The recent report from the Treasury Select Committee into the state of the UK’s household finances is a necessary and brave approach to the social policy shambles that we have today. It’s a wide-reaching report, but the impact of care costs, inheritance tax and the rising State Pension Age are glaring omissions. The Government must undertake a wholesale reassessment of the state’s role in promoting and delivering household financial stability. As the Committee says, the Budget Statement doesn’t even comment on household finances, let alone work to preserve or enhance them.

Successive reactionary tactics, such as caps on payday loans and various tax tinkering measures (Annual Allowance, Lifetime Allowance, Tapered Annual Allowance, LISA and Freedom & Choice) have layered complexity to the extent that consumers can’t tell up from down. The result is that the only effective force is inertia, which is why auto-enrolment (AE) has been the only savings policy success. It’s important to remember that AE’s success has come at a cost, as increasing savings participation has led to decreasing savings rates. In fact, current rates of saving are almost universally inadequate. It’s misplaced to call AE a success when the race is half run, all we can say is it’s started well. The auto-escalation ideas and inclusion of the self-employed put forward by the Committee today will all help to steer our society in a good direction.

The bottom line is that the Consumer Credit Act 1974 made debt too easy and decimated the UK’s savings culture. This will take a generation to restore and requires a far sighted social vision with a clear cross party strategy.

By linking debt and savings the report risks muddling issues which should be targeted on different demographic groups:

• Over-indebtedness and the lack of rainy day need to be targeted at lower earners, self-employed and the young. This needs brave new products and incentives.
• Retirement savings is an issue for the JAMs (those who are ‘just about managing’ to make ends meet) and higher earners, for whom the State Pension isn’t adequate. This needs radical simplification and policy stability.

The Triple Lock provides a way for UK state pension provision to gradually redeem its standing by international comparisons. The shift to a Single Tier State Pension wasn’t mentioned in the report, but finally removed a savings trap which excluded low earners from saving for later life. If we remove the Triple Lock and let the State Pension dawdle at its current level, then the cost of providing adequate retirements in later life will fall back to the state through other means, whether that’s through benefits, care, rent or other measures. The narrow lens of forecasting the increasing costs of GDP of the Triple Lock is masking the reality that State Pension Age isn’t rising as quickly as it needs to, to keep pace with increases in life expectancy.

Ultimately, the Freedom & Choice genie is out of the bottle and won’t be put back in. So having handed such a powerful financial tool to the public, the state now needs to take responsibility for showing them how to use it wisely. Having a bright idea and tossing it over to the private sector to figure out is failing everyone. This is exacerbated by the current regulatory paranoia around value for money where all that seems to matter is driving down annual management charges. Practitioners can’t be expected to work for free or to foretell the future flawlessly. Individuals need to accept their own risks and get used to deciding how to take their jam today and jam tomorrow. 

The theme running through this report is that we’ve bred a consumerist society, addicted to cheap readily accessible debt, locked out of housing and frankly uninspired by saving. Inheritance will be a societal tsunami over the next 30 years which will, yet again, turn household savings on its head. Today’s policy flaws will be masked by privately inherited wealth flowing to the Baby Boomers, then to Gen X. By the time the lack of government foresight is clear, the bill our grandchildren’s children have to pay will be horrific.