Unions and accounting for redundancies – lifting the fog?

The Coalition’s budget deficit programme is causing redundancies to ripple through the public sector as well as quite a bit of the third sector exemplifying the Big Society. The OBR expects 330,000 public sector jobs to go by 2015.

In times such as these it is vital that unions provide workplace representatives as well as rank-and-file union members with the tools to understand what is going on. In the college sector UNISON have published a Guide for UNISON reps dealing with cuts.

The Guide helpfully sets out how the Coalition’s policies are affecting funding for colleges. It is less clear when it comes to explaining college accounts and measures of financial health used by the Skills Funding Agency. In fact it seems to not appreciate how making operating losses inevitably worsens a college’s financial health.

UNISON is right in understanding that further education funders have in the past paid funding allocations in advance to struggling colleges. But can the Skills Funding Agency do that when the whole sector is ravaged by funding cuts? Perhaps not.

On the website of the Universities and Colleges Union website there is useful Insiders Guide to HE sector finances including university accounts (pdf available). It was commissioned by Joint Negotiating Committee for Higher Education Staff to assist both employers and employees in negotiations. The college sector could do with something similar in these troubled times.

Public sector jobs disappearing more quickly than forecast

Yesterday's depressing unemployment figures from the Office for National Statistics revealed that public sector employment in the UK fell by 132,000 last year. About half were central government - about half of those 66,000 were in the education sector.

Worryingly, at the macro level, the loss of jobs in public sector is running at more than twice the rate predicted by the Office for Budget Responsibility. (The rate is even higher than the initial OBR estimates.) Clearly the OBR has been caught off-guard by the front-loading of the grant cuts to local government and the responses of councils. This may be only a timing effect but in these uncertain times it may affect confidence more generally.

Hutton's pensions report: The Deal and the reaction

This morning Lord Hutton of Furness published his report in to public sector pension including his Deal for public service workers and taxpayers (see above). With 200 pages of recommendations and analysis but few surprises, the report arrived in time for the Radio Four Today programme.

On Today Dave Prentis of Unison responded to the report in very reasonable terms. It appeared that he was more concerned about the hikes in employee pension contributions starting in 2012 than the actual report. He did express concern that the government might cherry pick the report at the expense of public sector workers.

(I have blogged a few times about the 3% pension levy and its potential implications for the local government pension scheme. The 3% levy followed Hutton’s interim report which pointed out that increased contributions allowed short-term savings. In the interim and the final report Hutton deftly handed over the issue of contribution rates over to the government.)

There is a more militant and wider-ranging response from the Public and Commercial Services union. PCS have warned: “any increase to contributions and the pension age for civil and public servants would be an unfair and unnecessary tax on working in the public sector and will be fiercely opposed”. (Of course, the threat of less take home pay in just over 12 months is more potent in getting the brothers and sisters out and around the picket line brazier than the prospect of a year or two or three of work possibly several decades hence.)

It does look likely that there will be co-ordinated strikes over pensions - perhaps even a million strong strike. However, I suspect that Hutton is playing almost a cameo role.

The final Hutton Report on public sector pensions – more signs of unrest

On Thursday Lord Hutton publishes his final report on public sector pensions. (Strangely, the publication date was only announced at the end of February.) A shift away from final salary to average salary pensions is likely to be proposed. The increased employee pension contributions advocated in his earlier interim report are already meeting union opposition.

In yesterday’s Observer a report pointed out:

Strike laws dictate that workers can only call action over a change to their pay or conditions and pensions are the only single reform that affects all public sector workers, justifying a general walkout. Some unions are already agitating for such a move.

At a time of pay freezes pension contribution rises are particularly painful for the “squeezed middle”. To the extent that lower paid workers are protected, the greater the rises for their better paid colleagues.

In a portent for the future, last week the University and Colleges Union voted at 67 universities by two thirds for strike action and 82% voting for action short of a strike. A series of rolling strikes will take place from 21 March if a resolution cannot be found to a dispute over changes to the Universities Superannuation Scheme.

