Growth’s the thing.
According to the polls, Labour and Conservatives are sinking fast in the public estimation, both down 4% since the calling of the election. That doesn’t change the 20% gap between them but calls into question their strategies.
At today’s IFS manifesto audit, Paul Johnson called both parties out for a conspiracy of silence. The IFS analysis, conducted while Johnson was on holiday shows that on the major issues, the two parties will spend much the same and tax much the same. But the IFS say that neither can deliver on their promises because the numbers don’t stack up in either case. They face a “trilemma” where either
- They put taxes up
- They cut spending on services
- They borrow more.
This all assumes growth over time is as predicted in their plans and both seem to be working to the ONS’ forecast (which the IFS reckons optimistic). This has drawn some strong comment from the financial press.
There is sufficient divergence between the BOE’s negative growth outlook and that of the ONS to suggest that the GDP figures are going to be driving the outcome of this trilemma with Labour getting away with it if the top dotted line is achieved, while having to tax and not spend if the weaker line proves the Bank of England right.
Where are improvements in growth coming from?
Neither Labour of Conservatives are looking to increase Government expenditure on investment incentives (the Liberals are)
So where is the required investment growth coming from?
Well no one was mentioning the P word at this seminar – other than in the chat box where I counted 6 of the 59 questions explicitly mentioning pensions in relation to raising tax the majority about creating investment through productive finance; for instance
Jamie Jenkins; How big a role do pension investments play in stimulating growth in the economy?
Nobody answered Jamie’s question (which I’d have asked if I’d had the gumption).
But it’s clear that investment is needed from somewhere and if not from Government or releasing money from the housing stock, the £3 trillion store of wealth in pensions is the most obvious source.
So where are immediate tax revenues going to come from?
The other area asked about questions related to inheritability, especially the taxation of inherited retirement wealth , held in pensions. Only ten years ago, this would not have been an issue, but perhaps the most surprising impact of pension freedoms has been the importance people are putting on their retirement pot. This matrix, taken from a report published by Scottish Widows today, shows how much pensions are valued as a potential source of inherited wealth.
The current sweet spot for retirement savers is a fully inheritable wage for life solution with a guarantee.
Taxing the “wealth transfer” option could prove unpopular but might be considered in the public interest. In Australia, their Treasury’s Retirement Income Covenant is looking to create a pension rather than a wealth transfer option with the emphasis on saving rather than hoarding.
My take on this morning’s seminar is that the trilemma is missing a pension dimension. Pensions have the capacity to fuel growth allowing Government to spend more without recourse to borrowing or further taxation. A pensions culture is born out of a need for retirement income not of wealth “cascading through the generations”.
At some point, our next Government is going to have to take unpopular decisions. Right now no-one is mentioning pensions but my guess is that it is Britain’s £3trillion store of retirement wealth that is front and center of Rachel Reeve’s vision right now.
She will know as well as Paul Johnson , that the Labour party manifesto is something of a confidence trick. She will also know where the rabbits live!
You can watch the seminar on YouTube here – this version has all the questions asked on Slido attached.
