Royal Mail pension deficit: where and why?
July 2, 2009 Leave a comment
Ken Livingstone, on a separate matter, but with usual aplomb, today wrote;
“Time and again, we have seen the nationalisation of losses and the privatisation of profits. It’s also the latest demonstration that it is a fairy tale that privatisation means the private sector takes the risk as well as taking its profit. In truth, every time a privatisation of a vital public service fails, the public sector picks up the tab. This culture of parts of the private sector fleecing the taxpayer has to stop.”
And, of course, though the original piece referred to the National Express Group, this is rather an apt sentiment across the whole spectrum of privatisation, including the 30% stake of Royal Mail, which until yesterday, was being waved around waiting for private money.
Well these are not the market conditions to do such a thing, so says Lord Mandelson.
Since the Tories foam at the mouth over privatising Royal Mail, they never did condemn Mandelson’s original proposals, but – within the frame of parliamentary contrarianism – they have not vindicated him for his U-turn either. Instead voices have emerged – not least of all from BBC’s Nick Robinson – saying that the move has demonstrated a ‘loss of authority’ – which Jack Straw rightly rejected.
This, indeed, was not why the plans were ‘shelved’. I do buy into the notion that certain market conditions forced a re-think, but also a concerted effort by unions, think-tanks, Labour MP’s and the worry of further disruptions spelt out the necessaries for calling off the issue.
What is continually embarrassing for the Labour Party – rather than the so-called ‘loss of authority’ – is the continual destruction – facilitated by New Labour – of the heart and soul of the party and its values. To suggest this turn is anything other than victorious for the true nature of the party, is to suggest that Peter Mandelson represents what is solid about the party and its history. And I for one will not accept such a statement.
Whether or not, as Mr. Straw has stated, the changes over the past few days mean that the party is ‘listening’, it certainly means that Labour has to listen, and this itself is no U-turn whatsoever (in the historical sense of the Labour party).
The problem is still focused upon the pension scheme, though. As Ian Pollock puts it – in a dazzlingly simple manner – “The deficit in the scheme – the difference between the value of the assets it needs to pay pensions, and the value of the assets it actually has – is shooting up.”
But, as it becomes clear, certain previous measures – not to mention nonchalance in the economic equilibrium years - made deficit inevitable. As Pollock continues (to quote at large);
“For 13 years, from 1990 onwards, the Royal Mail – in common with other large organisations – made no contributions at all to the old pre-1987 section of its scheme, in a grand contribution “holiday”.
It should have been paying in money at a rate of 9% of salaries per year.
Ostensibly this was to avoid running up a very large surplus, which was a very common phenomenon in final salary pension schemes in the early 1990s.
But the saving of £1.5bn over that time – when staff were still paying in 6% a year – rather neatly covered the £1.3bn that the Royal Mail paid back to the Treasury during that time in an annual dividend.
If that money had been steadily invested over the past 19 years, there is little doubt that the scheme’s deficit would be far smaller now.
If the £1.5bn of annual payments had been invested in shares and bonds over those years, and had grown at an average annual rate of 6%, including dividends and interest, then the fund would now have an additional £3.1bn.”
Well what a surprise; Thatcher government, holding back on the suspicious pre-text that it was running on a surplus.
Whatever the outcome, and even if Mandy returns to this when the time is right, as he promised he will, it would do us well not to forget which system of governence tried to make private finances an inevitability in the public sector, and which style of governance should do all it can in order not to emulate the former in any way possible.