Redwood just being honest

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Some commentators have been more than a little unkind to John Redwood, for telling people in his capacity as an investment advisor that they should “look further afield as the UK hits the brakes” after telling us in his capacity a an MP that the “economic gains of leaving the EU will be considerable”.  Now I don’t really object to people being unkind to Redwood; it’s not as if he hasn’t done anything to deserve it.  His ‘rendition’ of our national anthem alone is a debt worthy of repeated repayment for decades to come, and that was but a small part of his performance as Secretary of State for Wales.

But are the two statements really as inconsistent as they appear?  As far as I’m aware, he didn’t tell us that the economic gains of leaving the UK would occur within the UK itself nor that they would accrue to all of us.  And rich people benefiting from the undermining of the UK economy is hardly a new phenomenon.

I suspect that people are confusing Brexit and British patriotism here.  For sure, ‘patriotism’ was one of the means used to persuade people to vote in a particular way, but that doesn’t mean that they ever intended it to apply to themselves.  Capital is never patriotic because it knows no boundaries; it only ever pursues its own interests.  The problem with the response to what Redwood said is that it’s political froth dealing solely with the apparent inconsistency of one politician.  It leaves untouched the wider question of who owns wealth and where real power lies.

Red tape and workers' rights

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Politicians love to talk about abolishing this terrible stuff called ‘red tape’ which clogs up the private and public sectors alike and threatens to bring the entire economy to a complete halt.  They usually claim that just by cutting the stuff out they can solve most of the problems faced by businesses.  Some of them are so enthusiastic that one could almost believe that it’s also the solution to world poverty and hunger.

It’s something which strikes a chord with the general populace as well.  We’re all against unnecessary bureaucracy, but as I’ve mentioned before, defining what is, or is not, unnecessary bureaucracy is a lot harder to do.

One of Cameron’s early acts as PM was to appoint Adrian Beecroft to conduct a review of ‘red tape’ and recommend what could be abolished.  I don’t think that I would have selected a venture capitalist to undertake such a rôle, but I suppose it’s the sort of background likely to produce the sort of report which Cameron wanted.

There have been a number of leaks of some of the things he’s going to recommend over recent weeks, in both the Times and the Telegraph.  Jaxxlanders draws attention to this and this in the Telegraph, and both the newspapers referred to another of his proposals a couple of weeks ago as reported here.

(As a complete aside, Nick Clegg’s claim that ‘for every hour someone in a big company spends on paperwork, it takes nine hours in a smaller firm’ looks to me like one of those politician’s statistics.  It’s simply not credible as a generalisation, and I’d be doubtful if it was even true in a specific instance.  The alarming thing is that he probably believes it – worse still, that it’s an assumption underpinning the adoption of policy.

Peter Black claims this whole issue as another example of how "Liberal Democrats are acting as a bulwark against the worst excesses of the Tory right wing".  That depends on quoting Vince Cable's aides and ignoring the fact that the policy was, according to the Telegraph, launched by a certain Nick Clegg...)

Now, I don’t doubt for one moment that enabling employers to sack anyone who they consider to be underperforming, with no comeback beyond statutory minimum redundancy pay, is something that the worst employers would like.  As Beecroft himself admits, it would also allow some people to “be dismissed simply because their employer doesn’t like them”, something which he describes as “sad” but “a price worth paying”. 

Creating a climate of fear of unemployment in the workplace may even improve the efficiency of some companies, particularly those whose management is incompetent to start with.  As I’ve suggested previously however, if we want to build successful businesses we should be dealing with the incompetence, not condoning and licensing it.

Nor do I doubt that delaying the introduction of auto-enrolment into a new pension scheme would save companies money.  But it would also leave those who would benefit from auto-enrolment in a worse position at retirement – another ‘price worth paying’ presumably.

It’s all of a piece with the general attitude of the UK Government at present.  There’s a price to be paid for economic recovery, it’s a price worth paying, and it will be paid largely by those at the bottom whilst those at the top continue to reap the extra rewards for introducing ‘greater efficiency’.

