Look beyond the make-up on the public sector reform commission. John Hutton’s decision to chair it is a serious political coup for George Osborne. But the real shake-down is hidden in the small print.
Osborne said Hutton’s interim report in September will look at the “the early steps we can take to save costs”. The full remit goes a bit further:
This should consider the case for delivering savings on public service pensions within the spending review period – consistent with the Government’s commitment to protect those on low incomes – to contribute towards the reduction of the structural deficit.
While Hutton will no doubt knuckle down to some serious analysis over the next few months, I can tell him now that the only way to make serious immediate savings — while protecting accrued rights — is to increase the contribution rate.
There is no other way. By taking on this job, Hutton clearly agreed to jump — the only question is how high.
A levy of this kind is an effective pay cut across the public sector. Raising the contribution rate by 2.5 per cent will raise about £3.2bn a year. The remit leaves some scope for protecting those on low incomes, so I expect the rate will be higher for those earning more than £20,000 or so.
Just to scare all our public sector readers, it is worth remembering the average increase imposed in Ireland was about 7.5 per cent.
After making the case for savings before the Autumn spending review, Hutton will be back to propose some longer term reforms. One option is closing some final salary schemes and making employees switch to a “notional” direct contribution scheme. There are a few other big reforms, but almost all of them will trigger a wave of public sector strikes.
One interesting subplot is the fate of the armed forces pensions scheme. It is now the only public sector scheme left that requires its members to make no contribution at all. Zero. Liam Fox has pledged to protect it. Let’s see what his predecessor as defence secretary thinks.