ConservativeHome's ToryDiary

Boris Johnson tells the truth about public sector pensions

Where are the politicians who are telling us the truth about the depth of the economic and social challenges facing Britain?

In an occasional series we'll highlight those big beasts who stand up and tell the truth.

Honoured today is Boris Johnson for this observation in his weekly Telegraph column:

"It is incredible but true that the average public sector wage is now higher than the average private sector wage; and public sector pensioners can still generally expect a final salary pension scheme – and these can be very generous indeed. In local government, for instance, you can expect to be awarded one sixtieth of your final salary for every year of service. So if you are a chief executive or other senior official, on a salary of more than £200,000, and you have worked for 30 years – well, you do the maths. It is a very generous deal, and speaking as a former MP and current Mayor, I hesitate to knock it, and I only do so because it is unsustainable. With firms now laying off staff in their thousands, with unemployment apparently set to hit three million for the first time since the 1980s, it is simply too much to expect council-tax payers to scrimp and save to pay for the pensions of local government's colossal clerisy, when those pensions are so much more comfortable than anything they could afford themselves."

MPs Brian Binley and Mark Field also deserve credit, of course.

Tim Montgomerie

Conservatives announce £4.2bn tax cut for savers

David Cameron is about to get to his feet and announce the beginning of what is expected to be three Tory tax cuts.

By reducing public spending growth to +1% in 2009/10 (excepting the four protected priorities of health, education, international development and defence) the Conservatives believe they can save £5bn compared to Labour's spending plans.

£4.2bn of this will be used to abolish the basic rate of tax on savings (£2.6bn) and to raise pensioners' personal allowance by £2,000 (£1.5bn).

The Tory Treasury team gives an example of how this would benefit older savers:

"A 70 year old couple who are retired and have total pension income of £14,000 a year each. They currently pay £902 in income tax each, or £1,804 in total. Their tax bill on their pensions would fall to just £502 each, or £1,004 in total, so they would be £400 a year better off each, or £800 better off in total. If they also currently get £1,000 a year each in interest from their savings account, they would pay £200 less each in tax on savings, or £400 in total. So in total they would be £1,200 better off."

The relief for savers fits into an emerging Tory narrative of rewarding people who do the right thing.

Up until today only the NHS and international development were identified as Tory spending priorities.  They have now been joined by defence and schools - both of which are also prioritised by grassroots members.

1pm: David Cameron's speech in full.

5.30pm: Video highlights of David Cameron's remarks.

Gordon Brown stole my old age

For probably the first time ever the Conservative Party held a fringe event at the Labour Party's conference today, to discuss Brown’s deception over pensions.  About two hundred people squeezed into the Belvedere Hotel in Bournemouth to hear Shadow Work & Pensions Secretary Chris Grayling and others highlight the double standards in Brown bailing out Northern Rock (and therefore all banks in the future) for political reasons but not paying people back for their lost pensions. The difference between the two is that customers of Northern Rock knew the risks whilst it was the government's fault that so many people lost their pensions, as the Parliamentary Ombudsman, Public Administration Select Committee, European Court of Justice and High Court Judicial Review have all confirmed.

Grayling talked about the Conservative Party’s efforts to get its lifeboat proposals through Parliament. Designed to make it as easy as possible for Brown to accept, they could have been implemented immediately with the Government merely underwriting the process of bringing everyone up to the levels provided by the Pension Protection Fund, and not paying anything extra in the long run. Instead of taking the opportunity to approve the well thought through legislation, Brown used the 1911 Parliament Act to stop going back to the Lords and thereby prolonging the misery of many pensioners. A member of the audience later asked why on earth he did this, “intransigence” was the simple conclusion of panelist and former Government pensions adviser Dr Ros Altmann.

Altmann then explained Brown’s cynical spinning of what was “without doubt, the worst pensions scandal ever seen in the UK”. In May he promised to pay 80% of the pensions back to the 125,000 people affected, costing £8bn.  What has actually happened since then is that the government have invented something called a “core pension” that doesn’t account for inflation, tax-free lump sums, many widow’s benefits and other dependent benefits, ill health and early retirement benefits, or pension starting ages. The Government then works out 80% of what’s left and takes 22% tax off it. Brown’s Financial Assistance Scheme - which had been entirely “designed to fool the public” - has only paid out £4m since 2004, partially helping just 2000 people.

