Issue of the week: a dangerous precedent?
Tata’s “special deal” on pensions could save jobs but it has worrying implications for workers in other industries
“Save our steel,” was the cry outside Parliament last week, as steelworkers gathered on College Green to highlight the plight of their struggling industry, said John Collingridge in The Sunday Times. Meanwhile, a few hundred yards away in Whitehall, officials were poring over a document that ministers hope will solve the crisis, for now at least. Business Secretary Sajid Javid’s proposal is to cut workers’s pension entitlements, in order to reduce Tata Steel’s pension burden – and make it far more attractive to putative buyers. The plan, which applies to existing and future retirees, leaves workers with a grim choice; to “swallow a pension cut or risk losing their jobs”.
Javid has come in for a lot of flak since taking over the business brief, said Jeremy Warner in The Sunday Telegraph. But his proposal for the British Steel pension fund that Tata inherited is “broadly right”. By indexing benefits to the consumer price index, rather than to the faster-rising retail price index, he “significantly reduces the fund’s liabilities” – leaving the company “sufficiently detoxified to attract private bidders, or even to persuade Tata Steel to keep it going”. Critics are accusing Javid, who’ll need to change pension laws to push this through, of trying to set a “dangerous precedent”. But it has already been set: the entire public sector moved over to CPI indexing a few years ago.
“No buyer in its right mind” would take over British Steel’s £15bn pension scheme and its £700m deficit, said Nils Pratley in The Guardian. So this looks like a reasonable “fudge” to save 11,000 jobs – particularly as pensioners would be worse off if the scheme fell into the Pension Protection Fund lifeboat, where a 10% haircut applies. But the Government’s hope that the deal will be a one-off “sounds suspiciously like wishful thinking”. The former pensions minister, Steve Webb, is surely right to fear it “could open the floodgates” to employers walking away from pension schemes. “Once a government has accepted the principle that obligations can be tweaked, where does [it] stop?”
The Government argues that “high bars will be set” to prevent other companies from following suit, says the FT. But with so much at stake, “it is all too easy to imagine unscrupulous business owners generating emergencies in order to permit similar actions”. Pensions policy is too important to be made up on the hoof. The steel sector has asked for special treatment to keep it afloat, in the form of government financing and even outright nationalisation. “Placing the pensions of millions of workers throughout the economy at risk for the benefit of steelworkers would be a special treatment too far.”