Leading article: A cynical and short-termist raid

Chalk up another triumph for the Freedom of Information Act. Official papers released after demands made under the provisions of the act have revealed that Treasury advisers in 1997 warned the new Chancellor of the Exchequer, Gordon Brown, that imposing a 10 per cent tax on pension dividends would leave a "big hole" in pension funds. Mr Brown was informed that such a move could wipe billions off the value of pension funds and accelerate the decline of final-salary pension schemes.

All this has come to pass. The pensions hole of Britain's top companies now stands at £32bn. Firms are now paying billions every year to cut pension deficits. And final salary schemes are falling like leaves in autumn. There can be little doubt that Mr Brown, wrongly, chose short-term gain over long-term stability for pensions when he decided to extract £5bn a year from funds by imposing the tax. However Mr Brown's former adviser (and now City minister) Ed Balls tries to spin this embarrassment, he and his boss cannot escape the fact that their policy reduced the overall value of pension funds, ate away at their surpluses and made them less able to weather future downturns. One such downturn duly came along with the stock market collapse in 2000. Thus pension funds were hit with a double whammy.

We have, of course, known all this for some time. These Treasury papers merely confirm that the Chancellor was amply warned about the potential adverse consequences of his actions. The decision looks all the more reprehensible in light of the longstanding popular fear that pensions do not offer value for money. Mr Brown's cynical raid has hardly helped to bolster the public's confidence in this method of saving for the future.

Yet we must acknowledge the broader context too. Notwithstanding the Chancellor's raid, the two major pressures with respect to pensions in the UK are that we are all living longer and failing to save enough. Similar forces are being felt across the developed world, from Italy to the United States.

While people are putting aside the same amount of money as they always have, they are spending it over a considerably longer period post-retirement. This was always going to put strain on the system. The truth is that there would have been a pensions crisis in the UK even if the tax break had not been scrapped by the Chancellor a decade ago. None of this exculpates Mr Brown. But it does emphasise that the worrying state of our pensions system cannot be pinned on any one individual or decision. No matter how neat such a narrative would be, it does not reflect the whole story.

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