“We are proposing in particular that the lowest earners will face the least, or even zero increase in their contributions. Our proposal would not increase contributions at all for those earning less than £15,000 a year, and we propose a limit of 1.5 percentage points increase for those earning up to £18,000. This would be progressive and fair.”
Danny Alexander, 17 June 2011
Cathy Newman checks it out
I reported earlier this week that Danny Alexander had extended an olive branch to the unions – a promise not to make the lowest-paid public sector workers contribute more to their pensions. Today the olive branch was unveiled, but it’s looking rather bereft of any juicy fruit. The Chief Secretary to the Treasury vowed that employees earning less than £18,000 would either be exempt from having to pay more into their pensions or would have their contributions capped. Now the FactCheck team has discovered that might not be as generous as it sounds.
Danny Alexander roused the anger of the unions today when he appeared to signal that the Government had made its mind up on public sector pension reform – despite being halfway through negotiations with union representatives.
For his part, the Chief Secretary to the Treasury accused the unions of scaremongering after they announced strikes – also before the consultation on this massively divisive issue has concluded.
Mr Alexander confirmed that most public sector employees will have to work until 66 and pay more in pension contributions: an average of 3.2 percentage points more.
But he said the lowest-paid workers would be spared the hike, with no contribution increases for people earning under £15,000, and a maximum rise of 1.5 per cent for those on less than £18,000.
With the prospect of the two sides agreeing a compromise on pensions looking increasingly unlikely, FactCheck delved behind the headline figures to see if the Government’s proposed deal is really as fair and progressive as ministers claim.
The night before Mr Alexander made his speech, the Treasury circulated a note to the press about the key policy proposals it would contain.
“Those earning less than 15k (FTE) will not face any contribution increases,” the note explained.
Those three letters, standing for “Full Time Equivalent” immediately set alarm bells ringing among the unions, who feared that part-time workers would emerge as the big losers.
The emphasis on FTE suggested that a part timer’s earning power would be judged according to their Full Time Equivalent (FTE) salary rather than their actual take-home pay.
So a part-time nurse earning an equivalent salary of more than £18,000 a year – but working far fewer hours and therefore earning much less than a full-time worker – would miss out on the exemption, it seemed.
How many people would be affected by the loophole?
The TUC calculates that just over 1.1 million people are part-time public sector workers who earn the equivalent of a full-time salary of more than £18,000 a year.
They arrive at this figure by interrogating the statistics collected by the Government in the Labour Force Survey, based on data from 60,000 UK households.
Earnings are expressed in an hourly rate in the survey, but the union’s policy unit calculates that an annual full time salary of £15,000 is equivalent to £7.80 and hour for a part-time worker.
An £18,000 salary equates to £9.36, the union says, based on a 37-hour week, the most common working pattern for a public sector employer with a full-time contract.
According to the survey results from last year, there were 132,016 men working part time and earning more than £9.36 an hour, and 963,591 women.
So about 1.1 million people are in line to miss out on the exemptions announced by Danny Alexander, despite the fact that, as part-timers, they may well take home far less in a year than the Full Time Equivalent salary.
Of course, we don’t know how many hours each of those individuals earns, and the impact will be different for each individual, so it’s impossible to say what the financial penalty will be across the board for people who work part-time.
The TUC predicts that a part-time nurse who earns a FTE salary of £22,000 a year, but might take home half that sum a year, could see her pension contribution almost double.
Because 84 per cent of part-time public sector workers are women, the TUC says this is an issue that will affect women disproportionately.
FactCheck ought to point out that when Danny Alexanader actually made the speech hours after the note was sent out, he neglected to read out those three small letters in brackets that could affect the lives of more than 1 million people.
The audience, some of whom were visibly struggling to stay tuned in during the Chief Secretary’s formidable speech, might have been grateful that he cut it short by a few letters.
But for more than a million people, the omission raises a serious question as to what designs the Government has on their future earnings.
FactCheck contacted the Treasury for clarification and we were told that what Mr Alexander had announced were “broad proposals”. A spokesman said: “The details are still very much subject to discussion.”
Cathy Newman’s verdict
It’s a mark of the bad blood between the unions and the chief secretary to the Treasury that even an olive branch is tossed back in his face. The number of part-time workers in the public sector means those three little letters – FTE – spell a whole lot of cash. So it’s no wonder the TUC is exercised about it. And despite the offer to the lowest-paid, the government has so incensed the unions, short-circuiting talks with them by announcing firm proposals on pensions, that one small compromise has failed to quell the revolt. Strikes this month were already inevitable. Today’s development makes further industrial action in the Autumn a racing certainty.
[An update was published on November 30, 2011 – click here to read.]
The analysis by Patrick Worrall