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Moore&#39s code

The denizens of the Treasury and Department for Work and Pensions will be feeling relaxed and peaceful during the current holiday season. That is because as they sip on their wine in the hills of Chiantishire they know that there will be plenty of satisfying paper shuffling to do when they return.

Not one but two “consultation” exercises to get excited about. The Pickering and Sandler review teams will be gearing up to lead the exercises which will keep an army of Government staff busy for months.

But there is a big question mark on whether this “consultation” has any purpose. Take Pickering, the braver, more radical and arguably more useful of the two documents. The most controversial proposal Alan Pickering came up with was a recommendation to stop companies operating final-salary schemes from having to index-link benefits paid to members when they retire.

Just hours after the review had come out, Work and Pensions Secretary Andrew Smith torpedoed this proposal in the House of Commons.

Granted, the idea has a number of drawbacks. Not least the fact that if you fail to increase benefits, inflation will slowly eat away at a pensioner&#39s income, which, with continuing improvements in longevity, could lead to the state being called on to pick up the tab at some point.

But Pickering&#39s proposal is, nonetheless, an issue that ought to have been debated. One reason that final-salary schemes are increasingly being scrapped is because the indexing rules are very tough. They make running schemes very expensive.

Pickering had some interesting arguments which he explained at length. Other people pointed out some flaws in his reasoning. Could a compromise be worked out? Nope. Smith has ensured this is one debate that will never be had.

The worry is that ministers will treat the forthcoming consultations on Sandler, and the bits of Pickering that it has not already gutted, in the same narrow-sighted manner.

The record of the Government, and its poodle, the FSA, on thinking constructively about responses they have been given to consultations is poor. Take stakeholder.

Ministers were told what the result would be. The product would be bought the by middle classes, who liked the tax breaks for non-working spouses, and would be ignored by everyone else. Life insurers would concentrate on selling in bulk through employers, and would not bother to promote it to anyone else. It would have little or no impact on the savings gap.

Such warnings were contained in any number of “responses” to the “consultations”. They were ignored or dismissed as whingeing by life insurers too lazy to deal with a 1 per cent charge cap. The Government had pretty much decided what it was going to do before any consultation and went ahead regardless. Smith&#39s response to the most controversial and politically awkward part of Pickering suggests that the next round of consultations will be more of the same.

One thing almost all practitioners, commentators and politicians are agreed upon is that action is needed to address Britain&#39s £27bn savings gap. Pickering and Sandler were asked to come up with some solutions to this problem.

The problem is that the early success in financial services enjoyed by the Government on issues such as wrapping up the pension review and introducing Isas has given way to arrogance and drift.

The attitude of successive administrations to the savings industry has been of a stern headmaster to an unruly pupil. The unruly pupil has begun to respond by skipping school. If the Government carries on, that process will continue.

Pickering will have been a waste of time, even the one or two good points in Sandler will go to waste. Institutions with significant foreign operations have been shifting capital out of the UK. It will continue. Constructive dialogue is called for. If the Government continues to refuse to read the writing on the wall, a savings gap of £2bn will look like small change.

James Moore is insurance correspondent at The Times

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