Gordon Hammers Pension Myths
There was a flurry of letters in the South Wales Argus. It was provoked by a letter repeating the Tory attempts to tar and feather Gordon Brown
What's Gordon Brown ever done for pensioners?
Gordon Brown in the Commons 17th April
After 17 years of annual salami Tory cuts in the basic pension, he increased the average pensioner household income by £1500 a year above inflation. For the first time, 3 million pensioners get pension credit worth an average of £42 a week. 12 million receive the £200 winter fuel allowance. Nearly four million enjoy free TV licences and free passports. On top of that are free eye tests, flu jabs and new compensation for war veterans.
VAT on fuel has been cut to 5 % and the poorest third of pensioners are £2,000 better off after inflation than they were in 1997.
One of your readers parrots the Tory hysterical feeding frenzy against the Chancellor on dividend tax. That 5bn a year is minor compared with the £500 billion lost to pension funds by the stock market fall. If Gordon had not used that cash, it would have been squandered by bloated companies in contribution holidays. Instead it was all invested in health and education.
The sentence in heavy type was cut out by the Argus. Must not challenge too many prejudices. There were kind supportive letters and half a dozen from the paper's regular Labour scourges. I have replied briefly because of the paper's reluctance to publish any letter of mine longer than 200 words
The regular Meldrews of this page join the lynch mob attack on the man the Observer described on Sunday as the ‘most successful Chancellor of modern times’. Their malice and inaccuracy is known.
Others make serious points which I answer on my website where Gordon Brown’s brilliant Commons hammering of Tory pension myths is printed.
The facts remain unchallenged. The Tories cut the basic pension 17 times, slashed SERPS by 50%, and promoted 6 million personal pension scams. Labour compensated the scammed, raised basic pension income by between £1,500 and £2,000 and doubled pension fund assets. The Tories impoverished pensioners, Labour provided action and a fair deal.
Of course it’s not perfect. Nothing ever is. But if the Tories have the chance, pensions will be cut again. Their spokesman George Osborne said :
“Lots of Conservatives say we’ve really got to put more money into the pensions ... the test of whether we are ready for government is whether we can resist those additional calls for public expenditure.”
Points made in the letters in opposition were not the most penetrating. Two complained about the Gordon Brown 'forcing' pensioners on to benefits. An odd way of showing appreciation for a substantial real increase in the pensions of poorer pensioners. But the point is a familiar one that I have made constantly. The increases show have been put on the Minimum Income Guarantee and not require pensioners to resort to Income support. there is still a stigma and 100,000 of the poorest pensioners of all do not claim.
Someone else said that I should not comment because I have a gold plated pension. That would silence all MPs. I have not voted for increases in MPs' pensions and i am very uncomfortable at the prospect of ours being the last one based on final salary. However, I am unlikely to ever benefit from it because I intend to work until I drop.
The Tory myths on the dividend tax were gloriously exposed by Gordon Brown in the Commons debate. Rarely has an opposition been so thoroughly taken apart. On the alleged theft of money from pension funds, he said:
"Despite what the shadow Chancellor has been saying throughout the debate, what actually happened to the pension assets from 1996 to the present day is that the assets of pension funds have increased. In 1996, the assets of pension funds were £549 billion. By 1999, they were £820 billion. By 2006, even after the stock market crash, the assets of pension funds were more than a trillion pounds. In other words, the assets of pension funds have doubled during the period of this Labour Government.
Let me also tell the shadow Chancellor that in 1996, the total income of pension funds was £34.4 billion. By 1999, it was £39.6 billion. By 2006, the figure was twice as much as it was in 1996: £71.3 billion."
It is of concern that the propagandist campaign by the Tory tabloids to destroy the reputation of the future Prime Minister has been believed by so many gullible Argus letter writers. Have they really forgotten the Tory years?
