Economists warn of tax hikes after Burnham admits social care funding ‘shortfall’

Former Labour leader Andy Burnham has conceded that funding his proposed national care service may require a shortfall in his ambitious plans, leading economists to predict tax increases. Burnham outlined modifications to the triple lock mechanism, set to commence in 2030, which would adjust state pension payments based on inflation or 2.5 percent, whichever is greater, thereby removing wage growth considerations.

The Times Radio interview revealed that the savings from these changes wouldn't be realized until 2040, leaving a gap that could necessitate an increase in national insurance or income tax if Labour secured victory in the upcoming election.

The proposal to replace the triple lock with a system that guarantees state pension hikes tied to earning increases, but without allowing it to fall short of inflation, was widely endorsed. However, economist Paul Johnson from the Institute for Fiscal Studies emphasized that this plan alone wouldn't finance free social care anytime soon, necessitating a tax hike.

The projected annual cost for the service is £18 billion. Andrew Wishart, a senior UK economist with Berenberg, echoed this sentiment, stating that while the adjustment would modestly restrain spending on state pensions over time, it wouldn't be sufficient to fund the new service at its proposed level. Johnson cautioned that without further tax increases, the policy could not meet Labour's promises not to raise personal tax rates by 2024, highlighting the unavoidable tax hikes required to make the plan feasible before the next election.