A frequent criticism of the welfare state is that it has degenerated into a middle class racket. This is probably half true; but there are plenty of other very blatant middle class rackets that cry out for the attention of a reforming Labour chancellor-not least the tax breaks on savings.
So much the better, you might think, that Gordon Brown wants to make the tax system more friendly to those on low incomes by introducing individual savings accounts (ISAs) in the forthcoming budget. But, as with the more general reform of welfare, it is monstrously difficult to achieve change that amounts to anything more than a slightly different kind of middle class racket.
The purpose of ISAs is to help the poorest savers, most of whom put their money into instant access bank and building society accounts with no tax breaks on the interest earned. ISAs are also intended to encourage non-savers to start saving. Yet a tax break on savings is worth absolutely nothing to the poorest members of society who pay no tax. And as many as one third of households in Britain have no financial assets at all. At current rates of interest on instant access accounts, the gain to an ISA saver on a cash investment of ?1,000 would be less than ?7 a year at the basic or lower rate of tax-so says the Institute for Fiscal Studies (IFS).
The IFS also calculates that if the government were to exempt all interest and dividend income from tax, the average gain on uncapped contributions would be ?2.24 a year for tax-payers with a bank account, ?19.92 for those with a building society account and ?34.68 for tax-payers with stocks and shares. Since the chancellor and his economic adviser Ed Balls are now back on speaking terms with the IFS's Andrew Dilnot after a period of palpable froideur, this point will surely not have escaped the Treasury's notice.
Then there is the penalty many poorer savers will suffer if they end up on means-tested income support. The marginal tax rates inflicted on those whose nest egg exceeds the paltry permissible limit can amount to more than 120 per cent. So come what may, ISAs-although more equitable that Peps and Tessas-will end up as yet another middle class racket. As with all tax breaks on savings, much of the relief will go to those who would have saved the money anyway.
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reforming the taxation of savings is, of course, a doddle when compared with reforming the welfare state-especially if the challenge is compounded by personality conflicts in Whitehall. These have extended the gestation period of Frank Field's blueprint on the future of welfare to potentially elephantine lengths.
This reflects interestingly on the old platitude that a bipartisan approach to the biggest item in the social security budget-pensions- is essential if reform is to last. Yet the post-1979 lesson of Britain's second-tier state pension, Serps, is precisely that all-party consensus on state pension provision will always be ephemeral.
The novel twist in the present government's efforts is that it has found it so hard to achieve consensus within the administration on stakeholder pensions, let alone with Tories and LibDems outside.
The consequences of this Whitehall trench warfare include an astonishingly underdeveloped document on stakeholder pensions which ended by asking no less that 64 questions-the most important of which had already been asked in a previous consultation document.
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the hampel report on corporate governance was clearly not intended to frighten the fat cats. Nor, for that matter, to alienate politicians. Yet the government shows signs of being unimpressed with Ronald Hampel's efforts to the point of irritation. "A whimper" was the kindest verdict one senior minister could offer me. The irritation arises because the report fails to address another well-known racket: boardroom pay.
Setting directors' remuneration is not, despite Hampel's fine flowing words, a market process. It is a difficult matter of judgement, in which the conflicts of interest inherent in the position of both pay consultants and directors lead to awards which bear little correlation to corporate performance. This is unhelpful both in terms of encouraging competitiveness and of motivating the workforce.
Given Hampel's flabbiness on remuneration, the government should seek to engage institutional shareholders in the pay-setting process-by legislating to allow them to vote on an annual ceiling for directors' pay and cash bonuses. How institutional votes are cast on company resolutions should be opened up to public scrutiny in order to throw daylight on the conflicts of interest inherent in the institution's own position.
To help things along, ministers could announce that the awarding of honours for business (and part-time jobs in Whitehall) will in future take into account the degree of responsibility shown over boardroom pay. Britain's gong-ho culture would ensure that the central objective of corporate activity would cease to be the survival of the fattest.
