Budget 2016: pensions tweak "will take £2bn from departmental budgets" says OBR – as unions blast "smoke and mirrors" move

FDA union chief Dave Penman says pensions move will make make budget cuts "significantly worse” than the chancellor's headline announcements

By Jim Dunton

16 Mar 2016

Unions have reacted with anger after figures from the Office for Budget Responsibility spotlighted the impact of George Osborne’s changes to public sector pensions funding.

Changes to the way government departments contribute towards staff pensions will result in a requirement for £2bn in additional contributions by 2020, according to the OBR.

The chancellor announced the lowering of the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate as part of his March Budget, but only referred to a need for the departmental contributions to rise “to ensure those pensions remain sustainable”.

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Figures released by public finance scrutineer the OBR said that reducing the SCAPE discount rate for unfunded pensions from 3% to 2.8% would effectively reduce government borrowing at the expense of departments’ other priorities.

In its latest Economic and fiscal Outlook, published on budget day, the OBR said: “The government has placed an additional £2.0 billion a year squeeze on departments in [2019-20] by raising planned public service pension contributions, in line with a lower discount rate, but not compensating them for the additional costs they will face.”

It added: “This reduces borrowing by displacing other departmental spending within existing expenditure limits, while reducing net spending on public service pensions.”

Dave Penman, general secretary of senior public leaders’ union the FDA, said the pensions change was a classic example of  “smoke and mirrors” on the part of the chancellor that showed the Budget‘s cuts were “significantly worse” than the headline announcements. 

“By announcing a change to the discount rate on public sector pensions - without any consultation - they are effectively removing a further £2bn from public services and transferring it to the Treasury to give the illusion of a surplus: a political con trick that can only further damage public services,” he said.

“This government has consistently failed to explain to taxpayers and public servants how the resources it allocates match the commitments it makes.”

Mike Clancy, general secretary of the Prospect union, also said he feared the additional contributions would not go towards paying for pensions, but would be used by the Treasury.

“If the chancellor holds on to this windfall and does not disburse the funds back to the public sector, it will have to find this amount in savings on top of the cuts it is expected to deliver under the last Spending Review,” he said.

“George Osborne is hiding the true extent of the cuts he is imposing behind stealth measures such as this.”

The OBR said it assumed Resource Departmental Expenditure Limit cuts announced in the budget will also lead to lower workforce growth, reducing pension contributions and raising net spending by £0.4bn in 2020-21.

Prospect’s Clancy added that other budget measures that will see National Insurance contributions levied on redundancy payments in excess of £30,000 would also “weigh heavily” on public sector employers at a time when “tens of thousands” of jobs were expected to be lost.

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