FTFM History is often rewritten for political purposes. The removal of dividend tax credits in 1997 is already shrouded in mythology. Two weeks ago the Treasury claim that the CBI lobbied for that change was revealed as nonsense. But that claim was itself an ill-judged response to the myth that the change was the primary cause of the problems besetting Britain's pension system.
The 1997 changes shifted the UK corporate tax system from an "imputation" approach, with dividends taxed at roughly the same rate as retained earnings, to a "classical" system in which dividend income is taxed twice, at both corporate and shareholder level. The stated objective was to stimulate investment by favouring retained earnings over distributed. If the shift had been tax-neutral, with fully offsetting cuts in the corporation tax rate, this objective might have been achieved.
