Treasury Refuses To Back 5.2% Pensions Pay-Out

[GloomMonger]

http://www.scotsman.com/news/uk/treasury_refuses_to_back_5_2_pensions_pay_out_1_1917406

THE UK government has come under fire after giving itself an “out” that could allow it to avoid paying an extra £1.8 billion in benefits and pensions triggered by the rate of inflation rocketing to a record 5.2 per cent.

Consumer groups, charities and union leaders rounded on ministers after the government refused to confirm whether benefits and state pensions would rise in line with the September inflation figure, which is the usual procedure.

Such a rise, which would kick in next April, would cost the government an extra £1.8bn, according to estimates from the Institute for Fiscal Studies (IFS).

Last month’s inflation figure equals the record from September 2008 and is the highest since the Consumer Price Index (CPI) was introduced in 1997.

In a speech to the Institute of Directors last night, Bank of England governor Sir Mervyn King claimed the cost of living had reached a peak and that inflation was likely to tail off in the coming months.

However, the higher than expected figure – driven in part by rising utility bills and spiralling petrol prices – is nevertheless bad news for consumers who are already struggling to pay bills and meet household costs.

The Prime Minister’s official spokesman hinted that the usual annual increase in benefits and pensions – traditionally based on September’s CPI rate – may not be automatic, claiming it was for the Chancellor to decide each year whether to continue to apply this procedure.

“The process on this is that the September figures are usually used for uprating benefits, but the final decision on that is something that happens in the autumn statement,” the spokesman said.

“It is standard procedure [to use the September figure], but it is also standard procedure that the decision is taken at the Pre-Budget Report, under the previous government, or in the autumn statement, under this government.”

The figure has previously only differed from the September inflation rate if the cost of living has been in negative territory and would therefore have meant a cut in benefits and pensions. George Osborne is due to deliver his autumn statement to the Commons on 29 November.

Tom Vosa, Clydesdale Bank’s chief economist, warned the previous Budget had accounted for a far lower level of inflation, and that had sparked fears the government could decide not to set the increase based on the latest figure.

“In the March Budget, the Office for Budget Responsibility had revised the deficit projection upwards due to higher inflation, but they only expected 4.3 per cent year-on-year inflation in September,” he said. “This has raised questions as to whether the uprating will actually take place at the 5.2 per cent level.”

Brendan Barber, general secretary of the TUC, attacked the government’s suggestion that below-inflation increases might be on the cards. He said: “Today’s hint that the Chancellor won’t honour the commitment to uprate pensions and benefits in line with this month’s inflation figures is very alarming.

“The cost of living has rocketed for those who depend on pensions and benefits more than any official measure captures.

“Not only does the Chancellor want to use CPI, the generally lower inflation measure that excludes important items like housing, it now seems that he may not even keep that promise.”

Consumer groups hit out at the government’s indecision, arguing that the state was already saving on benefits increases by switching the measure by which benefits are uprated to the CPI from the Retail Price Index (RPI) – a change that took place last month.

While the CPI increased from 4.5 to 5.2 per cent, the RPI figure, which includes housing costs such as mortgage payments and council tax, rose from 5.2 to 5.6 per cent – the highest annual rate since June 1991.

“People who rely on benefits are already living from hand to mouth, and finding it hard to pay the basic household bills,” said Susan McPhee, head of policy at Citizens Advice Scotland. “They need to know today that they will continue to get the support they need and won’t be left even worse off.

“We urge the government to make absolutely clear today that benefits will be uprated as expected. That’s the very least they can do to support the many people who are really struggling.”

Dr Ros Altmann, director-general of Saga, which represents older people, said a failure to increase state pensions in line with September’s inflation rate would be a “second blow” for pensioners, who already have a higher rate of inflation than other age groups due to their reliance on energy to heat their homes.

Saga calculated that annual CPI for those aged 65 to 74 is running at 5.4 per cent.

“It’s bad enough that the pensioners in this country are having to endure these high rates. If the government tries to pick and choose like this, it’s not going to stop pensions suffering from high inflation,” she said. “It will not be made up for when the state pension is uprated. The government has already chosen to use CPI, rather than RPI, which is [usually] lower. Is it now intending to impose a second blow on the inflation protection for pensions?”

