Brown takes tough line on pensions spending

Gordon Brown ruled out a major increase in state spending on pensions yesterday, warning that it would lead to a public finance crisis that would wreck the economy.

Gordon Brown ruled out a major increase in state spending on pensions yesterday, warning that it would lead to a public finance crisis that would wreck the economy.

"To imply that the burden of meeting the risk for the next generation should all be passed to the Government is simply a repetition of the problems that led us into the fiscal problems in the past," he told business leaders. His comments will dash hopes that a third Labour term will see massive rises in the state pension, an end to means testing and extra cash to help workers who have lost their company pensions.

The Chancellor told the CBI's national conference the pensions crisis had been created by the collapse in stock markets and defended his decision in 1997 to remove the dividend tax credit. He told the conference the decision not to link pensions with earnings growth had left Britain with a "sound" fiscal position compared with Continental Europe.

"I do warn people that there is a choice as to whether the state should be asked to take on more responsibility," he said. "But the implication is that the fiscal position will change.

"For anyone wanting to invest in Britain the first question they ask is whether there will be economic stability and at the end of the day that requires fiscal stability as well as monetary stability," Mr Brown said.

He contrasted the UK with Germany and France, which are forecast to be spending 25 per cent of national income on pensions and health because of their hefty state pensions. "In Britain because we won't link pensions to earnings we have a fiscal position that's sound and will continue to be sound," the Chancellor said.

Last month Alan Johnson, the Secretary of State for Work and Pensions, threw his support behind a "citizen's pension" that would link payments to residency rather than national insurance contributions.

But in a veiled response Mr Brown said: "I will resist demands from wherever they come, such as linking pensions to earnings. Short-termism is not the best way forward."

However, officials at the Treasury played down suggestion of a split with the Prime Minister, Tony Blair, over plans for a citizen's pension, saying the Chancellor was contrasting the UK with the indebted European state schemes. "We will do nothing to put the public finances at risk, including raising public spending on pensions to European-style levels," one said.

Mr Brown's comments were made in reaction to a member of the audience, Colin Harding, the chairman of the construction company George and Harding, who accused him of turning occupational pensions schemes from one of the best in the world to one "close to collapse" because of his decision in 1997 to abolish the dividend tax credit for pension funds. Mr Harding called on the Government to abandon the Pensions Bill now going through Parliament and to boost the £400m allocated to bailing out collapsed occupational schemes.

But Mr Brown said it was the CBI that had called for the abolition of the tax credit. He said pensions systems across the world were under pressure as improved healthcare meant that pensioners were living longer, and the Government would respond to these issues next year when a commission led by Adair Turner, a former head of the CBI, produced his final report into pensions.