Who's spinning who over budget '97?

Will former CBI chief Adair Turner be ringing up Treasury minister Ed Balls sometime soon to sing Bob Hope's classic "Thanks for the memory" down the phone to him?

by Stefan Stern
Last Updated: 31 Aug 2010

A word of explanation. Young Ed popped up on Radio 4 the other morning to describe how the CBI had lobbied the new Labour government in 1997 to make further changes to the advance corporation tax treatment of dividend payments. This anomaly, many people felt, dissuaded firms from investing for the long term, and instead rewarded them perversely for dishing out generous dividends to shareholders. Cut the tax break, it was argued, and more funds would become available for investment.

That was the theory. If the incoming Labour government was guilty of anything, it was naivety, not deception or incompetence. It turned out that - who knew? - firms would remain under enormous pressure to keep up their dividend payments. The ending of preferential treatment for dividends did not have a huge impact on investment levels. But pension funds were hit as they lost out on a tax credit that had helped boost their (in those days) extremely healthy reserves.

The rest you know. Dot com euphoria created a boom followed by a bust. Actuaries were forced to redo their sums. In 1997 they were still reckoning on most of us dropping dead by the time we were 80. Today we look good for another ten years on average. Tory tax reforms on pension surpluses encouraged employers to take repeated "pensions holidays". Those clever people, the institutional investors, made a lot of bad bets.

The upshot? Pensions misery, and a political headache for Gordon Brown. So why might Adair be picking up the phone to Ed? Because there is a discrepancy between what the official CBI policy papers say, and what Ed Balls says Adair Turner told him privately 10 years ago. Curious.

Current CBI boss Richard Lambert, the former FT editor, has attacked Labour "spin". When he was an editor, Mr Lambert would have asked his reporters to check with Lord Turner before going public with such a comment. He must have done so himself this weekend. Mustn't he?

Update, 1300hrs 2 April Lord Turner interrupts his ski-ing holiday to tell World at One listeners that he did not argue for the tax change when he was at the CBI, but that it's possible some of his colleagues did. Curiouser and curiouser.

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