Markets Wrap: The Triple Lock, Bond Yields and Housing

Merryn Talks Money

The episode examines the UK Labour government's recent economic announcements, focusing heavily on Andy Burnham's proposed reform of the pension triple lock and its link to social care funding. Hosts Merryn Somerset Webb and John

Key takeaways

• Andy Burnham plans to reform the UK triple lock so state pensions rise with average earnings long-term, saving billions but requiring new broad-based taxes for social care
• UK gilt markets are currently calm not because of policy approval, but because investor attention is distracted by French political and fiscal instability

Main topics

• UK pension triple lock reform
• Social care funding and taxation

Notable quotes

"All this relentless fuss about the triple lock. I mean, I... believe and have written that the triple lock is about UK pensions."

Conclusion

Listeners gain a clear understanding of why UK fiscal promises face market skepticism and

Transcript preview

Speaker 1 (0:00) AI is entering its most consequential phase where scale, safety and sovereignty will determine who leads and who lags. Join Bloomberg Tech in London on November 2nd and 3rd as global leaders across business, finance and policy examine the defining trade-offs shaping the future of AI. Thank you to our presenting sponsor, Salesforce, and supporting sponsors, IDA Ireland and Schneider Electric. Learn more at BloombergLive.com slash Tech London. Speaker 4 (0:32) Bloomberg Audio Studios. Speaker 3 (0:34) Podcasts. Radio. News. Speaker 3 (0:47) Welcome to the Meron Talks Money Market Wrap, where we talk about the biggest moves in the markets this week and what is driving them. I am Meron Somerset Webb, UK money editor at large. Speaker 2 (0:56) And I'm John Stevick, senior reporter at Bloomberg and author of the Money Distilled newsletter. Speaker 3 (1:01) We're not at the Labour conference, are we, John? Speaker 2 (1:04) No, we've been banned. Speaker 3 (1:06) No, we haven't. We just went and fight it. It's different. Speaker 2 (1:09) I think that's called shadow banning these days. I Speaker 3 (1:13) think I probably was invited to sit on a panel actually a couple of days ago and I've forgotten. But it's been interesting, right? It's been interesting. And we're going to talk about that. We're going to talk a little about the bond market. We're going to talk about the triple lock, the triple lock, the triple lock. I mean, this is a little deck chairs in the Titanic fiddling while Rome burns, isn't it? All this relentless fuss about the triple lock. I mean, I... believe and have written that the triple lock is about UK pensions. By the way, those of you who are unfortunate not to be living from another country and you don't know about the UK's obsession with our state pension and with the triple lock, the way in which the pension is supposed to every year go up by earnings, inflation, or 2.5%. Whichever is the highest, which of course is outrageous. But our state pension was very low, is up quite a lot in real terms. And at the same time, we have introduced an auto-enrollment system, which means that everybody in work has the beginnings of quite a hefty backup in a defined contribution pension. So that's the background. The triple lock, there is a view. should no longer exist because it is no longer required. Pensions have gone from the group that most frequently lived in poverty in the UK to the group who least frequently live in poverty in the UK. So there's a case for saying this is insanely expensive. Do you remember in the beginning, it was supposed to only cost 50 million quid or so over however many years now, because billions and billions and billions. So here's one of the Big ideas from our new Prime Minister, Andy Burnham. Speaker 2 (2:41) This big reform to the triple lock, which has probably been the most headline-grabbing point that he made. What they're doing is this. The way the triple lock has been set up so far means that the state pension will always rise faster than average earnings over the long term. And so in the long term, what you're going to get is a position where the state pension as a percentage of average earnings keeps climbing. And whenever it first kicked off in 2011, the state pension is a percentage of average earnings. The state pension was still going up with inflation every year, but it had kind of collapsed to being about 10 % of average earnings. Now low after years of the triple lock, it's back to about 25 % or 30 % depending on which average earnings figure you use. But the point is, it's back to pretty much the historic high. And it will go towards kind of record levels quite soon. Speaker 3 (3:32) And as I say, you have the auto-enrollment as well. Whereas in the old days, you had the state pension and then some people had a DB. Public sector workers had a defined benefit pension. They still do, by the Speaker 2 (3:45) way. Speaker 3 (3:45) And a lot of private sector Speaker 2 (3:46) workers. Yeah, Speaker 3 (3:47) and a lot of private sector workers. But if you didn't have a DB, you were reliant almost entirely on the state pension. So there were an awful lot of people for whom the state pension was it, was all there was. In the future, assuming you've worked and most people will work or most people should work, assuming you've done that, you will have backup in the form of your auto-enrollment. So apart from anything else, the pensions landscape in the UK has changed. very dramatically since the days when the state pension was far from adequate. And you could argue it's far from adequate today if you had to live on it alone, but not that many people live on it alone, I Speaker 2 (4:25) hope. You don't have to live on it alone because the point is we've also got a welfare state that picks up after the people who do have to live on it alone. And so I think they may always find this slightly irritating because this constant reference to a group of people who live on the state pension. just by itself. And this tends to be made by people who are not in that position. It's a long story short, it'll now just go up with average earnings