The Guardian tells us today that Matthew Elliot of the TaxPayer’s Alliance is to head up the campaign for a no vote in next May’s referendum on the Alternative Vote.

The TUC has no policy either way on AV as yet, though we were asked to stimulate a debate on electoral reform at our last Congress. I suspect that this announcement is unlikely to aid the no campaign in unions.

But what struck me in the article was this enconium from Conservative peer, Rodney Leach – who as Wikipedia tells us is “chairman of the eurosceptic think-tank Open Europe and a noted climate change sceptic.^“

What I like about Matthew is that he’s not a gun for hire. He’s that rare combination of someone who not only believes passionately in what he’s fighting for, but is also an extremely successful campaigner. Campaigning against the ‘alternative vote’ system is a natural extension of his fight for greater accountability and transparency in politics.”

But shouldn’t he be “a gun for hire”?  Isn’t this how markets are meant to work?

It’s a small step from this view to recognising a “public service ethos” in public sector staff that might be hit by privatisation and contracting out that treats them purely as “guns for hire”.

In most parts of England and Wales young people’s A level results will be published tomorrow. Around the country they will be turning to their local Connexions service for advice; local news services are pointing teenagers with worse (or better) results than they expected to Connexions in Bakewell, Barrow, Bristol, Cambridgeshire, Gloucestershire, Haringey, Islington, Milton Keynes, Portsmouth and Wiltshire.

We have reported how the cut in the central government grant to local authorities, combined with the abolition of a great deal of ring-fencing (requiring grant money to be spent on particular services) has led to a cascade of Connexions closures. This week is a particularly good time to remember the good done by a service that adults may not notice during the rest of the year.

The Government argues that cuts can be made in spending without damaging the quality of public services (as there is apparently so much waste that can be eliminated).  They also stress that these cuts will be fair and progressive and maintain that the most vulnerable will be protected.

However, our analysis of spending cuts announced so far (as reported in the Sunday Mirror) shows an emerging pattern of decisions that have been especially harmful for children and young people -  this group of people have been disproportionally affected by the cuts agenda.

This table (.pdf) provides an overview of the cuts to children and families that have been made by the Coalition Government to date. The analysis shows that even before a child has been born the cuts set in as a result of the abolition of the health in pregnancy grant. The impact of the cuts then continues right the way through children’s early years, school years, higher education and then their future employment opportunities.

The table (.xls) shows us the cuts announced so far that will be made each year for children and families:

TOTAL CUT PER YEAR BY 2010/11 -     £2.7 billion

TOTAL CUT PER YEAR BY 2011/12 -     £4.2 billion

TOTAL CUT PER YEAR BY 2012/13 -     £5.9 billion

The cumulative loss that children and families will have experienced by 2012/13 – only taking into account cuts announced so far – is just over £13 billion.

The analysis also shows us that spending reductions have been about far more than about reducing waste and that cuts have impacted on front line services. Numerous local newspapers and journals have reported on the impacts of cuts on young people in their local areas, a few examples are provided below.

Westminster Council in London is facing a 1.5m cut from the DfE area based Grant. Councillor Paul Dimoldenberg, leader of the Labour Group in Westminster, said his authority could not afford to lose £1.5m without damaging frontline services. “The (government) said these initial cuts would be about reducing waste” he said. “But now we find they have targeted children for the most savage cuts.”

Rochdale Council is to be hit by more than £3.3m of government cuts.  Children and Young people’s services will bear the brunt of the cutbacks, according to figures obtained by Rochdale MP Simon Danczuk. He added: “Nick Clegg, leader of the Lib Dems and deputy Prime Minister, recently said that the cuts would be ‘progressive.’ I don’t see anything progressive about vulnerable people in Rochdale losing support to get to a job…..”

North Yorkshire County Council is to slash its children and young people’s budget by £14m over the next three years. Cynthia Welbourn, children and young people service corporate director, said: “Naturally, our priority is to protect frontline services as much as we possibly can. Unfortunately, however, given the size of the savings, it will not be possible to protect them completely.”

Winchcombe has seen a state of the art playground project fall victim to government cutbacks. Gloucestershire County Council said that following the Government’s decision to withdraw funding for the Playbuilder scheme, nine playground schemes in the county, costing £380,000 would no longer go ahead.  Councillor Ron Harrison said, “We were quite excited about getting it going. It’s an area of the town that doesn’t have a lot of facilities for the eight to 13 year olds this was being targeted at.”

In Yorkshire, education bosses say the decision to halt almost 100 school rebuilding projects in the region will leave parts of it with a shortage of places and deprive generations of pupils of 21st century learning.  The cuts include ditching plans to provide new buildings at a secondary school which was ravaged by fire last year. A spokesman for Doncaster Council said pupils at Campsmount Technology College would now continue to be educated in temporary school buildings. The council’s executive member for young people and education Councillor Ralph Berry said: “This is a devastating blow for Bradford which will leave our schools with a shortage of at least 3,000 places…”

Connexion services have been hit hard; a survey of Connexions services reveals more than one in 10 face budget cuts of up to 50 percent, with one in seven stating they are suffering reductions of £2m or more. Paul Chubb, director of Careers England says “you cannot, under any circumstances, describe cuts of this magnitude as efficiency savings. What we are seeing is the decimation of a universal public service for young people.” Steve Stewart, chief executive of Connexions Coventry and Warwickshire said “the chancellor said he was cutting £6.2bn of ‘waste…… Now we’re beginning to find out – it is in frontline services.”

Further examples and information of how these cuts are impacting on young people are included in this document.

I’ve just been looking through the latest edition of NAPO News (as one does) and found it illustrated perfectly the stupidity of the cuts. The magazine, produced by the National Association of Probation Officers, reports that this year’s Probation Service cuts mean that a number of probation trusts are going to have to reduce their staff, whilst others will introduce a vacancy freeze. If probation service and CAFCASS cuts in future years are twice as large – which NAPO expects – the union believes that “neither service will be in a position to fulfil its statutory responsibilities.”

Then, towards the end of the magazine, Assistant GS Harry Fletcher reports that the National Offender Management Service has decided that this is just the right time to change the names of Departments.

• The Directorate of Commissioning and Operational Policy becomes the Service Development Directorate.
• The bit that’s already called the Service Development Directorate shuffles along to become the Business Service Development Group.
• The Safer Custody and Offender Policy Group re-emerges as the Offender Safety, Rights and Responsibilities Group (change of government or not, the spirit of Tony Blair lives on …)
• The Reducing Re-offending Policy Group is re-named the Rehabilitation Services Group (… but not here).

I’m sure that makes everyone feel better. As Harry comments, it’s a surprise that the Chaplaincy isn’t re-named the Heavenly Solutions and Interventions Group.

