Speech to NAPF Investment Conference, Edinburgh, 8 March 2012
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Thank you Joanne for that introduction, and for all the work you and the NAPF do to ensure the UK’s pensions industry plays a full and active role in the national policy debate.
I certainly benefited enormously from exchanges with NAPF when I was Shadow Pensions Minister
As Shadow Pensions Minister I was also proud to press the new government to follow through on what I think was one of Labour’s proudest achievement in government
- the building of a broad consensus around the recommendations of the Turner commission
- to restore the link of state pensions with earnings
- winning public legitimacy for an increase in the state pension age
- and for a system of automatic enrolment to occupational pension saving,
- including a publicly backed, low cost option
- to begin to reverse falling access to occupational pensions
- and address the serious problem of under-saving in our society.
My proudest achievement as Shadow Pensions Minister was the campaign on women’s state pension age.
500,000 women told by this government that, contrary to what they’d planned for, and with little time to prepare, they’d have to wait more than a year to get their state pension, and 33,000 facing a delay of two years.
On average these were women with just £9,100 saved for their retirement
- compared to the £52,800 average amassed by men of the same age
- now losing as much as £15,000 in pension income.
And although we didn’t win a complete retraction of this unfair and unjust measure
- we did win a major concession meaning that 245,000 women, who expected to wait between 19 and 24 months more for their pension would see that delay cut to a maximum eighteen months, some of them gaining £3,000 in additional retirement income.
Making that difference to so many women was one of the proudest days of my life.
So in many ways I was sorry to move on from the pensions brief.
But I know my colleague Gregg McClymont is doing an excellent job in the role, and I also hope that I will be able to take what I learned about the pensions industry the challenges it faces and the positive role it can play in the UK’s economy into my new role as Shadow Chief Secretary to the Treasury.
I’ll say a bit more about that before I finish but first let me say something about the big picture:
- the economic and fiscal issues this country now faces
- and the choices for the Chancellor as he prepares his Budget.
THE RIGHT DECISIONS FOR LONG TERM FISCAL SUSTAINABILITY
Pension provision is fundamentally about making decisions in the short term that serve us well in the long term:
- whether that’s savers not putting off till tomorrow the steps they should be taking today
- or trustees, insurance companies and fund managers insuring their savings are invested wisely to maximise future returns
And that critical connection -
- between the choices we make now, and the future we need to prepare for is something I am also focused on as Shadow Chief Secretary to the Treasury.
And at the centre of my brief as Shadow Chief Secretary are the decisions we need to take now about public spending and the management of our public finances that will secure the UK’s long term fiscal position.
I’ve been very clear – and so have Ed Miliband and Ed Balls – that this challenge has to be taken seriously.
There are three big reasons for this:
- first, the global financial crisis imposed huge costs on our public finances, along with those of government’s around the world
- second, the stalling of the UK’s recovery since 2010 has created additional unemployment costs, forced further write-downs of expected tax revenue, and added to planned borrowing
- but third, long-term trends – among them population ageing, which is of course central to the challenges all of you are tackling – are set to place further pressures on our public finances in the decades ahead.
So we do need to take decisions now to get the public finances onto a sustainable path.
In government Labour made tough decisions and commitments on spending and taxation to meet this challenge
Alistair Darling set out a balanced but credible deficit reduction plan, based on tough decisions and commitments on spending cuts and tax rises
- real cuts to departmental budgets, but priority public services protected
- and measures to raise tax revenues that spread the burden fairly between middle and top incomes
In opposition, we have been honest and responsible about the fiscal challenge
- while we think the government is raising taxes and cutting spending too far and too fast, we’ve been clear that we won’t opportunistically oppose every tax rise or cut, and we’ve identified cuts we would make across the departments, including policing, transport, welfare and defence
- we’ve also been clear that we can’t make promises now to reverse tax rises or cuts at the next election, because we can’t know now what state the economy or the public finances will be in
- and we’ve warned that further tough choices will be needed to finish the job of deficit reduction in the next Parliament – as George Osborne has now admitted.
We’ve also been clear that when resources are so constrained, we must also be absolutely ruthless in demanding maximum value for taxpayers’ money
- unlike the Conservative-led government, which seems to care so little about public services that it is shockingly casual and complacent about wasting scarce resources.
