April 8 2010

 

Leafing through the Western Telegraph of 31 March looking for something newsworthy - not usually a productive exercise - my eye alighted on the headline "Council pension pot's small hole" above a report on the £82,030 deficit in Pembrokeshire County Council's pension fund.
This figure came from research conducted by the Taxpayers' Alliance (TA).
On visiting the TA's website I found that the actual figure was just over £82 million, but what's the odd £81.9 million between friends.
A council spokesman was quoted as saying that the smallness of the deficit was largely due to the council's "efficient management of resources".
All very cozy, though, as the TA also reported that the total deficit across local authority pension funds was £53 billion, one is entitled to ask why nobody thought to question the accuracy of a figure for Pembrokeshire which amounts to less than half the Chief Executive's salary.
I notice that this week's edition carries a correction; inconspicuously tucked away in the top left-hand corner of page 24, though the letter the paper received pointing out the error has failed to make it into print.
Next week, perhaps.
To put the deficit into context, the council is set to raise £35 million this year from council tax.
And as it is the council tax payer who will be called upon to make good any eventual shortfall, it is interesting to note that £82 million would add £1,600 to a current band D council tax bill.



During the 1997 election, Labour made great play of its claim that the Conservatives' plans for the NHS would lead to a two-tier health system.
I remember writing at the time that nobody seemed to mind that we had a two-tier pension system.
I was referring to the vast disparity between the pension arrangements in the public and private sectors.
Since then the gulf has grown wider as more and more private companies have abolished final salary pension schemes on the grounds of affordability.
Meanwhile the public sector has continued to guarantee employees with the required years of service a pension of half their final salary.
Which means that a director with Pembrokeshire Council, who, according to the TA, earns £112,000,a year, will be entitled to a pension of £56,000, or more than a grand a week.
In addition, on retirement, they will receive a tax free payment of one-and-a-half times salary.
The Chief Executive's salary is £172,000 - you can do the sums for yourself.
There is an inherent unfairness in final salary pension schemes because contributions are based on average salary.
That means that an employee who remains in the same post throughout their career contributes more in proportion to their eventual pension than someone who rises through the ranks to reach the top.
When he was Minister for Local Government, John Prescott floated the idea that public service pensions should be based on average salary - though nobody has yet plucked up the courage to introduce such a scheme.
What I find compelling is the argument that people on a hundred grand a year are better placed than the rest of us to make their own pension arrangements.
The poor subsidising the rich doesn't seem to chime with politicians' claims to be creating a fairer society.

 

Back in December, I raised the possibility that Greece might default on its debt with dire consequences for European Monetary Union.(EMU takes flight),.
Well, three months have passed and the Greeks are still afloat, though the Euro's exchange rate has taken a pasting when compared to the dollar.
During those three months the European Union has been playing a high-stakes game of chicken with international investors.
This has involved giving vague assurances that Greece will not be allowed to go under while steadfastly refusing to be specific about the details of any bail out.
This tactic has worked so far but only up a point as spreads on Greek debt compared to the benchmark set by Germany have widened alarmingly.
At one point yesterday, following the publication of a leaked document from the Bundesbank which described the possibility of a bailout as a threat to the stability of the Euro area, international investors were demanding an eye-watering 8% yield on Greek bonds.
In addition, investors regard talk of a bailout as bluff because such a move is probably illegal under both EU rules and the German constitution.
With borrowing costs at this level, Greece risks falling into what is known as the debt trap - where accrued interest and the effects of compounding overtake the country's capacity to pay.
This all has relevance to the situation in the UK where debt as a proportion of GDP is at similar levels to those of Greece.
The task facing whichever party is elected is to walk the tightrope between cutting pubic spending (slower growth and rising unemployment) and the risk of a gilts strike by international investors which could send interest rates through the roof (slower growth and rising unemployment).
I am not confident that either of the main parties knows the answer, or even that there is one.
My own view is that we have already passed the point of no return.
An article in the Sunday Telegraph by the economist Liam Halligan drawing the distinction between the national debt and the annual deficit neatly summed up the situation.
Both the main parties are committed to cutting the deficit - the only real difference is the timing.
As Halligan points out, cutting the deficit and cutting the debt are not the same thing.
The current deficit (government spending minus tax receipts) which is funded by borrowing is currently running at about £160-170 billion per year.
Even if government plans to halve the deficit by 2014 are followed, it means that the national debt will still be increasing at an annual rate £80 billion.
This is clearly unsustainable because somewhere along the line the accumulated interest on this debt will become a significant contributor to the debt itself.
At some point, to make matters even worse, international investors will demand higher interest rates to compensate for the extra risk involved.
That is the spiral in which Greece now finds itself.
It could be coming to a country near you.


Labour has accused the Tories of using the back of an envelope to calculate the savings necessary to make up for their pledge to scrap government plans for an increase in National Insurance.
This argument contains the same flaw that I drew attention to last month (Poisoning the well) because the material on which the sums are written has no bearing on their mathematical soundness.
After all, Pythagoras did most of his best work with marks scratched in the dust with a sharp stick.
I have some experience in this matter, though a fag packet rather than an envelope was the medium of choice.
When I built the extension on the back of the Shire Hall the county council's architect on the site was a splendid chap called David Evans.
David was a bit of a character who some of you may remember driving a large motor car very slowly round Haverfordwest with an equally large dog perched on the seat alongside him.
The car's registration was DE something which must have made him one of the first people in Pembrokeshire to have a personalised number plate.
He was also a dedicated smoker and whenever my foreman Roy Jones went to him with a query he would fish an empty fag packet out of his jacket pocket, open it up (this was in the days before the flip top packet) and proceed to execute a detailed drawing of what was required.
At the end of the job Roy had several dozen of these artifacts in his desk drawer and they proved extremely useful in the role of variation orders when settling the final account.
Respectable readers of this column will not be familiar with the interior of the Shire Hall (aka Magistrates Courts) but I can assure them that the last time I was there (as a reporter, of course) it was as sound as the day it was built.




back to home page