Election 2010: Labour's biggest financial blunders

Author: Laura Miller

 

Gordon Brown

A week may be a long time in politics, but after 13 years in power Labour probably wants the public to keep their memories short and sweet. So just in case, here is a definitive list of financial blunders Labour would rather you forgot...

8. ‘Give-to-take-back' tax credits  

Created in 1999, reformed in 2000, tax credits have led to millions of low-income families having to pay back the Treasury after over-payment, at the cost of huge financial and emotional strain.

Meanwhile, 40% of workers and families owed tax credits left billions unclaimed in the 2008/9 tax year for fear of being chased for the cash later on.

7. Abolition of the 10p tax rate 

"We made two mistakes [in scrapping the 10p tax rate in 2007]," Brown told Radio 4's Today programme. "We didn't cover as well as we should have ...low-paid workers...[or] the 60 to 64-year-olds who didn't get the pensioner's tax allowance."

Accountants calculated abolishing the 10% tax rate, coupled with a withdrawal of tax credits from higher earners, would leave 1.8 million workers earning £6,500 to £15,000 effectively paying a tax rate of up to 70%.

6. 0% corporation tax 

In 2002, Brown announced a 0% rate of corporation tax on profits below £10,000 to help small businesses. Overnight, sole traders such as taxi drivers and plumbers transformed themselves into limited companies to take advantage of the new rules.

A Treasury minister later said "the Government did not realise how many people would engage in abusive tax avoidance", despite it being "blindingly obvious" to tax experts. Brown raised the rate from 0% to 19% when he released how much money was being lost.

5. Taxing pension fund dividend payments 

Before 1997, dividends issued by UK companies and paid to pension funds were tax-free - that is, the tax could be claimed back via tax credits. Tax relief was scrapped when Labour got in, slashing the amount collected by pension funds by around £5bn a year.

Pension funds have lost around £100bn over the last 12 years as a result.

4. Bending to the banks when Chancellor  

Asked in an ITV1 interview about his mistakes, the PM said: "In the 1990s, the banks....all came to us and said, 'Look, we don't want to be regulated, we want to be free of regulation'.

"All the complaints I was getting was, 'Look, you're regulating them too much'. And actually the truth is globally and nationally we should have been regulating them more.

"So I've learnt from that...you don't listen to the industry when they say, 'This is good for us'."

Horse. Door. Bolted, anyone?

3. Flogging the family jewels  

In May 1999, Brown had an idea to sell-off more than half of our national gold reserves - a total of 395 tonnes - at a time when the price of gold had slumped after a decade of stagnation.

The family jewels went for an average price of $275 per ounce. On the Forex Gold Index today, the precious metal is trading at $1151.25 an ounce, nearly five times as much.

To be fair to Brown, he invested the money from his badly-timed bullion sale in dollars, euros and yen, which have all done better than sterling since then - though none as good as gold.

2. The (un)Holy Trinity of tripartite financial regulation 

The system of financial regulation dividing powers between the Treasury, the Bank of England and the Financial Services Authority, established in 2000 missed what amounted to the biggest financial crisis of our lifetime. Whoops.

1. Ignoring the wisdom of Vince "Economic Superman" Cable 

In the House of Commons in 2003, the Lib Dem's Vince Cable asked Brown: "Is it not true...the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices the Bank of England describes as well above equilibrium level?"

Brown replied: "The Honourable Gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the economy..." The rest, as they say, is history.

That’s a lot of blunders and yet we still voted them in.