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THE SCANDAL THAT NEVER WAS
The Times devoted a lot of space last week to what they termed “The Pensions Scandal”. On Monday we were told that “The Times obtained documents on Friday which showed that Mr Brown had pushed through tax changes in his first budget in 1997 despite warnings from officials that it would cost occupational and private pension funds up to £75bn and make millions of pensioners worse off”. This advice was apparently proferred on 27 May 1997. A Gordon Brown aide apparently then said that the tax change was in response to lobbying by the CBI.
This elicited a headline on Tuesday “Browne’s aide’s claim on tax grab is completely untrue, says CBI”, above an article that started “Gordon Brown has become embroiled in an unprecedented row with business leaders who effectively accused the Government yesterday of trying to lie his way out of the pensions furore”. Wednesday’s headline was “Ministers didn’t have a clue” about raid on pensions. This prefaced an article beginning “Gordon Brown made his raid on pension funds, worth £5 billion a year, without consulting other government departments, The Times has learned”.
Before it became part of News International the Times prided itself on being a paper of record, i.e. a newspaper that historians would consult in the future to discover contemporary facts. Now that it is a tabloid it seems to have adopted the tabloid philosophy of never let the facts get in the way of a good story.
So let’s start with some facts. Firstly the “tax grab on pensions” was actually part of a strategy to encourage the reinvestment of profits and discourage distributions. It was coupled with a two point cut in corporation tax, which was estimated to save businesses roughly £2bn a year – although the abolition of tax credit for companies and pension funds combined increased taxation by £3.4bn. The £5bn figure banded about appears to include the further £1.6bn raised from individuals and charities by the similar withdrawal of tax credits in the following year
Secondly, there was an extensive debate in parliament, where the effect on pension funds was acknowledged but was felt by the government to be justified by the incentive effect of the corporation tax reduction which it financed. I do not know what the Times said at the time, but the Financial Times noted at the time that “many months of energetic lobbying by the pensions industry have been ignored”, which does not suggest that the change either was unexpected or was made in ignorance of the likely effect on pension schemes. The FT also remarked that “this move on dividend tax has been progressively discounted [by the Stock Market] for several months… The overall impact is hard to judge. The big question is whether, in the global environment, dividends really matter any more. The dividend yield on the World Index is only 1.8 per cent”. This hardly suggests that Gordon Brown was ignoring warnings by officials in May 1997. He was clearly very conscious of those warnings but felt that in spite of them the encouragement towards investment was justified.
Thirdly, it is not surprising that Ministers did not have a clue about Gordon’s budget changes before budget day. The never do. Budget secrecy is extremely important. Indeed High Dalton was forced to resign as Chancellor because of injudicious comments he made to a journalist when entering the Commons chamber to make his budget speech. A Chancellor does not consult the Cabinet on his proposals; he tells other Ministers what he proposes, but normally only on the day before the budget.
I certainly doubt that the CBI lobbied for the abolition of tax credits. However they certainly lobbied for the abolition of advance corporation tax, which occurred a year later and would not have been possible without the withdrawal of tax credits. Accordingly a call for the abolition of ACT might be viewed as lobbying for the withdrawal of tax credits. No government can afford to give away money it has not collected. ACT was a means of ensuring that tax reclaimed on dividends had been paid to the Treasury in the first place. Surely the CBI were not envisaging a return to the highly complex rules that applied prior to 1965 to ensure that tax was not repaid without having previously been collected?
Accordingly, whatever the merits or otherwise of the 1997 and 1998 corporation tax reforms, what they consisted of was the abolition of repayable tax credits to enable the Chancellor to reduce corporation tax by two percentage points and to abolish ACT in response to repeated lobbying by industry about the ever-growing ACT mountain. As with all previous and subsequent Chancellors, Gordon Brown did not discuss his proposals in advance with other Ministers because of the need to preserve budget secrecy. None of that seems much of a “scandal” to me!
PS. Curiously on the Friday the Times invited Gordon Brown to write a column for it, so perhaps the posturing earlier in the week was no more than good-hearted banter!
