UK’s pension system faced collapse - Osborne

Britain’s state pension system faced collapse if action had not been taken to raise the age at which people will be able to retire, George Osborne said.

The Chancellor of the Exchequer George Osborne meets apprentices during a visit to JCB's backhoe loader factory in Rocester. Picture: PA

In his Autumn Statement yesterday, the Chancellor announced the state pension age would be raised to 68 in the mid-2030s and 69 in the late-2040s.

The move sparked union protests that young people were being expected to “work until they drop”, but Mr Osborne insisted it was essential to prevent the whole system becoming unaffordable.

“The reason we do this is because our country is getting older and we want to go on being able to afford really good pensions for people. There is not a bottomless pit of money,” he told BBC1’s Breakfast.

“The alternative is a pension system that would collapse beause it was unaffordable, That’s what I want to avoid. It is another classic example of a difficult decision but one that I think people know has to be made.

“It is all about making this country more sustainable in the future, not leaving the next generation with the debts and the decisions that we were not prepared to take ourselves.”

Mr Osborne acknowledged the UK needs a “more balanced” economic recovery, but insisted that the manufacturing sector was picking up.

The Chancellor, speaking on a visit to JCB in Staffordshire, which has announced plans to create 2,500 new jobs, said: “There is better economic news. Growth is up and many tens of thousands of jobs are being created in the British economy at the moment and that is all very welcome. Indeed we are performing more strongly than many other economies in the world.

“But I am the first to say that although the economic plan is working, the job isn’t done and we have to work through that plan.

“The risk is abandoning the plan that has got us this far but we have got to make sure that we have a responsible recovery, a more balanced recovery. That fact that JCB for example here in the Midlands are announcing 2,500 new jobs - the biggest expansion they have ever announced - is a sign that there are very strong things happening in our manufacturing sector and, yes, if the rest of the world can recover then we can also get our exports going as well.”

Interest rates

Mr Osborne said that low interest rates were necessary to support the recovery but admitted they were hitting savers who had “done the right thing”.

With consumer spending fuelling growth, any increase in interest rates could hit households burdened with debt and Mr Osborne said that was something Bank of England governor Mark Carney would take into account.

He told BBC Radio 4’s Today programme: “You only can have lower interest rates if you have a grip on your public finances and that is what we have been able to provide, a backdrop of economic stability that enables the Bank to do the work it needs to do to support demand.”

But he added; “One of the problems with low interest rates is for savers, and that is one of the paradoxes of recovery and one of the paradoxes of an economic calamity like the one that befell Britain in 2008/9 which is you need to have low interest rates to help the economy recover and the people who pay the price for that are the people who have ‘done the right thing’ and saved.”

Mr Osborne said that he wanted to “make sure that we have that balanced economy that we are able to support savers”.

Office for Budget Responsibility (OBR) forecasts upgraded growth to 1.4% this year - more than double the level expected at the time of the Budget in March - and 2.4% in 2014, and revised down expectations for state borrowing by a total of £73 billion over the next five years.

But the OBR warned that improvements to the fiscal outlook were “cyclical rather than structural” and noted that higher-than-expected growth this year has been driven by consumer spending and rising house prices, rather than business investment and trade.

Labour has insisted that the economic revival was not being felt in people’s pockets and the Institute for Fiscal Studies warned there is “an awful lot of austerity still to come”.