Monday, 13 July 2009

The politics of pendulums

Newton's Third Law of Motion ('to every action there is an equal and opposite reaction') applies equally to politics. Looked at over the long-term, it is easy to find examples of how policy has a tendency to swing from one extreme to the other rather than alighting at a happy medium. For example:

- in local government it is first decided that 'small is beautiful' and local authorities are created which relate to relatively close-knit geographical areas; but over time it is decided that these bodies are too small to be 'strategic', and therefore what is needed is larger authorities or regional bodies; then these are seen to be remote and unaccountable and we rediscover localism again; this has happened both in local government (witness the current drive to create more strategic 'unitary' authorities to replace smaller district councils) and also in health (where in my time as an MP I have seen PCTs and health authorities change their geographical boundaries on almost an annual basis);

- with regard to privatisation/nationalisation: post-War major strategic industries were taken into public ownership; decades later it was decided that state control brought no 'added value' and they should be privately owned and free to compete; more recently still some have failed commercially (eg some national rail franchises) and their strategic importance is such that they are now back in public ownership;

Today brings news of what looks suspiciously like another pendulum swinging too far. In the 1980s, with rapidly rising unemployment, it was widely known that unemployed people with health problems were reclassified onto invalidity/incapacity benefit in order to get them out of the headline jobless figures; however, over time this led to a big build-up in costs and numbers on IB as people got 'stuck' on these benefits; as a result there have been a series of clampdowns on sickness-related benefits culminating in the introduction of the 'Employment and Support Allowance' to replace IB last Autumn; the problem now seems to be that huge numbers of people are being turned down - up to 90% in some areas. I find it hard to believe that a system that signposts people to claiming and being assessed for sickness related benefits and then turns down up to 9 in 10 in some areas makes any sense - especially when many of these people end up being paid jobseekers allowance instead.

On this latter issue it would be nice to think that there was a sensible equilibrium - fair assessment of people with health problems - rooting out those who work the system but responding promptly and effectively to people who are struggling with poor health. But just as pendulums don't stop in the middle, benefit reform has a tendency to over-react to the last set of problems. It would be good to get a grip on this one before it swings out of control.

Wednesday, 8 July 2009

Getting your hands on your own money

Took part in a fascinating policy seminar this lunchtime organised by CentreForum around the issue of early access to Pension Fund cash. In particular, we were discussing the paper that I jointly wrote with Jo Holland about the part of your pension which you can currently take as a tax-free lump sum when you retire. Our basic proposal is that you should be able to access whatever you have built up as a potential tax free lump sum (ie typically one quarter of your fund) earlier if you wish. One use for the cash might be to tackle a mortgage arrears problem and thereby avoid repossession. After all, it's a bit daft if you have thousands of pounds in your name that you can't touch when you need it, especially if that cash would never have been taken as a pension in any case.

The discussants were Nikki Cleal of the Pension Policy Institute and Baroness Patricia Hollis, who first suggested the idea to me.

The PPI has done its own research on a variety of schemes for early access to pension funds and has highlighted the variety of similar schemes around the world. The effect on overall savings levels is ambiguous, though the lump sum option appears to have attractions compared with some schemes in other countries.

Patricia Hollis stresed the attractions of this sort of scheme for women. She said that many have poor pension rights and often do not save for a pension because it represents a risk to tie up your money when you may need cash to cover a career break or perhaps the costs of caring for a relative. She said that defined benefit pension schemes had clearly been 'devised for men by men', and that current pension arrangements were a very poor fit for the needs of many women, especially those in low-paid or part-time work. A more flexible product, where you can get at some of your cash when you need it, would be a better bet.

A lively discussion followed, including issues of how you would sell this idea, whether the Inland Revenue would be an obstacle, and whether you would create problems for schemes if large volumes of cash were withdrawn from pension funds at short notice.

I think this is an idea that clearly works not just in a Recession, but more generally as a vehicle to make pension saving more attractive, and I suspect it is something that we will hear more of from all parties in the coming months and years.