“The fundamental mistake the trades unions are making is that the chart assumes that the reforms have taken place. They are the post-reform costs.”
Lord Hutton of Furness, 14 September 2011
A blistering row between the man charged with reforming Britain’s public sector pensions and the unions who oppose his plane broke out this week, with the threat of mass strikes hanging in the air.
The unions made a number of concessions on pensions under the last government, agreeing to raise the age of retirement from 60 to 65, and calculating pension payments based on career average earnings rather than final salary for new joiners.
Then Lord Hutton of Furness produced a report in March this year that went further.
The Labour peer’s most important recommendation was that state workers should retire even later to reflect the fact that people are living longer and offset the rising cost of pensions to the taxpayer.
Coming on the back of government moves to increase pension contributions and reduce the value of payouts by switching to a different measure of inflation, that was a bridge too far for the unions.
Leaders seized on one piece of research in Lord Hutton’s final report. It’s this chart on page 23, which is at the heart of this week’s angry exchanges:
These projections, courtesy of boffins at the Government Actuary’s Department, show the cost of pensions as a percentage of the country’s total wealth peaking this year then falling in the future.
That would appear to undermine the government’s case that pressing reform is needed, and add fuel to the unions’ argument that public sector pensions are already affordable and sustainable and should be left alone.
But Lord Hutton has obviously become impatient with opponents of reform, seizing on this one part of his report to try to rubbish his recommendations.
He was quoted in the Financial Times this week as saying: “The fundamental mistake the trades unions are making is that the chart assumes that the reforms have taken place. They are the post-reform costs.”
If that were true, and the chart was a projection of a post-Hutton Commission future rather than a reflection of the way things stand now, it would blow the unions’ arguments out of the water.
Lord Hutton appeared to suggest that was indeed the case when he told the Guardian that the graph “basically assumed the proposals I suggested were introduced”.
His words aroused anger among union leaders, with Mark Serwotka, general secretary of the Public and Commercial Services Union, writing a letter to the FT accusing Lord Hutton of misunderstanding his own report and of being “disingenuous”.
It’s fairly clear from both the Hutton Commission’s interim and final reports that the GAD’s analysis does in fact reflect the current pensions landscape now and doesn’t take into account in its calculations that effect of the future changes Lord Hutton is recommending.
To be fair to Lord Hutton, that’s something he was happy to acknowledge straight away when contacted by FactCheck, blaming the row on misunderstandings of what he was trying to say in earlier interviews.
He said: “We’re all talking slightly at cross-purposes. I’m not trying to suggest that the figures in my report include the new proposals. I’m not trying to argue that because it would be wrong.”
He added: “I accept what Mark Serwotka said in his letter.”
But that doesn’t mean he accepts that the unions are right to seize on the chart to argue against a fundamental shake-up of the pensions system.
Lord Hutton said the figures attacked by the unions are based on projections of what life expectancy and the size of the public sector will be up to 50 years from now – forecasts that may well prove to be wildly inaccurate.
They also assume that the “cap and share” reforms the unions negotiated in 2007 – which agree in principle to increasing employee contributions if the burden on the taxpayer reaches a certain threshold – will work in practice.
He said the unions “are placing too much confidence in figures we know by every precedent are unreliable”, adding: “I don’t think we should gamble taxpayers’ money over that period of time on a bet like that.
“There is no question that, if longevity keeps rising, retirement age will have to rise.
“My argument is: make the savings sooner. Are we prepared to wait 30 or 40 years to get to a sustainable balance? My reforms will bring the curve of the line down more quickly, and I think that will be a good thing.”
We’ll have to give Lord Hutton’s earlier statement a Fiction rating, if only to put to bed once and for all the suggestion that the figures in his report take into account the current reform proposals.
That small victory for the unions doesn’t prove that they are right to say that the current pensions system is sustainable.
Making predictions now about what Britain’s public health and finances will look like as far ahead as 2060 is clearly a risky business, as shown by how dramatically researchers have underestimated rises in life expectancy when making predictions over the last 40 years:
By Patrick Worrall