Don’t buy the right-wing spin: Public sector pension costs set to fall

Whatever the rightwing attack dogs say, the cost of public sector pensions are due to fall as a proportion of GDP.

As soon as the TUC voted to undertake industrial action in defence of public sector pensions on November 30th, the right-wing ideologues were doing the rounds of TV studios.

Attack dogs like Mark Littlewood, Director-General of the Institute for Economic Affairs, laid out their central argument, which is that, both in terms of short-term deficit reduction and long-term debt maintenance, public sector pensions are unsustainable.

You are likely to hear that a lot over the next few months. However, it is worth repeating again and again and again that it is not true. As reported by Stephen Henderson on Left Foot Forward in July:

“The Office of Budget Responsibility’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.”

And, as written by Michael Burke earlier that month:

The justification for the attack on public sector pensions is rapidly being unravelled. The chart below has had a good airing and even made it onto the BBC’s main news programme last night.

Ministers Francis Maude and Justine Greening have attempted to supplement this point with the claim that the costs will rise ‘as we are all living longer’. But this factor is already included in the Hutton (pdf) calculations of falling costs, as rising life expectancy is included in the calculation (clearly noted in the chart).

Burke went on to argue:

“The real reason for the attack on public sector pensions is actually set out in the terms of reference that Hutton accepted from the government.

“In the very first point of the terms of reference Hutton must have regard to:

“‘the growing disparity between public service and private sector pension provision, in the context of the overall reward package – including the impact on labour market mobility between public and private sectors and pensions as a barrier to greater plurality of provision of public services…’

“The ‘greater plurarity of provision of public services’ is Treasury-speak for privatisation; therefore the very first objective of the review is to ensure private firms can take over the functions of the public sector services – and that they can do so without the costly inconvenience of providing pensions.”

Whatever is being disputed here, it is not about affordability. As the right-wing noise machine roars into life, remember that fact.

87 Responses to “Don’t buy the right-wing spin: Public sector pension costs set to fall”

  1. Ash

    Michael Burke lost a lot of credibility in my eyes when he wrote this piece of nonsense (linked to by LFF) back in March:

    http://socialisteconomicbulletin.blogspot.com/2011/03/hutton-report-is-attack-on-all-workers.html

    I’m still waiting for a reply to the comment I left on that page at the time.

    Fair’s fair though: his argument here doesn’t rest on any dodgy maths, and he’s right to draw attention to those terms of reference as revealing what the pension cuts are really about.

  2. Andy Bean

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/Y82Kh0ko

  3. Chris Rowan

    Public sector pension costs against GDP to fall even if Hutton report not implemented http://t.co/wsBCUf12 . Don't swallow right-wing spin

  4. Shamik Das

    Don't buy the right-wing spin: Public sector pension costs set to fall: http://t.co/VBil5YMn writes @danielelton #pensions #TUC

  5. Mark Littlewood

    I’m not sure which clip/statement from me you’re referring to, but to be clear, my case for radical publuic sector reform is as follows:

    1. The present settlement is crushingly expensive. Projections of the bill falling as a % of GDP don’t rebut this point. It may be that I’m spending 5% of my personal income on cigarettes today but that this is set to fall to 4% by 2020. It could well be the case that I’m still spending too much on cigarettes – and that I’m spending much more, in real cash terms, on cigarettes by the end of the decade than I am today. If I’m also in chronic debt, it may also be the case that my cigarette spending needs to fall more substantially in order to get my personal finances under control.
    2. There are two arguments from a point of view of equity. One is that given the relatively generous levels of remuneration in the public sector compared to the private sector and the fact that public sector pay has increased so generously (in stark contrast to the productivity of the public sector), it seems unreasonable to expect the private sector to foot such an enormous bill. Without reform – and even, indeed, with some reform – relatively low paid people in the private sector, with thinner pension coverage, will be paying for the relatively generous pensions of public sector workers who have already had the benefit of higher earnings over their careers as well as earlier retirement. The other case is inter-generational. As a consequence of public sector pensions not being properly funded, my 5 year old nephew is going to pay for the pensions of doctors and teachers who have served me rather than him. It’s unsurprising we have reached this situation in many ways – the under-18s and unborn can’t vote, so shuffling present bills onto them is an attractive option for those of us who are on the electoral register.