At this point it’d be easy enough to work myself into a Littlejohn lather, but the really disappointing thing about all this is that probation cuts – like so many others – are self-defeating. As NAPO has shown, investing in probation is the best way to cut the number of short-term jail sentences, which are extremely expensive (apart from anything else) – recruiting an extra 1,250 probation staff would produce net savings of £300 million a year.

But instead, we’re going to do the opposite.

Sculptor Anish Kapoor, who created Sky Mirror and Marsyas, is the latest artist to protest at the Coalition’s cuts in arts funding. Kapoor, a former Turner Prize winner who has represented Britain at the Venice Biennale, said:

“I am particularly worried about the effect the proposed cuts are likely to have on museums and galleries, especially those outside London, some of which are likely to have to close.

“It seems short-sighted to me for the government to do such damage to the British cultural sector, which has made such a valuable contribution to the perception of Britain abroad.”

Last month, Jeremy Hunt announced the abolition of the UK Film Council and the Department has already withdrawn its contribution to the cost of a new BFI Film Centre; it is widely reported that Mr. Hunt has recommended redundancies of up to 50 per cent in his own Department.

Arts organisations have already taken a 3.5 per cent cut this year, and, as we noted last month, a coalition of major figures in the arts have written to Mr. Cameron, arguing that further cuts threaten “irreparable damage”; the coalition of the great and good included the Directors of the Tate, the National Theatre, the Royal Shakespeare Company, the Serpentine Gallery, Sadler’s Wells theatre and the South Bank Centre.

The Coalition’s view is that the arts must make up for the loss of public funds with more effective fundraising, but individuals and organisations that are actually involved in arts fundraising have pointed out that donors often give only on the understanding that government funding is also available and that 40 per cent of arts bodies receive no private income at all and, of those that do, private investment accounts for just 15 per cent of their overall income. Representatives of the tourism industry (“the arts are to British tourism what the sun is to Spain”) have already shown their concern, and pointed out that, before the election, Mr Hunt said

“Our tourism industry feels betrayed by the [previous] government’s lack of interest.”

The arts unions have taken a leading role in campaigning against cuts, including the Writers’ Guild, BECTU and Equity – who have a very good campaign page on their website. The abolition of the UK Film Council has been the hardest cut so far, criticised by Lord Puttnam, Ronan Bennett, Liam Neeson and Jonathan Pryce. Other figures speaking out for arts funding include Lee Hall (author of Billy Elliott), Richard Mantle (Director of Opera North) and Antony Gormley (sculptor of the Angel of the North).

If you hear of other prominent people opposing the cuts, do let us know and we’ll update this list every so often.

Today the TUC published our response to the first phase of the Independent Public Service Pensions Commission, arguing that public service pensions are affordable and sustainable, contrary to the scaremongering of some commentators. Former Labour Business Secretary John Hutton has been appointed to head up a one-man Commission (no relation to the IoD’s so-called Independent Commission, whose arguments Nigel has thoroughly dismantled).  The Hutton Commission has a punishing timescale to investigate the issues and make recommendations, with an initial report in September followed by a final report in March 2011.

In the TUC submission (and a number of excellent submissions with more detail on the individual schemes put forward by the relevant unions) we set out the case that public service pensions are affordable and sustainable.  Of course, circumstances can change and when they do, all pension schemes whether private or public need to be ready to adapt. If this is the case then changes need to be negotiated and agreed with the relevant unions. But over recent years public service unions have been busy doing exactly that.

An extensive series of changes to public service schemes have been introduced since 2005 to secure their affordability for the future. The changes negotiated included raising pension ages, changing early retirement provisions and introducing arrangements to ‘cap and share’ the costs of increased life expectancy. These changes have the effect of limiting the volatility and overall level of future costs to the employer and the taxpayer. In addition, the controversial change in indexing from RPI to CPI announced in June will significantly reduce the cost of future provision – and the benefits pensioners receive.

The TUCs response challenges the “big scary numbers” put forward by certain groups and commentators, which have driven and distorted much of the media debate about public service pensions.  For instance, adding up estimates of public service pension costs for decades to come and presenting them as a lump sum in comparison to today’s GDP makes about as much sense as comparing your entire mortgage debt to your weekly wage: scary, yes, but also meaningless. The TUC submission recommends that the Treasury should publish an annual report including all the key data to provide a clear and genuine picture of the figures and avoid their exploitation by those with a political axe to grind.

It also mounts a robust defence of the use of a 3.5 per cent discount rate the Government uses to value the future cost of pensions. As Bryn has explained and as the submission sets out, it makes no sense to treat public service pensions in the same way as private sector schemes, given the strength of the employer covenant – pensions jargon for the employer’s ability to meet their legal obligation to the scheme. In addition, this discount rate is used for other purposes than valuing pensions and a change would hit other long term planning, such as for spending on capital investment in infrastructure.  

Perhaps one of the most immediately worrying aspects of the Commission’s terms of reference is that it has been asked to look at the potential for savings within the spending review period. Given the obligation to protect pension rights already accrued, pretty much the only possible savings within the spending review period would involve increasing member contributions (leaving aside the RPI/CPI switch – see the submission for more detail on this). The first series of pension scheme valuations under the ‘cap and share’ system will be considered shortly and it is possible that member contributions will rise under these arrangements.  But unions will be adamantly opposed to increases outside these arrangements : at a time when pay has been frozen and inflation is rising this would mean a significant cut in take-home pay for many public servants. It might also lead to more people might exercise their right to leave the scheme, leaving them without a pension for the future.

Private sector employees have certainly been hit hard by the employer retreat from decent pensions.  There is a gap between public and private provision. There is also an important gap within the private sector, between the genuinely gold-plated pensions many company directors still receive despite provision for their workers being slashed. The answer is not attacking public service pensions in an attempt to cut provision in the areas where it is still adequate, but rebuilding decent private sector provision.

I was struck by two items in the news that happened to appear on the same day. In the UK, Eric Pickles, the Secretary of State for local government, has announced plans to give the public the power to veto Council Tax increases. From 2012, MPs will decide each year on a maximum increase local authorities will be allowed to introduce, and increases over that limit will be subject to a referendum and a ‘shadow budget’ the Council would also have to produce. If the electorate voted against the Council’s budget, there would be a refund or a credit against next year’s Council Tax. (There will be no right to a referendum on cuts in services.)

On the same day I saw a report on California’s budget crisis, with Governor Arnold Schwarzenegger declaring a “fiscal state of emergency.” California’s state budget has a deficit of $19 billion and 200,000 state employees have already had their pay reduced to the minimum wage. The Governor’s latest move requires state employees to take three “furlough Fridays” a month – compulsory unpaid leave. Cuts introduced in January include reductions in benefits and reduced services in prisons, health services, transport and environmental programmes.

