Loan voice: minister for universities David Willetts at the Conservative Party Conference 2013. (Photo: Getty)
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Cashing in pensions, the Baby Boomers inheritance tax, and the bad maths of student fees

Peter Wilby’s First Thoughts.

In 1744, two Church of Scotland ministers, Robert Wallace and Alexander Webster, considered the consequences of premature death among their fellow clergy. They decided that dependants could be provided with annual incomes or annuities if ministers paid yearly premiums during their lifetimes and the money was invested. They just had to get their figures right: costs, investment returns and, crucially, average life expectancy of ministers and their wives. Nothing like it had been done before but the two clergymen got their estimates right to within £1 and, as Niall Ferguson observes in his book The Ascent of Money, modern actuaries still marvel at the precision of their calculations.

This was the origin not only of the Scottish Widows that pays an annuity to me and millions of others but of all modern life insurance – including pensions, which, drawing on the same principles and mathematics, protect us against the risk of longevity. Scottish Widows and other financial outfits have strayed far from their Presbyterian origins and now give most annuity holders a poor deal. However, that is an argument for better regulation, not for destroying, as George Osborne has, a model that has worked well for most of the past 270 years.

The acclaim for Osborne’s Budget announcement that in future people will be able to cash in pension funds at retirement rather than taking out annuities shows how little anybody now understands the principle of mutuality. People complain that they may not “get back” what they put into a pension fund. They are missing the point. You may not get back what you put into car or house insurance; indeed, you hope not to. A pension annuity meets the costs of long life at the expense of those who die early, just as car insurance covers the costs
of accidents at the expense of those who avoid them. It is responsible collective risk-sharing, just like the original Scottish widows scheme, which all 930 ministers then alive agreed to join. Osborne prefers irresponsible individualism.

He says that we can all be trusted to use our money wisely. If so, why have banks – with payment protection schemes, missold pensions, bogus benefits on fee-paying current accounts, and so on – found it easy to rip us off? Osborne offers financial advice for everyone at retirement. Perhaps he should require them to sit a test to show they’ve understood it.

Better off dead

Far from spreading enlightenment on financial matters, the Tories’ habit is to propagate ignorance. Inheritance tax, David Cameron says, “should only really be paid by the rich”. He therefore proposes that the threshold for inheritance tax should rise from £325,000 (in effect, £650,000 for a couple) to nearer £1m (£2m for a couple). The tax was paid in 2010-2011 by only about 6 per cent of estates. At a £1m threshold, the proportion would fall to 1.5 per cent.

Is this another example of an Old Etonian being out of touch with how little most people have? Probably not. It is in the Tory interest to pretend that a tax that hits an elite affects, in Cameron’s words, “people who have worked hard”, a category that almost everybody will think includes them.

Light debts

References to graduates carrying a “debt burden” as they pay back their £9,000-a-year course fees have always irritated me. Though students technically receive “loans” to cover the fees, the government, in practice, pays upfront and later levies a graduate tax that, like most taxes, has a threshold (£21,000 a year), below which there is no liability. If you carry on earning little enough for long enough, your debt is written off. Not many debts work like that; last time I looked, Wonga wasn’t excusing repayments because debtors’ incomes were too low.

Now David Willetts, the universities minister, admits the proportion of graduates who will never repay their full “loans” is approaching 48 per cent. This is bad news for the government, because at that level the benefits of raising fees to £9,000 are cancelled out and ministers show themselves to be worse at maths than 18th-century Scottish clergymen. Surely everyone can now see that graduates don’t carry a debt burden.

Lost cause

A Channel 5 film crew left a seven-year-old and a five-year-old alone and apparently lost in a busy shopping centre to see if adults would come to their aid. With one exception, none did. Is that because we’re uncaring or because we’re scared of being branded as paedophiles? Neither, I suggest. We’ve all learned that if we see something odd in the street it’s most likely some TV or advertising stunt. 

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 03 April 2014 issue of the New Statesman, NEW COLD WAR

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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.