Andy Burnham has been urged to reduce spending on the pensions triple lock or welfare as the fallout from the Iran war continues to hit the economy.
One of his former economic advisers, Jim O’Neill said the new prime minister should rein in the “excessesof government expenditure and tackle “sacred cows”.
Bond markets would respond favourably if he were “to take credible action to deal with the excesses of the triple lock or the excesses of welfare spending”, said Lord O’Neill, who advised the former Greater Manchester mayor on economic affairs as he prepared to enter Downing Street.
Lord O’Neill, who decided not take a position in the new Labour administration, told Times Radio there had been a “denial from all sorts of governments” in recent years about the state of the public finances, and previous administrations had lived “in a world where none of these things seem to be real”.
His warning to get a grip on spending comes as UK government borrowing costs reached their highest level since the 2008 global financial crisis earlier this week, in part thanks to continued global instability caused by the Iran war.
Lord O’Neill said: “If you have the markets carrying on doing what they’re doing globally… eventually they’re going to have absolutely no choice [but to cut spending] because the penalty of the debt servicing cost and the knock-on effect to other markets including mortgage rates will be too severe for a government to resist.”
The triple lock, which guarantees the state pension will rise by 2.5 per cent, average earnings, or inflation, whichever is highest, has long come under fire from critics who say it is unaffordable and limiting the Treasury’s room for manoeuvre.
Before he entered No 10, Mr Burnham announced he would keep the controversial pensions lock, saying that while he appreciated there was a “lot of debate” about the pledge it was “important that the commitment in the manifesto stands”.
Labour pledged to retain the lock in its 2024 general election manifesto. Reform has said it will keep the triple lock if it wins the next election, and fund it with the “biggest benefits cut in history”.
On Wednesday Labour MP and former health minister under Keir Starmer, Zubir Ahmed, called for an “honest” and “grown-up” conversation about the pension triple lock as Labour goes “into the next election”.
He told the BBC’s Politics Live programme that “maybe the triple lock is quite a blunt instrument” that was “appropriate for its time” and that there could be a more “sophisticated” way to support pensioners in need.
But he added that the lock was a “manifesto commitment” that would be stuck to “through the course of this parliament”.