Saturday, February 21, 2015

It's a very bad idea indeed Mr Balls - think again

One should be wary of believing everything one reads in the newspapers - especially in the Murdoch press in the run up to a General Election! But if there is a scintilla of truth in today's report in "The Times" that Labour is considering reducing some of the tax benefits attached to pensions in order to pay for reducing University tuition fees then one can only conclude that the Party has taken leave of its senses.

The idea that you can fund one specific expenditure from one specific tax is rarely credible. Labour is already taking us for fools with its policy of introducing a "Mansion Tax" to pay for increased NHS spending. That's not how the public accounts work! Tax receipts go into one large pot. Government expenditure comes out of it. You cannot create some sort of bloated piggy bank where you isolate a specific tax revenue and from which you pay a specific set of bills. So the underlying logic of using savings on tax relief to pay for student costs is deeply flawed.

But aside from the flawed housekeeping logic the idea of penalising pension savers at this time is not just wrong but immoral. The changes in recent in recent times to pensions - especially in the private sector - have dramatically reduced the financial prospects for future retirees. Where final salary based pensions from Defined Benefit schemes were once very common these have now all but vanished for new employees. Schemes have closed and their replacements - so-called "Defined Contribution" schemes - offer much less by comparison, and especially much less certainty. Workplace savings, which is what these "DC" schemes really are, are important but for average earners they offer very modest post retirement income prospects. Better than nothing, but far from generous or enough. 

In ths changed world Government in its own interest should be reducing the tax liability on specific pension schemes not thinking about increasing it! In its own interest because if you take away pension income by (effectively) increasing tax then you are likely to find that you have to give it back again in welfare benefits. People have to live and the Pensioner community is already struggling with inflation which is way above the averages of the Consumer Price Index.

It's a bad idea Mr Balls. Think again. 



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