ALEX BRUMMER: It’s not obvious that the country can afford to meet its triple lock pension commitment
They recognize that the Prime Minister’s credibility is shaken when she endorses a policy in the House of Commons, and questions are immediately raised about how long it will take for it to be reversed.
Liz Truss backed the triple lock – the best of median wages, consumer price inflation, or 2.5 percent – on next year’s state pension increases.
With the annual consumer price index (CPI) rising at or near its peak of 10.1 percent, it’s not obvious that the country can afford to meet its obligation to retirees with a record rise next year.
They recognize that the Prime Minister’s credibility is shaken when she endorses a policy in the House of Commons, and questions are immediately raised about how long it will take for it to be reversed
Social and political support for advancement is far more compelling than the economic arguments. Pension advocates argue that after a modest 3.1 percent increase in pensions last year, not passing on a full pension increase would be a betrayal of the social contract between the government and older citizens.
Technically, Social Security contributions pay for state pensions and are an entitlement. In reality, most of the funding comes from all taxes.
In the war between the generations, many younger people, weighed down by college debt, resent the idea that the fruits of their hard work should go to a group that was once beleaguered by college scholarships and is sitting in their homes on large capital gains while they cannot climb the ladder.
The other side of the story is that the UK state pension system is among the worst in the developed world. It condemns millions to freezing in their homes and shopping at Aldi or going to the local food bank.
The economic arguments for the pension jump are weak. At a time when government and employers are being encouraged to maintain a wage-price spiral by keeping wage settlements below headline inflation, it does not do well to single out one group for special treatment.
Chancellor Jeremy Hunt is looking to improve the tally ahead of the Halloween financial event and the cost of the triple lockdown could be seen as prohibitive by mandarins.
“Chancellor Jeremy Hunt is trying to better balance the books ahead of the fiscal event of Halloween.”
The rise in September CPI is worrying. Most worryingly, core inflation, which excludes energy and food, soared to 6.54 percent from 6.26 percent.
Bank of England Governor Andrew Bailey, who misjudged inflation as temporary a year ago, is now concerned about secondary effects. When inflation expectations rise, this feeds back into higher wage settlements, raising the prices of goods and services.
Hunt didn’t help by scrapping the energy price guarantee for 2024, which could help anchor expectations. Corporate rates are due for a CPI hike, which in turn could impact inflation if the costs are passed on.
All of this suggests that the bank is tightening its monetary policy stance in November, with a three-quarters, or a full point, hike from the current 2.25 percent. The consensus at the International Monetary Fund is that if inflation is to be contained, it is better to move hard and fast. Be prepared for more pain.
Rich loot
Trading and making deals has long been Goldman Sachs’ primary focus. No wonder, then, that she is withdrawing from her online retail bank Marcus. It’s being consolidated with Asset and Wealth Management, suggesting it no longer wants clients of modest means.
When it comes to attracting retail customers in the UK, the American giants can’t decide whether to enter or exit the roundabout. Citigroup announced last month that it was closing its UK retail operations to focus on wealthy customers.
JP Morgan is going in the opposite direction with the launch of British digital bank Chase, which is expected to employ more than 400 people. The bank could feel that it is making a terrible mistake if the chancellor chooses to keep the 8 percent bank tax surcharge or a reduced level of 5 percent when the corporate tax rises to 25 percent in April. The headline tax rates play a role.
Amazon unbound
Amazon launches a home insurance portal
The UK is a pioneer in digital comparison sites. The arrival of the ultimate disruptor Amazon, launching a home insurance portal after signing up with Co-op, the Allianz-owned part of LV and Ageas Insurance, is not welcomed.
Moneysupermarket’s shares fell 8 percent and Future, owner of Go Compare, fell. First Jeff Bezos came for books, then groceries, the cloud, satellites and now insurance. His ambition knows no bounds.
