This will take a while to sink in – we simply have never seen this before in a Budget. George Osborne has just revolutionised the way pensions work; millions of people will have just found their pensions pot turned into a bank account. The punitive 55 per cent tax rate they faced if taking out more than they should from a pension has been abolished. And how much does this cost Osborne? That’s the beauty.
No wonder the Chancellor’s aides were briefing that he’d found a very radical, very ‘clever’ policy. This will make a massive pre-election difference to pensioners, the group most likely to vote at the next election. This bung to Tory target voters will be off-radar to the IFS and Labour because those guys only compute tax and spending changes – not welfare or savings. Osborne moves in their blind spot.
Is it a bung? ‘It’s a matter for people to choose how they spend their money,’ chirped Danny Alexander afterwards – but the Treasury’s forecasts assume that they will spend, spend, spend. If they can pull cash out of their pension, and only pay a normal rate of tax, HMT reckons it’ll haul in £320 million more tax in 2014-15 rising to an almighty £1.2 billion more in tax by 2018-19.
Osborne is, quite literally, banking on a pensioner spending splurge. And politically, what a nice contrast for him. Brown tried to get rich by raiding people’s pension pots. But Tories try to raise cash by allowing pensioners to unlock it, pay lower tax on it, then go shopping.
You can see why help is needed for pensioners. Since the crash, interest rates have been nailed to the floor as Tory and Labour politicians sought to keep Britain on the methadone of underpriced debt.