The Government has to cut spending. It has to do it somehow, and whatever way it chooses to do it is going to be unpopular. I’d prefer it did most (about 80%) of the work of cutting the deficit by spending cuts rather than tax rises. And if the government is going to raise taxes, then there are certain kinds of taxes I’d rather they avoided. Particularly pernicious taxes would be those that picked out some section of the community and taxed their wealth.
For example, suppose that the government did the following. Suppose it decided that, under Tony Blair and Gordon Brown, public sector workers had been over-paid for years. Of course, one could perhaps do something about stopping salaries rising further in the future, but it could be tricky to actually cut them. So instead the government passed a law taking away a portion of the houses of anyone that had ever worked in the public sector – it just said, we’ll have 5% of the value of your house.
As a Conservative, I’d be pretty unhappy about that – and I put it to you, dear reader, that any classical Conservative should be unhappy about that. It would be a blatant attack on property rights. It’s one thing for the government to tax an activity, such as working or trading, and for the government to take a portion of the value added in such an activity. It’s quite another for the government to simply look around, say it fancies having a bit of someone’s stuff, and passing a law saying it can take it. Such things used to happen – they were called Acts of Attainder. Between 1321 and 1798 Parliament passed many such laws. Since then, the idea of passing a special law to take away some individual or group of individuals’ property has been less popular.
And yet that is precisely what the government is doing as part of its reforms to public sector pensions. A central complaint of public sector workers is that the arrangements for uprating their accrued rights are being changed – reduced in value. Now it might be a bit difficult to see the rights and wrongs of this clearly, because in the case of current public sector workers, one might for example have had them agree to a pay cut instead of a cut in their accrued pension rights uprating – and there would have been no property rights problem with them agreeing to a pay cut.
So let’s take the current public sector workers out of the discussion. Let’s instead focus upon people who used to be public sector workers, but left the public sector some time ago and have not yet retired (to make things concrete, imagine some aged 52 who worked for the public sector from age 25 to 45). This group of people aren’t involved in any grand implicit agreement whereby they accept a cut in the value of their already-accrued pensions in exchange for not having their pay cut. These people simply have some property — their pension entitlement. And the government is taking away some of their property, by ceasing to uprate their pensions at the rate previously agreed (RPI) and now switching to a lower rate (CPI).
Why aren’t Conservatives more up in arms about this blatant attack on property rights? Obviously because of the deficit. But does that make it okay? I doubt the old House of Lords would have thought so. Why is it any more okay to take away these people’s property in respect of their pensions than it would be to pass a law taking away some of their houses? Many Conservatives were prepared to say that Fred Goodwin and others should receive the pensions they were contractually obliged to receive when their banks were nationalised and they were dismissed (including me). Why should we be less willing to defend the property rights of ex-public sector workers?
Someone might be tempted to argue that when these people finally receive their pensions, they will be much better than what would be available to private sector workers. So what? That was the deal at the time. Perhaps Tony Blair and Gordon Brown shouldn’t have given them the pensions they did, but they now have those accrued rights – they’re their property. We might think footballers are paid too much – would it be okay, on that basis, for the government to simply confiscate their Ferraris?
Someone might say that it’s not quite property; it’s more a promise the government made, like a debt it promised to repay. And the government pension scheme is “bust”, so the payments out of it have to be modified. But wasn’t the idea of cutting the deficit for the government to avoid going bust? And if it is now going to default on its debts, why is it starting with ex-public-sector workers?
The last resort is to claim that, if one studies the small-print closely, perhaps the government didn’t actually promise to uprate in line with CPI but merely in line with “inflation”. There are two issues with that. First, it uprated in line with RPI throughout these ex-public-sector-workers’ time as employees and in some cases for long after, giving these employees a clear understanding that the deal they’d signed up to – the compensation they had agreed to work for when they were in the public sector – involved RPI uprating, not something less.
So although one might have argued, at the time, for a different measure – and indeed for anyone newly arriving or indeed any newly-accrued pension rights from here one could perhaps commence a different concept of “inflation” – that does not apply to work finished long ago. Secondly, CPI is absolutely not a measure of inflation in the cost of living, any more than was, for example, the RPIX measure. Like the RPIX measure, CPI is a policy index - the Bank of England targeted RPIX until 2003, and CPI after 2003. Neither was a measure of inflation. In the case of CPI, it excludes more than a quarter of the value of items included in the all-items RPI (mainly because of the exclusion of housing costs).
CPI is not a measure of inflation in the standard of living. But we should not get bogged down on that point – it’s a distant second to the point that we are talking about. People had a clear understanding that their pension entitlements would be uprated in line with RPI; that was the basis on which they chose to work for the public sector, and now, after the event, the Government is either welching on the deal made long ago (defaulting on its debts; breaching its contract) or simply seizing a piece of the property of these ex-public sector workers.
I have no problem with the government passing a law to say it will be uprating pension entitlements accrued from here forwards on the basis of CPI (provided that it doesn’t claim that is uprating in line with “inflation”). I would have no problem with the government cutting the salaries of public sector workers. But as a Conservative, I do have a problem with the government attacking property rights in a welching on its deals. The accrued pension rights of ex-public-sector-workers are their property. It is no more legitimate for the government simply to seize that property because it thinks a previous government shouldn’t have agreed they should have it, that it would be for the government to take away their houses or their cars.