Rishi Sunak is expected to set out plans for suspending the pensions triple-lock in his July Statement, Tory MPs have said.
The Chancellor has been eyeing up options for reforming the costly measure, with Treasury insiders estimating they could save about £8bn a year.
One senior Conservative said Mr Sunak is increasingly expected to provide a “statement of intent” for a number of key policy areas including the pensions triple-lock.
The MP added the measure is “not really justifiable” in the current economic climate.
The triple-lock was introduced by the Coalition government to protect the state pension against inflation.It guarantees the state pension will rise annually by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.
However the furlough scheme, which has seen more than 9 million workers have their wages subsidised by the state, has artificially depressed wages.
Officials expect wages to bounce back sharply once the furlough scheme ends in October. This could create a sharp spike which, if the triple lock is kept in place, would boost pensions in a double figure rise.
The Office for Budget Responsibility has said average earnings could be 18 per cent higher next year.
Despite initially expecting the July statement to not be a big event, with fiscal announcements reserved for the Autumn Budget, MPs now expect it to contain “medium-term” measures for the economy.
One Tory MP told the Telegraph: “It will do everything short of a full-blown Budget.”
Last month a leaked Treasury document seen by the Telegraph showed officials told the Chancellor that “reforming” the triple lock to produce savings of about £8bn a year.
Steve Baker, the Tory MP who sits on the Treasury select committee, said the measure should be replaced with a “double lock” instead. Dropping one of the three provisions in the triple-lock could avoid pensioners disproportionately benefiting from a post-furlough bounce back for wages.
Sir Steve Webb, the former pensions minister, said options could also include freezing pensions or introducing a “modified” triple-lock, perhaps with a lower floor of 1 per cent or 1.5 per cent instead of 2.5 per cent, amid a period of very low inflation.
Inflation dropped to 0.5 per cent in May, down from 0.8 per cent in April and 1.5 per cent in March, according to the latest data on the Consumer Prices Index (CPI) 12-month measure of inflation.
The Prime Minister’s spokesman on Wednesday said the Government “cannot hide” from the turmoil created by the lockdown.
He said: “On the triple lock,these are unique and challenging economic circumstances and we cannot hide from that. As you know decisions on tax and pension policy are set out at budget.
“But there are no plans to abolish the triple lock, and we will always stand by pensioners.”
Mr Baker said: “We can’t afford it. Obviously we need to look after pensioners but in the current environment a double lock on earnings and inflation would be far more affordable.
“We are now looking at it running into three or four parliaments. We are looking at the public finances being in a genuinely catastrophic state.”
— to www.telegraph.co.uk