Brown’s £24bn Post Office windfall

Anthony Hilton
11 May 2009

John Ralfe, the pensions consultant, did a public service over the weekend when he blew the whistle on the Government's plans for the Royal Mail pension fund which it will take responsibility for once the Bill to part-privatise the postal service has got through ­Parliament.

Currently the Royal Mail scheme is funded — meaning that the mix of employer and employee contributions over his or her working lifetime creates a fund big enough to pay the pensions when they fall due. The alternative approach, which applies to some ­public-sector workers, is pay as you go where there is no savings pot so pensions come from current taxation.

The neat trick the Government plans to pull is to switch Royal Mail from funded to pay as you go. This means that the entire existing Royal Mail ­pension fund will be surplus to requirements, and its £24 billion of assets will therefore count as a windfall for the Exchequer. This is a time of course when any such windfall will be more than usually welcome.

Of course it is all accounting trickery of the most dubious kind because there is actually no windfall. In future the taxpayer will have to find the money to pay the postal workers' pensions, and over the years that will account for much more than £24 billion. Taxpayers may appear to do well out of the deal in the short term — and the Government likewise — but that will be reversed in decades to come.

Perhaps there is no point asking why the Government would resort to such sleight of hand because such acts have become a hallmark of Gordon Brown's politics both as Chancellor and as Prime Minister.

But what this does do is to cast further doubt over the Government's motives in trying to part-privatise the postal service. Its reasons for seeking to sell one-third of the business to a foreign buyer such as TNT have never really made much sense, nor seemed to offer much that the Royal Mail's management could not have done for itself. Now this revelation about how the ­pension fund will be used will only raise further doubts as to whether the privatisation plan is really for the good of the postal service — or simply a device for the Government to get its hands on the pension money.

The duty of the Odeys

It's a bit rich that Crispin Odey, the hedge fund manager, should tell the Sunday Times that he is “seriously considering” moving his business abroad because “the Government is not interested in keeping London alive as a financial centre.” It is worth remembering that Mrs Odey, better known as Nichola Pease, was a non-executive director of Northern Rock, and therefore one who failed to see the dangers of the policies it pursued.

One might argue that banking's collapse in the hands of Mrs Odey and others has done at least as much damage to the City's reputation as the Labour Government, particularly when these events are viewed from overseas. One might also argue that the reason all high-earners — whether or not they have any link to finance —will henceforth have to pay a higher-rate income tax band of 50p in the pound is at least partly because of the devastation wrought on public finances by the cost of bailing out banks.

Hedge funds tend to domicile themselves in offshore havens like the Cayman Islands so that a lot of their commercial activity avoids tax anyway. Therefore the only commercial impact the Budget has is on personal rates paid by the people who run them out of London. In the case of the Odey family one would have thought they might feel an obligation to pay at least part of their share of the additional burden.

Perhaps Pease, whose ancestors' banking business was one of the original parts of Barclays — when the bank was noted for its Quaker traditions of responsibility, fairness and a willingness to serve society — could have a word.

Given that the country has been put into hock for 10 years to rescue the financial system the least the financiers who made fortunes in those apparently good times can do is stick around to help clean up the mess which they were either directly involved in creating or which they profited mightily from.

Firing Blank: A tale of Lloyds

There are tens of thousands who invested in Lloyds TSB because it was a conservative bank which paid a mouth-watering dividend.

All this was squandered by the moment of madness when it rescued HBOS without first checking what problems it was taking on. Nor did management even ask Government to cover the HBOS losses in return for Lloyds mounting its rescue. These losses were so severe that the combined group eventually had to be rescued by Government. So shareholders have been impoverished by their management and Lloyds' reputation destroyed.

Surely Sir Victor Blank understands he is no longer credible as chairman and it would be much better for him to stand down before he is pushed.