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Taking a simpler approach

Economic growth and inflation over the last four years have been much as ex-Chancellor Ken Clarke forecast in 1996. The only difference is that taxation has been £28bn a year greater.

The substitution of Isas for Peps and Tessas has reduced the maximum amount of tax-free savings available to an individual by £3,800 a year and complicated the arrangements with maxis and minis in a way most people still do not understand but it has added some investment flexibility.

The combination of the retrospective and, in some cases, unfair pension review, the costly and demanding provisions of the Financial Service and Markets Act as well as the current Treasury initiative to abolish polarisation all threaten the future of many conscientious IFAs – albeit that happily they are a hardy lot and citizens want and need their services.

The boom and bust in technology stocks in the US and UK have probably made investors more cautious of buying individual securities and reinforced the case for investment diversification through collective investment schemes.

Unfortunately, the greatly increased costs of regulation have more than offset the downward pressures on charges resulting from consolidation within the fund industry.

The main effect of stakeholder schemes is likely to be to hasten the demise of final-salary schemes for middle management, replacing them with considerably less generous and higherrisk (to staff) money-purchase schemes.

The take-up of stakeholder is likely to disappoint unless attractive employer contributions are provided. They will also bypass the many self-employed and those working for small companies.

Perhaps the biggest financial issue of the last four years has been the collapse in the savings ratio from 11 per cent to around 4 per cent of national income, largely the result of the massive stealth taxes reducing growth in disposable incomes to 1.6 per cent a year from 2.7 per cent a year in the previous four years and to below the growth rate of the economy as a whole.

This has largely reflected itself via increased borrowings, more than a reduction in gross financial saving.

As you would expect, I would recommend all savers to vote Conservative in the general election.

We are committed to abolishing standard-rate income tax on the income from savings and abolishing the 10 per cent charge on dividends and refunding the 10 per cent it was originally intended, a simple “tax wrapper”, analogous to a Pep or Isa but subject to the pension tax regime, that is, tax deductibility on contributions; roll up in the individual pensions account free of tax, with income tax on withdrawals on retirement.

This will afford full competition between the fund management and insurance ind- ustries for retirement savings and also offer a simple and flexible arrangement for retirement, financial self-provision, especially for the self-emp-loyed and those working for small businesses.

At least initially, we will apply the same contribution regime as applies to eligibility to participate and contributions for stakeholder.

The crucial point is that we will remove the unnecessary requirement and cost of having to become a member of a pension scheme to use the IPA, a requirement that defeats the whole purpose of the IPA.

More generally, we remain committed to cutting down the role of the state, reducing the general burden of taxation over time and reducing and simplifying capital gains tax.

Finally, I suggest it is also in the interests of savers for Britain to keep its own currency. To join the euro would mean being subject to pan-European monetary and interest rate policies, inevitably to pan-European economic policies and, in due course, to higher pan-European taxation.

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