Thursday, 28 July 2011

Public sector pensions: the economic crisis debate in microcosm

It occurred to me today that the debate over public sector pensions is actually the debate about the economic crisis in microcosm.

Few deny we have a large deficit. Few would deny that the UK economy is in its most fragile state for a long time. Fewer still would argue that 'something' needs to be done about it. What that 'something' is the subject of vociferous debate.

For the Conservatives (the right, politically and economically) this is the time to wheel out the classic Friedmanite arguments. The crisis, so they allege, was caused by a 'bloated public sector', us 'living beyond our means', 'maxing out the nation's credit card' and 'not fixing the roof when the sun was shining' - from the ideological to the hokey.

Hence why the government states that public sector pensions must be slashed by £2.8 billion per year to pay for the deficit as they are part of that bloated public sector. They'll tell you that 85% of public sector workers have an occupational pension compared to less than 35% of private sector workers, that pensions are gold-plated, that "the pension system is in danger of going broke".

As we know from the Hutton report, the National Audit Office, the Institute for Fiscal Studies and the Public Accounts Committee (and this humorous interview with the witless Francis Maude) public sector pension schemes are not on the verge of implosion, and the pensions are not gold-plated, in fact they average about £5,500 per year. But why let the facts get in the way of a good ideological crusade against the public sector.

Next we come to the middle of the road. Some would call this the centre, but that gives it the illusion of reasonableness, careful impartiality and a thought-out position. Whereas the middle of the road is a completely illogical place to stand. Indeed, as Aneurin Bevan once said, "We know what happens to people who stay in the middle of the road. They get run down". In this group we find the hapless Ed Miliband, leader of the Labour Party, who I think it's fair to say bears a certain resemblance to soon-to-be roadkill; that caught in the headlights blank stare reflecting a completely illogical reaction to the current circumstance.

In Ed Miliband's case this is because the last Labour government, of which he and most of his shadow cabinet were members, re-negotiated public sector pensions - and as such made them entirely affordable. In fact as the Hutton report shows, the costs are falling. Nevertheless, Ed Miliband is determined to stand in the middle of the road and look stupid. So he condemns the Tories for not negotiating seriously, and also condemns the unions for striking against the Tories.

Sadly for Labour this same half-arsed mess is mirrored in their economic policy. They too think the public sector got a bit too big, especially on welfare (Byrne, Miliband, Purnell, etc) and there's too much immigration (Glasman, Miliband, Rutherford). What to do then? Well they've moved away a little bit from the clearly right wing response of Alistair 'cuts deeper than Thatcher' Darling, and now think the cuts are too far and too fast. So they would cut less and slower, but nobody likes to mention what (except for welfare and immigration, to triangulate to the Daily Mail because voters will clearly not see the Tories as more active on those issues). Remember, middle of the road = stupid.

Finally, we have the left represented today by only a handful of politicians, but more importantly by the trade unions and a number of other democratic civil society organisations. They, like the right have a narrative. In short, 'the finance sector caused this crisis, those on low and middle incomes shouldn't be made to pay for it'.

On pensions therefore they point out the voluminous evidence produced by mostly centrist organisations (see above) that show public sector pensions are affordable, sustainable and fair - and make reasoned arguments to that effect.

On the wider economic question too, the trade unions have also put forward a clear alternative (see Unite and PCS for example) that also rejects the needs for mass public spending cuts as counter-productive for the economy.

And so the fight to defend public sector pensions is really about who was to blame for the economic crisis and what we do about it. Like 1974, it's the government or the unions. Which side are you on?

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