There was no clear winner from yesterday's public sector strikes.
The Government’s main argument is that major changes to public service pensions are imperative because increasing life expectancy has made the current arrangements unaffordable. The Coalition can draw on the even-handed review by former Labour minister John Hutton, who admits that demographic changes mean we cannot be sure that even the best-funded schemes will remain sustainable. Ministers also argue that there needs to be greater parity between the public and private sectors. And they accuse some unions of taking to the picket lines prematurely.
The unions claim that further pension changes are unnecessary, that typical pensions are modest and if state workers did not receive them, they would qualify for means-tested benefits in retirement. They say it is unfair to push through these changes, which would mean paying more and working longer for inferior pensions, when frozen salaries are being eroded by inflation and thousands are losing their jobs. Finally, the strikers accuse the Government of not budging on any key issue. There has been misinformation on both sides and public opinion seems fairly evenly divided, though patience could be stretched by prolonged strikes.
The unions have a point about affordability, as Cabinet Office Minister Francis Maude was forced to concede yesterday. The Hutton Report shows the cost of public sector pensions as a share of national income will fall by 2060. It is more accurate to say that the Government is choosing not to afford them, with the explicit aim of shrinking the deficit by £2.8 billion. (In fact, the situation is more complicated because public sector workers belong to various pension schemes, in various states of financial health, so there is an argument for separate negotiations for different schemes.)
Under these circumstances the Government would be better off relying on the argument about fairness because many private sector workers, forced into the uncertainties of money purchase pension schemes, believe a dose of reality in the public sector would be no bad thing. Ministers are also right to stress that the career average schemes suggested by Lord Hutton would make little difference to low and middle earners.
Public sector workers are also unlikely to attract sympathy over the extension of retirement dates, which will bring them into step with the rising state retirement pension age. In fact, new entrants are committed to working to 65 already.
This leaves two core issues: inflation-proofing and contributions. David Cameron insisted again this week that all accrued benefits would be protected. This is not quite true as the Government is changing the uprating mechanism from the Retail Price Index to the generally lower Consumer Price Index, which will have the cumulative effect of robbing public sector workers of thousands of pounds in pension benefits. (Of course, if RPI indexation was retained, that would make the costs less sustainable, so the unions cannot have it both ways.)
On contributions, the unions are right to say that in some cases, pension contributions will double or even treble. Higher earners will be worst affected and it is possible that if the Government enlarged the group of workers whose contribution increases will be capped at 1.5% of income, some unions might settle.
If the unions want to build public support they should get back around the table and also attempt to frame their dispute around the standard of public services. After all, secure decent pensions help to attract good candidates into careers such as teaching and local government administration. Ultimately, we get the public sector that the private sector is prepared to pay for. There is a choice.
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