In addition, the rumours and usual round of Treasury leaks ensured that there was little unexpected in last week’s announcements. But two points that Darling made did stand out, although not for the reasons he may have hoped. First was the Chancellor’s prediction for future GDP growth.
A recession Budget does not give much scope for light relief but Darling’s predictions that GDP this year would fall by 3.5 per cent but would immediately bounce back to grow by 1.25 per cent in 2010 and the economy would be running smoothly at 3.5 per cent growth from then on provoked the laughter it deserved from the opposition benches.
The second point that stands out was the Chancellor’s attack on higher-rate tax relief for pension contributions. The decision to reduce tax relief for anyone earning more than £150,000 is a difficult decision to argue with in principle.
As Darling pointed out, 25 per cent of the money that is spent on tax relief goes to only 1.5 per cent of pension savers and this does seem more than a little unequal.
In addition, tax relief is designed to be an incentive to save for retirement and anyone earning more than £150,000 is probably able to look after themselves.
Nor is there much cause for concern for IFAs. Many will have clients who are affected by the changes but far from seeing their business reduce, the increasing complexity of pension taxation provides greater opportunity to demonstrate the value of the service provided.
The real problem with the Chancellor’s decision is the effect it will have on confidence in pensions in the wider market. By yet again tinkering with the pension rules, this Government is slowly eroding what confidence is left in financial services.
The Government may be tempted to paint this as a small change due to the numbers affected but all pension savers have just been reminded that the pension rules are not sacrosanct and the rules can be rewritten if they no longer fit the Government’s priorities and that is not a message to inspire confidence.