Steve Webb must be pinching himself. A couple of months ago he was promoting LibDem policies with no real belief they would ever see the light of day. Now he is the one minister in the Department for Work and Pensions who can claim a genuine grasp of the minutiae of this most complex of briefs – pensions.
When I interviewed Webb in January, he said he had no expectation whatsoever of the Conservatives adopting any LibDem policies in the event of a hung Parliament. Instead, he was predicting that the Tories would attempt to go it alone as the biggest party.
Now LibDem pension policies are being taken seriously and Webb himself is enjoying the advantage of being the man in the know, with over 10 years of experience covering pensions. That must put him at an advantage when it comes to pressing his views in these early months of the new administration.
Webb can already point to modest quick wins. The upgrading of state pensions in line with wages rather than prices will come in a year earlier than the other two parties had proposed. But this victory must be seen in perspective as it is likely to give no extra benefit to pensions and cost the Government nothing because wage inflation is not expected to exceed the 2.5 per cent that both other parties would have increased basic state pension by anyway.
And the LibDems share perspectives in common with the Conservatives on a number of issues, such as the obligation to buy an annuity and early access to your pension. Webb is a strong believer in letting savers have access to tax-free cash straight away, arguing that such a move would at a stroke make pensions more attractive.
But some are speculating that he may see his party’s most radical pension policy, the abolition of higher-rate tax relief, hijacked by the Treasury to help plug the deficit rather than used to fund a citizen’s pension, as intended by the LibDems.
The Government needs some quick cash and higher-rate tax relief on pensions would be a quick win. And with the principle that relief should be equal to the tax that is paid already broken, higher-rate relief looks vulnerable.
On the other hand, ministers will not want to upset core Tory voters when backbenchers are scenting blood over increases in capital gains tax. Removing higher rate relief, or introducing a new cap on how much is allowed is a lot easier to present if the money is being used to pay for something tangible such as a universal pension.
Flies on the walls of Caxton House are in for some pretty interesting conversations as the new ministerial team decides how to play the cards they hold.
Chris Grayling has shadowed work and pensions in the past but his main focus has been on employment.
As for the views on pensions of the DWP’s new secretary of state Iain Duncan Smith, we so far know very little. Since being ousted as Conservative Party leader, the self-titled Quiet Man has had a period of reflection in which his Centre for Social Justice thinktank has taken a keen interest in poverty issues. IDS has already been talking at length about making it pay to work. It would seem logical that tackling the disincentive to save would also be a priority for him.
Webb, who has been thinking about the problem for years, is likely to tell him that the only way to achieve such a goal without increasing pensioner poverty is a citizen’s pension.
The deficit is obviously more important right now to the Treasury than the disincentive to save in a pension. We will have to wait until the emergency Budget to see how important the coalition thinks higher-rate tax relief is.
John Greenwood is editor of Corporate Adviser