The triple lock will condemn Britain

Link: https://www.spectator.co.uk/article/the-pensions-triple-lock-will-condemn-britain

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The triple lock says that each year the state pension will increase by inflation, average earnings, or 2.5 per cent, whichever was highest in the year before. It is hugely popular with the Conservative party’s elderly base. It is also a fiscal and economic millstone around the British government’s neck.

The last two years have amply illustrated the basic problems with the design of the scheme. The first is that it was clearly not created with unusual economic circumstances in mind. In 2021, wages dropped in a short but deep recession. The next year, they went back up again. In economic terms, very little had changed. The rule used by the triple lock, however, treated this like a period of strong economic growth. If it had been left untouched, pensions would have increased by 8 per cent. And thanks to the ratcheting effect of the triple lock mechanism, they would have retained that boost against UK GDP into the long term.

In the end, the government ended up suspending the triple lock for a year, only to fall right into another unusual situation: stagflation, where economic activity stagnates but inflation skyrockets. Again, the triple lock recommends a large boost to pensions when government finances are already under strain, and again, this would lift up pensions as a share of GDP long term. And again, the government should suspend the rule to avoid this. But it seems Liz Truss has bottled it. 

You would have thought it tempting for the Conservative party to wave these away as two unusual years; in normal times – when GDP, inflation, and earnings increase together – then everything would be fine, right? Well, no. The way the triple lock is designed means that whenever you have a downturn, pensions will tend to rise as a share of GDP. And whenever you have a boom, they keep pace. The net effect is a constant ratchet where pensions,  in the words of the work and pensions select committee, take up an ‘ever-greater share of national income’.

This is not sustainable. Spending on the state pension is already set to rise significantly as a share of GDP over the coming decades; as the population gets older, there are more people claiming pensions and fewer working to pay for them. Add the triple lock into the mix, and you double the expected increase in demand. Scrapping the arbitrary 2.5 per cent element doesn’t do a lot to help, either; you still have significant growth through the ratcheting effects of the first two elements.

Author(s): Sam Ashworth-Hayes

Publication Date: 19 Oct 2022

Publication Site: The Spectator UK

Baby bust: China’s looming demographic disaster

Link: https://www.spectator.co.uk/article/baby-bust-chinas-looming-demographic-disaster

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According to a new UN report, China’s population growth has collapsed by 94 per cent, from eight million a decade ago to just 480,000 last year. What’s particularly worrying for Chinese leaders is that this means a rapid reduction in the working population. The previous set of projected figures suggested that by the year 2100, China’s 15- to 64-year-old population would be 579 million. This has now been revised down to 378 million, a 35 per cent fall. If this prediction plays out, the implications for China – and the rest of the world – could be brutal.

Today, every 100 working-age Chinese need to support 20 retirees. If trends continue, by the turn of the next century, every 100 workers will have to support 120 retirees. This means China will have the largest drop in working-age population among any of the G20 economies by 2030, with more than 23 million fewer Chinese. In percentage terms, Japan and South Korea will shrink even faster – but they became rich before birth rates began plummeting.

Author(s): Rana Mitter

Publication Date: 6 Aug 2022

Publication Site: The Spectator UK