One letter writer suggested I was currying favour with Gordon to get a job! I have been one of his most persistent critics. I asked him in the PLP a month ago to bring forward the date for implementing the restoration of the link. There is strong evidence that it can be afforded. My days on the frontbench ended with my own decision in 1990. There I will remain.
The Chancellor of the Exchequer (Mr. Gordon Brown): I beg to move, to leave out from ‘House’ to the end of the Question, and to add instead thereof:
‘notes and welcomes the acts of this Chancellor and Government to tackle the legacy of pensions mis-selling, support occupational pensions through a Pension Protection Fund set up for the first time and anew Pensions Regulator, further support 125,000 people through the Financial Assistance Scheme whose occupational pensions were affected by employer insolvency, set out the long-term framework for pensions through the new Pensions Bill, including re-linking the uprating of the basic State Pension to average earnings, introduce a new scheme of low cost personal accounts and stakeholder pensions of which over three million have been created, remove the dividend tax credit, make reductions in corporation tax which have contributed to the 50 per cent. rise in business investment and helped the UK economy to grow in each of the last 39 quarters and introduce the winter fuel allowance, free television licences and the Pension Credit to provide an additional framework of support for today’s pensioners.’.
I relish this debate. I will answer every question put to me. But as this is a debate about occupational pensions, why did the shadow Chancellor not mention first of all that we are the first Government in history to ensure protection for pensioners when their company goes bust? That was not done by the Conservatives; it was done by Labour—not sympathy, but action. Why did not the shadow Chancellor start by also recognising that, retrospectively, we are helping those employees whose companies have gone bust? That is the means by which we are helping the 125,000 who suffered not because of a dividend tax credit, but because their company went bust. We are also—the shadow Chancellor does not recognise this—the first Government to address seriously the mis-selling of pensions that we inherited from the Conservatives. When we came in in 1997, 2 per cent. of the mis-selling had been dealt with. Within two years, the figure was 98 per cent. That was not done by the Conservatives; it was action by a Labour Government.
Mr. Graham Stuart rose—
Mr. Brown: Will the shadow Chancellor not also acknowledge that we are the first Government to create an auto-enrolment pension scheme that will mean that all— [ Interruption. ] I will give way to all the hon. Members who want to intervene once I have set out my argument and shown that the shadow Chancellor has made a series of mistakes.
We are the first Government to create an auto-enrolment pension scheme that will mean that all taxpayers have a pension from work. That was never done by the Conservatives; it has been implemented by Labour. We are the first Government to make it a priority to tackle pensioner poverty. That is why we have introduced the pension credit, the winter allowance, and the free TV licence for the over-75s—opposed by the Conservative
party in the 2001 election. We will be the first Government in 30 years to restore the link between pensions and earnings when we introduce our long-term changes as a result of the Pensions Bill.
Despite what the shadow Chancellor has been saying throughout the debate, what actually happened to the pension assets from 1996 to the present day is that the assets of pension funds in 1996 were—
Mr. Graham Stuart: Will the Chancellor give way?
Mr. Brown: I will give way in a minute, but I think that the shadow Chancellor should have an education before I do so.
In 1996, the assets of pension funds were £549 billion. By 1999, they were £820 billion. By 2006, even after the stock market crash, the assets of pension funds were more than a trillion pounds. In other words, the assets of pension funds have doubled during the period of this Labour Government.
Mr. John Redwood (Wokingham) (Con) rose—
Mr. Brown: I will let people in when I have finished putting these factual points.
Let me also tell the shadow Chancellor that in 1996, the total income of pension funds was £34.4 billion. By 1999, it was £39.6 billion. By 2006, the figure was twice as much as it was in 1996: £71.3 billion.
Several hon. Members rose —
Mr. Brown: I will give way in a minute.
If anyone expects the Conservative party to be more helpful to pensioners than we have been, let me read what the shadow Chancellor said at a meeting organised by The Independent at the Conservative party conference:
“There are lots of Conservatives who come up to me and say we’ve really got to put more money into the pensions ... the test of whether we are ready for government is whether we can resist those additional”
calls for public expenditure.
