This is not the time for Chancellor to play games with councils

CROYDON COMMENTARY: Recently published reports which prove that Tory austerity has led to the early deaths of tens of thousands of people since 2010 need to be properly considered in next week’s Budget and in the forthcoming Government Spending Review, writes ANDREW PELLING

Storm clouds gathering: local authorities such as Croydon need fairer financial settlements from national government

The Government Spending Review comes soon, with the Budget on October 27.

Let’s hope it’s a three-year review which helps councils to plan ahead. There have only been one-year reviews recently.

With the NHS and school budgets protected and more money likely to be allocated to defence, I fear that local government, like other non-protected budgets, is likely to see grants falling by another 3 to 5 per cent.

But the government needs to stop playing games by hurting local councils’ budgets, which proves to be destructive to people’s lives. Council Tax rates are also becoming untenable.

You see dramatic figures used of the cuts to local government grant of 76 per cent in Croydon. This is accurate but can mislead, as government has changed income flows to local councils. Like other councils, Croydon’s real spend per head per year is about 20 per cent down since the Tories came to power nationallyin 2010.

That in itself is a huge cut to cope with each and every year.

There are still savings to be found in a forensic consideration of the council’s private sector contracts.

Boxed in: what does Chancellor Rishi Sunak have in store for local councils in next week’s Budget?

When Council Tax benefit is run by councils (with less funding for this as well from central government) and when social care is secured by councils, it’s often the most needy groups that suffer most.

Croydon’s treatment by governments of all three colours has been poor bearing in mind its growing demographic challenges. Some of that problem goes a long way back, with grant support being based on historical spend that the Conservatives kept down in the 1980s.

As government grants fall anyway, attention has to turn to how to maximise income. This includes development and working with private sector partners to identify investment that will no longer be coming from the council’s “39 steps” of infrastructure investment.

Monies can be secured from Croydon’s outperforming Pension Fund without having any impact on payments to Croydon Council’s fund’s pensioners.

With the government’s White Paper on “levelling up” due soon and Tory support in London in retreat, I fear that London councils might get worse financial treatment than other councils.

  • Andrew Pelling, pictured right, has been a Labour councillor for Waddon ward since 2014. Previously a Conservative, Pelling was Croydon and Sutton’s first London Assembly Member and he was the MP for Croydon Central from 2005 to 2010. Pelling is the current chair of the council’s pensions committee

Read more: Tory austerity has been the cause of thousands of extra deaths
Read more: The referendum result shows that time for change is overdue

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7 Responses to This is not the time for Chancellor to play games with councils

  1. As a Croydon Council Pensioner I have to declare an interest in Andrew’s assertion that “monies can be secured from Croydon’s outperforming Pension Fund without having any impact on payments to Croydon Council’s fund’s pensioners.”

    The private sector has a record of robbing pension funds to support their business with sometimes catastrophic consequences. Fortunately the Local Government scheme is protected by law but Andrew’s statement does cause concerns, particularly as I see further debt being kicked down the road.

    The fund may currently be performing well and Andrew should know the figures.

    However the Council’s annual accounts for 2020/21 show an increase in the Pension Reserve debt from £473M to £700M. In simple terms that means that the pension scheme is underfunded by £700M and the accounts recognises that this shortfall will need to be addressed before benefits become payable.

    Thus, if Andrew’s assertion means that the Council can make money available by reducing their annual contribution, I can only see the reserve debt increasing which still has to be provided for at some point.

    He is right that payments to fund pensioners will not be affected (they are protected by law) but Council Tax payers or some other means will still have to provide the money for this growing shortfall.

    As an aside the current CPI inflation figure of over 3% will need to be applied to pensions next year and that will put further pressure on the overall valuation of the pension fund and the Council’s contribution to its funding.

  2. Ian Kierans says:

    Much of what Mr Pelling says regarding the funding of Councils is pretty accurate and it would be very worthwhile to have a three year if not a 5 year budget. This would allow better fiscal planning and longer contracts with reduced cost to taxpayers if procurement is on the ball and the contract have effective penalties for non-delivery etc.

    One part though is the comment which seems out of context but also worrying.

