UK tax takes hit as QE increases pension deficits

Tim Wallace
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PRINTING money to lower interest rates has blown open pension fund deficits, making firms pile money in to plug the gap and denying the taxman a major stream of revenue, according to analysis of new data from the Pension Protection Fund (PPF).

Quantitative easing (QE) is one major factor in increasing the deficits, which the PPF estimates have increased by £135bn from the start of QE in 2009 to March 2012.

A Pension Insurance Corporation analysis of the numbers suggests this has taken away money that firms could have invested in productive activities or recorded as taxable profits, potentially leaving the Treasury £37bn worse off.

“Pension funds have to fill these deficits – money is coming out of corporate sponsors of pension schemes into filling the deficits, and there’s a tax consequence of that,” the Pension Insurance Corporation’s Mark Gull told the Sunday Telegraph.

The firms instead suggest the Bank of England use QE money to buy overvalued PFI and infrastructure assets from banks then sell them to pension funds at a lower price, unburdening banks and giving pension funds a good long-term asset in one action.