The uncertain future of the triple lock obscures the crisis facing young people

As the government weighs up whether to keep or to alter the ‘triple lock’ on the state pension, young people face a systemic crisis that is undermining their financial security. Intergenerational Foundation student volunteer Charlotte Foster explores the ways in which the government is reinforcing this crisis.

On 19 October 2022, the now former PM, Liz Truss, stated her determination to firmly maintain the “triple lock” on the state pension. The announcement came alongside news that inflation has risen to a staggering 10.1%, leading to renewed concern about the cost of living crisis.

The state pension is the UK government’s single largest item of welfare spending. First implemented in 2010, the triple lock ensures that the state pension increases in line with whichever of the following is highest: inflation, the average wage increase, or 2.5%.

With inflation running at a four-decade high of 10.1%, the triple lock is expected to lead to an additional £5 billion of governmental spending in the coming fiscal year.

The fall-out from the “mini-budget” has increased concern and speculation about further cuts to public spending, including the possibility that the government might drop the triple lock. New Prime Minister, Rishi Sunak, has not been as unequivocal in maintaining the triple lock as his predecessor. His announcement concerning the fate of the triple lock will be announced on 17 November 2022, as part of the broader fiscal declaration.

A staggering difference

Despite strains concerning the triple lock, pensioners have at least felt the benefit of its implementation over the last decade. For younger people, the picture is staggeringly different. The younger generation has been facing record high rents, spent the greatest proportion of their expenditure on necessities of any age group, and are the least likely to have savings to fall back on.

Earlier this year, the UK government announced plans to “reform” student loan repayments. This, in combination with other potential tax increases and frozen tax thresholds, is pushing the younger generation towards greater financial and personal insecurity and exacerbating inequality within the coming generation.

With major announcements in the coming weeks on how the government might cut spending or raise taxes, it is important to reflect on the age biases which are, once again, being highlighted through the government’s fiscal policy.

The Packhorse generation

Since the COVID-19 pandemic, state debt increased drastically as government intervention was desperately needed in order to fund programmes such as the furlough scheme, the test-and-trace program, PPE, and the manufacturing and distribution of vaccines.

By the end of the 2020-2021 financial year the UK government was facing a gross debt of £2,223 billion. The government has repeatedly chosen to avoid targeting their older and wealthier voter base and instead targets those less likely to vote for them, or to even vote at all – the younger generation.

Student loan reforms

Younger generations face growing insecurity as a result of shouldering the burdens they have inherited, paying not just for the unforeseen crises but for unresolved ones too, such as social care. One way in which higher taxation targets the young is through student loan repayment. Such upcoming changes expected to the student loan repayment regime are:

• The tuition fees cap will be frozen at £9,250 for the next 2 years
• There will be a RPI+0% for new borrowers starting courses from 2023-24, replacing RPI+3%

• The loan repayment which traditionally increased in line with average annual earnings would be expected to increase by 4.6% to £28,550 this coming year. However, this has been frozen to remain at the £27,295 level
• The student loan repayment term has been extended from 30 to 40 years for new borrowers from September 2023, to ensure more students repay their loan in full

These reforms come as a bid by the UK government to ensure a greater proportion of graduates repay their student entire loan (this is estimated to increase to around 70% of graduates following the reforms). Whilst there are some aspects of the student loan reforms which benefit students, such as tuition fees being frozen at £9,250 and the removal of higher interest rates on student loans, for many graduates it is exacerbating a class divide within the younger generation. Firstly, the wealthiest 10% of students are not even in the system. Those with starting salaries around £28,000 are estimated to lose the most as they will be less able to fully repay their student loans, and are expected to continue making payments for an additional ten years and of a larger proportion of their earnings than under the current system and compared to higher graduate earners. This will total around 2% of their lifetime earnings going towards repaying their student loan.

Fiscal drag, a stealth tax

Additionally, with income tax brackets having been frozen until 2026, smaller proportions of people’s income will fall into the lower tax brackets or the personal allowance; this “stealth tax” is expected to raise around £3 billion for the government between 2022-23.

In the midst of a cost-of-living crisis, a growing proportion of young people’s income is to be lost via taxation. This puts the younger generation in a place of mass insecurity. Those who will fare worse in this unstable trajectory are those living on an average or lower income – the young people already most vulnerable during this cost-of-living crisis.

This restricts not only graduates but future higher-education students from preparing themselves well for the future, to focus on building a secure future for themselves and their families or even to benefit from the independence and the financial security that previous generations might have been able to take for granted.