    “Monies can be secured from Croydon’s outperforming Pension Fund without having any impact on payments to Croydon Council’s fund’s pensioners.”

    Firstly it is good that Croydons Pension Fund is outperforming. But this is a measure not an amount. So is it actually realising a monetary return on investment or just a paper (actuarial) valuation and by what amount does the value exceed current and future liabilities?

    Seriously – is Mr Pelling suggesting that taking money from a pension fund will not affect current and future members in any way? I find this hard to believe. It may not affect their entitlements but at the next squeeze I am sure that defined benefit pensions will be up for discussion as to how to end them.

    I am surprised that the chair of a pension fund appears to be suggesting that it cross subsidises an employer by taking money from the fund as opposed to for instance a more acceptable method like allowing a payment holiday,

    Where there is a surplus of funds is it not more equitable to impart some form of holiday of payment for the employer and a one-off benefit to those vulnerable ex Council workers in receipt of pensions as part of a hardship fund. If the rules did not allow this then perhaps as chair some motions to amend those rules might be more in tune with all the stakeholders requirements.

    Perhaps Mr Pelling would like to clarify exactly what he is thinking here?

  3. Andrew Pelling makes some pertinent and interesting points. It certainly needs to be acknowledged that the attack on local government funding now has around a 40 year history, from Thatcher’s CCT (Compulsory Competitive Tendering), through Tony (“I bear the scars of local government on my back”) Blair’s ‘Best Value’ and PPP (Private Public Partnership), and Cameron’s Austerity measures, that only seemed to apply to any state social or health provision. All these initiatives ever did was to create profits for the private sector at the expense of standards of service.
    Quite apart from Johnson’s ‘Levelling Up’ and paying back the COVID costs, we now see local Council’s having even fewer resources, for example the decline in housing stock has lead to more expense in buying in private sector landlords etc, increases in Concessionary Fares to fall more fully on Council Tax precepts etc. As areas become more deprived, so the cost of provision per head rises, yet the property values get rated lower and viable businesses take flight, all resulting in lower tax revenues, where Boroughs like Croydon now have to raise over 50% of their own income.

    This system is, at heart, untenable and relying on raiding local government superannuation schemes would not be the answer. Council employees, what are left of them, are understaffed and stressed with what they have to cope with. They are also being used by the Chancellor as an instrument to restrict wage inflation at a time of rising price inflation. If they perceive an attack on the pension funds, there will be (to coin another blast from the past phrase) at least another “winter of discontent “.

    This is clearly a difficult and complex situation with no quick solutions. Croydon Council were sucked into the idea that they could buy into private sector entrepreneurship and that could (and did) have only one outcome.

    Andrew is right in saying that overall state financing needs to be re-aligned. Not only the cost of pretending that we need to be a nuclear power, but also examining the charitable tax status of private schools, capturing the international tax dodging companies and individuals, wasted money on many government contracts, the necessity of HS2 when we are switching so much more to internet contact. One could ‘go on and on’ but that in itself sounds like another mantra from the past!
    At least one Councillor has now stuck his head above the parapet and that is admirable.

  4. James says:

    I think Croydon pensioners (and pensioners in waiting) can sleep easily.

    The pension funds deficit is calculated every three years by the actuary. This deficit has to be funded (over time) as secondary contributions by the council’s own cash in addition to the primary contribution rate. These secondary contributions is money that could be spent on services.

    So, the smaller the pension deficit, the less has to be added by the council, leaving more for other stuff. Pensioners won’t be affected by this “saving” from the pension fund (unless they are also residents in receipt of services iyswim)

    I believe Mr Wickens is referring to the annually calculated ias19 valuation, which is specifically NOT to be funded from the general fund (aka council tax) because the government correctly worked out it would be utterly unaffordable, and cause absolute chaos for public sector finances.

    So, do we need to panic?

    No: this liability is for all pensions that will become due, regardless of whether members have finished paying for them*.
    Yes: nationally the bill for funded and unfunded schemes is going to be staggering.
    Maybe- the cost of net zero will probably make pensions look a bit “meh”

    * That being said, could, public sector pensioners must realise the unaffordability of their pensions in the long term, and the growing disconnect between receptients of pensions (especially those who have enjoyed early retirement) and the private sector workers paying for them but not getting anywhere near the same.

