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| Osborne’s pension U-turn shows the Treasury has been hijacked | |
| (35 minutes later) | |
| Stop all the clocks, cut off controversy, prevent any dogs barking in the Commons, silence all protest and clear the decks. Let nothing ruffle feathers on right or left before the referendum: not Heathrow’s runway, the bill of rights, or the BBC charter. Stifle the Queen herself, delay her speech until after the great 23 June decision. | Stop all the clocks, cut off controversy, prevent any dogs barking in the Commons, silence all protest and clear the decks. Let nothing ruffle feathers on right or left before the referendum: not Heathrow’s runway, the bill of rights, or the BBC charter. Stifle the Queen herself, delay her speech until after the great 23 June decision. |
| Expect the blandest of budgets. Best not to outrage Labour voters by abolishing the top rate of tax or imposing savage cuts. Best not to squeak the pips of the wealthy either. Is it advisable to privatise our Royal Parks? Scatter sweeteners, don’t be nasty and woo voters towards EU remain. Afterwards, nastiness will resume. | Expect the blandest of budgets. Best not to outrage Labour voters by abolishing the top rate of tax or imposing savage cuts. Best not to squeak the pips of the wealthy either. Is it advisable to privatise our Royal Parks? Scatter sweeteners, don’t be nasty and woo voters towards EU remain. Afterwards, nastiness will resume. |
| But the chancellor’s emergency stop on anything contentious has killed off his one good radical plan – the reform of our arcane and unjust pension system. | But the chancellor’s emergency stop on anything contentious has killed off his one good radical plan – the reform of our arcane and unjust pension system. |
| Right up until last Friday it was full steam ahead inside the Treasury to reclaim at least £10bn for the exchequer from the pockets of wealthier savers. After months of preparation, a new system would share out state contributions to savers more fairly between high- and low-paid. Two thirds of the proceeds of the colossal £35bn pension tax relief goes to just 8% of savers, who would save anyway. A system that’s expensive, inequitable, incomprehensible and illogical is now destined to stay that way. | Right up until last Friday it was full steam ahead inside the Treasury to reclaim at least £10bn for the exchequer from the pockets of wealthier savers. After months of preparation, a new system would share out state contributions to savers more fairly between high- and low-paid. Two thirds of the proceeds of the colossal £35bn pension tax relief goes to just 8% of savers, who would save anyway. A system that’s expensive, inequitable, incomprehensible and illogical is now destined to stay that way. |
| The crescendo of protest from vested interests had reached a pitch where political klaxons went off inside No 10. The Telegraph, Mail and even the Sun warred against this planned assault on “the middle classes” – which is what they call the top 15%. Those who stood to lose were on the 40% or 45% tax rate and not middling at all. The 85% of people paying no more than the basic tax rate would have gained. | The crescendo of protest from vested interests had reached a pitch where political klaxons went off inside No 10. The Telegraph, Mail and even the Sun warred against this planned assault on “the middle classes” – which is what they call the top 15%. Those who stood to lose were on the 40% or 45% tax rate and not middling at all. The 85% of people paying no more than the basic tax rate would have gained. |
| The Times warned George Osborne to drop reform and to cut the top rate of tax instead – hardly a fair swap. Reform might see most people gain, but not the editors and upper echelons who set their papers’ policy of deliberate misinformation. | The Times warned George Osborne to drop reform and to cut the top rate of tax instead – hardly a fair swap. Reform might see most people gain, but not the editors and upper echelons who set their papers’ policy of deliberate misinformation. |
| It’s no surprise that most people know virtually nothing about how pensions work, as well-informed savers are not in the interests of the pensions industry, their lobbyists or the powerful influencers who resist reform. | It’s no surprise that most people know virtually nothing about how pensions work, as well-informed savers are not in the interests of the pensions industry, their lobbyists or the powerful influencers who resist reform. |
| Besides, pensions are notoriously dull: the industry relies on people trusting financiers who make their money by fleecing savers with unseen or hard-to-compute charges. Most Tory donations come from hedge funds and fund managers, and many Tory MPs protesting vigorously against the reform have fingers in those pies. | Besides, pensions are notoriously dull: the industry relies on people trusting financiers who make their money by fleecing savers with unseen or hard-to-compute charges. Most Tory donations come from hedge funds and fund managers, and many Tory MPs protesting vigorously against the reform have fingers in those pies. |
| Where did Osborne’s initial pensions radicalism come from? Michael Johnson is pensions expert at the rightwing thinktank the Centre for Policy Studies, an unlikely source of social justice reform. He has been camped out in the Treasury, its leading inspiration as author of many papers up-ending conventional beliefs. He questions whether the state need pay people to save for pensions at all. The stock answer is that people don’t save enough for their old age, but those who don’t save are the lower paid – not the rich who need no incentives. | Where did Osborne’s initial pensions radicalism come from? Michael Johnson is pensions expert at the rightwing thinktank the Centre for Policy Studies, an unlikely source of social justice reform. He has been camped out in the Treasury, its leading inspiration as author of many papers up-ending conventional beliefs. He questions whether the state need pay people to save for pensions at all. The stock answer is that people don’t save enough for their old age, but those who don’t save are the lower paid – not the rich who need no incentives. |
