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Last Updated: Monday, 2 April 2007, 19:43 GMT 20:43 UK
Treasury pensions row escalates
Chancellor Gordon Brown
Mr Brown was warned by Treasury officials about the pension plans

The Treasury is embroiled in a row with business leaders over a decision made by Chancellor Gordon Brown 10 years ago on pension tax changes.

Former CBI boss Lord Turner said that claims the group had lobbied for the changes were "completely untrue".

Minister Ed Balls said it had done so, but that the 1997 Budget had been based on "considered advice", not lobbying.

The Tories say Mr Brown ignored officials' warnings about the impact of scrapping dividend tax relief.

They argue the papers released under Freedom of Information laws show Treasury officials warned that the move in July 1997 could wipe 75bn from pension fund values.

Mr Brown's then adviser, current minister Ed Balls, said: "The suggestion that the decisions were made not on the basis of the best civil service advice... is not true."

This is a convenient bit of spin by the Treasury
Richard Lambert
Current CBI boss

He told the BBC on Saturday: "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'."

But Lord Turner told BBC Radio 4's World at One programme: "Let's be absolutely clear, the CBI was never lobbying for the end of tax relief at any time whatsoever in 1996 and 1997.

"Indeed when the policy came out in 1997, I wrote a letter as director general saying we disagreed with it."

He said it was possible one individual member of the CBI had lobbied to reform corporate taxation, but said it was "nonsense" to suggest that meant there was "CBI support".

Considered advice

Current CBI boss Richard Lambert has said the Treasury was indulging in "a convenient bit of spin" and said the CBI had always opposed the change.

Later on Monday, Mr Balls insisted it was true that "senior CBI members pressed us on this issue in 1996".

He added: "The decisions we took in Budget 1997 were based not on any external representations, but on considered advice, and on the judgement we made on what was necessary to promote long-term business investment in the UK."

Norman had done a bit, but it was wise not to do any more... it is obvious when we look back
Ken Clarke
Ex-Tory chancellor

The scrapping of the tax relief on share dividends raised 5bn a year for the Treasury and has been partially blamed for firms closing final salary pension schemes.

But a Treasury spokesman blamed pension schemes' recent funding problems on the dotcom crash, pension holidays in the 1980s and 1990s and a rise in life expectancy.

Prime Minister Tony Blair defended the chancellor, saying it had been a tough decision, but one Mr Blair still backed.

And Mr Balls pointed out that then Conservative Chancellor Norman Lamont had cut the dividend tax credit from 25% to 20% in 1993.

Adair Turner
Lord Turner said it was not true that the CBI had supported the change

Mr Lamont's successor as chancellor, Ken Clarke, told the BBC he had rejected scrapping the dividend because "of the damage it would do to pension funds".

"Norman had done a bit, but it was wise not to do any more... it is obvious when we look back that it was a very bad decision," he added.

The Conservatives have said they will demand a Commons debate on the issue when MPs return after their Easter holiday.

But Alan Pickering, chairman of the National Association of Pensions Funds in 1997 when it warned against abolishing the tax credit, said Mr Brown was not solely responsible.

'Unholy alliance'

He told BBC Radio Five Live: "Many senior Treasury policy officials felt that people joined pension schemes to save tax, rather than save for their retirement, so pension schemes had been on the Treasury's hit list for some time. "

He said there had been an "unholy alliance" between Treasury civil servants who wanted to finish off the job started by Mr Lamont, and Mr Brown, who wanted to "raise some money quite quickly".

Liberal Democrat economics spokesman Vince Cable said: "Gordon Brown's desire to increase taxes through the back door rather than being honest has resulted in a great deal of damage to private and occupational pension funds.

"We said at the time that taxes should be raised openly and honestly."

The timing of the row over the 1997 decision is politically significant because Mr Brown is the overwhelming favourite to succeed Tony Blair when the prime minister stands down over the next few months.




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