Brown's Pensions Disaster

It should have been obvious to everyone at the time that Gordon Brown's abolition of the Dividend Tax credit for Pension funds, which increased the tax on pension funds by £5 billion a year, was likely to have dire consequences.

Obviously the first of these is a cumulative £50 billion directly grabbed in extra tax, but it has also been suggested that the impact on pension funds, including money which has not been invested in them because people know it would be grabbed in tax, and the overall impact of lower asset prices as this policy is one of the reasons UK stocks and shares have underperformed our international rivals, may be closer to £100 million.

It has been obvious for several years that this is one of the main reasons why, in the words of Labour MP Frank Field, this government inherited one of the strongest positions on pensions in Europe but now has one of the weakest.

In my view this was the worst single mistake in economic policy since Churchill put Britain back on the Gold Standard seventy years previously, and it has done much more long-term harm than ERM entry and Black Wednesday put together.

After a two-year battle, the Times Newspaper has now secured the release under Freedom of Information Act provisions of the advice given to Gordon Brown at the time. Surprise surprise - Treasury officials foresaw many of the problems and warned Brown about them but he went ahead anyway.

For the past decade Brown's reputation as a chancellor has been higher than most of his constributions deserve, because his one excellent decision - to give the Monetary Policy Committee of the Bank of England the independent authority to set interest rates - has enabled the strong economy he inherited from Kenneth Clarke to stay strong for a decade. However, the chickens are coming home to roost, and the history which future generations will read about Brown the chancellor will begin by identifying his actions as the biggest single cause of the pensions crisis which will affect millions of people - not so much those who are already retired as those who will be reaching retirement age for decades to come.

Anyone with two working brain cells - including the more intelligent members of the Labour party such as Frank Field - has been able to foresee since the 1980's that Britain faced a demographic time-bomb from the later part of the present decade onwards, as people of traditional working age will form a smaller and smaller proportion of the population. The last government saw this coming, and imposed a series of measures, some pleasant, some not, to give people a strong incentive to save for their future. The policy worked and by 1997 Britain had more money saved in pension funds than the whole of the rest of Europe put together.

Brown's unforgivable incompetence, raiding that nest-egg and destroying the incentive to save, has put Britain's future pensioners right back where we started. Because of Gordon Brown, millions of people will find, when they reach retirement age without adequate savings or pensions provision, that they have to choose between retiring on a pittance or working until they drop. There has been much talk of Blair's legacy: Brown's legacy will be to be remembered with anger as the man who wrecked Britain's pensions. And that anger will be justified.