But what these proposals are most emphatically not about is reducing unnecessary ’red tape’.  Employee protection is not worthless bureaucracy, and only those who see employees as little more than a costly but sadly necessary resource would ever think that it was.  Such as venture capitalists and the hereditary rich, for instance.

This is an ideologically motivated attack on employee rights, and an attempt to further shift the balance of power away from labour and towards capital.  Others who talk glibly about abolishing red tape should be more careful with their words, and spell out their specifics rather than talk in generalities.  Otherwise, there is a danger that they unintentionally legitimise that attack.

Overheads and packages

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For decades, pension provision was seen and treated as part of an overall remuneration package.  Employees didn’t just get a salary, they got a package, and people thinking of changing jobs were encouraged to compare the total package, not just the headline salary. 

I’m aware that some employers even implemented flexible arrangements under which employees could, within agreed limits, sacrifice part of their salary for higher employer pension contributions, or even reduce the contributions for an increase in salary.  Such arrangements suited employees, who could vary the elements of the overall package at different points in their lives, and they were generally cost neutral (other than administration costs) for employers.  Above all, they encouraged people to think package rather than salary.

I’m not entirely sure at what point ‘part of the package’ became an ‘unaffordable overhead’ apparently provided by the employers out of the goodness of their hearts, but the perspective certainly changed.  Factors such as increasing longevity come into the equation, but I have a feeling that the crucial event was the raid on pension funds mounted by Gordon Brown when he was Chancellor.

I’ve never felt that he was wrong in principle; the previous tax treatment of pension funds gave disproportionate benefit to the most well-off rather than the least well-off.  But he was wrong, and badly wrong, in practice, by introducing the change without warning and with no transitional period for both employers and employees to adjust to the significantly increased contributions which would be required from both if previous pension provision was to be maintained. 

Overnight, an approach to occupational pension provision which had been so successful over decades was rendered unviable.  The pensions crisis may be coming to the fore under a Conservative-Lib Dem coalition, but the seeds were sown by Gordon Brown and New Labour.

The sleight of hand by which pension contributions have come to be regarded as an ‘overhead’ disguises the fact that employers reducing the benefits or increasing the level of employees' contributions are, in effect, reducing the total remuneration package of their employees as certainly as if they were simply reducing wages.  The wrath of those being hit by this attack is easily understandable.

The surprising thing to me is not that public sector employees are protesting so strongly, but that private sector employees did not protest more when the changes impacted them.  It underlines, perhaps, the extent to which economic power has become increasingly unbalanced in favour of capital and against labour.  However, the mere fact that private sector employees have already had to suffer the closure of final salary schemes and the prospect of reduced income after retirement is no basis at all for arguing that public sector employees should meekly accept the same fate.

It’s also often overlooked that not all public sector pension schemes are the same; some are much more actuarially sound than others, and there really is no need to treat them all on the same basis.  There are some serious problems though, particularly in those services where pensions are paid from current revenue rather than from a properly funded long term savings scheme.  Arguing that all schemes can just continue as they are is as disingenuous as arguing that they all have to change fundamentally.

What is surely clear overall is that we have a choice between reducing the size of pensions after retirement and increasing the amount saved before retirement.  The position we’ve got to seems to be that public sector employers are determined to make that decision unilaterally, just as private sector employers have already done.  It’s a short term decision though; it saves money today at the expense of potentially creating a bigger problem for pensioners in the future.

The government is giving conflicting messages as well.  On the one hand they say – quite rightly – that we need to save more to make provision for retirement, and on the other they seem likely to further postpone auto-enrolment in the new pension scheme because they want us to spend not save in order to boost the economy.  Long term needs conflict with short term ones, and as is usual with politicians, short term considerations are likely to win out.

Seeing pensions as part of a remuneration package rather than as an overhead puts potential industrial action by employees into its proper context.  There will have to be changes to the package in many cases, of course; but change should be negotiated not imposed, and public sector employees are right to insist on that.  That surely is at the heart of what trades unions are about.