From the TUC

Questions on public service pensions accounting in the Autumn Statement

04 Dec 2014, by in Pensions & Investment

The Chancellor claimed that the Autumn Statement was a slight fiscal tightening – in other words, that predicted income resulting from the policies announced would slightly exceed predicted expenditure.

I blogged yesterday about the considerable uncertainty surrounding the budget contribution the Chancellor is counting on from measures on corporate tax avoidance, profit shifting and corporation tax payments from banks, which, taken together, are predicted to raise over £5 billion over five years. Any failure of these measures to generate the predicted sums would leave a massive hold in the Chancellor’s budgeting. Given that no detail has been provided about how many of the measures would work, his reliance on them looks especially worrying.

The other budget line that looks to generate substantial sums – indeed, the only other one – is entitled ‘public service pensions: next steps in revaluation’. This is predicted to generate £1.9 billion over five years – again, a substantial contribution. The Autumn Statement documentation explains that this is due to revaluations of the liabilities of public service pensions schemes covering the Armed Forces, Firefighters, the NHS, Scottish Teachers and several public service schemes in Northern Ireland. The Treasury argues that with the exception of the Firefighters’ pension scheme, final or near final revaluation results for the other schemes suggest employer contribution rates will increase across all of them. It argues that

This will produce an increase in public service pension scheme income from 2015/16 creating an offsetting net reduction in pension scheme expenditure.

The issue here is not the fact that pension scheme revaluations will lead to increased employer contributions, but the clear implication that the money to fund this will come from existing public services budgets. Unions will be concerned that these increases are to be funded entirely from existing budgets, with no additional money provided by the Treasury, meaning even tighter budgets for public services that are already struggling under swinging cuts.

Given that the employers are all public service employers, it is very hard to see how this can be counted as net income generated by the Autumn Statement. It is just a transfer of funds from public services budgets back to central Treasury budgets, on the way to be being paid out as pensions to retired public service workers. It is not a net gain for the Treasury.

One Response to Questions on public service pensions accounting in the Autumn Statement

  1. Allan
    Dec 5th 2014, 11:31 am

    Janet, many thanks for highlighting this non-trivial “revenue” item. Sadly such changes usually fall below the level of media interest and comment.

    The other important aspect I would mention is the “capital” values of pensions. The Whole of Government Accounts has only recently started to bring these huge figures for our unfunded promises to public attention and hence potential scrutiny.

    Big changes tend to follow General Elections! In capital terms, Chancellor Brown took around £100bn (£5bn pa) off private sector schemes in 1997. If I recall correctly, Chancellor Osborne swiped £86bn off the unfunded public sector sector schemes’ balance sheet in 2010 – and eased the funding on many private sector funded arrangements. I’m not however making any predictions for next summer!

    Regards Allan