Last week, I opined in these pages that intergenerational fairness should be a liberal priority. A commenter rightly challenged my suggestion that pensions be linked to CPI: poverty is measured relative to median earnings, not inflation. CPI-linking would let pensioners fall below the poverty line even as their purchasing power held steady — precisely what happened after 1980.
The correction clarified my thinking. If relative poverty matters — and it does — then benefits should track earnings, not just prices. The triple lock gets this right for pensioners. We should extend the same logic to everyone else.
* * *
I should acknowledge I muddled two concepts worth distinguishing. Destitution is absolute — the inability to afford essentials like heating, food, and shelter. Poverty, as officially measured, is relative — household income below 60% of the median. A person whose basic bills are covered is not destitute. But fall below that threshold and you are, by definition, poor: unable to afford what society considers normal.
That exclusion is real. It shows up as hesitation over a grandchild’s birthday present, or quiet withdrawal from social life. The triple lock exists because we decided pensioners should not face exclusion.
The mechanism embodies a sound principle: benefits should keep pace with living standards, not merely with prices. The earnings link achieves this. The CPI floor provides protection against inflation shocks. These two elements — earnings-tracking with inflation protection — form defensible policy.
What is harder to defend is the 2.5% guarantee. According to the OBR, the triple lock now costs £12 billion more annually than simple earnings-linking since 2011 — projected to reach £15.5 billion by 2030. The IFS recommends replacing it with a “smoothed earnings link” similar to Australia’s system.
* * *
Universal Credit and Jobseeker’s Allowance rise by CPI alone. Between 2016 and 2020, working-age benefits were frozen entirely. According to the House of Commons Library, unemployment benefits and the basic state pension tracked each other until the 1970s. Since then, they have diverged dramatically: the state pension has risen 89% since 2011, while unemployment support shows a decades-long downward trend.
This is political calculation, not principled policy.
The assumption that wages typically outpace inflation deserves scrutiny. Historically, they did — before the financial crisis, real wages grew by 1.7% annually. But since 2008, real wages have flatlined. According to the LSE, this is the longest wage stagnation since Victorian times. Average real pay remains below its 2008 level. For anyone who entered the workforce after the financial crisis — my entire working life — the assumption that earnings pull ahead of prices is not borne out by experience.
The asymmetry is not that pensioners receive inflation protection while workers do not. It is that pensioners receive a ratchet — whichever measure is highest — while everyone else gets whichever is lowest, or nothing at all. For working-age adults without dependent children, relative poverty has already increased.
The asymmetry persists in part because pensioners vote reliably and in large numbers, while working-age claimants are younger, more dispersed, and less likely to turn out. The triple lock survives because touching it is dangerous. Working-age benefits are squeezed because the backlash is manageable.
* * *
There are only two intellectually honest ways to resolve this asymmetry.
Option one: level down. CPI-linking for all, including pensions. Remove the earnings link and the 2.5% guarantee. Accept that relative poverty will rise for pensioners as it has for everyone else. This saves money but abandons the principle that benefits should track living standards.
Option two: level up. Earnings-linking with a CPI floor for all. Remove the 2.5% guarantee — the expensive, arbitrary element — and extend the earnings link to working-age benefits.
Neither is costless. But option two is fiscally manageable. In the post-2008 economy, earnings have rarely outpaced inflation; extending the earnings link would have cost little in most years. Removing the 2.5% guarantee alone saves billions annually. A system that tracks earnings for everyone, with inflation as a floor, would be more predictable, more sustainable, and more fair.
What cannot be defended is a system built on one logic for the old and another for everyone else.
If relative poverty matters — and the triple lock says it does — then it matters as much for a carer in a cold flat as for a pensioner in the same block.
* Dominic Rider is a Liberal Democrat activist in Shinfield, Wokingham. He has previously stood for local council. He used Claude AI as a drafting and research tool.
