A budget for...

The respected financial correspondent for the Independent newspaper, Hamish McRae, recently reviewed the 2007 Budget document five years on and concluded that it turned out to be almost complete rubbish.

No surprise there you might say. Yet given the hype that surrounded George Osbourne’s Budget statement this week, it seems that everybody is looking for it to achieve miracles, or at least support their own agendas for growth. It almost certainly won’t but that’s Budgets for you.

It may be a bit unfair to focus on the supposed failings of this week’s Budget or indeed that of 2007 delivered by Gordon Brown. There have probably been very few ground breaking Budgets in UK history (Lloyd George’s People’s Budget in 1909 and er..oh I’ll think of the rest later)  But that in itself does beg the question as to what the Budget should actually be for, and whether it should assume so much importance. Still it is what it is and therefore we do need to look at what is in it for Enterprise Britain.

I have to admit that a month ago I would have laid odds on the 50p tax rate staying put for the foreseeable future, as I suspect would George Osborne. However the climate for change on this issue moved appreciably over last few weeks, and he was able to do what he has been aching to do since becoming Chancellor i.e. reduce it. Shows what can be done quickly when there’s a will eh George?

Having said that if he does believe that the 50p rate is holding the economy back and not raising much revenue why wait a year to reduce it? All that will do is cause the affected higher rate income tax payers to defer income for a year which will have a negative impact on both tax revenues and consumption growth in the economy. Still hopefully it will prompt those who were saying that a 50p rate stopped them investing to change their plans accordingly.

The continuing downward move on Corporation Tax should be positive although it is only benefitting larger businesses at present. There is little to help smaller businesses in respect of Corporation Tax or employer’s NI which given these businesses are meant to be the key engine of growth seems strange. The R&D tax credit proposal looks interesting though and worthy of further study.

Additional encouragement for SME shareholdings for investors (EIS) and employees (EMI) is good news. However some action on fuel duty increases and business rates would have been nice. As regards the new National Loan Guarantee Scheme (NLGS), time will tell if it is going to be any more effective than previous schemes in channelling bank finance where it is desperately needed.

Ultimately the Budget will only be as good as the action that follows it. Same as in business really. Many business budgets are numbers exercises and do not contain the concrete actions that are necessary to make them effective. Thus they are often filed away and forgotten until the next budget process starts.

It would be nice to think that the 2012 Budget will be different and will be seen as a key staging post in a new economic growth spurt. The proof of the pudding no doubt will be in what Hamish McRae says about it in 2017….

The Joy Of Pensions

OK, it’s not sex, though at least I have now grabbed your attention.  But can pensions ever be fun? I have to admit that the thought of a pensions dedicated event did not fill me with enthusiasm. Fair play then to Melanie Stern, and her team at Financial Director magazine, who put together a really enjoyable and informative evening at the London Stock Exchange last week.

Of course it helps if your speakers are entertaining, and in Kevin Wesbroom and Jackie Daldorph from Hewitt Associates,  Allan Course, an independent pension trustee, and Michael Johnson, author of a Centre for Policy Studies paper on changes to state, private sector and public sector pensions, Melanie had made some wise choices.

Kevin and Jackie set the scene with an amusing overview of the current pensions scene, including the election pledges of the three main parties, the key issues that nobody seems prepared to address, public sector pensions and the likely impact of NEST and NEO. Allan highlighted some of the challenges that pension fund trustees were facing in a world that wants to move away from final salary pension schemes.

Yet it was Michael who advanced the notion that the problem with pensions was the concept of pensions themselves. He strongly advocated a wider more flexible savings method that was more in tune with the uncertain times that we were now facing.

There is an argument that says that pensions are “so 20^th century”, and they are in desperate need of a rebrand for the new millennium.  Certainly the original aim of Lloyd George to provide a few years of well earned rest and recreation for 70 year olds following a lifetime’s toil does not match with today’s possibility of the retirement period lasting almost as long as the working life that has to pay for it.

The pensions model as we know it would appear to be broken. New ways of thinking are essential if we are to reach the stage where pensions will occupy our minds more than sex does with sufficient wherewithal to enjoy our twilight years. The evening spent with Financial Director magazine was a valuable step in the right direction.