What, I hear you ask, links California’s problems with Mr. Pickles’ proposals?

I’m very glad you asked me. California’s problems came about because Californians expect the public services most people in advanced democracies expect these days – good schools, effective police, adequate health, safe transport, social services, benefits – but California’s electorate has made it almost impossible to raise the taxes needed to pay for it.

California’s state constitution allows for amendments to the constitution, passed directly by a referendum – the ‘initiative’ system, as it is known. In 1978 California’s voters agreed “Proposition 13” – which limited property taxes (a main source of revenue, especially for education) and required the state legislature and local authorities to get a 2/3 majority for any tax increases. It has been impossible for California politicians to persuade voters to support repeal of this measure – who votes yes for higher taxes, when that is the only question on the ballot paper? But Californians have not stopped voting for politicians who promise new or improved services.

The result is California’s impasse. The state legislature repeatedly fails to agree a budget, services grind to a halt and the situation gets a little worse every day.

For some US conservatives this result is exactly what they want. Their strategy – known as “starve the beast” – is to use crises like this to force a reduction in the size of government.

To be honest, I don’t think this is Mr. Pickles’ conscious intention, but the risk is that allowing voters to demand improved services whilst refusing to agree the taxes needed to pay for them, could result in recurring crunches as local authorities ran out of money each year. Genuine localism and a serious commitment to empowering local councils must mean giving them the independent tax-raising powers to pay for the policies they have been elected to carry out.

Here’s an important poll on attitudes to the cuts.

It was commissioned by the BBC for their Newsnight special on the coalition, from ComRes. The full tables are here.

I think the questions here are much better worded than those in the YouGov polls I linked to in my rather lengthy post on resisting the cuts (though I blame the clients – both ComRes and YouGov are good pollsters).

The results here are pretty consistent with the earlier polls though. Most buy the necessity for big cuts, but are beginning to be worried that they will be affected and that they might be going too far. What is new here is that a majority think they might be bad for the wider economy.

The full tables have more detail, though much of it has a party political slant that reflects Newsnight’s interest in the coalition.

Nothing leaps out at me from looking at the detailed demographics, but others may find some nuggetts. Perhaps the dog that isn’t barking is in the regional breakdown. There are differences between regions, but they do not fall into a neat north/south split. (And one always needs to be careful about smaller sample-sizes when looking at sub-groups.)

We had a fascinating briefing here at Congress House yesterday, an opportunity to hear about the impact of the Budget on the poorest people.

I thought it made a very strong case that the Budget measures will have a very unfair impact on poverty and inequality.

About seventy people from unions, anti-poverty campaigns and charities came, and the briefing was chaired by Lesley Mercer, the Director of Employment Relations and Union Services at the Chartered Society of Physiotherapy.

The first speaker was Tim Horton, Research Director of the Fabian Society. Tim emphasised the fact that most discussion about whether the Budget was fair had concentrated on the benefit and tax changes, but the forthcoming £34 billion of public spending cuts would be even more important. Spending on public services is ‘pro-poor’, so cutting them tends to hit the poorest hardest. I thought the most enlightening part of his talk was his point that all the discussion about the fairness of the increase in income tax personal allowances had only looked at the impact of what amounts to a tax cut. Few commentators had taken into account the service cuts of £3.7 billion that would be needed to pay for it – when that was included, the regressive impact was clear. The government insists that they have no alternative to the cuts they plan – but no one forced them to go ahead with this measure.

The next speaker was Prof Ruth Lister, of Loughborough University, speaking about the impact of the Budget on women and families. A posting based on Ruth’s speech is already up on this site. I was particularly struck by her point that this Budget, which was marked by cuts focused on families, was passed by parties that claim to be ever so family-friendly.

Finally we heard from Richard Capie, Director of Policy and Practice at the Chartered Institute of Housing. Richard gave a fascinating talk that began with the housing policy background, but what stuck in my mind most was the section on Housing Benefit. Richard pointed out that, at £21 billion, HB represents 80 per cent of all public spending on housing, so changes don’t just have an effect on claimants, they have a huge impact on the housing market as well.

From next year, HB will be ‘capped’ at £250 per week for a one bedroom property, £290 for 2 bedrooms, £340 for 3 bedrooms and £400 for 4 or more. Richard pointed out that, of the 32 London boroughs, there are only 4 where you can rent a house or flat for less than this at present. Then, when indexing in line with the Consumer Price Index (usually less than housing inflation) kicks in, even those boroughs will be squeezed. On top of all this, the 10 per cent cut in HB for people who have been unemployed for over a year will make it even harder for the poorest families to hold on to their homes.

The cumulative impact is likely to be that landlords will refuse to rent to people on HB or JSA and unemployed tenants will be concentrated in a handful of poor areas. Speakers from the floor pointed out two extra horrors:

• Lone parents, who will have to move from Income Support to Jobseeker’s Allowance once their youngest child is five, will find themselves hit  by the HB reduction, so children will be made homeless.
• Disabled people – a million are going to be forced off DLA and ESA – will be disproportionately likely to spend over a year on Jobseeker’s Allowance. We already know that disabled people who claim JSA take much longer than non-disabled claimants to get jobs and this will have only got worse in the recession.

My contribution to the discussion was to point out that unions are keen to work with anti cuts campaigns being organised by community groups, charities and anti-poverty organisations. If you have details of a campaign you are involved in, do let us know.

There’s a shorter version of my cuts article at Liberal Conspiracy with a lively discussion thread.

The dominant political issue for the life of this government is going to be public spending. Almost all their policies will flow from, or be constrained by, their overwhelming belief that we need to deal with the deficit by cutting spending and doing it quickly.

Some coalition supporters will do this reluctantly. They will recognise the damage that cuts can do to the wider economy, public services and social cohesion. Others are revelling in this opportunity to shrink the state – and certainly “not letting this crisis go to waste”.

Many outside government of course are deeply opposed, and the debate has already started about how best to resist the cuts. Already there are calls for events, campaigns and demonstrations. Today’s lobby against the cuts to new schools is an early candidate for having captured this mood most successfully.

But it is important to think strategically about campaigns if we want them to have a result. That starts with working out where we are now, where we want to get to and how we make that journey.

Many interest groups are already defending “their” bit of the public sector. You only have to pick up a newspaper or turn on a news programme to hear someone saying, “don’t cut us, what we do is too important”, but usually with the unspoken assumption that others should be cut instead.

