At last week’s Opposition Day debate in Parliament, LibDem Shadow Chancellor Vince Cable said he agreed with the Tories’ motion of no confidence in Brown but accused them of turning the issue into a Punch and Judy show by exaggerating the effects of the raid.
The storm has presented the Tories with a means of attacking Brown as he prepares for his accession to the top job. It paints him as a control freak and raises questions about his record for economic competence. But are the attacks eclipsing rational arguments on all sides?
Brownite Treasury select committee chairman John McFall was part of a well-organised counter-offence against the Tories during the debate, branding their arguments as “hullabaloo and hypocrisy”.
The fact that the Chancellor attended the debate, flanked by Treasury Economic Secretary Ed Balls who had to be restrained by the Speaker at one stage as he grew steadily more incensed with the Tories, showed how damaging he views negative coverage of his Budget move in July 1997.
In a stormy Commons session, Brown stood firm against the Tory accusations, suggesting he would “relish” the debate and saying that with hindsight he would do the same thing again.
Brown told Parliament that share prices rose in the aftermath of the decision to cut advance corporation tax relief on pension dividends, by 12 per cent over the quarter and 27 per cent over the year, helping payments to pension funds rise from £34bn to £39bn and assets to grow from £549bn to £820bn.
Former Tory Chancellor Ken Clarke pointed out that this rise might have had more to do with the dotcom boom than Brown cutting tax relief on pension dividends.
But Brown refused to apologise for the move, saying scrapping the relief removed a fundamental bias against long-term investment in the economy, allowed him to cut corporation tax by 2p and was part of a package to build a fiscal framework that included doubling public investment.
He said the last Tory Government had cut back the relief successively, from 33p down to 20p, showing they agreed with the principle that the relief was an outdated anomaly that distorted investment.
Clarke retorted that he had looked at the arguments for scrapping the relief completely but rejected them due to the damage that would be done to pension, particularly in the event of a downturn or recession.
Brown bragged that recession was not a word his Government had had to worry about. But the stockmarket crash in 1999 was exactly the sort of event that Clarke and his economic advisers were worried would combine with the scrapping of the relief to severely damage pension funds.
Perhaps the most persuasive argument for scrapping the relief was the simple statement of: “We needed the money. It had to come from somewhere” from a book by the then Paymaster General Geoffrey Robinson.
The Labour Government was committed not to raise personal taxation – an election pledge that successfully painted them as economically competent – but was equally committed to a number of extra social spending measures.
But the Government could not come out directly and say that. The move was not mentioned in the election manifesto and this is where Tory accusations of stealth and hidden taxes hit home.
The decision was taken before the 1997 general election by what Tory Shadow Chancellor George Osborne describes as the “small cabal” of Brown, his press secretary Charlie Whelan, Robinson and Balls under the advice of consultant Arthur Andersen.
The decision was made in the penthouse suite of the Grosvenor House Hotel, short-cutting the usual Treasury advice, and kept secret until after the election.
Where the industry has some sympathy for the Government is when comparing the effect of scrapping the tax relief with other considerations. It is generally agreed that other factors such as the stockmarket crash, rising longevity levels and employer pension holidays have had greater roles in forming the pension black hole and the move away from defined-benefit schemes.
But this is also an industry that has suffered numerous pension U-turns in the past few years on the back of pension simplification legislation, the dramatic failure of stakeholder and basic advice. The industry can see considerable holes in the Government’s future pension reforms. Any desire to give Brown some slack on this is in short supply.
As the Tories admitted in Parliament last week, this storm has far more to do with politics than pensions.
Clarke said: “I agree we are making a great hullabaloo about the events 10 years ago but there are perfectly good reasons for doing so and for holding the debate.
“There is an obvious public interest because the Chancellor has delivered his last Budget and is about to become Prime Minister, so the release of the information excited legitimate public questions about his judgement, style of taking decisions and consequences of some of his judgements he has made, which may give some clues as to how he might act in future.”