LGPS – mounting opposition to increased contributions

I was doubtful that the Coalition was retreating on public sector pensions when it was announced that the consultation period for the 3% pensions levy on most public sector workers would end three months later than previously planned. However, I think there is now a real chance that the Coalition may U-turn on the planned increase in employee contributions Local Government Pension Scheme.

There is mounting opposition to the suggestion that LGPS members should pay an extra 1% each year from 2012 for three years. First a group of London pension “administering authorities”. Then the Conservative leader of the Local Government Association. These concerns are on top of and different from the unions’ resistance.

The new opposition are concerned about the effect of the 3% pensions levy on the sustainability of the LGPS if it triggers a “mass opt-out” and spiralling contributions as the contributing membership shrinks.

The alternative advocated by some of these opponents is a paring back of pension entitlements within LGPS. There case makes a lot of sense. However, the savings will be over decades – George Osborne’s Spending Review was looking for about £3billion for the LGPS employers and the rest of the public sector by 2015. How can that gap be filled if the Coalition does another full or partial U-turn?

The IFS Green Budget: public finance challenges and public sector pay premiums

Much of the media coverage of the Institute for Fiscal Studies’ (IFS) Green Budget (press release and full document pdfs available) has focused on the message that George Osborne should resist the temptation to have a giveaway Budget. A quick look at Google News suggests that there are fewer headlines about the Green Budget on desirability of a Plan B.

The IFS forecasts that the government will borrow slightly less in 2010/11 than the Office for Budget Responsibility (OBR) forecasts. Will the Chancellor splash out or even give a gentle stimulus when the recovery stalled in the fourth quarter last year?

There has been speculation that the Chancellor may delay the planned fuel duty rise. I had wondered if he may find some loose change for 16-18 students who lose the EMA grants.

The IFS’s warning against a giveaway on 23 March arise from two downside risks for the public finances.

1) the economy might not grow as quickly as the OBR expects, and even if it does the public finances might not bounce back as strongly as it forecasts.

2) the planned spending cuts might prove formidably hard to deliver.

Other commentators have suggested that the cuts may be hard to stomach. The IFS warn that the success in reducing public spending in the 1990s is of limited relevant. This is “the tightest five-year period for public spending since at least the Second World War”.

The IFS notes that

Spending plans set out in the October 2010 Spending Review imply a significant public pay freeze and large employment cuts.

Controversially it goes on:

Before the financial crisis, public sector employees were, on average, paid at levels roughly in line with their private sector counterparts once observed differences in skill composition were taken into account. Since 2008, a significant public pay premium has appeared. We do not therefore believe that the planned two-year pay freeze will lead to widespread recruitment problems in the public sector in the near future. However, the average pay differential hides large variations in relative pay between different areas of the country. Consequently, some public sector vacancies, especially in London and the South-East, will remain hard to fill.

Talk of a 6% public sector premium for men and over 10% for women could well show up in this spring’s debates about pay and pensions.

Government “retreat” on public sector pensions levy?

Yesterday Guardian readers who work in the public sector may have been pleasantly surprised to learn: “Treasury retreats over public sector pensions reforms”. The article went on:

The government has retreated over reforms to public sector pensions, saying it will not have proposals ready until the summer rather than pressing ahead with planned higher contributions in the March budget

In plain English: this means is that the consultation period for the *3% pensions levy on most public sector workers will end three months later than previously planned. This is hardly a U-turn. It could be seen as a tactical move to avoid industrial action on pensions before the May local elections.

More significantly this week it became clear that the extra pensions contributions for public sector workers would be the rallying cry for co-ordinated industrial action. Strikes really should start featuring on risk registers across the public sector.


* The 3% may actually be significantly more for some if lower paid workers’ contributions are kept constant.

A spring of disgruntlement? Strikes, pay and pensions in the public sector

Today the teaching union ATL announced that it would be balloting its members on industrial action over the proposed increase in teachers’ pension contributions. Meanwhile in colleges and universities UCU is doing likewise on the issues of jobs, pay and pensions.

Beyond schools, colleges and universities are we facing a spring of disgruntlement?

