The myth of "unaffordable" public sector pensions

Forcing workers to pay more is a political choice, not an economic necessity.

The biggest strike for a generation has begun, with around 30 unions, including, for the first time in its history, the National Association of Head Teachers, and two million public sector workers walking out in protest at the government's reforms to public sector pensions. According to the Department for Education, around 58 per cent of England's 21,700 state schools will be closed, with a further 13 per cent partially shut.

With most polls showing a small majority against the strike and others showing support evenly split between the strikers and the government, the battle for public opinion has only just begun. Indeed, the most notable poll finding of recent days (courtesy of TNS-BMRB) is that just 4 per cent of private sector workers claim to know a lot about why the strike is happening. Despite the increasingly sharp rhetoric from both sides, the truth is that today's "day of action" may change little.

But there's no doubt that Osborne's new, tougher austerity programme has upped the stakes. As I reported yesterday, the Office for Budget Responsibility predicts that no fewer than 710,000 public sector jobs will be cut by 2017, 310,000 more than previously forecast. In addition, Osborne's plan to cap pay rises at 1 per cent means that some workers will have suffer an average 16 per cent pay cut over the next five years. If public sector workers can't go on strike in these circumstances, when can they?

For now, here are two myths that deserve to be rebutted again. The first is that public sector pensions, in their current form, are "unaffordable". David Cameron, for instance, has frequently claimed that the system is "broke". But as the graph below from the government-commissioned Hutton Report shows, public sector pension payments peaked at 1.9 per cent of GDP in 2010-11 and will gradually fall over the next fifty years to 1.4 per cent in 2059-60. The government's plan to ask employees to work longer and pay more is a political choice, not an economic necessity.

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As the Public Accounts Committee observed: "Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending." In other words, the public have been misled and ministers are determined to keep misleading them.

The second is that inadequate pension provision in the private sector is a reason to reduce pension provision in the public sector. The Daily Mail et al repeatedly point out that two-thirds of private sector employees do not have a company pension, compared to just 12 per cent of public sector workers. But this is an argument for improving provision in the private sector, not for driving it down in the public sector. Ministers must not fire the starting gun on a race to the bottom. Indeed, many pensionless private sector workers depend on their partner's public sector pension to ensure a basic standard of living in old age.

We can debate the merits of industrial action as a form of protest. But with public sector workers facing a triple crunch - higher contributions, a tougher inflation index and lower benefits - it's hardly surprising that they feel compelled to defend their rights. Even before any of the Hutton reforms are introduced, George Osborne's decision to uprate benefits in line with CPI, rather than the RPI, has already reduced the value of some pensions by 15 per cent.

Strip away the government's rhetoric ("unaffordable", "untenable") and the truth is that ministers are forcing workers to take another pay cut, forcing them to pick up the tab for a crisis that they did not cause. The public might be on the side of ministers, for now at least, but the facts are on the side of the unions.

George Eaton is political editor of the New Statesman.

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Brexit will hike energy prices - progressive campaigners should seize the opportunity

Winter is Coming. 

Friday 24th June 2016 was a beautiful day. Blue sky and highs of 22 degrees greeted Londoners as they awoke to the news that Britain had voted to leave the EU.  

Yet the sunny weather was at odds with the mood of the capital, which was largely in favour of Remain. And even more so with the prospect of an expensive, uncertain and potentially dirty energy future. 

For not only are prominent members of the Leave leadership well known climate sceptics - with Boris Johnson playing down human impact upon the weather, Nigel Farage admitting he doesn’t “have a clue” about global warming, and Owen Paterson advocating scrapping the Climate Change Act altogether - but Brexit looks set to harm more than just our plans to reduce emissions.

Far from delivering the Leave campaign’s promise of a cheaper and more secure energy supply, it is likely that the referendum’s outcome will cause bills to rise and investment in new infrastructure to delay -  regardless of whether or not we opt to stay within Europe’s internal energy market.

Here’s why: 

1. Rising cost of imports

With the UK importing around 50% of our gas supply, any fall in the value of sterling are likely to push up the wholesale price of fuel and drive up charges - offsetting Boris Johnson’s promise to remove VAT on energy bills.

2. Less funding for energy development

Pulling out of the EU will also require us to give up valuable funding. According to a Chatham House report, not only was the UK set to receive €1.9bn for climate change adaptation and risk prevention, but €1.6bn had also been earmarked to support the transition to a low carbon economy.

3.  Investment uncertainty & capital flight

EU countries currently account for over half of all foreign direct investment in UK energy infrastructure. And while the chairman of EDF energy, the French state giant that is building the planned nuclear plant at Hinkley Point, has said Brexit would have “no impact” on the project’s future, Angus Brendan MacNeil, chair of the energy and climate select committee, believes last week’s vote undermines all such certainty; “anything could happen”, he says.

4. Compromised security

According to a report by the Institute for European Environmental Policy (the IEEP), an independent UK stands less chance of securing favourable bilateral deals with non-EU countries. A situation that carries particular weight with regard to Russia, from whom the UK receives 16% of its energy imports.

5. A divided energy supply

Brexiteers have argued that leaving the EU will strengthen our indigenous energy sources. And is a belief supported by some industry officials: “leaving the EU could ultimately signal a more prosperous future for the UK North Sea”, said Peter Searle of Airswift, the global energy workforce provider, last Friday.

However, not only is North Sea oil and gas already a mature energy arena, but the renewed prospect of Scottish independence could yet throw the above optimism into free fall, with Scotland expected to secure the lion’s share of UK offshore reserves. On top of this, the prospect for protecting the UK’s nascent renewable industry is also looking rocky. “Dreadful” was the word Natalie Bennett used to describe the Conservative’s current record on green policy, while a special government audit committee agreed that UK environment policy was likely to be better off within the EU than without.

The Brexiteer’s promise to deliver, in Andrea Leadsom’s words, the “freedom to keep bills down”, thus looks likely to inflict financial pain on those least able to pay. And consumers could start to feel the effects by the Autumn, when the cold weather closes in and the Conservatives, perhaps appropriately, plan to begin Brexit negotiations in earnest.

Those pressing for full withdrawal from EU ties and trade, may write off price hikes as short term pain for long term gain. While those wishing to protect our place within EU markets may seize on them, as they did during referendum campaign, as an argument to maintain the status quo. Conservative secretary of state for energy and climate change, Amber Rudd, has already warned that leaving the internal energy market could cause energy costs “to rocket by at least half a billion pounds a year”.

But progressive forces might be able to use arguments on energy to do even more than this - to set out the case for an approach to energy policy in which economics is not automatically set against ideals.

Technological innovation could help. HSBC has predicted that plans for additional interconnectors to the continent and Ireland could lower the wholesale market price for baseload electricity by as much as 7% - a physical example of just how linked our international interests are. 

Closer to home, projects that prioritise reducing emission through tackling energy poverty -  from energy efficiency schemes to campaigns for publicly owned energy companies - may provide a means of helping heal the some of the deeper divides that the referendum campaign has exposed.

If the failure of Remain shows anything, it’s that economic arguments alone will not always win the day and that a sense of justice – or injustice – is still equally powerful. Luckily, if played right, the debate over energy and the environment might yet be able to win on both.

 

India Bourke is the New Statesman's editorial assistant.