Breaking the LGPS out of its pre-Maxwell time warp

I was speaking in a panel debate on governance at a well-attended Scottish Local Government Pension Scheme (LGPS) conference in Edinburgh today. The LGPS is facing some major changes to governance structures and pension funds are focused on what this means for the existing funds.

The essence of my argument was that the LGPS is stuck in a pre-Maxwell time warp. For those not familiar with the history of pensions governance, Robert Maxwell committed a massive fraud by plundering his employees' pension funds in order to shore up his companies.  As a result, pensions law changed to include better member representation on pension funds and a legal separation from the employer. This has been followed through in European law through the provisions of the IORP Directive.

The LGPS is probably the last pension fund to operate with limited member representation and there is no separation from the administering authority. The pensions committee of Scotland's eleven funds are simply council sub-committees with councillors making the decisions. UNISON believes the current structures are unlawful, but they have to change anyway to comply with the UK Public Service Pensions Act. A consultation paper that sets out the issues will be published this week.

Even more challenging for the current funds is the concept of scheme merger or at least shared services. UNISON has commissioned expert evidence that leads us to believe that larger funds perform better and reduce investment costs. Paying £millions to the same 'masters of the universe' who created the financial crash, is a particular concern to our members who are suffering the consequences with pay and job cuts. Interestingly, another presentation at the conference came to a similar conclusion on external fund management costs.

In the current financial environment, paying too much to fund managers means even bigger cuts in services. The same applies to poor investment performance. In addition, we could use the £24bn of assets in the Scottish funds for useful local investment, rather than investing almost half of it abroad.

Strengthening LGPS scheme governance is long overdue and members have a right to have a meaningful say in the decision making process.

Why cutting jobs and pay is the wrong approach

I am heading down to London today for the launch of UNISON's new 'Worth It' campaign. We all expect high quality public services but funding cuts mean that budgets are under pressure and staffing has been reduced. On top of that, UNISON members have suffered a real terms pay cut of between 8 and 17%. That damages the local economy as well as essential services.

Long train journeys are a good opportunity to catch up with some reading and today that included the very relevant IFS analysis, 'Hard choices ahead for government cutting public sector employment and pay'.

The Office for Budget Responsibility (OBR) forecast, based on the 2013 UK budget, that general government employment (that is employment by central and local government) would fall by 1 million between 2010–11 and 2017–18. However, following the Chancellor's latest cuts, they have increase the forecast to a cut of 1.1 million by 2018–19. In Scotland, public sector employment has been cut by around 58,000 since the financial crash and based on this forecast I calculate that we can expect to lose around a further 60,000 jobs by 2018.

If this isn't bad enough, the IFS also noted the OBR forecast reductions to growth in public sector pay. Public sector pay is now forecast to be 3.6% lower in 2017–18 than expected in June, in part because earnings growth in the public sector has been weak so far this year, with no growth in pay in the 3rd quarter of 2013 compared with the same quarter a year before. This has led the OBR to reduce its forecast for public sector pay growth in 2013–14 to only 0.5% compared with a forecast of 2.2% in March. It has also reduced its forecast for each year up to 2016–17 compared to the March forecast. This is unlikely to be much different in Scotland because the Scottish Government generally follows the Treasury on pay policy, with the honourable exception of a more positive approach to the living wage.

The IFS analysis also suggests an acceleration of the fall in public sector pay relative to private sector pay by about 8%. This is not driven by a change in the composition of the workforces as public sector workers are still more likely to be highly educated and in professional or similar roles. 

The IFS identify some important implications from this analysis. Primarily, that some public sector employers may well find it increasingly difficult to retain and recruit high quality workers. In Scotland, I would add that the ageing public sector workforce will exacerbate these pressures. A secondary point made by the IFS is that measures to mitigate recruitment problems might come at the cost of further job cuts if the budget targets remain at planned levels. 

For the UK and Scottish governments squeezing public sector pay has been viewed as a relatively easy way to cut departmental spending. Given the current OBR forecasts, the choices ahead now look rather harder.

Democratic socialism can amount to a "philosophical belief" under Equality Act

I don't normally blog on the legal side of my job, but I thought this Employment Tribunal decision would be of wider interest.