How will public sector unions respond to the austerity that is affecting their members’ jobs, pay and conditions?

Headlines may inflame matter when they highlight the remuneration packages of se senior management. The Daily Telegraph this weekend reported on pay rises enjoyed by university vice chancellors. (The paper’s survey found that three-quarters of vice chancellors saw pay packages, including salary, pensions and other benefits, increase during the year to August 2010. Eleven of the 87 surveyed benefited from rises of more than 10 per cent.)

The issue of pensions is likely to be a highly sensitive one. The Hutton Commission final report on public sector pensions is due in March 2011. The exact date has not been published but the 2011 Budget is on Wednesday March 23 – this would be an obvious candidate. The final report is likely to recommend pension entitlements based on a career average salary rather than “final salary”.

Public sector pensions are not “gold-plated” but public sector pension schemes do give workers a certainty about the timing of retirement and a level of entitlements that most private sector workers lack. I suspect that not all public sector workers recognise the full value of their pension schemes. Unions have not mobilised against the change in inflation indexation introduced last year. However, the increased pension contributions likely to kick in across the public sector from 2012 will be harder to swallow - as seen in the case of ATL members in schools - when pay is frozen for most of the public sector. Whether unions will enjoy public sympathy is another issue.

Bracing weather - the "double freeze": pay rises and increments

Today’s Financial Times reports on proposals from a group of NHS chief executives for a "double pay freeze" - that is, a two year pay freeze for staff earning less than £21k and a freeze on incremental rises which over two thirds of NHS staff enjoy. The good news would be a promise of no compulsory redundancies – the article notes scepticism over whether all NHS organisations could afford that guarantee.

Similar plans – whether or not the NHS proposal happens – may be seen elsewhere – perhaps in education where funding cuts for some organisations may be serious enough to require radical action but not so deep as to require compulsory redundancies.

Foretelling the future: 2011 predictions and speculations

With Christmas and New Year at the way it’s time to read the retrospectives on 2010 and the crystal ball gazing for 2011.

I have not yet listened to Radio Four’s Correspondents Look Ahead programme but Paul Mason of Newsnight makes an interesting prediction on the BBC website. He suggests that in 2011 the Coalition will fall “because everytime it tries to do something serious a bit falls off the machine”. (Interestingly Tony Benn and Dennis Healey made a similar preduction yesterday on Radio Four's Broadcasting House.) Paul Mason foresees a Liberal Democrat pull out leading to “a Second Coalition to be formed between the Conservatives, an inner core of Orange Book Libdem leaders and various Unionists, with a slim majority.” We will see if that happens and what it means for the public and third sections.

The London School of Economics blog on British Politics and Policy has a look ahead at some of the big issues that could dominate 2011. The list is far-ranging although it is a list of questions rather than predictions. While it features the Coalition and austerity, it does not mention the impact of the changes in schools and the NHS which are potentially profound and, the case of the slow painful death of Primary Care Trusts, possibly toxic.

One area which I will be watching and trying to understand is open source government, armchair auditors and some of the technology which may make this something significant. I am sure that there will be some headlines as more public bodies have to publish the detail of their financial transactions. There may even be some good to come out of these exercises.

Public sector pensions as a business risk - no need to panic?

Tomorrow morning I am attending a briefing for colleges and other organisations who are part of one of the local government pension schemes (LGPS) in the north west. I suspect that the content on long-term developments may be a little vague as we await that final report from Lord Hutton.

How big a business risk is the LGPS now for colleges, transfer housing associations, etc? I do not often sound overly optimistic but I have started to wonder if the pension risk has started to recede.

While the viability of some weaker organisations will still be threatened by the costs of keeping promises, in general the shift to CPI indexing and the 3% pensions levy will have both lowered entitlements and shifted the costs towards employees. (It is worth noting that the indexation change will - according to Hutton's interim report - reduce entitlements by 15% - which disproportionately reduces the burden on employers as they are the ones who underwrite the scheme bar a degree of burden-sharing on life expectancy.)

