LENIN'S TOMB

 

Thursday, October 07, 2010

The attack on public sector pensions posted by Richard Seymour

Lord Hutton of Furness has produced his interim report on public sector pensions. This is the important thing you need to grasp: the main reforms are proposed with a specific aim of squeezing revenue out of public sector workers so that the Treasury can pay off the bankers. This is not about fairness, much less about "gold-plated" public sector pensions. It is a simple raid on the future wages of the lowest paid workers for the benefit of the rich. Secondly: this transfer of wealth to the rich is part of an ideologically-driven class-motivated attack on the welfare state. We know the background. There is no urgent need to pay off the deficit. Most of the debt doesn't mature in less than three years, and the cost fo borrowing is still low for the UK. There is also no particular need to pay off the deficit by attacking the public sector. Higher taxes on those who bear most direct responsibility for this crisis could easily pay off the deficit. Alternatively, a redistribution and stimulus-based growth strategy would produce the revenues needed to pay it off. So, these are elective measures reflecting the class interests and the ideological priorities of those driving the policies. And Cameron has made it clear that he intends to make these cuts permanent.

Some context. One of the most shameful things about the last government was the way they proceeded to attack the fundamentals of the pension system without ever consulting the public. In their last term especially, they planned a wide-ranging series of neoliberal reforms as the Blairites became impatient to make their mark in a lasting way. At bottom was New Labour's determination that the burden of pensions should shift from state provision through taxation to private sector provision, based on financialised packages. Peter Mandelson had been very impressed on a 1996 visit to Chile with the privatised pension system set up under Generel Pinochet. He in turn impressed the incoming Blair government with his findings. This aspect of New Labour thinking arose as private sector employers were attacking their own defined benefits and final salary pension schemes, as part of their drive to raise shareholder value and reduce the cost of employment. So, just as the private sector pensions system was falling to pieces, the government saw fit to attack state provision, and a tripartite consensus evolved on this issue. One of the few things restraining the government's blows was that pensioner poverty was a hot political issue. The government found this out to its cost when a political backlash engulfed it over a miserly 90p rise in state pensions in one budget. This was at a time when public sector spending was being deliberately slashed by the government, and the spending as a proportion of GDP sank well below the levels of the Major administration. They could get away with deep, though temporary, cuts in spending on health and education, but on pensions they were forced to retreat. So, the conundrum for the government was how to reduce the amount of state provision in a politically acceptable way. In its last term, with Blairites like James Purnell and John Hutton itching to make their mark, New Labour contracted the services of the princes of capital, such as Lord Turner and David Freud to fundamentally reform the whole benefits and pensions system, with the aim of qualitatively reducing state provision. This involved, among other things, raising the retirement age to levels over and above the age to which many working class people can expect to live.

Now, amid a uniquely devastating global crisis, the government has sought to shift the burden of the crisis from the banks to the Treasury, and ultimately onto the working class. A gold-plated government of millionaires has appointed a gold-plated New Labour Lord, John Hutton, to draft a report justifying attacks on what the Deputy Prime Minister Nick Clegg calls "gold-plated public sector pensions". The result so far is this, Hutton's interim report pending a final report in two years' time. In a nutshell, Lord Hutton - former work and pensions secretary under New Labour - advises the government to increase employee contributions to the pensions, as the most effective short-term way of raising funds for the Treasury. This is specifically cast in terms of raising revenue in the short-term. The government is also urged to increase the retirement age in the public sector, though this is more of a long-term measure as it is considered an unlikely candidate for the immediate fiscal gains the Treasury seeks, and reflects the wider commitment to reducing the scope of the welfare state. Bear in mind that new entrants to most public sector occupations already retire at the age of 65, with the only exceptions being the police, the fire service and the armed forces, who retire at 60 due to the physical demanding nature of their jobs. Hutton also advises the government to look for ways to end the final salary pension system, which he judges is "inherently unfair". Instead, he urges shifting to a pension scheme based on some sort of "career average".

To believe that public sector pensions are "gold-plated", you'd have to be living most of your waking life in the comment pages of the Daily Telegraph. The average public sector pension is worth £7800. In local government, it's £4000, dropping to £2800 for women. For this pension, public sector workers contribute over 6% of their wages throughout their working lives. Hutton, in his report, acknowledges as much, dismissing talk of gold-plated pensions as "mistaken" since for "the most part", these pensions are "fairly modest by any standard". If they seem generous to some, he says, it is because the private sector pensions system has been so degraded over the years. But given such an acknowledgement, the standard of justification required for an attack on such "modest" provision becomes all the higher.

