George's simple strategy for class war

Inflation is at nearly 5%, before the impact of the VAT rise. Meanwhile public sector workers suffer a two year pay freeze, potentially a real terms cut in income of around 10%. Private sector workers are averaging 2% pay settlements, and so are suffering a real terms cut too.

Osborne’s Budget and Spending Review slashed £18bn from welfare, while pensions will be reduced by shifting their uprating from RPI to the CPI, so those on welfare and pensioners are also facing cuts in their disposable income in 2011.

He’s announced over £80 billion in public sector cuts, while unemployment continues to rise.

‘Don’t worry’ says George, because the private sector is coming to the rescue – and to encourage them Osborne announced £24 billion in business tax cuts in the Emergency Budget in June 2010.

The Budget announced a 4% cut in corporation tax from 28% to 24%, a higher threshold for employer NI contributions and employer NI exemptions for new businesses, and a cut in the small business rate of tax.

This is the Osborne economic strategy: the public sector is too big, and is ‘crowding out’ the private sector. The Conservative narrative is that over-spending in the public sector caused the crisis and cutting it will allow the private sector to flourish – and the economy to revive.

Like George, this strategy is simple and discredited.

Leaked papers from his own ‘independent’ Office for Budget Responsibility (OBR) in June 2010 showed that if 600,000 public sector jobs were cut the knock-on effects would mean 700,000 private sector jobs would be lost. In the Comprehensive Spending Review, Osborne said that actually only 490,000 public sector jobs would go. However, the Chartered Institute for Personnel and Development looked at his figures and estimates that in fact there will be 725,000 public sector job losses as a result of the £80billion-plus cuts.

It’s not just the OBR that’s sceptical either. David Leigh, IMF economist, said “we should not kid ourselves. In the short term, tax hikes and spending cuts will reduce growth and raise the unemployment rate”, before adding “in today’s environment, fiscal consolidation is likely to have more negative short-term effects than usual”.

The Nobel laureate and former World Bank chief economist, Joseph Stiglitz, said in December that current policies meant “a slower recovery and an even longer delay before unemployment falls to acceptable levels”.

Unemployment rose to 2.5 million in December – it was the first rise in six months, and was swiftly followed by a further rise in January 2011. Long-term unemployment (those unemployed 12 months or more) is now at its highest since February 1997 and youth unemployment, at over 20% of 16-25s, is the highest on record.

Public sector job losses are only just beginning to feed through, yet there is no sign of private sector demand compensating.

The other problem for Osborne’s ‘don’t crowd out the private sector’ slash and burn policies is Ireland. The public sector has been slashed (services, jobs, pay and pensions), corporation tax is lower than almost anywhere else in Europe, and the economy is in a death spiral.

In fact, if you want to see what the future holds for the UK economy under Osborne’s economic theory you don’t need to look at a crystal ball, you need to look to the Emerald Isle.

This is because Osborne’s ‘crowding-out’ theory is just plain wrong. And wrong on two counts: the public sector didn’t cause the crisis; and secondly, and more importantly, cutting the public sector will not solve the economic crisis. If anything, it will worsen it.

I doubt that George fails to grasp this, but despite the negative consequences of his policies, especially for unemployment, corporate Britain is doing very nicely. Corporate profits are recovering nicely, especially in the banking sector where margins have expanded impressively, and the stock market is buoyant.

Due to the shortage, house prices have remained relatively stable (they have fallen around 40% in Dublin and over 50% in some US cities) even if the market is subdued, while executive pay is skyrocketing. Yes, 2011 will be a good year for the people that matter to George.

• This article appears in the February 2011 issue of Labour Briefing under the heading 'By George, we've got it'

Vitriolic attack on public sector unions

Hugo Radice

Anyone with an interest, personal or scholarly, in the threat to public sector jobs, and the efforts of trade unions to defend them, should look at the vitriolic attack on public sector trade unions around the world in the latest issue of The Economist:

"Briefing: (Government) workers of the world unite!", The Economist vol.398 no.8175, 8 January 2011, pp.19-21

The article is an extraordinary mix of lies, distortions and contradictions. It is clearly designed as an ideological primer for the ruling classes and their mouthpieces in politics and the media as they embark on this phase of crisis resolution. It provides carefully selected 'facts' from around the world, in an analysis designed to appeal to, and reinforce, anti-worker and anti-union prejudice.

Some selected quotes:

"The public sector ... is a haven of security and stability. Many people have jobs for life and performance measures are rare. The result is a paradox: the typical public sector worker is better off than the people he is supposed to serve ..."

