NIESR said tax rises or spending cuts may be needed to fund the Government's cost-of-living commitments

Labour could ultimately be forced to scrap the state pension triple lock to help fund its cost-of-living commitments, a leading economic think tank has warned.

The National Institute of Economic and Social Research (NIESR) said there is "clearly no scope" for the Treasury to fund Prime Minister Andy Burnham's spending pledges through additional borrowing, leaving tax rises or spending cuts as the main alternatives.

Stephen Millard, deputy director for macroeconomics at NIESR, said the welfare budget was one of the most likely areas where savings could be found.

Mr Millard said: "The triple lock on pensions, that is very, very expensive, and will get more expensive as we age."

According to estimates from the Institute for Fiscal Studies, the state pension triple lock costs between £12billion and £12.6billion each year.

Mr Burnham pledged to run a "cost-of-living Government" after entering Downing Street last week.

Since taking office, the Prime Minister and Chancellor John Healey have announced a series of measures aimed at easing pressure on household finances.

Among the commitments is a pledge to remove VAT from electricity bills from October.

The Government has also confirmed that the £2 cap on bus fares will remain in place throughout 2027.

Alongside its domestic spending commitments, the Government has reaffirmed Labour's pledge to increase defence spending to 3.5 per cent of GDP by 2035.

Mr Burnham said he and Mr Healey are working to ensure the defence spending plans are fully funded ahead of the autumn Budget.

NIESR said the Government's fiscal position is likely to become more challenging as inflation remains above target.

It forecasts that CPI inflation will reach 3.8 per cent by February 2027.

NIESR does not expect inflation to return to the Bank of England's 2 per cent target until early 2029, around a year later than previously forecast.

The think tank also expects the Bank of England to leave interest rates unchanged at 3.75 per cent for the rest of this year and throughout 2027.

Mr Millard outlined several other measures that could be considered to raise additional revenue.

These included replacing council tax with a land value tax and removing some existing VAT exemptions.

He also suggested ministers could eventually consider revisiting income tax despite Labour's manifesto commitment not to increase taxes on working people.

Mr Burnham has repeatedly said the Government will honour that pledge.

On the wider economy, NIESR raised its forecast for UK GDP growth this year to 1.1 per cent from its previous estimate of 0.9 per cent following stronger-than-expected recent economic data.

However, the think tank estimated that the Middle East energy shock has already reduced UK economic output by around £15billion.