Brexit is hanging like a cloud over the Budget
THIS wretched Brexit vote is getting in the way of just about everything. Only six months ago, things were going swimmingly for the Chancellor of the Exchequer, George Osborne. Widely credited with having secured a stunning election victory for the Tories, he could seemingly do no wrong. Yet events have been moving against him almost ever since. The UK economy is slowing fast, and not for a long time has the external environment looked quite so threatening. Still, there was always the opportunity of the Budget in a couple of weeks' time for the Chancellor to turn the tables anew. An ambitious display of pyrotechnics has long been promised that would establish Mr Osborne as a radical reformer with every prospect of stepping into the Prime Minister's shoes.
This ambition has taken another knock with news of the climbdown on pensions reform. Now of course the Chancellor doesn't accept its depiction as a U-turn. The official line is that he'd been consulting on reform, but has been persuaded that this is not the right time to push ahead with changes that could destabilise the entire pensions industry. Nice try, yet the true explanation is rather more obvious.
To be removing key middle class tax breaks at a time when the Government is struggling to persuade core supporters to vote against Brexit would be tantamount to an act of political suicide. All tax reform is a juggling act that inevitably creates losers as well as winners. The abiding problem with such reform - as a former Chancellor, Kenneth Clarke, once wisely remarked - is that politically, you will always be punished by the losers while getting no credit whatsoever from the winners. Even if it makes economic sense, it's not worth the candle. Thus it is with pension reform, which was to have been the big set-piece of the Budget.
The Chancellor has already done as much if not more than any of his Labour predecessors in removing the pension tax breaks once enjoyed by higher earners, and was hoping to go the whole hog on March 16 by either announcing a single flat rate of tax relief for pension saving, or more radically still, a "pensions Isa". Either way, it would make pensions saving less attractive for higher earners and more generous low earners.
By the by, it would also have saved the Exchequer a large sum of money, since as things stand the great bulk of the £50bn of pension reliefs go to higher rate tax payers.
For a Chancellor who, astonishingly, seems to be already struggling to meet fiscal consolidation plans announced little more than three months ago, this windfall would have been a godsend. Now he's going to have to find other ways of filling the renewed hole at the heart of the public finances.
In any case, it's all turning into a bit of a nightmare. On top of everything else, Osborne knows he must rally the Labour vote to save his hide on Brexit. Given that many of them would gladly surrender the EU just to give the Government a good kicking, it is far from certain he will succeed.
Ironically for a Tory Chancellor, Osborne has actually done quite a bit for lower income earners over the past five years while simultaneously soaking the middle classes to pay for it. But he will get no credit from the former, and is in some danger of being punished by the latter in the referendum.
Given these political and economic uncertainties, it is small wonder that corporate Britain has stopped investing again. Things are not looking good, not good at all. One of Schroders' responsibilities as Europe's largest quoted fund management group is to ensure decent standards of corporate governance among the many companies it invests in.
Oddly, it has scant regard for such things itself. Not only does it operate an archaic, dual-voting share structure, allowing the founding family to maintain control from a quite small capital base, but it has now committed the cardinal corporate governance sin of elevating its chief executive of nearly 15 years standing, the City veteran Michael Dobson, to the position of chairman.
I am assuming Dobson meant the family when he said that consulted shareholders were perfectly happy with the arrangement. Did the board conduct an external search before settling on Dobson, as normal procedure would require, or was this just an inside job? It certainly looks like the latter.
What is more, Dobson plainly had a big hand in anointing Peter Harrison, his successor as CEO. Harrison was in turn particularly keen on having Dobson as chairman. It is all too cosy for words. Nobody is quarrelling with Dobson's record. He has done an outstanding job, tripling the company's assets under management and producing an ever-rising dividend stream.