Baroness Margaret Eaton’s letter to the Observer calling on the government to re-think the proposed increase in employee contributions to the Local Government Pension Scheme made welcome, if surprising reading on Sunday morning. My Craster kippers almost cooked themselves in the excitement.
Perhaps I should not have been so surprised. On Thursday, the Local Government Employers – part of Baroness Eaton’s Local Government Association - announced a pay freeze for the second year running for 1.4 million front-line council and school employees. That’s on top of below-inflation pay awards in five of the previous seven years - before the pay ice age set in. No surprise then that 70% of them (by the LGE’s own reckoning) earn less than £21,000 a year – the ‘low pay’ threshold set by George Osborne for a compensation payment of ‘at least’ £250 - a sum promised incidentally to all public servants on frozen pay this year and next.
Incidentally, it was also a promise made to myself and the other local government unions by the Chancellor in a very recent letter to us, in which he said: “I expect the local government pay settlement for 2011/12 to demonstrate similar restraint as other public sector workforces, with some form of protection for the lower paid, as set out in the 2010 Budget”. Mmm.
Some councils obviously expected to keep a promise and award ‘some form of protection for the low paid’ too. A significant number have budgeted to pay out the £250 a year to those under £21,000, including the prime minister’s West Oxfordshire and his deputy’s Sheffield councils. Some councils who have ‘opted out’ of the NJC have already pledged to pay it – the Royal Borough of Windsor and Maidenhead and the Vale of White Horse and South Oxfordshire among them. Yet another year in which the LGE refutes the intent of its membership!
In the light of such breathtaking insouciance over their employees’ ability to live a decent life, the LGA’s concern about their ability to pay increased LGPS contributions is not just surprising, but clearly rooted in reality! The pension scheme has become one of local government’s few attractions to existing and potential employees, who have seen their pay and conditions plummet in real terms and in relation to the rest of the public sector in recent years. A Unison survey in late 2008 of 10,000 of our members employed in local government and schools showed that 30% of those earning £800 a month or less (that’s someone on the bottom rate, working about 30 hours a week) are not even in the LGPS.
Why, you may ask? Easy. Most said that they can’t afford it and the rest apparently haven’t been asked to join! Wrong as that is, some council employers are clearly smart enough to realise that on £200 quid a week, there’s not a lot to spare for the future. Baroness Eaton’s pension angst will do nothing at all for them. A recent GMB survey found that 39% of their members in the LGPS would opt out if contribution increases are imposed in April 2012.
Before turning to the iniquity and nonsense of the coalition’s attack on the LGPS, let’s take a harder look at those frozen pay scales. Local government – once an exemplary employer – really does have the lowest pay in the public sector, both on the lowest rate of £6.30 pence an hour and for equivalent jobs throughout the pay structure. The National Minimum Wage is now only 37 pence an hour below the lowest pay point and, assuming an annual increase in the NMW in October, will be even closer on the NJC’s tails. Around 200,000 part-time women workers earn less than £6.50 an hour, many of them on the bottom rate of £6.30.
As we all know, inflation is riding high – 4% for CPI and 5.1% for RPI, the real measure of inflation. Using the current rate of RPI and applying it to the already frozen £6.30 pence would mean that by 31 March this year, £6.30 will have the purchasing power of £5.98 pence. Apply the most conservative inflation forecasts for 2012 and 2013 and our members will be left with the present-day equivalent of just £5.53 pence in 2013 – a real terms drop of over 12% or £77 by the time the pay freeze ends. Shameful.
Councils are calling poverty themselves of course. No-one would deny the savagery of Osborne’s cuts, spiced up with some Pickles, but let’s not forget that English councils have over £3 billion in unallocated reserves in the bank and spent just £1 million of it between them last year. The growth in the tax base will bring in an extra £174 million in 2011/12 and the Chancellor promised 0.1% real terms increases in each year of the Spending Review in the 5 – 16’s school budget.
And by the way: the planned increase of 3.2% in employee contributions to the LGPS is nothing more than a tax on employees. The money has already been deducted from the CSR settlement and so our members’ increased contributions will not be paid into the scheme to ensure or enhance its future. They will simply go into council coffers to make up the settlement deficit. If the burden of the increase falls on the higher paid in order to protect the many low paid members, contribution increases of up to 150% might be needed.
The LGPS can currently meet its future obligations for the next 20 years and is invested throughout the UK and global economies. If – as looks very likely – many of our members opt out of the scheme if contributions increase, Unison and a growing number of local authority treasurers and fund managers believe that it will cease to be viable. That may be the Chancellor’s desire, but the fall-out will land on the state in the form of benefit payments and on the economy as a major source of investment disappears.
Very sensible. Not.
Heather Wakefield is head of local government at Unison
