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30 June 2011

Ministers lose the argument on “unaffordable“ pensions

Francis Maude flounders as he fails to defend the claim that public sector pensions are "unaffordabl

By George Eaton

The first mass strikes since the general election are officially underway. The Public and Commercial Services Union (PCS) and three teaching unions – the National Union of Teachers (NUT), the Association of Teachers and Lecturers (ATL) and the University and College Union (UCU) – have all taken industrial action over planned changes to public sector pensions. A third of schools are expected to close, with another third “partially affected”, and two-thirds of universities have cancelled lectures.

Ministers are generally bullish, holding the line that the public “won’t understand” the strikes, but on at least one key point – the alleged “unaffordability” of public sector pensions – they’ve lost the argument this morning. Confronted by the formidably articulate PCS general secretary Mark Serwotka (recently interviewed by Mehdi for the NS) on the Today programme, Francis Maude floundered. Asked to justify the government’s repeated claim that public sector pensions are “unaffordable” (David Cameron claimed that the system was in danger of going “broke” in his speech on Monday), the Cabinet Office minister simply couldn’t. And he couldn’t because the data tells a different story.

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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. Unable to justify the myth that public sector pensions are “unaffordable”, the desperate Maude fell back on the claim that they are “untenable”, without having the decency to explain why this was so.

Continuing the cynical attempt to set public and private sector workers against each other, Maude commented: “not very many people in the private sector can still enjoy pensions like that.” True, two-thirds of private-sector employees are not enrolled in a workplace pension scheme, 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 appear determined to fire the starting gun on a race to the bottom.

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.