Ed Balls and George Osborne attend the State Opening of Parliament on May 8, 2013. Photograph: Getty Images.
Show Hide image

How Labour can trump Osborne's pensions reforms

A state annuity scheme would improve the public finances, provide financial security and raise living standards.

When the hardline conference motions used to roll in calling for the nationalisation of the top 200 industries, John Smith would jest that we should replace the term "industries" with "chip shops". These days there are few opportunities for such humour in the Labour Party, but sometimes this means Labour avoids advocating an obvious state solution, even when it represents much better value than a typical annuity.

George Osborne’s Budget pension reforms are, in fact, a case in point. No one can doubt that locking pensioners into poor value annuities was no longer tenable. Giving those reaching retirement age greater freedom to make their own investment and spending decisions also makes plenty of sense. The concern is that the risks associated with such freedoms may result in some pensioners falling back on the state later in life. This not only means many living out their final years in penury but also the taxpayer having to find extra funds to cover social care or benefits such as housing benefit.
 
The Conservatives want to suggest that those who raise fears about the personal and fiscal consequences of Osborne’s reforms are accusing pensioners of being bad people, stupid and irresponsible to the core.  But did we accuse working age people of irresponsibility when we introduced opt-out defined contributions pensions for all?
 
The problem is a simple one: someone reaching retirement does not know how long they will live, and many underestimate how long they will. Someone who turns 65 this year will, on average, live to 85 (84 for a man and 86 for a woman) and annuities, for all their faults, take away the risk of failing to judge your life expectancy correctly.                    
 
The solution is equally simple. While continuing to offer retirees the freedom to pay down a mortgage, buy a Lamborghini or even a chip shop, the state should offer its own annuity. It has a vested interest in doing so because it will pick up the tab if Osborne turns out to be less prescient than he would have us believe. The state can offer value for money because it does not have to make a profit. If the state were raising funds through the bond market it would pay out a perfectly respectable interest rate, currently somewhat above 2.5 per cent for a 10 year bond. On this basis, someone investing £100,000 in a state annuity would be likely to do better by about £12,000 over a remaining 20 years of life than with a private sector annuity.
 
Indeed, because of the potential risk to the public finances the state may want to be more generous than this.  All it needs is clear and transparent actuarial calculations and payments could be made with those for the state pension. The insurance industry would howl but it would have little cause for complaint because the market failure is obvious and Osborne has already driven a stake through its less than generous heart. Besides, the state would not be a monopoly but act as a competitor to the private sector: as a spur to efficiency and innovation. And with a state annuity, freedom would be underpinned by security.  
 
Many suspect Osborne of alighting upon his pensions reform with more than a thought given to the short-term fillip to the public finances, as the newly retiring enjoy their unexpected freedom, and with little regard for the long-term impact on the public finances. A state annuity has the potential to provide a very substantial medium-term boost to the public finances while simultaneously warding off a potential fiscal time bomb. If the state annuity was sensibly generous, and the default position for three quarters of a pension pot, with retirees (anyone 55 or older) having to opt-out rather than opt-in to the state annuity, as many as half or more of those reaching retirement might take up the states offer and use their pension pot to pay for a guaranteed lifetime income.
 
With roughly 650,000 people becoming eligible in a year, and an average pension pot of close to £30,000, if half of retirees used three quarters of their pot (the remaining quarter being taken as a tax-free lump sum) to buy a state annuity, the public finances would be better off by around £7bn in the first year and still better off each year for many years to come. Over the lifetime of a parliament, the public finances might be boosted by as much as £30bn. Of course, there is a debate to be had about how we treat this on the public books, but without doubt the impact on the government’s finances would be exceedingly positive in the early years.
 
Where else can Labour so readily demonstrate that it can improve the public finances, provide financial security and raise living standards? And all this without nationalising any chip shops.

Nick Pecorelli is Associate Director of The Campaign Company

Getty.
Show Hide image

Andy Burnham and Sadiq Khan are both slippery self-mythologisers – so why do we rate one more than the other?

Their obsessions with their childhoods have both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

Andy Burnham is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s widely seen as an unprincipled flip-flopper.

