Saturday 14 July 2012

Things which are not surprising at all and are not really proof of anything one way or another

The TPA are wailing on about the council pensions timebomb again:

The TaxPayers’ Alliance (TPA) can today reveal for the first time a substantial rise in the number of former council staff drawing pensions compared to the number in work and paying into the Local Government Pension Scheme (LGPS).

That's excellent news, it means that in future, there will be fewer ex-council employees claiming pensions than are claiming now. So these pensions will become more affordable for the taxpayer.

Previous TPA research has found that the equivalent of £1 of every £5 of Council Tax goes on pensions...

So what? Pensions are just a kind of deferred salary. If it turned out that councils were spending nearly all their income on salaries, that is in itself neither good nor bad; it all depends on what its employees are doing. If they're all teachers, coppers, lollipop ladies, dustbin men, social workers etc, then great. If they're all five-a-day climate change awareness group directors on six-figure salaries, then hiss boo.

And given the level of pension they are promised compared to their salaries, we would expect councils to be spending about a quarter as much on pensions or pension contributions as they do on salaries. So this "£1 in every £5" figure is also meaningless; as we'd have to know how much of the other £4 goes on salaries and much more importantly than that, what the council's employees are actually doing.
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Dan Hannan asks

What will William Hague's audit [of the costs and benefits of EU membership] show? That depends partly on who conducts it, obviously...

That's the problem, isn't it? I try to be as objective as possible as most things and I am quite convinced that the disadvantages of full EU membership outweigh the advantages. So if I did the audit, the result would probably support this. And people would say "Ah yes, but you're against EU membership, you were going to say that anyway."

You can be part of a free market in Europe without being a full member of the customs union. It's true that you then 'have no say' over how the regulations of the single market are set, but this doesn't bother the Swiss, whose exports to the EU, in per capita terms, are 450 per cent of ours.

He's used that 450 per cent figure before to say "Look how successful the Swiss are outside the EU, they export far more to the EU than we do; therefore we should leave as we'd export more to the EU than now!" but the statistic is arrant nonsense and doesn't support any such conclusion.

The point is, the smaller the unit (i.e. a country) you are looking at, the higher are imports and exports as a share of that unit's GDP. If Eastbourne became an independent state, we'd find that its imports and exports from "rest of EU" would be far higher as a share of Eastbourne's GDP, or per capita for Eastbourne residents than they are for Switzerland.

That is not an argument for the newly created state of Eastbourne to leave the EU and more than it is to create that state in the first place.

11 comments:

Patrick said...

So we know that £1 in £5 of council tax goes on pensions, what is the other £4 spent on? Surely not on just salaries?

Bayard said...

"I am quite convinced that the disadvantages of full EU membership outweigh the advantages. "

I agree, but do the advantages of leaving the EU outweigh the disadvantages of staying? The advantages of leaving a marriage are not the same as the disadvantages of entering into one, as, in the former case, you are likely to have a spiteful and revenge-seeking ex-spouse to deal with. Hell will hold no fury like a eurocrat scorned; we should expect the maximum of petty obstruction in all out future dealings with the EU, should we decide to leave.

Sarton Bander said...

>So what? Pensions are just a kind of deferred salary. If it turned out that councils were spending nearly all their income on salaries, that is in itself neither good nor bad; it all depends on what its employees are doing. If they're all teachers, coppers, lollipop ladies, dustbin men, social workers etc, then great. If they're all five-a-day climate change awareness group directors on six-figure salaries, then hiss boo.

Oh Dear,, You ARE turning into a faux georgist.

Anonymous said...

Well, er, no. Pension contributions "by the employer" are a kind of deferred salary (and I've put it in quotes because I know as well as anyone that really it's the employee who's getting a smaller salary, and the taxpayer who's the funder anyway).

Public sector pensions are universally only part-funded with regard to the benefits assured (TTBOMKAB) and so are necessarily topped up by the taxpayer, because the benefits are extended and enhanced across ever-increasing retirement years without regard to cost.

Police pensions are one of the most extreme examples because of early retirement ages. To let them out at 48 really, really costs......

Scrap 'em all! Free off some insurance industry employees for more gainful employment.

Mark Wadsworth said...

L, exactly, thats the question. If councils spend £1 on pensions, 50p on salaries and £3.50 on taxi fares and stationery, then something has gone badly wrong. But until and unless we know what the breakdown is, the £1 figure is meaningless.

B, fair point about divorce, but that's no reason to stay in an unhappy marriage for ever, knowing it's just going to get worse and worse. Countries left the British Empire, countries left the Warsaw Pact, France left NATO etc, they all kissed and made up in the end.

SB, your point is? Can you explain WTF that has to do with the post? Stick to the topic in future. whether or not you personally approve of lollipop ladies is a separate issue.

FT, agreed, in practice, it's all a scam and the book keeping is questionable, I'm just saying the £1 in £5 statistic is meaningless.

In any event, let's not forget that council tax only covers a fifth of local spending. So £1 in £5 council tax only equates to 5% of all council spending anyway, which is getting close to the margin of error, and in any event. most private companies have massive pension fund deficits which need to be topped up by much more than 5% of their annual income, so pots, kettles etc.

Bayard said...

"it's all a scam and the book keeping is questionable"

It's easier with "non-contributory pensions" There the maths is pretty simple. Your pension, payable from retirement age, is the number of years worked divided by 90. If ex-civil servants live an average of 22.5 years beyond retirement age (to keep it simple), then your salary is being reduced by a fifth.

FT, adopting this model for all publicly funded jobs would be a good start. I doubt the police would be so keen to retire if they didn't start drawing their pension until 65. It would also "Free off some insurance industry employees for more gainful employment."

Anonymous said...

Sigh. Mr Hannan appears to be getting confused between the Single Market and free trade again.

Mark Wadsworth said...

B, that's a nice simple way of looking at it. And if local government pensions were unfunded (which they are not, on the whole, local government schemes are underfunded just like private sector salary schemes but not to a criminal level), then that is how it works out.

To the extent that historic salaries were not reduced by 1/5 to account for the years on half pay in retirement, so what? That just means (for a given total level of local government funding) that current salaries have to be reduced anyway because there is less money for current salaries (a large chunk being spent on pensions).

AC, being fair to Hannan, he does distinguish between 'free markets' and 'customs union', which is the same sort of distinction.

What winds me up is this factoid that "Switzerland exports far more to other EU countries than we do" which is nothing to do with it being outside the EU and everything to do with it being a small country surrounded on all sides by EU countries. Switzerland (and most other small countires) just export more (and import more), full stop.

James Higham said...

"Wailing on " or "bringing to people's attention"?

Lola said...

"Pensions are just a kind of deferred salary". They are not 'kind of' deferred pay. pensions are exactly deferred pay.

Mark Wadsworth said...

JH, yes, councils waste money (but nowhere near as much as central government), we knew that.

Yes, the supposedly funded local government pension scheme is underfunded (as are all final salary pension schemes), we knew that.

But what the TPA, being rabid Home-Owner-Ists obscure from the general public is that council tax only covers a fifth of local government expenditure, so if (say) a fifth of local government spending is wasted, you can argue that local councils waste 100% of council tax. This is neither an argument for nor against council tax, and expressing anything as a % of council tax revenues is deliberately misleading.

L, fair point, but the value which the worker attaches to the value of that pension promise; the actual cost to the taxpayer; and how much that worker actually receives (he or she might drop day a day after retiring) are three entirely separate variables.