For a long while it has seemed that local government sector has truly gone down the rabbit hole with Alice. Cutting bin collections to fortnightly is supposedly an improvement in services. A council tax rise to the highest level ever is meant to be good news. Handing massive payoffs to people who oversee service failures and cost increases is apparently hard-nosed business.
In their responses to our new report into the vast deficits facing the Local Government Pension Scheme though, Unison and the Local Government Association have combined the logic of the Cheshire Cat with the balanced thinking of the Queen of Hearts. Alice in Wonderland to them seems to have become a manifesto rather than a case study in absurdity.
Let's quickly recap the key findings of our report. In 2008-09, according to the actuarial reports in council's own accounts, the deficit in the Local Government Pension Scheme reached £53 billion.
That means that even after taking into account employer contributions, staff contributions and investment income, the assets in the Scheme are far below the liabilities that they will have to pay out.
This is a serious problem for three groups. First, for taxpayers, who could be expected to make up this shortfall which equals around £2,100 for every family in the country. Second, for councils, who are finding that these pensions are taking up an ever larger share of their already crisis-struck budgets. Our research last year showed that employer contributions, paid from the council's own budget, had reached the equivalent of £1 in every £5 of council tax. Finally, and importantly, this is a serious problem for local government workers themselves. Their pension scheme is severely underfunded and dependent on a Ponzi-scheme rather than a sensible balance book. There is a severe risk that with a large council payroll, an ageing populace and huge public debt there may come a day when there simply is no money to pay these pensions out.
But what response do the Local Government institutions give to this clear crisis?
Well, UNISON - the public sector union - has accused us of "getting [our] sums wrong" and "manipulating figures". Strangely, for such a well funded organisation, they produce no evidence to back either of these claims. In short, they are old-school smears, pure and simple.
The figures in our report could not be more straightforward and unmanipulated - they are drawn directly from the actuarial statements in council's own accounts. As for the sums, again they are direct and straightforward - and we have had no errors drawn to our attention whatsoever by any council.
So what do UNISON mean?
Their first claim is that our report is "based on the nonsensical supposition that everyone is
going to retire at once and tomorrow." This is a remarkably absurd argument. The point of these deficit figures - and the reason why they are calculated by expert actuaries in the public and private sectors - is that to fund something this complex, you need to plan for the future. When you consider how large your mortgage is, do you think how much it will cost this month or how much you have actually borrowed in total? In planning to pay that mortgage off do you set aside money only for this month, or do you anticipate the ongoing future costs and plan for them fully?
Small wonder the public finances are in such a mess if the main public sector union's view of financial planning is only on the short term and ignores long term costs. Are UNISON's members aware, I wonder, that their representatives are urging us not to give any thought to how to fund their retirement because it's a few years off yet? This is a hugely irresponsible attitude.
They then go on to talk about how much money went into the pensions last year. £10.2 billion was put in 08-09, they say - true, but £5.4 billion of that came from the taxpayer compared to only £1.9 billion from employees themselves, with the rest made up from investment income. The problem is, even if you disregard the massive cost to the taxpayer and the choking burden on council budgets, these contributions and assets are still falling £53 billion short of the liabilities of the fund - that is what a deficit means. As the facts show, the size of the deficit increased by £11 billion despite that £10.2 billion being poured in.
I don't think that UNISON are stupid. Rather, this line of attack shows they are clever - but dishonest. The sad thing is they are letting down their members by sticking their fingers in their ears and shouting la la la while this pension fund steams towards disaster.
The Local Government Association, which is meant to represent councils themselves, fared little better.
The first thing that struck me about their statement is the opening sentence, suggesting that we are "attacking the pensions that dedicated lollipop ladies,
bin men and librarians have paid into every working day". It didn't stand out because it was a particularly good argument, but because it is exactly what they said last year.
The meat of their argument rested on the idea that "local government
pensions are funded by investments built up using contributions from staff and
employers." Except they aren't sufficiently funded - that is precisely the point.
They went on: "Council pension funds are carefully managed in the
long term to cope with ups and downs in the markets." Except they aren't being managed quite carefully enough - or else there wouldn't be such a large structural deficit.
Finally, the coup de grace: "Councils’ payments into the pension scheme are
equivalent to many of defined benefit pensions in the private sector.” Except, erm, that almost no workers in the private sector have defined benefit pensions - the vast majority of private sector final salary pension funds have been closed due to their vast cost. The only similarity to the private sector is with Readers' Digest, which has just filed for bankruptcy as a result of being unable to bear the cost of its final salary pension deficit.
Again, as well as a betrayal of taxpayers' interests, this is an utter betrayal of councils' best interests. The disaster which is the Local Government Pension Scheme is under the control of the Government - the LGA could and should have joined us in calling for the Government to reform its terms. As I mentioned above, councils themselves suffer from this exorbitant scheme, and the Alice in Wonderland finance it is built on.
One of the most vivid images conjured up by Lewis Carroll was the tale of the Walrus and the Carpenter, who persuade a group of trusting oysters to follow them for a walk along the beach. Having placed their faith in the two strangers, the oysters are horrified to find themselves betrayed and eventually eaten. Despite their mandate to represent local government workers and councils, both UNISON and the LGA are betraying their interests just as severely.
In what kind of world can public officials pretend that a £53 billion black hole will simply disappear? We are truly through the looking glass.