Sadiq Khan is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s the hugely popular mayor of London, the voice of those who’d be proud to think of themselves as the metropolitan liberal elite, and is even talked of as a possible future leader of the Labour party.

Oh, and also they were both born in 1970. So that’s a thing they have in common, too.

Why it is this approach to politics should have worked so much better for the mayor of London than the would-be mayor of Manchester is something I’ve been trying to work out for a while. There are definite parallels between Burnham’s attempts to present himself as a normal northern bloke who likes normal things like football, and Sadiq’s endless reminders that he’s a sarf London geezer whose dad drove a bus. They’ve both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

And yes, Burnham apparent tendency to switch sides, on everything from NHS privatisation to the 2015 welfare vote to the leadership of Jeremy Corbyn, has given him a reputation for slipperiness. But Sadiq’s core campaign pledge was to freeze London transport fares; everyone said it was nonsense, and true to form it was, and you’d be hard pressed to find an observer who thought this an atypical lapse on the mayor’s part. (Khan, too, has switched sides on the matter of Jeremy Corbyn.)

 And yet, he seems to get away with this, in a way that Burnham doesn’t. His low-level duplicity is factored in, and it’s hard to judge him for it because, well, it’s just what he’s like, isn’t it? For a long time, the Tory leadership’s line on London’s last mayor was “Boris is Boris”, meaning, look, we don’t trust him either, but what you gonna do? Well: Sadiq is Sadiq.

Even the names we refer to them by suggest that one of these two guys is viewed very differently from the other. I’ve instinctively slipped into referring to the mayor of London by his first name: he’s always Sadiq, not Khan, just as his predecessors were Boris and Ken. But, despite Eoin Clarke’s brief attempt to promote his 2015 leadership campaign with a twitter feed called “Labour Andy”, Burnham is still Burnham: formal, not familiar. 

I’ve a few theories to explain all this, though I’ve no idea which is correct. For a while I’ve assumed it’s about sincerity. When Sadiq Khan mentions his dad’s bus for the 257th time in a day, he does it with a wink to the audience, making a crack about the fact he won’t stop going on about it. That way, the message gets through to the punters at home who are only half listening, but the bored lobby hacks who’ve heard this routine two dozen times before feel they’re in the joke.

Burnham, it seems to me, lacks this lightness of touch: when he won’t stop banging on about the fact he grew up in the north, it feels uncomfortably like he means it. And to take yourself seriously in politics is sometimes to invite others to make jokes at your expense.

Then again, perhaps the problem is that Burnham isn’t quite sincere enough. Sadiq Khan genuinely is the son of a bus-driving immigrant: he may keep going on about it, but it is at least true. Burnham’s “just a northern lad” narrative is true, too, but excludes some crucial facts: that he went to Cambridge, and was working in Parliament aged 24. Perhaps that shouldn’t change how we interpret his story; but I fear, nonetheless, it does.

Maybe that’s not it, though: maybe I’m just another London media snob. Because Burnham did grow up at the disadvantaged end of the country, a region where, for too many people, chasing opportunities means leaving. The idea London is a city where the son of a bus driver can become mayor flatters our metropolitan self-image; the idea that a northerner who wants to build a career in politics has to head south at the earliest opportunity does the opposite. 

So if we roll our eyes when Burnham talks about the north, perhaps that reflects badly on us, not him: the opposite of northern chippiness is southern snobbery.

There’s one last possibility for why we may rate Sadiq Khan more highly than Andy Burnham: Sadiq Khan won. We can titter a little at the jokes and the fibs but he is, nonetheless, mayor of London. Andy Burnham is just the bloke who lost two Labour leadership campaigns.

At least – for now. In six weeks time, he’s highly likely to the first mayor of Greater Manchester. Slipperiness is not the worst quality in a mayor; and so much of the job will be about banging the drum for the city, and the region, that Burnham’s tendency to wear his northernness on his sleeve will be a positive boon.

Sadiq Khan’s stature has grown because the fact he became London’s mayor seems to say something, about the kind of city London is and the kind we want it to be. Perhaps, after May, Andy Burnham can do the same for the north – and the north can do the same for Andy Burnham.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.