Public sector pension costs 'to double in five years'

Nick Clegg: "We cannot refuse to now look at public sector pay too"

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Nick Clegg has criticised "unreformed gold plated" public sector pensions, as new figures show spending on them will more than double by 2014/15.

The Office for Budget Responsibility (OBR) says the taxpayer cost is set to rise from £4bn to £9bn.

Deputy Prime Minister Mr Clegg said that was "unfair" and unaffordable.

But Dave Prentis, leader of the public sector union Unison, said the government was trying to create an "aura" of austerity before making cuts.

The coalition has promised a review of public sector pensions.

According to the OBR report, the rise in spending on provision until 2014/15 represents an average increase of 20% a year in real terms.

It is the first time the cost has been projected more than one year into the future and the OBR cites "demographic" reasons - the fact that more public sector workers are due to retire in the next four years and that they are more likely to live longer.

'Not affordable'

Details of the review are expected to be announced in the Budget on 22 June, along with other plans to reduce the deficit, estimated at £155bn this year.

In a speech Mr Clegg pointed to the figures in the OBR report and said: "Private sector workers have already seen final salary schemes close, while returns from defined contribution schemes fall.

"So can we really ask them to keep paying their taxes into unreformed gold-plated public sector pension pots? It's not just unfair; it's not affordable.

Start Quote

The choices that were available to us just two months ago are no longer available”

End Quote Nick Clegg Deputy PM

"As we face up to living within our means, we cannot ignore a spending area which will more than double within five years."

The BBC's Nick Robinson said it was clear people in public sector pension schemes could expect to start paying more into them soon, although the government had promised the independent review first.

In his speech Mr Clegg, whose Liberal Democrats argued before the general election against spending cuts until the economy recovery was stronger, warned that the debt crisis in Europe had forced "action now so that we can still be in control of our future".

He told the Institute for Government that Labour had left a "terrible legacy", adding: "The choices that were available to us just two months ago are no longer available."

'Tougher choices'

As an austerity drive has swept Europe among countries striving to slash budget deficits, markets have been charging high premiums to buy bonds from governments "whose plans they distrust", Mr Clegg said.

"Markets have stopped believing that all European governments can service their debts."

He added: "We simply cannot afford to let that happen to us too."

Mr Clegg said public spending savings already outlined by the coalition were the "easy choices", with "tougher ones" on the way.

Mr Clegg said: "Spain has had the banks step in. Greece has had the bailiffs round. But in Britain we are determined not to let that happen.

"This is not a task we relish. This was not our choice."

Start Quote

Borrowing will be less than I forecast, so the government doesn't have the excuse to raise VAT, which it is planning”

End Quote Alistair Darling Shadow chancellor

One of the unions representing public sector workers, the GMB, has called for trade union representation on any new pensions commission and has warned that less generous schemes could increase pensioner poverty.

Dave Prentis, general secretary of Unison, said the government was not looking at the situation over a long enough time scale.

He told the BBC: "Over a 20-year period, costs are not going up. We have taken measures already to control public service pension schemes.

"In the health service people are being asked to go into a new scheme, in local government we've already implemented one, and the civil service have done the same.

"These figures are put there to build up an aura for cuts, and it's not the true story."

'Scaremongering'

Chancellor George Osborne has identified £6.2bn of government Whitehall savings this year, outlining cuts to quangos, reduced spending on consultancy and big IT projects and a civil service recruitment freeze.

More details of future spending cuts will be announced in next Tuesday's Budget.

Start Quote

Mr Cameron is obsessed by the size of his deficit. When he looks at the growth forecasts he sees a glass that is half empty rather than half full. When he considers the borrowing bill he sees a glass overflowing with toxic debt”

End Quote Rachel Sylvester The Times

The OBR is predicting that the UK's public deficit will fall to 10.5% of GDP - or £155bn - in the 2010-11 financial year, from the 11.1% estimated by Labour.

However, it says the structural deficit - the part of the deficit that is not automatically reduced by economic growth - will widen from the Labour prediction of 7.3% of GDP in 2010-11 to 8%.

This is the most difficult part of the deficit to tackle, and Mr Osborne said the figures "couldn't be clearer", adding: "It's damning evidence that the mess the previous government left behind is even bigger than we thought."

But former Labour Chancellor Alistair Darling said the OBR figures "show that borrowing will be less than I forecast, so the government doesn't have the excuse to raise VAT, which it is planning".

He also warned against "scaremongering" by the government over the economy, which he said was damaging business confidence.

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