David Prosser: Hutton in the pensions hotseat, but who's really steering?
Saturday 05 November 2005
One needs to be vigilant to write about the Government's pensions policy these days. Turn away for a second and the secretary of state in charge has changed. John Hutton, who on Wednesday replaced the beleaguered David Blunkett, is the fourth occupant of the hot seat at the Department of Work and Pensions in the space of a year.
It's the stuff of political satire, but this ridiculous merry-go-round is no laughing matter. The Prime Minister says that getting to grips with pension reform is one of the most important challenges of his final term. Yet each man put in charge of meeting this challenge lasts only a few months.
There are fewer than four weeks to go before Adair Turner presents the final report of the Pensions Commission, appointed by the Government to devise a road-map for reforms that will endure for the next 30 years. Hutton faces a tough time mastering one of the most complicated briefs in government before the report is published.
To make matters worse, achieving a technical grasp of the issues is just part of the job. Forging a political consensus on pensions will be even harder - the new secretary of state must work out how to meet the Prime Minister's expectations without upsetting Gordon Brown, while all the time trying to avoid translating the Turner Report into policies that are a bodged compromise.
The pensions crisis boils down to two big questions: what do we do about the fact that the basic state pension is inadequate as even a subsistence-level income, and how do we help (or force) more people to save privately for old age?
These two issues are linked, of course. Offer a higher basic state pension and you reduce the incentive for people to save. But pay a paltry state rate and those who can't afford to save are left in poverty. Moreover, offering tax breaks to encourage people to save more costs £19bn a year, which is money that could be used to underwrite universal benefits.
Outside Westminster, most experts back a citizen's pension - a universal state pension payable to all at a much higher rate than today's benefit, irrespective of past National Insurance contributions. In addition, auto-enrolment, where employees are automatically signed up to company pension schemes unless they opt out, is favoured.
However, while these proposals might be radical enough to please Tony Blair, the introduction of a Citizen's Pension would fly in the face of Gordon Brown's longstanding commitment to means tests such as the Pension Credit. Equally, auto-enrolment is a move towards compulsory pension contributions, to which the Chancellor is opposed. Over to you, Mr Hutton.
The Government raised £5.5bn from Stamp Duty on house purchases during the last financial year - a record. This reflects rising house prices, but the way Stamp Duty is charged remains unfair.
Earlier this year, the Chancellor doubled the starting threshold for Stamp Duty to £120,000. But the tax is still charged in tiers - at 1 per cent on purchases between £120,000 and £250,000, at 3 per cent on deals up to £500,000 and at 4 per cent above this level.
So while buying a £250,000 house will cost £2,500 in tax, an extra pound on the price tag raises the bill to just over £7,500.
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