Sunday, November 27, 2011

Why the Pension Changes Must Go Through

It's Sunday evening. I have just snapped off Five Live with John Piennar during a long rant by Len McCluskey of, I think, the Unite union banging on about pensions, how all this is ideological etc.

Like most unions, he's fighting the last war. The 80s were, tangibly, about checking the power of unions. The money spent on beating the miners could have paved Sheffield's streets with gold. This time, it not ideology but economics that are shaping the agenda.

Pensions are the visible tip of a lifestyle iceberg that we are just about now realising is not sustainable. We can't afford the NHS - or at least not the one we want. We can't have the police, armed forces or welfare policies we really want - we just can't. The money just isn't there. It actually hasn't been there for a long time - well before the banking crisis - it just that we thought it was. We simply used a lot of debt and, yes, banking profits (they are taxed) to fund ever growing public services.

The problem underlying all of this is is the productive capacity of our economy. Not just ours, the whole of Europe, bar Germany, and the US all have economies far weaker than the social settlement we have created on top of them. The solutions therefore are not to be found in the politics of protest - though I am glad to see people actually doing something.

Instead they are to be found in deep economic and social reform. There are three important elements here. One is investment. Not just lending to SMEs etc (that much is obvious) but proper investment in high end products and services. This is generational fix but it is one which has got Germany to where it is today. We have the brain power in this country, just a pathetic inability to turn this into profitable companies.

The second is public sector reform. The Government half-gets this. Indeed I come across many Councils which do get it and are moving from being huge corporate service deliver agencies to place-shapers. The role of Government is not to do but to make sure things are done in a way that they people want. It is to intelligently knit things together, not become the biggest employer of people, a situation found in many northern towns today. Where a job with the Council is people's highest hope.

The third is much harder to achieve - a shift in social preference away from debt. Thirty years ago, it was really hard to get a credit card. A mortgage you got on application. Being in debt was something you avoided if you could. Now we allow a disgusting market in exploitative debt to operate on our high streets. These Poverty-Machines exist in every town. One has even opened up in Bury St Edmunds. I can have up to a grand for a couple of weeks at an interest rate of nearly 5%. Why isn't this illegal? We have to regulate this industry and, ideally, close it down.

While I really worry about Britain, wee've a lot going for us - our geography and culture our language, our world position, our history and our creativity. We still have some of the best universities in the world. London is holding its own as a world city. There's definitely much to build on.

But my overwhelming feeling is anxiety. About an imbalanced economy, a fracturing society, a populace grown used to easy comfort, a closed polity and a public sector which is fighting old wars rather than changing itself for a new age.

For all these reasons, these pension reforms need to go through. They are just one element of putting things right.


David Floyd said...


I agree with a surprisingly large percentage of what you're saying here.

I think the underlying problem is that public sector agencies know they can't deliver everything people would like them to deliver but it's impossible for political leaders of any party to admit that publically without being seen as being responsible - as opposed to just highlighting an existing fact.

The result it that failure to admit that there's a limit to what the state can do leads to failure to have an open debate what the state should be trying to achieve with resources it DOES have.

Not that this necessarily means the unions are wrong about pensions. Whether or not the GDP of the country reduces, it's not in the interests of the majority of people for wages and benefits to be reduced as a percentage of the pie that remains.

Craig Dearden-Phillips said...

Well,David, I think today OBR report should deal with most of people's objections. And let's hope the bloody Eurozone survives. The terms of trade changed today. We're into new space. I am scared.