Welcome to a new, occasional series running up to the Autumn spending review. We’re planning for the “Cut Of The Day” to be as arbitrary, brutish and irregular as the whims of the Treasury axemen. So you may see a few examples on a single day, or none at all.
The basic premise is to lay out the case for and against various measures. We’ll try to pull together some greatest hits before the Spending review. So please do let us know if you think the options are too damaging, cruel or indeed unnecessarily merciful.
Option: Peg public sector pension payments to Consumer Price Index instead of Retail Price Index
Saving: Around £1.25bn a year by 2014/15 (assuming CPI is around 1 per cent less than RPI)
How a minister would justify it: Gold plated pensions uprated by RPI are unsustainable. John Hutton will look at the long term reforms, which are likely to affect current employees. This interim step contains the costs of payments to those who are already retired.
Using CPI puts the £25.4bn annual bill for unfunded public sector pensions on a more sustainable footing that is not distorted by house prices. Who can complain at the government using the Bank of England’s measure of inflation?This is still a more generous deal than can be expected in the private sector.
And, of course, it keeps George Osborne’s pledge to protect accrued benefits. Pension contracts say the payments will rise in line with general prices — a measure is not specified. Whether to use CPI or RPI is for the chancellor to decide.
The case against: This is arbitrary and stealthy cut to the incomes of more than 2m pensioners. It is a cowardly way of taking money off the elderly through a sneaky technical change, rather than simply cutting payments. It is a breach of trust that will backfire in elections, as the over 60s are more likely to vote. It pre-empts the Hutton review. And it hits poorer pensioners harder.
Jim Pickard
Kiran Stacey