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The Actuary The magazine of the Institute & Faculty of Actuaries
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Election: Politics and the profession

The manifestos of the three main political parties certainly devote plenty of words to economic and financial issues but do they actually say very much of substance? With the economy and the series of crises that have rolled around the world’s financial systems for the last couple of years still very much at the top of the political agenda it is hardly surprising that this year the parties have plenty to say on these topics. All three reach out for the populist vote with promises to tackle bonuses in the financial services sector, most specifically banking, although all fail to offer a clear definition of where ‘banking’ begins and ends.

Crisis talk
Toughest are the Liberal Democrats who promise immediate action to severely curtail cash bonuses, replacing them with medium-term share options. Labour promises new powers to the Financial Services Authority (FSA) to tackle the bonus culture while the Tories want to create similar powers to be exercised by the Bank of England.

All three also talk about the need to impose a levy on the banks to enable taxpayers to claw back some of the billions that has been poured into supporting them. Again, the Liberal Democrats are the clearest, saying that they will introduce a levy which will remain in place until the banking sector is restructured. By restructured they mean imposing a Glass- Stegall-like regime in the UK, separating retail and investment banking.

Labour, on the other hand, has stuck to its refusal to support a banking levy unless it is agreed internationally, which now seems quite likely following the recent proposals from the International Monetary Fund. The Tories are somewhere in the middle, saying they would prefer to move in this direction through international agreement but will act unilaterally if necessary.

There is clear water between the Tories on the one hand and Labour and the Liberal Democrats on the other over what to do about returning the state-owned banks to the private sector. The Tories plump for a straight privatisation and talk about a “people’s bank bonus”, stirring up memories of the privatisation boom of the 1980s.

Both Labour and the Liberal Democrats lean towards mutual options, starting with Northern Rock. First Labour: “As one option for the disposal of Northern Rock, we will encourage a mutual solution, while ensuring that the sale generates the maximum value for money for the taxpayer”, says the party’s manifesto.

Labour has a natural affinity with mutuality through its long association with the co-operative movement so these proposals sit very comfortably with them. In the same section as its comments on the possible future ownership of Northern Rock, it also praises building societies although only rather limply promises to “consult on measures to help strengthen the sector”.

The Liberal Democrats unequivocally say they will “seek to turn Northern Rock into a building society”, adding that as part of a push to extend mutuality they will “pass a new Mutuals, Co-operatives and Social Enterprises Bill to bring the law up to date and give responsibility for mutuals to a specific minister”.

Financial services regulation
The battle lines over the future of regulation are pretty much mapped out with Labour backing the current tripartite system with the addition of a new co-ordinating layer through the Council for Financial Stability and extra powers for the Financial Services Authority. It also pledges to end the anomaly of consumer credit sitting outside the current structure by giving the powers under the Consumer Credit Act to the FSA.

The Tories are also sticking to their earlier proposals which entail transferring responsibility for prudential supervision to the Bank of England, abolishing the FSA and giving its consumer protection role to a new Consumer Protection Agency (CPA). The Tory manifesto also includes some quite detailed recommendations on store cards which it says will be implemented by its new CPA.

The Liberal Democrats have a fair few proposals about new regulations but very little on the regulatory structures they would put in place to deliver them.

Taxation
Rather more high profile in the early stages of the election campaign have been the broader economic issues with taxation, public spending and the need to reduce the UK’s huge deficit all to the fore, mainly because all three parties believe they have strong cards to play on these policies. Gordon Brown constantly refers to the need to “secure the recovery” and presents himself and the chancellor he wanted to sack, Alistair Darling, as the people to do that. His argument is that they responded boldly to the threat of meltdown in 2008, showing the world the way back from the financial abyss it was peering over at the time.

The Conservatives have grabbed a lot of headlines as well as major endorsements from business leaders for their attack on the “tax on jobs” as they have labelled the proposed 1% rise in National Insurance contributions next April. Although they still propose to increase NI by 0.5% they have made the most of this attack as it puts them on the strong Tory ground of tax cutting. For the Liberal Democrats there is their shadow chancellor Vince Cable who can’t be faulted for predicting the credit crisis and for calling for earlier action than the government took.

Of course, all three equally feel they have the ammunition to attack each other on these issues which guarantees they will remain centre stage all the way to polling day on 6 May.

Free thinking
Elsewhere, there are some interesting proposals affecting the financial services sector dotted around the manifestos. Labour, for instance, wants to “transform the Post Office into a People’s Bank offering a full range of competitive, affordable products. This will help sustain the network and boost competition in banking”. The reference to sustaining the network will raise a few angry eyebrows in rural areas where people will wonder why this wasn’t on the government’s agenda before the widespread closures of rural post offices took effect in recent years.