THE SCANDAL THAT NEVER WAS
The Times devoted a lot of space last week to what they termed “The Pensions Scandal”. On Monday we were told that “The Times obtained documents on Friday which showed that Mr Brown had pushed through tax changes in his first budget in 1997 despite warnings from officials that it would cost occupational and private pension funds up to £75bn and make millions of pensioners worse off”. This advice was apparently proferred on 27 May 1997. A Gordon Brown aide apparently then said that the tax change was in response to lobbying by the CBI.
This elicited a headline on Tuesday “Browne’s aide’s claim on tax grab is completely untrue, says CBI”, above an article that started “Gordon Brown has become embroiled in an unprecedented row with business leaders who effectively accused the Government yesterday of trying to lie his way out of the pensions furore”. Wednesday’s headline was “Ministers didn’t have a clue” about raid on pensions. This prefaced an article beginning “Gordon Brown made his raid on pension funds, worth £5 billion a year, without consulting other government departments, The Times has learned”.
Before it became part of News International the Times prided itself on being a paper of record, i.e. a newspaper that historians would consult in the future to discover contemporary facts. Now that it is a tabloid it seems to have adopted the tabloid philosophy of never let the facts get in the way of a good story.
So let’s start with some facts. Firstly the “tax grab on pensions” was actually part of a strategy to encourage the reinvestment of profits and discourage distributions. It was coupled with a two point cut in corporation tax, which was estimated to save businesses roughly £2bn a year – although the abolition of tax credit for companies and pension funds combined increased taxation by £3.4bn. The £5bn figure banded about appears to include the further £1.6bn raised from individuals and charities by the similar withdrawal of tax credits in the following year
Secondly, there was an extensive debate in parliament, where the effect on pension funds was acknowledged but was felt by the government to be justified by the incentive effect of the corporation tax reduction which it financed. I do not know what the Times said at the time, but the Financial Times noted at the time that “many months of energetic lobbying by the pensions industry have been ignored”, which does not suggest that the change either was unexpected or was made in ignorance of the likely effect on pension schemes. The FT also remarked that “this move on dividend tax has been progressively discounted [by the Stock Market] for several months… The overall impact is hard to judge. The big question is whether, in the global environment, dividends really matter any more. The dividend yield on the World Index is only 1.8 per cent”. This hardly suggests that Gordon Brown was ignoring warnings by officials in May 1997. He was clearly very conscious of those warnings but felt that in spite of them the encouragement towards investment was justified.
Thirdly, it is not surprising that Ministers did not have a clue about Gordon’s budget changes before budget day. The never do. Budget secrecy is extremely important. Indeed High Dalton was forced to resign as Chancellor because of injudicious comments he made to a journalist when entering the Commons chamber to make his budget speech. A Chancellor does not consult the Cabinet on his proposals; he tells other Ministers what he proposes, but normally only on the day before the budget.
I certainly doubt that the CBI lobbied for the abolition of tax credits. However they certainly lobbied for the abolition of advance corporation tax, which occurred a year later and would not have been possible without the withdrawal of tax credits. Accordingly a call for the abolition of ACT might be viewed as lobbying for the withdrawal of tax credits. No government can afford to give away money it has not collected. ACT was a means of ensuring that tax reclaimed on dividends had been paid to the Treasury in the first place. Surely the CBI were not envisaging a return to the highly complex rules that applied prior to 1965 to ensure that tax was not repaid without having previously been collected?
Accordingly, whatever the merits or otherwise of the 1997 and 1998 corporation tax reforms, what they consisted of was the abolition of repayable tax credits to enable the Chancellor to reduce corporation tax by two percentage points and to abolish ACT in response to repeated lobbying by industry about the ever-growing ACT mountain. As with all previous and subsequent Chancellors, Gordon Brown did not discuss his proposals in advance with other Ministers because of the need to preserve budget secrecy. None of that seems much of a “scandal” to me!
PS. Curiously on the Friday the Times invited Gordon Brown to write a column for it, so perhaps the posturing earlier in the week was no more than good-hearted banter!
posted by CBW at 9:42 am
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