By Tim Montgomerie
There are certain ministers who don't need any excuse to bash Labour;
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?”
ENDS
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:
‘Example Individual
“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