Samizdata

Earlier in the week I wrote about how UK finance minister Gordon Brown’s economic record is likely to be a poor one. If you ask many people about what they dislike most about the gloomy Scot, they will tell you of how he changed the tax rules in a way that sucked billions of pounds out of company final-salary pension funds. Hundreds of these schemes have shut their doors to new recruits and in some cases, like UK pest control business Rentokil, have cut the benefits of even existing pension scheme members. We are living for longer, and the shift in human longevity continues to push up pension liabilities. These liabilities are accounted for as a debt item on corporate balance sheets – something that has hit many businesses as a shock.

In the case of once-nationalised utilities like British Telecom or the airline, British Airways, the big black holes in their pension schemes are almost as large as the market value of these firms. Companies are pouring billions of pounds into these pension schemes to stay on the right side of Britain’s official pension regulator. No wonder that British Airways is suffering with its struggles against budget airline rivals such as EasyJet or Ryanair, and the impact of higher fuel costs and security-related costs.

One cannot pin all the blame on Brown for what has happened. Having a beer with fellow Samizdata contributor Philip Chaston last night, we agreed that in some ways that final-salary pensions were probably due to fade out or decline anyway, since they were part of an era when a person worked for one firm for their whole life, retired in their sixties and then had the good actuarial grace to drop dead. In an age when people change jobs regularly and live into their 80s and beyond, this particular form of retirement saving is not viable for many companies. In fact, over time, I expect many companies to cease running any significant pension schemes altogether. There is no doubt, however, that Brown has had a crushing impact on pensions, and his continued tax-and-spend policies are unlikely to foster a significant saving habit among the public. Quite the reverse.

I am writing this with a few minutes to go before a documentary on ITV looking at the scale of the UK pension meltdown. It is unlikely to be jolly viewing.

It appears that Britain’s finance minister, Gordon Brown, has timed his run to be our next Prime Minister just in the nick of time as the economic data starts to look a bit sickly. Even with all the usual health warnings about data that seeks to try to capture the complexities of an economy in numbers, the figures on inflation and productivity do not look good. (In the case of productivity, they are not disastrous, mind).

It is probably not grounds for great worry – yet. When an economy expands and more people join the workforce, this can have the perverse effect of reducing “productivity”, while if an economy stagnates but millions lose their jobs, then output per person can go up. Productivity growth is not the be-all or end-all of economics. But the ability of an economy to grow rapidly without triggering inflation is helped if the productive capacity of an economy grows. There is no doubt that after nearly 10 years of this hyper-active Chancellor, with his taxes, lust for regulation and control, that the arteries of the British economy have hardened.

Brown inherited a British economy in 1997 that was, by the standards of the 70s and early 80s, in remarkably fine fettle. The state took less than 40 percent of GDP; inflation was low, productivity was rising, the ranks of the rich and the decently-well off were rising fast. Yes, problems of crime and the weakening of civil society were serious and yet how optimstic so many people were at that time that some of the remaining social evils could be addressed. How long ago that now seems.

For years, I have heard it said that Labour’s ace card was its handling of the economy at the macro-economic level. I tended to go along with that in the main, and I think the decision to put the Bank of England in day-to-day charge of interest rates was sound. Brown’s move of the inflation measure to the less exacting euro zone measure of consumer prices – which does not capture housing costs like mortgages – and his sometimes dubious picks of BOE personnel to set interest rates, threaten to tarnish even that achievement.