The Apollo Project
Liberal Ideas for the 21st Century
Thursday, October 20, 2005
The £125 billion mistake
by Alex Sweet

Let's hope that Industry Secretary Alan Johnson thought long and hard about this week's decision to scrap plans to move the retirement age to 65 for current public sector workers. It is perhaps the costliest yet most pointless decision ever taken by a New Labour minister on behalf of the ever-suffering taxpayer.

Indulge me in some back-of-the-envelope maths: on cautious assumptions, five million current public sector workers earn an average £20,000 salary, and will work say a 15-year stint to accrue a £5,000 pension from those jobs by 60, worth £25,000 over the five years to 65. I make that 5,000,000*£25,000, or a cool £125 billion that has been signed away this afternoon. Not bad for a day's work.

Even granted that previous proposals implied certain concessions for years already served, we're talking tens of billions of pounds worth of bad decision.

Maybe there are mitigating benefits for us taxpayers? After all, you need to provide decent benefits in order to be able to recruit good people into the public service? Ahem, no -- the pull-up-the-drawbridge nature of the deal achieves precisely the opposite, and makes recruitment harder even than if the age had been raised to 65 for everyone. "Come and join the civil service! We'll put you on inferior conditions to the rest of us!"

Instead, the deal effectively freezes the current cohort of public servants in their jobs. It will now be increasingly difficult to achieve a healthy turnover in those stagnant parts of the public sector that desperately need more interchange.

The blatant unfairness of the deal is matched only by its obvious absurdity. Just 24 hours earlier, the United Auto Workers, America's last-standing heavyweight union and second to none in knowing how much it can squeeze its host body for, cut a deal with GM and signed away 25% of its retired members' healthcare benefits. That the Treasury allowed Mr Johnson and the TUC to move in the opposite direction shows a serious detachment from reality, and bodes ill for the likely direction of a future Brown government. Expect short-term fixes rather than long-term decisions. But then we already knew that, didn't we?

Meanwhile, union leaders would do well to keep that champagne on ice: the inevitable public backlash will be slow-building but powerful, and the deal will survive only until the first change of government or the first serious recession, whichever comes sooner.
posted by Apollo Project @ 10:47 pm  
4 Comments:
  • At 21 October, 2005 17:07, Anonymous a public worker said…

    Does anyone detect a whiff of the "politics of envy" here? Surely the civil service should set the standards that others can aspire to, rather than join the race to the bottom. Many civil servants earn less than £11,000 p.a. and are totally fed up with being accused of being over paid, stagnant, inefficient, faceless or not doing "real" jobs. Suppose people stoppped doing these "unreal" jobs, then the illiberal, bigoted backlashers will realise the error of their ways. Fly your Apollo rocket back to Planet Earth.

     
  • At 21 October, 2005 22:59, Anonymous Alex Sweet said…

    Interesting attempt there to play the man, but mistaken as it happens. As a lucky member of the PCSPS myself, I personally stand to benefit by some thousands of pounds from this decision. Yet I happen to think it is a wrong and utterly unsustainable policy for the country.

    As for the couple of hundred thousand public servants who earn less than £12k and consider their jobs rubbish (but have pensions to compensate), have they by any chance noticed the millions of private sector workers who earn literally minimum wage, with no pension, no job security and no generous redundancy deals, but who pay for the civil service pensions? The calls for a "public sector minimum wage" which is higher than the national minimum wage are, needless to say, equally as ludicrous as the pensions decision. Parity of treatment is essential.

    All those of us who care about the public sector and wish to preserve the wide provision of excellent quality public services should prevent public servants from overpaying themselves relative to the private sector -- otherwise we provide the real enemies of the public sector with the excuse to move in and shut it down.

     
  • At 22 October, 2005 19:18, Anonymous Anonymous said…

    Alex, you´re a lot younger than I am, and are accordingly, able to make adjustments to your financial planning that will enable you to make up any losses to your pension.

    For those of us who are a bit older, the issue is far less clear cut. Bear in mind that the retirement age of 60 was forced upon civil servants by the Conservatives, who were desperate to cut staff numbers, but didn´t think too hard about the likely implications.

    Frankly, I would be happy to stay on until 65, as I can´t imagine anything more dull than being stuck at home all day with nothing to do but complain about how disrespectful young people are these days or write the minutes of yet another LibDem meeting...

    The solution that has been reached isn´t perfect by any means, although it does have the advantage of honesty and transparency whereby new entrants will know what they are getting. The next step should be to encourage civil servants to stay on beyond 60, perhaps by means of pension enhancements. That way, the government saves money (if it is done properly), and the public benefit from the experience gleaned over 40 years. Or is this too obvious?

    Faceless Bureaucrat

     
  • At 25 October, 2005 08:32, Anonymous Anonymous said…

    FB - as a public servant in my 40s I can see you point. But the point is surely to make a start. The EU recently reformed pensions with the effect that (roughly) people in their last decade of employment retired as before, people with more than a decade to go would work a couple more years, etc. At the same time, it made it slightly more interesting to carry on working (sorry - haven´t got exact details). surely something like this could have been adopted.

     
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"What is Liberalism?: I should say it means the acknowledgment in practical life of the truth that men are best governed who govern themselves; that the general sense of mankind, if left alone, will make for righteousness; that artificial privileges and restraints upon freedom, so far as they are not required in the interests of the community, are hurtful; and that the laws, while, of course, they cannot equalise conditions, can at least avoid aggravating inequalities, and ought to have for their object the securing to every man the best chance he can have of a good and useful life." C-B.

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