Hutton's approach in that regard is standard Blairite 'modernising' talk. People live to a grand old age these days, we are informed, and the buggers cost more to feed and clothe. Some people, Hutton points out, spend 40% of their lives in retirement. But this is not the case for the vast majority of public sector workers, who are among the lowest paid skilled workers in our society, and many of whom work until the physical nature of their jobs means they can no longer do it. They do not have the option to work longer. Meanwhile, some of the features of some public sector pensions go back years, and years. For example, the final salary principle has been in place in the civil service, in different ways, since 1859 - though the system has been through numerous reforms since then, the basic principle has remained intact. Which obviously means that there must be smething wrong with it. No surprises there - Hutton was once part of a government that thought it high time to abolish rights established in the Magna Carta, such was its modernising zeal.

Further, Hutton notes, provision in the state sector is increasing overall, while defined benefit pension schemes in the private sector are diminishing in value. Thus: "around 85 per cent of public sector employees have some form of employer sponsored pension provision compared to around 35 per cent in the private sector." By the standard perverse logic of 'modernising' reforms, the failure of the private sector is used as an excuse to attack the public sector. Last example: Hutton argues that there is an "imbalance" between employer and employee contributions to pension schemes. It's a vacuous claim. What "balance" is appropriate is surely a value judgment, and the implied assumption that there is an "imbalance" which favours employees is not an explanation in itself - rather it demands explanation. For the sake of context, recent reforms have already capped employer contributions to public sector pensions schemes, leaving employees to foot the bill for any shortfall.

Overall, the claim is that changing demographics mean that a system with characteristics developed in the 19th and 20th centuries is no longer suited to the task, and must be reformed in order to reduce the cost of pensions to the taxpayer. But the cost of public sector pensions is not huge. The value of the main unfunded public sector schemes is approximately 1.7% of GDP, and it is projected by the National Audit Office not to have increased at all in 50 years time. The net public sector pension cost, defined as the difference between present employee contributions and present costs, is much lower, closer to 0.3% of GDP this fiscal year. It can vary depending on the rate of inflation, but it is still eminently affordable. According to Diane Abbott, who has been an active participant in debates emerging from the Work and Pensions Committee's proposed reforms, the Treasury spends twice as much on tax relief for private pensions as it does on public sector pensions. Repeat and underline: raising employee contributions is just a way of squeezing revenue out of public sector workers to enable the government to pay off the bankers. It has nothing to do with fairness, or affordability.

The unions are warning of anger, as well they might. Unison is "adamant" that replacing final salary pension schemes with career-based schemes will sharply reduce the incomes of public sector workers in their retirement, which is in fact the purpose of such reforms. Unite points out that this attack on pensions will hit women the hardest, as 70% of public sector workers are women. The unions uniformly point out that public sector workers are already living with pay freezes and de facto pay cuts. Changes to the calculation of pensions, using the Consumer Price Index on inflation instead of the Retail Price Index, has already wiped billions of the value of public sector pensions.

Noticeably, however, the tone of the responses from Brendan Barber and Dave Prentis, and the GMB, including a cautious welcome of some of the interim report's points, suggests that the larger unions are breathing a sigh of relief that it wasn't much worse, and are themselves unlikely to mobilise over this issue. If anything they want to use Hutton's report as leverage to resist some of the more aggressive Tory plans. In truth, as anyone looking at the right-wing press coverage could detect instantly, the Tories didn't need Hutton to endorse the most slash-and-burn approach. It endorses the basic idea that public sector pensions are unaffordable, which is crap, and encourages the government to undertake both short and long-term reforms to dramatically reduce the cost to the Treasury of those pensions. That's all they needed. Unless the unions do begin to mobilise far more quickly than they have been ready to so far, the Tories will use every opportunity to cut deeper than anyone expected.

