Government's policies are built on misinformation - should we be worried?

Janet Downs's picture
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The Coalition Government uses misinformation and distorted data to justify its policies. Mr Gove’s cavalier attitude towards evidence is regularly exposed on this site. However, it’s not just in education. Whether its education, public service pensions, the NHS or Localism, the Government is relying on spin to push through its reforms.

PUBLIC SERVICE PENSIONS

Public sector pensions are unaffordable, says the Government. But the cost of public service pensions has already peaked. Baby-boomers have retired and public service pension costs will fall by 2060 to 1.5% of GDP compared with 1.9% today. Hutton says that “the public can’t be sure that schemes can remain sustainable” but underneath this statement is a graph which shows costs falling (page 23). Unfortunately, Hutton lumped all public sector pension schemes together even though they are set up differently. There are one million workers in the Local Government Pensions Scheme (LGPS) which is not paid for by the taxpayer but is funded from investments. The question is: how far has the inclusion of LGPS in Hutton’s review of public sector pensions distorted the figures?

And the Teachers’ Pension Scheme - the last Government brokered a deal in 2007/8 to make teachers’ pensions affordable. Now the Coalition wants to tear up this agreement. No wonder teachers are angry. Teachers are already paid less than similarly-qualified people in other professions. How does the Government expect to recruit highly-qualified graduates and retain teachers if it reduces teachers’ conditions of service?

The NHS

The Government was accused of hiding positive results of Ipsos Mori polls which showed high level of satisfaction with the NHS because this would have been embarrassing when it was unveiling its NHS reforms. The Government denied that this was a cover-up by saying the figures hadn’t been in the public domain since 2007 and then backtracked by saying the papers were in the House of Commons Library all along. How members of the public were supposed to access this information, especially when they didn’t know it was there, is unclear.

LOCALISM

This is what a Conservative Peer, Lord Newton of Braintree had to say in a Lords debate on the Localism Bill:

“…I read the provisions as a mere layman, what is being said here is that local authorities can do anything they like, subject to some broad qualifications, and the Secretary of State can allow them to do anything they like if he likes what they want to do; but if he does not like what they want to do, he can do whatever he likes to stop them…”

When a Conservative Peer criticises the Government in such uncompromising terms, I think we all need to be very concerned.
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Sarah Dobbs's picture
Thu, 30/06/2011 - 19:48

http://liberalconspiracy.org/2011/06/30/audio-the-moment-francis-maude-g...

And here is a wonderful moment that proves the point!

Paul Atherton's picture
Thu, 30/06/2011 - 20:34

Janet,

Re: Public Service Pensions

The graph you refer to, is there to demonstrate the variance of unforeseeable parameters such as changes in life expectancy or numbers of public sector employees, which is highlighted by the spread "wave".

Although the graphs decline is down as it should be. It is in no way suggesting that under that report, these were predictable.

Janet Downs's picture
Fri, 01/07/2011 - 08:32

The interviewer on the Today programme and the Times (25 June 2011) should both be congratulating for nailing the lie that public sector pension costs are ballooning. Yes most of the media promote this idea even to the extent of using inflammatory language such as "pensions apartheid".

http://blogs.telegraph.co.uk/finance/ianmcowie/100010663/pensions-aparth...

In the Today programme Maude said that private pension schemes had had to accept "reform". This is disingenuous - he knows that the decline in value of the once profitable UK private pension schemes goes back to Lawson's Law (1986) which required private pension schemes either to use surplus (yes, that's right, surplus) to improve benefits to members or to take a "holiday", ie not pay any money into the scheme thereby reducing the surplus. Unsurprisingly, most schemes in surplus took a holiday. The Times wrote about the negative consequences of this law back in 2003:

http://business.timesonline.co.uk/tol/business/article1071505.ece

The collapse of the once-profitable UK private pension schemes can be tracked back to the policies of the last Conservative administration. Added to this folly was Gordon's grab, which siphoned off more money. And we mustn't forget the actuaries who failed to factor in increased life expectancy, and relied too much on a continually rising stock market.

It's no wonder that the present Government wants a scapegoat to draw attention from the foolish policies of a previous Conservative government - policies which have affected millions of people. They don't want reminding about Lawson's Law - that's why they try to put the blame on those selfish, greedy public sector workers.

Janet Downs's picture
Fri, 01/07/2011 - 07:38

You're correct - it's notoriously difficult to predict future spending which was why the graph showed a range in the possible outcomes. However, the top of this range still showed a decline and it was enough to convince the Times on Saturday 25 June that the cost of public service pensions was reducing and had peaked in 2010/11.

The point the Times and the Union leaders on Today yesterday were making is this: the government's claim that the cost of public sector pensions is out-of-control is not proven. And Hutton's graph shows this.

