The unions have presented strong arguments against the government’s spending cuts, but the reality is that public sector workers are taking action over the best pensions deal they could have hoped for. While there are legitimate complaints over the government’s handling of the issue, the actual proposals are far more modest than unions had feared when John Hutton was tasked with making public sector pensions affordable and sustainable.
In the resultant report he opted to retain guaranteed pensions, replacing the final salary system with one based on career-average earnings. Many had expected him to recommend non-guaranteed pensions based not on service and pay but on contributions and investment performance, as is now the norm in the private sector.
Hutton also linked the public sector retirement age to the state pension age – logical given rising longevity and the fact that white-collar workers easily account for the bulk of public sector employees.
A degree of anger is understandable when you consider that public sector workers are being told to pay more into their pension and work for longer. Yet contributions are to rise by just 0.6 per cent of pay for those earning less than £21,000 (£26,000 for teachers) and there will be no increase in contributions for those earning £15,000 or less. Some lower-paid workers will be better off in the long run, with those towards the top of the hierarchy hit hardest.
At a time when private sector workers are retiring with vastly diminished pensions and getting the lowest annuity rates on record, public sector workers are complaining about a deal that still gives them guaranteed benefits. This administration has given us plenty of reasons to protest, but public sector pensions isn’t one of them.
Falling property prices should be welcomed
THE government’s support for first-time buyers has been welcomed in most quarters, yet it will do more harm than good in the long term. The mortgage indemnity guarantee scheme proposed for England and Wales is designed to help more first-time buyers into the market. The problem is that it may also push house prices up – the worst possible thing that could happen for first-time buyers (FTBs).
The proportion of the overall UK market accounted for by FTBs has barely changed since 2003, despite the subprime boom of the mid-Noughties. The house price surges then were driven largely by investment landlords as buy-to-let took off.
The housing market cannot recover without FTBs, and some help is welcome, but the return of FTBs to the market has to be primarily organic. That means the market gradually improving as the restrictions on lenders ease and house prices falling to more affordable levels. Even in Scotland, where property values rose more modestly during the boom years, there’s room for prices to fall to more sustainable levels, especially with incomes declining and unemployment rising.
David Cameron last week said he wanted to make “the dream of home ownership” available to everyone. But are we as obsessed with it as we were five years ago? I don’t think so, and it’s not just because FTBs have had no option but to review their expectations.
David Miles, a member of the Bank of England’s Monetary Policy Committee, was right on Tuesday when he argued that the housing market will never return to the pre-credit-crunch highs. The sooner it is accepted that the decade prior to the crunch was the exception rather than the norm, the sooner the housing market can return to more sustainable levels. As Miles claimed, the housing market will never be like that again – and in the long term that is a good thing.