Cassandra’s Curse


I am not an economist or financial advisor,  nor do I claim to write with any ‘personal professional authority’. However, I do write on economics and financial issues gleaned from – and linked to – professional sources. Writings which, perhaps, I should post as Cassandra  – a metaphor for cases of valid alarms that are disbelieved.

File:Cassandra1.jpeg At the 1976 Labour Party Conference, the Prime Minister, James Callaghan made the following Cassandrian prophesy.

“We used to think that you could spend your way out of a recession, and increase employ­ment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of infla­tion into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment”

A valid alarm, rejected by trade unionists along with The Social Contract, as was – in 1979 – The labour Party. Perhaps political  ambivalence on the part of the electorate, Buggins’ turn encouraging the hubris already held by the political leaders that they elect. Political leaders able to run legal Ponzi Schemes, such as the Royal Mail privatisation. A privatisation preceded by the government ‘borrowing‘ the pension fund assets and adding the pension liabilities to the Ponzi Scheme called ‘public sector pensions‘.

2009 – Royal Mail deficits balloon – In 2008, the Royal Mail gave the value of the assets in its pension fund as £20bn. However, its liabilities – the amount it will have to pay out to pensioners – currently stands at an estimated £30bn. The Government has said that it would sell some of the scheme’s assets to reduce the public debt, and the Royal Mail’s scheme will then become part of the Government’s collective public-sector pension responsibility. Public-sector pensions responsibilities are not shown as part of the national debt, making the transfer of the scheme to the Government appear as a £20bn improvement to the nation’s finances.

2010 – Royal Mail’s pension deficit hits £8bn – The Royal Mail deficit could reach as much as £10bn. Royal Mail has a legal obligation to make up the deficit. The annual accounts show Royal Mail paid a further £867m into the pension scheme in the last financial year, but this dwarfed both the company’s cash outflow of £517m, and the group’s pre-tax loss of £262m.

2011 – Royal Mail to leave taxpayers footing £8bn pension bill – The scale of the pension fund deficit being taken on by the British taxpayer is vast. It has assets of £26billion, but it also has liabilities, known as ‘pension promises’, of £34.4billion, which gives rise to the deficit of £8.4billion.

2012 – Government to take on Royal Mail’s historic pension deficit at end of month – The government is to take on the Royal Mail’s historic pension deficit at the end of this month. This will have a large fiscal impact on public sector borrowing with £28bn in assets transferred to the treasury, along with historic liabilities of around £37.5bn.

2013 – Royal Mail privatisation oversubscribed within hours – While the Royal Mail is now highly profitable, it is a recent turnaround and a tumultuous five years leading up to 2011, during which some 50,000 staff were laid off. Its pension fund, which was £8bn in the red three years ago, has now been shifted to taxpayers.

The transfer will provide a windfall for HM Treasury of about £28bn (the equivalent of almost 2% of the UK’s gross domestic product) allowing an immediate one-for-one reduction in the budget deficit

The pension fund’s £37.5bn liabilities are spread as an unfunded deficit over the next 20 to 30 years that is not an immediate debt of the government (taxpayer) for accounting purposes.

6 responses to “Cassandra’s Curse

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This site was created for members and friends of My Telegraph blog site, but anyone is welcome to comment, and thereafter apply to become an author.

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Hello, I’m Ed Conway, Economics Editor of Sky News, and this is my website. Blogposts, stuff about my books and a little bit of music

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