That’s why Ed Miliband and Ed Balls have written to the shadow cabinet, and asked me to work with them, on:
first, identifying where waste could be eliminated and substantial savings made;
and second, how they would switch spending from lower to higher priority areas.
Different choices within tight fiscal constraints: choices based on our values and priorities, which I believe are also the values and priorities of the British people.
We’ve uncovered extraordinary examples of questionable spending in Whitehall:
My Shadow Cabinet colleague Jon Trickett has exposed the false economies of rushed redundancy programmes
We’ve seen a total failure to rein in excessive pay at the very top of the public sector
And we’ve seen incredible sums ploughed into pet political projects – like elected police commissioners, free schools and a disastrous top-down NHS reorganisation - that we can ill afford when family budgets and frontline public services are so stretched.
And that is the approach we are taking across every department, every budget, as we challenge the government’s careless complacency, and prepare for the tough choices we would face as an incoming Labour government.
Subjecting every line of expenditure to the same tough tests:
– protecting the living standards of struggling families
– prioritising employment, productivity and growth
– and a ruthless insistence on value for money.
And all these individual decisions need to be taken within a clear fiscal framework.
And so, as Ed Balls announced at the Labour Party Conference, we will be committing to new fiscal rules that will get our current budget back to balance.
THE RIGHT DECISIONS FOR LONG TERM ECONOMIC PROSPERITY
But decisions on taxation and public spending can’t be treated in isolation.
Because the state of our public finances is primarily dependent on the state of our economy.
And on the economy too we need to take the right decisions now to secure our long term sustainability and prosperity.
Here is where the current government is making serious mistakes that I fear we will all be paying the price of for a long time to come: focusing exclusively on tax rises and spending cuts with no regard for the impact on employment and growth
When this government took office, determined to raise taxes and cut spending further and faster than Alistair Darling had judged was prudent, business and consumer confidence collapsed, firms postponed investments and stopped taking on workers.
Britain’s growth faltered.
First the government blamed the snow.
Then they blamed the Royal Wedding.
Now they’re blamed the Eurozone, when in fact rising exports were the only reason why the economy didn’t fall into recession last year.
The reality is it was their own choice to cut spending and put up taxes too far and too fast that choked off our recovery more than a year ago.
The lesson is, as Ed Balls warned in his Bloomberg speech a year and a half ago, deficit reduction requires three pillars:
spending reductions, yes
tax increases, yes
but unless you have people in work and businesses succeeding, you cannot get your deficit down, because your tax take falls and your benefit bill goes up.
Just look at what happened to the OBR’s projections for the public finances over the 12 months between the chancellor’s spending review in autumn 2010 and the autumn statement in November 2011:
– £17.8 billion wiped off VAT revenues
– £51.2 billion off income tax revenues
– £30.9 billion off corporation tax revenues
– an additional £34.7 billion in unplanned spending on tax credits and social security benefits.
Rising unemployment and a stagnant economy means spending is higher and tax revenues lower.
So George Osborne is now on course to borrow £158 billion pounds more than he planned – a damning indictment of his failed experiment.
But the costs of George Osborne’s failure go beyond even this
Because the longer we languish in low gear, the more permanent damage is done.
Businesses that close, or miss opportunities to invest and grow market share, aren’t just a cost to our economy now
– they’re a permanent setback to Britain’s growth and our ability to pay our way in the world, and a massive cost that future taxpayers will always be paying for.
860,000 people have been out of work for more than a year now.
Losing hope, motivation and skills – a huge waste in benefits today and in growth potential for the future.
And as David Miliband’s commission on youth unemployment highlighted
the cost of today’s unemployment must be counted not just in immediate benefit payments, but in a long term legacy of lower life chances that will cost our economy and the Treasury billions more for decades to come.
So the course George Osborne has chosen isn’t just making it harder to deal with the deficit
it’s building up costs that will make it harder to achieve fiscal sustainability over the decades ahead.
THE SCOTTISH DEBATE
And I’m afraid we are seeing a similar story here in Scotland, where the impact of the Conservative-led government’s policies are being exacerbated by the choices made by the SNP.