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6 Comments
“……then benefits should track earnings, not just prices. The triple lock gets this right for pensioners. We should extend the same logic to everyone else.”
Does “everyone else” include those who might be on low incomes but are neither benefits claimers nor pensioners?
Even if those on low incomes are in receipt of benefits, there is the argument that no-one should be if they are putting in a normal working week. Wages paid by companies which make substantial profits for shareholders should be adequate to cover normal living expenses. There’s no need for the taxpayer to have to subsidise Tesco or Sainsbury’s for example.
Lib Dems seem pretty good at campaigning for higher social benefits but don’t normally have much to say about wage levels.
You’d face far less popular opposition when campaigning against low wage levels rather than low social benefits.
I’m afraid something does not feel right about linking the benefits paid to job-seekers to the wages earned by those who work for a living. The purpose of job-seekers allowance is provide a basic level of assistance while they seek work – not to provide an alternative that, for some, may be enough to persuade them to not take employment. It is far more appropriate to link job seekers allowance to what is required to meet basic needs, perhaps with an appropriate percentage above, but not linked to those who work for a living and deserve a differential over those who could but don’t.
We need a separate inflation figure for basic needs. One of the reasons that the poor are feeling poorer is that the cost of things poor people buy does not rise at the same rate as a basket of goods and services based on total sales. Universal Credit and Pension Credit should be based on that index. Pensions which are intended to maintain peoples income in retirement should probably be based on mean income.
“If relative poverty matters — and it does — then benefits should track earnings, not just prices”
I am beginning to fear this needs a rethink.
Economic growth is elusive (and some of us call for a no-growth economy). The demands on the taxpayer are huge – ranging from the extremely urgent (getting to net zero and boosting defence significantly) to the merely highly desirable (care/education/NHS cleaning up the sewerage) and the myriad of nice-to haves.
The pre-amble to the constitution calls for nobody to be enslaved by poverty etc. Is enslavement a more practical reference point for Liberal Democrats in difficult times?
I don’t think there is an objective standard of what material standard of living should be afforded to somebody reliant on welfare. People sometimes talk as if there is, in order to argue for higher or lower benefits, which is fair game.
What I think we really have is a balance of political demands of, on the one hand, the humanity of not allowing misfortune to cause great suffering, and on the other hand, other legitimate uses for the nation’s resources, and a desire not be taken for a ride by the undeserving. (The latter is why those campaigning for less welfare will trumpet any cases of benefit cheats to the rafters.)
I don’t think a formula will ever be the answer to this. Embrace the politics. Try to support a system people can have confidence in. But reliance on welfare is kinda by definition a kind of poverty; the solution to poverty has to be opportunity.
Until the October 1973 the state pension and unemployment benefit were increased at the same level and social security was applied equally across those in work and those who had retired. The government decided that pensions would increase in line with earnings while working-age benefits would increase in line with inflation.
With the increase in the 1980s of the number of people unemployed there was more pressure that the unemployed should receive less than pensioners. In a House of Commons Briefing (https://researchbriefings.files.parliament.uk/documents/CBP-9872/CBP-9872.pdf ) there is a graph which shows unemployment benefit and pensions were just over 20% of average earnings in 1971, and in 2022 pensions were just below 20% and unemployment benefit were about 10% of average earnings.
Currently the benefit level for pensioners is 227.10 a week for a single person and £346.60 for a couple, while working-age people the amounts are £92.34 a week for a single person and £144.95 for a couple.
In 2010 we accepted that pensioners had suffered because their income had not increased in line with earnings. For those of working-age their benefits have not even kept pace with inflation with benefits only increased by 1% for three years 2013, 2014 and 2015 and then frozen for four years – 2016, 2017, 2018 and 2019.
In 2023 we passed policy to increase working-age benefits by £20 a week and to increase benefits to end deep poverty within the decade. However the £20 increase didn’t made it into our 2024 manifesto.