View from City Road: IFS report adds fuel to Dorrell's fire

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The Independent Online
That Institute for Fiscal Studies report on dividends should send a few shivers down the spines of City institutions. Some are already wondering what the dividend-obsessed Stephen Dorrell, financial secretary, is up to with his review of taxation and savings.

The IFS, in a paper by Stephen Bond and Coastas Meghir published in Fiscal Studies, says two trends in the past 20 years have been damaging to the level of investment by UK companies.

One is the reform of corporation tax in 1984, which raised the level of tax paid by companies. The other is the favourable tax treatment of dividends under the advance corporation tax system introduced in 1973. Tax-exempt institutions such as pension funds prefer profits to be paid as dividends rather than retained.

If Mr Dorrell and his boss, the Chancellor, are looking for justification for another go at pension funds and ACT, the IFS has written that bit of the budget speech for them.

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