Money Marketing revealed last June that, following a Freedom of Information Act request, the Treasury had been ordered by the Information Commissioner to reveal estimates given to ministers on the long term damage on pensions funds caused by the removal of advance corporation tax relief on dividends for pension schemes in 1997.
The Treasury appealed against the decision but finally lost its fight to suppress the information, publishing the explosive papers on its website on Friday evening.
The papers show that officials clearly told Brown that the raid could cost pension providers £4bn a year, that the value of existing pension funds could plummet immediately by £50bn and that the lower paid would be most severely hit.
The revelation could not come at a worse time for the Chancellor as his leadership bid reaches critical point. Brown has come under fire from all quarters, with the Tories leading calls for an independent enquiry into the policy decision and the CBI slamming the decision to abolish tax credits on dividends as a “misjudgment”.
The Treasury defends the 1997 policy decision by arguing it was the “best thing from the point of view of the long term investment opportunities in the UK Government. It also says the Government was responding to calls from the corporate sector to remove a distortion in the tax system that was encouraging them to pay out to much in dividends rather than investing for the long term. It also says the decline of pensions schemes has been caused by the stockmarket crash and increased longevity.
But pensions expert Ros Altmann says: “So, because the CBI wanted a more favourable tax system for UK companies, the new Labour Government decided to sacrifice the interests of unsuspecting pension scheme members and personal pension investors.”
“This is the most unbelievable revelation. It seems the Chancellor was determined to pursue his own priorities regardless of the risks. Effectively he did not understand or did not care that taking so much money out of pensions funds, with no warning and no chance for some to make up the resultant shortfalls, would damage the incomes of those saving dutifully for their retirement – as the Government has always encouraged them to do.”
Informed Choice managing director Nick Bamford says: “I didn’t believe he was fit to be Prime Minister before and I certainly don’t now. Because this was such a technical tax people didn’t notice it and Brown knew this. This is a typical example of sleight of hand which he demonstrated again in the latest Budget with the 2p income tax cut.”
Standard Life head of pensions policy John Lawson says: “If Brown continues to try to pull the wool over people’s eyes then people will not trust him. He has got a track record of making changes without telling the full story.”