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Sunday, June 27, 2010

Another Labour black hole

Just when you thought that the economic mess left behind by Labour could not get any worse the Observer reveals that Gordon Brown's Treasury has been dramatically understating the cost of paying public sector pensions.

The official bill to taxpayers for future retirement payments is put at £15bn a year, but the actual cost is £30bn, according to John Ralfe, one of the UK's leading pension experts.

This means that costs of £120bn to £150bn have gone unrecognised in government accounts since 1997.

The Office for Budget Responsibility put the figure close to Ralfe's, at £26bn, in its report on the UK economy.

"Government accounts have been flattered by hiding a £15bn annual cost," Ralfe said.

"They fiddled the figures. The Treasury under Gordon Brown moved the goalposts. It had a pernicious effect because if they had come clean on this earlier, there could have been a gradual series of measures to make the cost of public sector pensions more manageable, rather than having to take action all at once."

He added that the real pension benefit for teachers was about 28% of their salary, double the official cost of 14%, and that for civil servants it was 33%, compared with the official figure of 19%.

The disparity is a result of a sleight of hand by the Treasury in 2001, when officials fixed the "discount rate" – used to estimate the cost of future yearly pension bills at current prices – at a level that made liabilities appear much smaller.

The effect was to disguise the true state of public sector pension costs, with drastic action now required to reduce their claim on the nation's purse.

This is just another example of how Labour have been hiding the truth about our public finances. It is little wonder that the coalition government has had to take drastic action to put things back on an even keel.
We need to be able to see the books, well before any change of government. It's appauling that the only time opposition politicians can see the books is when they get elected to government.

People had an incling that things were bad, but there's bad and there's bad and then there's really bad and then there's the mess left by the last Labour Administration!
Rationalistions aside, and as the Lib Dem manifesto made clear, there were other drastic actions available to the coalition other than a 2.5% increase in VAT. I also seem to recall Vince Cable pointing out that a sharp reduction in public spending was counterproductive to recovery. Forgive the cynicism but I cannot help suspect that the new shortened timetable for reducing the deficit is more to do with the ability to announce headline achievements round about the date of the next election.
It's a 14% increase in VAT, surely? - though only in respect of the main rate.
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