Gordon Brown has become embroiled in an unprecedented row with business
leaders who effectively accused the Government yesterday of trying to lie
its way out of the pensions furore.
As the Chancellor maintained his silence on the issue, the Confederation of
British Industry went on the offensive, saying it was “completely untrue”
that it had ever supported the hugely controversial £5 bil-lion-a-year tax
raid on pensions in Labour’s first Budget in 1997. The extraordinary row is
a blow to the Chancellor’s long-fought-for reputation as a friend of
business.
Ed Balls, the Treasury Minister and close ally of Mr Brown, had to issue a
statement retracting claims that he made on Saturday that the CBI fully
supported the move to cut tax relief on dividends paid to pensions. The
Treasury then became embroiled in a second spin row after it changed its
story on why it released highly damaging reports about the tax move late on
Friday while Parliament was in recess.
Treasury officials denied trying to bury bad news and told journalists that
they had to issue the papers before an Information Commission tribunal
yesterday. When it was pointed out that there was never going to be a
tribunal yesterday, they claimed that the papers were issued at the first
opportunity.
The Treasury published the advice that Mr Brown was given by officials about
the potentially disastrous consequences for pensioners of the tax increase
after a two-year freedom of information battle by The Times. A new
analysis by the accountants Grant Thornton shows that the tax rise has so
far cost Britons with private pensions £60 billion, or £3,000 each. The
analysis predicts that it will have cost pensioners £200 billion by 2017, or
£10,000 per person.
In a further twist last night it emerged that the Prime Minister had doubts
about the policy but allowed it to go through to avoid a confrontation.
Derek Scott, a former economic adviser to Tony Blair, told The Daily
Telegraph: “We knew that some people in the Treasury were very nervous
about it . . . and I personally was opposed to it as well.”
The source of the original idea remained unclear, with Lord Burns, the
Permanent Secretary to the Treasury at the time, saying that it came from
outside, although the Treasury was not against it.
Mr Brown let Mr Balls defend the move on BBC Radio on Saturday, when he
claimed: “In 1996 the CBI said to us you haven’t gone far enough, you have
to act in a decisive way in the long-term interests of British companies and
British investors.”
The claim brought a furious coordinated response from Richard Lambert, the CBI
Director-General, and Lord Turner of Ecchinswell, who held the post in 1997.
Mr Lambert told journalists: “This is a convenient bit of spin by the
Treasury.” His press officers sent out their policy documents at the time,
showing their opposition to the move.
Lord Turner, who is also head of the Low Pay Commission, interrupted a holiday
in France to speak to the BBC. “As the CBI has already made clear, at no
time whatsoever did the CBI support the policy of removing the dividend tax
credit,” he said. “And when the change was introduced in the 1997 Budget, I
wrote to the Chancellor expressing our disagreement.”
Mr Balls then changed tack, issuing a statement saying that senior members of
the CBI had asked for the change, but conspicuously not claiming it was CBI
policy. “Senior CBI members pressed us on this issue in 1996, including at a
meeting of the CBI president’s committee,” he said.
Lord Turner insisted: “It should be clear to the Treasury that there is a
distinction between an individual person who happens to be a member of the
CBI saying something and CBI policy. The CBI has never argued for that
policy exchange.”
George Osborne, the Shadow Chancellor, said: “Ed Balls and Gordon Brown have
been caught red-handed trying to claim support for one of the worst
decisions ever made by a British chancellor . . . This is desperate
bully-boy tactics.”
Mr Brown, who was holding meetings in the Treasury yesterday, will face
journalists for the first time since the row broke at the launch of the
Scottish and local election campaign today.
Mr Blair’s official spokesman said that he fully backed the original decision.
The £5 billion raid: are you out of pocket?
— There are more than 14 million people with company and personal pensions in
Britain
— The tax raid means that the funds of money-purchase pension investors are,
on average, each worth between £3,500 and £4,000 less
— Employers who run final-salary schemes have had to pay this much more over
the past ten years for each employee
— Fred Smith A civil engineer, aged 64 in 1997
He converted his pension fund into an annuity when he retired a year later.
