Hutton points the way forward on pensions

John Hutton's interim report on public sector pensions today will go down as one of the most important moments in the public service reform story.  John Hutton doesn't just set out the principles for putting public services on a sustainable footing, although he does do that (by explaining the inadequate levels of contributions into these schemes).  More importantly, he confronts head-on the problem that public sector pensions pose for the opening up of public services to competition.

One of the key reasons that many companies have waited on the sidelines of the public sector for years is the disparity between public and private pensions.  Tony Blair's Prime Ministerial demands for private companies to run existing public services foundered on the cost of the pensions for the staff that they would inherit. The Treasury has promised action on the pensions barrier for years and there has been some reform, as John Hutton notes, but nowhere near sufficient to allow companies into the market.  Now John Hutton has brought the issue into the open and will propose solutions.  It is a big moment for the Government's ambitions on public service reform.   

But public sector pensions are relatively insignificant compared to the state pension.  The annual net cost of public sector pensions is in the low billions compared to the £60 billion cost of the state pension. The Government's decision to increase the state pension in line with earnings rather than prices makes little sense in the light of the ambition to eliminate the deficit in this Parliament.  It is also contrary to John Hutton's principles that pensions should be linked to contributions and that the burden of today's pensions should not fall unfairly on future generations.  Let's hope John Hutton can be persuaded to write a follow-up.

Andrew Haldenby is director of Reform