There is also a solid  body of expert opinion that says the economy is too fragile to cope with big cuts in public spending right now. Paul Krugman is only the most prominent of the many US economists who are deeply worried about Europe’s deficit fetishism. The FT’s Martin Wolf – not generally seen as a natural ally of unions – is perhaps the most prominent UK advocate of this position. Here’s a typical column. 

Some in this expert camp simply want to postpone the cuts and have no real problem with much reduced levels of public spending in the longer term. Others want to see a more relaxed timetable for closing the deficit, thus giving economic growth the chance to provide a greater tax take with perhaps some increased tax rates too to better harness that growth.

Many combine these positions, with unions as the most obvious example. We support good public services provided by properly rewarded public servants and recognise the importance of public spending to the health of the private sector.

There is already an interesting debate – mainly online – about how best to maximise opposition to the cuts in general and thus shift government policy. Here’s Sunny with a good practical post and here’s Gary Younge  with some insights from the US into how political arguments work in practice (ie not always at the intellectual level).

I’m old enough to remember the Thatcher years. What I mostly recall is just how ineffective most campaigning we did was. For sure you could sometimes mobilise many people. but not always to much effect. 

So how should we approach the campaign challenge we face today?

Where we start

First we have too accept that at least at the moment, the government is popular. YouGov probably has the most comprehensive set of post-election polling that probes these areas.

 (I don’t think much of some of the questions commissioned by YouGov’s clients as they are too framed in the language used by the government and its media supporters, but then again it shows that their arguments work.)

The polls show that people like the idea of a coalition, and so far, think that it is working well together. They also buy the main argument the coalition makes that we need big cuts. Post-budget polling also suggested that a majority thought that  the budget was fair. (Here are some links to the full YouGov results Spending cuts; more on cuts; the coalition. )

At least to date - these things can and probably will change – the government wins the argument about the need for cuts. Those homespun analogies about the purse and wallet may make anyone who is even vaguely familiar with Keynes cringe, but they work with most voters.

However people are worried about the effects of the cuts. 25 per cent are very worried and 45 per cent are fairly worried that they will suffer from cuts in spending.. Some of those will be public servants or private sector workers who depend on state procurement but the concern clearly goes much wider than that.

So how do we engage?

The journey

We start with a majority agreeing that the cuts are both necessary and fair. A successful campaign against the cuts will take them to thinking that they are both unfair and unnecessary.

Of course we must continue to engage with the intellectual economic arguments. Few campaigns – at least progressive ones – are won without a strong case that can be argued with anyone.

I doubt whether that will be what switches the national mood however. Most people frankly won’t be interested enough to challenge the popular ‘can’t spend, what we don’t earn’ narrative.

But, as the cuts start to bite, we can shift the debate from being an abstract national one about economics to one based on people’s real experiences. That will make it personal and emotional, with people basing their reactions on what the cuts mean for them, their families, their communities and the people with whom they identify.

Once they start to think the cuts are unfair, that’s when they will start to engage with the economic case actively seeking out arguments that enable them to oppose the cuts.

But there is a danger that people stop half-way along this journey. They may think that the cuts that affect them are unfair, but that the overall government approach is right. This is the individual version of the “don’t cut us, cut them instead” approach.

It is highly likely that the coalition’s media cheer-leaders will understand this. This is where they will attack the “public sector vested interests” that are making deeper cuts elsewhere inevitable. This is why there is such a continuing onslaught against public sector pensions, and the (very few) public sector fat-cats.  Thus they will allow people to be able to recognise that cuts are unfair, but without challenging the fundamental point that cutting spending on this scale and timetable is wrong.

So the journey will be in two stages. We start with the argument that the cuts are unfair and will hit ordinary people, and then win the argument that this requires a change in strategy at national level, not simply readjustments within the cuts package.

What would this kind of campaign look like?

There will inevitably be lots of national calls for action – and of course well-targetted and supported events have an important part to play.

But if we think about how best to take people who do not yet support us on the first part of our journey, the local is probably where we can best engage them. For some, sectoral campaigns will also be an important point of entry. Of course the two can work together as with the schools protest, but it is the local issue – my school, my community, my service – that will initially draw people in. 

This bottom-up approach will inevitably not always be neat and tidy. But what the union and political activists who inevitably get involved can do is inject the wider context and the national issues, without taking over. 

The one glaring exception to my observation that many campaigns failed to make much impact against the Thatcher and Major governments was the poll tax campaign. Of course that had some telling national moments – and the big demonstration that was marred by a certain amount of violence is still seen as a defining moment.

But the real reason that the campaign succeeded was the local pressure in constituencies. Even government MPs in safe seats got worried by the sheer sense of anger they encountered in their communities. Spontaneous campaigns sprung up across the country, without any central organising command.

Of course the world has changed since the 1990s – and campaigning looks very different – but the same approach looks just as relevant today, even we use more modern techniques and tactics.

There was a lot of rubbish talked before the election about it being the first internet election. It wasn’t, but this could be the first internet campaign that can really change the shape of national politics, as it is the ideal tool to mobilise and connect local activists. I’m certainly excited by the interest in anti-cuts people active in online campaigners working together in ways that Sunny outlined and Stuart White wrote about here. Very similar discussions have been taking place here in Congress House.

The more we can build up a modern ‘doomsday book’ of the effect of the cuts, the more we can help people to make the second stage of that journey when they realise that they are not alone in being hit with unfair cuts, and that they therefore need to call for a thorough-going alternative.  Combined with resources to help people organise locally, and popular material that can put the economic arguments, such a web-site could be an important tool.   

Campaign pressure against the cuts will need to be delivered both locally and nationally. The national media – particularly the broadcast media – are crucial. National political strategists will carefully read polls as they assess the national mood.

But local pressure on MPs – particularly those in the coalition parties - will be decisive. We do not yet know whether the coalition is more stable or less stable than a single party government. Clearly it brings stresses and strains as well as strengths to the government. My own take is that it is probably more durable than some think. Of course some Lib Dems are very unhappy, but head-on attacks on their party are more likely to bring them together than drive them apart. At least that is what happens when people try to divide and rule unions.   

What would be success?

One constant difficulty in campaigning is working out what counts as success. In truth many campaigns are very hard to measure as the only real conclusion is that without them it would have been worse.

Some will simply see this as a way to undermine the coalition’s electoral support for the next election in five years time. Others will see it as a defeat if any cuts go ahead.

Neither of these can be satisfactory. The cuts will have a devastating impact,  we can’t wait five years for action. Some have already been implemented and that should be a spur to action, not defeatism.

Progress is likely in two ways. First campaigns against specific cuts – either geographical or sectoral – will be the first to get going (as we have seen with Building Schools for the Future).  Some will succeed in ameliorating the coalition’s policies. Others will do political damage, and put the government under strain, both inter- and intra-party.

