Labour exploits Osborne's pasty problem

Osborne's "pasty tax" comes under fire from Miliband.

Full marks to whichever Labour staffer positioned Ed Miliband in front of Greggs during his interview with Sky News earlier today. George Osborne's decision to apply VAT to hot supermarket food [raising the price by 20 per cent], an obscure change announced in last week's Budget, has become a political problem for the government following yesterday's select committee hearing. After admitting that he "can't remember" the last time he bought a pasty at Greggs, Osborne suggested that cold pasties would not be VAT-able, a comment that inspired today's Sun to compare the Chancellor to Marie Antoinette ["Let them eat cold pasty," reads its headline].

Shadow chief secretary to the Treasury Rachel Reeves made a well-timed visit to Greggs.

The tabloid's editorial goes further, declaring that "the Chancellor and his rich Cabinet colleagues cannot begin to understand what it's like to be so hard-up that a sharp rise in the price of a pasty will hurt.

"Unlike Sun readers, they don't worry how to pay for food, rent or petrol. If they ever have done, they certainly can't remember how it feels now -- any more than Mr Osborne can remember the last time he bought a pasty in Greggs."

It's tempting to dimiss this as a bit of knockabout fun but symbolism matters in politics and the current row both reflects and reinforces the view that the government is out of touch with ordinary people. Put simply, it has cut taxes for millionaires and raised them for pasty-eaters [the two categories are, of course, not mutually exclusive, though Osborne's performance suggested they might be]. As ConservativeHome's Tim Montgomerie has written, class is the Conservatives' "Clause IV" and this week's ComRes poll showed that 66 per cent of voters regard the Tories as "the party of the rich".

Miliband told reporters outside Greggs:

"Not just fuel duty going up, child benefit taken away, tax credits being cut, now even putting 20 per cent on the cost of pasties, sausage rolls, and the Chancellor's excuse? Well, he says you can buy them cold and you can avoid the tax.

"It just shows how out of touch this Government is and it shows that we've got a Budget that is hitting millions of people while cutting taxes for millionaires."

In an attempt at damage limitation, David Cameron told a press conference that he "loves a hot pasty" [although he bought his from the West Cornwall Pasty Company] but offered no hint of a U-turn. Has any Budget ever offered an opposition party so many easy hits?

Ed Miliband speaks to reporters outside a Greggs bakery earlier today.

George Eaton is 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/