The Government also overlooks another point that Hutton made: that many of the major public sector pension schemes had already changed the schemes to make them affordable. Although the public could be forgiven in not knowing about these earlier changes, because neither the Government or its supporters in the media report them. It suits their purpose to present public sector workers as greedy, selfish and militant when in fact many of them quietly renegotiated the terms of their pension schemes a few years ago.

And we also have the tactic used by the Government and its supporters of lumping all public service pension schemes together thereby giving the impression that there are more public service pensioners drawing pensions from taxation than there actually are. There are one million workers in the Local Government Pensions Scheme, for instance, which is not funded by taxation but by assets and investments.

Paul Atherton's picture
Fri, 01/07/2011 - 21:04

I read the Times article, the journalist not only had a poor grasp of basic economics, he too had ignored the comments referring to the graph in the report (you cited half the quote) but the full one is:

"1.4 Future costs are inherently uncertain and sensitive to assumptions on life expectancy, size of workforce, earnings growth and implementations of reforms. Chart 1.B [The Graph] demonstrates the possible impact of altering some of these assumptions. Given the current design of public service pension schemes, the general public cannot be sure that schemes will remain sustainable in the future."

The graph is there to prove that there are too many variables to take into account for the current schemes to be proven to be sustainable and why Hutton suggests alternatives.

I'm not sure where your 67/68 ages come from. I know state pension age is hoping to be raised to 66 for everybody from the current age of 65.
http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/D...

I'll address your other points when I have more time.

Paul Atherton's picture
Fri, 01/07/2011 - 11:11

Im sorry Janet, the graph does nothing of the sort. It makes no presumption of its accuracy which was the entire point of putting it in. It was merely making the point that you couldn't predict what was happening. Don't forget this is a measure against GDP and is not really helpful when balancing the books. If GDP falls dramatically (as it is likely to do) the graph will incline rather than decline.

The only way to see if costs have come down against GDP is on a year by year basis over a prolonged period of time.

I do accept the ambiguity of the term "out of control" though. But I don't think there can be any question that the cost of Public Sector pensions is unsustainable? Nor that, the national retirement age, should be the same for everybody regardless of what sector they work in?

And it's disingenuous to suggest that the Unions haven't leveraged exactly the same media tactics as the Government, making people believe they are being forced to work another 6 years, whereas, as you rightly point out for Teachers, those agreements to retire at 65 were made back in 2006 under a Labour Government.

As for the Local Government Pension Scheme,

"One of the main attractions of the LGPS is that your employer pays a large part of the cost of providing the benefits.

It is however important that overall the scheme remains affordable, so increases or decreases in the cost of providing the scheme may, in future, need to be shared between members and employers. This will be in accordance with government guidance." http://www.lgps.org.uk/lge/core/page.do?pageId=102727

So the main contributions are coming from the public sector employer which are funded by the tax payer - so again somewhat unclear of your argument here too?

Janet Downs's picture
Fri, 01/07/2011 - 18:42

If the graph wasn't predictive then there was no point in putting it in the report. The Times interpreted it in the same way as I did as showing the cost of public sector pensions going down. The Times also said that using the costs as a proportion of GDP was a more accurate way of measuring the cost than raw figures. Unfortunately, the Times article is behind the paywall, but it was in the paper last Saturday.

As far as the Local Government Pension Scheme is concerned, worries about its inclusion in Hutton and treating it as the same as other public sector schemes when it was backed by assets were given in Professional Pensions: "Hutton report fails first political hurdle". I gave the link in my main post but it doesn't seem to give access to the whole article. Professional Pensions made the point that local government workers are usually the most poorly-paid of public sector employees. Of course, as the public sector is the employer, then the employer's contributions would be paid for by the public sector. But in the case of the LGPS these are invested so the fund is backed by these investments. And the employee also contributes - these too are invested.

In the case of many other public sector workers including teachers, their contributions are kept by the treasury for use on behalf of the taxpayer today in return for a promise that the taxpayer will pay pensions tomorrow. It's called "deferred salary" - a teacher receives less salary (which goes in the Treasury pot) in order to receive a benefit later.

As far as retiring at 65 is concerned, you are quite correct. The decision to increase the retirement age for teachers for new entrants was made in 2007/8. However, now the Government want to tear up that agreement and ask teachers to work until 67 or 68. Teaching is a stressful occupation requiring long hours (whatever anyone might think of short teaching days and long holidays). I know that I could not continue teaching into my mid sixties, let alone to 67 or 68. What will happen is that if the retirement age rises to 68 then many teachers will retire early with no pension because they can't do the job any more. Or they will struggle on to the detriment of pupils.

Janet Downs's picture
Sat, 02/07/2011 - 07:57

Paul - you're correct in saying I only gave part of the quote, that's why I provided the link to Hutton so readers could see it in context. And I agreed with you earlier that future trends are notoriously hard to predict. Who would have predicted 25 years ago that Lawson's Law would start a chain of events which would lead to the demise of private pension schemes?

