Treasury urges government to cut state pension triple lock to pay coronavirus bill

Other tax changes also slated to fund the cost of the pandemic

The state pension triple lock could be scrapped as the government tries to recover the £337 billion cost of fighting the coronavirus pandemic.

Chancellor Rishi Sunak has been advised to reform the guarantee by Treasury officials, according to a document seen by The Telegraph.

Treasury insiders told the Chancellor: "Stopping the rising cost of the pension triple lock would produce savings of c.£8 billion p.a. when compared to the base case."

The triple lock was implemented by the coalition government in 2011 to protect the state pension against inflation.

It guarantees that the state pension rises annually by whichever is the highest of price inflation, average earnings growth or 2.5%.

Should the pension triple lock be scrapped?

Experts have debated the triple lock guarantee since it was first announced a decade ago.

Some experts have criticised it for creating intergenerational inequality between working-age households, who have seen little wage growth over the last decade, and those who are retired.

The Social Market Foundation think tank last month called for the triple lock to be scrapped to pay for coronavirus.

Replacing the triple lock with a 'double lock' that removed the 2.5% element could save £20 billion over the next five years, according to the think tank.

But charities warn that scrapping the triple lock could make hundreds of thousands of pensioners worse off.

Age UK estimates that 700,000 more pensioners could fall into poverty by 2050 if the government waters down the triple lock.

Tax increases across the board

The Treasury is considering a wide range of other tax rises affecting workers and homeowners, as well as pensioners.  

Rises to income tax, VAT, national insurance and corporation tax are under consideration to refill government coffers.

Officials think a one percentage point increase in the basic rate of income tax, from 20% to 21%, would raise about £5 billion a year, according to the Treasury document.

VAT receipts plunged to £2.3 billion in March this year after the economy stalled during the lockdown. That is a £5 billion drop compared to the the same month last year.

Most goods have a VAT charge of 20%, up from 17.5% in 2011. Another increase in the rate of tax is being discussed by the Treasury to "raise fiscally significant amounts."

Other ways to cover coronavirus costs

Freezing public sector pay is also being considered by the government. Plans presented to the Chancellor estimate that a two-year freeze on public sector pay could save £6.5 billion in 2023-2024.

Treasury officials have also suggested introducing a “surcharge” to pay for the NHS and social care.

Introducing “green taxes” are also under consideration to help repay the coronavirus bill.

The Treasury did not respond to a request for comment by the time of publication.