FactCheck: are public sector pensions unaffordable?
“The cost to the taxpayer is going up”
Francis Maude MP, Radio 4′s Today programme, June 30, 2011
Cathy Newman checks it out
Ministers have spent the week ducking verbal missiles thrown by the unions over pension reform.
Their biggest defensive weapon? The Labour peer Lord Hutton. His report into the future of public sector pensions has given them the cover they needed to increase the retirement age and make public servants pay more towards their retirement.
But Francis Maude was left rather exposed by his claim this morning that the cost of public sector pensions is increasing. That doesn’t tally with what the Hutton report says. So FactCheck wants to know: has the Cabinet Office Minister even read it?
Francis Maude pushed back against the picket line today, telling unions that public sector pensions were unaffordable.
Using the Hutton Report on pensions as a shield, he echoed David Cameron’s warning that the system is “going broke”.
“Well I’ll just quote what Lord Hutton said when he did his report, he said very clearly that the status quo is not tenable,” Mr Maude said.
He insisted that “the cost to the taxpayer is going up”, even when presented with a graph in the Hutton Report that shows a fall in the long-term cost of public sector pensions as a share of GDP.
The Cabinet Office told FactCheck that Mr Maude didn’t specify that costs were rising as a share of GDP. But they are splitting hairs. He was asked directly why the costs were falling in terms of GDP, and his reply was that the cost to the taxpayer is going up.
The Cabinet Office and the Treasury were keen to point out to FactCheck the now infamous GDP graph (below) has been taken out of context.
The Treasury insisted that Lord Hutton himself has admitted it’s a “rough guess” based on Government Actuary Department projections published in 2009, and on a number of assumptions about economic performance and public sector salaries.
But it’s good enough for the Institute for Fiscal Studies (IFS), which said: “The first issue that the Hutton Commission Interim Report stresses is that public sector pensions in the UK are affordable in the long run, in the sense that pension payments are set to fall as a share of national income over the next 50 years.”
And Lord Hutton’s Commission said it preferred to measure the cost of pensions as a percentage of GDP, because: “This can give a good sense of the share of national income that has to be devoted to public service pensions expenditure.”
FactCheck doubled-checked it with the Office for Budget Responsibility (OBR), who did some fresh number crunching and told us: “In a nutshell, total public service pension expenditure as a share of GDP is forecast to remain broadly flat.”
The OBR’s maths shows it sliding gently from 1.77 per cent of GDP in 2010-11 to 1.76 per cent in 2015. There is a small rise in 2012-13, which the OBR puts down to GDP having a “bumpy ride” over the next few years.
Both the PAC and the NAO pointed FactCheck to a House of Commons report published last month. It found that the Government’s estimate of the cost of pensions “has reduced substantially”.
The report said: “The Treasury expects the cost of pension payments to retired civil servants, NHS staff and teachers to stabilise over the next 50 years at around 1 per cent of GDP.”
Why is it going down? “Because of the changes made in 2007 and 2008″, the House of Commons’ cross-party report concluded.
The IFS also credits the reforms made under the former Labour Government to increase the national pensions age from 60 to 65.
But it points out that the Coalition Government’s move to index pensions in line with CPI rather than RPI has helped pull down costs too.
Public sector pensions have long been out of sync with the private sector, and the Government argues that it is only “fair” to readdress the balance.
However, the public sector argues that Mr Maude is leading it in a “race to the bottom”.
The Public and Commercial Services Union (PCS) told FactCheck today: “We accepted the last Government’s arguments in 2007 because they were fairer but to say that (the taxpayer) can’t go on paying these pensions shows the Government hasn’t got a grip of the details.”
Mr Cameron has insisted that public sector pensions will remain among the very best, and as FactCheck found earlier this week, he’s right – even after reforms they will still be better off than the private sector.
Professor Philip Booth, Editorial Director at the Institute of Economic Affairs, told FactCheck: “Affordability is not the main issue. This is just lazy argumentation by politicians. The important issues are inter-generational equity and the importance of public sector employers and employees paying the full cost of non-salary benefits, such as pensions, at the time those benefits accrue.”
Cathy Newman’s verdict
The Tories were delighted to have a Labour Peer fighting alongside them to cut the cost of public sector pensions. But they appear to be treating Lord Hutton’s report like a pick’n'mix counter, devouring the cola bottles and leaving the liquorice.
Francis Maude either conveniently forgot – or had never seen in the first place – the table showing the cost of public sector pensions declining. That undermines one of the Government’s main arguments, that the country can’t afford to give public servants such a comfortable retirement.
Ministers would have done much better to focus on the inequality of preserving generous pensions for employees in the public sector, when their private sector colleagues are so much worse off in retirement.
The analysis by Emma Thelwell