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The Chief Secretary to the Treasury (Mr. Des Browne): Pension payments from unfunded public sector pension schemes were £16 billion in 200203, £17 billion in 200304, and £18 billion in 200405. As set out in the long-term public finance report published in the pre-Budget report, spending on unfunded pensions as a percentage of gross domestic product remains unchanged. Principally because of a change in the discount rate effects, the Government Actuary's Department estimates the total accrued liability of unfunded public service pension schemes at £530 billion as of 31 March 2005, but the actual payments by Government as a percentage of GDP are the same as set out a year ago.
Mr. Dunne: I am grateful to the Minister for clarifying that point, and I shall read the technical note with interest. However, the revision to the calculation of the discount rate has increased the public service pension liability by an astonishing amount, from £24 billion annually to £81 billion. At Warwick, did not the Government fail to address the ballooning crisis in funding public sector pensions, and is that not a further reminder that the Chancellor's self-styled reputation for prudent stewardship of the nation's finances is in tatters?
Mr. Browne: I do not wish to be pedantic, but the hon. Gentleman is relying on a figure of £81 billion that he got off the front page of The Daily Telegraph, and it is clear that he has not performed a simple arithmetical calculation between the figure that I have given and the figure that was in the public domain previously. When he comes to read the technical note, that calculation will be very clear.
The hon. Member for Ludlow (Mr. Dunne) will know that the calculation is based on a set of assumptions, and that it is an aggregation of liabilities based on international accounting standards. However, the technical note makes it clear that none of the new information and assumptions used to make the new estimates of total liabilities has any material effect on the future cash payments from the schemes in the longer term, which are set out in the public finance report. The sustainability of the public finances is a function of what has to be paid, and does not depend on a calculation of aggregated liabilities in the long term.
Mr. Jim Cunningham (Coventry, South)
(Lab): Has my right hon. Friend had any discussions about the
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funding of local government pension schemes? He will be aware that there is much concern among local government employees, and in local government itself, about how such schemes will be funded.
Mr. Browne: My hon. Friend raises an important and live issue, for local government employees and for local government itselfand consequently for council tax payers. However, the distinction between the substance of the question and the local government pension scheme is that the latter is a funded scheme. I am, of course, involved in discussions with my right hon. Friend the Deputy Prime Minister and with other Ministers in the Office of the Deputy Prime Minister about their negotiations and discussions in respect of the scheme, but it would be inappropriate for me to comment on matters that are the responsibility of other Ministers.
Mr. Mark Hoban (Fareham) (Con): According to the pre-Budget report, the annual cost of public sector pensions is set to rise by 0.7 per cent. of GDP over the next 30 yearsthe equivalent of £8 billion in today's prices. Is the Chief Secretary satisfied that the deal cut by the Secretary of State for Trade and Industry at Warwick will make the cost of public sector pensions more sustainable, or does he agree with the Chancellor's remarks in November, when he said that there was still a lot more work to be done?
Mr. Browne: I have given additional figures today that may inform the hon. Gentleman's analysis, but the long-term financial report shows that the cost of public sector unfunded pensions over the next 50 years is sustainable. As for the settlement that was arrived at by my right hon. Friend the Secretary of State for Trade and Industry in negotiations with public sector unions for the long-term sustainability of these schemes, we achieved exactly the objectives that we set for savings, and the unions and the work force have agreed to absorb those savings.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): May I urge my right hon. Friend to be resolute in resisting panic over the issue of public sector pension liabilities? A relatively small change in the discount rate can produce apparently very much larger figures. My right hon. Friend is not running a hedge fund; he is operating public sector finances. Will he bear it in mind that if he were panicked into taking drastic action on this topic, one effect would be a reduction in public sector borrowing issues, and the problems of private sector pension schemes would therefore be increased?
