May 2011 27

The Local Government Finance Statistics out today show the steady rise in the cost of employers’ contributions to council pensions as a share of local government income.  Those pensions consumed over 22 per cent of income from council tax in 2009-10, which shows the extent to which savings in this area could mean lower bills for hard pressed taxpayers.  That is up from around 19 per cent in 2005-06, which is a significant rise in such a relatively short period of time.

In our last report on this issue – which found councils were facing a £53 billion pension deficit in 2008-09 -  we discussed some options for reform to cut costs.  If the Government wants to make it a bit easier for councils to balance the books then they should consider action in this area.

Here are the statistics on the rising cost of employer’s contributions to local government pensions:


Matthew was the Chief Executive of the TaxPayers' Alliance, author of Let Them Eat Carbon and editor of How to Cut Public Spending (and still win an election)

  • Blarg1987

    There are various factors to this report, does it also include pension holidays that Local Authorities took and if not would that not be a good thing to add in, and from that work out how much in real terms pension provisions would be, so in future no pension holidays should be provided when in the good times and prevent a repeat of what is happening now.
    There are other areas which could save tax payers money which I am suprised you havent looked into such as tax relief on companies who use the tax breaks they obtain here to employ more people abroad at the cost not only to the tax payer, but at the expense of jobs in the UK. I blieve that is a far bigger scandal and should be worth investigating.

  • Richard Coe

    This is slightly misleading isn’t it – because in your text you compare council pension contributions against Council Tax Revenue NOT Council Incomes. As your table shows the Council Tax is only a small proportion of most council’s incomes. Your 22 per cent of council tax figure does not show the proportion of council budgets spent on pensions – thus creating a false comparision vs the pension liabilities shown in private sector organisation’s accounts.

    In fact as your table shows last year the councils spent 3.5% of their incomes on pensions. This is not far wide of what other private organisations might expect to spend – and is a lot less than the figure of 22% you promote above.

    No right minded person can be in favour of waste – but spun statistics like this only add to the impression that the TPA is an organisation which is far from impartially or fair minded.

  • Alex

    The real scandal in LA pensions is the quality of managment of the pension assets and liabilities. Apart from a very few councils prepared to take a lead on this, there is an almost total lack of contemporaneous risk management.
    Most schemes have failed to appropriately match asset and liability risks, choosing relatively high allocations to equity and risk assets while failing to hedge the inflation and interest rate exposures arising from their future obligations to pensioners. 
    Most decision-making is stuck in an archaic round of triennial valuations: chances are your local scheme hasn’t actually noticed the credit crunch yet. Without the discipline of proper pension accounting as required in the private sector, most LA pension schemes just drift along until the next unbudgeted risk pops up to bite them on the backside. The taxpayer can be relied upon to pick up the bill and few incentives exist for LA schemes to adopt better practice.
    TPA could try asking councils to state the sensitivity of their scheme’s funding position to simple stress tests: a 1% adverse change in the term structure of inflation and interest rates, a 20% fall in equities, hedge funds and property, a 1-year rise in longevity. Any LA  not able to readily estimate their scheme’s exposure to such basic risk drivers is clearly failing in a basic duty of care to members while obliging taxpayers to pick up any bill. 

    • Blarg1987

      This should also include former state owned companies that have tax payer guarentees on pensions as well?