People in glass houses

3 Apr 09
PETER WILBY | The phrase ‘two nations’, which dates back to the title of a novel by former prime minister Benjamin Disraeli, used to mean rich and poor, North and South or rural and urban. Now it means public sector and private sector.

The phrase ‘two nations’, which dates back to the title of a novel by former prime minister Benjamin Disraeli, used to mean rich and poor, North and South or rural and urban. Now it means public sector and private sector.

Conservative politicians, Right-wing newspapers and business leaders argue that overprivileged and overpaid public sector employees and ex-employees are virtually immune to the effects of recession and that they enjoy their privileges at the expense of everybody else. This chorus will strike more of a chord as taxes rise and services are cut to pay the retrospective costs of bank bail-outs and fiscal stimuli.

If window-smashing comes into fashion, don’t expect it to stop at the homes of bankers, such as Sir Fred Goodwin, ex-boss of the Royal Bank of Scotland, or the bank’s London offices. As memories of the bankers’ role in getting us into this mess fade, council chief executives and hospital trust bosses could wake to the sound of tinkling glass.

Much of the resentment against the public sector is based on misconceptions. For example, it is true that average pay is now higher in the public than the private sector. But this is the consequence of thousands of low-paid public employees — cleaners and caterers, for example — being outsourced, while professionals, such as teachers and hospital doctors, remain on the public purse.

Again, it is true there is fat-cattery in the public sector, in the sense that top salaries have risen faster than those in lower ranks. Most university vice-chancellors, heads of hospital trusts and local authority and quango chief executives now enjoy annual pay in six figures.

But if high rewards for top executives are right in the private sector, why wouldn’t they be right in the public sector? As the Society of Local Authority Chief Executives and Senior Managers pointed out last month, the average shire council employs 22,000 people, turns over £850m annually and pays its chief executive £169,000. In a private sector firm of comparable size, the boss would get three times as much.

We are often told cuts in bankers’ pay and bonuses would create ‘a drain of talent’, though where it would drain to and why it matters is not explained. Why should we not be equally concerned about the potential loss of, say, a skilled hospital manager? Or is running a large hospital less important than playing with securitised thingummies and collateralised wotsits?

Nor does the claim that public sector jobs carry fewer competitive pressures than their private sector equivalents hold much water. The marketisation of the public sector, plus the growing prevalence of inspections, targets and star ratings, largely accounts for the rises in some salaries. So great are the pressures on head teachers, who have to cope with the quasi-market created in education, that some school governors have trouble getting anybody to do the job.

But I do not want to sound like a public sector union leader. Public servants rarely get many perks, but pensions are an exception. While a large and growing majority of private sector employees will receive pensions that depend wholly on how their pension funds perform in the financial markets, some 5 million public sector employees are in defined benefit schemes, giving a pension fixed at a proportion of final salary.

To get a typical teacher’s pension of £17,000, inflation proofed from age 60, the private sector employee would need a pension pot of close to £500,000 at current annuity rates. After recent stock market falls, that is rarer than ever.

It is an old suburban joke that, for 40 years, the civil servant owns the clapped-out banger but, after retirement, runs the best car in the neighbourhood. Even when big private companies ran defined benefit pension schemes, they were usually inferior. Technically, a pension is simply deferred salary and public employees’ relative prosperity post-retirement was justified by their relative penury during their working life.

Public sector pay has improved, at least for the higher echelons. With increased instability in the financial markets, insecurity about retirement income has become the norm for private sector employees. These factors combined have made the disparity in pension provision look more and more like a genuine injustice. Pensions are overtaking house prices as a subject of dinner-party conversation. If yours is defined benefit and index-linked, keep quiet about it. That new car you were planning to buy is no longer a joke.

No doubt the resentment against public servants is irrational. But the popular mood is sour. People were promised that liberal market economies would guarantee permanent prosperity. They were cruelly deceived and that will become more evident in the years ahead.

Expect fierce public sector pay freezes, pressure to sweep away management tiers and demands to reduce the state’s pension commitments. My advice is to invest in toughened window panes.

Peter Wilby is a former editor of the New Statesman

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