Tuesday, February 03, 2009

The Picnic Is Over


Summertime and the living was easy

And is there honey still for tea?

And proceeds of growth yet to share?

Come to that, just remind me what growth actually is.

The long Edwardian summer of easy options has blown away, and we are now accumulating war debt at an historic and terrifying rate. Unless somebody gets an iron grip on public spending - and soon - we are doomed to high taxes and inflationary debt finance for a generation to come.

But fear not: cometh the hour, cometh the George.

Hmm.

I see what you mean. Iron Chancellor is perhaps not the first description that springs to mind.

But no matter - if we men and women of goodwill put our heads together, then surely we can supply George with a list of public expenditure items that he can cut. And then all he's got to do is get out his Big Scissors. Should be a piece of cake.

So to get the ball rolling, may we suggest two ideas for cuts from important studies just published:

Scissor Job 1: Public Sector Pensions

We've long been blogging the increasing cost of public sector pensions, and the unfairness of those with very poor pension entitlements of their own being forced to pay for the far superior arrangements in the public sector. It's become known as the Pensions Apartheid.

Now Corin Taylor has written a detailed paper for the IOD setting out the costs to taxpayers and proposing some specific cuts.

On costs, there are currently 5.2 million members of public sector final salary pension schemes. And the average employer pension contribution for each of them is £4,000 pa. So the annual cost is c £21bn pa.

But as we all know by now, most public sector pensions are pay-as-you-go rather than being funded (ie there is no pot of assets set aside to pay the pensions when they fall due). And right now the employers and employees contributions each year are insufficient to meet the payment of pensions. So there has to be an annual top-up from taxpayers - on top of the employer contributions.

Based on HM Treasury figures, Corin shows that without increases in contribution rates, these top-ups will increase rapidly over coming years. In fact looking at the next 50 years, he estimates the total bill will be around £335bn, or £13,000 per household.

And remember, that's on top of the £21bn pa employer contributions (50 years of which will cumulate to well over £1 trillion.

So what to do?

Here's a clue: if all public sector employees were henceforth moved across onto the average private sector pension arrangement, the annual employer contribution would drop from £21bn pa to around £8bn pa (the average private employer contribution being £1600 pa). Plus, the vast bulk of the annual top-up would disappear (most private sector pensions now being money purchase/defined contribution rather than the infinitely more attractive index-linked final salary deals in the public sector).

Corin's proposal is less radical but would still save a pile of taxpayer cash. He says the "public sector normal pension age for new members and for new accrual of existing members should be increased in line with increases in the state pension age". Which means it increases to 65 by 2020, and 68 by 2046 - exactly in line with the planned increases in state pension age for all of us.

Being in the pay of big unions, Labour naturally bottled serious public sector pension reform.

There will be no such excuses for George.


Scissor Job 2: Department for Business Enterprise and Regulatory Reform (BERR)

As BOM readers will know, BERR is essentially the old DTI, one of Whitehall's most useless departments. We have long called for its abolition (eg see this blog and even this vid).

Now, Ben Ferrugia has written a detailed study for the TaxPayers' Alliance. He shows how BERR/DTI has entirely failed in its supposed mission of making Britain more business friendly:
  • Despite £13 billion spent on 'business' objectives since 2000, the UK is now assessed as a worse place to do business
  • Regulations passed since 1998 cost UK businesses more than £65 billion a year; the average corporate tax rate is 1.2 points higher than the OECD average
  • The UK has slipped down the international rankings in all but one of the World Bank's 'Doing Business' indicators
  • Only 4 per cent of small businesses used one of BERR's 3,000 (!!) business support programmes in 2006
  • The number of business registering to pay VAT – a standard measure of business start-ups – barely changed between 1997 and 2006
  • It takes the average UK entrepreneur twice as long to start a business as his French counterpart

Ben reckons taxpayers could save £1bn pa by drastically slimming BERR, and a further couple of bill by scrapping the terminally useless Regional Development Agency quangos.

So that's two for the snip, George. Together, we reckon they'd save taxpayers around £10 bn pa.

Yes, we know you'll get the BBC branding you a heartless maniac. But they never liked you in the first place, and you must understand none of this is going to be easy. Just imagine how it's going to be when you finally have to unringfence those areas Cam reckons are non-combat zones (ie health, schools, defence, and overseas aid).

So chin out, shoulders back, brace up, and try to forget those picnics ever existed.

PS Private enterprise vs government. In these dark and depressing days of resurgent Big Government, it's reassuring to see that underneath the headlines, the real world hasn't changed at all. Yesterday's snow revealed the truth. Whereas Tyler's, and many other, councils failed to keep the show on the road (Surrey's schools are still closed), the private sector ploughed on magnificently. Mrs T, you see, has finally had it with her disintegrating held-together-with-string kitchen and is demanding a new one. So she'd arranged for a bespoke kitchen man to call on us at 11am yesterday. Well, obviously he wasn't going to make it because Tyler Towers was under unfathomable feet of snow and our country road was blocked - no, really, with council gritters nowhere in sight. But amazingly, just before 11, this Scott of the Antarctic figure appeared though the swirling snow, literally up to his knees in the stuff. He was wearing a bright yellow sailing survival suit and had walked for two miles down a snowbound lane to reach us. And that my friends is the power of the market, especially in tough times. We wondered how many local authority community engagement outreach facilitation officers were going the extra two miles yesterday.

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