The Huffington Post (March 2012) - The Budget

by Dr. Ros Altmann

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There are a number of issues that the Chancellor should address in this Budget.


He should take the plunge and support small and medium business (SME) lending directly, because the lack of SME lending is really damaging growth. Large firms are flush with cash, but small companies are being starved of credit by over-cautious banks, imposing draconian conditions or denying loans.

He should also unveil plans for a pension fund infrastructure investment programme, where pension investors (including public sector schemes) finance large projects, but with Government guarantees on future returns to mitigate risk.

George Osborne should encourage the Bank of England to abandon its disastrous Quantitative Easing (QE) gilt-buying programme - which is hardly boosting growth, but is dangerously distorting the supposed-to-be-risk-free bond market, undermining pensions and boosting inflation. Any new money would be far better spent on underwriting SME lending or infrastructure investment, to directly stimulate the economy.  This would create far more jobs than buying gilts or spending more money on unemployment benefits.

I don't think abolishing the 50p tax rate is a top priority for this Budget, but I would expect that, if the rate stays, the Chancellor will not allow people to claim full 50 per cent relief on their pension contributions. He could either restrict this top relief, or reduce the annual pension contribution allowance.  However, I hope he does not interfere more with pensions, since confidence in pension saving has plunged and, as we start automatically enrolling every worker into company pensions this year, we hardly need more negative pension headlines.

Talking of pensions, QE has been a disaster for retirement incomes. Indeed, the Government needs to acknowledge the pain its policies have caused to the decent middle classes. Many recently or soon-to-be retired people have suffered a huge blow as annuity rates have been artificially forced down by QE. Those who have saved, avoided large debts - and the over 50s in particular - have also suffered significantly from low interest rates, high inflation and council spending cuts. Two things could help here.

Firstly, the Chancellor should relax ISA investment restrictions, to allow people to invest their full £10,680 annual allowance in either cash or shares, rather than only permitting half in cash. This would allow older savers, trying to live off the income from their lifetime savings, to at least receive more of their meager interest tax-free. Secondly, he could introduce an additional ISA allowance to encourage people to save for later life care needs. Nobody is saving for future care, there's no money put aside at all, because there have never been any official incentives to do so. Pension saving may not be sufficient, but the incentives have at least ensured billions of pounds in people's pensions. Taxbreaks such as a 'Care ISA' allowance, where savings would be tax-free only if spent on care (either for oneself or someone else) would encourage long-overdue preparation for advanced old age.

The economy must be growing well by 2014/15 to meet the political timetable, so this year's Budget is for hunkering down and sowing the seeds of future success.

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