Paul Johnson and Steve Webb on the “worst” of times

Introducing Paul Johnson at LCP’s joint webcast with Paul Johnson, Steve Webb crowed that he could do so where the Bank of England had put up interest at the fastest rate for 30 years, forecasting the worst of recessions.

A very chipper Paul Johnson corrected his former colleague reminding him that this will be the longest not the worst of recessions.

For economists financial misery is multi-dimensional and endlessly fascinating.

So just what are the economic headwinds facing Rishi Sunak and Jeremy Hunt and what will this mean for pensions? The webcast was informative on the first, speculative on the second and interesting throughout. I will try to share the main points , as much to help me as you, but as we are all in the shite together, perhaps you’ll read on.

The cause of all the trouble

These are the various forecasts of what is likely to happen based on worsening economic projections, basically  this tells us that every subsequent forecast has predicted worse short term outcomes. This is a horror show.

Far from growing, the economy is going to shrink for a couple of years so all this talk of spending our way out of trouble is so much nonsense, high inflation , negative growth – horror show.

This chart shows how the amount we spend on energy is out of control and that the Truss plan to bring down its impact for us consumers still meant a lot of pain

And this chart shows that the real amount we have to spend is going to fall to levels only seen in the 2008 crash and in the worst of times in the 1970s.This is as bad as it gets and without the intervention we’d have felt the poorest we’d have ever felt (RHDI = Real Household Disposable Income)

Strangely, all this inflation will mean that tax revenues won’t fall as you’d expect in a “normal recession” and if we can get a little more productive, much of the problem for public finances would go away. There was at this point a major moan from Johnson about the missed opportunity in the last decade where we went for austerity over growth.

But Johnson left us in no doubt that as well as paying more as our cost of living, we will be paying more tax than ever before, the coloured dotted red lines are speculation around what might happen after the autumn statement.

Most Government pension promises (unlike private pension promises) are uncapped. Unless the triple lock is abandoned and benefits not upgraded, the Government is in for a huge hit from pensions, including all the public sector pensions for teachers, NHS etc..etc..

Johnson didn’t say this but it struck me at this point that we could be in for one of the most unjust pension settlements ever. Small wonder we aren’t hearing a dicky-bird from the DWP or Treasury on pensions leading up to the statement.

I’m not quite sure what “out-turn” is but this chart shows the cost of servicing our debt which has been incredibly low through the period of austerity but is now spiking (due to Truss-moronics). At least this suggests that this is a spike. We are likely to pay for the “moron premium” in the autumn statement – much damage has been done (despite what the apologists say).

Compared to March , interest rate expectations are high but the BOE reckons that interest rates (their estimate purple) won’t rise as fast as the market things (their estimate yellow line). Johnson thought the market wrong and the Bank right.

Although the current spike is likely to see us borrow 7.5% of what we earn today, it is likely to fall and the IFS thought that all projections were manageable in the longer term.

The Chancellor is being hit by huge unanticipated bills from war , pestilence and the lag of the financial crisis – he must feel for Pharaoh.

All of which suggests that whatever dividend we were supposed to be enjoying after enduring austerity and the Brexit – is not happening. We are going from bad to worse.

So what for pensions?

The reality is that the Chancellor could raise a lot more tax by taxing pensioners (or making them pay NI than squeezing saving (to reduce tax relief).

Johnson singled out areas where the current pension taxation system looked most vulnerable – that DC pots are non-taxable for IHT prior to 75 and that tax free cash is still enjoyed by (almost) everyone.  But Johnson seemed to imply that pension saving had probably suffered enough.

I suspect that pensioners will be the focus of much attention at the Autumn Statement and that pension wealth will be under attack, but I doubt that there will be a major assault on savings incentives. One thing that a Chancellor with a heart could do, is to give the lowest paid the savings incentives they don’t get if they’re in a net pay scheme. That wouldn’t cost much, but it would do much to make pensions fairer.


You can now watch the webinar yourself from this link



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , . Bookmark the permalink.

Leave a Reply