However, you say that the journalist has a poor grasp of basic economics. The author of the article was David Budworth, Deputy Finance Editor of the Times. I don't think anyone could become a deputy finance editor of a prestigious paper without having a basic grasp of economics. Mr Budworth concluded: "The [proposed] reforms will save money, but even if nothing happens, the financial burden to taxpayers as a proportion of GDP is expected to fall."

The ages 67/8 comes from the predicted age of retirement for young people entering the workforce now at the beginning of their working life.http://www.thisismoney.co.uk/money/pensions/article-1716490/Budget-2011-...

Mr Budworth wrote that "the fervour of the debate [about public sector pensions] means that many of the arguments have so far been rooted in what the National Audit Office calls 'misinformed prejudice'". The thrust of the argument in my original post was that the government's policies are fuelled by deliberate misinformation which results in prejudice and makes it more difficult to have a reasoned debate. This is not just true of public sector pensions but three other major areas of Government policy: education, NHS and localism.

Janet Downs's picture
Sat, 02/07/2011 - 08:40

I posed the question in my post above: Who would have predicted 25 years ago that Lawson's Law would start a chain of events which would lead to the demise of private pension schemes?

I haved re-read the 2003 Times article and it says there was opposition to Lawson from the CBI and the TUC who both warned that the security of pension schemes could be threatened. These warnings were not heeded and for a time seemed unfounded as the stock exchange boomed. Surpluses grew which caused Gordon Brown to abolish dividend tax credit for pension funds. And then the stock market crashed leaving pension schemes in deficit. If the schemes had had healthy surpluses they would have been better able to weather a downturn in investment value.

http://business.timesonline.co.uk/tol/business/article1071505.ece

Janet Downs's picture
Sun, 03/07/2011 - 09:53

The future cost of public sector pensions may be even lower than predicted by Hutton. The report of the Commons Public Accounts Select Committee, commenting on the changes already made to public sector pension schemes in 2007/8 suggests that the cost of public sector pension could be as low as 1% of GDP. The Committee used Government projections and found:

“…the future cost of public service pensions suggest that the changes made in 2007-2008 will stabilise costs at around 1% of GDP, thereby bringing substantial savings to the taxpayer. This would be a significant achievement.”

However, the Committee is concerned that the Government hasn’t tested the assumptions underlying the forecast savings, neither has it clarified what it means by sustainability. Instead “officials appeared to define affordability on the basis of public perception”. So, affordability is decided on what the public decide is affordable, not what the Government says is affordable. The Government needs to make it clear whether the projected stabilised cost of around 1% of GDP is affordable or not. Instead, the Government allows the media, often hostile, to decide whether the pensions of public sector workers can be afforded, and this perception is based on what the National Audit Office describes as "misinformed prejudice".

The Committee also said that the Government had not assessed the consequences of changing public sector pension schemes on such things as recruitment and retention, or increasing demand for means-tested benefits.

http://www.parliament.uk/business/committees/committees-a-z/commons-sele...

Paul Atherton's picture
Tue, 05/07/2011 - 16:01

Having worked in PR for well over a Decade I can assure you that most journalists have very little grasp of anything they write about - least of all on National Broad sheets. It is after-all why 98% of what you read is PR Generated. But it also ensures the journalist is always coming at the subject with his/her reader's eyes. Their job after-all is to sell their publications. And this was an opinion piece, which is the authors own view on a subject.

FT Journalists could be given more credence when it comes to financial analysis, because they usually come from the financial sector - having either written for trade publications or worked in the sector and by law have to also understand the legal ramifications of what they print financially.

I've been out drinking with a very famous editor, of a very famous IT Broadsheet Publication who admitted that he barely knew how to turn on a computer (which later became startlingly obvious when our conversation got onto current trends for technology).

As is said before if you measure anything against GDP, which itself is a moving target, it is a flawed premise. A measure needs to be at best static and at worst stable. Using something as volatile as GDP (which took a spread of 1.6% in under a year and has a spread of 8% over just 4 years http://www.statistics.gov.uk/cci/nugget.asp?id=192) means that any projections are meaningless. It becomes as volatile as the FTSE.

Let me try and give a very simplistic example. Let us say that 1% of GDP this year is £1. But next year GDP drops by 10% that 1% has now to be decreased to £0.90 or the £1 becomes a lager percentage of GDP.

If I was linking my pension contributions to something that meant I may have to pay twice as much for the same return in under 5 years I would seriously contest the notion and take my money elsewhere.

As for ages, you do think if we live longer, and remain healthier longer as a society we shouldn't increase the age of retirement (I know there is a much bigger argument about employment and ageism here etc. - but just from a State Pension financial perspective)?

SIBONGILE's picture
Thu, 25/08/2011 - 16:18

EDUCATION IN SA NEED BILLIONS THATS ALL WE WANT MONEY DONT PLAY WITH US

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