Secondly – and probably after a mounting series of these specific campaigns – we can look for changes in policy, either through a more relaxed time-table for reducing the deficit or by greater use of taxation.

What are the next steps?

The TUC’s formal decision making processes will of course decide on any specific initiatives that we take.  I am sure that this will be a crucial debate at our Congress – both in the formal sessions and on the fringe.

Unions have their own issues as well where other campaigners will be less likely to get involved. The Hutton commission on public service pensions is obviously of great current interest to public sector staff, without effecting many others. Particular issues in particular sectors will effect only some unions – changes in civil service redundancy terms springs to mind.

But what is clear is that unions want to work with service users and others. This needs to be about the wider issues for our society than the legitimate defence of jobs, terms and conditions of public sector staff. That means some new approaches to campaigning, and particularly more focus on how we build local campaigns and alliances. While it would always be wrong to hide union involvement, campaigning is often more effective when it features service users.

Unions will need to guard against the alternative fairness narrative that sees gold plated public sector workers as the cause of unfair cuts. We do not need just to stress the importance of service users, but make the case that the cuts are hitting the private sector and the whole economy as well. The cuts will cause just as many job losses in the private sector.

Unions are not the only organisations that will have to learn a new style of campaigning – and frankly, be allowed to experiment – in order to work out the most effective ways of promoting our opposition to the cuts.

If succesful this is going to be a big pluralist campaign – perhaps the mirror image of the USA’s tea-party movement. It will certainly develop in ways that we cannot predict.

But campaigning can sometimes get bogged down in activity at the expense of the big picture. Here are some tests that I have started to set against suggested initiatives. 

Do they:

• help shift the issue from an abstract national debate to a personal and emotional response to the effect of the cuts?
• help bring users and providers together?
• allow us to advance or inject an alternative economic approach to the deficit?
• effectively put pressure on the government?
• avoid own goals?
• do what our opponents expect or want us to do?

Nigel has already looked in detail at the IoD sponsored report of the Public Sector Pensions Commission. As he says, the report is based on challenging current assumptions about how you measure in today’s money the cost of pension commitments that go many years into the future.

Their main complaint  is that the Government currently assesses the cost of unfunded pension liabilities using a discount rate of 3.5%. They say that this is “artificial” and that it involves “accounting sleights of hand”.  There is even the suggestion that the current figures lack “honesty”.

Suggesting that the Treasury, who produce these figures, is dishonest is fighting talk. One would expect, therefore, that the report would give considerable attention to describing and attempting to rebut the basis upon which the figure of 3.5% is chosen. But far from it. The report simply says that the continued use of 3.5% is “unexplained”. But this statement is simply untrue.

The basis for choosing the figure of 3.5% is explained in the following Government publication: “HM Treasury, The Green Book. Appraisal and Evaluation in Central Government”. This is freely available on the web here. The argument that is presented in the document is relatively straight forward and the key paragraph reads as follows:

“5.49      For individuals, time preference can be measured by the real interest rate on money lent or borrowed. Amongst other investments, people invest at fixed, low risk rates, hoping to receive more in the future (net of tax)to compensate for the deferral of consumption now. These real rates of return give some indication of their individual pure time preference rate. Society as a whole, also prefers to receive goods and services sooner rather than later, and to defer costs to future generations. This is known as ‘social time preference’; the ‘social time preference rate’(STPR) is the rate at which society values the present compared to the future.

The discount rate is used to convert all costs and benefits to ‘present values’, so that they can be compared. The recommended discount rate is 3.5%. Calculating the present value of the differences between the streams of costs and benefits provides the net present value (NPV) of an option. The NPV is the primary criterion for deciding whether government action can be justified.”

This blog is not the place for a full explanation of all the economics of this. But, in essence, what the Green Book explains is that when decisions are made about the future there is a proper distinction to be made between the discount rate that it is appropriate for individuals to use and the one that should be used for society as a whole.

And one of the key properties of the latter, i.e. the STPR, is that it does not go up and down with movements in markets, but is set for the long-term.

There is actually an extensive literature on the subject, with many learned academic papers. An easy point of entry for those interested in knowing more is the Wikipedia entry on the social discount rate. The issue has also been explained in a recent discussion paper sponsored by the actuarial profession here. So there really is no excuse for ignorance on the subject.

Now, you may agree or disagree with the Government’s approach and the specific conclusion that it is reached, but the Green Book clearly counts as an explanation and one that requires serious consideration, particularly given its source.

But the authors of the report appear to be unaware that it even exists, casting real doubt on the value of their contribution.

The short answer is no. The vast majority of its members have an easily traced and extensive track record of opposing public sector pensions. The Institute of Directors has a well established position on public sector pensions. It is set out in a paper by the secretary to the Commission Corin Taylor Pensions Apartheid.

It is worth pausing here to say just how offensive the term “pensions apartheid” is.

Apartheid was a detestable political system that ruined the lives of generations of South Africans. It has a precise meaning in international law. The crime of apartheid is defined by the 2002 Rome Statute of the International Criminal Court as inhumane acts of a character similar to other crimes against humanity “committed in the context of an institutionalized regime of systematic oppression and domination by one racial group over any other racial group or groups and committed with the intention of maintaining that regime.”

What kind of person thinks that this is an appropriate metaphor for a debate about pensions policy?

Almost every other members of the Commission is on public record endorsing the same analysis and approach.

Vice-Chair Professor Philip Booth of the Institute of Economic Affairs:

In this week’s Pensions White Paper the Government ignored the real scandal in the pensions sector – the hidden burden of public sector pension liabilities. Public sector workers are being promised gold plated pensions whilst workers in the private sector, who will ultimately face whopping tax increases to finance public sector pensions, struggle to make sufficient provision for themselves.” Source

Ros Altmann, has a helpful section on her website where she lists her publications on public sector pensions.

Andrew Lilico is a former IoD staff member and now works for Policy Exchange the publishers of the pamphlet by Neil Record referenced below and many other attacks on public sector pensions.

Neil Record, Institute of Economic Affairs, has written extensively on public sector pensions including Public Sector Pensions: The UK’s Second National Debt Policy Exchange 2009

The Government has allowed public sector pension liabilities to run out of control, with the Treasury spending contributions received for the next generation’s pensions to the pay the current generation of pensioners. The Government’s accounting for these pensions has been arbitrary and opaque, making it all but impossible to understand.” http://www.policyexchange.org.uk/assets/Pub_Sec_Pensions_PR.pdf

Malcolm Small is a senior policy adviser at the Institute of Directors and the author of the IoD’s paper Road Map for Retirement Reform 2009 http://www.iod.com/intershoproot/eCS/Store/en/pdfs/policy_paper_rrr09.pdf

which says:

Public sector pension schemes are not sustainable.”

