Political parting throws up the future role of welfare state

There is definitely clear blue water between the approaches of the Conservatives and Labour.

With the latter, it is clear they will take a more statist approach to pensions. There is a likelihood that some recent pension income reforms will be rowed back by Labour, although probably not reversed completely. The party will also intervene in at least two significant sectors – for good or ill – notably energy and, to a lesser extent, rail transport.

But the cleanest break between the two parties was made by the Conservatives and, indeed, by the prime minister David Cameron, when he promised tax cuts for the poor and better-off by raising the thresholds at both the bottom and top of the scale. Indeed, the idea of raising the higher-tax rate threshold to £50,000 will have huge appeal among the middle classes.

It is clear we need a widespread discussion about where responsibility lies. John Lappin

We already have the Institute for Fiscal Studies expressing some scepticism about the numbers. Indeed, the scale of the changes, certainly if wages don’t grow significantly, make it difficult to see how this is delivered without some paring back of benefits extended to retired and older voters.

But to my mind, the real missing ingredients that could allow this to happen are savings, investment and insurance. As advisers know, the safety net isn’t going to be all that safe without people becoming more resilient themselves and in much greater numbers than is the case today.

IFAs, wherever they stand on the political spectrum, will probably agree there is a greater risk of falling into poverty unless the retail financial services industry – whether through auto-enrolment, personal pensions and Nisas etc – steps into the breach and convinces people to do more to look after themselves.

This also supports arguments for much smarter regulation, which provides consumer protection but doesn’t make it financially too onerous to reach more of the population.

In the early days of New Labour it was difficult to attend a financial event without hearing talk of moving the balance of state versus individual financial responsibility from 60 per cent state and 40 per cent individual to the reverse. This columnist never really found out where the figures came from nor who had set it as a target, but it was quietly dropped from political discourse, perhaps because it was deemed too harsh a reality to tell people about. Maybe it shouldn’t have been because it may have helped politicians and professionals spell out the new political and financial realities.

But it is clear we need a widespread discussion about where responsibility lies, and if we are indeed becoming a market and ‘enabling’ state rather than a welfare state, then IFAs and financial services have a massive role to play. The opportunity is huge, too.

John Lappin blogs on industry issues at www.themoneydebate.co.uk