The state pension triple lock costs will become the largest single driver of fiscal pressure on future British taxpayers, the Institute for Public Policy Research has warned, urging Chancellor John Healey to shift taxes away from income and towards wealth and property.
The paper, published by the Labour-linked think tank, found that demographic change will account for two-thirds of rising fiscal pressures on the government by 2050, rising to four-fifths by 2075. The IPPR is the former employer of several Cabinet ministers and senior advisers, including energy secretary Miatta Fahnbulleh and the Chancellor’s chief of staff Will Straw.
An ageing population and the state pension triple lock costs
Professor Ben Ansell, an Oxford University political scientist who authored the report, calculates that state pension expenditure and higher health spending will together add about 10 per cent of GDP to the fiscal burden on taxpayers by 2075. Of that, the state pension alone accounts for roughly three percentage points, with around half of that attributable to the triple lock.
The triple lock guarantees that pension payments rise each year by whichever is highest: inflation, wage growth or 2.5 per cent. A separate set of projections, cited in the paper, suggests the arrangement could push total old-age benefits to around £181 billion by 2030 under current trajectories.
The demographic backdrop is stark. According to The Times, the proportion of people aged over 65 in the UK is on course to rise from 18 per cent in 2024 to 27 per cent by 2075. The IPPR’s own analysis, drawing on long-term projections from the Office for Budget Responsibility (OBR), put the same figure at potentially surpassing a quarter of the population over the same period.
On current assumptions, the direct cost of the state pension is projected to climb substantially. Yahoo News Australia reported that, assuming benefits remain constant, state pension costs would rise from 5 per cent of GDP today to 7.7 per cent, an increase of more than half, driven almost entirely by the ageing of the population rather than any change in entitlement levels.
The OBR said earlier this year that the growing cost of supporting pensioners would help push UK public debt to three times the size of the economy, placing what it described as an “unsustainable” pressure on public finances.
“Ageing is going to become by far the biggest source of pressure on the public finances,” Ansell said. “Yet our tax system has increasingly shifted responsibility towards younger workers while protecting many of those who have benefited most from decades of rising property and asset wealth.”
A case for taxing wealth over work
Ansell’s proposed remedy centres on restructuring how revenue is raised rather than simply increasing it. He urged Healey to pursue a “rebalance” of the tax system that draws more from wealth rather than income, warning against the alternative of stacking up small revenue-raisers that generate “howls of displeasure from those affected”.
His specific proposals include replacing council tax and stamp duty with a proportional property tax set at 0.65 per cent. He also backed plans, mooted by senior Labour figures, to align capital gains tax rates with income tax rates.
On pensioners specifically, Ansell suggested a two per cent national insurance surcharge applied to those of pension age. He argued the measure would help create what he called a “new fiscal contract” that would “rebalance the system away from younger workers and towards wealth, property and unearned gains”.
“Reform is politically difficult, but avoiding it has simply given Britain an ever more complicated tax system,” he said. “We need a new fiscal contract: one that raises the revenue the country will need, shifts more of the burden from work towards wealth and property, and is honest with the public about who pays and why.”
AI taxation floated as a longer-term question
The report also raised the question of how to tax artificial intelligence if wealth becomes heavily concentrated as a result of its effects on the labour market. Ansell suggested that levies on the use of AI, sometimes referred to as floating point or FLOP levies, could offer one avenue, while acknowledging that such charges would pose practical problems of design and collection.
The Chancellor has not yet responded to the IPPR’s recommendations, leaving the question of any formal tax reform open ahead of future fiscal statements.
