Mr. Paul Johnson:

I will try. I am not convinced I can respond to all of that. I am certainly no expert on the Irish pension system. In terms of indexation, you can decide to what extent to allow it to tie your hands. I understand there are clearly times when people might want to move away from a stated policy but there is a great deal to be said for a stated default such that the expectation is that each year, unless there is some very good reason not to, whatever we are talking about – be it tax thresholds, welfare benefits or pensions – will rise by whatever we decide they are going to rise by in terms of pensions earnings, inflation earnings or whatever else. If people do move away from that, I think there is a strong case for, first, giving a clear explanation that they are doing it, second, what the effect will be and, third, how long we expect that to last. There is a strong case for an intended path and a default and for moving away from that in relatively unusual circumstances.

One of my concerns about UK policy on taxation, for example, is that the movement from the default is pretty much constant. In some cases, it is up one year and down the next and, in other cases, it has left us kind of stuck with the unintended consequence with regard to fuel duties that it becomes almost impossible to make the change.

In terms of what the impact of different levels of inflation are, one thing we are obviously facing in the UK is higher inflation than we have seen in a very long time. One consequence of that, particularly for people who are subsisting on welfare benefits, is that by the end of the fiscal year, they will be 7% worse off than they were last April. That is something we used to worry about a lot in the 1970s but it is not something we have had to worry about too much recently. Whatever the level of inflation, if we want to maintain the real value of anything, we probably need to increase the thresholds or benefits in line with that inflation. Of course, governments can decide to make different use of indexation provisions. For example, the UK Government is going to be looking very hard at public sector pay over this year. With inflation at over 7%, clearly, any pay increase of less than that will be a real cut which, from a fiscal point of view, will be something the Treasury will be quite keen on, but which would result in yet further cuts in real levels of pay, which have been going down over a period. As ever, there is an awful lot to trade off in these decisions.