When I recently suggested that the pensions risk may have slightly abated, the risk of industrial action was drawn to my attention. We have seen industrial action at the BBC - and we may see it elsewhere. But unions have accepted the CPI indexation surprisingly quietly even though it has taken away existing entitlements.

Armchair auditors and their weapons in the war on waste

Last week I heard a local authority Head of Internal Audit refer to Eric Pickle’s army of “armchair auditors” as “nutters”.

I looked the term up on The FreeDictionary. “Nutter” is a slang term for:

“A crazy or eccentric person.” or
“An enthusiast; a buff” or
A part of the male anatomy.

This made me think as I am interested in issues of public finance and mental health.

I suspect that those who want to scrutinise records of public spending may be slightly eccentric. Perhaps this is only a matter of degree – these armchair auditors choose to do their stuff for free unlike professional auditors.

I do think that there is potential in “armchair auditors”. Look at the creation of a huge encyclopedia online from the crowd-sourcing endeavours of those who right and edit articles using wiki technology.

Technological mashups might offer them an impressive arsenal. In the UK Mysociety introduced a range of tools for improving democratic accountability: They work for you; FixMyStreet; Whatdotheyknow. These got taken up by the last government with its No 10 petitions site.

In September Dan Herbert in Public Finance surveyed what the current government’s “data-sharing revolution” had prompted. It is worth looking at some of the tools he refers to. Some – like wheredoesmymoneygo.org - provide interesting information for tax payers on how public funds are spent but this is not really raw material for armchair auditing. Others set out more detail – such as Spotlight on Spend and Armchair Auditor – but not really enough to give any armchair auditors scope to drill down to provide either comfort or concern.

As the Reluctant Armchair Auditor on The Guardian’s Datablog noted last week:

For this to work in the way envisaged, councils must put out a lot more information and in a format that can be used by anyone. There has to be sufficient context to enable anyone reading the information to understand what is being bought and why. Then you can have a sensible discussion about whether the spending makes sense or is value for money. We can then deal with the material figures not the trivial ones which cause most of the negative publicity.

Of course, it is early days. The army of “armchair auditors” may have a long march ahead of them. But it is vital that government – local and national – provide assistance in terms of useful data in helpful formats.

Pay and productivity: freezes and unforeseen consequences

On the Civil Society website there is a short article on XpertHr’s annual review of pay trends. It finds that for 2009-10 the highest median basic pay award was in the general manufacturing and food, drink and tobacco sectors with median pay rises of 2 per cent. However, in the charity sector the median pay rise was only 1 per cent. The median pay award for housing associations was nil.

On the Viewpoint blog of Centre for Market and Public Organisation a Bristol University there is a discussion of where public sector productivity is likely to go in the age of austerity.

Interestingly it suggests:

With the prospect of public sector pay freezes, quality decreases may arise through talented staff leaving for the private sector. Research suggests that remuneration over the lifetime is roughly similar in the public and private sector with a small public sector premium. Hence there is a risk, with public sector pay frozen, and if jobs become available, that quality will decrease if some of the most able employees go private.

This impact has been overlooked and/or ignored in the debate about public sector pay. Of course, the pay freeze is accompanied by the pension levy which will amount to a 3% pay cut for most public sector workers. Voluntary redundancy programmes may well allow some of the best staff to leave - the "muppet retention scheme" syndrome.

Whether deteriorating quality is reflecting in productivity yardsticks hinges on how accurately public sector productivity is and can be measured.

Pensions, programmes, Paul Mason and public services

It is great that normal service has been resumed at the BBC. But the NUJ’s strike may be a foretaste of pensions disputes to come.

I was surprised to read Paul Mason – the Economics Editor on Newsnight – quoted in The Guardian suggesting a solution to the pension dispute would be for the BBC to sell assets, securitise them (as some local authorities are doing), or spend less on programmes. While asset disposal and securitization may be appropriate, I doubt the idea of spending less on programmes will be popular – will that be making staff redundant or opting for cardboard Crossroads-style sets?

