My wife is a teacher so I’m on very thin ice here…
The government is in a lot more debt than the usual Public Sector Net Debt figures show.
Why? Because public sector pensions aren’t included in those figures. And that makes a huge difference.
I was amazed at how much employee and employer contributions are needed to support these pensions and the total value of such liabilities to all us taxpayers.
The government can’t inflate their way out of such debts so the economy is presumably going to have to grow to support them.
Watch this video where I explain what this all means.
For a transcript of the video, keep reading:
Hello everyone. In this video I’m going to talk about government debt. Rishi Sunak has made some headlines recently about delays to the government’s Net Zero plans likely based on the cost of them. But if he really wants to be honest with the British public, he needs to tackle the elephant in the room. And for me, that is the cost of public sector pensions.
Now I’m on thin ice because my wife is a teacher, and she recently moved from Birmingham to Solihull for a new job at the beginning of September, and she had a letter from Solihull Metropolitan Borough Council about the teacher’s pension scheme and here’s an extract from that letter.
She has to contribute on a sliding scale between 7.4 to 11.7% to her pension so I that’s fairly routine, I think that was quite reasonable. But what really caught my attention was how much the employer, how much Solihull council have to contribute, and that is an eye watering 23.68%. So add the two together the total contributions to support a public sector final salary pension of between 31% and 35%.
So let’s compare that to the NHS similar setup, employee’s contributions on a sliding scale from 5% to 13.5%. The employer contributes 20.6%. So add those two together and let’s call it between 26% and 34%.
I mean, these are big numbers, these are really high contribution rates. And you compare that to auto enrolment. So the bare legal minimum for a pension scheme is 8%. And the employer contributes three, the employee contributes five, but even then, that’s not on all of the employee salary. It can only be on earnings between £6,000 and £50,000. So there’ll be a lot of low earning employees in the country who have only got pension contributions, maybe on half, two thirds or so of their earnings. So that’s a huge difference.
Now here’s a thrilling read, Whole of Government accounts. Now, the latest ones available, they were only produced in July this year, more than two years old, two and a half years old.
And this is where the real scandal I think is for me because the Office of Budget Responsibility, the Office of National Statistics, and the government are really not being honest about how much debt the government is in.
The figures often quoted is Public Sector Net Debt, which is the figures I’ve circled there is roughly about £2.6 trillion. But the public sector pensions are £2.3 trillion. So really, you could argue that government are understating the amount of debt they’re in by 70%. That’s a huge difference.
And so where are these public sector debts on the pension scheme, well the largest one is the National Health Service. So now here’s more thin ice. I do wonder if the doctors and the nurses that are striking for better pay actually realise the amount of money that goes into propping up their pension scheme. Similarly for the teachers, similarly for quite a few other members of the public sector. Yeah, I’m surrounded by thin ice. I’ve got lots of friends who are teachers, doctors, friends in the police force friends in the armed forces.
So here again, is the similar representation of the same numbers; government debts is the £5.5 trillion figure on the right hand side. The government assets on the left-hand side is only £2.2 trillion. There’s a big difference between those two. So governments have a lot more debt than were normally led to believe.
Now I haven’t mentioned the State Pension, and that’s because the State Pension is paid for annually out of the Welfare budget. So it’s accounted for differently and I think, for probably the right reasons. But already the state pension accounts for 40% of the welfare budget and I really can’t see that proportion going down.
And where this is important is that the public sector pensions are contractually obliged and the government can’t inflate their way onto them because those pensions are fully inflation linked. So whereas the budget for the health department as a whole, or education, defence, and so forth, in times of austerity, the government could decide to reduce what they spend on those departments, they can’t get away from the public sector pensions that have been accrued to date. So it is a huge amount of money. And I’m really not sure what my conclusion is, other than governments in a lot more debt than we normally lead to believe. And I don’t think the current Prime Minister probably not even the next one, and I don’t even know which Prime Minister is going to tackle this. But sooner or later, we’re going to end up paying a lot of tax to prop up these pension schemes. So I’ll leave that thought with you.