Over the weekend, news got out – thanks to the diligence of journalists at The Times (of London) that UK finance minister Gordon Brown was warned back in 1997 that removal of tax relief on pension funds’ equity dividends would create a massive future problem. It did. More than 5 billion pounds a year have been snatched from corporate pensions as part of Brown’s tax-and-spend binge over the past 10 years. Tens of billiions of pounds have been taken from pension schemes, forcing firms to shut down the final-salary pensions and significantly reduce the likely benefits people will get in retirement. Of course Brown cannot be entirely blamed for this. We live longer, and the fall in the stock market in 2000, and the sharp rise in the cost of bonds, hit pension funds hard. But Brown did a huge amount of damage. His tax raid aggravated the stock market losses, and by forcing firms to steer more money to schemes, hit investment and growth. He has not expressed one whit of regret, and now, exposed as the dogmatic man that he is, Brown’s lickspittles are now lying about the arguments put to them at the time by big business groups such as the CBI. Former CBI Director-General Adair Turner, a decent man, has called the government a bunch of liars. It appears that the CBI and other groups, supposedly charmed by the recent cuts to corporation tax, but also realising that smaller firms got clobbered by the March budget, are furious at the Treasury’s dissembling on the pension tax issue.
Brown’s chances of becoming Prime Minister took a palpable hit this weekend. The gloomster may still be in 10 Downing Street by the end of this summer, but at least the British electorate have had another chance to see what a devious and foolish man Brown is.
The broader implications of all this should be obvious to regular readers of this site. By undermining private sector pensions and long-terms savings, Brown and his supporters increase reliance on the state, much in the same way as David Lloyd George and others torpedoed the Friendly Societies in the first decade of the 20th Century by his pension and welfare changes. (There is some debate on whether Lloyd George was aware of the effects of his actions). Aneurin Bevan, that over-rated demagogue of the 1940s, deliberately shafted the independent, non-state medical services that had already began to serve Britons, including poor ones, before the Second World War. Wherever one looks, one sees evidence of socialists/so-called liberals acting to wreck patterns of private privision or non-state mutual support. It is shameful, and the consequences for civil society are immense.
Just think of how, had the Friendly Societies and the rest been allowed to flourish. We would now have a broad and deep savings culture, enormously strong, and underpinning a culture of self reliance and personal responsibility. And people like Gordon Brown, never performing an hour of honest toil outside the halls of government, destroyed it.
Johnathan
A couple of extra points re the pension deficit
Investment rules were also tightened to reduce risk, lowereing everyones ckance of increasing their pile. Two effects of this were that when the stock market began to grow whole raft of investments had been moved and saw no benefit from the growth,
And where did most of the missing stock market funds go? Low yield but safe goverment bonds.
So pension funds get to prop up Brown while being royally screwed by him.
Another effect was the predictable move from investment by share to investment by debt, which is where all those evil private equity funds who the labourites are currently whinging about
It is somewhat puzzling why this has taken so long to become a political issue. A BOE calculation in 1997 showed Gordon to be the equivalent of between 300 and 500 Robert Maxwells. (Well, Maxwell was only a backbencher.)
What’s worse the investment earnings he seized have since been used not on the benign recirculation of personal consumption, but on legions of inspectors and consultants to tell the victims how to live what’s left of their lives – including the plushly appointed Pensions Advisory Service in its unstinted St James’ offices, whose role is to explain how failing pensions are everyone else’s fault but the Revenue’s. It were preferable he’d gone to the casinos with it. At least there would be no continuing costs to pick up.
Why is Brown not hated as much as Maxwell, let alone the thousandfold he deserves? Are financial commentators and journalistic bigwigs (most of whom must be private pension beneficiaries) really so thick they didn’t notice? Is it that the union bosses, and public-sector clienteles have cushioned, quasi-unfunded pensions? Or has it all been about sucking up to the powers in the one-party-state?
If the latter, then, “Why now the excitement?” becomes a political question. Do the Blairites want him down so much that they are prepared to exhibit these bodies and call him murderer, imagining the public won’t remember it was they who handed out cutlasses?
When Robert Maxwell made use of pension cash to supplement his spending plans many people suggested he was a crook.
How come Gordon Brown gets much better press?
Brown and his supporters increase reliance on the state
This spiteful act and a desperate grab for OPM.
Large swathes of the population reliant on their own savings or pension plans outside the state remit are not beholden to the Treasury to fill their plates and grates and as such cannot be bullied and manipulated.
If Blair wishes to leave a legacy he will not simply resign, but will first pay a visit to Her Maj for the good of the nation and trigger a General Election. In this act he can wash his hands of the train-wreck that is the works of arch Communist Uncle Gordon Brown.
Re: Tim C Large swathes of the population reliant on their own savings or pension plans outside the state remit
But that is exactly the problem! No one’s pension plans are outside his tax remit if we are in the UK. That’s what the fuss is about.
I guess you can not be a UK resident.
I would never wish to absolve the one eyed bogie eater from his share of the blame, but I also feel that the roots of this disaster stem from the absolute horror that Treasury apparatchiki have of any form of tax avoidance. They had long distrusted the fact that company pension schemes did not have to pay tax, and thought that there must be some sort of avoidance going on there. That’s why, back in the 80’s, they introduced a rule whereby if a pension fund had more than 105% of its liabilities covered, any excess would be subject to tax. To the Treasury mind, this stopped companies parking money in the pension fund that would otherwise be taxed. It also meant that companies had to have contribution holidays, as there was no point in having any more than the bean counters thought necessary in the fund.
The problem in the real world is that neither Treasury apparatchiki nor the bean counters can foresee the future, although they think they can. They did not foresee longer life spans, they did not foresee the stock market downturn, they simply lacked the common sense and real world experience to know that it makes sense to save for a rainy day, given that, statistically, there is a 100% chance that one day it will indeed rain.
The stage was all set for the Clunking Fist to abolish pension funds’ tax breaks when he became Chancellor, he was only following through on the Treasury’s hatred of anything they cannot tax. However, as the saying goes, ministers decide, and for that reason this glowering lump of resentful ambition should never be forgiven by the British people for his role in destroying the best pension system in the world, and impoverishing the lives of millions not lucky enough to get those nice index linked pensions that hard working and useful people such as Treasury civil servants enjoy. Trebles all round.
people like Gordon Brown, never performing an hour of honest toil outside the halls of government,
You mean he performs honest toil inside the halls of government?
As for the 2000 crash, that was inevitable and Brown et al were simply counting on the mystical version of reality when they failed to account for this.
Not that they were really bothered anyway.