InterviewingKenneth Clarke MP it is hard not to feel a sense of history. Anecdotes range from telling Margaret Thatcher that it was time to step down, to predicting terrorist atrocities in UK cities in the debate ahead of our entry to the Iraq war – and closer to home for Corporate Adviser readers, how his interventions on Serps managed to save the private pensions industry.
Former Chancellor of the Exchequer, father of the House and ardent European, Clarke had even been touted as a candidate for the role of Prime Minister at the head of a government of national unity.
While his views on Brexit are well covered, an interview with Clarke offers an insight into what those in the highest ranks of government really think about the workplace benefits industry and its voice in policymaking.
So how does a Chancellor manage the diverging claims on his budget when it comes to issues such as tax relief, and how big do pensions, healthcare, life insurance and other benefits feature in the overall picture for policymakers?
“There’s far too much tax relief on pensions,” says Clarke. “It is part of the Chancellor’s job to get the balance right on tax relief, and we have in the past gone completely over the top in giving tax relief to higher paid pension schemes.”
Clarke does have sympathy for those calling for a simplification of the taper however.
“It has been done in a slightly bungled fashion for those people between £110,000 and £150,000. Consultants suddenly find it hits them and the NHS are getting terribly excited about it,” he says. “But as Chancellor, it is only one tiny part of the job. I didn’t go in for any big changes in it.”
Clarke’s very earliest experiences in politics, back in the 1960s, found him covering the pensions brief.
“I used to shadow state pension policy during the Wilson and Callaghan governments. I was the shadow spokesman on Barbara Castle’s disastrous Serps pension scheme, which I did get greatly modified.
“Barbara Castle had the amazing idea of moving to earnings related pensions for everybody. Her original proposals would have closed down the private pensions industry. One of the things we had to negotiate was how this would actually fit with private pension provision. It was an extraordinary proposal and the details of it I got absolutely mired in. Myself and the minister of state Brian O’Malley, now long dead, were the only people who believed at least that we knew what we were talking about,” he says.
While he believes there is too much tax relief on pensions, he doesn’t think any of it should be shifted to private healthcare.
“I was opposed to incentivising private medical insurance and a move towards the American system. I don’t mind people paying for private medical insurance – it’s fine. But why the state should contribute when you do so, I can’t for the life of me see, and neither could Nigel Lawson,” he says.
“It would be a boost to the private medical industry because they would get a subsidy.”
While few push for tax relief for private medical insurance, there is arguably a stronger case around workplace health and incapacity interventions and protection. So should the government be doing more around income protection, given that UK citizens have very strong state healthcare provision and a foundation of state pension provision, but extremely low income protection provision for the event that they become incapacitated and unable to earn. Clarke is unmoved by the idea, and thinks later life care is a far bigger hole in the system.
“Where compulsory insurance will come up is for the big gap, which you haven’t mentioned, which is the gap in any real provision for social care. It is provided through social services and is subject to an extremely stiff means test. There is huge demand for it and there is a huge contrast between the NHS free at the point of delivery, and social care where you only get it for free when you get down to your last £22,500, including the sale of your house. And half the world is in battles on behalf of their elderly relatives over whether the support they need is medical, free through the NHS, or social care that is means tested and taking away their inheritance.
“Both parties in this populist phase are arguing, hinting, that they think social care should be free, which is loony. It is highly desirable, and would be popular. The public want everything free, as long as they don’t have to pay for it.
“In the real world the health service is just about affordable. To put alongside it free social care is unaffordable.
“There was a solution proposed during the election which was quite good – that would ease the means test considerably.
“The alternative is compulsory or heavily incentivised insurance. My view is that it would need to be compulsory. It is one of the options. But the present (outgoing) government is not devising policies on anything because they are completely wrapped up in Brexit,” says Clarke.
Clarke believes it will be quite some time before we get back to genuine constructive policymaking, such is the all-consuming nature of Brexit within Whitehall and beyond. “We have such divided leaders and front benchers. In the crazy anti-politician populist, angry, protest-vote mood of the electorate there is almost nothing that you can come up with that can win any votes, that won’t be shot down in flames by the other side. Theresa tried in 2017 – it was described as a dementia tax, which is a very odd name. And she abandoned it in two days.
“With Boris Johnson and Jeremy Corbyn as leaders, no more serious policy is likely to be produced. We will just have to wait and see what happens when this immediate storm dies down.”
And what is Clarke’s assessment of the future role of the financial services system post-Brexit and its contribution to the Brexit debate?
“People hate bankers almost as much as politicians. I know City UK well – they are a good lobby group. And they have gone quiet. But it is the biggest sector of our economy and it is important that it be protected. But it is the one sector that doesn’t feel able to lobby very much because in winning over protest voters in Hartlepool and Barnsley, arguing about the financial services industry, which means rich bankers in London, is not very productive.”
The forthcoming General Election means that Sajid Javid, the current Chancellor will now not get his Budget in November. So what would Clarke do if he was preparing his red brief case for action? “I can’t see how you can have a Budget until you have had Brexit. And remember we are only talking about the preliminary withdrawal bill. Were you to have a good deal you would get a sugar rush boost to the economy.
“And we are just getting properly into the transition period with nothing changing for two years – this will give an upturn in confidence. It might stop this drought of capital investment. It may even attract a bit of inward investment. And then you can start easing austerity as long as you maintain some steady growth. If you go for a hard Brexit you have to brace yourself for whatever action is necessary for the economic reaction to that. I’m not saying it will but it could have a very bad effect on sterling and on confidence.”
As with everything with Brexit, we will have to wait and see.