I know and like some of these people, but the idea that this is an independent commission is laughable.

When the TUC set up its Commission on Vulnerable Employment we did not proclaim it as independent from the TUC, even though it included employers, not just our mates.

Today’s see the launch of the latest attack on public sector pensions. This one comes from a so-called independent Public Sector Pensions Commission set up by  the Institute of Directors and the Institute of Economic Affairs.

This is another example of the clever pincer movement used so well by the shrink-the-state right to attack public sector pensions. First they stir up the politics of pensions envy by contrasting the non-existent pensions of two in three private sector workers with the supposed gold-plated pensions of public sector workers. Then they snap the pincers shut with some big scary numbers about the future costs of pensions.

In this post I look at the first arm of the pincer – the difference between public and private sector pensions.

Of course it is unfair that public sector workers get better pensions than workers in the private sector. But who brought that about?

Public sector pensions have not become more generous, indeed their value was reduced in a series of negotiations under the last government. Only a few weeks ago – and clearly a little late for the IoD as it only merits one passing mention – the budget made a very significant change to the value of public sector pensions by changing their indexing from RPI to CPI. This will nibble a bit off pensions most years – and breaks the pre-election pledge not to change accrued benefits (ie those already built up). Over time those nibbles will mount up.

The real changes in private sector pensions has been the retreat by employers (ie directors) from providing not just decent pensions but any pension at all. The real pensions divide is within the private sector. Most get nothing. Top directors (FTSE100) do very well, thank you very much, even during the recession. According to TUC Pensions Watch between 2007 and 2009:

• The average transfer value of a FTSE 100 Director pensions went from£3 million to £3.4 million.
• The rise in transfer values for those with the biggest pension entitlements at each company was from £5.3 million in 2007 to £5.6 million.
• The average accrued pension went up by 28 per cent from £193,000 p.a. to £247,785 p.a
• The average accrued entitlement for the director with the highest pension in each company went up by 32 per cent from £320,000 p.a.to £421,326 p.a.
• For those with DC schemes the average contribution went up by 69 per cent from £86,000 to £145,220
• The average received by those with the highest contribution in each company was £147,000 in 2007, rising to £179,540 in 2009, a rise of 22%.
• The majority of directors in both 2007 and 2009 had a pension age of 60.

The close network of right wing think tanks who have provided the arguments for this report also like to say how much higher public sector pay is than private sector pay.

We can report some progress here as the report has backtracked on this and almost accepted the IFS analysis that:

Overall, pay levels in the public sector are probably not significantly out of line with those of similar workers in the private sector, once you take into account factors such as their age, education and qualifications. IFS Green Budget 2010

This of course confirmed our analysis

Without producing any statistics they still allege that over time public sector pay has gone up more than private sector pay. The evidence is much more complicated, and I know of no work that controls for qualification and full-time/part-time over time.

They also concede that the lower paid and lower skilled do better in the public sector on average while the higher paid and more skilled do better in the private sector – thus emphasising the point that we always make that the gap between top and bottom is smaller in the public sector.

This must have been a wrench for some members of the Commission, and they will have to rewrite some of their own reports.

Today’s IoD sponsored report on public sector pensions combines pensions envy with the standard deployment of big scary numbers about the unaffordable costs of public sector pensions – each one bigger than the previous report.

The numbers in this report have been somewhat undermined by the change in the indexing of pensions in payment announced in the budget. Linking pensions to CPI rather than RPI will reduce their cost as in most years pensions will go up by less than the increase of cost of living for pensioners, but as the whole report is based on an edifice that has been dismissed by the National Audit Office it is important to understand where these numbers come from.The key figure is a somewhat arcane special interest rate known as the discount rate. This is used to calculate the cost of future commitments in today’s money.

As pensions commitments go many years into the future small changes in this can make a big difference to such a cost. Insisting that the government uses a lower discount rate in its public sector pensions calculations has been the continuing refrain of almost all the think-tank attacks on public sector pensions over the years.

Almost all of the arguments in today’s report are built on this argument. If the discount rate was lower then the future liabilities of public sector pensions go up. That makes them more valuable to staff today, hence the headlines on the release:

“Public sector pensions twice as valuable as previously thought”
“Public sector pensions worth, on average, at least 40 per cent of salary”

Notional interest rates also have an important technical role in public sector pensions. The contributions that employers and employees make to unfunded public sector pensions are calculated using a process called SCAPE—Superannuation Contributions Adjusted for Past Experience.

The public sector pensions under attack today are the so-called unfunded schemes (ie the vast majority of public sector schemes apart from the big funded exception of the Local Government Pension Scheme.)

They do not invest money in the kind of assets that private schemes (and the LGPS) do. Instead the Treasury puts contributions into the general public finance pot – and pays pensions from this too. This is good for the scheme member as they do not suffer investment risk, but it is also good for the tax payer. All these contributions are effectively lent to the tax-payer. If they were put into a standard investment pot, the public finances would have to raise taxes or borrow to fill this funding gap.  (Unfunded is a bit of a misnomer therefore, but it is either that or pay-as-you-go is what they are usually called.)

SCAPE uses a notional annual 3.5 per cent interest rate on contributions to work out what the employer and employee has to pay to fund the future pension of a scheme member who retires. This report repeats the refrain that this is too generous. This is what it says about discount rates:

Firstly, the Government uses an artificial discount rate to report unfunded liabilities, based on AA-rated corporate bonds, rather than a more pertinent discount rate based on index-linked gilts (inflation-linked securities issued by the Government to finance its borrowing). Since the Government’s chosen discount rate is higher, it has the effect of lowering the value of the outstanding liabilities. Secondly, public sector employers and employees are not charged the full current service costs of the liabilities the pension schemes are taking on each year: a completely different discount rate chosen by the Government is used to compute these. This also means that employees undervalue the benefit of a public sector pension. According to government numbers, the main unfunded schemes have combined employee and employer contribution rates of around 20 per cent of salary. The true value of such schemes, when measured using a discount rate based on the current yields (0.8 per cent) on index-linked gilts, is over 40 per cent of salary. Even when measured by discounting according to a long-term real gilt return of 2 per cent in line with economic growth at that level, the true value comes out at almost 30 per cent of salary.

It is perfectly possible to justify the government’s methodology as the Chief Actuary does here.

What particularly annoys the right is that two different discount rates are used in calculating the costs of future liabilities today and the calculations used to work out contributions.

But the real world is full of different interest rates for different purposes. There is no reason why they should be the same in each of these two very different calculations. The question is whether each can be justified.