Labels: capitalist crisis, david cameron, deficit, neoliberalism, new labour, pensions, public sector pay, public sector workers, recession, tories

9:36:00 am | Permalink | Comments thread | | Print | Digg | del.icio.us | reddit | StumbleUpon | diigo it Tweet| Share| Flattr this

Search via Google

Info

Richard Seymour

Richard Seymour's Wiki

Richard Seymour: information and contact

Richard Seymour's agent

RSS

Twitter

Tumblr

Pinterest

Academia

Storify

Donate

corbyn_9781784785314-max_221-32100507bd25b752de8c389f93cd0bb4

Against Austerity cover

Subscription options

Flattr this

Recent Comments

Powered by Disqus

Recent Posts

Subscribe to Lenin's Tomb
Email:

Lenosphere

Archives

September 2001

June 2003

July 2003

August 2003

September 2003

October 2003

November 2003

December 2003

January 2004

February 2004

March 2004

April 2004

May 2004

June 2004

July 2004

August 2004

September 2004

October 2004

November 2004

December 2004

January 2005

February 2005

March 2005

April 2005

May 2005

June 2005

July 2005

August 2005

September 2005

October 2005

November 2005

December 2005

January 2006

February 2006

March 2006

April 2006

May 2006

June 2006

July 2006

August 2006

September 2006

October 2006

November 2006

December 2006

January 2007

February 2007

March 2007

April 2007

May 2007

June 2007

July 2007

August 2007

September 2007

October 2007

November 2007

December 2007

January 2008

February 2008

March 2008

April 2008

May 2008

June 2008

July 2008

August 2008

September 2008

October 2008

November 2008

December 2008

January 2009

February 2009

March 2009

April 2009

May 2009

June 2009

July 2009

August 2009

September 2009

October 2009

November 2009

December 2009

January 2010

February 2010

March 2010

April 2010

May 2010

June 2010

July 2010

August 2010

September 2010

October 2010

November 2010

December 2010

January 2011

February 2011

March 2011

April 2011

May 2011

June 2011

July 2011

August 2011

September 2011

October 2011

November 2011

December 2011

January 2012

February 2012

March 2012

April 2012

May 2012

June 2012

July 2012

August 2012

September 2012

October 2012

November 2012

December 2012

January 2013

February 2013

March 2013

April 2013

May 2013

June 2013

July 2013

August 2013

September 2013

October 2013

November 2013

December 2013

January 2014

February 2014

March 2014

April 2014

May 2014

June 2014

July 2014

August 2014

September 2014

October 2014

November 2014

December 2014

January 2015

February 2015

March 2015

April 2015

May 2015

June 2015

July 2015

August 2015

September 2015

October 2015

December 2015

March 2016

April 2016

May 2016

June 2016

July 2016

August 2016

September 2016

October 2016

November 2016

December 2016

January 2017

February 2017

March 2017

April 2017

May 2017

June 2017

July 2017

August 2017

Dossiers

Hurricane Katrina Dossier

Suicide Bombing Dossier

Iraqi Resistance Dossier

Haiti Dossier

Christopher Hitchens Dossier

Organic Intellectuals

Michael Rosen

Left Flank

Necessary Agitation

China Miéville

Je Est Un Autre

Verso

Doug Henwood

Michael Lavalette

Entschindet und Vergeht

The Mustard Seed

Solomon's Minefield

3arabawy

Sursock

Left Now

Le Poireau Rouge

Complex System of Pipes

Le Colonel Chabert [see archives]

K-Punk

Faithful to the Line

Jews Sans Frontieres

Institute for Conjunctural Research

The Proles

Infinite Thought

Critical Montages

A Gauche

Histologion

Wat Tyler

Ken McLeod

Unrepentant Marxist

John Molyneux

Rastî

Obsolete

Bureau of Counterpropaganda

Prisoner of Starvation

Kotaji

Through The Scary Door

Historical Materialism

1820

General, Your Tank is a Powerful Vehicle

Fruits of our Labour

Left I on the News

Organized Rage

Another Green World

Climate and Capitalism

The View From Steeltown

Long Sunday

Anti-dialectics

Empire Watch [archives]

Killing Time [archives]

Ob Fusc [archives]

Apostate Windbag [archives]

Alphonse [archives]

Dead Men Left [dead, man left]

Bat [archives]

Bionic Octopus [archives]

Keeping the Rabble in Line [archives]

Cliffism [archives]

Antiwar

Antiwar.com

Antiwar.blog

Osama Saeed

Dahr Jamail

Angry Arab

Desert Peace

Abu Aardvark

Juan Cole

Baghdad Burning

Collective Lounge

Iraqi Democrats Against the Occupation

Unfair Witness [archive]

Iraq Occupation & Resistance Report [archive]

Socialism

Socialist Workers Party

Socialist Aotearoa

Globalise Resistance

Red Pepper

Marxists

New Left Review

Socialist Review

Socialist Worker

World Socialist Website

Left Turn

Noam Chomsky

South Africa Keep Left

Monthly Review

Morning Star

Radical Philosophy

Blogger
blog comments powered by Disqus