Mr Olivier was a jobcentre worker and as a civil servant he was required to get written permission before taking up any political activity. He was sacked after he stood in council elections as a Labour Party candidate and for having a letter published in the local newspaper criticising the UK Government's tax policy.

He claimed unfair dismissal and religion or belief discrimination based on his "democratic socialist" views as a long-standing Labour Party member. The tribunal therefore had to consider whether or not his belief in "democratic socialism" can amount to a "philosophical belief" under the Equality Act 2010.

There was little dispute that he had a long standing history as a political activist. He had been an active member of the Labour Party for over 30 years and had stood and campaigned in many elections. He had also organised local campaigns against hospital closures and had featured in local newspapers as a result of his campaigning.

Mr Olivier argued that the Labour Party is not just an organisation, but enshrines a core set of recognisable beliefs that he described as "democratic socialism". This is also a description used on Labour Party membership cards. He stressed that his strong belief in these values influences how he conducts his life.

The employment tribunal applied the tests set out in the leading case on beliefs (Grainger plc v Nicholson [2010] IRLR 4 EAT), it must:

be genuinely held;

be a belief and not an opinion or viewpoint based on the present state of information available;

be a belief as to a weighty and substantial aspect of human life and behaviour;

attain a certain level of cogency, seriousness, cohesion and importance; and

be worthy of respect in a democratic society, be not incompatible with human dignity and not conflict with the fundamental rights of others.

Applying these tests to Mr Olivier's case, the tribunal felt that Mr Olivier has more than a passing interest in, and is more than a repeat voter for, the Labour Party. He has a strong interest in, and connection with, the history and moral tenets of the Labour Party. This affects how he lives his life. He has a philosophical belief in democratic socialism that goes beyond merely being a "political animal" who supports a particular political party. They therefore agreed that Mr Olivier's "democratic socialist" views could be a "philosophical belief" under the Equality Act 2010.

In this case there was little evidence to suggest that he had been discriminated against because of his beliefs. The tribunal believed that the likely reason for dismissal was his failure to obtain permission from his employer before standing as a political candidate. 

None the less the legal point is an interesting one and could apply to members of other political parties who can show a level of belief similar to Mr Oliver.

While on the subject of employment tribunals, it seems that claims have fallen sharply following the introduction of tribunal fees. Claims peaked in July at 7,307, plummeting to around 1,000 in September. So as UNISON and others predicted, the underlying trend revealed by these statistics is a massive collapse in the number of individual claimants. The judgment in the challenge to tribunal fees by UNISON is likely to be published this month. 

Access to justice in ConDem Britain is only available to those with the means to pay.

Whatever happened to the Laffer curve

One of economic theories John Swinney and George Osborne both agree on is the Laffer Curve. 

It is of course attractive to politicians because it suggests that tax cuts can actually increase government revenue. Sadly for both of them, some forty years after Laffer’s napkin scribbling, the evidence is limited - well actually non-existent.

Sad person that I can be, my bedtime reading in my London hotel is the OBR's December 2013 'Economic and Fiscal Outlook'. What better place to look to see if the independent OBR thinks George Osborne's planned Corporation Tax cuts will increase revenue in real terms.

They say:

"However, we still expect onshore corporation tax receipts to fall as a share of GDP from 2.2 per cent in 2013-14 to 2.1 per cent by the end of the forecast. This partly reflects further reductions in the main rate of corporation tax to 20 per cent by 2015-16."

And here is a nice table that gives you all the figures.

So while the Scottish Government's White Paper yet again churns out the merits of a Corporation Tax cut, we can see that even a true believer like George Osborne is struggling to deliver the same policy. 

Autumn Statement misses the point

No joy for the workers in today’s Autumn Statement, the very title is a joke given the weather. But then we don’t expect much joy from the shop steward for the super rich.

The small scale fiscal measures play at the fringes of household expenditure and are paid for by other spending cuts – a further 0.2% from the Scottish budget. They do nothing to reverse the diversion of wealth from the bottom and middle to a super rich cabal and company profits. If the economy is now slowly growing, we will not forget that this has been the longest and deepest recession for generations, caused by the Chancellors austerity economics. The delayed proceeds of economic growth have to be shared equally and that means real wages, not tax cuts for the rich.

