A tall tale

Tweet Last week, the UK Treasury told us that an independent Scotland would be unable to afford to pay pensions unless the country opened its borders to a veritable flood of immigrants, so they had better do the right thing and say no.  No surprise that die-hard unionists should leap upon the argument as ‘proof’ that an independent Scotland would be unsustainable.

But it actually proves no such thing.  What it does prove (as if something so obvious needed any further proof) is that a pensions system which depends on paying today’s pensions out of the contributions of today’s workers will be put under increasing stress if longevity increases and the birth rate falls.  Scotland is not unique in this respect – it’s a problem facing the whole UK, it’s just that Scotland (like Wales) will get there sooner than the South East of England.

The Treasury’s suggested response for Scotland – growing the working population by attracting immigrants – misses the point completely.  It’s a sticking plaster approach (which raises a whole host of other questions), and since longevity is still continuing to improve, one which would need to be repeated for some time to come.

The approach adopted by the UK Government is a more sustainable one (although not one I support) – increase the pension age so that fewer people receive pensions and those who do receive them for a shorter period – but it’s still missing the point.  We need to move to a state pensions system which is more like the occupational pensions to which many of us contribute, that is, one based on savings and investments rather than payments out of revenue.  Even were a decision taken today to do that, it’s a process which would take some decades to complete, and politicians, who always have an eye to the short term rather than the long term, prefer sticking plaster.  It’s ‘only’ the old who suffer as a result.

There’s another problem as well with depending on attracting working age immigrants who will pay taxes here to pay pensions.  It doesn’t actually solve any problem – it just moves it from one country to another.  When large numbers of working age people leave a country to work elsewhere, that country potentially ends up in the alleged position of Scotland today – it’s left with an aging population, unable to properly support those in need.

And in that context, there was surprisingly little analysis of why Scotland (and again, the same applies to Wales) has a population which is aging faster than the UK as a whole, with fewer young workers to support those who have retired.  There are, of course, a number of reasons for that – but surely one of them is the way in which young working people from all the peripheral areas of the UK are attracted to the South East where, on the basis used by the Treasury’s figures, they are now contributing to the pensions of people in the South East rather than those of their own elderly relatives.

In short, migration – which the Treasury presents as the solution – is actually part of the problem.  An over centralised UK economy attracts migrants in from the periphery to the centre and then tells us that the periphery is too poor to look after its elderly and needs help from the centre or massive immigration to do so.  The truly amazing part of this is how many people swallow it.

More on regional pay

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There was an interesting little sentence in the Treasury’s evidence backing up the issue of regional pay for last week’s budget.  It said “the public sector pays more than is necessary to recruit, retain, and motivate staff in some areas”.  In some ways it reveals a lot about the thinking and ideology behind government policies (and let us not forget that Labour also wanted regional pay when in government).

At one level, it displays an almost incredible degree of double standards.  The higher-paid, we have been told incessantly, have to be highly paid to reward their efforts; but it seems that the lower-paid should be employed for the lowest rate at which their labour can be purchased.  If we were to employ the same standards at both ends of the spectrum, the income gap would be a great deal smaller.  Does anybody really believe that we couldn’t “recruit, retain, and motivate” bankers (or politicians, for that matter!) for lower salaries than they’re currently paid?

At another level, it’s merely an obvious statement of a classic concept in economics – employers will seek to employ labour at the minimum pay for which their labour can be purchased.  The counter concept is that labour should seek to extract the maximum wage that it can obtain from employers; balancing the two is a major part of what collective bargaining is all about.

In one sentence, however, the government have effectively abandoned any pretence at neutrality in the capital vs. labour equation; they are coming down very firmly on one side.  Whilst, in context, this applies only to employment by the public sector, I cannot believe that they wouldn’t be guided by the same principle in more general terms; nor that other employers won't take their cue.

Perhaps we shouldn’t be surprised at that, but I can’t recall any government having previously stated so clearly and explicitly that it is in favour of lowering wages to the minimum level at which staff can be attracted and retained, as a matter of policy.  Not during the post-world war 2 consensus, anyway.

Little by little, over the past 30 years, the gains made by organised labour in the past have been eroded, by successive government of both colours, in the name of progress and flexibility.  The power of capital has increased while the power of labour has decreased.  Regional pay, on a rationale like this, is another step along the same road.