I am sure that some people will be posing the issue of public sector pensions in terms of pensions versus pupils, pensions versus patients, etc but I was strange for a union activist to suggest that a trade-off should resolved at the expense of public services.

The significance of the benefits cuts controversy for the rest of the public sector

The kerfuffle over the changes to Child Benefit and Housing Benefit must raise doubts over how viable the path set out by the Spending Review will be. Both sets of “reforms” may not survive coming into contact with the real world. There are serious practical problems with their implementation. The numbers involved are significant – as always the losers from any change are very vocal but in this case there are no apparent winners; in the case of the Housing Benefit caps the media will be able to show emotionally charged footage of families and pensioners being evicted. (For a fascinating look at the numbers involved, the Data Blog of the Guardian has an interesting analysis.)

This is only the start. Hardly any media coverage has been devoted to the changes to Council Tax Benefit. From April 2013, CTB will be replaced with grants to councils who will be able to set their own local criteria for payments. The central government funding is being reduced by 10% - saving £0.5bn a year by 2014/15. Tom Clark on the Guardian has pointed to echoes of the Poll Tax.

In last week's Public Finance Ian Mulheirn of the Social Market Foundation set out how the difficulties of implementing reform will blunt the blade of George Osborne's axe.

In addition to the political challenges of cuts, there is the inevitable uncertainty surrounding the macro-economy.

So might the Spending Review be jettisoned? Probably not given the political priority given to deficit reduction. (Interestingly there is speculation about another Spending Review in 2012 and then a pre-election one in 2014. Nevertheless these are more likely to see only a tilt on the tiller.)

If deficit reduction is here to stay but some of the welfare savings are not tenable – what takes the strain? The Spending Review gave several spending departments more generous departmental expenditure limits than expected as a result of headroom created by “welfare reform”.

Good and bad news about the college sector and its financial health

The fog may be clearing after last week's Spending Review - or at least being displaced by new fog.

This week’s Times Education Supplement suggested that the £500 savings on Education Maintenance Allowances would be recycled into 16-18 funding. However, it raised doubts over whether this would be sufficient to fully fund the increase in the participation age aka “the school-leaving age”. The former Department for Children, Schools and Families estimated the cost would be £774 million, while the education economist Professor Alison Wolf has estimated that the figure might be £1.5 billion.

The TES article reported that George Osborne had promised that the 16-18 budget would increase in real terms although it would be spread over greater numbers of students.

Yesterday’s Financial Times had more depressing news for general FE colleges. It highlighted government estimates that deep cuts would lead to three-quarters of FE colleges becoming “financially inadequate”. The government now hopes that plans for increased fees – with more student support via loans – will ease the pain. The proposed framework parallels the Browne proposals for higher education and builds on the report by Christopher Banks which proposed greater co-payment in further education.

The Spending Review and public sector pensions

In all the media coverage of the Spending Review there has been little on the extra 3% of pension contributions implied that public sector workers will have to bear.

I did a highly unscientific piece of research. By putting the words SPENDING REVIEW PUBLIC SECTOR PENSION into Google News Search I got 834 results, whereas SPENDING REVIEW got 23051. Does that mean that less than 4% of news articles do not mention the new 3% “pensions levy”? Perhaps. I found one mention in yesterday’s 10 page Spending Review special in the Financial Times. It is perhaps inevitable that the media coverage should focus on the broad macroeconomic impact and the implications for public services and those who rely on them.

The pension levy is not a surprise. In Ireland they have had introduced one as part of the austerity programme. (Their levy rates go from 5% to 9.6%.) Lord Hutton’s interim report on public sector pensions passed the issue of employee contributions over to George Osborne rather than deferring it to his final report on structure and entitlements.

Nevertheless, the pension levy is significant. It will ease a small part of the frontline impact of the real spending cuts being applied across the public sector outside schools, overseas aid and (arguably) the NHS.

The impact will be felt by public sector workers – many of whom face a two year pay freeze.

How will the trade unions respond? The UNISON press release on “For CSR read Cuts Strange Recovery” omitted all mention of the pension levy. Maybe the public services union realises that public sector pensions is not an issue that will win hearts and minds. Perhaps UNISON did not spot the rather unclear references in the speech and report.

