Sunday, 5 October 2008

Slimming down The State: policy costings

As JuliaM pointed out, on the topic of the inevitable wailing that would ensue were a sensible gummint ever decide to scrap The Quangocracy:

Let them make as much noise as they want - if after 60 days, nothing in their sphere of 'authority' has blown up, fallen over ... then we can do without them, can't we?

The related topic is unfunded public sector pension promises. The value of these is around £125,000 per worker, i.e. £1,000 billion divided by 8 million employed in 'Education, health and public admin', see Table 5(2)*, around 2 million of which were added in the last ten years.

Let's assume average public sector pay is £25,000. The value of the unfunded pension promise that accrues to them each year is around 30% of that, call it £7,500 for each year's service. If those jobs have been 'created' at the same rate each year, the 3 million public sector employees who'd be up for the chop** under an MW-led gummint have been accruing these pension rights for 6 years, let's say. That gives an average pot of £45,000.

The MW-led gummint's offer to those 3 million would be that they can take a whole year's salary in exchange for hanging around just long enough to tidy up (auction off paintings, office equipment etc, give the offices a new coat of paint etc, ready for the new tenants) and waiving the pension to which they are theoretically entitled in a few decades time.

So those people would have plenty enough to live off for a year, while they look for a new job, and although there'd be no net reduction in gummint spending in the first year, the promised annual savings of up to £100 billion per annum (nearly 20% of gummint expenditure) would kick in in full in the year after that, and we'd shave a hundred billion or two from the off-balance sheet liability for public sector promises.

* Interestingly, 70% of these are women.

** The 3 million = the extra 2 million since 1997 plus the 1 million surplus that already existed before then. Or you can work backwards by finding out how many teachers, coppers, nurses, doctors etc there are - less than 2 million - and assume that half of the other 6 million are completely superfluous.


dearieme said...

The civil servants could be told that those who are going to be retained keep their promised pension up-to-date, on deferred pensioner terms, but future pension accrual will be on different terms. Or - and I quite like this one because it would be effective without being cruel - their pensions move to the new terms only when they accept a promotion. Plus, of course, official retirement age for anyone under 50 moves from 60 to 65.

Mark Wadsworth said...

D, that middle idea is stupendously good. I must remember that. The other two are already in the MW manifesto.

Bill Quango MP said...

Now, how to get Osbourne to agree to it?

AntiCitizenOne said...

I like the idea of a citizens dividend, as it will tend to force citizens to examine wasteful state spending.

sobers said...

At the risk of being seen as a MCP, I would hazard a guess that the reason 70% of the civil servants in Admin type jobs are female is because these jobs are not real jobs at all, but make-work jobs and therefore not very stressful, and quite attractive to the sort of woman who needs to go "out to work" but doesn't want anything like a real job (ie teaching/nursing/policeman etc where your output can be quantified). Much easier to work in 'HR' for the local council. In my social circle 3 out of 4 women work in such public sector jobs. All could be removed from the payroll with little loss of productivity.

Mark Wadsworth said...

S, from personal experience I'd have to agree.

Lola said...

Or to put it another way at the present time no civil servant pays any income tax (which in any event is just a rebate to us) as the pensions contribution made by the employer (me and you) is greater than 30% of salary roll. And as basic rate tax plus NI roughly equals 30%, hey presto, no real contribution.

I have been advocating a very similar system for at least 15 years - I'm glad to see others are staring to agitate for it.

Implied in this analysis is that we need much reduced tax and spend by government. Yep.

Lola said...

...and, at the same time as getting all these non 'key' workers out of these non 'key' jobs it is necessary to comprehensively reform the whole state employees pensions system. You do this by, from a set date, stopping all new entrants and freezing the existing scheme. The replacement scheme should be on a money purchase basis with contributions of 6% employee and about 8% employer. Please note that contributions of about 12% to 15% of salary for a full working life of 44 years (start 21, NRA 65)will give a final pension of between 50% and 67% of final salary.

This will have several beneficial effects. It will provide more capital for enterprise. It will link all workers pensions to the success of enterprise UK. It will un-burden the wealth creating sector of the economy. It will stop the profligate early retirement policy and habit.

Please note that the myth of 'pensions vulnerable to the markets' needs to exorcised. This is trotted out by Trots at every opportunity. Its cobblers. I know this because I work with funded pensions and they do not suffer in this way - as long as people think and take advice. And what's more I can prove this.

Mark Wadsworth said...

L, thanks for fleshing that out.

I am all in favour of people saving and investing (whether you call it that, or call it 'pensions saving' is neither here nor). What I don't like is all the tax breaks for pensions, which appear to be swallowed up in their entirety by the 'pensions industry.

Lola said...

MW - I would agree about the costs of most private pensions being excessive. All those sold by Banks in particular are crap value.

Look, remember Stakeholder pensions? These were/are just price controlled personal pensions (1% p.a.), and because price controls never work they failed.

In fact we have been running client money at TERs of sub 0.5% p.a. and Personal Pensions for amc's <0.6% p.a. from even before Stakeholder was dreamed up. The thing that costs the money is the advice to the saver/investor. I reckon it takes two to three houurs just to lift the eductational level in most new savers to a point where they can make a rational decision about what's best for them. Add in the 'compliance' time and you can double that. So call it a days work, at about £600 (actually very cheap) for someone to save £100 per month? Not going to happen is it? Plus under the mad baroque Brown benefits system it's not worth anyone earning less than about £20,000 p.a. saving - it just does them out of benefits.

You just cannot leave the 'advice' bit to banks and the like - they are just useless at it and anyway they just sell and sell crap.

The Gummint has propsed National Financial Advice centres staffed by, you guessed it, civil servants. Well from your calculations on state pay and benefits wthey will cost more than £600 per day to employ so no 'saving' there then.

The whole thing has been messed up by New Labour's politicking and their failures in education. It is perfectly possible to deliver excellent good value pensions and investments to retail clients, you just have to get banks and gummints out of it.

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