My hon. Friend is precisely correct. On one famous occasion a non-governmental organisationclearly outside of governmentadopted a negative discount rate and suggested a terrifying figure for the cost of unfunded public sector pension schemes. Of course the selection of the discount rate has a significant effect on the calculation. That is why it is important to come back to what the funds cost year on year. The detailed figures that I gave to the hon. Member for Ludlow (Mr. Dunne) in answer to the original question showed that they are sustainable and that it is important to look at the long-term projections
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that are published with the pre-Budget report and the Budget. This is sustainable provision; it is constantly reviewed and revised. We now accept international accounting standards for public accounts, so we adopt and apply the discount rates that those standards compel us to adopt.
The Chancellor of the Exchequer (Mr. Gordon Brown): Productivity is estimated to have grown by around 2.6 per cent. in the first half of the current cycle from 1997, compared with just 2 per cent. in the previous cycle from 1986 to 1997. In addition, the Office for National Statistics has recently announced new estimates for higher investment. Software IT investment in 2003 is now estimated to be not £8 billion but £21 billion. That will mean that the figures will show increased growth, and we will update our estimates for higher productivity.
Mr. Binley: The Chancellor has been keen to claim credit for a strong economy, but on the figures that we have been given Britain's position in the global productivity league table has fallen from fourth to 13th. Does the Chancellor take responsibility for that, or does he blame others?
Mr. Brown: I have just given the hon. Gentleman the figures to show that productivity is higher in this cycle than in the last cycle. I have just given him figures to show that it is 2.6 per cent. on average as opposed to less than 2 per cent. If I may say so, the only years in which productivity has fallen have been Conservative years. In each year of the Labour Government, productivity has risen, and manufacturing productivity rose 5.1 per cent. in 2003 and 5.8 per cent. in 2004.
These figures are completely wrong. Business investment has been rising under this Government and it continues to rise. I have just given the hon. Gentleman the new figure produced by the ONS, which shows that software investment alone, which people thought was £8 billion in 2003, is actually £21 billion. We have had one of the fastest rates of business investment growth since 1997, and that is to the credit of a Government who have insisted that stability
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must be the foundation of policy. Should he not be giving us some credit for a 40 per cent. fall in unemployment in his constituency?
Kerry McCarthy (Bristol, East) (Lab): My right hon. Friend will be aware that the recent rises in productivity have gone hand in hand with rising employment. Does he agree that producing a highly skilled, highly trained work force is crucial to achieving future productivity gains?
Mr. Brown: Under the previous Government, productivity rose slowly and unemployment was high. Under this Government, since 1997, productivity has risen faster and, at the same time, employment has risen. The Conservatives are making a grave mistake if they think that people believe that a British economy that has grown faster, had more stability, met its inflation targets, had low interest rates and rising employment[Interruption.] The claimant count fell last month, and the Conservatives should give us credit for that. They would be wrong to bank on the idea that the British people believe that the economy has done badly under this Government.
Mr. Brown: I accept what my hon. Friend says, and I understand that the Conservative leader has now reached the conclusion that stability is the foundation of what should be done. Since 1997, we have been consistent in supporting stability as the foundation of policy and that required us, in the first instance, to take the difficult decision of making the Bank of England independenta decision opposed by the Conservatives.
Susan Kramer (Richmond Park) (LD): The Chancellor's comments on business investment levels are worrying. It would be hard for him to find a single economist to agree with himand few members of the Monetary Policy Committee would agreethat performance has not been lacklustre. Is he now planning his growth against a much lower trend of business investment?
Anne Snelgrove (South Swindon) (Lab): Does my right hon. Friend agree that the success of Swindon's economy, with the highest gross domestic product per head in the south-west, is due to the UK's competitiveness, our macro-economic stability since 1997 and the productivity of the Swindon work force?
I congratulate the Swindon work force on their productivity. Long-term unemployment has fallen by almost 70 per cent. in my hon. Friend's constituency and youth unemployment has fallen by even more.
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Employment has been rising over the past eight years at a faster rate than in most countries in the European Union
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