The Office for Budget Responsibility has provided an insight into the impact of Gordon Brown’s 1997 tax grab on pensions through the abolition of the tax credit on dividends.
The extra income for the exchequer is expected to be £9.7bn this year. From July 1997 to 2014 the Treasury enjoyed a £117.9bn boost.
So that is almost £118bn that has not been invested in pensions since 1997.
A back-of-a-matchbox calculation suggests investors may have lost £230bn with investment growth.
But from this we have to deduct the money that would have been snatched in charges.
I think it is reasonable to conclude final salary schemes, which are today closed to new members, would otherwise have still been going had Mr Brown not dipped into their coffers.
It is indisputable that people are retiring today on smaller pensions than would otherwise have been the case – especially as so much of the return from the stock market since the turn of the century has been from dividends.
The tax credit boosted every dividend payment by a quarter. Compound the extra income over 17 years and you are looking at a mighty big figure.
There are other impacts. Smaller pensions mean people are more likely to fall back on state benefits.
Pension schemes that have gone under have fallen on to the Pension Protection Fund, which operates partly through a levy on healthy funds.
It all adds up to more money going to the state and less to individuals based, presumably, on the belief that the government knows how to spend our money better than we do.
One of Mr Brown’s closest allies in 1997 was Ed Miliband, now the Labour leader. He worked in the shadow Treasury team from 1993 to 1995, when he took time out to study for a master’s in economics at the London School of Economics.
After Labour’s victory in 1997, he was appointed a special adviser to Gordon Brown, a position he held until 2002. It is unthinkable that he was not closely involved in the tax raid.
The change was dressed up as an attempt to encourage companies to invest more and pay less out in dividends.
There had also previously been concerns that employers were sitting on big surpluses in pension funds and taking contribution holidays.
It would not be right to blame the loss of the tax credit in isolation. Regulatory changes, new accountancy standards, economic conditions and increased life expectancy have all contributed to today’s grimmer pensions landscape.
But Mr Brown’s tax raid will always stand out as one of the great injustices perpetrated on the diligent investing public – and rightly so.
Advice for the Tisa 50
It is great to see 50 companies coming together in an initiative managed by the Tax Incentivised Savings Association to tackle financial security and hardship.