    I hope this helps clarify things wrt pensions.

    I find myself agreeing with a lot of Cllr Pelling’s other thoughts, though as ever it’s a compromise. The pool of billionaires who can be tapped for windfall tax revenue is finite, so if the public want more: they have to pay more.

  5. Andrew Pellng says:

    Thank you so much for the comments.

    It gives me the opportunity to write about the Croydon Pension Fund, whose Committee I have chaired on and off since May 2016. I am in my third period of chairing the Committee. I was sacked twice under Tony Newman’s leadership.

    This is not the way to run what has now become a £1.6 Billion Fund.

    The chair of the Committee is now, in effect, elected by Majority Group members and this would remain so under a Mayor.

    The Fund is up by £740 million since March 2016. It was a poorly performing fund near the bottom of the Local Government Pension Schemes league table with funding against liabilities in March 2016 at 81% according to the Government Actuary’s Department (GAD).

    The Fund has outperformed other local government pension funds since 2016 because of asset diversification, timely asset allocation changes ahead of market trends, successful FX hedging and an uplift in financial performance arising from ESG and fossil fuel-free driven investments. We have had a good consecutive run of good market calls based on the advice of our officers and advisers.

    The Government Actuary’s Department says that the 2019 valuation is at 98 % funded. Since then, the Fund has grown a further 27%.

    We are clearly overfunded according to GAD assumptions.

    So, Ian this is real money, not a flimsy actuarial adjustment.

    Actuarial assumptions can make a huge difference to these matters as I will come on to in replying to David and as emphasised by James.

    And Ian we would most definitely not seek to take cash out of the Fund to give to the council. As you suggest Ian it’s a matter of looking at the payments made by the Council into the Fund. And there’s no way I’d give the Council a payment holiday. That was done once by the Conservatives and it didn’t do the Fund any good. A modest change in the scale of payments can be made.

    The council currently adds a very large percentage of pay to the Fund – namely 26.2%. For every £1,000 a council officer earns the council and its council tax payers put £262 into the Pension Fund.

    This high rate is partly because the Fund was a very poorly performing one.

    The Pension Committee might look at around a couple of % points reduction in the rate paid though we’d be very careful. George, I would hope that we could agree that this is not “raiding the Fund”.

    James you are right that the practice has been to value these Funds against liabilities triennially. The government has recently given councils the opportunity to do valuations at other times if circumstances change.

    Croydon’s situation has clearly changed significantly on the upside.

    We would likely look later at a further reduction in payment after another valuation of the Fund if our actuary advised so.

    But we would be very careful and would do nothing without the advice of our actuaries. We would not ignore their advice. And of course the Pension Committee might not agree with my view on this.

    And coming to David’s point there is a need to be cautious because a lot does depend on actuarial assumptions. The Council’s draft 2020/21 account estimates assume a discount rate for creating present value Fund liabilities of just 2%. This massively inflates liabilities including the effect over many many years.

    This is not the rate typically used with Local Government Pension Funds which will likely be around 4%. And this figure is also well below the type of turbo returns that the Fund has exhibited in recent years which is up 85.5 % in 5.25 years.

    As regards to the points that David and Ian make about my saying that “Monies can be secured from Croydon’s outperforming Pension Fund without having any impact on payments to Croydon Council’s fund’s pensioners.”

    This was stated to reassure Croydon Pensioners that their pensions will be paid regardless of the Fund’s condition or treatment.

    In that respect it is the Council Tax payers of Croydon who are liable to pay these pensions and Council Tax payers should be concerned about the Fund’s performance and it’s good that the 4 comments including James’ reassuring remarks have allowed me to air these matters in public.

  6. That is a very full explanation of how pension funds operate, knowledge of which is ‘far above my pay grade’ as they say! I would maintain that good liaison with the unions whose members contribute would be advisable as for the average fund member, it is as much about perception as reality. At least it’s a realistic contribution to the Council stepping out of the financial morass it is in, certainly better than taking losses on selling off recently acquired assets.

  7. George, we do have different council union representation on the Pension Committee and on the Pension Board. But your remarks prompt me to reach out to the unions on this matter ahead of any decision by the Committee.

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