When Labour gained power in 1997, Britain’s occupational pensions were the envy of the world. We had more capital invested to pay tomorrow’s pensions than almost the whole of the European Union combined.

Ten years on the scene is one of large-scale desolation. Two chancellors — Nigel Lawson and Gordon Brown — stand in the dock accused of gigantic misjudgments that have led directly to this sorry state of affairs.

A section of the Treasury has always had it in for occupational pensions, despite the fact that it is the beneficiary to the most privileged of final salary schemes. The Treasury suspects that when the rest of us save for our pensions, we’re up to some clever tax dodge.

Hence its delight in persuading Lawson to tax pension fund surpluses. This was the first hammer blow against Britain’s pensions savings.

From henceforth, funds with more than 105% of their pension liabilities would be taxed on the surplus.

The outcome was inevitable. Why should employers put profits into their company’s scheme if the government was going to tax the surpluses? Yet employers knew that pension promises are, by their very nature, long-term liabilities. Surpluses built up in the good times would help to protect those promises during stock market and economic downturns.

By stamping on this collective wisdom, Lawson invited employers to run down their surpluses. Pension holidays for employers and often employees were declared and I can’t recall a single trade union objecting to this practice then. Company profits and take-home pay were boosted at the cost of pension funds’ solvency.

It is against this background of a previous Tory government’s wanton attack on the amount of capital put aside to pay future pensions that Brown’s changes to advance corporation tax (ACT) have to be considered.

Here is the second hammer blow. Lawson’s policy of running down surpluses was working only too well. The ACT changes were made, therefore, at a time when these funds were already reeling from an ill thought through and dangerously pernicious strategy.

The Treasury’s counterattack yesterday carries little conviction. Critics, we are told, are only quoting sections of the papers forced out from the Treasury by The Times under the Freedom of Information Act listing the damaging consequences of the ACT changes. These dangers could not have been put more clearly:

- Pensions would be cut.

- An annual £4 billion cut in pension fund income.

- Fund values would fall by £50 billion.

- Council tax would rise to pay for local authority pension fund deficits.

- Schemes would be driven into insolvency.

The Treasury replies that any papers prepared for ministers set out the advantages and disadvantages of new policies. But the main charge is not that critics are quoting selectively. The argument is in a different ball park altogether.

It is that once the pros and cons had been considered, what was the government’s decision? At the heart of this debate was a questioning of the chancellor’s judgment. Ten years on, events shout out the answer.

The scale of pension fund closures to new members is of landslide proportions. It is now not uncommon for schemes to close to existing members. And, worst of all, some schemes have been forced into insolvency and 125,000 pensioners are still not being fully compensated for their losses.

Devastation on this scale might have been acceptable if the government had put in place a more effective alternative. But it hasn’t and chaos reigns on this score, too. Savings have halved.

In his best move the chancellor has directed more taxpayers’ money to the poorest pensioners than any previous chancellor for 50 years. But even here his policy is destructive in the longer term. Pension credit is means tested. The message has gone out that the government will help those who can’t save or won’t save.

Woe betide those who do save. They will be mocked. Forty per cent of the population cannot now make themselves better off by saving than they can by simply spending now and relying on the state later. A free society cannot, in the long run, survive on this basis.

The most carefully costed alternative strategy was put forward by the Pensions Reform Group, which I chair. Here was a scheme that put a shelf life onto pension credit by building up capital to fund everyone a minimum pension.

Such a guaranteed minimum pension can be secured only if the whole society pools the risks of delivering such an outcome. It is a collective but nonstate led reform. The proposal was never seriously considered.

The worry for the chancellor is not a selective quoting of released Treasury papers. Remember Bill Clinton’s famous phrase that it’s the economy — stupid. The fear must be that the word “judgment” is substituted here for the word “economy”.

Frank Field is Labour MP for Birkenhead and was minister for welfare reform 1997-98

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