An inability to keep a closed mouth about a locked box has brought chancellors down in the past. Hugh Dalton, the man who raised the revenues for Attlee’s welfare state, had to go after tipping off a journalist just before his budget. Whether George Osborne has breached the purdah rule is a moot point, because the big story weeks ahead of Wednesday’s budget was not about anything in his red box, but something he had removed.
The most ear-catching moment of the supposed “pensions revolution” of the last parliament came in 2014 when the responsible minister, Lib Dem Steve Webb, said that it was for the individual to decide whether they wanted to blow their whole savings pot on a Lamborghini. In theory, the new flexibility to do what you liked with pensions applied to everyone, although – as the flash car example suggests – this was a revolution of more interest to the haves than the have-nots. The next step Osborne had hoped to make in this year’s budget could have more fundamentally shaken things up, to benefit the saving poor.
In the face of stubborn statistics about the vast proportion of tax relief paid out to a small proportion of well-to-do savers, the chancellor had been playing with levelling out the subsidies between higher-rate taxpayers, who are currently handed 67p in relief from the revenue for every £1 they chip in, and the mere 25p that goes to basic-rate taxpayers when they do the same. Moving to a single rate would plainly have boosted smaller pension pots.
But what could have been is not to be: the chancellor has decided that three months before a tricky European referendum is not a time to tackle the tax perks of higher earners. Policy on pensions will thus be left half-reformed for a time to come. Half-reformed, however, still leaves it an awful lot more cogent than policy towards other forms of savings for low-earners, where the recent record is one of outright chaos.
New Labour briefly had a keen interest in what it called “asset-based welfare”. The child trust fund, launched in 2005, colloquially known as “baby bonds”, provided every child born after 2002 with a £250 nest egg, with twice as much for kids from poor homes, and plans for parents and the state to chip in more as the children grew up. The coalition government did away with this largesse during its very first month in power, and in month two it also ditched the separate Saving Gateway scheme to offer 8 million adults of modest means a 50p bribe for every pound they put away for a rainy day.
Set against the savagery that the coalition displayed to social security benefits, I found this particular swing of the Osborne axe understandable enough. Sure, rainy day savings are a nice thing to have. But at a time when people were having to choose between heating and eating, building up a precautionary piggy bank was less important than making sure people had enough cash to get through the here and now. All the more so because independent evaluation from the Institute for Fiscal Studies suggested that the chief effect was not to encourage more saving overall, but to shift funds from other accounts into the subsidised Savings Gateway.
So even if you didn’t much like where the coalition had got to on savings, it was coherent. I was, therefore, mystified by pre-budget reports of a new “Help to Save” scheme. After years of savaging the welfare state, David Cameron has now decided an all-out war on poverty will be his legacy, and he says that encouraging the poor to “build up a rainy day fund” must be part of that. And thus – without any fresh evidence, and with more painful benefit cuts in the pipeline – the PM is now set to reinvent the Saving Gateway he previously abolished, complete with the same 50p match for a pound of saving, payable after the same two-year wait.
It is a weird pass to have reached, yet there may have been a certain presentational logic in announcing a carrot for low-income people without pensions to go alongside the big planned tax relief reforms, under the banner of a “budget for savers”. But now the full pension changes won’t happen, we’re left with the prime minister undoing one of his first acts in government and then claiming it as his legacy. There is one thing I’m confident in predicting will be in the red box: confusion.