George Osborne piles the pressure on Gordon Brown over pensions

George Osborne has press released five questions that Gordon Brown must answer regarding his 1997 decision to abolish dividend tax relief on pensions:

1. "In 1997, why did he not clearly state the risk he was taking by abolishing dividend tax relief on pensions, in spite of the warning it would cost pension funds £75bn?
2. Estimates for the damage done to pension funds put the final cost at around £100bn. What is his estimate?
3. Did the Chancellor overrule opposition from the Prime Minister's office to force through his decision, as the Prime Minister’s then Economic Adviser Derek Scott has implied when he told the Telegraph “he (Blair) took the view not to go up against Gordon”?
4. Can he explain why today he described the move as “the right decision for investment” when his own officials said at the time “the view of the economists is that overall the reform would be broadly neutral in terms of the amount of investment.”
5. Why did the Treasury refuse to release the pension tax documents for almost two years and, when this position became untenable, finally release them late on a Friday afternoon, just before Parliamentary recess and just as the Chancellor was leaving the country?"

Tories seek to establish true cost of Gordon Brown's attack on pensions

The Conservatives have been quick to jump on the news that Gordon Brown was repeatedly warned by civil servants about the long-term impact of his £5bn-a-year raid on private pension provision.  Shadow Work and Pensions Secretary, Philip Hammond, is seeking an independent inquiry by the Government Actuary to establish the true cost to savers of the changes made by Gordon Brown in his very first Budget:

“Gordon Brown must explain to the House why he acted in defiance of his top civil servants who warned that his tax reforms would cost pensions funds billions, leaving a black hole in many of them.  The Chancellor has effectively concealed information surrounding these plans from Parliament for the last ten years.  The extent of disregard he has shown towards pensioners, past and present, is unbelievable. The Chancellor’s been telling us for the last ten years these tax changes didn’t have a negative effect on pensions funds.  The documents now prove this is not true.  An independent inquiry by the Government Actuary into the total cost of this stealth tax to Britain’s pensions funds is urgently required.  The way in which Gordon Brown ignored advice that these measures would undermine pensions funds, his persistent denial of what these papers now confirm, and the sneaky way this bad news release was managed, all pose yet more questions about Gordon Brown’s fitness for the highest office.”

This morning's Times published the all-too-accurate warnings of civil servants about the likely impact of Gordon Brown's proposed reforms:

• "The lower paid would be worse off under the new rules
• Pensioners due to retire would lose out immediately
• Businesses would struggle to adjust to the change
• It would cost pension providers £4 billion a year
• Pension benefits would be cut
• Shares could drop by between 6 per cent and 20 per cent
• The value of existing pension funds could fall immediately by £50 billion
• Local authority schemes would need topping up, leading to higher public spending
• The Department of Trade and Industry would be “gravely concerned” about having to bail out pension schemes driven into insolvency."

Cameron commends 'Kirklees model' where young pay for older residents' council tax rises

In his speech (a pdf of which is here) yesterday to Age Corncern the Tory leader highlighted a scheme run by Tory-run Kirklees council that shifts the burden of rising council tax from pensioners to younger residents. 

For next year's budget Kirklees Council of West Yorkshire plans to levy only a 1% increase on pensioners but a 5% 3% (correction at 11.42am) increase for other council taxpayers.  Mr Cameron praised the Kirklees scheme as as "a great example of civic responsibility":

"The whole point is that it is a local idea... Kirklees council has decided to use its powers to introduce a lower council tax for pensioners. They register and will get a guaranteed small fixed increase of no more than one per cent.  The burden of doing this falls on other households, but the registration scheme helps the council ensure that more older people get the benefits they are entitled to. That's just the sort of initiative I believe in."

Mr Cameron's speech also suggested that grandparents might be paid up to £175 per week to look after grandchildren (in order to "restore the relationship between the generations") and that house design should change to make it easier for older people to delay going into formal care.