Several hon. Members rose —
Mr. Brown: I will give way in one second.
The strength of our argument is not just the points that I have made. It is based on the rock of the economy and making the right long-term decisions for the country. It is on the rock of the economy that occupational pensions and any other services in our country depend. I tell the House that I do not apologise for the three long-term decisions that I took in 1997 in the interest of stability and growth in this country: first, to make the Bank of England independent, which was opposed by the Conservatives; secondly, to build a fiscal framework for this country that allowed us to double public investment, which was opposed by the Conservatives; and thirdly, to remove the bias against long-term investment in our economy. That bias was recognised by the previous Chancellor, and, to achieve thIf the shadow Chancellor wants to cut corporation tax by 2p in the pound, as we did in 1997, why cannot he tell us how he could fund that other than by withdrawing the dividend tax credit? Why does he continue to tell us that he wants more investment in the economy while refusing to back the measures that increased investment in the economy? Why does he tell us that he opposes in principle the withdrawal of the
17 Apr 2007 : Column 177
dividend tax credit when his own Government said that it was a bias against investment in 1992 and when he cannot tell us that he would restore it if ever he came to power? Why does he not admit that the Leader of the Opposition was the adviser to Lord Lamont on the fifth occasion on which the dividend tax credit was cut?
Adam Afriyie (Windsor) (Con): Will the right hon. Gentleman give way?
Hon. Members: No!
Mr. Brown: I am just about to give way.
The shadow Chancellor says that he wants long-term answers to the problems of the economy, but every position that he takes—refusing to replace the dividend tax credit with something else and refusing to tell us how he would fund corporation tax cuts—shows that he has learned nothing from two years as shadow Chancellor. His approach is short-termist, opportunistic and insubstantial. We take the long-term decisions for the economy; he has a short-termist approach.
When the hon. Gentleman became shadow Chancellor, he said that far too often the Conservative party had been perceived as opportunist. He said:
“we have sacrificed long term credibility for the prospect of winning the support of an aggrieved section of the population or ... winning a vote”
in Parliament. He continued:
“Short termism has hampered attempts to develop a long term ... policy.”
That is exactly where the Conservative party is today.
Mr. Graham Stuart: I am extremely grateful to the Chancellor for giving way. As ever, he prefers to talk about the policies of the Opposition, rather than the results of his own policies. Will he give an answer today, and say what estimate he and the Treasury make of the impact on pension funds of the pension tax raid that he authorised in his first Budget in 1997? Give us a straight answer!
Mr. Brown: The hon. Gentleman clearly has not read the papers in any depth. What the Treasury said was that actuaries would assume that there would be a 7 to 20 per cent. fall in the share price immediately after the announcement, but in fact the share price rose. It rose by 0.5 per cent., then it rose by 12 per cent. over the quarter, and then it rose by 27 per cent. over the year. That is why the assets of pension funds, which is the big issue, rose from £549 billion in 1996 to £820 billion by 1999.
Several hon. Members rose —
Mr. Brown:Mr. Brown: Is he not? [Interruption.] Oh, he is. Is he apologising? The Cornerstone group proposes £40 billion of tax cuts, but not one of them is to restore the dividend tax credit.
Mr. Redwood: I am grateful to the Chancellor for giving way. Does he agree that if we took a fifth of his income away, he would be worse off? Why can he not accept that when he took a fifth of the dividend income away, pension funds were bound to be worse off?
17 Apr 2007 : Column 178
Mr. Brown: I used at least to have some respect for the right hon. Gentleman’s grasp of basic economics, but what actually happened was this: in 1993, the current Leader of the Opposition advised Lord Lamont to remove part of the dividend tax credit, but the Conservatives did not replace it with a cut in corporation tax. There was no cut in corporation tax. When we made our change, we cut corporation tax by 2p. What happens when corporation tax is cut by 2p? First of all, companies are more profitable. Secondly, they can pay more in employer contributions to pension funds. Their dividends rise and they are able to pay more dividends to pension funds. I have to tell the right hon. Member for Wokingham (Mr. Redwood) that all his assumptions are wrong, because what actually happened after the corporation tax changes was that companies paid more in employer contributions, dividends rose, payments to pension funds rose from £34 billion to £39 billion, and the assets rose from £549 billion to £820 billion.
