The Lion that Turned into a Rat

by Mitch Feierstein about 11 years 6 months ago

What is it? Is it something in the water of Downing Street? Some as-yet-unnamed version of Stockholm Syndrome where the victims fall in love with their captors? Or is hypocrisy in fact a contagious disease? Something passed on by one government to the next, along the with the grace-and-favour mansions and the limousines.


I don’t know. But I do know that behind the bland official announcements and yawn-inducing data about pension-deficits there is a giant scam going on and you are the one being ripped off. But first, let’s get to grips with the facts. According to the neutral voice of the BBC news website: ‘Royal Mail pension fund assets and liabilities are set to be transferred to the government next month, subject to EU approval, the BBC understands. The move means that Royal Mail pensioners will enjoy a state guarantee of their retirement benefits. It is a key part of the impending privatisation of the Royal Mail. The transfer – which was backed by the Communication Worker’s Union – will provide a windfall gain to the government’s budget of about £28bn.’


So that’s all good, right? It’s win-win-win. The Communications Worker’s Union gets what they want (government-guaranteed pensions). Royal Mail management gets what it wants (the path cleared for privatisation). And the government gets a windfall gain of £28 billion which, with government finances the way they are, is not to be sneezed at.


Only, and here’s the thing, you can’t create winners by accounting changes. And if it looks like everyone’s a winner, then you can pretty much bet that there will be a loser – and you, my friend, have been cast in that role. Congratulations.


Here’s the scam. By nationalising the Royal Mail pension fund, the government gets to snaffle its £28 billion of real, tangible financial assets. That’s all real money, which can be used to offset our borrowing needs, hence the reason why the government debt falls by that amount.


But the government is also nationalising the future obligations of the Royal Mail pension fund. And – how unsurprising is this? – those liabilities are almost £10 billion greater than those assets. So in fact the taxpayer has just lost out to the tune of £10 billion. The only reason why the government debt looks better not worse is that our current – insane – accounting standards don’t report pension obligations as part of total financial obligations.


If you want to know how much that little swindle will have cost your household, the answer is approximately £450. And please don’t think that that £450 is one of those mythical charges which will never actually be imposed. On the contrary: those Royal Mail pensioners will receive their pensions and you personally will be on the hook to make sure they do. Needless to say, if you are covered by a private sector scheme, no taxpayers will be there to rescue you should something go wrong.


Fortunately, of course, you have your elected representatives to defend your interests and stand up to this fiscally reckless behaviour. One lion-hearted MP, for example, said: ‘I fear the government is going to steal £22bn of pension assets, dump the liability as a mortgage on future generations and dress it up as the salvation of the Royal Mail. Their plan to steal the pension assets to help reduce their borrowing figures while taking out a massive mortgage to cover Post Office pension liabilities for 50 years is nothing more than a massive accounting scam … This dangerous plan must be resisted.’


Strong stuff, huh? The trouble is that the MP in question was speaking in 2008. His name was Alan Duncan, then the Conservative’s shadow business secretary. And Duncan is now in the cabinet … which is expected to approve these plans.


And, in any case, a scam of a mere £10 billion was never likely to satisfy our politicians. Why fool around with mere tens of billions when you could play fast and loose with thousands of billions?


So, for example, when the government released its most recent debt figures, it said: ‘net debt excluding the temporary effects of financial interventions was £988.7 billion, equivalent to 63.0% of GDP.’ Since things only get really hairy when debt is above 100% of GDP, you’d think that everything was under control. Everything’s fine.


Well, yes, exactly. That’s what you’d think the implication of that statement is … except you probably have a niggling worry about that phrase to do with ‘the temporary effects of financial interventions’. And if you have such a niggling worry, you’re quite right to be alarmed. Because the ‘temporary effects’ in question refer to the government’s ongoing bailout of RBS and others. We’ve basically taken on the debts of the bailed out banks and will need to discharge those debts. Sure, we’ve also taken on some assets at the same time … but if the assets had been all that wonderful, we wouldn’t have had to bail the banks out in the first place. We took on iron-hard debts and putty-soft assets. That’s not a great combination.


The amounts involved are enormous. Including the effects of the bank bailouts – as we have to, if these accounts are to make any sense at all – public sector net debt at the end of January 2012 was £2311.6 billion or a jaw-dropping 147.3%  of GDP. That’s within touching distance of Greek levels of debt.


The last government got us into this hole and we can’t reasonably blame this one for not having fixed the problem yet. But the Royal Mail pension scam sends a deeply concerning messsage about the direction of travel. Personally, I think that the water in the taps of Whitehall has done its stuff. Stockholm Syndrome has taken effect. The contagion is spreading.


The lions have turned into rats.

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