Alan Johnson u-turns and backs graduate tax

Shadow chancellor advocates system he previously described as unworkable.

"For goodness' sake, don't pursue a graduate tax."

Alan Johnson, 26 September 2010

"There is a strong case for a graduate tax."

Alan Johnson, 8 December 2010

"The roads to Westminster are littered with the skid marks of political parties changing direction," Vince Cable memorably remarked. Alan Johnson has just added some of his own. After weeks of telling us that a graduate tax is unworkable, the shadow chancellor finally appears to have bowed to Ed Miliband.

In an article for the Times (£) he writes:

We are now seeing how casually the variable fees system can be distorted with such damaging effects. It is in these circumstances that there is a strong case for a graduate tax, which may offer a fairer way of sharing costs between individuals and government.

But in an interview with the Fabian Review, published just four days ago, he said of a graduate tax: " I don't think it could [work] on the basis of what we were dealing with before and what we're dealing with now. Frankly, there's a difference of view." He added: "I feel it's going to be very difficult to make a graduate tax a workable proposition."

On another occasion, in a "letter to the new Labour leader", Johnson wrote: "For goodness' sake, don't pursue a graduate tax. We should be proud of our brave and correct decision to introduce tuition fees."

This said, Johnson's endorsement of a graduate tax is decidedly lukewarm. He writes that there is now a "strong case" for one but offers almost no evidence for this claim. He continues to defends the system of fees he introduced in 2004, but insists that "David Cameron and Nick Clegg are abusing the legacy I left them". The logic of this position is to argue for the status quo, not a graduate tax.

Labour is at least one step closer to a coherent position on higher education. A graduate tax is far from perfect, but it would prevent an open market in fees and ensure that the burden of payment falls on those most able to pay.

But while Miliband has finally (and correctly) imposed collective responsibility, he and Johnson have already lost much credibility over the affair.

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/