The Leader of the Opposition puts forward all his proposals for tax cuts, but is it his priority to restore the dividend tax credit or not? It does not seem to be his priority, it is not the shadow Chancellor’s priority, and it does not seem to be the priority of anybody on the Conservative Benches.
Mr. Kenneth Clarke (Rushcliffe) (Con) rose—
Hon. Members: Oh!
Mr. Clarke: The Chancellor is carefully eliding and shuffling a few dates and events, so may I help him with his recollections? When he was shadowing me as Chancellor, neither of us realised that both of us were looking at the same proposition of a reduction on the tax dividend credit on pensions. In the Treasury, I discussed that proposition with my right hon. Friend the Member for Charnwood (Mr. Dorrell), who was then the Chief Secretary to the Treasury, and in the Grosvenor House hotel, he discussed it with the current Economic Secretary to the Treasury and the hon. Member for Coventry, North-West (Mr. Robinson). We rejected the idea because we were satisfied that it would do damage to occupational pension funds. The Chancellor decided that it would not damage them, and he is still using the preposterous argument that it was responsible for the stock market boom that followed, but I seem to recall that the boom had something to do with the dot.com bubble in the United States. Is he still saying that the Grosvenor House mob came to the right conclusion, and that we came to the wrong one?
Mr. Brown: First of all, the ex-Chancellor supported, during the period in which his party was in government, the reduction of the dividend tax credit from 33p to 30p, then from 30p to 27p, then from 27p to 25p, and then from 25p to 20p. It was virtually halved in the period in which the Conservatives were in government, and it was halved on the advice of the Leader of the Opposition; he advised Lord Lamont to go ahead with the move. As far as the ex-Chancellor is concerned, the problem is that in 1997 and 1998, he thought that there would be a recession in Britain, so it was not the right time to deprive companies of those resources, but I took the view that the economy would continue to grow. I was proven right: instead of a 7 or 20 per cent. cut in share prices, shares continued to rise, profits continued to rise and investment continued to rise. The ex-Chancellor said:
17 Apr 2007 : Column 179
“I’ve been forecasting a hard bump and not a soft landing for the British economy since Brown handed the job of setting rates to a committee of bankers...He is going to bust our economy”ithout any risk of growth. That is what he said, but he was absolutely wrong.
Mr. Stephen Dorrell (Charnwood) (Con) rose—
Mr. Brown: I will take not only the ex-Chancellor but the person who was the Chief Secretary at the time.
Mr. Dorrell: I am grateful to the Chancellor, but I was actually the Financial Secretary. Can we be clear about one thing? Since the Chancellor came to power in 1997, the number of private sector final salary pension schemes accepting new members has been cut by two thirds. Is that a successful policy, an unsuccessful policy or nothing to do with him?
Mr. Brown: It is absolutely right that there has been a cut in those schemes in every major country in the world, but I have to tell the right hon. Gentleman that I have the figures with me, and the cut in defined benefit schemes between 1995 and 2000 was 2 per cent. Between 1990 and 1995, there was a cut of 5 per cent. under his Government. I remind him that when he spoke in 1993 on the Finance Bill, he supported the withdrawal of the divided tax credit to 20 per cent. He said the Tories were doing it
“in a way that does minimum economic damage, recognising the substantial tax benefits available to pension funds as collective savings vehicles.”—[ Official Report, Standing Committee A,15 June 1993; c. 377.]
He makes my case.
Several hon. Members rose —
Mr. Brown: Who is next?
Pete Wishart (Perth and North Perthshire) (SNP): I am grateful to the Chancellor for giving way, but is it not the case —[ Interruption. ]
Mr. Speaker: Order. Let the hon. Gentleman speak.
