Blair feels the pensions strain

So now we know. Tony Blair announced he will be staying in the job for an extra five years not because he has unfinished business or is snubbing chancellor Gordon Brown, but because he wants to make good his pension.

The Prime Minister saw the Turner Commission report a good two weeks before the rest of us. He read with great alarm that the pensions black hole was £57bn – twice as high as previously estimated – and that everyone was going to have to work half-a-decade longer.

The report has set the parameters for an almighty General Election row. With 10 million ‘grey voters’ out there, all three major political parties are going to have to come up with innovative and radical solutions to the crisis waiting to happen.

But the report has also exposed the gaping black hole between the visions of Blair and Brown. It is now clear that the Prime Minister has had enough of the chancellor’s domination of pensions policy: his £5bn-a-year raid on pension funds, the continuation of means-tested benefits, the expensive administrative chaos of the Pension Credit, and the focus on only the poorest pensioners in Labour’s first two terms.

The Blairites, including the pensions secretary Alan Johnson, want a simpler approach that appeals to ‘middle England’ – the vast mass of business people and voters who are worried about an enforced downsizing of their lifestyle in old age. A new ‘citizen’s pension’ or ‘universal pension’ is spoken of. This would see an across-the-board rise in the basic state pension. It would replace Brown’s socialist approach; something that many in the Government believe has become an electoral liability.

The tension between Number 10 and Number 11 was apparent within hours of the Sunday Times publishing leaked details of the Turner report two days before it came out – the chancellor issued a pre-emptive strike on the report with a statement ruling out large increases in public spending to meet the shortfall.

The message to the PM was clear: you can’t have your new system without big tax rises.

But will the parties have the guts to grasp the nettle?

I doubt it. Let’s face it, there aren’t many votes in putting up taxes, making people work longer or save more.

Blair has form for being long on vision, but short on delivery in this area. He asked Frank Field, the former pensions minister, to “think the unthinkable”. When he had done so, he was sacked. So much for Labour being “at our best when we are at our boldest”.

Blair also allowed Brown to have his way on this most sensitive area of public policy. OK, the chancellor cannot be blamed for the plunge in share values since 2000, but he was responsible for abolishing the very popular Personal Equity Plan schemes that the Tories brought in – a move that has contributed to the huge shortfall in the amount people have saved over the last seven years.

Labour has presided over an era in which, despite falling unemployment, the welfare bill has spiralled from £92bn to £137bn, while means-testing has been extended from 26 per cent of the population to 40 per cent

Once again the Prime Minister has ‘bottled it’. In his speech on 3 October, he promised an overhaul of the system to create a “land of opportunity”. Sounds familiar? Well, yes, he used exactly the same phrase when he was elected Labour leader 10 years ago. And now Britain is going to have to wait even longer before he delivers. Turner’s final recommendations will not be published for another year, so none of the barely sketched-out reforms will happen until after the next election – and perhaps not even on Blair’s watch at all.

If, as expected, Labour wins a third term, employers will face more burden and regulation, particularly if there is an extension of compulsion.

Downing Street is also considering giving workers the right to continue to work until they drop, unless their employers can prove they are not fit and competent.

The Tories have been keen to get in on the act, producing an eight-point plan to tackle the pensions crisis. Their key proposal is to restore the link between the basic state pension and earnings, which was severed by Margaret Thatcher in 1980. They would also set up savings accounts under which the Government would match by up to £350 the amount put in by the saver. A modest start, perhaps.

The Liberal Democrats have been developing progressive policies in this area for years, under the aegis of their spokesman Steve Webb, promising to focus most help on the over-75s, introducing a citizens pension for all, and also raising the basic state pension in line with earnings. But then they can afford the luxury of not having to take the hard decisions of government.

Blair cannot wait too long. The pressing issue facing the Government over the next two years is whether to raise or abolish the national retirement age. This is not strictly a question of pensions policy, but the enactment of the EU’s age discrimination directive will have huge significance nevertheless. Ministers must make a choice on this by 2006, when it has to be written into British law.

Johnson has indicated that he is minded to scrap the age limit altogether, arguing that not many people want to work until they are 88. He has also pledged to give cash lump sums to workers who opt to put off receiving their state pension beyond the age of 65.

He favours a US approach – a utopian vision where there is no ‘ageism’. But the age discrimination directive would, in theory, force firms to keep people on indefinitely after 65.

How would an HR manager cope with that uncertainty? Under Number 10’s proposed test, firms would have to prove a worker was “not fit and competent” if they wanted to get rid of him or her.

One can only imagine the kind of tension and arguments that will cause in the office. David Brent would be in his element.

For David Cracknell’s interview with pensions minister Alan Johnson, GO TO


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