Instead of focusing the powers of the Scottish government on doing everything possible to get people back into work and support struggling firms,
Alex Salmond is indulging in distracting and divisive fantasies about separation
- which create even more uncertainty for Scottish business
- and threatens to plunge the country into a period of constitutional wrangling and policy paralysis that could make the Eurozone’s current difficulties look like a minor hiccup.
So at a time when we desperately need to boost confidence and kickstart investment, we have Scotland’s second biggest company, SSE, warning that – and I quote:
“the additional uncertainty represents increased risk, of which SSE will have no alternative but to take account in making final investment decisions on those projects while that additional uncertainty remains”
While the chief executive of Glasgow’s Weir Group, another of Scotland’s biggest businesses, has said:
“as I stand back and think about it as a businessman who happens to be based in Scotland, I have to say that I agree with the points that they put forward in terms of uncertainty that these issues can create”
That’s why we think any referendum needs to happen as soon as possible and Alex Salmond needs to start giving us all some answers on what his proposals would mean.
And whether it’s the pound or the euro, the Irish model or the Icelandic, the fact is that events throughout Europe have been providing a dramatic demonstration
- of vulnerability of small economies trying to go it alone in a time of economic and financial turbulence;
- of the shortcomings of trying to maintain monetary union, without effective fiscal union;
- and, in particular, the heavy price paid by countries subject to fiscal and monetary regimes over which their political influence is limited.
So my own belief is that, because of the values and the history we share, and because that means, for all our differences, close cooperation comes so naturally, we all benefit from membership of the United Kingdom – England, Wales, and Scotland too.
And right now we need to be deepening dialogues and strengthening relationships so we can work together to address the most urgent challenges we all face today: the need to create jobs, return to growth, deal with the deficit and secure our economic future.
CHOICES FOR THE CHANCELLOR
So the choices we make now as a country will have a lasting impact on our long-term prospects - which is why we need to get them right.
I hope that, for the sake of all our futures, the Scottish people consider carefully the choice that will face them in a referendum on Scotland’s membership of the United Kingdom.
And I also hope that the Chancellor makes takes the chance to change course and correct his mistakes in the Budget this month.
The clamour for something to be done is certainly building up:
The credit ratings agencies have qualified their earlier demands for stringent austerity, now they see the consequences of faltering growth and slipping deficit reduction plans
Independent bodies, such as the National Institute for Economic and Social Research and the Institute for Fiscal Studies, have added weight to the argument for concerted action to support the jobs and growth we need, to get the deficit under control and prevent further damage to our long run economic potential
While from Conservative and Liberal Democrat backbenchers we have heard increasingly vocal calls for tax cuts to stimulate business investment and job creation and ease the squeeze on household budgets.
Since the summer Labour has consistently called for a set of targeted, temporary measures that do just this:
– a national insurance break for small firms taking on extra workers
– a temporary cut in VAT for hard-pressed families
– further cuts in VAT on home improvements
– accelerated investment in infrastructure
– and a serious programme to tackle the worsening youth jobs crisis, funded by a tax on bank bonuses.
Our view is that these are both the fairest and the most effective measures available to the chancellor at this time.
But as Ed Balls has said, right now any substantial action to help households and businesses and get our economy moving would be better than doing nothing.
because it’s not just a matter if waiting and hoping for the best
because the longer our economy stagnates, the harder it is to get the public finances back into balance, and the more we lose in terms of future economic strength.
IMMEDIATE CHALLENGES AND OPPORTUNITIES FOR THE PENSIONS INDUSTRY
I want to finish by saying something about the challenges and opportunities facing the pensions industry.
I know this conference will be addressing a range of issues around the place of pensions in the wider economy, and I look forward to hearing about some of them in the time we have for questions.
