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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Junior doctors’ strikes: the greatest union failure in a generation

The first wave of junior doctor contract impositions began this week. Here’s how the BMA union failed junior doctors.

In Robert Tressell’s novel, The Ragged-Trousered Philanthropists, the author ridicules the notion of work as a virtuous end per se:

“And when you are all dragging out a miserable existence, gasping for breath or dying for want of air, if one of your number suggests smashing a hole in the side of one of the gasometers, you will all fall upon him in the name of law and order.”

Tressell’s characters are subdued and eroded by the daily disgraces of working life; casualised labour, poor working conditions, debt and poverty.

Although the Junior Doctors’ dispute is a far cry from the Edwardian working-poor, the eruption of fervour from Junior Doctors during the dispute channelled similar overtones of dire working standards, systemic abuse, and a spiralling accrual of discontent at the notion of “noble” work as a reward in itself. 

While the days of union activity precipitating governmental collapse are long over, the BMA (British Medical Association) mandate for industrial action occurred in a favourable context that the trade union movement has not witnessed in decades. 

Not only did members vote overwhelmingly for industrial action with the confidence of a wider public, but as a representative of an ostensibly middle-class profession with an irreplaceable skillset, the BMA had the necessary cultural capital to make its case regularly in media print and TV – a privilege routinely denied to almost all other striking workers.

Even the Labour party, which displays parliamentary reluctance in supporting outright strike action, had key members of the leadership join protests in a spectacle inconceivable just a few years earlier under the leadership of “Red Ed”.

Despite these advantageous circumstances, the first wave of contract impositions began this week. The great failures of the BMA are entirely self-inflicted: its deference to conservative narratives, an overestimation of its own method, and woeful ignorance of the difference between a trade dispute and moralising conundrums.

These right-wing discourses have assumed various metamorphoses, but at their core rest charges of immorality and betrayal – to themselves, to the profession, and ultimately to the country. These narratives have been successfully deployed since as far back as the First World War to delegitimise strikes as immoral and “un-British” – something that has remarkably haunted mainstream left-wing and union politics for over 100 years.

Unfortunately, the BMA has inherited this doubt and suspicion. Tellingly, a direct missive from the state machinery that the BMA was “trying to topple the government” helped reinforce the same historic fears of betrayal and unpatriotic behaviour that somehow crossed a sentient threshold.

Often this led to abstract and cynical theorising such as whether doctors would return to work in the face of fantastical terrorist attacks, distracting the BMA from the trade dispute at hand.

In time, with much complicity from the BMA, direct action is slowly substituted for direct inaction with no real purpose and focus ever-shifting from the contract. The health service is superficially lamented as under-resourced and underfunded, yes, but certainly no serious plan or comment on how political factors and ideologies have contributed to its present condition.

There is little to be said by the BMA for how responsibility for welfare provision lay with government rather than individual doctors; virtually nothing on the role of austerity policies; and total silence on how neoliberal policies act as a system of corporate welfare, eliciting government action when in the direct interests of corporatism.

In place of safeguards demanded by the grassroots, there are instead vague quick-fixes. Indeed, there can be no protections for whistleblowers without recourse to definable and tested legal safeguards. There are limited incentives for compliance by employers because of atomised union representation and there can be no exposure of a failing system when workers are treated as passive objects requiring ever-greater regulation.

In many ways, the BMA exists as the archetypal “union for a union’s sake”, whose material and functional interest is largely self-intuitive. The preservation of the union as an entity is an end in itself.

Addressing conflict in a manner consistent with corporate and business frameworks, there remains at all times overarching emphasis on stability (“the BMA is the only union for doctors”), controlled compromise (“this is the best deal we can get”) and appeasement to “greater” interests (“think of the patients”). These are reiterated even when diametrically opposed to its own members or irrelevant to the trade dispute.

With great chutzpah, the BMA often moves from one impasse to the next, framing defeats as somehow in the interests of the membership. Channels of communication between hierarchy and members remain opaque, allowing decisions such as revocation of the democratic mandate for industrial action to be made with frightening informality.

Pointedly, although the BMA often appears to be doing nothing, the hierarchy is in fact continually defining the scope of choice available to members – silence equals facilitation and de facto acceptance of imposition. You don’t get a sense of cumulative unionism ready to inspire its members towards a swift and decisive victory.

The BMA has woefully wasted the potential for direct action. It has encouraged a passive and pessimistic malaise among its remaining membership and presided over the most spectacular failure of union representation in a generation.

Ahmed Wakas Khan is a junior doctor, freelance journalist and editorials lead at The Platform. He tweets @SireAhmed.