Let’s first deal with the SCAPE rate. The whole debate about public sector pensions is full of comparisons with the private sector except here. 3.5 per cent growth in investments each year is a perfectly reasonable investment return assumption to make over time. The Standard Life pensions calculator here assumes 7 per cent growth (less 1 per cent charges). Arguably 3.5 per cent is too low, but then 7 per cent is arguably too high.

Most of the big scary numbers though flow from the other discount rate – the one used to express tomorrow’s liabilities today.

The problem with this is that it is being used to calculate a fairly meaningless number. The government does not have to put aside this money to pay for future pensions liabilities. This is not how the pensions system works. What it has to work out is whether it can afford each year to make not just the pensions promises it has already built up (which is what the liability figure tries to catch) but also the pensions promises that will be built up in the future too. In other words it should want to know whether in 2025 it can meet not just the pensions promises already built up by current staff who will have retired and today’s pensioners who are still alive then, but also pensions built up by current and future staff who will have retired by 2025.

The Treasury say the best way to do this is to estimate what pension payments will be as a proportion of GDP. This takes no account of pension contributions, but simply what will the cost of meeting its commitments will be.

This approach has been endorsed by both the National Audit Office and the Office of Budget Responsibility.

The NAO is very clear that the discount rate is a distraction:

Changes in the discount rate lead to large fluctuations in the size of pension liabilities, but have no effect on projected pension payments. For example, the discount rate increased by 0.7 per cent in the year to 31 March 2009 for the four largest schemes. There were no other changes that year to key financial assumptions underlying liabilities, but the discount rate change alone reduced the total liability across all four schemes (teachers, health, civil service, armed forces) by approximately £73 billion.

This is a point worth emphasising. We currently have historically very low interest rates. You would therefore need to invest much more money today to fund something in the future if these rates held low. But of course while we hope they do until the recovery is secure, they will not stay this low for ever – and pensions work on long time-scales.

Rightly the NAO concentrate on the cost of pensions in payment because;

• projected cash payments are considered by the government to be the most relevant measure of the cost of UK public sector pay-as-you-go pension schemes over the next fifty years;
• projected annual cash payments can be related to estimated annual Gross Domestic Product as a measure of the country’s ability to pay;
• cash projections include pensions expected to be earned in the future, and are useful for decision-making about changes to schemes, whereas liabilities represent only pensions already earned that would be unaffected by scheme changes; and
• liability calculations can fluctuate substantially because of changes in one significant assumption, the discount rate, which does not affect cash payment projections.”

So what do these projections show?

You might expect them to show the cost of public sector pensions to go up as part of the inevitable costs of an aging society. They certainly will for state pensions, health and social care according to Treasury projections. But as the graph shows public sector pensions go up a little and then fall – and these estimates were made before costs were reduced through introducing the new link to CPI. (you can click on the graph for a bigger, clearer image.)

An average eighty year old public sector pensioner would be more than £650 a year worse off if the budget change to the indexing of pensions had been in force since their retirement.

We have already noted that changing the price inflation index to CPI in benefits, public sector pensions and the state pension.

The new Social Trends however has figures for CPI and RPI going back twenty years. (Table 6.19 in Social Trends 2010) This allows us to work out that an eighty year old pensioner on the median public sector pension of £5,500 who has been retired for twenty years would now have a pension of £4,845 a year – 12 per cent or £655 less – if CPI uprating had been in force since their retirement.

A public service pensioner who has been retired for ten years would now have a pension 8.4 per cent lower.

CPI inflation tends to be lower than RPI in most years for two reasons.

• It excludes housing costs and council tax.
• It is calculated in a different technical way, which means that even if other things are equal it will be 0.5% less than RPI.

Yet at least some public sector staff are still being told that their pensions will be linked to RPI:

The guide to the Teachers’ pension scheme says

Pensions Increase

Your pension will be increased to take into account increases in the cost of living. This is called ‘index-linking’ because the increases are related to rises in the Retail Price Index.

As the TUC’s Brendan Barber has said today:

“Significant changes were negotiated in public sector pensions just a few years ago and the Budget has cut benefits further. Yet Treasury figures endorsed by the National Audit Office and the Office of Budget Responsibility show that even before these budget changes, public sector pensions is the only cost associated with our aging society that holds steady over the next four decades.

“The real pensions crisis in the UK is the retreat by employers from providing pensions in the private sector – and the big unexpected looming bill for tax-payers is the cost of means-tested benefits for the millions let down by their employers. It is not surprising that employer organisation want to change the subject by attacking public sector pensions.”

Ministers say that CPI inflation is a more appropriate measure for pension indexing because pensioners are less likely to have a mortgage. But this fails to take into account council tax, often a heavy burden for pensioners, the effects of the different method of calculation and other research that shows in recent years inflation has been higher for pensioners than for average households.

Research for the Institute of Fiscal Studies has shown:

The basic state pension increased by less than pensioner inflation in 2006, 2007 and 2008, and even the guarantee element of the pension credit, uprated in line with average earnings, fell relative to pensioner inflation in both 2007 and 2008.

You can use the table below in two ways.

First it simply shows how CPI and RPI have varied over the years. The bold figures are for years where CPI is greater than RPI.

Secondly you can work out how much less your pension would be today by looking at the row for the year in which you retired. The % loss column will show you how much lower your pension would be today. (As in the last two untypical years CPI has been higher than RPI, very recent retirees would be better off – but the Treasury is predicting that RPI will be consistently bigger than CPI over the next five years.)

The two final columns do this calculation for the TUC’s estimate of the median public sector pension in payment of £5,500.

Years in which CPI was higher than RPI are in bold.

The table was prepared by first calculating what a pension today of £5,500 would be worth each year in the past by reducing it by the value of RPI in each year back to 1989 when figures for CPI are first available (. Each year’s figure was then uprated in line with the previous year’s CPI to produce the figure in the penultimate column.)

Yesterday the government announced a £1bn regional growth fund to offset the offset the impact of the swingeing spending cuts , but a quick glance at today’s papers suggests that the regional growth fund sticking plaster won’t do much to mitigate the impact of  the hatchet-like cuts inflicted by the Budget.

Last night Adam blogged about the Guardian’s report that the Treasury has estimated that the budget will cost 1.3m jobs. As the TUC predicted in our budget submission, these job losses will not be restricted to the public sector – instead, up to 700,000 private sector jobs are  expected to be lost by 2015 as a result of the government’s programme of swingeing cuts.

