Alistair Darling may well have rescued his reputation as Chancellor yesterday following last year’s pig’s ear of a budget. It doesn’t mean it is going to work but it might make the recession a little shallower. He is still being way too optimistic but some sort of sanity has returned to Government projections and that has to be welcome too.
For the Opposition, the shadow Chancellor George Osborne made a brilliant attack on Government economic plans and showed why the Tories would be fools to lose him.
But leaving the big beasts to argue it out, it was actually the week before that the Government’s Achilles’ heal was on display. That came in a speech from the Treasury economic secretary Ian Pearson – arguably the most influential fetcher and carrier in the kingdom.
And it helps show not what was wrong with yesterday’s budget speech, but what was wrong with most of New Labour’s budgets – the lack of a proper savings policy.
Pearson’s speech to 270 odd of the great and the good of the advice world at the Aifa dinner in the Merchant Taylors’ Hall in the City of London last week got the tone and the content spectacularly wrong. We live in extraordinary times, so the speech was extraordinarily disappointing.
The first half was all right – about all that economic stuff that makes Mr Pearson and his boss so relevant.
But in the second half, you could feel the room’s collective teeth grate when the minister had the audacity to utter the following sentence.
“Since 1997 the Government’s strategy has been to promote saving and asset ownership for all, throughout their lives – from childhood, through working life, and into retirement. This approach has been underpinned by the principle of progressive universalism – providing support to all, with the greatest support to those who need it most.”
I believe I am right when I suggest progressive universalism is means-testing. As an extension of help to the poor and indeed the poorer pensioners it is hard to fault but it doesn’t help savings – it is not self help but a savings trap.
Then the minister mused: “Tax advantaged Isas introduced in 1999, have been successful in developing and extending the saving habit and ensuring a fairer distribution of tax relief.
“Over 18 million people, around one in every three adults, now have an Isa – many more than those who ever held a Tessa or Pep.
“You’ll all be aware that we made changes to the Isa regime recently. These changes, which became effective in April, are designed to deliver certainty, simplicity and flexibility for savers.
“We raised the Isa limits. Every adult now has an annual Isa investment allowance of £7,200. Up to £3,600 of that allowance can be saved in cash, with the remainder invested in stocks and shares.”
What most advisers say happened is that Peps and Tessas were confusingly rebranded by Labour because they were a successful Tory invention. No equity Isa season has yet to beat a Pep one. Perhaps that would be because the limit was cut in the move from Peps to Isas. It was then, cut most years by not being increased with inflation while the dumbest spin doctor games were played over the time period Isas were meant to exist for before they were finally made permanent. The most recent change allows a movement from cash to securities but not back. Oh dear.
Anyway back to the speech.
The minister talked about child trust funds and the savings gateway. I know that the Aifa dinner is a very polite occasion but his mistake in saying 94 CTFs have been taken out, which got a laugh may have saved him from some catcalls.
CTFs are a great initiative but several others are not. I could mention the failed stakeholder project – at least in terms extending savings, and the current crop of mistakes being made over personal accounts.
I might suggest that the Treasury makes some room in the filing cabinet in the file marked white elephants. And please, please don’t mention the savings ratio and most notoriously of all the dividend tax raid.
All this may be harsh on an able and well liked minister, given Aifa chairman John Gummer’s glowing introduction.
But this speech, rather than coming from a rejuvenated Government doing their utmost to manage a crisis, harked back to all the worst old habits of New Labour.
It didn’t say anything, it made idle boasts about success without ever properly measuring it and it paid lip service to savings policies which either didn’t exist, or when scrutinised and measured properly, did not work.
I have heard its like a dozen times from Economic and Financial Secretaries down the years, starting in my case with Patricia Hewitt in the late 1990s.
Yesterday the Chancellor set out a plan to boost the economy and reassure the markets that he can also balance the books at least medium term. The jury is still out on that.
One thing that is incontestable is that there is a new found vigour and sense of purpose to this Government. But at some stage this will need to be applied to savings policies.
If Pearson is as able as some suggest, the next time someone passes him the single transferable Treasury speech on savings, perhaps he would do better to dump it, think twice and write his own.
No-one suggests that savings should have been the priority yesterday but all too often in the past when increasing savings would have been the “prudent” choice, the Government opted to stoke the boom instead.
But think how much stronger Darling’s hand might have been yesterday, if we had the economic ballast of a decent level of savings.