State pension set for four percent increase amid 'steep' inflation rise

6 mins read

Inflation in the UK has made a record jump as the economy continues to bounce back from the pandemic. The Office for National Statistics (ONS) said the consumer prices index measure of annual inflation rose to 3.2 percent in August, up from 2 percent in July and the highest rate since March 2012. This means the cost of a meal has snapped back from a period of steep reduction a year ago.

The ONS said the rise was likely to be temporary as the reading had been heavily distorted by Chancellor of the Exchequer Rishi Sunak’s discount scheme, which offered customers half-price food and drink from Monday to Wednesday in August 2020.

This will come as good news to those saving for their pension pots, however, after the Government delivered a blow last week by suspending the triple lock.

Pensions looked set for an 8.8 percent rise, but the Government argued this figure was distorted by the pandemic and deemed it unfair for younger taxpayers to foot the bill.

This means the state pension will either increase by 2.5 percent, or in line with inflation.

Earlier this month, the Bank of England projected that inflation could reach four percent.

This figure is double the Central Bank’s target and one that hasn’t been reached in a decade.

Nevertheless, for pension savers this may come as good news.

The Bank of England Governor, Andrew Bailey, warned that the inflation comes with challenges for the wider economy.

He said: “The recovery will be bumpy given the nature and severity of the shock.”

He added: “The challenge of avoiding a steep rise in unemployment has been replaced by that of ensuring a flow of labour into jobs. This is a crucial challenge.”

Even if there is a four percent rise, this will pale in comparison to what pensioners were initially hoping for before the suspension of the triple lock.

However, economist with the free market Institute of Economic Affairs, Julian Jessop, tells that Prime Minister Boris Johnson made the right call.

READ MORE: Capital gains tax warning: Hike could lead to ‘triple tax’ on savers

He said: “I think it was right for them to change the triple lock for this year at least, I wouldn’t have done it necessarily in the way that they have done, I would have retained some form of link to average earnings.

“I would have used some underlying measure to be more consistent with the manifesto.

“As it happens though, the pension will probably come to a similar place as inflation is likely to be between three and four percent.”

Mr Johnson and Mr Sunak are still under fire for their National Insurance tax rise, but with just a small number of Tory MPs opposing the policy, they should be able to implement the plan aimed at paying for health and social care reform.

The suspension of the triple lock and National Insurance hike meant the Conservative Party has reneged on two manifesto promises.

State pension: Sunak and Johnson ‘right to suspend triple lock’ [INSIGHT]
Johnson and Sunak told to abolish state pension lifetime allowance [ANALYSIS]
Inheritance tax warning as Sunak may force families to ‘sell homes’ [INSIGHT]

Mr Jessop isn’t even convinced the tax rise will solve the health and social care conundrum, however,

He said: “It’s a tax increase for a start, you have to question whether you needed to raise taxes in the first place.

“But also, the money doesn’t look like it’s going to be well spent, so it doesn’t even look like it’s going to achieve the aim of improving health and social care.

“I think it’s a missed opportunity to have a fundamental rethink about social care and tax. Instead they have gone for a short term fix that actually may end up fixing nothing at all.

“There’s actually not going to be money for social care for several years, initially the money is going to be used to solve the backlog in the NHS.

“In the longer run, there’s no actual guarantee that this money will go to social care because, although they say it’s going to be ring-fenced, why would you necessarily believe a Government that’s just broken so many manifesto promises in a single day.”

Leave a Reply

Your email address will not be published.

Previous Story

Grassley, McConnell, adamant Republicans won't help Dems raise debt limit: 'Why are they coming to us?'

Next Story

'Divine!' Charlotte Casiraghi wore Grace Kelly’s 64-carat Cartier necklace for wedding

Latest from Blog

withemes on instagram