In last week’s Budget statement, Chancellor George Osborne was adamant there would be no slowdown to the deficit reduction plans.
With the Office of Budget Responsibility downgrading growth forecasts and protestors taking to the streets of London as the scale of the cuts becomes clearer, economists and politicians are split on whether Osborne is taking a prudent approach or a massive, unnecessary gamble.
However, whatever your view on the speed of deficit reduction, one pleasing aspect of last Wednesday’s Budget was the lack of hidden surprises in the small print.
Maybe it is too early to judge, after one emergency Budget and one full Budget, but so far Osborne is holding firm in his pledge to listen and consult on the big issues affecting financial services.
The Budgets and pre-Budget reports of Gordon Brown became famed for the blundering changes and U-turns to policy which had considerable knock-on effects for the adviser community and their clients.
For example, his move to scrap tax relief on dividends paid into pension funds in his first Budget, the proposal to scrap potentially exempt transfers into trusts in 2006 and the scrapping of pension term assurance, also in 2006, were all evidence of a Chancellor who preferred keeping his cards close to his chest rather than consult first on the wisdom of his proposals.
On pensions, the industry was led up the garden path with the Treasury stressing that residential property would be allowed into a Sipp right up until the day Brown axed the proposal.
The Government’s approach to its new annuitisation rules, which come into force next month, shows the benefits of listening to the industry in terms of developing well thought through policy.
Meddling with tax policy can be fraught with unintended consequences and Osborne’s decision to create the Office of Tax Simplification, whose first job was to investigate the current tax relief system, will hopefully add greater transparency to the policy-making process. Osborne’s decision to consult on merging income tax with National Insurance was first proposed by the OTS which has also called for a review of capital gains tax and inheritance tax.
The previous Government’s refusal to consult and engage properly with the industry led to poor legislation and flawed policies. Let us hope Osborne continues to listen.