Monday, January 23, 2006

Just Like Old Times

News today that 1.5 million local government workers are to be balloted for strike action. Unions involved include UNISON, Amicus, the Transport & General Workers Union, the GMB and the Fire Brigades Union.

At issue is the so-called "85 Rule" under which workers whose age and the length of service add up to 85 years can retire early on full pension. Thus a worker aged 60 with 25 years service can retire at 60 rather than 65.

Despite assurances to the contrary, we confidently expect the government to cave in, just as they did over increasing the retirement age of other public servants from 60 to 65. Because in the public sector the unions are rediscovering their taste for 1970s style industrial blackmail. And our shambolic faction-riven Labour government lacks the requisite cojones to oppose them.

But somebody's got to oppose these resurgent unions. The Sunday Telegraph yesterday carried a frightening report on how much public sector pensions actually cost the rest of us. In English local authorities alone, £5.2 billions pa- 26% of Council Tax revenue- now goes on pensions. And according to leading local authority actuaries Hymans Robertson, "there's every possibility this figure will rise over the next five years as age-related costs continue to feed in."

More broadly, according to Liam Halligan writing in the same paper:

"The public sector pension deficit - the liability which must be met by future taxes - now tops £700bn. This figure - conveniently kept off the Government's books - amounts to £30,000 per household, all of which will have to be met by taxpayers.

That's because, unlike private sector schemes - where regular contributions are invested in a fund which is itself invested in equities and bonds - public sector pensions are generally "unfunded", that is to say, they are financed by current Government receipts.

And as public sector payrolls expand, and state retirement ages continue to ignore longevity, the deficit grows ever wider. Over the last three years, it has grown no less than 35 per cent."

Government failure is taking us down the road to a national debt crisis. Moritz Kraemer of Standard & Poor's, the world's leading debt ratings agency, says:

"If there is no policy change, in terms of higher taxes or retirement ages...within 10 years, this would become a major issue. And in the decades that followed, the situation would look dire indeed, becoming similar to what we see in countries like Egypt or the Ukraine."

Sooner rather than later something must be done. If Britain's debt is downrated to sub-investment grade junk, with all the punitive interest rates and harsh borrowing conditions that go with it, we will be sucked into a vicious circle from which it is difficult to escape. And none of us want to go there.

You can't blame the unions for trying.

But you can blame the government for caving in.

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