Pete Wishart: Thank you, Mr. Speaker. Is it not the case that the pension fund raid will cost the average Scottish family £3,750 at a time when one in five Scottish pensioners live in poverty? When the Chancellor came to Scotland, he said that he regretted nothing and that he would do it all again. Should he not apologise to the Scottish people, and does he not understand that this is the final nail in Labour’s coffin in Scotland?
Mr. Brown: I have just explained to the House that we put £11.5 billion into pensions from 1997 until now in real terms. We have done more to abolish pensioner poverty than was ever done by the Opposition. We introduced a winter fuel allowance and free television licences, which were opposed by the Opposition. We introduced the pension credit, and the only plans that do not add up are those of the Scottish National party, which assumes billions in oil revenues that do not exist, which promised to spend money that it does not have, and none of whose figures add up. The hon. Gentleman should go back to Scotland and explain why his policies and plans are economically illiterate and cannot make a difference to the people of Scotland.
Mr. Edward Garnier (Harborough) (Con) rose—pension credit, the winter allowance, free television licences and the minimum pension guarantee, because I have not heard many Conservative party members or Conservative MPs who are anxious to come out and support those things.
Several hon. Members roseGreg Clark (Tunbridge Wells) (Con): Will the Chancellor confirm that his raid has been not only on pension funds, but on Britain’s charities? And will he confirm that Britain’s charities have lost £1.3 billion to date as a result of that policy?
Mr. Brown: That is not true. [ Interruption. ] The shadow Chancellor thinks that the matter is so important that he did not even mention it in his speech. [ Interruption. ] The dividend tax credit was indeed paid to charities, but we gave them compensation for five years afterwards, and at the same time we introduced a major reform of charities. Gift aid was worth £135 million when we
17 Apr 2007 : Column 181
came in; it is now worth £750 million. I have not seen the Conservatives supporting what we have done in that area, either.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): If it was damaging to charities and the Chancellor had to compensate them, why does he not admit that it was damaging to pension funds and issue compensation?
Mr. Brown: The right hon. Gentleman had better be careful in joining this debate. He was the author of plans on pensions that virtually lost his party the 1997 election. I have just explained to him that companies paying into pension funds are paying employers’ contributions, which rose by £2 billion between 1996 and 1999. It was wrong that so many companies were taking employer holidays, and it was also wrong that the share of wages paid in pension contributions was only between 1 and 2 per cent. Those companies had unfortunately been encouraged to take those holidays by the taxation regime operated by Lord Lawson, which was why those pension funds were not receiving employer contributions as they should have done. Once we made the change, employer contributions started to rise. They have now risen to £33 billion a year, and I hope that the right hon. Gentleman will acknowledge that employers are now paying a fairer contribution to the pensions of their workers. In my 1997 Budget—this is why the shadow Chancellor was completely wrong when he tried to suggest that this was not in the 1999 Budget—I said that employers had been taking holidays for too long and that it was time for them to restore contributions.
Most sensible people who look at what happened will find that because we cut corporation tax, employers were able to pay more contributions, which rose by£2 billion in that period. At the same time, of course, there were higher dividends, so the effect of the dividend tax credit was wiped out. The whole argument put by the shadow Chancellor this afternoon was dependent on a 7 to 20 per cent. fall in the stock exchange, which was the worst scenario drawn up by Treasury officials. We decided that that would not happen and took the view that the economy would not experience that share cut. We were right and share prices rose—they rose by 12 per cent. in the quarter and by 27 per cent. It is about time that the Opposition, who pride themselves on having some knowledge of economics, understood that because we acted on corporation tax, which they failed to do, we were able to recycle revenues to both pension funds and higher dividends, which meant that the assets and incomes of pension funds rose between 1996 and 1999.
Several hon. Members rose —
Mr. Brown: I am prepared to take contributions from Back Benchers who have not spoken.