for International Economic Studies. The study finds that “the econometric literature has so far not provided robust evidence for consistently negative growth effects of higher public debt levels.”
Unearned income tax. Someone who earns £60,000 a year in capital gains pays less tax than someone with an income of £35,000 from employment, according to new research from the Intergenerational Foundation. The report argues that taxation of unearned income in the UK is a major source of unfairness and is out of step with other similar countries. The IF says that the revenue form equalisation could be used to increase the income tax personal allowance to £13,800 and reduce income tax by 1.25% in every bracket.