A sorry state of financial affairs

Posted on: 15 February 2010 by Mark O'haire

The runes have it! Four things caught my attention over the past couple of days and all to do with the economy – well, there’s something new to talk about!

A sorry state of financial affairsThe first was a press release from a friend of mine, Bob Bullivant of Annuity Direct. Apparently there are plans in the ‘mighty EU’ to levy new regulation entitled ‘Solvency 2’, which is designed to reduce risk within financial institutions throughout the EU. The net effect of these new laws will be a swingeing reduction in the amount of pension you will receive when you come to retire. The difference could be a 30% drop in the pension you will be able to buy!

This is madness – the UK insurance industry has managed the risk on annuities for decades with no ‘crisis of confidence’. Those of you taking a pension in the next two years could see a significant drop, with, for example, a £10,000 pension dropping to £7,000!

The second thing to catch my eye was the letter published in The Sunday Times from 20 of the world’s leading economists warning the government that it must reduce the borrowing of the UK or face the risk of long term financial instability and slower recovery. Now these guys, all leaders in their fields, didn’t just get up one morning and think it would be fun to write an open letter to the country and unsettle the markets. No, they did it because they really are frightened that enough is not planned to reduce the national debt.

The first area of reduction, yes, you’ve guessed it, is Government Spending – the favourite part of Mr Brown’s job!

On the BBC today came the inevitable news that the job market is not likely to recovery before the Election (who on earth though it would!) and that there was strong evidence that the Public Sector was starting to shed jobs! Well at least the councillors around the country know how to balance the books. The only reason for this speedy action is they know that local voters won’t tolerate massive increases in council tax. Too little too late but at least they know the realities they face!

My final point today was the utterances of Mr Alistair Darling (where did he get that name – I bet he could kick his parents for that!). He profoundly announced that we were not out of the wood yet and things may get worse before they get better. Welcome to the party, Alistair, it’s good to know you've caught up with the rest of us!

The message coming from the centre now is that there is more trouble to come. When leaders and politicians start to warm the electorate for bad news you can bet that the news is bad. What impact this will have on the election is anyone’s guess?

Labour may ride it out as the incumbent and most experienced to handle the problem.

Conservatives will fall back on Thatcher’s dogma – we must live within our budget and we’ll see painful reductions in spending, increased unemployment and higher interest rates.

The Liberals will whistle what tune fits the mood except for Vince Cable who is one of the few people who know what he’s talking about!

All in all it is a very sorry state of affairs. My advice to you is stay cool, cut spending and retire before they muck up your pension!

By Tony Page

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