Even though the expression
"a dead cat's bounce" is not a very nice way of describing any sort
of economic exercise or outcome, if only because it is a highly distasteful
image for any caring pet owner to contemplate, but given that the Conservative
Party's entire approach to central financial planning is to make it as
unpalatable, divisive and inequitable as humanly possible, then perhaps a
wholly ugly and unpleasant image is entirely necessary to describe a wholly
ugly and unpleasant party.
The reason for mentioning this
particular American expression, is that it has been used recently by an
economic commentator with specific regard to George Osborne's latest budget
measures, including the proposal to allow pensioners to release a percentage of
their accumulated private pensions funds, which can then be used for paying off
their mortgages, buying a separate annuity, investing in property, or whatever
else they might choose to do with their own hard earned monies. Of course, on
the face of it these changes will be great news for those hundreds of thousands
of pensioners who have been responsible enough, or fortunate enough to have
saved towards their own pension provisions, outside of the state pensions that
everyone is entitled to. However, any suggestion that Mr Osborne has introduced
such changes purely for the benefit of the pensioners themselves is entirely
wrong, simply because, as with any such government measures, there will
inevitably winners and losers, as the changes begin to roll out across the
country.
Clearly, those pensioners who
choose to release their accumulated funds will benefit, but only insofar as
their fresh monies do not cause them to breach their personal tax thresholds,
after which normal tax deductions would occur, a calculation that undoubtedly
played a part in Mr Osborne's decision. Other potential losers from these
pension changes are thought to be both personal financial advisers and of
course the annuity industry generally. According to some investment analysts,
the changes introduced by the Chancellor could prove to be disastrous to the
industry, as hundreds of thousands of pensioners defer or cancel their planned
annuity investments, to the extent that the annuity markets might see falls of
between 80-90% in new investments being purchased.
Some less charitable commentators
have accused the Chancellor and the Coalition of essentially stealing future
tax revenues to pay for today's tax giveaways, as well as using temporary
Treasury revenues, to pay for permanent and ongoing giveaways, a clearly
unsustainable fiscal strategy in the long-term. Even though a significant
number of people will almost certainly spend their pension "windfall"
on the right sorts of things, including annuities, mortgages and property,
others will not and will undoubtedly use the opportunity to buy the sorts of
services and products that will help energise the wider economy and that should
prove to add a political benefit for the Coalition in the short-term.
Everyone should be clear that Mr
Osborne's budget is and was a political budget, one that was designed to offer
the maximum of benefit to the specific voter groups that the Conservatives and
their Liberal Democrat allies will hope to target in the forthcoming elections,
both at European and national level. However, everyone should also be clear
that this offer of "jam today" for pensioners, young families and the
aspirational middle classes is a temporary truce during the austerity war that
the Conservatives have fought in the past, are fighting at present and will
undoubtedly fight in the future.
Part of the problem for the
Conservatives and their Liberal Democratic allies, as well as for any future
Labour government is that, as much as they try and control the nation's purse
strings, events elsewhere, in the Far East, in Europe or in North America, can
often contrive to undo any good that British governments might try to impose on
the country. According to a large number of economic experts and in clear disagreement
with George Osborne, Britain's current mini-boom, or slow economic recovery is
not in the least bit sustainable, simply because it is being fuelled by cheap
money, government backed schemes like "Help To Buy", an increasingly
low-paid labour force and now another government sponsored scheme to release
private pension monies into the economy. Rather than encouraging personal
savings and investment, the mark of a financially healthy economy, the UK is
going the other way, where a growing number of workers are having to spend more
and more of their limited incomes on feeding, housing, clothing, heating
themselves, with little if anything left for that rainy day that inevitably
comes around.
Although most experts agree that
personal credit levels are currently much lower than they have been in the
past, there is some evidence to suggest that personal credit is beginning to
rise, especially in terms of unsecured loans and credit card debt, both forms
of borrowing that have proven to be disastrous for the economy in the past.
Lending on property is also said to be on the rise, as the "Help To
Buy" scheme and other private property investors begin to buy up the
limited housing stocks that's available. More worryingly perhaps are the
warning from the Bank of England that interest rises are inevitable, possibly
within the next 12 months, so not a case of "if", but of
"when" and "by how much".
Despite the optimistic words
coming from Mr Osborne and his Treasury team regarding the country's national
debt and the deficit, most people agree that the government is still spending
£10 billion each month that it doesn't actually have, which is said to be
around the same amount of money that the last Labour government was borrowing
each month in 2007. So despite four years of austerity, of scrimping and
saving, we're pretty much where we were to begin with, despite the tens of
thousands of job losses, the swingeing wage cuts, the spending freezes, we're
still as broke as we were seven years ago, which doesn't seem much like
progress at all!
Even though he might be horrified
to hear the comparison being made, some experts have likened George Osborne's
policies to those of his Labour predecessor, Gordon Brown, in that he is
attempting to replace government debt with individual personal debt, whether
that's through the Car Scrappage Scheme, the Help To Buy Scheme, the Pension
Release Scheme, or through the sale of what were formerly publicly owned
assets.
The prevailing ideological
policies within the current Coalition government believe that there are several
ways to reduce the levels of public indebtedness affecting the country,
including economic expansion, by increasing tax revenues and reducing welfare.
Additionally, government can also increase direct taxation, allow inflation to
increase, thereby reducing the value of the existing debt, as well as
encouraging private sector debt, by inviting private equity investment. As has
been mentioned previously on this blog, (I Wonder What Would Happen If?) there
are alternatives methods of increasing economic activity within the UK, without
sucking money out of the economy, by borrowing for growth, as opposed to
scrimping for survival, but that seemingly flies in the face of the Coalition's
current thinking on the matter.
With
the underlying promise of several more years of austerity facing the country,
in the event that either Labour or Conservative parties are re-elected to
national office in 2015, the future does not look bright for those millions of
people who have been struggling thus far. For those who are unfortunate enough
to be on welfare, in low paid employment, elderly or infirm, the prospect of
another four or five years of Labour or Conservative austerity can hardly be
regarded as welcoming. No doubt in the short term, those pensioners who are
fortunate enough to have accumulated a private pension pot that they've now
been given permission to access will be grateful for the extra monies that they
receive, although the reported £30-40,000 that most will access to is hardly a
life-changing sum, especially once the tax man and all of the other advisers
have taken their own personal share of it. Like they say, all that glisters is
not gold; and despite what Mr Cameron's government might be hoping for, it is
hard to imagine that the recently announced Pension Release Scheme will
actually turn out to be the defining political strategy of this particular
government's long term economic planning. For the individual pensioners
concerned, one can only hope that most of them will choose to use their monies
wisely and leave it where it will do them the most good, in a long term
annuity.
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