Related link: Cameron bids to woo 'grey vote'

Cameron bids to woo 'grey vote'

According to the Mail on Sunday the Tory leader is going to make a bid to win over the grey vote in a major speech to Age Concern tomorrow.

Up until now the Tory leader has focused on younger voters - not least via stunts such as his meeting with rapper Rhymefest a few days ago.  Tomorrow Mr Cameron will reject Tony Blair's Cool Britannia notion that Britain is a "young country" and say that Britain is an "old country - with our best years ahead of us."

He will say that it is too simplistic to view older people as a cost to society.  He will say that they can also be a great benefit.  The MoS:

"If people over 50 who wanted to work could find jobs it could boost the economy by up to £30billion a year, he will say, adding that unpaid work by the elderly, such as picking up grandchildren from school or voluntary work, is worth another £24billion a year.  And he will argue that older people are often more 'future-oriented' than the young, who are obsessed with the present, saying: "Older people think about their grandchildren and their community, and how to improve it.""

Older voters are the most likely group of society to vote and have traditionally been most inclined to vote Conservative.

Related link: Tories for Older People

The working (not workers') revolution

Picking up on a theme touched on in Cameron's Google Zeitgeist speech, Philip Hammond, Shadow Work & Pensions Secretary, has been talking about encouraging flexible working practices:

"Flexible working practice is a key element in the delivery of economic competitiveness, social justice, affordability in public service delivery and an improvement in General Well Being. Making work accessible will form a cornerstone of the next Conservative Government's programme for delivering its social, economic and environmental objectives."

Like most policy announcements in this part of the electoral cycle it is more visionary than practical, but Hammond did offer some indications of what he hoped would happen:

• Less 9-to-5 and more flexi-time and job-sharing
• More working from home
• People will stay on the books for occasional work when retiring
• Workers would be more freelance, having zero-hour contracts with several employers
• The Government, as Britain's biggest employer, would take a lead in promoting flexibility by "deregulating to permit it"

His main rationale is that conventional working practices are anachronistic when companies are increasingly interacting with competitive economies in different time zones, and that more flexible working will increase our human capital - "the natural resource of Britain". It will also increase productivity as workers will have "an enhanced working environment".

Hammond went on to say that writing off the 2.7 million people on incapacity benefit as completely unemployable is a "terrible waste of human resource", and that Britain's 5 million people on out-of-work benefits should help plug the gaps in the labour market rather than economic migrants. Just as the job-for-life is a thing of a past, the line between employment and unemployment will be increasingly blurred.

Apart from anything else, it's a welcome change to see a relatively low-profile member of the Shadow Cabinet being given the chance to make a significant speech on their brief rather than the leader.

Deputy Editor

Tories were first on earnings link

Later today the Government will confirm that it intends to raise the retirement age and restore the link between pensions and earnings.  This morning's Today programme noted that it was Mrs Thatcher who broke the link a quarter of a century ago.  Today did not remind its listeners, however, that the Tories had already made the policy shift nearly three years ago.

In his last major act as Tory leader, Iain Duncan Smith made the policy change in a bid to revive the savings culture and deliver social justice for pensioners.  Devised by David Willetts the commitment was savaged at the time by Labour as "a cruel deceit on pensioners" and as "unsustainable".  Despite an otherwise nightmare Tory conference the very popular restoration of the earnings link helped give the Tories a 6% lead in a YouGov poll and was due to be rolled out in a massive programme of regional events and mailshots.  Michael Howard had next to no enthusiasm for the policy and when he became leader he did not pursue that programme or ever seriously promote the £5bn commitment.

Philip Hammond MP, Shadow Work & Pensions Secretary, has attacked the failure of Labour's new pensions package to provide fairness for women.  Commenting on the fact that 'only' 30 years of National Insurance contributions are now required for a full basic state pension for women retiring from 2010, Mr Hammond told ePolitix: "It does not seem fair that a woman retiring on a April 1, 2010 will get a full state pension based on 30 years' contributions, but that a woman retiring on March 31 with the same contributions will be condemned to a lifetime on a partial pension."