I've been thinking long and hard about
the release of pension funds that the Tories announced in the budget.
It's unlike the Tories to trust working people with large sums of
money when they could leave it in the hands of their fat cat cronies
in the City to continue to rip us off with fees and charges on money
that's locked into their wallets. What, I ask myself, could the
motive be ? Well, I'm no Robert Peston but I can tell you what I
think.
The Tories are in trouble. Not economic
trouble, with the support of the Lib Dems they have the brass neck to
screw the poor to bail them out of that. They are in political
trouble. One of the problems that all governments face is that the
economic cycle lasts for about 8 years, despite Gordon Brown thinking
you can abolish boom and bust. That's just the way it is, You can
stretch it or shorten it but not by much. But the parliamentary cycle
only lasts for 5 years. If you come into government at the wrong time
you are in political trouble come the next election.
Osborne came into government at the
start of the downturn and 4 years later he has an upturn. Exactly as
anyone who knows about these things would have predicted irrespective
of any government action. But growth is very weak and the brakes he
put on the economy by restricting the incomes of those who have to
spend 100 % of their income every week means that consumption, which
fuels growth, can't accelerate the economy to the extent that real
cost of living issues will have been solved by the next election.
Basically the upturn will be too slow for voters to feel better off
by the time they go to the polls.
Now if you're a Tory chancellor then
you can't just go giving money to poor people who will spend it, so
traditionally, to pump up growth by consumption he would resort to
fiscal easing, or as it is better known, printing money. But that's
been tried and the ailing banks just kept the money to shore up their
ailing balance sheets. It didn't make its way into the consumption
side of the economy so the effects of the multiplier weren't
produced. I suppose I should really try to explain the multiplier
but it's complicated. So imagine you have £100 and put down a 10%
deposit on a piece of furniture. You can produce £1000 of
consumption from £100 of cash. That'll do as an explanation for the
moment I think.
In any case, another round of printing
money would have a very bad effect on the UK credit rating. It's
already under severe threat, so as an option, that would have to be a
last resort. So in the pragmatic way that the Tories always adopt in
a crisis he has looked around to see who has money he can get his
hands on. Releasing the pension handcuffs will produce significant
tax revenue in the year of the election but it will have the added,
and perhaps more important effect of injecting massive consumption
into the economy. The effect on inflation he can brazen out because
inflation is starting from a very low base, and a bit of inflation in
the system will help consumption as well. People will be more
inclined to buy now if they think things will be more expensive in
the near future, and it is obvious that a lot of the released pension
money will be spent, bringing into play the multiplier. And a lot
will go into 'buy-to-let' property fuelling a house price boom and
there's nothing like your property value rising to bring UKIP voters
back onside. It'll be a price bubble of course, but as we all know,
in a price bubble it's only the last fool in the chain who suffers,
but it might not burst before the election.
So this act of generosity to workers by
the most elitist chancellor in living memory is, as far as I can see,
no more than a political stunt to try to get the Tories back into
power with a majority government at the next election, and if they
have to wreck the pensions industry to do it then so be it. Thatcher
did it with the coal industry for the same reasons, but the miners
were the enemy. Osborne is so desperate he will do it to his friends.
He's in real trouble and his generosity is no more or less than a
very destructive election stunt. There were many other better ways to
act against the rip off artists of the pension industry, but they
wouldn't have been quite so politically expedient.