  6. Richy

    Mark,

    you don’t seem to refute the points on an evidential or mathematical basis, you’re just confirming your anti-public sector bias. If the share of GDP is already falling (due to already implemented reforms for new entrants to the schemes), where is the huge imperative to hit workers (whose wages have already suffered a 2 year pay freeze) with a huge contribution increase?

    Regarding Point 1 – so what is the exact amount we should spend on public sector pensions? Why is 2% of GDP too much, where should it fall to?

    Point 2 – So you are essentially arguing for a race to the bottom. As private sector companies have dropped final salary schemes (whilst director and management remuneration has rocketed), therefore public sector workers should also lose all favourable benefits?

    We need to seriously ask in this country what type of workers we want to attract into the public sectors. The covenant used to be that salaries would be less lucrative over the long term in the civil service, compared with the private sector, but they would be taken care of in retirement. With poor salaries (on average, not the department heads) and decreasing pensions, who will choose to work in the public sector?

  7. Chris Clothier

    “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.”

    That’s funny, on page two of the Financial Times today (15 September) is an article which says that the figures that you quote “assume we have successfully implemented the reforms”. That is a direct quote from Hutton himself. Shome mishtake, shurely?

  8. Ian Gleed

    RT @unitetheunion RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/9UL4BEJI #nov30

  9. Gill Watts

    RT @leftfootfwd Don't buy right-wing spin: Public sector pension costs set to fall: http://t.co/LKJ1TGfB writes @danielelton #pensions #TUC

  10. whalebonebcr

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/A1VHCM2N #nov30

  11. Region 12 Secretary

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/vG14pOb4

  12. ShesGotSpies

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/YxEHZZfe #N30 #nov30

  13. barry f

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/YxEHZZfe #N30 #nov30

  14. Paul Rooke

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  15. 2me2you

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  16. Jonathan Sadler

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  17. Stuart Hellingsworth

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  18. Purbeck Pashmina

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  19. Mark Littlewood

    @Richy.

    I don’t think it’s a bias to point out that public sector workers are being given packages far better than their private sector counterparts. It’s just a fact.

    Neither do I think it’s a “race to the bottom”.

    The essential point is that private sector workers on say £10,000 or £12,000 per annum are going to be contributing to public sector pensions so generous that they are practically inconceivable in the private sector.

    For a fuller view of some IEA thoughts on the issue of public sector pensions, I commend http://www.iea.org.uk/publications/research/sir-humphreys-legacy-facing-to-the-cost-of-public-sector-pensions and http://www.iea.org.uk/blog/how-to-reform-public-sector-pensions

  20. Juan Voet

    #bbcqt well done Diane Abbot. This supports what she said http://t.co/75wpOG2P

  21. Mr. Sensible

    I think this issue was reviewed in 2006.

    It is correct that both sides should nigociate, but it takes 2 to tango.

  22. mark pettifer

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/A1VHCM2N #nov30

  23. Andrew Hodge

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  24. Andrew Hodge

    Don't buy the right-wing spin: Public sector pension costs set to fall : Left Foot Forw… http://t.co/xkkPu37h #Nov30

  25. some bloke

    Don't buy the right-wing spin: Public sector pension costs set to fall: http://t.co/VBil5YMn writes @danielelton #pensions #TUC

  26. some bloke

    Don't buy the right-wing spin: Public sector pension costs set to fall: http://t.co/VBil5YMn writes @danielelton #pensions #TUC

  27. London IWW

    Don’t buy the right-wing spin: Public sector pension costs set to fall http://t.co/eoA2oq0d | #AntiCuts

  28. Alex

    “They clearly predict the cost of public pensions will fall from 2% of GDP to 1.8% in 2030 and 1.4% in 2060.”

