Mr Livingstone, I presume
For some he epitomises the loony left, while others see him as the UK’s only conviction politician. John Greenwood finds Ken Livingstone’s perspective on UK pensions typically unique
With public sector pensions set squarely in George Osborne’s crosshairs, delegates at the NAPF’s local authority pensions conference in May could be forgiven for feeling uneasy. Who better to rally the troops than arguably the strongest defender of the ideals of the public sector, the former mayor of London, Ken Livingstone.
He may have been out of the limelight since being deposed from his 7m-citizen fiefdom by Boris Johnson in 2008, but speaking to Corporate Adviser, Livingstone talks as though he is preparing to retake office next week, not in 2012 when he hopes for a third bite at running the capital.
But while delegates may have been hoping that he would defend every inch of the public sector pension system, Livingstone confounds expectations by agreeing with one of the proposals for change mooted by the Conservatives - a £50,000 cap on final salary benefits, topped up by DC.
“If you take my mayoral pension and my parliamentary pension together, I suspect before tax they come to £25,000 a year, so I would be quite happy to see that,” says Livingstone.
“How does anyone need more than £50,000 a year as a pension? By the time you get your pension you are more settled, you should have paid off your mortgage. I would be happy with a £50,000 cap,” he adds.
But Ken-watchers will be unsurprised at his criticism of what he sees as opportunism by the Right to use the short term financial problems faced by the country as an excuse to instigate structural long-term cuts to public sector pensions.
“The attempt to whip up a backlash in the private sector because they have seen their pension schemes close is wrong, just because you have had all those firms that allowed pension holidays when markets were booming. That is exactly the time when you pay money in,” he says.
Livingstone correctly points to the UK government’s low overall spend on pensions - at 5.5 per cent of GDP on state pensions, way down on the EU average of 10.1, even if you add public sector pensions of 1.9 per cent on top.
“It is not like we are the high spender when it comes to pensions. We drag along behind Germany and France,” he says.
“I am happy to be corrected on this, as I only read it in a newspaper, but I recall reading that the average state pension in Germany is £25,000 a year. That is our average wage. It is not pensions that have drawn us into all this. And we should not allow the buggers to spook us into further reducing an already meagre pension. All that is going to do is build up further demands on anti-poverty spending in years to come,” he says.
“We should not allow the buggers to spook us into further reducing an already meagre pension. All that is going to do is build up further demandson anti-poverty spending in years to come”
“You had all the scams that the deregulation brought in by Thatcher allowed, so the people managing pension funds were allowing pension holidays, and they were all quite shocked when they ended up with pension deficits,” he adds.
But isn’t the old argument that public sector pay has been lower than that in the private sector no longer true, meaning that fairness demands that cuts are made?
“Compared with what MPs have structured for themselves., or what corporate bosses have structured for themselves, the overwhelming majority of public sector pensions are tiny,” he says, gearing himself up for a critical assault on what he sees as the way private sector bosses are effectively given large amounts of extra pay through pensions.
“How many of our company bosses have got their pensions in a different scheme to everyone else? It is outrageous. It is outrageous the way a small group of people in companies have found ways to steal from the rest of us,” he adds.
Redistributing the wealth in organisations to those down on the front line is clearly one of Livingstone’s driving forces in life.
“My most pleasurable moment as mayor was that we discovered, and no-one had noticed it, that companies that had contracts for bus routes through London couldn’t sell them to someone else without running it through the Mayor. And Brian Souter, chief executive of Stagecoach had about a third of the bus routes - a huge operation, and wanted to sell out. But there was a gap in the pension fund for the staff so I said I would not agree to sell until you fill it. He was going to make about £150m and I insisted he put £60m of his profit into the pension fund. There was nothing he could do about it. So the pension fund gap was closed and he walked away with a mere £90m,” he said.
But does he accept that there is a problem with unfunded public sector pensions in an ageing society? Like many, he would have liked to have seen things set up differently.
“If we go back, the regions should have had a state pension that everyone in the public sector and their bosses had to pay into. And that would have been a good way of unlocking investment in regional projects. But the chance of that is long gone,” he says.
