Public sector largesse in the UK

Mark Littlewood

1 July 2011

The strikes and protests witnessed in Britain's cities this week may well signal the start of a phase of industrial disputes, as public sector employees fight to retain the rather substantial privileges granted to them by successive governments over the years. Teachers provided the bulk of this week's non-attendees at the workplace, but the wider trade union movement appears to be gearing up for a protracted campaign in the months ahead.

Public opinion may end up being the determining factor in whether the coalition government feels obliged to make concessions. According to one poll, less than a third of the British public sympathise with the strike action, but attitudes can change rapidly in a febrile and unpredictable environment. This makes it doubly important to properly describe and explain the economics of the situation.

The first thing to say is that the protests are those of the disproportionately privileged and protected. It is understandable, of course, that these relatively affluent people are seeking to defend their own financial interests, but it would be wrong for them to be portrayed as poor or oppressed. Public sector pay is, on average, higher than pay in the private sector. But there are substantial other benefits too – the sort of pensions teachers are awarded are the equivalent of a contribution of around 40 per cent of their annual salary. The vast bulk of people in the private sector can only dream of such a copper-bottomed, financially-secure retirement. The government's relatively mild suggested reforms in this area have been the key catalyst for the strike.

Read the rest of the article on the PublicServiceEurope website.

Tags: Mark Littlewood, pensions reform, public sector, public sector pensions, Employment

Submitted by Mark Wadsworth on Fri, 01/07/2011 - 10:23.

Well yes, but what is always brushed under the carpet is that there are far bigger fish to fry. According to HM Treasury, govt. spending in 2009-10 was as follows: Welfare and pensions - £230 billion (most of that is pensions) Public sector salaries and pensions - £169 billion and the largest single item...? Corporate subsidies, private sector procurement, sub-contracted services etc - £281 billion. The public sector may be very poor value of taxpayers' £, but if we get 50p of value for £1 of spending in public sector, then I suspect we get about 10p of value from the corporatist sector. PS, outsourced school dinners, prisons and refuse collection is barely £10 billion, road maintenance £10 billion and I cannot think of anything else useful which the private sector does which is paid for out of taxpayer's money.

Submitted by RTS on Fri, 01/07/2011 - 11:09.

"I cannot think of anything else useful which the private sector does which is paid for out of taxpayer's money." Really? Who do you think builds all the government buildings, police cars, ambulances, fire engines, warships, medical equipment etc etc etc? It aint the public sector.

Submitted by Joss Bolton on Fri, 01/07/2011 - 14:35.

Please don't divert attention from the issue raised in the article; public sector pension reform is essential, if not critical, in order to provide a solid basis to provide other elements of public services in the future. Any digression from that is merely a smokescreen. To put it bluntly, why do I, as a tax payer, have to fund the equivalent of a £500K pension pot for a teacher when I have no chance of building a similar pot for myself. I will resist the temptation to start a different digression myself, namely that said teachers (in my area at least) are extremely unlikely to produce a geneartion capable of shouldering the burden of public pensions when they enter the workforce.

Submitted by Jonathan Bagley on Fri, 01/07/2011 - 14:45.

Teachers' pensions were better than university lecturers pensions but now appear to be about the same. The USS (universities' pension scheme), after recent changes, is in surplus and financially viable, and will operate on about 22 or 23% of salary in total contributions (around 7.5% from employees and the remainder from employers). New entrants will pay slightly less but their pensions willl be based on average rather than final salary. I think your figure of 40% of contributions for teachers is high. The Telegraph yesterday estimated 20%. Rightly or wrongly, university lecturers come to regard the employers' contribution as part of their salary. Until they reach the age of 40, many private sector workers forget the extra 15% and think lecturers are mugs - particularly back in the boom years. Then the awful truth dawns.

Submitted by Jonathan Bagley on Fri, 01/07/2011 - 17:10.

Joss, what you seem to be saying, is that for decades, teachers have been paid 15% more (the employers' contribution) than the rate for the job. If you remedied this by reducing their salaries by this amount, we would not have sufficient teachers. Even if your suggested reform went only as far as reducing the employers' contribution to 10%, which is what the University Lecturers Union suggest is the Government's ultimate objective, this would represent around a 5% salary cut. The teachers' are already facing a 3% increase in their contributions and a change to average salary rather than final salary for new entrants, as well as working to 66, when many will have made 43 years contributions. Like it or not, there always seems to be a shortage of teachers,so at least some of them have to be given a decent deal, either through salaries or pensions. You could have built up a similar pension by saving 20% of your salary each month, but you would have to then accept that your salary was only 80% of what you thought it was. Incidentally, I largely accept the necessity for the proposed changes to the USS (universities) pension scheme and will not be taking part in any strikes which might take place. If the Government seek in the future to reduce the employers contribution significantly - effectively a wage cut - then I might.

Submitted by Matthew on Sun, 03/07/2011 - 08:44.

I think the problem is not that the salaries in the public sector are too high. Some of them certainly are, others are not. The real problem is, there are too many civil servents, council employees etc, some of whom are not fully productive. It is not salary cuts which are needed, but, a more general trimming of the public sector. A move to fixed term contracts, making use of more contractors as opposed to employees for life, etc. Actually if the public sector was more efficient, pay could even be raised.

Submitted by Whig on Mon, 04/07/2011 - 15:57.

@MarkWadsworth - I agree that the public sector is terrible value for money, and I loathe the corporatism of PFI projects and so on, which have clearly failed in their aim of making the public sector more efficient. That's impossible!! However, whether they've made it less efficient is, I think, more contentious than perhaps you allow. That said, the public sector must inevitably procure from the private. Do you expect, for instance, that the public sector manufacture its own paper clips and computers? That would be grossly inefficient!! I accept that a good deal of the figure is things like consultants and so on - some of which are actually useful in some cases - overcharing for their dubious services. Nevertheless, none of this constitutes an argument for 'insourcing' procurement etc back into the public sector. Instead, the inefficiency - I hope you'll agree - merely indicates the impossibility of efficiency in the public sector. This demonstrates the failure of the Blairite project (even where it wasn't undermined by Brownites) and a good deal of current Liberal and Tory thinking. In short, what is needed is the complete privatisation of these functions, which ought not to be fulfilled by the state anyway.

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