17 February 2006
More than half of the savings made under Whitehall's efficiency agenda have effectively been wiped out by an unexpected rise in the cost of staff pensions across two sectors this year, it has emerged.
As much as £2.7bn of the £4.7bn estimated to have been saved as part of the 'Gershon' agenda across central and local government since last year is needed to cover estimated pension liabilities across the National Health Service and civil service for 2005/06.
Spring supplementary estimates, published by the Treasury and presented to Parliament on February 15, show that NHS officials have asked MPs to approve an additional resource accounting requirement of £1.3bn to cover rising liabilities for the NHS Pension Scheme. The Cabinet Office, meanwhile, has asked Parliament to sign off plans for an extra £1.4bn in long-term civil service retirement payments.
Both pension schemes were subject to potential reviews last year, but plans to ease costs by increasing the public sector retirement age were thrown out as part of a deal to placate trade unions before the election.
Supplementary estimates outline how departments have performed against annual departmental expenditure limits (DELs) produced following the Comprehensive Spending Review, and reveal the cash needed to cover any overspend against DELs. MPs must 'sign off' any additional resources twice each year – in winter and spring.
Corin Taylor, an economics analyst at the Reform think-tank, said: 'The departmental overspends show that much of the Gershon savings are being spent on increasing public sector pensions rather than frontline services.
'Almost 90% of public sector workers still benefit from final salary pension schemes and the government's failure last year to raise the retirement age for existing public sector workers to the level of the private sector is only going to make the problem worse in the long term.'
However, a Treasury spokesman told Public Finance: 'Pension payments represent a direct investment in public sector staff and should be considered as “frontline” investment.'
Whitehall departments have so far asked for an additional £13.1bn in resource terms for 2005/06 – around £3bn in overspends more than last year – to pay for new service requirements and pension payments. In cash accounting terms, the requirement for the same period has been an additional £12.3bn.
The Treasury said: 'These estimates do not involve any change in total [public] spending plans because any increases sought have either been offset by savings elsewhere in departmental programmes, charged to the DEL reserve or represent shifts against the annually managed expenditure (AME) margin.'
Since the DEL reserve and AME margin are part of the government's broader total managed expenditure ceiling, public spending totals remain unchanged.
Presenting his Pre-Budget Report in December, Chancellor Gordon Brown claimed that £4.7bn of the £21.5bn annual savings by 2008, identified by Sir Peter Gershon's 2004 review, had been achieved.
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