    This clearly isn’t true. The same OBR report that you quote says:

    “State pension costs increase from 5.5 per cent of GDP to 7.9 per cent of
    GDP as the population structure ages and State Second Pension
    entitlements mature.”

  29. Hutton should read his pensions report again before leaping to Cameron’s rescue | Left Foot Forward

    […] refers to his own now-famous fan chart which shows public sector pension costs falling from 1.9% of GDP currently to 1.4% of GDP in 50 […]

  30. sue

    Don't buy the right-wing spin: Public sector pension costs set to fall: http://t.co/VBil5YMn writes @danielelton #pensions #TUC

  31. Leon Wolfson

    @7 – Don’t confuse public sector pensions and state pensions. They’re not the same thing at all.

  32. Tony Dowling

    Don't buy the right-wing spin: Public sector pension costs set to fall: http://t.co/W8t7kdzz writes @danielelton @leftfootfwd #Nov30

  33. Graeme

    Mark,

    Your statement

    The essential point is that private sector workers on say £10,000 or £12,000 per annum are going to be contributing to public sector pensions so generous that they are practically inconceivable in the private sector.

    Could be easily be turned upside down. The vast majority of public sector workers earn less than the national average, their pensions are going to be small and through their taxes they are paying towards the tax breaks afforded to the private sector elite who earn more in a year than they will see in a lifetime.

    Instead of swallowing right wing guff people need to be aware of a few important details, public sector workers contribute money by way of monthly contributions to their pension, again the majority of these earn less than the national average salary. It’s not a free pension. There are high earners in the public sector but these are still paid less than the top private sector workers, let’s not go in the banking industry. The tax breaks afforded to the contributions of these top earners of the private sector are huge.

    There is unfairness with the private sector pensions of those on low pay, but you don’t resolve that by introducing unfairness to the public sector pensions. That is a race to the bottom but Governments are happy to set private against public sector in the age old tactic of divide and conquer.

    Private sector pensions suffered because they were either raided by various Governments or by the companies themselves wanting to boost profit to shareholders. That was done when they were in surplus, gambling that the economy would always be good and produce another surplus. We all know what happened next. The surplus if left would have provided some protection when the going got bad.

    The NHS workforforce is huge, but unlike private sector pension schemes there is no statement every year telling what’s in it. There is not a specific item in the Government accounts where they can point to and say that’s the pension pot. The reality is the Govt just spends it on whatever, wars, propping up banks, all sorts of reasons good and bad, but they gamble that the state of the nation will always allow them to pay out when needed.

    As for that trillion liability, irresponsible to say the least to avoid any comment that states that huge sums are being paid into the pot. That doesn’t suit the right wing agenda though does it?

    Private sector pensions aren’t fair for thousands, and that needs changing, but that would mean the Tory paymasters and the right wing taking a hit and they can’t bear that so it’s easier to try and con those workers into feeling better about themselves by hammering the public sector. Get the majority to the bottom and then the minority can accumulate even more eh ?

  34. Kevin Skerrett

    RT @leftfootfwd: Don't buy the right-wing spin: Public sector pension costs set to fall http://t.co/Zz4Ba6CK

  35. Keith Reynolds

    The attack on public sector pensions in the UK fails the fact test http://t.co/WqJECEJD #cdnpoli

  36. Cameron's talk won't solve the pensions crisis | Left Foot Forward

    […] also: • Don’t buy the right-wing spin: Public sector pension costs set to fall – Daniel Elton, September 15th […]

  37. Look Left – Workers prepare to fight slasher Osborne | Left Foot Forward

    […] on the affordability of pensions. Little wonder given our repeated debunking of Lord Hutton’s lies on […]

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