Council tax rise to bolster staff pensions

13 April 2012

COUNCIL tax payers will have to pay an extra £20 next year to meet the pension demands of local government employees. They are already facing increases of 10% or more in the first rises in council tax after the General Election.

Figures leaked yesterday showed that the cost of paying the guaranteed and inflation-proofed pensions will rise to £3.75bn this year. This is an increase of nearly £250m on last year.

Most of such costs are picked up by national and local taxpayers. Contributions by local government staff meet only a fraction of the total. Critics say this means that local tax payers, some of them with little or no pension provision, are funding generous schemes based on final salaries for council workers.

Tory work and pensions spokesman David Willetts said: 'Labour has presided over an absolutely preposterous situation in which people with modest incomes and no pensions are paying ever higher council tax to provide good pensions for other people. The Government claimed that it was starting to tackle the problem but gave up as soon as it faced union opposition.'

The £250m extra costs faced by council tax payers will mean their bills will go up by around 1.5%, or roughly £20 for someone paying the average tax for a benchmark band D home.

News of the extra bill comes as the Government and councils continue to hire bureaucrats at an extraordinary pace, all with guaranteed pensions. In recent months State organisations have been taking on workers at the rate of 560 a day, five times that at which private companies are recruiting.

Six-figure salaries have become the norm for senior officials, even though their jobs are cushioned from the risk faced by private sector executives. Many of the appointments appear to council tax payers as obscure or unnecessary - such as 'strategic' executives and equality officers, 'five-a-day coordinators' to encourage the eating of fruit and vegetables and 'real nappy' officers.

Average contributions to their pension schemes represent around 19% of the value of their monthly salaries. The terms are so generous that local authorities have a £ 30bn gap to make up between the value of the scheme and the cost of paying out the inflation-linked pensions.

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Attempts by Deputy Prime Minister John Prescott to curb taxpayer spending on their pensions collapsed earlier this year after strike threats by unions. Prescott wanted to raise the council retirement age from 50 to 55 and make executives take pensions based on their average career salary rather than their final year's pay.

Council tax bills, which have gone up by 70% since Labour came to power in 1997, went up by only 4% in this year's rises because Chancellor Gordon Brown handed £1bn extra from the Treasury to councils.

But local government leaders have warned that there will be no similar bailout next year and that as a result council tax bills are likely to go up by 10% or more. Extra pension payments would mean a further 1.5% on top of that.

Before 1997, six out of ten workers had final- salary pensions which guaranteed that pension payments would always stay at a fixed proportion of their pay when they retired. But Brown's £100bn stealth tax on pension funds and falling stock markets have squeezed companies so that two-thirds of final-salary plans have been replaced for new workers by less costly stock market-based schemes. These provide much lower pensions and are less reliable.

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