| Johnson quotes plentiful studies showing that tax reliefs don’t incentivise those who don’t save enough: half the population don’t know what a tax relief is. Denmark all but abolished tax reliefs, and the evaluation by Copenhagen and Harvard universities found no effect on savings. But Johnson wasn’t proposing anything so extreme – simply to cut back on pointless reliefs and share the rest more fairly. Why do the better-off get a 40% or 45% bonus for every pound they save while the state gives those on the basic rate just 20%? Everyone should get a flat rate at around 33%, saving the state some £10bn. | Johnson quotes plentiful studies showing that tax reliefs don’t incentivise those who don’t save enough: half the population don’t know what a tax relief is. Denmark all but abolished tax reliefs, and the evaluation by Copenhagen and Harvard universities found no effect on savings. But Johnson wasn’t proposing anything so extreme – simply to cut back on pointless reliefs and share the rest more fairly. Why do the better-off get a 40% or 45% bonus for every pound they save while the state gives those on the basic rate just 20%? Everyone should get a flat rate at around 33%, saving the state some £10bn. |
| Why, he asks, should people take out a quarter of their pension in a tax-free lump sum when that pension has already had its tax relief? “No one knows why,” he says. The system is riddled with fiddles: 54-year-olds can put £120,000 into their pension covering the last three years, and then at 55 take out 25% tax free. | Why, he asks, should people take out a quarter of their pension in a tax-free lump sum when that pension has already had its tax relief? “No one knows why,” he says. The system is riddled with fiddles: 54-year-olds can put £120,000 into their pension covering the last three years, and then at 55 take out 25% tax free. |
| Until last week Osborne was set to play Robin Hood, but now he's back in the City sherrifs' pocket | Until last week Osborne was set to play Robin Hood, but now he's back in the City sherrifs' pocket |
| The most radical plan Osborne floated, as devised by Johnson, was for a lifetime Isa: instead of tax reliefs, for every pound saved into it out of taxed income, the state would add 50p. The incentive to leave the money saved until old age would come from taking away that 50p from any pound taken out before retirement. The state would save by keeping a cap on annual payments at £10,000 a year: only the very well-off can afford to save more than that. | The most radical plan Osborne floated, as devised by Johnson, was for a lifetime Isa: instead of tax reliefs, for every pound saved into it out of taxed income, the state would add 50p. The incentive to leave the money saved until old age would come from taking away that 50p from any pound taken out before retirement. The state would save by keeping a cap on annual payments at £10,000 a year: only the very well-off can afford to save more than that. |
| The insurance companies and pension providers lined up in threatening ranks against the Isa plan, which would have diminished their business. Indicative was the reaction of Steve Webb, former Lib Dem pensions minister, who has now gone to the other side working for Royal London insurance: he called these proposed pensions reforms “daylight robbery”. Indeed it is, both schemes taking from the rich to give to the lower paid. | The insurance companies and pension providers lined up in threatening ranks against the Isa plan, which would have diminished their business. Indicative was the reaction of Steve Webb, former Lib Dem pensions minister, who has now gone to the other side working for Royal London insurance: he called these proposed pensions reforms “daylight robbery”. Indeed it is, both schemes taking from the rich to give to the lower paid. |
| The chancellor could cut the cap on pensions again. There was a furore over his current cap of £40,000 a year – though only the richest can save anything like that. But they are the ones who make most noise, set the agenda and terrorise governments. Yet again they have won this battle to protect their phenomenally disproportionate bounty from the state. | The chancellor could cut the cap on pensions again. There was a furore over his current cap of £40,000 a year – though only the richest can save anything like that. But they are the ones who make most noise, set the agenda and terrorise governments. Yet again they have won this battle to protect their phenomenally disproportionate bounty from the state. |
| There are many more dark mysteries in the pensions cupboard, including the £14bn the state gives to employers in national insurance tax relief for no good reason. But eyes glaze over at too much detail, and so those with most vested interests win the day. | There are many more dark mysteries in the pensions cupboard, including the £14bn the state gives to employers in national insurance tax relief for no good reason. But eyes glaze over at too much detail, and so those with most vested interests win the day. |
| What happened last week was the re-capture of the Treasury by the pensions industry, holding on to what’s theirs. The 85% basic rate taxpayers are the losers. Until last week Osborne was set to play Robin Hood, but now he’s back in the City sheriffs’ pocket. | What happened last week was the re-capture of the Treasury by the pensions industry, holding on to what’s theirs. The 85% basic rate taxpayers are the losers. Until last week Osborne was set to play Robin Hood, but now he’s back in the City sheriffs’ pocket. |
| Is this reform lost or just delayed? If the referendum were safely won, he could return to it. But in the coming leadership contest, he may shy away from alienating well-off Tory supporters. Shameless Boris Johnson would likely take up their cause. | Is this reform lost or just delayed? If the referendum were safely won, he could return to it. But in the coming leadership contest, he may shy away from alienating well-off Tory supporters. Shameless Boris Johnson would likely take up their cause. |
| The pensions industry tasted blood this time and they will fight hard if Osborne tries it again, as will Tory donors. The average saver will be silent, few knowing what they lose. As in most Osborne budgets, those with the most win out against the rest. | The pensions industry tasted blood this time and they will fight hard if Osborne tries it again, as will Tory donors. The average saver will be silent, few knowing what they lose. As in most Osborne budgets, those with the most win out against the rest. |