"Public-sector unions enjoy advantages that their private-sector rivals [sic] only dream about. As providers of vital monopoly services, they can close down entire cities. And as powerful political machines, they can help to pick the people who sit at the other side of the bargaining table."

"Unions have suppressed wage differentials in the public sector. They have extracted excellent benefits for their members. And they have protected underperforming workers from being sacked."

"Generous pensions have produced an epidemic of early retirement."

"The unions' influence extends to the size and nature of the public sector ... [They] are relentless in demanding more resources and more personnel, which conveniently translate into more members and more dues."

"Public-sector unions combine support for higher spending with vigorous opposition to accountability."

Despite this extraordinary power and privilege, The Economist concludes, in relation to the current struggles:

"Public-sector unions will find it hard to win these battles. They have not been particularly successful in mobilising public anger, considering the scale of the cutbacks."

I only hope that we can prove them wrong.

Poverty in retirement - the Coalition blueprint for pensions

Andrew Fisher

The Coalition government has, in just two months, attacked pensions on an unprecedented scale. This attack has also been comprehensive – attacking the state pension, public sector pensions and private sector occupational pensions.

This has been implemented in the context of a ‘pensions timebomb’ – because people are living too long or because public sector pensions are too generous. This is false, the real ‘pensions timebomb’ is the potential for a huge increase in the levels of pensioner poverty.

Before looking at the specifics and impacts of the new government’s policies, it is worth considering the current state of pensioner poverty in the UK.

Pensioner poverty today
In 1998 the government calculated that 2.9 million pensioners lived in poverty. By 2005-06, pensioner poverty had declined to 1.9 million – thanks to a combination of the means-tested Minimum Income Guarantee (which later became Pension Credit) and the Winter Fuel Allowance.

However, as inflation increased and the economy collapsed this progress was less consistent. In 2006-07 pensioner poverty increased to 2.1 million – with London pensioners affected most severely (23% of the capital’s pensioner population). In 2007-08 it fell back to 2 million. In 2008-09 it fell further, to 1.8 million.

Pensioner poverty still however compares unfavourably with the rest of the EU. A European Commission report in July 2009 showed that only in Cyprus, Latvia and Estonia was there higher pensioner poverty than in the UK. On the EU measure, 30% of UK pensioners live in poverty – the EU average is 19%.

The Basic State Pension
The current basic state pension is £97.65 per week (£5077.80 per year). In 1981 the state pension was worth 23.7% of average earnings. That year the Thatcher government broke the earnings link, and the value of the state pension has declined to just over 14% today.

The Coalition Government has been praised for immediately re-establishing the link between pensions and earnings – something that New Labour resisted for 13 years, and had only pledged to do in 2012, “subject to affordability and the fiscal position”.

For most of New Labour’s years in government, the rise in earnings exceeded RPI inflation. Restoring the link with earnings would have meant a real terms increase in the basic state pension. In 2010, earnings are expected to be well-below inflation, and probably in 2011 too. The government’s pay freezes in the public sector will help this to be the case.

The new government has though committed to a ‘triple-lock’- the higher of earnings, CPI and 2.5%. Unfortunately for pensioners, in the next couple of years at least RPI is expected to be higher than all three of the ‘triple-lock’. The Budget redbook reveals that the move from RPI to CPI on pensions and benefits will save the Exchequer £13 billion over five years (no disaggregated figure for pensions only is yet available).

Raising the state pension age to 66 by 2016 will also have a devastating and very unequal impact. An average 65 year old man in Kensington and Chelsea can expect to live a further 23 years, while in Glasgow it is only 14 years.

By the age of 64, the majority of men are not working. Raising the pension age to 66 will neither make more jobs available nor them more attractive to employers. For some it will mean them claiming Jobseekers Allowance or Employment and Support Allowance – both cheaper than the basic state pension.

Public sector pensions
There is no greater mythology than that surrounding public sector pensions. A Guardian editorial on 5 July stated:

“if only union leaders would show the steely pragmatism that so often eludes them, and borrow a line from the Conservative manifesto – we're all in this together”
“If the state's workforce can convince the country that it is after copper- and not gold-plated pensions, then it might just start to win hearts and minds”

The infamous and ubiquitous “gold-plated” public sector pension is of course largely a myth. The average local government pension resides at just under £4,000 per year. Excluding the upper echelons of the senior civil service, the average civil service pension is only slightly higher at £4,200 per year (a positively tin-plated £80 per week). For teachers the average is a more healthy – yet far from gold-plated – £9,000 per year . Overall, the TUC suggests the average public sector pension is £5,500 per year.

Nevertheless, these sums are overly generous and the government has commissioned former New Labour Minister John Hutton to review public sector pensions. All indications suggest that higher employee contributions (for lower pension values) will be recommended – further hitting the real incomes of pay frozen public sector workers.

