The Lib Dems' money woes are growing

Clegg's party might need a spell in opposition just to balance the books.

The Electoral Commission has published its accounts of political party income and expenditure. The table showing the financial state of health of the top 14 - the ones that get £250,000 or more - is available here.

The item that has made a few headlines is the drop in income for the Tories. The party's takings were down by 45 per cent on the previous year - now at the same level they were last at in 2003. That's wilderness income. Of course, the Conservative coffers will fill up again as an election approaches. They always do. But the fall in revenue might also reflect disquiet among big donors at negative publicity attached to the status of being seen to be a Cameron crony (especially after this incident) and irritation at the party leadership's willingness to indulge media bashing of bankers, high pay and fat-cattery.  The Telegraph's Ben Brogan wrote a column earlier this week suggesting donors were sniffing around Boris Johnson as a friendlier protege.

Labour also received less than last year but, thanks to the trade unions, the party's funding stream is a little more stable (although there is a political price to be paid for that dependency ... the subject of another much longer blog another time).

One thing that caught my eye in this year's accounts though was the perennial shortage of cash felt by the Lib Dems. They take in a fraction of the sums enjoyed by the big two and, unlike their rivals, spend more than they earn. One of the cruelties of coalition for the Lib Dems is that power has not suddenly opened up new exciting financing opportunities. Joining the governing big league has not granted entry to some exclusive high rolling donors club. Meanwhile, the party has lost the "short money" made available by the state to official opposition parties. And to make matters worse, Lib Dem councillors traditionally chip in around 10 per cent of their allowances to help fund the party. So the massacres in local elections in recent years have put a further squeeze on income. The Lib Dems, in other words, are utterly broke.

One senior Labour figure recently suggested to me that this would ultimately be the factor that breaks the coalition. The Lib Dems, this theory goes, will have to quit the government a year or so before an election so they can get their short money back. Without it they simply wouldn't be able to mount a campaign. Now that could be spite and mischief from the enemy camp (the shadow cabinet figure involved is no admirer of the Cleggists) but senior Lib Dems themselves don't deny privately that they have serious money woes. Maybe staying in government to the very bitter end will prove a luxury they can't afford.

Entering government has cost Clegg's party money as well as votes. Photograph: Getty Images

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: products-and-investments/ pensions/pensions2015/