The Organisation for Economic Co-operation and Development (OECD) has presented an early to-do list for the incoming government, with a warning that Britain's state pension system is "unusually generous" and scrapping the triple lock could save the public purse more than £60 billion.
The OECD, a respected forecasting body, recommends moving from the triple lock to indexing the state pension against either inflation or average earnings, which would save 2 per cent of GDP in the long run – the biggest saving of any fiscal reform it put forward.
For small and medium-sized enterprises (SMEs), this is not an academic issue. If pension spending is not reined in, the money has to come from somewhere, and recent history suggests it comes from taxpayers, with employers often bearing the brunt.
The OECD urges the incoming prime minister and future governments to "prepare a medium-term reform of the triple lock that preserves pension adequacy while improving fiscal sustainability and reducing expenditure volatility."
According to the OECD, the triple lock has led to state pensions rising significantly faster than earnings, adding fiscal pressures and uncertainty, particularly during periods of macroeconomic volatility or weak growth.
The OECD is not alone in warning about the implications of the triple lock. The Office for Budget Responsibility has also cautioned that state pension spending is on course to almost double as a share of the economy by the 2070s, if the triple lock survives.
The politics surrounding the triple lock, however, remain complex. While the OECD recommends reform, the current government has indicated that it will not change the system in this parliament, with ministers instead focusing on reform of private pensions.
In other areas, however, the OECD has expressed support for the government's plans. The organisation backs the devolution of powers to cities and regions, calling this "an essential step towards giving local institutions the powers and certainty that is needed to drive regional productivity."
The OECD also recommends a revamp of the exemptions and cliff-edges built into income tax, VAT, and national insurance, which can be particularly challenging for small businesses to navigate.
The backdrop to these recommendations is a forecast for slowing economic growth and falling inflation. The OECD predicts that growth will slow to 0.9 per cent this year from 1.4 per cent in 2025, before edging up to 1.1 per cent in 2027.
In contrast, the chancellor has welcomed the OECD's overall assessment of the UK economy, pointing to restored stability and a forecast for growth that exceeds the G7 average.
For business owners, however, the message is less reassuring. The bill for the triple lock is growing, and the broadest shoulders in the tax system have a habit of belonging to those who run payrolls.
