Balls tries to show that you can trust Labour with your money

The shadow chancellor's pledge to justify "every penny" makes political and economic sense.

"Are you ready to trust Labour with your money again?", asked Nick Clegg in his conference speech. The announcement by Ed Balls that Labour, if elected, would hold a "zero-based spending review" is an admission that he still needs to convince voters that they can answer "yes". The record £159bn deficit may have been a consequence, rather than a cause, of the economic crisis but Balls rightly recognises that Labour didn't always spend wisely in office.

A zero-based review (an idea proposed last December by In The Black Labour) differs from others in that it requires every item of spending to be approved, rather than merely changes to a pre-determined baseline. In other words, nothing is off the table. As Balls says in his interview with the Guardian:

The public want to know that we are going to be ruthless and disciplined in how we go about public spending. For a Labour government in 2015, it is quite right, and the public I think would expect this, to have a proper zero-based spending review where we say we have to justify every penny and make sure we are spending in the right way.

He goes on to add that the review will be subject to three qualifications. First, that Labour will commit to protecting spending in certain areas, such as international development and possibly health, based on its priorities of fairness and growth; second, that it will examine whether "cuts now would lead to higher costs in the future" (for instance, by cutting public health and other preventative budgets); and third, that Labour will seek to achieve a cross-party consensus before the election in specific areas, such as social care and children in care, which may then be excluded from the zero budgeting process. Elsewhere, in an interview with the Mirror, Balls states that Labour will use private firms to run public services if it believes they will offer the taxpayer better value for money. The New Labour mantra of "whatever works" lives on. And rightly so. There is no reasonable objection to any of the above.

But the interview is also notable for what Balls doesn't say. With George Osborne due to announce spending plans for 2015-16 (the first post-election year) in next year's Spending Review, recent speculation has suggested that Balls, in an echo of Labour's 1997 strategy, could pledge to match them. In an interview with the Spectator, however, Harriet Harman poured cold water on this proposal, declaring that there was no chance of Labour "signing up to doing the very thing we think is hurting the economy".

Labour aides have since suggested that she was referring to this spending period, rather than the next one. But, offered the chance to settle the matter, Balls declined. And who can blame him? With Osborne's growth and borrowing forecasts changing so rapidly (and not for the better), few can say what situation Labour would inherit. For now, the priority remains to push for an economic strategy that would, at least, limit the damage.

Shadow chancellor Ed Balls said that Labour would have to "justify every penny". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Show Hide image

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/