The feared fall in fund values on the back of the announcement failed to
materialise as the stock market stayed robust throughout 1997 and 1998. He
was one of the lucky ones and did not feel the full effect of the scrapping
of tax relief on dividends paid into pension funds
Effect Marginally worse off
— David Green A banker, aged 60 in 1997
He had a money-purchase pension fund worth £200,000. This was 60 per cent
invested in UK equities. He started taking income drawdown from his fund in
July 1997, rather than buying an annuity. The loss of the tax credit cost
his pension fund £980 in investment growth. He has been drawing out 5 per
cent of his original investment in the form of drawdown income. An income
drawdown pension is a type of flexible pension. At retirement, it allows the
pension holder to leave their fund invested and take withdrawals from it
instead of buying an annuity
Effect His pension fund is now worth £11,000 less than it
would have been without the tax change
— Samantha Jones Aged 45, she is a legal secretary
Her contribution rate to her final-salary scheme has stayed the same at 6 per
cent of earnings. However, the scheme has now closed to new entrants and her
employer has had to increase the contribution rate into the scheme by 0.5
per cent, just to offset the loss of the tax credit
Effect Mrs Jones and her colleagues have all suffered lower pay rises
in recent years
— William Lloyd Aged 40, he is an estate agent
He puts money into a self-invested personal pension and has amassed a fund of
£78,000. His pot of money is worth about £5,000 less than it would have been
without the tax change
Effect Mr Lloyd has to increase his pension contributions by about 10
per cent to compensate for the loss
— Reka Shah Aged 25, she is a secretary
She is about to begin contributing to her company’s pension scheme and has
never made pension provision before. It is a money-purchase scheme with a 3
per cent employer contribution. She will be invested 100 per cent in
equities, 50 per cent UK and 50 per cent overseas. After the tax changes,
her pension will grow by about 0.5 per cent per year less than would
otherwise have been the case. Her required contribution rate to provide a
pension of around 50 per cent of earnings at retirement would have been 11
per cent
Effect The tax change means Miss Shah should instead contribute around
13 per cent of her earnings
Source: Hargreaves Lansdown The case studies are fictional and intended
only to be examples of different scenarios
I do think it has been in the public interest to publish the information.
Now that one of the causes of the current parlous state of the private pension fund system has been identified, there is I hope, a better chance for the politicians and Civil Servants to remedy their errors.
KAW, Malton, UK
Although I do not agree with the removal of tax-credits for pension savings, there was a rationale that everyone seems to be ignoring. I am assuming that Gordon's intention was to get companies to pay less in dividends and to reinvest profits instead. In theory, if this is done the revinvested profits are reflected in the share price so investers are not really losing out.
Of course in practice dividends are required for cahsflow purposes,etc for pension schemes, however it would be interesting to see if dividend ratio have decreased over the last ten years (and retained profit ratios increased?)
Jonathan McEnery, St Albans, UK
As already a pensioner with the Equitable Life, which as all know went from being the oldest and apparently one of the strongest Mutual Pension Companies when I paid in to the Society and then, mainly because of this theft very nearly collapsed. Now still drawing my heavily reduced pension from them at the age of 78 I can only survive by living in France with my Wife who was hit by the same problem because of the much cheaper living costs here compared to the high tax and inflation in the UK. DO NOT HAVE GORDON BROWN AS PRIME MINISTER AT ANY COST!!! Also David Cameron if you want to get in promise to do your best to repeal this legislation to stop it's current effects and gain the large pensioners vote. Graham Neal
Graham Neal, St.Cyrien, France
This also means that we worse-off taxpayers (who have to support our retirement with private pensions) have to contribute more in taxes to pay for the final salary schemes of the civil service and the government themselves. So in other words our increasing tax burden is in part to subsidise Gordon Brown's protected pension.
His pension is increasing in value year by year as I see mine shrink. Having supported them most of my life I will never vote Labour again.
Eric Pritchard, Clevedon, UK
Its about time Mr Blair showed some leadership and sacked his incompetent Chancellor. Nobody wants him to be the next Primeminister. If Mr Blair does not want to carry on he should call an election to let the British people do what he is afraid to do, sack him, sack him, sack him.
Paul, Bedford,
there is a saying that goes along the lines of "every country gets the goverment they deserve".. the current UK Govt is im sure no worse in terms of profligate ineptidude than previous ones (altho this one has the distinction of having both a prime and dept prime minister acting more or less without portfolio) and im sure future ones will strive to underachive in similar ways - but it seems to me that the current labour Govt is at the cutting edge of arrogance and self engrandisement..off the back of the taxpayer, and the personification of this species is Gordon Brown. The high tax regime in the uk proves what a cleverly underhand man he actually is.. and his pension raid is another cold blooded example of this greed. Question is why are the opposition when handed this on a plate not taking advantage and going the the Govt throat...not for the first time does the oppositions lack of noice smack of tacit approval of Govt actions...or perhaps they havent noticed the con?
Bill Rees, zurich, switzerland
whilst private pensions have suffered since the Brown money grab has this pain been felt across all state pension schemes including MPs,civil service and local government,or are these just topped up with our money as required? surely we private pensioners will all be on means tested state benefits eventually------------- if we are able to understand the claim forms. not bad after almost a half century of working to improve one's lot is it!!!
Aubrey Philip Pitt, bolton, u.k.
If a film is ever produced about the Blair years it could be called “Lie Hard”.
Simon, Berlin,
How much more can the Chancellor and Prime Minister get away with, surely the time has come for these people to be answerable for their actions, facing criminal charges if found guilty. It seems that in the last decade more than at any other time since the war, politicians act as if they are above the law and common decency. I wish the people of this country would for once and for all stand up and make it clear that all MP's are anserable for their actions.