Linsey Thomson, senior economic analyst at the Alliance Trust Research Centre, which calculated the headline rate of inflation for over-65s as 6.1 per cent, said: “As expected, we are really now starting to see the impact of higher gas and electricity prices kick in, as inflation rates facing the elderly households reach their highest levels seen since the end of 2008.”

Wages have generally not risen in line with inflation, working out at an average increase of just 1.8 per cent a year, leaving workers out of pocket.

Gas and electricity prices rose by 13 per cent and 7.5 per cent respectively over a single month, while the rate of the increase in the cost of clothing and footwear dropped back slightly last month, but still rose by 4.4 per cent.

Joanna Elson, chief executive of the Money Advice Trust, said: “Today’s inflation figures form yet another part of an increasingly gloomy financial picture for struggling households across the UK.

“Whilst the cost of paying bills and buying groceries continues to rise sharply, for many, the money households are bringing in cannot match the price rises.”

Kevin Mountford, Moneysupermarket.com’s head of banking, said: “The rising cost of living is something UK adults have had to bear the brunt of over the last 12 months, with rising energy, fuel and food costs putting significant pressure on the nation’s wallets.”

Savers have also been hard hit. Estimates from website Moneyfacts show that, to beat inflation, a basic-rate taxpayer now needs to find a savings account paying 6.5 per cent in interest, while a higher-rate taxpayer at 40 per cent needs to find an account paying at least 8.67 per cent.

Economists said the rising cost of fuel and utility bills, combined with the 20 per cent VAT rate, had put pressure on inflation and warned it could hamper economic growth if consumers did not have money to spend.

“Temporary factors, such as high global commodity prices and VAT rises, have come together to raise inflation above the 5 per cent mark,” said Shehan Mohamed, economist at the Centre for Economics and Business Research. “This has led to a large squeeze on households’ disposable incomes, which will impact spending on the high street.”

Graeme Leach, chief economist at the Institute of Directors, pointed to the situation three years ago, when inflation fell from 5 per cent to 1 per cent in only 12 months. He said: “The first response to the latest inflation figures is ‘ouch’. The second response is more considered. The MPC [bank of England monetary policy committee] always knew that inflation would head north of 5 per cent this year, but their main concern was the inflation outlook over the next two years.”

Another unwanted side effect of high inflation especially in September when the calculations are made for 2012/13 pension and benefit payments. It seems TPTB are slowly marginalising the majority. When the old, the unemployed, the disabled and the middle classes realise they are being squeezed to benefit the indebted, what will happen?

[goldbug9999]

http://www.scotsman.com/news/uk/treasury_refuses_to_back_5_2_pensions_pay_out_1_1917406

Another unwanted side effect of high inflation especially in September when the calculations are made for 2012/13 pension and benefit payments. It seems TPTB are slowly marginalising the majority. When the old, the unemployed, the disabled and the middle classes realise they are being squeezed to benefit the indebted, what will happen?

I have no problem with this - benefits must be decoupled from inflation at least in the short term otherwise they simply help prop prices (of everything) up.

[We’re all in this together]

http://www.scotsman.com/news/uk/treasury_refuses_to_back_5_2_pensions_pay_out_1_1917406

Another unwanted side effect of high inflation especially in September when the calculations are made for 2012/13 pension and benefit payments. It seems TPTB are slowly marginalising the majority. When the old, the unemployed, the disabled and the middle classes realise they are being squeezed to benefit the indebted, what will happen?

We're all in this together

[GloomMonger]

I have no problem with this - benefits must be decoupled from inflation at least in the short term otherwise they simply help prop prices (of everything) up.

Partly agree, except inflation should be kept under control as is the BOE's remit.

[leicestersq]

http://www.scotsman.com/news/uk/treasury_refuses_to_back_5_2_pensions_pay_out_1_1917406

Another unwanted side effect of high inflation especially in September when the calculations are made for 2012/13 pension and benefit payments. It seems TPTB are slowly marginalising the majority. When the old, the unemployed, the disabled and the middle classes realise they are being squeezed to benefit the indebted, what will happen?

This is the right decision. The producers are seeing below inflation pay increases. If you give non producers inflationary rises, you encourage non productive activities, and tax revenues that pay for all this just collapse.