An article in today’s FT contradicts the Treasury’s rather rose-tinted estimate that these jobs losses will be offset by the private sector creating 2.5m new jobs over the same period. An FT survey of 12 top companies employing more than 375,000 people between them  found that they had, ‘no plans to ramp up recruitment’. As Tim Leunig at the LSE succinctly puts it,

“If the government thinks the private sector is automatically going to step into the gap left by the public sector, it is sadly mistaken’

Against this backdrop the governments decision to replace RDA’s with a potential patchwork quilt of Local Economic Partnerships poses a real risk.  Are the RDA’s perfect? – of course not. But an independent assessment has shown that they have had real economic benefits, and there is a danger that these gains may be lost as attention is focused on the practicalities of re-organising the RDA’s functions and new organisations take time to bed-in.

According to the Prime Minister, the G20 Summit of world leaders backed the UK’s Budget as ‘tough but fair’. How does this claim stack up?

The Summit’s Declaration had something for everyone, especially on the question of whether or not it is too early to start cutting deficits. The key passage in the analysis of where things stand reads as follows:

“While growth is returning, the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels, and the social impact of the crisis is still widely felt. Strengthening the recovery is key. To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand. At the same time, recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation.”

It is the same thing when it comes to the prescriptions section, where each recommendation pointing in one direction is immediately followed by one pointing the opposite way:

“Following through on fiscal stimulus and communicating “growth friendly” fiscal consolidation plans in advanced countries that will be implemented going forward. Sound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt. The path of adjustment must be carefully calibrated to sustain the recovery in private demand. There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth.”

President Obama could quote the warning about everyone cutting deficits at the same time and the Prime Minister could quote the reference to “sound fiscal finances”. We have seen that Mr Cameron thinks the Summit backed him; Mr Obama believes that:

“At Toronto, the G-20 leaders agreed that their highest priority is to safeguard and strengthen the recovery and to lay the foundation for strong, sustainable and balanced growth.  They agreed to carry through with their existing plans to support recovery, and that the fiscal consolidation necessary to restore sustainable public finances over time needs to be calibrated to protect the recovery and tailored to national circumstances.”

Everyone was so eager to avoid defeat on this issue (and, to a lesser extent, finance reform) that a goalless draw was inevitable. Much less attention was paid to what was said about social protection. As a result, the Summit actually said something that meant something. The Summit agreed on “strengthening social safety nets” – a commitment that necessitated welcoming the recommendations on social protection from the G20 [originally given as an ILO meeting, corrected 28 June, 15.10] meeting of Employment and Labour Ministers in April. These recommendations include:

• “We recommend that, where needed, social protection systems and active labor market policies be strengthened because significant numbers of people, including the most disadvantaged, will remain unemployed even after recovery takes hold and others will need help to adjust to structural changes in our economies.
• “We recommend that all countries establish adequate social protection systems so that households have sufficient security to take advantage of economic opportunities.
• “We recommend renewed attention to labor market policies and institutions to improve the quality of jobs and respect for fundamental rights at work.  We stress the importance of social dialogue.”

The Budget did not ‘strengthen the social safety net’ and the chances of the most disadvantaged households being able to ‘take advantage of economic opportunities’ are worse now than they were a week ago. Will the Coalition’s policies ‘improve the quality of jobs’ or do anything for social dialogue? The question answer itself.

The G20 Summit only backed the Prime Minister to the extent that it backed every leader who was there, whatever their policies. But it did set a fairness challenge the government will find it hard to meet.

This week both coalition parties broke a pre-election promise not to reduce the accrued benefits built up by public sector pensioners. By linking future increases in public sector pensions to CPI rather than RPI they are ensuring that pensions will go up on average about 1 per cent less than they would once have done.

Yet the Observer chooses to lead its business section with a standard attack on “gold-plated” pensions, with not even any balancing comment or perspective.

This boils down to a weary accountancy point about how best you measure payments that are made in many year’s time in today’s money – it’s a special kind of interest rate known as the discount rate.

This is a dry argument because no-one is suggesting that we actually put money aside now to pay a 25 year old nurse’s pension in 50 year’s time.  Instead we keep the pensions contributions inside the public finances to reduce government borrowing.

The anti-public sector pensions lobby argue that the government accounts should measure these future pensions liabilities in the same way a private sector pension scheme would. The Treasury would argue back that the state can finance things much cheaper than the private sector, and that the national accounts should reflect this.

If you believe that this figure is useful then you should be spending this weekend revising your scary numbers downwards, because linking future pensions to CPI rather than RPI will make a significant difference to these figures.

But it’s still  a pointless argument. You would expect the Observer’s Business Editor to be aware of the recent National Audit Office report that says:

Changes in the discount rate lead to large fluctuations in the size of pension liabilities, but have no effect on projected pension payments. For example, the discount rate increased by 0.7 per cent in the year to 31 March 2009 for the four largest schemes. There were no other changes that year to key financial assumptions underlying liabilities, but the discount rate change alone reduced the total liability across all four schemes (teachers, health, civil service, armed forces) by approximately £73 billion.”

This is why the NAO – and even the OBR – endorse the Treasury’s preferred method of looking at future public sector pensions. This is to look at what their cost will be as a future share of GDP. Unfortunately for the public sector pensions critics this shows that this cost is the only age related area of spending that does not increase. The NAO again:

This report focuses on cash payments because:

• projected cash payments are considered by the government to be the most relevant measure of the cost of UK public sector pay-as-you-go pension schemes over the next fifty years;
• projected annual cash payments can be related to estimated annual Gross Domestic Product as a measure of the country’s ability to pay;
• cash projections include pensions expected to be earned in the future, and are useful for decision-making about changes to schemes, whereas liabilities represent only pensions already earned that would be unaffected by scheme changes; and
• liability calculations can fluctuate substantially because of changes in one significant assumption, the discount rate, which does not affect cash payment projections.”

Not only does the article fail to reflect this, it builds up the Institute of Directors’ forthcoming report as being independent. The vast majority of its members are however on record as vitriolic opponents of public sector pensions before it started its work. Indeed it was the IoD who popularised the nauseating phrase ‘pensions apartheid’. I’m quite prepared to admit that there is a debate to be had about public sector pensions, and that there is an unfair gap between public and private sector pensions since employers started to walk away from what they once saw as a responsibility to provide a decent pension scheme. What I don’t think is sane is to compare this to the suffering and oppression experienced by the majority population of South Africa under the apartheid regime.

And how’s this for some standard right wing newspaper non-sequitur:

The government’s efforts to slash “gold-plated” public sector pensions are likely to drive it into conflict with the unions. Hundreds of thousands of French workers have been taking to the streets to protest about plans there to raise the retirement age from 60 to 62.

What the heck has France got to do with it? It’s a different issue and a different political culture.

Andrew Morris of the Public Service Pensioners’ Council reveals in a letter to The Times that Philip Hammond, a pre-election Conservative shadow treasury minister write in a letter that the Conservatives had

“no plans to change the current index-linking of pensions in payment”

Just like VAT then.