Cameron and Maude. Kebabed by ED. Sadly, ED stands for Evan Davies — on this morning’s Today programme. But at least two other Eds should take note. They could do the same. David Cameron and Francis Maude were exposed as talking cobblers about public sector pensions. On Tuesday at the Local Government Association conference, David Cameron warned that the pension system was in danger of “going broke” even though he admitted they weren’t necessarily generous. This morning, Francis Maude claimed that it was unaffordable, and John Hutton had said so, a claim that ED said had been so often repeated. And, in a great interview, ED demonstrated that Hutton had said nothing of the sort and that the scheme was affordable because the cost was going down.
David Cameron’s speech included the following:
We just can’t go on as we are. That’s not because, as some people say, public service pensions are ridiculously generous. In fact, around half of public service pensioners receive less than £6,000 a year.
“The reason we can’t go on as we are is because as the baby boomers retire – and thankfully live longer – the pension system is in danger of going broke.”
On the Today programme, Maude attacked the credibility of Mark Serwotka (who performed well. Evan Davies took up the issue of Mr Maude’s credibility. Listen here or read the transcript:
ED: I want to just ask about your credibility. The prime minister said the other day the reason we can’t go on as we are is because the pension system is in danger of going broke. Do you stand by that claim?
FM: Well I’ll just quote what Lord Hutton said, the former Labour Work & Pensions Secretary, when he did his report. He said very clearly the status quo is not tenable.
ED: He didn’t say that, did he, that’s not a quote because I did a little Ctrl-F key search on the word tenable and I couldn’t find it in his report.
FM: He has said that the system is not tenable. And it needs….
ED: Did he say it’s going broke if nothing is done because I can only find that graph which shows the cost falling in terms of GDP burden. It’s just…it has been repeated so often that it is unaffordable, out of control. I just can’t see it. He doesn’t say it’s unaffordable in his report. He says it’s unfair which is a very different justification for reforming pensions than that it’s unaffordable.
FM: And he says that if we want a system of defined pension benefits, which few people elsewhere have, to be sustained into the future, long-term reform is needed.
ED: Is it unaffordable?
FM: It will be unless we make these changes.
ED: But that is not what he says.
FM: But it will be unaffordable…err… the cost to other taxpayers of supporting public sector pensions has gone up by a third – it’s £32 billion a year, and what Lord Hutton said in his report was that the extra cost of people living longer, because the average 60 year old today is living 10 years longer than they did in the 1960s…
ED: Have you read the report?
FM: Of course I’ve read the report.
ED: Then can you tell us why he shows, why does he show the cost falling over the decades in terms of the proportion of GDP going to public sector recipients. Just explain why it’s going down because if you’ve read the report, you’ll know the answer.
FM: The answer is that the expenditure on pensions by the tax payer has increased by a third…
ED: Is it going down? In his report, the big picture is that it is going down… why is that? Just explain to the public why it is that the cost is going down.
FM: Well the cost to the taxpayer is going up. That’s the point. The increase…
ED: As a proportion of GDP…
FM: The cost of the increase… the cost of paying pensions to people who are living longer which is obviously good news – you cannot continue to have more and more people in retirement being supported by fewer and fewer people in work. That’s why it’s so important that we’re going to ask people, if you want to continue to have very good pension schemes which are a guaranteed level of pensions available to few others, that’s got to be paid for by higher contributions by those who are going to have those pensions, and to ask them to draw those pensions later.
ED: I’m going to read you a line and ask you whether you think the account you’ve given is the same as the one he gives. “There have been significant reforms to public sector pension schemes over the last decade. Some of these changes have reduced projected benefit payments” – blah, blah, blah – “Projected benefit payments fall gradually to around 1.4% of GDP after peaking in 2010-11 at 1.9%.” That’s just saying it’s not unaffordable, we don’t want to afford it. It’s cheaper. It’s going to be 25% cheaper in the next few decades in terms of the burden on GDP than it is at the moment.
FM: What he’s saying is that long-term reform is needed.
ED: Absolutely. For different reasons.
FM: The point is, there’s been widespread pension reform across the economy. People in the private sector have seen old, defined benefit schemes disappear. What John Hutton has said – and we’ve totally agreed with – is we do not want to see a race to the bottom.
The Hutton report, by the way, says (§1.3, p22):
There have been significant reforms to the main public service pension schemes over the last decade, including increased pension ages for new members and a change in the indexation of pensions from RPI to CPI indexation. Some of these changes have reduced projected benefit payments in the coming decades. For the interim report the Commission asked the Government Actuary’s Department (GAD) to project future public service pensions expenditure. It projected benefit payments to fall gradually to around 1.4 per cent of GDP in 2059-60, after peaking at 1.9 per cent of gross domestic product (GDP) in 2010-11.