Among them, I’m sure, is the impact of Quantitative Easing
- as I’ve made clear, I do think it’s important to take action to stimulate our economy
- not just for the sake of families and businesses struggling to day,
- but for the sake of the long run prosperity in which we all, and pension funds particularly, have a stake
- and so I think it is right that the Governor of the Bank of England does everything within his power to limit the slowdown of our recovery
- But I do think it’s wrong for George Osborne to be relying on the Bank to try to compensate for the errors of his fiscal policy
- but my work studying the Japanese experience showed that relying on monetary stimulus when you aren’t giving the economy the fiscal support it needs is ineffective
- as John Maynard Keynes so memorably put it – trying to stimulate the economy by printing money when people are too nervous to lend it or spend it is like “pushing on a piece of string”
- and the reality is that today, more quantitative easing cannot offset the contractionary effects of George Osborne’s tax rises and spending cuts
I will also be very interested to hear your perspectives on the promised new platform for facilitating pension fund investment in UK infrastructure- about which we hope to hear more news in the Budget
Of course, anything that helps pension funds get the secure long term returns they need - at the same time as creating jobs now and strengthening the UK’s ability to prosper in the future - can only be welcome
And right now we do need to be thinking creatively about innovative mechanisms to get investment into those parts of the economy that need it most – which is why Labour is looking hard at ideas for a British Investment Bank.
But I fear the government has placed an excessive burden of expectation on this initiative when it can be no substitute for a proper jobs and growth plan that includes accelerated public investment as well as other measures to boost confidence
Because the challenges of aligning the needs of pension funds with the realities – and risks – of large scale infrastructure projects are real
And because these hurdles are made higher by an economic climate in which confidence is low and uncertainty is already having a chilling effect on private sector investment decisions.
LOOKING TO THE FUTURE: PENSION PROVISION AND THE WIDER ECONOMY
And finally, looking to the longer term, the pensions industry has a central role to play in helping us meet the challenge of an ageing society, and give people a sense of security in an uncertain and fast-changing economic environment.
Again, this is about the challenge of making the right decisions now that will serve us well in future.
Pension providers also have a critical role to play in supporting the responsible capitalism Ed Miliband has been taking about
- as engaged investors, holding companies to account
- and as responsible and responsive providers of affordable pensions to all who need them
And I know that these are critical issues that my colleagues Chuka Umunna and Gregg McClymont are very keen to work with you on.
In particular, you will know that Chuka has welcomed the recommendations of the High Pay Commission
- which include proposals that investment and pension fund managers be required to disclose how they vote on all issues, including on remuneration
- so that savers and investors can see where their monies are being used to finance big pay deals.
We were also interested to see the recent intervention from the Chief Investment Officer of Fidelity Worldwide Investments
- who set out simple and deliverable proposals to increase the accountability of directors to shareholders
- to challenge cases of inappropriate executive reward which, in his words, have “destroyed public trust and led to a situation where all directors are perceived to be overpaid”.
But the more responsible capitalism that Labour has been talking about is also one in which more employees take responsibility to save for their retirement - with government, pension providers and employers playing their part to help those who want to do the right thing.
I mentioned earlier the challenge of addressing under-saving in our society:
The UK currently has a lower overall savings rate than any other G7 country except the US, with Germany and Japan saving almost double what we do as a proportion of GDP.
Moreover, the people doing most of the savings are those with the highest incomes with undersaving most problematic amongst those on average earnings or below.
only 51% of people are making sufficient provision for their retirement, and 13 per cent have no savings at all.
Government, pension providers, employers and individuals all need to do their bit to address this problem.
That’s why action to increase transparency and bring down excessive fees and charges is so important
- and we look forward to seeing the outcome of the recent consultation on a new code of conduct for the industry.
And it’s also why automatic enrolment and wider access to affordable pension schemes is so important
I am proud of the progress made when Labour was in government
- building consensus around the Turner agenda, as I mentioned earlier
- which is why I was so disappointed when the Conservative government watered down the implementation of automatic enrolment
- and now risks losing more momentum by pushing back the start date for small businesses
It’s also why it’s critical that we see NEST succeed
– ensuring savers are given an affordable option and that other providers are subject to the right competitive challenge
- so Labour is urging the government to review, as a matter of urgency, the rules preventing transfers into NEST and limiting annual contributions
- so it can do the job we all want it to do – providing low cost, good value, low risk pensions for millions of people who have never had the experience of saving for a pension.
So I’ll end by saying I look forward to hearing your questions and responses - on the challenges facing the pensions industry, and the challenges facing the UK economy.
And especially how we can work together to develop a shared agenda to support and reward individual saving, and get investment flowing into the infrastructure, industries and technologies of the future
These are tough times, and we do face tough choices.
But as with our personal finances, so with the public finances, and the stronger economy we all want to build:
if we make the right decisions now, we can all look forward to a better, brighter future.