UK cuts pensions and workers — without a fight

December 21, 2011

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The compromise between the UK government and public-sector workers over pensions looks like an important breakthrough. The unions have given most ground. The government will save billions of pounds on retirement benefits over coming decades. An ugly repeat of the clashes and strikes of the Thatcher years now looks unlikely. But if David Cameron is emerging as a consensual politician, it is with a very hard edge.

Prior to the Dec. 20 agreement, the government’s “final offer” was that the so-called accrual rate — the annual pace at which a pension accumulates – would be no better than 1/60th of salary. Workers were unhappy. One strike had taken place and more were coming. That would have been a nightmare a government embattled by an economy that is probably already back in recession.

Resolution came when the government budged on accrual rates but with the quid pro quo of less generous revaluations of past accruals to reflect inflation. The deal is complex. For example, the civil service will receive 1/44th of salary each year, revalued annually by the consumer prices index, with nothing extra on top to keep up with earnings. But National Health Service workers will receive 1/54th of salary, each year, revalued annually by the consumer prices index plus 1.5 percent.

The unions have given up more than the government by agreeing in principle to lower accrual rates and to reference retirement benefits to workers’ average career earnings rather than their final salary. Public workers know they will still get better deals than in the private sector.

The deal should be seen against the broader backdrop. The government is cutting the public sector hard. In the second quarter, 126,000 public sector jobs disappeared, and a further 67,000 in the third. State employment, at 6 million, is at its lowest since 2003.

Cameron is making the UK’s public sector and its pensions smaller and more affordable. Over time that will help get the fiscal deficit down. Near term it is unquestionably putting unemployment up. An unhappy country could well do without the social division, strikes and confrontation of the 1990s. The current administration’s achievement in cutting while avoiding that is to its credit.

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I have to say I am beginning to admire Cameron as a PM who gets things done. I was sceptical about the new govt and coalition to start with but they are achieving things in the most difficult of circumstances. Cometh the hour, cometh the man?

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