More spending cuts ‘still to come’

George Osborne lays a brick during a visit to a Barratt Homes building site, the day after he said the government would extend the equity loan portion of the Help to Buy scheme to 2020, a move he said would deliver 120,000 new homes.

The respected Institute for Fiscal Studies thinktank said the Chancellor had failed to make clear how huge savings in Government would be achieved.

While it said the measures in Wednesday’s had broadly left the overall picture of the public finances unchanged, the Chancellor’s statement had left major questions over where the axe will fall unanswered.

IFS figures suggest that the Government still has to find more than half the cuts it needs to make to balance annual spending by 2018-19.

And if Ministers continue to protect the health service, schools and overseas aid, other departments will face a cut of more than 35 per cent.

The thinktank also sounded a note of caution over the Chancellor’s eye-catching overhaul of pensions and savings.

In particular, it said the plan to make it easier for retirees to draw on their pensions savings without having to buy an annuity risked making annuities more expensive.

IFS director Paul Johnson said: “There are clearly advantages to this liberalisation. It will allow people freedom to manage and make choices over their own affairs and it will likely increase the incentive to save in a pension.”

But he added: “There are some uncertainties about the effect of the policy. Most importantly it will make annuities more expensive than they otherwise would have been.

“The market will become thinner and there will be greater levels of adverse selection.

“Only those expecting to live a long time will buy an annuity if they don’t have to, there is a market failure in annuities which can at least justify some degree of compulsion and there will be losers from the policy.

“That’s not to say the policy is a bad one but it is important to be clear about those effects.”

The shake-up retirement savings was defended by Pensions Minister Steve Webb.

He told MPs: “We have ripped up the red tape which prevented people in retirement from making their own choices about how they want to spend their own pension pot... this is truly a pensions revolution.”

He said: “By lifting the rules, we anticipate the industry will respond with new products that meet consumers’ income needs in new and innovative ways.

“These reforms will increase the attractiveness of saving for retirement and will allow people to shape their finances in retirement as they see fit, not as the Government tells them.”

The changes to pensions prompted calls for good advice for retirees to ensure they do not burn through their savings too quickly.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “On the one hand the idea that savers can take their pension as a lump sum, albeit subject to tax, may be an incentive to save.

“However, this choice brings with it a significant burden of responsibility for individuals to understand the choices they are making.”

Several changes announced in the Budget will be enacted in one week’s time giving new flexibility to around 400,000 people over their pensions.