Treasury accused of a ‘fiddle’ following change to public sector pension discount rate

A change in the discount rate used to value public sector pensions, which could lead to increased transfers from public sector employers to the Treasury, may create a £5bn shortfall in the delivery of frontline public services.

The union Prospect has written to the Treasury committee, urging it to question Treasury ministers about the potential impact of the changes, as it said the change is a “Treasury fiddle”. The change to the discount rate used to value public sector pension schemes was announced in a written ministerial statement to the House of Commons by the Chief Secretary to the Treasury, Liz Truss, on 6 September.

Prospect believes the technical change to the discount rate could increase transfers from public sector employers to Treasury by up to £6bn a year from April 2019. The Treasury has committed to returning most of those transfers in 2019/20 but has made no commitment in relation to £4.75bn a year of transfers from 2020/21 onwards.

Therefore, it has warned that the change could reduce funding for schools, hospitals and other public services by nearly £5bn a year from April 2020. It believes that it could also lead to the Prime Minister’s promise of additional funding of £1.25bn a year to cover “a specific pensions pressure” for the NHS being made redundant.

Commenting, Prospect deputy general secretary Garry Graham said: “This manoeuvre has every appearance of being a Treasury fiddle in order to balance spending commitments like the PM’s pledge to increase NHS funding with their own fiscal rules. Changing the discount rate for valuing public sector pensions could pave the way for back-door cuts to public services of up to £5bn a year if the Treasury does not compensate public services for the effect it will have on their budgets.

“Not compensating public service employers for this change would make a mockery of the PM’s spending commitment on the 70th anniversary of the NHS and render her promises completely invalid and utterly misleading. I have written to the Chair of the Treasury committee to ask her to question Treasury ministers over this because it is Parliament’s job to hold the government to account.”

The Treasury declined to comment on the accusations but highlighted the written ministerial statement from Chief Secretary to the Treasury, Liz Truss, which stated that further details will be known later this year, and further discussions will be taken forward as part of a spending review.

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