Thursday, 10 May 2012

UK - David Cameron's Conservatives under Siege

With the backdrop of this weekends elections in Greece and France and the newly elected leaders calling for more growth and less austerity, David Camerons' Conservative government has come under siege by public sector unions.  The  unions are opposed to a cutback in salaries, more pension plan contribution and raising the retirement age.  Unions say that 400,000 public sector workers will be on a 24 hour strike today, while the government says it is half of that.  Regardless of the actual figures it is hundreds of thousands that are participating.

Public sector workers participating in the strike are public service employees, National Health Service (NHS), including paramedics, border guards, lecturers and 32,000 policemen. The unions claim that the government is robbing them and its members will have to work longer for a lower pension.

The UK Public Sector Pension Commission released a report in July 2010 that made the case for reforming the pensions, quoting longevity, parity with the private sector and support ration of those plans.

In 1951, most men working in manual jobs would not have lived long enough to claim the
then-new basic state pension. Now, life expectancy for men and women is around 80,
and people reaching the age of 65 are living almost another 20 years on average. In 50
years’ time, life expectancy at 65 could reach 30-35 years. Certainly for individuals who
retire at 60 – not unusual in the public sector – many people could spend longer retired
than working.

Official projections suggest that, in 50 years’ time, it is possible that every person over 65
could be supported by just two people of working age, compared with four today, while there could be only one person of working age to support each dependent person (including children) overall.

The commission identified six main problem  areas with the present arrangement,  Lack of Transparency, Large Unfunded Liabilities, Large Annual Costs, Disparity with the private sector, Inequity within schemes and outsourcing of government services.

The Cameron government, determined to reduce the deficit and debt has adopted the recommendations.  The unions argue that the reform will give the UK the highest pension age in Europe.  The government intends to raise those pensions in line with its state pension eventually, which is 68. 

The unions argue that they shouldn't be required to pay more.  Mark Serwotka, general secretary of the PCS union says:

"We pay more and not a penny goes into anybody's pension fund.  In every major public sector scheme - health, education and the civil service - the majority of trade unions have refused to accept these cuts in their pensions."

Governments in most western economies have come under siege by unions when it comes to cutting entitlements.  Few have had the courage to tackle the problem, especially with minority governments.

Ask yourself, what happens if you keep spending more than you take in for your family budget.  You have to get loans to cover the overspending.  Eventually those loans have to be repaid.  With governments the situation is similar.  Revenues flow from taxes, pension contributions or natural resources.  If those revenues aren't sufficient to cover costs, there are three options,  take out a loan, raise taxes or cut the entitlements.  With overwhelming opposition to entitlement cuts, where is a government to go?  Does it penalize the remaining tax payers?   You be the judge.

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