Why a public sector pensions levy makes sense

Today’s papers are awash with stories that a public sector pensions levy will be announced in tomorrow Emergency Budget. Trade unions have already issued dire warnings, ranging from the PCS’s promise to “organise the widest possible popular opposition,” to Bob Crow of the RMT’s rather prosaic: “when someone’s winding up to give you a kicking you have a clear choice — you can either take them on right from the off or you can roll over and hope that they go away.”  Public sector workers, however, should not be so dismissive.
 
In our report, released on Friday, we argue for an “Irish style” graduated public pensions levy of 7.5 percent.  We estimate this will ‘save’ 322,000 jobs.  Why?  Because there is a direct trade off between staff numbers and remuneration.  If we wish to cut the paybill by, say, 10 percent, this can be done by cutting the cost per worker by 10 percent (while leaving workforce levels the same), or cutting the number of jobs by 10 perfect (while leaving cost per worker the same), or a combination of the two.