Charlie Brown like Gordon Brown was a pessimist when it came to pensions.
I think this conversation is important. Companies pay tax on their profits and they then pay dividends out of their taxed profits. That means the dividend was calculated after tax. Advance corporation tax gave you credit for the tax paid by the company. Gordon Brown took away the corporation tax credit, effectively taking away tax relief on dividends.
Con Keating reckons that this is creating a £5bn credit to the Treasury today.
But the shift in pensions from UK to overseas equities began when Gordon Brown disincentivised investment in UK growth and is now giving the Treasury a lot of problems.
This was nothing to do with the shift from growth to risk- matching that occurred after the Pensions Regulator enforced what Government demanded to de-risk pensions.
The irony is obvious when the two documents are so well set out by David. A quarter of a century on we realise that we have de-incentivised the holding of UK equities and as a result have considerably less “effective investment” from our £5tr om UK pensions.
It’s doubly ironic that it was a Labour Chancellor who implemented the taxation of dividends on growth assets (equities).
It’s trebly ironic that it was Gordon Brown’s prime minister Tony Blair’s institute that brought this matter up in 2023 and perhaps alerted Conservative opposition prime minister Kemi Badenoch to the own goal.
Saying this does not help very much to make things better. It might spark a debate in the Treasury where there are now civil servants with no responsibility for what was done in 1997. They might think that now is the time to start putting things right , getting more UK equities, more growth stocks (whether listed or unlisted) into pension funds that can afford to own patient capital.
I don’t suppose that we will see again DB schemes invested in UK equities to any great degree, but I see our DC schemes of which part will be CDC, investing in the long-term. I will point out to anyone who is listening that if we want to take risk onboard, we need to have an appetite for patient capital and that means infinite time horizons for the majority of growth capital. That won’t happen overnight, it has taken 25 years to get from growth to defensive risk-matching investment strategies. It need not take that long to get back that way.
Tax does make a difference, it may not be the way to go, to deduct tax-relief from funds that don’t go for growth in the UK , but it seems much more acceptable to encourage investment in UK equities by returning to allow pension schemes to collect dividends tax-free. It seemed to work very well before Gordon Brown changed tax strategy.