One of Britain's largest business organisations has called on Chancellor John Healey to scrap the state pension triple lock and replace it with increases linked to inflation.
The British Chambers of Commerce has made the politically sensitive proposal as part of its submission ahead of Healey's first Budget, arguing that savings from reforming pension increases should help fund measures designed to get more young people into work.
The BCC estimates replacing the triple lock with annual increases linked to consumer price inflation could save the Treasury around £3.3 billion over two years.
The proposal is not Government policy and there is currently no indication that Healey has agreed to scrap the triple lock.
BCC calls for triple lock to be replaced
Under the existing triple-lock guarantee, the state pension increases each year by whichever is highest of average earnings growth, inflation or 2.5%.
The British Chambers of Commerce wants the system replaced with annual increases linked to consumer price inflation.
Its Budget submission calls on the Chancellor to “Back Business, Cut Costs and Deliver Growth”, with the organisation arguing that businesses need greater breathing space to invest and recruit.
The BCC says money saved by replacing the pension guarantee could partly fund a reduction in employment costs for younger workers.
£3.3bn saving estimated over two years
According to the BCC, switching to inflation-linked state pension increases could free up approximately £3.3 billion over two years.
It wants the Government to use some of those savings to extend a zero rate of employer National Insurance contributions to workers aged between 21 and 24.
The organisation argues that cutting the cost of employing younger workers could help tackle rising youth unemployment and encourage businesses to recruit.
The BCC's latest economic forecast predicts youth unemployment could reach 16.6% by the end of 2026 before peaking at 17.6% during 2027.
Business group warns Healey against further tax rises
The triple-lock proposal forms part of a much wider package of demands being placed on the Chancellor ahead of the Budget.
The BCC is also calling for lower business energy costs, business rates relief and additional support for companies seeking to export.
Its research suggests only 17% of small and medium-sized businesses plan to increase investment this quarter, which the organisation says is the lowest level recorded since the pandemic.
Shevaun Haviland, director general of the British Chambers of Commerce, warned the Chancellor against responding to pressure on the public finances by increasing taxes on businesses.
She said: “Piling more taxes on firms would be a road to ruin. The quickest way to destroy business confidence.”
Haviland said the Government was in a “fiscal bind” but argued that measures reducing costs for businesses could ultimately generate stronger economic growth and higher tax revenues.
Politically difficult decision for Burnham Government
Any move to abolish or weaken the triple lock would represent a major political decision for Prime Minister Andy Burnham's Government because it directly affects the rate at which millions of pensioners' state pension payments increase.
The mechanism was introduced in 2011 and was designed to prevent the value of the state pension falling relative to prices and earnings.
Successive governments have faced repeated questions over its long-term affordability as the UK's population ages and pension expenditure rises.
However, the BCC's intervention should not be interpreted as evidence that the Government intends to adopt the proposal.
It is a recommendation from an external business organisation submitted to the Treasury ahead of the Budget.
Pressure builds ahead of Healey's first Budget
The intervention comes as Healey prepares for his first Budget as Chancellor on 28 October.
He faces competing demands to improve economic growth, maintain public services, fund defence commitments and keep the public finances within the Government's fiscal rules.
The BCC's latest forecast expects the UK economy to grow by 1% in both 2026 and 2027 before growth rises to 1.3% in 2028.
It also expects business investment to fall by 0.2% this year, while unemployment is forecast to rise from 5% at the end of 2026 to 5.4% during 2027.
The organisation argues that the Budget should prioritise policies that visibly increase investment, exports, hiring and business expansion.
Triple lock now part of wider Budget debate
The BCC's proposal puts the future of the state pension guarantee into the increasingly intense debate surrounding Healey's first Budget.
For the Chancellor, replacing the triple lock could create savings that could be redirected elsewhere, but any such move would also carry significant political consequences.
For now, the confirmed development is that the British Chambers of Commerce has formally recommended replacing the triple lock with inflation-linked pension increases. The Government has not announced that it intends to do so.