FEAR OF FINANCE

The trick which Kenneth Clarke has to pull off in order to produce a politically successful budget has less to do with income tax cuts or even cuts in welfare spending programmes. than with restoring the feel- good factor for the so-called middle classes, who will decide the outcome of the next election.

Income tax cuts will not help much if they are offset by increases in the level of earnings on which employees have to pay National Insurance contributions. Similarly, cuts in welfare spending will soon lose their political appeal if the identification of more welfare scroungers is matched by an increase in the numbers of cases of genuine hardship - especially if they result in well-publicised personal tragedies.

The problem the Chancellor must address is the collapse of middle class expectations of a decent standard of living in their old age. Whatever else the elderly rich have to cope with, they can expect to have enough money to maintain their living standards in retirement. It is a hard fact that the expectations of the very poor have not been that much affected either. Those who faced retirement without a house, or significant savings to their name and only the old-age pension to live on have never had much to look forward to.

But the middle class dream of retiring with a decent pension and the house paid for with the state as a back-up if they needed long-term care is in ruins.

Property values have crumbled, job losses have left them facing a longer and poorer retirement, while the prospect of losing their savings - and the homes they struggled so hard to buy in order to keep them in a nursing home if they are unlucky enough to need one - is a bitter pill to swallow.

Increasing the starting point for inheritance tax or abolishing the tax altogether would only add insult to injury for many whose nest-egg is doomed to be destroyed. Allowing pension funds to be used to finance long- term health care is little use to the great majority whose pension funds are too small to provide a proper pension let alone health-care.