The Tories pledge to “launch the first free national financial advice service, funded in full through a new social responsibility levy on the financial services sector”. This looks to be taking up some of the more imaginative proposals of the Thoresen Review which was welcomed by many in the industry but the talk of a new tax to fund it will not be so popular.

In the Liberal Democrat manifesto there are several nods towards a stronger regional policy and this includes the financial services sector with a promise of Local Enterprise Funds and Regional Stock Exchanges which “will be a route for businesses to access equity without the heavy regulatory requirements of a London listing”.

Finally, we get right down to specifics with both the Liberal Democrats and Conservatives pledging to compensate Equitable Life policyholders. Labour has nothing to say on this.

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Energy and environment — key commitments
Labour

>> Achieving 40% low-carbon electricity by 2020
>> 400,000 new green jobs by 2015
>> ‘Pay as you save’ home energy insulation
>> Energy discounts for pensioners
>> Banning recyclable/ biodegradable materials from landfill.

Conservatives
>> Aiming towards ‘zero waste’
>> Incentives to recycle
>> Encouraging sustainable water management
>> ‘Green Deal’ for households
>> Expansion of offshore wind and marine power.

Liberal Democrats
>> 20% of energy and 40% of electricity from renewable sources by 2020
>> Toughen limits on pollution across Europe
>> Guaranteed fair prices for energy consumers
>> Roll-out of smart metering in five years
>> Investment in public transport to cut emissions.
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David Worsfold is group editorial services director at Incisive Media and secretary to the All-Party Parliamentary Group on Insurance and Financial Services

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Peter Tompkins on pension policy:
Pension policy rears its head highest, though it always seems to be focused on the ‘grey vote’ even though one person’s higher pension is another person’s higher taxes. Labour promises to uprate the basic state pension in line with earnings from 2012, sooner than is absolutely required by legislation or committed by the current government. Towers Watson points out that this is likely to impose a cost of £2bn a year more by 2015 than retaining price inflation as the benchmark until then.

Commenting on the silences in the Labour manifesto, John Ball of Towers Watson suggests: "There is a hint that the state pension age would not rise any further than planned and that no more reforms to public sector pensions would be on the cards under Labour. But neither change is completely ruled out, so pensions could still play a role in balancing the books if Labour won."

The Conservatives have been most vocal on their proposed change to the rise in National Insurance from 2011, and on their proposal to accelerate the rise in state pension age - differentially for men (aged 66 after 2016) and women (after 2020). They and the Liberal Democrats propose to remove compulsory annuitisation from defined contribution funds, provided people have enough left to live off without claiming means-tested benefits.

Occupational pensions are harder to address. The Tory plan for "reinvigorating occupational pensions and working with employers and industry to support autoenrolment into pensions and looking at how we can simplify the rules and regulations round pensions" lacks detail. Their approach to the National Employee Savings Trust seems to be to review it and its viability if they are elected.

The restriction of tax relief to basic rate for very high earners would go ahead as planned under Labour and the Conservatives make no suggestion that they would not proceed. The Liberal Democrats go one step further and propose to abolish higher-rate tax relief for anyone. The Conservatives make a statement that they will "address the growing disparity between public sector pensions and private sector pensions" without saying quite how. As they are unlikely to force private employers to increase benefits, the informed reader might expect them to be focused on reducing public sector benefits.One promise they make, which sounds difficult to implement, is to cap public sector pensions at £50,000, regardless of how long the public servant has worked. They also intend to end MPs’ final salary pension scheme. The Liberal Democrats promise to address public sector pensions, with possible further cost-capping or rises in pension age.

There are few commitments in the area of insurance. One of note, however, is confirmation from the Conservatives of support for the concept of someone paying a one-off premium (around £8,000) to cover the risk of long-term care and protecting their home from having to be sold to fund residential care-costs.

The Conservatives also plan to reform the Financial Services Authority (FSA), by bringing in a Consumer Protection Agency to take over the FSA’s consumer protection roles. Interestingly, they propose to bring in a power to ‘define and ban excessive borrowing rates on store cards’, something in which politicians have, until now, been loathe to interfere. In a strange reversal of the private/public sector divide, it is the Conservatives who plan a ‘national financial advice service’ funded by a levy on financial services.

The Liberal Democrats say plenty about ‘clamping down’ on ‘obscene bonuses’ in banks and a requirement for the publication of the name of anyone paid more than the prime minister.

One thing is likely on pension policy - there will be plenty of pension ministers whoever wins. The veteran industry commentator, Steve Bee, has updated a list on his website since 1997 - nine secretaries of state and 11 junior ministers in a total of 15 different teams in 13 years. Few people seem to hang around for long in a pensions policy spot.