FEARS over the impact of an EU referendum were the only hint of gloom in the post-election commentary with which I was bombarded after May 7. Otherwise the response was relief, if not glee, at a Conservative victory that financial services firms view as the best outcome for both their industry and the economy.
But should they be careful what they wish for? From welfare and housing to pension reform and tax avoidance, the Conservative government is set to pursue policies that threaten to deepen inequality. This doesn’t seem to bother their many cheerleaders in the industry – yet it should.
Mark Carney, governor of the Bank of England, has cited inequality and low pay as the single biggest risk to the economy. The FT’s Martin Wolf has argued that “inequality will be a source of significant economic ills”. When even Goldman Sachs’ chief executive Lloyd Blankfein worries about inequality – warning last year of its “destabilising” effect on economic growth – you realise it’s no longer a concern confined to “leftie” handwringers.
What’s all this got to do with personal finance, you might ask? Well, it’s through policies presented as boosting our household finances that inequality will become further entrenched.
Take housing as an example. A combination of low housebuilding and “aspirational” policies such as “help-to-buy” and the proposed extension of the rent-to-buy policy to housing association tenants in England will only send house prices even higher. Good for existing homeowners and those with substantial deposits. Not so good for the rest.
Inequality is promoted through pension policy, too. The pension reforms pushed through last month generally benefit the better-off at the expense of those with more modest pension pots. The latter are suffering from the detrimental impact of the reforms on annuity rates. Those on modest income who do take advantage of the reforms are also less likely to have access to professional advice. Instead, they are left at the mercy of investment markets and con men.
Ros Altmann’s appointment as pensions minister could make matters worse, as she is in favour of proposals for a second-hand annuity market that would simply give existing annuity holders an opportunity to get ripped-off all over again.
Conservative tax policies also undermine any suggestion that the party is serious about tackling inequality. The planned rise in the inheritance tax threshold is an obvious example, as is the expected increase in the point at which higher rate tax kicks in.
Less obvious is the ongoing increase in the personal allowance, touted as taking people on low income “out of tax altogether”. Not only does that ignore the fact that VAT and council tax take more out of low income households than income tax, but it helps those on decent incomes a lot more than it does those at the lower end of the scale.
That our economy simply can’t function effectively at current levels of inequality is now widely accepted. Even if you don’t share the moral concerns over inequality, the economic implications should matter.
Unfortunately, our new government seems intent on pursuing policies which threaten to deepen inequality at a time when the consequences of doing so should be clear.