OECD urges UK to drop triple-lock pensions to fix public finances

The OECD has used its latest economic survey of the UK to call for an end to the triple-lock, a policy introduced in 2010 that guarantees state pensions rise by the highest of inflation, wage growth or 2.5%.

The organisation warns the promise “puts upward pressure on public expenditure and adds significant fiscal risks by exposing public finances to supply shocks, thus requiring a timely reform”. For European investors, this fiscal vulnerability in one of the continent's largest economies is a concern, particularly given the broader pressures of modest growth, high debt, and rising spending demands from climate change, defence and an ageing population. The OECD notes these factors leave the UK with minimal fiscal space.

Replacing the triple-lock with an average of earnings and inflation could yield long-term savings worth 2% of GDP. This represents a substantial fiscal correction, especially since the UK's independent Office for Budget Responsibility has calculated the current policy already costs three times more than originally anticipated.

This advice lands as Rachel Reeves prepares to leave the Treasury after two years as chancellor, with Andy Burnham expected to become prime minister next week. The impending leadership change presents a window for policy shifts. The OECD broadly praised Reeves for restoring stability, noting her pro-growth agenda “provides a strong basis for a gradual recovery”.

However, the 140-page assessment makes clear that her spending plans “leave limited room for manoeuvre”. The OECD advises the next chancellor against raising headline tax rates, warning “the tax burden is already high, while the system remains complex and distortionary”.

Instead, the report suggests finding savings through public service efficiency, pointing specifically to the National Health Service. Hospital spending is high by international standards, and the report argues “there may be scope to improve the efficiency of hospital operations. Operational improvements could include better coordination of patient discharges, at the right time to the right location, especially as capacity is constrained in out-of-hospital care.”

Responding to the findings, Reeves said: “The OECD agrees that we have restored stability, putting the economy in a much stronger position than it was two years ago.” Whether her successor will heed the OECD's warnings on the triple-lock remains to be seen.