The STUC summed it up with: “There is nothing today’s statement to help embed the recovery and create decent jobs. While recent growth is largely attributable to consumer spending, real wages continue to fall at rate unprecedented in modern times. Yet the Chancellor brazenly adopted a triumphalist tone just as the Office for Budget Responsibility (OBR) revised down its forecast for wages growth. He continues to ignore the glaring disconnect between growth and living standards.”

This highlights the Office for Budget Responsibility forecasts attached to the Statement. Households are now expected to spend more but earn less than was the case in March. Osborne once promised a ‘new economic model’ built on savings, exports and business investment. As the election draws near, he is returning to the ‘old model’ of consumption and household debt.

On living standards UNISON General Secretary, Dave Prentis, said:
“The Chancellor can produce this mirage of an economic recovery and massage the figures as much as he wants, but it doesn’t mask what is being felt in the real world. Prices have risen faster than wages for 40 out of the 41 months in the past years. Average earnings are £1600 lower in real terms than when they came to power. There has been a massive explosion in the number of people forced to work part-time, on zero hours’ contracts and stuck on low pay.”

UNISON members will be particularly concerned over the bringing forward of the state pension age. The state pension age is already rising to 66 by 2020 and 67 by 2028. It was then expected to go up to 68 between 2044 and 2046. Now that rise to 68 is going to come in earlier - in the mid-2030s - meaning that millions more people will retire later. This change also applies to public sector pension schemes in Scotland as the retirement age is now linked to the state pension age.

This change is entirely cost driven and a particular concern in Scotland with our lower life expectancy. However, I wonder if the Chancellor has done all the calculations as savings in pensions will be offset by higher sick pay, benefits and the cost of early retirement pensions. It is also another unequal measure, as the affluent will still be able to afford to retire early, while the poor work on and die earlier. It could also add to youth unemployment as older workers block young workers getting jobs. This was highlighted in the recent Audit Scotland report on Scotland’s public sector workforce that showed the only workforce age group that is increasing is 50-59yrs, up by 5%.

Scotland will benefit from the Barnett consequentials of the additional funding in England for child care and free school meals. However, the £308m headline is not all recurring revenue spending. It will no doubt spark a debate in the Scottish Parliament over spending priorities. Improved child care now I wonder?

Extracting more from public procurement

£11bn of public spending in scotland could do so much more than the timid Procurement Reform Bill envisages.

I was giving evidence today in the Scottish Parliament to the Infrastructure Committee on the Procurement Reform Bill. UNISON is supporting '10 Asks' from a broad based coalition of civil society organisations who believe we can get much greater community benefit from public procurement.

My focus was on raising employment standards by making the Scottish Living Wage a requirement  in contracts, so that we can spread the benefits into the private sector. In addition, contracts should end the forced use of zero or nominal hour contracts and strengthen training requirements.

I used care procurement as my real world example because it's a national disgrace. Low wages have turned the sector into the new retail, with many staff leaving as soon as they can get another job. Continuity of care is being abandoned in a race to the bottom. The use of zero hour contracts is having a similar workplace impact to blacklisting. Staff are less likely to report safety issues or even care abuse, because they worry that they will not be offered work after raising inconvenient issues with their managers. Far too many staff are also sent out to deal with complex care needs after only a few days training at best. Our elderly friends and relatives deserve better than this.

The Scottish Government has taken positive action to support the Scottish Living Wage, but they are hiding behind a misleading EU Commission letter on procurement. I set out in some detail why it is legal to make the living wage a contract performance clause with reference to counsel opinion. It is simply absurd to worry about a challenge under the Posted Workers Directive for low paid jobs. I suspect the Scottish Government is more concerned about the cost than tackling this issue.

Other weaknesses in the Bill include only partial action on tax dodging. Firms who take the public pound should pay taxes like the rest of us. This means aggressive tax avoidance as well as tax evasion. 

If the Procurement Reform Bill is to be anything more than a largely irrelevant housekeeping exercise, these are some of the issues the Committee will need to address. 

You can view the full evidence session on BBC Scotland Democracy Live.