Ignore the Tory spin – pension liabilities and the NHS are affordable

Statistics out today show the NHS and public sector pensions are entirely affordable, contrary to what George Osborne and the Conservatives are spinning.

Today there has been a blizzard of reports on the future of public finances, from the Office for Budget Responsibility (OBR), the Treasury (the Whole of Government Accounts, pdf), and the Institute of Economic Affairs (Sharper Axes, Lower Taxes, pdf). In the firing line are public pensions and the NHS.

The OBR’s July 2011 Fiscal Sustainability report (pdf) looks long into the future (2060) and guesses at the likely proportions of GDP that might arise as the population becomes more elderly. The assumptions are based on current policies, not government proposals. Confirming earlier findings in the Hutton Report (pdf), they clearly predict the cost of public pensions will fall from 2% of GDP to 1.8% in 2030 and 1.4% in 2060 – without any of the current Hutton proposals.

In contrast the state pension paid to public and private sector employees is set to rise from 5.7% to 6.1% in 2030 and 7.9% in 2060. Public pensions really are sustainable.

The other major factors increasing are health and long-term care, which taken together increase from about 9.5% to 10% in 2030 and 11.8% in 2060. The British Medical Journal puts this into context today in an article from John Appleby, chief economist of the King’s Fund.

Perhaps unwisely given the far more modest predictions from the OBR shown above, Appleby accepts at face value the verdict of health secretary Andrew Lansley that:

“If things carry on unchanged, this would mean real terms health spending more than doubling to £230 billion… This is something we simply cannot afford.”

And yet even in this worst case scenario this would bring us to only just exceed the OECD average and fall far shy of health and long term care spending in the US.

Or rather it would if the OECD and US didn’t have an aging population that is likely to push up their health costs too. So apparently we simply can afford to carry on with the current NHS arrangements… if we choose to.

Elsewhere, the BBC headlines the OBR report with ‘Public sector pension liabilities top £1 trillion’, noting this is £332 billion higher than the year before.  A bit further down they notice that the OBR states  this “has nothing to do with changes in the size of prospective pension payments” – remember they will fall from 2% to 1.8% in 2030 – but is because the government has just changed the assumptions.

And in perfectly circular reasoning the right is now trumpeting the OBR report as supporting their changes.

Hopefully Evan Davis or some other even moderately numerate journalists will notice this perfidy and hold the government to account.

45 Responses to “Ignore the Tory spin – pension liabilities and the NHS are affordable”

  1. Wendy Russell

    Ignore the Tory spin – pension liabilities and the NHS are affordable: http://bit.ly/pvG3E1 writes Stephen Henderson

  2. Jim Henderson

    Ignore the Tory spin – pension liabilities and the NHS are affordable: http://bit.ly/pvG3E1 writes Stephen Henderson

  3. StephenH

    RT @leftfootfwd: Ignore the Tory spin – pension liabilities and the NHS are affordable http://t.co/CBA6KML

  4. Alan W

    These kind of statistics are so speculative as to be almost worthless.

    As Stephanie Flanders points out on the BBC website, even minor changes to key assumptions could produce radically different results, either plunging the country further into the red, or showing it to be in perfect inter-generational fiscal health.

    Frankly when it comes to any economic projections for the year 2060, I’ll take them with an entire dumper truck’s worth of salt.

  5. StephenHenderson

    Alan W: I pretty much agree with you…Incidentally I teach a statistical modelling course in which I tediously drum into my students the dangers of over- extrapolation

    Yet the present government, right-wing think tanks and their pet-media are doing their best to present such projections in a light that will scare the public into supporting precipitous and ideological cuts. ‘There Is No Alternative” writ large.

    Under such circumstances it is worthwhile to engage with such models if only to keep them honest.

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