Why the last laugh will be on Sir Humphrey
In his excellent monograph, Sir Humphrey’s Legacy, Neil Record outlines the enormous unfunded cost of public sector pensions. And in A Bankruptcy Foretold, I argue that the scale of future pension commitments means that the government is likely to face severe financial difficulties. It will therefore have to attempt to reduce its obligations, and the easiest political target will probably be public sector pensions.
A paper from the ratings agency Standard & Poor’s predicts that UK government debt will be rated as “speculative” in less than 30 years. So the unions’ policy of blocking the merest mention of reform – and the government’s de facto policy of never standing up to the unions – has meant that they have secured for their members an unsecured debt against a creditor with a junk rating.
If the unions had the best interests of their workers at heart, they would be negotiating a reduction of benefits in return for funding – this would mean that the pensions would be backed by assets rather than empty promises. Given the dire state of the public finances, it would be a wise exchange.