True cost of Labour's pension tax raid: the square root of fuck all.

The Telegraph is still pumping out the line that Gordon Brown's Pension Raid has cost the "taxpayer" a cumulative £100 billion since 1997.

Bollocks.

Rounded to the nearest £ billion or per cent...

Back in 1996-97

The mainstream corporation tax rate was 33% and the ACT credit which pension funds could reclaim was 1/4 of the cash dividend received.

* Total UK plc profits (say) £80 bn, corp tax payable £26 bn = post-tax profits £54 bn.
* Half of the £54 bn post-corp tax profits paid out as dividends.
* Half of retained profits and half of dividends belong to/paid to pension funds.
* Pension funds suffered £13 bn corp tax indirectly (half of £26 bn) and reclaimed £3 bn ACT (1/4 of the £13 bn cash dividends they received) = net direct and indirect tax bill £10 bn.
* Average tax rate 25% (£10 bn divided by half of £80 bn).

1997-98

Mainstream corporation tax rate 31%.

* Total UK plc profits (say) £80 billion, corp tax payable £25 billion.
* Pension funds suffer half of that corporation tax = net indirect tax bill £12 bn.
* Average tax rate 30% (£12 bn divided by half of £80 bn)

So yes, initially this was a modest increase in their overall tax rate and a modest increase in their overall direct and indirect corporation tax bill of £2 or £3 bn.

2015-16

The mainstream corporation tax rate is 20%, half paid out as dividends and half belongs to pension funds.

* Total UK plc profits (say) £160 bn, corp tax payable £32 bn.
* Pension funds suffer half that corporation tax = net indirect tax bill £16 bn.
* Average tax rate 20% (£16 billion divided by half of £160 bn).

This is now lower than the overall average rate they were suffering pre-raid.

In summary

You can reasonably argue that pension funds 'lost' £2 or £3 bn in 1997-98 compared to 1996-97 but in the meantime, they are 'winning' about £4 bn a year i.e. instead of paying overall rate 25% on their half of £160 bn, they are only paying 20% overall rate.

I'm not sure when the break-even year was, but all things considered, the losses and gains net off to a very small figure, nowhere near an overall loss of £100 bn and quite possibly a small overall gain. If you want the Excel formula, it is "=FA^0.5".

And of course, pension funds are not "the taxpayer". Everybody else is clearly miles ahead of the game as his overall indirect corporation tax bill is now 13% lower than eighteen years ago.