View from City Road: Government eyes the gravy train
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Your support makes all the difference.THE Government looks like a magician about to pull a rabbit of his hat. It wants to transfer between pounds 2.5bn and pounds 3.75bn from British Rail's pension funds to the Treasury in a move that could cut swathes through the massive public sector borrowing requirement. But it is not sure it will get away with it.
The prospect is so inviting it is prepared to face political opprobrium. This is because the sums involved are so huge, even in the context of next year's pounds 50bn PSBR. If successful at British Rail, where the pension funds are worth pounds 8.5bn, it could turn its attention to the Post Office, worth about the same, British Coal, with pounds 14bn, and even to the local authority funds, with more than pounds 41bn.
While there may be attractions in reducing the PSBR now, when it is so high, the Government would be adding to its annual spending - BR's pensions cost about pounds 400m a year - for the future. While this may be supportable in a recovery it could cause problems in the next downturn. The Government is, in effect, mortgaging future generations.
There are also several practical issues yet to be resolved.
The money transferred from the pension funds to the Treasury would not count against the PSBR unless the assets - the shares, gilts, property and pictures (the BR pension scheme has pounds 60m in art) - are converted into cash.
Turning gilts and shares into cash would be hard enough - it would do little for share prices of companies such as Shell, Guinness and Inchcape where British Rail is a large holder - but realising pounds 578m of property in this market would take time.
Pensioners have much to fear from change. Recent events, including the Maxwell scandal, have made all those involved far more nervous than they would have been two years ago. But these fears should not be exploited.
The decision for trustees is not straightforward. On the one hand they have good reason to be happy with current arrangements - the funds have outperformed the average in each of the last four years.
On the other hand they have to take into account the fact that the Government would be offering guaranteed increases, linked to inflation, in pensions, whereas the BR scheme offers no such guarantee.
Whether pensioners trust the Government's commitment to the next 40 or more years remains to be seen.
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