By Tim Montgomerie
There are certain ministers who don't need any excuse to bash Labour;
- Eric Pickles has repeatedly uncovered stories damaging to his profligate predecessors (eg here and here and here);
- Chris Grayling wins the front page of today's Express and this in The Times (£) for his press release noting that MORE THAN HALF-A-MILLION people have been FALSELY on sickness benefits for a full decade.
Since the Tories moved into government there has been little other such activity and that is why it was good to see last week's joint press conference from Sayeeda Warsi and Chris Huhne, attacking Labour's debt legacy.
Speaking to the CCHQ press office this morning I'm assured that this fortnight will see an intensive round of attacks on Labour and regular operations thereafter. Good. We cannot let the new Labour leader wriggle away from his responsibility for the mess the Labour Cabinet created (of which he was a part).
FYI, pasted below is today's CCHQ press release:
Exposed: Labour ignored crucial warnings over pensions raid
Newly released documents dating from 1997 expose the dangerous arrogance with which Ed Balls and other Labour Ministers ignored official warnings that their plans could cut the income of millions of pensioners by up to a fifth.
The uncovered documents, obtained under the Freedom of Information Act, show how the Labour Government was warned that changes they were planning to the tax system for pension funds could result in a 20 per cent fall in share prices, with a massive knock-on effect on pensions. Labour Ministers ignored these warnings and proceeded with the changes.
The decision to abolish dividend tax credits has been estimated to have cost British pensioners up to £150 billion, and was described by one Pension Fund expert as the ‘biggest attack on pension provision since the war’.
Commenting, Conservative Party Co-Chairman Sayeeda Warsi said:
“Labour’s pensions raid turned the British pensions system from one of the best in the world into one which is struggling to cope, leaving 2 million pensioners living in poverty.
“As Gordon Brown’s key adviser in the Treasury in 1997, Ed Balls should come clean about his involvement in Labour’s unfair pensions raid. How can he claim to lead the Labour Party forward when he can’t own up to his past mistakes?”
Notes to Editors:
The biggest attack on pension provision since the war’ according to Peter Murray, Chairman of the National Association of Pension Funds (quoted in The Independent, 3 July 1997).
Labour were warned that share prices might fall by 20 per cent: Newly released documents, published after a Freedom of Information request, reveal that the Government Actuary’s Department warned that scrapping the dividend tax credit could lead to share prices falling 20 per cent. In a letter dated 30 May 1997 from the Government Actuary’s Department to the Department of Social Security (DSS, now the DWP), it says:
‘The current rate of tax credit which may be reclaimed by pension schemes is 20%. Taking the scenario of the complete elimination of this tax credit, the possible effect on the UK equity market might be a fall in equity prices and/or a fall in gross dividend yields. The extreme scenarios which might be envisaged are:
· a 20% fall in equity prices, with the gross dividend yield remaining unchanged; and
· no change in equity prices, but a 20% reduction in the gross dividend yield.’
(DWP, Freedom of Information Request, 3 June 2010: Letter from Government Actuaries Department to Department of Social Security, 30 May 1997)
Labour were warned that a pensioner with a £10,000 pension could be £2,000 worse of per year. In a further document from the Government Actuary’s Office dated 20 June 1997, an example individual is used showing the potential impact of Labour’s policy:
“To illustrate this, a person who is about to retire and take a pension from an anticipated fund valued today at £100,000, could find his or her expectations of a pension of around £10,000 reducing to £8,000 if market prices fell by 20%.”
This assumes that all the fund is invested in UK equities, which might be argued as inadvisable so close to retirement.
The figures also assume that no tax-free lump sum would be taken.’
(DWP, Freedom of Information Request, 3 June 2010: Government Actuaries Department, 20 June 1997)
The pensions tax raid had a long term impact on the stock market, with actuaries lowering their stock market expectations. In response to the July 1997 Budget, the Government Actuary’s Department wrote to the DSS providing advice on the impact of Budget measures on the Minimum Funding Requirement for pensions. They recommended lowering the assumptions for stock market performance used in pension calculations. In the summary of conclusions it says:
‘In light of the Budget changes to tax credits on UK equities and Corporation Tax, I consider that it would be reasonable for a reduction of 0.5% a year to be made to the assumed long-term annual rates of return from UK equities, if the strength of the MFR is to remain consistent with that before the Budget.’
(DWP, Freedom of Information Request, 3 June 2010: Letter from Government Actuaries Department to Department of Social Security, 4 September 1997)
This advice was then repeated by the Chairman of the Pensions Board at the Institute of Actuaries who wrote in a letter dated 11 December 1997 that:
‘In our view, the impact of the changes is to reduce the long-term returns on new equity investments by around 0.5% (rounding to the nearest 0.25%), even after allowing for the reductions in the level of corporation tax which have been announced.’
(DWP, Freedom of Information Request, 3 June 2010: Letter from Harvie Brown, Chairman, Pensions Board, Institute of Actuaries to Department of Social Security, 11 December 1997)
Background to the Pensions Raid
- In 1997 Labour abolished the Dividend Tax Credit paid to pension funds and companies. This meant that pension funds were no longer able to claim a tax credit on the payment receipt of dividends. It has been estimated that this cost pension funds up to £150 billion, however since 1997 the Labour Government provided no official figures.
- Cost up to £150 billion. ‘What happened in 1997 represented an enormous and ongoing raid on the assets of UK company pension schemes. My research shows it would be very hard to justify an impact of less than £100 billion — and even £150 billion may still be a conservative estimate.’ (Terry Arthur, fellow of the Institute of Actuaries, quoted in Daily Telegraph, 15 October 2006)
- ‘The biggest attack on pension provision since the war’ according to Peter Murray, Chairman of the National Association of Pension Funds (quoted in The Independent, 3 July 1997).
- Opposed by the CBI, contrary to claims by Ed Balls. Ed Balls had claimed that the CBI had lobbied for the abolition of dividend tax credits for pension funds and other companies. Lord Turner, former head of the CBI, was so furious he broke into his Easter holiday abroad to refute the claims by Ed Balls, Mr Brown's key adviser at the time. He said: ‘At no time in 1996 or 1997 was CBI support for a change in dividend tax credit rules expressed in any of these fashions. And when the change was introduced in the 1997 Budget, I wrote to the Chancellor expressing our disagreement’ (quoted in The Independent, 3 April 2007).
- Brown ‘destroyed our pensions system’ according to Blair’s pension adviser. Ros Altmann, a former pensions adviser to Tony Blair, insisted that Brown’s tax changes had started the rot from which Britain’s pensions have never recovered. She said: “This chancellor will go down in history as the one who destroyed our pensions system… Brown knowingly destroyed what was once one of the great pension systems in the world and he did it deliberately’ (quoted in The Times, 1 April 2007).
- Labour Minister admits scale of Labour’s failure on pensions. Labour’s first Welfare Reform Minister, Frank Field, summarised Labour’s record on pensions when he said: ‘when Labour came to power we had one of the strongest pension provisions in Europe and now probably we have some of the weakest’ (BBC Radio 4, Today Programme, September 2004).