I think this issue will gain profile in the Spring when the government acts on the Hutton Report. By then the imminent local government pension scheme valuations may have pushed public sector pensions further up the news agenda.

Axe Wednesday – what it means

Today promises to be interesting, to say the least. The Independent has branded it as Axe Wednesday. According to Mike Smithson on Politicalbetting.com it will determine the outcome of the next election.

In today’s Financial Times, Andrew Adonis - former Labour minister and now director of the Institute of Government – warns:

The downsizing unveiled this week represents one of the biggest challenges faced by British government since the second world war. Without fundamental changes on these lines, it will simply be about cuts not improvement.

The government’s plans involve the biggest cuts since the Geddes Axe of the early 1920s.

The National Institute for Economic and Social Research believes that the government’s plans for public spending cuts are unachievable. It suggests that the government will end up raising taxes by 2% of national income – more than £30 billion a year – close to the 2015 election. This echoes earlier skepticism from the Social Market Foundation.

Prophecy and the Spending Review

I was intrigued to see a firm advertising for a “Prophet Modeler”. Apparently Prophet is a liability forecasting system. Nevertheless, at this time there is a need for foresight.

While double-dip fears seem to have receded, no one can tell what a huge fiscal retrenchment (significant public spending cuts and maybe a step change in pension contributions for public sector workers) will do to consumer confidence. The optimists promise a "choppy recovery".

These concerns plus the practical issues with cutting spending and contracts in the short-term explain speculation about some re-profiling (aka delay) in the fiscal squeeze. Likewise, Chris Huhne's suggestion of Plan B from within the Cabinet.

Looking for a silver lining, the ferocity on fiscal policy is likely to be offset on the monetary policy. (While the bankers to a college that I work with love to send me terrifying articles from the Daily Telegraph warning of 8% base rates, I suspect that base rates will say low for a couple more years. Of course they can only go in one direction but I am less worried about interest rate risk than six months ago. There are plenty of other things to worry about and highlight on the risk register.)

I will be interested to see the Office for Budget Responsibility's forecast next week - the first under its new chair, the respected former head of the Institute for Fiscal Studies, Robert Chote. It may be overshadowed by the cuts but it will give some clues to the whole economy impact.

In a Pickle: the Coalition, the Audit Commission and an article in Public Finance

There are all sorts of explanations of why the Coalition plans to axe the Audit Commission. It is clear that Eric Pickles was not keen on the Commission. If he reads CIPFA’s journal, Public Finance, he’ll be even more keen to have the watchdog put down. This week’s edition carries an incredible article by David Walker – the Guardian journalist turned Director of Communications at the Commission.

In many respects the article, Are you sitting comfortably?, is a rigorous discussion about and robust argument for evidence-based policy making and evaluation – the kind you would expect from the Commission. But David Walker goes much further in presenting “his own views” as a polemical broadside on the Coalition, its proposed abolition of the Commission and its suggestion that “armchair auditors” scrutinise public spending.

In case Eric Pickles was still sitting comfortably, David Walker needles on other topics. For example:

Two glaring examples of evidence-less policy-making stand out from the early months. Gove ploughed ahead with ­parent-run schools without pausing for breath; Health Secretary Andrew Lansley produced his GP consortiums plan fully cooked from his back pocket. Both might have been given geographically delimited trials and both appear to be examples of the hasty policy-making for which the Opposition caned Labour a few years ago.

The government also ceased funding speed cameras without a review or appraisal of costs and benefits. Culling quangos might cut independent appraisal; ministers have seemed unconcerned. The National Policing Improvement Agency – its abolition announced in the summer – has been working on the effectiveness of CCTV. Now there is a subject armchair auditors might have strong views on. What if they clashed with the objective evidence put forth by the analysts?

It’s a great read.

I doubt the Coalition was ever going to think again - in spite of the concerns about how Council performance and value for money will be scrutinised objectively after the Commission - but the article means that a highly improbable U-turn became an impossible reprieve.