Public sector pensions have already been attacked though by the indexation changes announced in the Budget. According to TUC research , an eighty year old pensioner with an average public sector pension would be more than £650 a year worse off – equating to £12.50 per week.

The net cost of paying public sector pensions in 2009/10 was a little under £4 billion. The cost of providing tax relief to the one per cent of those earning more than £150,000 is more than twice as much. The cost of providing tax relief to all higher rate taxpayers is more than five times as much.

Private sector occupational pensions
Shortly after the Budget, on 8 July, Pensions Minister Steve Webb MP announced that the government would legislate to alter the standard for calculating defined benefit schemes from RPI to CPI.

This is a significant saving for corporate Britain – already benefiting from the £24.7 billion of corporate tax breaks over five years announced in the Budget . The exact saving has been calculated by Pension Capital Strategies as £100 billion over the lifetime of existing schemes.

Meanwhile, the private sector continues to close or dilute final salary pension schemes. BBC management is proposing to change current pension scheme rules, to allow no more than a 1% annual increase in the amount of salary that can be considered toward a pension, irrespective of any pay rise or promotion staff might get.

This could cost staff tens or even hundreds of thousands of pounds in retirement. For example, a man aged 25 who joined the BBC five years ago, currently earns £25,000 and gets a 4.7 per cent pay rise every year, could have looked forward to a pension worth £31,266 a year on retirement at age 60. Under the new proposals, his pension collapses to about £9,200 a year. Over a retirement of twenty years, this is a loss of over £400,000.

It’s not bad news for all private sector pensions though. According to the TUC's 2009 PensionsWatch survey, the average accrued pension for FTSE 100 Directors was £247,785 a year – an increase of 28% since 2007.

And of course top earners in the private sector benefit most from pensions tax relief. 60% of the gross tax relief – more than £22 billion a year – goes to higher rate taxpayers. A quarter of tax relief – nearly £10 billion a year – currently goes to the one per cent of the population who earn more than £150,000.

Conclusion
The Coalition government is clearly using the national deficit and its own honeymoon period as an opportunity to introduce measures that have little to do with tackling the deficit and more to do with protecting the privilege of its class base.

The comprehensive and simultaneous attack on pension rights should enable public and private sector workers and trade unions, as well as existing pensioners to unite in common campaigns to tackle this attack on the most basic security for working people – dignity in retirement.

Never forget the reason we're in this mess - and that there are alternatives to cuts

Last week the BBC's Robert Peston posted a blog on the BBC website 'The risks of forcing banks off welfare'. It's an interesting post and of itself is thought provoking - is it in bad taste when £11bn welfare cuts have just been announced? Would the 'impartial' BBC allow a blog opposing the withdrawal of welfare to human beings?

However, in his honest appraisal of the state of the banks, Peston does reveal some useful information:

"At the peak of the financial crisis in late 2008, public-sector support for the worlds' banks - in the form of loans, guarantees, insurance and investment - was equivalent to a quarter of everything the world produces, or more than $12trillion.
In the UK, support reached a maximum of around £1.3trillion, almost 100% of GDP.

"These weren't just a few handouts. This was the biggest co-ordinated financial rescue operation the world had ever seen."

While £1.3 trillion was paid out in bank welfare, the unsustainable UK human welfare bill is just £0.19 trillion per year. And here, according to Peston are the UK payback terms:

"In the UK, for example, UK banks face a deadline of the end of 2012 to repay £165bn of high-quality liquid assets supplied to them by the Bank of England under the Special Liquidity Scheme.

"And over the same timescale, British banks will have to find £120bn to pay back debt that has been guaranteed by the Treasury under the Credit Guarantee Scheme (there is an option to roll over a third of these government guarantees to 2014)."

Right, so we have a annual deficit of £159 billion, and within 18 months the banking sector should repay £165 billion ... let's also remember that if it was not for these extraordinary levels of support the banks got, it is quite possible that the entire UK banking sector would have collapsed. Yet despite saving an entire industry, despite the fact we paid more to save it than it was actually worth at the time, we own virtually none of it, and control very little.

The UK bank bailout was the largest redistribution of wealth in our history. From poor to rich. The Emergency Budget consolidated that. There is a class war being waged, not by militant trade union leaders but by the state and big business.

There are of course alternatives to the Government's approach and that of its predecessor. We need to be publicising those alternatives, publicising the real reasons for the crisis and not accepting the need for cuts.

PCS has produced an excellent flyer for its members 'Our alternative to spending cuts', which could be used by any activist seeking an alternative to the cuts.