Better for pensioners to accept reality and an affordable increase in pension, or else soon there will be no pension at all.

[Ologhai Jones]

We're all in this together

I know I'm all in this together, so I'm doing my bit.

[Lagarde's Drift]

There is no pension.

[The Spaniard]

[Gone baby gone]

Another unwanted side effect of high inflation especially in September when the calculations are made for 2012/13 pension and benefit payments. It seems TPTB are slowly marginalising the majority. When the old, the unemployed, the disabled and the middle classes realise they are being squeezed to benefit the indebted, what will happen?

The unemployed and disabled are of no interest to politicians... but the old and middle class... RED ALERT!!! These groups are the ones who actually bother to turn and vote.

[winkie]

This is the right decision. The producers are seeing below inflation pay increases. If you give non producers inflationary rises, you encourage non productive activities, and tax revenues that pay for all this just collapse.

Better for pensioners to accept reality and an affordable increase in pension, or else soon there will be no pension at all.

Who is to say a salaried paid worker is a producer....I can assure you there are many who work hard producing far more for no money at all.

Maybe pensions should be capped....but only if the BoE stick to their inflation targets....they can quite easily keep inflation down but they are choosing not to in the hope the deflationary pressures that are out there will see it right.

Edited October 19, 2011 by winkie

[Blod]

I doubt that the current high inflation isn't ignored when calculating the the public sector pay reviews. :angry:

I would have thought that it would be expedient for the pensions of the staff at the treasury's pensions to have some kind penalty built in so that high levels of inflation negatively impact them directly. If that was the case then I bet Mervyn King would have done a far better job at controlling it it the first place.

[Nationalist]

So, the govt's policy of high inflation has returned to bite them on the bum. Boo, hoo!

Serves them right that all their numbers are now blown out of the water. They should have controlled inflation. Imagine how much better the economy would be now if inflation had been under the 2% target since 2007. With earnings growing at 2.8% on average people would be spending more in real terms every year, not less.

[Wurzel Of Highbridge]

If the decision was up to me I would directly link benefits and pensions to the average pay rise rate excluding bonuses. This is currently 1.8%.

If the above figure goes negative then tough on workers, tough on pensions and tough on the unemployed.

[Bloo Loo]

This is the right decision. The producers are seeing below inflation pay increases. If you give non producers inflationary rises, you encourage non productive activities, and tax revenues that pay for all this just collapse.

Better for pensioners to accept reality and an affordable increase in pension, or else soon there will be no pension at all.

WHATS GOOD FOR THE GOOSE IS GOOD FOR THE GANDER

Lets see a 50% cut on all public sector emoluments above 25K.

Ok its a contract, but so was the pension promise.

[Jadoube]

WHATS GOOD FOR THE GOOSE IS GOOD FOR THE GANDER

Lets see a 50% cut on all public sector emoluments above 25K.

Ok its a contract, but so was the pension promise.

Indeed. .

What is good for the goose is good for the gander.

Lets see a 50% cut on all private sector emoluments above 25k

Some might consider your application of equality in this way an extreme socialist position but.... since we're all in it together there may be a case for it.

[Bloo Loo]

Indeed. .

What is good for the goose is good for the gander.

Lets see a 50% cut on all private sector emoluments above 25k

Some might consider your application of equality in this way an extreme socialist position but.... since we're all in it together there may be a case for it.

Im with you brother, we need to reduce the credit by deflation in this country.

Its just that the private sector ISNT sucking the life out of the economy...it IS the economy.

If Dixons can afford to pay its managers 40K, then so be it.

The day it cant, it makes the manager redundent.

Show me the redundancies in the Public sector, the lost pensions, the non payouts of golden parachutes on the Public sector elites,and I would have some more sympathy.

[mitchbux]

I can't be bothered to find a clip, but I watched the whole film recently, and there was a line about the aliens moving from planet to planet using up all the resources and moving on to find another host..Hmmm.

[Sledgehead]

Lets see a 50% cut on all public sector emoluments above 25K.

Lets see a 50% cut on all private sector emoluments above 25k

Some might consider your application of equality in this way an extreme socialist position but....

But HIS application of equality is diametrically different from yours.

Control of prices in the private sector = creeping communism.

Control of prices in the public sector = creeping capitalism