Daily Archives: November 27, 2008

Jim Pickard

Maybe it was deliberate kite-flying. Maybe David Cameron thought that he was only talking to a handful of northern businessmen. Either way the Tory leader indicated this week – at a meeting of the Greater Manchester chamber of commerce – that he was minded to move away from public sector final salary schemes: “We’ve got to end the apartheid in pensions,” he said.

There is cold logic behind the position: the state may struggle to keep supporting the ever-growing cost of public sector pensions: a £650bn liability over 20 years.

But for millions of workers – whose pay has barely risen in recent years – decent pensions are arguably their greatest incentive to keep on the state’s payroll. What does Cameron hope to gain electorally from voicing this argument?

The Tories are rapidly distancing themselves from the suggestion — made by their leader — that public sector pensions should be phased out.

It is worth reading the full transcript of what David Cameron said in a Q&A session at the Manchester Chamber of Commerce:

We have got to end the apartheid. We are getting into a situation now where pretty much everyone in the private sector has gone to defined contributions and the final salary schemes are closed. In the public sector you have still got a lot of people on final salary schemes including members of parliament.

MPs are going to have to lead by example. We have got to close the MP’s final salary scheme because we have got to be able to turn around to the rest of the public sector and say that over time it does makes sense to move towards defined contribution.

There is an issue of fairness between the private sector and the public sector but there is also an issue of economic efficiency. We do not want to make it so hard for people to move from the public sector to the private sector or from the private sector to the public sector.

My vision over time is to move increasingly towards defined contribution rather than final salary schemes.

This is something (sic) where the government has been remarkably feeble partly because they are in hock to the public sector unions.

Now compare it to what his spokesperson said afterwards:

We know public sector pensions are a big challenge. Nothing has been ruled in or out. Of course the law requires accrued rights to be protected. Before the next election we will outline the policy in more detail.

We have always said that moving MPs onto a defined contribution scheme will help in time with public sector pensions, which everyone sees as a pressing issue. Clearly any changes would involve extensive discussions with interested parties.

Jim Pickard

James Crosby’s report on Monday recommended state guarantees for £100bn of new mortgage-backed securities to help get banks lending to home-buyers once again. I pointed out here that Crosby himself had reservations about this idea when he wrote his interim report in the summer.

Treasury officials tell me that the situation has become more desperate since then. But surely the fundamental pros and cons remain the same.

Mervyn King seemed unimpressed with the idea when he spoke on Tuesday, describing securitised mortgages as a ”form of lending that for rather good reason has fallen out of favour”.

The final Crosby report says the government guarantee would only be used for new mortgages, not for re-financing existing ones. It would be available to banks and building societies. Only “prime” mortgages would be eligible: excluded are high loan-to-value loans, second charge loans or those to people with impaired credit histories.

How else would taxpayers be protected? The answer seems to be the ratings agencies.

Germany is leading the fightback against Gordon Brown’s drive to stimulate the world. Angela Merkel is distinctly unimpressed by the case for a tax cuts, in spite of sitting on a big budget surplus. In a speech to the German parliament she endorsed Brown’s diagnosis of the problem, but dismissed his proposed solution.

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

If you thought that was undiplomatic, take a look at the views of her confidant and adviser.  Steffen Kampeter, the budget expert in Ms Merkel’s Christian Democratic Union, said:

“I see the danger of creating a new bubble. Massive interest rate cuts and massive borrowing may bring about new problems.”

“How good is a policy package if it has to be changed every other week? How good is it for confidence? The latest British decisions on VAT [value added tax] and income tax, for instance, are inconsistent. Better to wait a bit longer and put forward more durable solutions.”

Merkel said leaders must resist the temptation to “overcome the crisis” and instead “build a bridge so that we at least can start recovering in 2010″. Is this what David Cameron would be saying if he was prime minister now?

Westminster blog

on the UK political scene

About this blog Blog guide
Jim Pickard and Kiran Stacey, FT Westminster correspondents, share the latest news and analysis on the UK's political scene.

Follow the latest news on the UK politics and policy.

To comment, please register for free with FT.com and read our policy on submitting comments.

All posts are published in UK time.

Contact the Westminster blog team: Jim Pickard, Kiran Stacey, Nicholas Timmins, Elizabeth Rigby and Helen Warrell.

The illustrations of Jim and Kiran are by Nick Hardcastle.

See the full list of FT blogs.

The authors

Jim Pickard joined the lobby team in January 2008. He has been at the Financial Times since 1999 as a regional correspondent, assistant UK news editor and property correspondent.

Kiran Stacey is an FT political correspondent, having joined the lobby in 2011. He started at the FT as a graduate trainee in 2008, working on desks including UK companies and US equity markets before taking over the FT's Energy Source blog.

Contributors

Elizabeth Rigby, the FT's chief political correspondent, joined the lobby team in September 2010. Elizabeth has worked at the FT for more than a decade and was most recently its consumer industries editor.

Helen Warrell is the FT's UK reporter, covering home affairs, crime and policing. She joined the FT in 2008 and has spent time as a reporter in the Brussels bureau and more recently, editing the paper's Asia coverage on the world news desk.

Archive

« Oct Dec »November 2008
M T W T F S S
 12
3456789
10111213141516
17181920212223
24252627282930