While public sector pension review chief John Hutton may be encouraged by Livingstone’s support for a top-end cap on final salary benefits, his counterpart on public sector pay, Will Hutton may be interested in the approach to pay that Livingstone introduced in his time at the head of the Greater London Council. Back then, Livingstone pushed radical policies to narrow the gap between the highest and lowest paid employees right across the organisation.
“I would be happy with a £200,000 salary cap for the public sector too. I remember when we had at the GLC a ratio of between 1 to 6 or 7 between the salaries of the cleaning staff and the director general. I managed to squeeze it down to 1 to 4 at one point. Salary growth at the top end has been obscene,” he says.
But Livingstone’s key message to local government pension managers, and to managers and trustees of employee-sponsored schemes across the country is to invest the money at their disposal for the future good of the communities they receive it from - and to avoid speculation.
“My advice to pension funds would be to look towards long term investment rather than worry about manipulating or playing around with the financial services sector - the Warren Buffet strategy that has turned him into such an icon has been long term investment rather than short-term speculation,” he says.
One of his key themes is what he sees as the underinvestment in infrastructure in the UK, and he has no problem rattling off a stream of statistics showing how we compare with the rest of the world.
“If you look at the way China and the US have responded to this crisis, China have increased investment from 43 to 46 per cent of GDP. America has cut it from 19 to 15 per cent. When you start to project what that means for growth, it is always determined primarily by investment. We are now in a position where China could become the largest economy as early as 2018. India now has its investment level up to 35 per cent and Indonesia is in that sort of range, as is Vietnam.
“This is not a flash in the pan, there is going to be a generation of it, and at the end of it economic power will have shifted, the bulk of it, to Asia.
“Then consider the poor level of investment in the UK compared to Germany and France and the idea that financial services was going to be enough. Any government has got to maintain investment through the spending cuts. But it is politically easier to cut investment, because there is no political comeback,” he says.
Livingstone has been happy to use the bond markets to arrange big projects himself. “The office of Mayor of London, with its access to the fare box, is a pretty safe bet for someone to lend money to. One of the big surprises I got was when Gordon Brown allowed the mayor to go to the bond market and borrow £2.9bn without any further reference to the Treasury and spend it on projects I thought were worthwhile,” he says.
Rather than cut investment and services, Livingstone, not surprisingly, wants to see tax increases to fill the deficit, although he is critical of Brown for getting the country in this situation in the first place. Many will disagree with his assertion that ’we are an under-taxed nation compared to our competitors’, and will think that spending should have been reined in. But Livingstone believes Brown should have taxed more and spent as he did.
“Rather than have the bravery to increase taxes as they should have done, on the top 10 per cent of earners, they actually ended up borrowing. It was ridiculous to be borrowing at the start of this century, when the top rate of tax was rather piddling. It would be a relatively small series of increases. But now is exactly the time when people don’t like paying tax, so end up moving abroad when everyone else is up the creek,” he says.
He is unimpressed by the frontrunner in the Labour leadership candidate, David Milliband, who he describes as lacking individual thought. “Of the three, I’d go for Ed Balls because he is the toughest of them. I had to deal with David Milliband and he just broadly went along with whatever the civil servants told him. Whereas I could go to Ed Balls and there weren’t even civil servants there, and make a deal and then three months later I have a £15bn funding package for Crossrail. Of all of them Balls is the one with the strength to impose his will on the machine,” says Livingstone.
Livingstone says he took the decision to stand again for London mayor the Tuesday after his defeat. London is clearly coursing through every vein in his body.
“I am in favour of independence for London, an independent city state like Singapore, because the rest of the country hates us and would be glad to see us go. But I don’t think they will allow me to do it,” he says.
He is now up against Oonagh King in the race for the Labour ticket, but is unfazed as to whether criticism of its potential leader could burn his bridges with Labour.
“If all my bridges with Labour were mended I don’t think I would be worth voting for.”
ALL ABOUT KEN LIVINGSTONE
Tulse Hill Comprehensive
Mother was a dancer, father was a merchant seaman
1981-1986: Leader Greater London Council
1987-2000: MP for Brent East
2000-2008: Mayor of London
2000: Expelled from the Labour Party
2004: Re-admitted to Labour Party