Peter Holmes, Northampton, Northamptonshire
I am very lucky retired and living in France. At the time of this decision no one seemed to have the nerve to speak out. As the disaster unfolded and the best pension schemes in the world collapsed, robbed by this government, I found it incredible they were re-elected.
However as Brown is now set to be the next PM, taxes in Britain continue to rise, inflation is creeping nicely, personal debt increases and large chunks of the population borrow on their homes to continue to live, let us hope this wretched government get their due deserves.
Come on Brown call an election and let us see what the people think of your record.
Paul Winter, Cavirac, France
I was astounded when I heard Ed Balls's claim that the dividend tax grab was backed by the CBI. I was a member of the CBI council at the time and can absolutely and categorically state that at no time was this issue ever discussed at council level and certainly no approach was ever made to the Treasury or Chancellor to impose this extra tax on pensions. Indeed there was surprise and alarm expressed by everyone I knew when it was announced. The statement made by Ed Balls is an outright lie. Chief executive & Financial Director
John Keating, Romsey, Hampshire
In response to Mike Gee of Bournemouth. This lowly paid, rabid Tory was far better off under under Consevative rule than the present one. Tory 'sleaze' pales into insignificance compared to 'New Labour' and the scandals engulfing them! How many times have you heard Blair say, "He or she has my full confidence", only to find later, they are not deserving of that confidence. Blair's judgement is flawed along with his policies. Passing time will bear us rabid Tories, as well those deserting New Labour in their droves, out!
Rod Ballard, Leicester, Leicestershire
Gotcha!
If there is any justice in the world, then this will finish Brown. The ineptitude and lack of judgement displayed by his sidekick Balls shows just what Brown and his team are really made of!
Good riddance to these creeps.
stuart turner, Bristol,
It is amazing that the rabid tories still come out with their holier than thou rehtoric. Politicians are mostly a self serving bunch of incompetant nobodies who, without our so called democracy, we would never hear of. Terminalogical innexactitude is not the perogative of any paticular party but of all of them. The last fifty years (my political experience) has seen politics in this country deteriorating in efectiveness to the point where now it has abandond the people and serves only itself. Greed and self are the watch words............I wonder who moved those to the top of the agenda?
mike gee, bournemouth, dorset
Does anyone know of another job where the workers can cock up, just about everything ! And still remain in their job ?
They write the rules, live in lavish comfort, get promoted, keep a fat pension , & a promise of even bigger things in the EU.
It beggars belief & we allow it to happen.!
Maggie Millington, Brittany, France
The aptly named Mr Balls has ineptly tried to deflect blame and responsibility away from his Master,Gordon Brown, and try as they might they cannot hide the evidence that is clear for all to see that this Chancellor far from having Prudence as his middle name, indeed has duplicitous and callous as key character traits applicable to him with the Pension scandal.Let's hope that he forfeits his right to be Prime Minister, and is his undoing. When, eventually, the public realise the true cost of the PFI hospital building programme which he championed and which cost approx £8 billion, but which will actually be charged back to the Country at £55 billion then Gordon Brown's calamitous legacy as the "Iron" Chancellor will unfortunately be all too apparent! Shame on Him.
Jonathan , Taunton, UK
Yet again it would appear a Government (not just the UK's Govt is guilty of this )has raided the future savings (ergo the lifestyle and prosperity) of Mr & Mrs Ordinary whilst we idly watch them do it. Sadly, we have become lulled into a sense of security because we TRUST those in power to 'look after us' in our retirement (state pension schemes).Clearly our reliance on others is misplaced. It seems to me particularly galling for individuals who have made a private commitment to save for their retirement, to be penalised when they have been encouraged to save (independently) for their futures and have rallied to the Goverment's call.
Will we allow those governing us to behave in this way - now and in the future? Good luck Britain. We have out own battle to fight here in NZ.
Mark Fussell, Auckland, New Zealand
The publication of the advice given to Gordon Brown on pensions demonstrates clearly hismost irresponsible contempt for the interests of the ordinary person on the street against his own personal political ambitions. History is going to judge him as the Chancellor who taxed and spent in the most profligate way, with little to show for it, and the country mortgaged to the hilt for years to come. And all to buy his way into No 10.
Peter Taaffe, Liverpool, England
I suspect when the true state of the economy becomes clear (i.e. when there is a change of Government), I think the taxpayers are in for some nasty shocks! I am convinced the Chancellor is 'cooking the books' in order to hide the true state of the economy from the public. The present Government is one of the most squanderous ever, yet no matter how much taxpayers money they throw at problems, the problems do not improve! Is this not always the case with Labour Governments? There is an old saying, 'Taxpayers money is a tanner a bucketful' . Quite correct! This Government needs to be held to account for their actions and sooner rather than later! Unfortunately they will remain at the pig trough as long as they can!
Rod Ballard, Leicester, Leicestershire
Since Blair is now nothing more than the government's gopher, why is he still receiving his ministerial salary and perks? His unearned wages, along with tea-boy Prescott's, would certainly help with the present shambles of pensions.
Lezli Taubler, London, UK