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August 10 posts
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jgale | 
26 August 2010 at 15:27 | 365 views
Britain’s pensioners have been entitled to feel pretty fed up in recent years. Remember Gordon Brown’s measly 75p increase in the basic pension a few years ago? And the decision taken by Mrs. Thatcher’s Government in 1980 to break the link between the basic state pension and the increase in average earnings? That decision by the Conservative Government of 1979-1997 meant that those reliant on the basic state pension became poorer and poorer in relation to the rest of the population each year, and it helps explain why Britain’s basic state pension is one of the lowest in the “developed”, richer, world.
To help the poorest pensioners, Gordon Brown introduced a means-tested “pension credit”, but the problem with this is not just that people have to claim this benefit (and many do not), but also that it is a powerful incentive for many people not to bother to save. This is because people with smaller amounts of savings can discover that they are little better off saving for their retirement than they would have been if they had blown the money on some good holidays, and then relied on the means-tested benefits to make up the difference.
Means-tested benefits always have this risk – they deter people from working and saving.
I am pleased, therefore, that the new Coalition Government is going to put in place a better system for the basic state pension – starting in 2011. At the insistence of my Party, future increases in the basic state pension will not merely be in line with inflation, or even just in line with earnings growth (which will in some years be lower than inflation). Future increases in the basic state pension will be underpinned by a “triple guarantee”. This means that the increase will be the highest of either the rate of inflation, or the rate of earnings growth, or 2.5%.
Over time, that will make a real impact on pensions – significantly lifting their real level compared with the promises made by the previous Labour Government. And producing a better basic state pension will mean that pensioners will in the future be less dependent on complex means-tested benefits, which must be good news.
There is, of course, much more that needs to be done to ensure that Britain’s pensions system is delivering for all our citizens.
Sadly, in recent years, the provision by private employers for their staff has deteriorated very rapidly. Most private sector employers no longer deliver an earnings related pension. Instead, they often make a small payment into a “defined contribution” pension, the value of which can swing violently depending on how well the stock markets are doing. This means that pension risk has effectively been transferred from employers to employees, and the level of employer contribution has generally dropped significantly.
In the past, Government has done too little to keep good private sector pensions. Instead, new regulations meant that employers had to take a big “hit” to their accounts when the value of their pension funds went down.
Government needs to do more to make it attractive for employers to provide salary related pensions. This means that such pensions must be affordable. A recent Government decision to allow employers only to uprate future pensions by the CPI index of inflation rather than the higher RPI index might seem to be short-changing pensioners, but if it helps employers to keep hold of salary related pensions then it may be a very, very, good idea.
And in the future salary related pensions may have to be made more affordable by moving from final salary pensions to career average pensions, and by increasing employee contribution rates and cutting accrual rates. We are all living longer, and pensions cost a lot to provide. Sadly, money does not grow on trees and if we want good pensions we have to pay for them, or we have to accept slightly less generous pensions in exchange for keeping employers involved in delivering these pensions.
The same goes for all public sector workers, and this Autumn a Commission will report on reforms to these pensions. While protecting existing accrued rights, there will have to be changes in future schemes. These changes are crucial if higher quality, earnings related, pensions are to continue – as I believe they must.
Ever,
David.
jgale | 19 August 2010 at 14:42 | 306 views
We are fortunate that in our area there have been a number of large public sector building projects which have been approved in recent years, some of which have now been completed – including the new Oaklands School in Yeovil.
We also have a new hospital being built at South Petherton, on which good progress is being made.
And there have been some other important capital projects, including the demolition of temporary classrooms and their replacement with permanent structures at schools such as Avishayes in Chard, and at Birchfield, Westfield Secondary and Preston Primary in Yeovil.
In general, the last 10 years saw a big increase in money for “capital spending” on new buildings and on other infrastructure.
Unfortunately, this spending is now having to be cut back dramatically. This is not something which has been driven by the new Coalition Government, it is in fact an announcement made by the last Labour Government before it left office this year.
Gordon Brown and Alistair Darling quietly announced a 50% cut in capital spending from 2011 onwards – without specifying in which areas the axe would fall. But cutting capital spending by a half is pretty much the same as cutting out all of the “extra” projects that could be delivered. This leaves the “unavoidable” capital spending on projects that are already half-completed or on basic road and rail maintenance that has to be undertaken.
So when the Coalition Government announced the freezing of the “Building Schools for the Future” programme that planned to rebuild or “remodel” every secondary school in England, all Ministers were doing were making the formal announcement of cuts which Labour had anticipated 6 months before, but had not had the honesty to actually announce.
Of course, the Coalition could have sort to reverse the cuts in the capital budgets, but frankly with a deficit of £150 billion, and the Government borrowing an extra £3bn per week, that just would not have been sensible housekeeping.
Many schools will, of course, be deeply disappointed that they have lost out on the new investment which was expected. And many schools do need rebuilding or redesigning – including some of the schools in our area.
Of course, it is the quality of the teaching which is more important than the quality of the buildings, but our children and teachers do deserve high quality facilities, and these send out a very positive and strong signal about the importance we place on education and the high aspirations which we have.
The Government’s deficit reduction plan focuses on getting borrowing under control between now and 2014/2015. If the Government can deliver this successful outcome, then it should be planning to rebuild the budgets for capital spending beyond 2015. This includes for schools, colleges, hospitals and transport infrastructure.
We need a proper budget for school capital spending, and one that focuses the resources we have on where the real need is located. We also need continued investment in NHS facilities, so we can do elsewhere what we are presently doing for the hospital in South Petherton (whose predecessor hospital actually pre-dated the founding of the National Health Service!)
And, of course, we need extra money for our transport network. We should be completely dualling rail lines such as the Salisbury-Exeter line, and re-opening stations such as Chard Junction. And we should be tackling congestion on our road network – the delays, for example, on the A303 around Stonehenge are a national disgrace, as is the fact that we have failed to move the main road here away from a site of such huge importance, in spite of the issue having been debated and discussed for decades.
We also need funding for a proper high-speed rail network, and that certainly won’t be cheap.
The dire state of the public finances fully justifies putting the brakes on now, but once the budget is back in balance we need to get capital spending going again – this is a key investment in the nation’s future, and we must not go back to the days when this investment always took second place to “current” spending on immediate priorities. We must plan and invest in the years to come.
Ever,
David.