The row over treasury claims that the CBI supported Brown’s decision to scrap dividend tax relief has been rumbling all day. In an interview on Saturday, Ed Balls claimed: -
“In 1996 the CBI said to us: ‘ You haven’t gone far enough, you have to act in a decisive way in the long-term interests of British companies and British investors’.”
Naturally the former CBI boss Lord Turner jumped at the statement denying that the CBI had ever lobbied in favour of the move.
This has proven a very productive story for the Tories, who have called for an independent investigation into the ‘raid.’ Although I’m struggling to remember an incident, of potential embarrassment to the government, where the Conservatives haven’t called for an independent enquiry or investigation.
The truth is that this remains a mistake that causes the chancellor to wince. When many companies defaulted on their Final Salary Pension commitments, the government were careful to distance themselves from the fallout, leaving many people isolated. Brown’s whole campaign is built on his management of the country’s finances, so this story is bound to hit a raw nerve.
It is important that any skeletons in Brown’s cupboard are exposed before he takes higher office. Better that any potential embarrassments are aired now and not later. So let slippery Dave have his fun. After all, whenever the championship fights come along, the Tory leader consistently fails to deliver.
This incident should also act as a warning to Brownites who seem a little unaware of the Chancellors political mortality. He has no divine right to lead the party, regardless of what promises Blair may have made over the Rioja. Calls for a coronation are moronic, the Labour Party desperately needs an election and a debate. More on this in an essay tomorrow.
Sphere: Related Content
{ 3 } Comments
There are thousands of persons in Britain abler than Gordon Brown to be leaders of the Labour party, as there are thousands of people abler than Cameron to lead the conservatives.
Why so much going around these candidates to seeks their pros and cons?
Look out for someone else.
I’m afraid I don’t agree that the abolition of ACt was a “mistake”. It was the right thing to do as far as tax simplification goes. It was carefully accompanied by a corporation tax cut. Corporation tax cuts mean that your earnings per share(profits after tax) increase, and the company can use this to either increase their dividend or to retain within the company to grow it, which means higher future profits and dividends, which is better for the shareholders (including pension funds shareholders). Having lower corp tax and no ACT is actually better for the pension fund holders who own these shares, in the long run.
Corporation tax is now 28% - is there anyone calling for the tax to be raised back to 33% to pay to reinstate ACT? Of course not - because it’s not in shareholders interests! Which gives a lie to the whole “abolition of ACT hurt pensions” line.
The second thing is that the ACT change only applied to UK equities - most pension funds are stocked with overseas equities and bonds. As the age profile of pension funds increases, you have to switch to bonds as they match the liabilities better. Pension funds can continue to reclaim tax relief on bond coupons.
This thing is a vast non-story, being cooked up by people quite ignorant about pensions.
The real damage to final salary pension funds was done by the Tories. Lawson in 1988 applied a 40% tax on pension fund surpluses, which prompted loads of funds to take employer contribution holidays on the grounds that they might get penalised for over-funding. Major then sharply increased final salary benefits, in some cases doubling the size of the reserves required - Social Security Act 1990, which inflation-proofed deferred pensions and Pension Scheme Act 1995, which required pensions in payment to increase with inflation. This is what killed final salary schemes - the sharp increase in cost is the reason schemes like HSBC’s closed to new entrants (in 1996).
Hmmm Snow…
I don’t think that the scrapping of the Tax Relief is the key reason for the pension crisis. No, it’s much more likely to be the ageing population, and the general lack of returns - which is the result of lethargic shareholders, who - and this is an aside - allow boards to pay themselves pretty much what they bloody well want.
However, Snow, let’s be honest. I work in the finance department of a FCMG company and I know for a fact that Brown has done little to ’simplify’ the tax system. The tax system is at least twice as complicated as in 1997.
Post a Comment