Former PM cannot be trusted when he says our retirement pots would not be safe under independence, writes George Kerevan
IF HISTORY tells us anything it is don’t trust Gordon Brown with your pension. In 1997, in one of his first acts as chancellor, Brown abolished tax relief on advance corporation tax (ACT). Unfortunately, this technical move penalised pension funds, robbing £5 billion from their annual income, and producing a £100bn loss in value. True, Mr Brown’s dawn raid on the pension funds did let him reduce the headline rate of corporation tax, boosting bank profits. We all know where that led.
Before Mr Brown’s meddling, the UK had one of the best private pension systems in the world. In 1995, nearly five million people were in open final-salary pension schemes (ie they got a pension linked to their earnings at retiral).
By the end of 2008, as the recession started, it was less than a million. Mr Brown’s ultimate contribution to UK pensions was the great banking collapse. According to the Association of Consulting Actuaries (not a profession prone to exaggeration), there has been a “seismic collapse” in workplace pensions since 2008.
You might argue that Gordon Brown can’t be held responsible for a global economic meltdown. That’s not my point. ACT relief was a cushion that protected pension funds from the volatility of share values in their investment portfolios. Chancellor Brown was warned that abolishing ACT relief effectively removed that protection. As a result, any sudden drop in share prices would create a black hole in the portfolio needed to support final scheme pensions. That is exactly what happened after 2008.
The state pension did not fare any better under Mr Brown. In 2007, he famously changed the benchmark for the annual cost of living increase from prices to earnings. This occurred just in time for the recession to halt the rise in earnings, while sending inflation through the roof. Labour’s 2007 legislation also raised the pension age for women and men to 68 (between 2024 and 2046). Thank you, Gordon.
Mr Brown did give us pension credit in 2003, but largely because the British state pension is so pathetic and he wasn’t willing to sort the problem at root. Pension credit is a means-tested top-up. The problem with means testing is that many pensioners are too proud to claim their entitlements. When Mr Brown finally made it into 10 Downing Street, two out of five people entitled to pension credit were still failing to claim it.
Gordon Brown is the man who robbed Britain’s citizens of a decent old age. He did this principally by creating a casino economy that went spectacularly bust. In his final year as prime minister, after presiding over economic policy for an unprecedented 13 years, Britain saved the equivalent of 11.6 per cent of national income. In Germany, the figure was nearly double. Saving is the key to funding pensions. Under Gordon, Britain did not save, it lived off tick.
Now Mr Brown has taken to the airwaves to warn Scotland that our pensions are in danger if we dare to vote Yes in the independence referendum. Given Mr Brown’s past misjudgments, we might take these words with a very big pinch of salt. His starting point is a “leaked” document from the Department for Work and Pensions (DWP).
Mr Brown claims that Scottish pensioners are being subsidised by the rest of the UK, as we have proportionately more retired public sector workers, and a proportionately larger bill for additional welfare benefits. The number of Scottish pensioners is expected to rise from one million to 1.3 million in the next two decades. So an independent Scotland will face a steep rise in pension costs. Mr Brown argues: “It is clear that pensioners are better protected when the risks are spread across the UK.”
If I read this correctly, Gordon thinks Scots should stay with the Union so England, Wales and Northern Ireland can subsidise our pensioners. That’s neither moral nor fair, and it’s certainly not politically sustainable. If a No vote leads to devolved income tax powers for Holyrood, you can kiss goodbye to the Barnett Formula and any hint of fiscal subsidies to Scotland.
Actually, I would dispute the “leaked” DWP numbers. They ignore the fact that Scotland (including its North Sea oil share) has normally paid in more to the Treasury in tax than it gets out. They also ignore the fact that Scots (regrettably) live shorter lives than people in England.
There is also a major sleight of hand in how Mr Brown and the DWP end up claiming that Scotland needs the Union to pay its pension bill. His principal argument is that there will be fewer Scots workers available in future to support each Scottish pensioner, compared with the British status quo. He quotes the DWP document: “Under the principal migration variant in 20 years’ time, there are projected to be 2.84 working age people per pensioner in Scotland compared with 2.98 in the whole of the UK.”
Note that crucial caveat: “Under the principal migration variant.” Decoded, the main reason the UK might have a higher average worker to pensioner ratio than Scotland is because of continued high immigration, principally into London. Booming London already is home to half the UK’s foreign-born population, despite having only 7.8 per cent of Britain’s entire population. Scotland has only 4.7 per cent of UK immigrants, despite being 8.3 per cent of the UK population. Will the DWP’s immigration projection for Scotland hold after independence? I think not. Independent Scotland will be more welcoming to immigrants than it is allowed to be at present.
That influx of academic researchers and skilled workers will help boost growth to European levels – something Mr Brown leaves out of his argument. Conversely, inside the Union, we could see English voters march Britain out of the European Union, cutting off immigration.
I forgot. Some pensioners did well out of Gordon’s reign at the Treasury – the bankers who destroyed the economy. Fred Goodwin, former chief executive at Royal Bank of Scotland, now has to endure on a mere £342,500 a year.