The government is to be applauded for its attempts to get the medium-term public finances under control. However, its enthusiasm to do so is leading, increasingly often, to decisions that will mortgage the future to the benefit of the coalition. The government seems to have a time horizon of precisely five years. Beyond that, debt is somebody else’s problem.
The latest example to hit the headlines again is that of the Royal Mail pension fund. Because the Royal Mail’s pension fund is an albatross around the publicly-owned corporation’s neck, the government wants to take responsibility for the fund in order to ensure a quick privatisation of the Royal Mail. This involves the government taking the assets of the fund – about £25bn – onto its balance sheet while taking responsibility for the future pension liabilities. Interestingly, because of the way the government does its accounting, these liabilities do not appear in government borrowing and debt figures. So the government appears to be getting a windfall of £25bn. In fact, it is also taking on pension liabilities of up to £50bn (there is a deficit in the fund) but sweeping those liabilities where the rest of the long-term public pension sector liabilities go – under the Treasury carpet. The bills will be picked up by future generations of taxpayers.
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