Money’s Too Tight to Mention

Money’s too tight to mention

Oh mo-ney mo-ney mo-ney mon-ey

Mo-ney’s too tight to mention

I can’t even qual-i-fy for my pension

Many public sector workers will be striking on November 30. Notionally the dispute is about proposed changes to public sector pension arrangements which will lead to workers being required to work for longer, make larger contributions and, in many cases get lower levels of benefits when they retire. On that basis it looks very much like a lose, lose, lose situation so that it is hard to argue with the discontent felt by many public sector workers.

Realistically it is also likely that many who support the strikes do so not specifically because of the particular changes to pensions but because of a more generalised disapproval of the cuts (or more accurately overall, reductions in rates of increase) in public spending and perhaps a belief that there is a better more painless way of dealing with the UK’s economic problems.

Some of those who oppose the strikes do so on the basis that it is a bit rich for public sector workers who had 13 years of unprecedented growth in jobs and improvement in pay and conditions to seek to maintain pension benefits which are contributed to by private sector workers who have no such security to look forward to. This usually meets with the riposte that instead of looking to bring public sector workers down, the Government ought to be looking to improve private pension provision.

What happened to private pensions?

How could private pensions be improved though? This is the difficult question that tends to get pro-strikers to start to shuffle their feet and mumble something about “perhaps they ought to have joined unions to put pressure on their employers”. Unfortunately, this is not a helpful answer. This is because it wasn’t really employers who led the charge to minimise pensions for their employees even if they could have decided to carry on investing in them after the wind changed against this being so highly beneficial.


Up until the mid-1990s the UK had the most generous private sector pensions in the EU. Although this is anecdotal, as I started to look for work ahead of graduating in 1993 (in the depths of another recession) most large private sector employers offered final salary pension schemes and the fact that the civil service and other public sector employers also did so was not a particular positive differentiator when choosing where to work. A significant contribution to this was the tax treatment of share dividends which was beneficial to shareholders and so of great importance to pension funds which are traditionally amongst the largest institutional shareholders. Another beneficial element of the tax regime was that companies could avoid paying tax on profits by investing them in their employee pension funds. 

The potential for using contributions to pension funds as a tax avoidance method was known about and Nigel Lawson as Chancellor of the Exchequer did a small “raid” on private pensions to attempt to switch the balance of incentives to encourage businesses to invest productively rather than squirrel money away in pension funds with large surpluses.

Advance Corporation Tax

The main tax instrument benefiting pension schemes was Advance Corporation Tax (ACT). This meant that share dividends were deemed to have already had tax paid on them up to the basic rate of income tax to avoid the same money being taxed twice (first as corporation tax for the company issuing the dividends then as income tax for the shareholders). This was of great benefit to shareholders like pension funds which did not pay tax on their shareholdings as they were then able to reclaim the ACT that had already been deemed to have been paid. Effectively ACT was a subsidy to private pensions. 

As part of the tax increases implemented by Ken Clarke in the 1993 Budget following the disaster of Black Wednesday and the UK’s exit from the ERM the rate of ACT was brought down from 25% to 20% so that even basic rate taxpayers would have to pay some tax on share dividends (although by 1997 the basic rate had itself been cut to 23% so the level of tax payable fell to 3%).

Gordon Brown Killed Our Pensions!

OK, being completely fair and balanced he didn’t completely do so, but the two main decisions that together led to the collapse in value and availability of pensions for private sector employees were his. The first, which has resulted in almost all private employer final salary pension schemes closing in the past 14 years, was a change to the rules as to when a business could put more money into its company pension scheme. This was, at least partly correctly, seen as a tax avoidance measure if companies could shield their profits from corporation tax by diverting them into pension funds. Apart from avoiding tax this was also, again, partly correctly, seen as an economically inefficient use of profits when it would be better to reinvest them into  the business itself. The solution was seen to be to change actuarial rules as to how pension fund surpluses were calculated so that it would not be possible for employers to put additional money into pension funds which were in surplus (ie were projected to have more money than needed to pay out the expected level of benefits). This was coupled with tax incentives for businesses investing in research and development so that the businesses would be encouraged into more productive use of profits.

The second policy change was the abolition of ACT in Gordon Brown’s first Budget in 1997 (when the current Shadow Chancellor, Ed Balls was his chief economic adviser). This meant that at a stroke, pension funds lost the “subsidy” of being able to reclaim the 20% corporation tax that had already been deemed to have been paid on the dividend on the shares they held. Brown knew that this would  have an adverse impact on pension funds (see the Evan Davies article linked to above) but that it would also yield around £5bn in additional tax revenues and was part of a broader rebalancing of the relationship between corporation and income tax. It has been estimated that the impact on private sector pension schemes in the ten years from 1997 was around £100-150bn with 120,000 private sector workers losing some or all of the benefits of private final salary pensions in that time.

So, how can private pensions be improved?

One way might be to reverse the changes brought in by Gordon Brown. However, this might not work as businesses might be rather wary of the risk of future changes to the tax system which would remove the benefits of investing in pensions. In the current state of the economy it would also be very odd to take measures which changed incentives away from businesses investing in increasing capacity, taking on employees, or developing new products and towards providing for their employees future needs on retirement. A windfall subsidy to pension funds by reinstituting ACT would also look to be a rather peculiar measure as it would involve making cuts in broader public spending to fund it.

An alternative would be to raise other taxes to pay for this subsidy – perhaps this could be the tenth new use for a Financial Transactions Tax or “Robin Hood Tax” (leaving aside that such a tax would be likely to bite equally on the transactions carried out by pension schemes). Or the top rate of tax could be raised further (I’ve seen suggestions of raising it from 50p to 70p for incomes over £150k) although it is unlikely that this would raise anything like enough and would involve a redistribution from top earners to pension schemes and future private sector pensioners rather than to the many who are finding life difficult today.

I’m not known for being a fan of Gordon Brown’s but I mentioned earlier that his policies which so adversely impacted on private pensions were partly right. He was right in concluding that favouring employers’ pension schemes was a drag on the economy. Investing in pension funds, particularly when they were projected to be in surplus did divert investment away from productive matters and towards benefiting employees at the time when they were no longer being productive as workers. The same applies in respect of public sector workers. Nothing I have written is to diminish the importance of the work being done by many of those in the public sector. The issue is whether it is a better use of the limited resources we now have to provide people with valuable benefits in retirement than to use them in ensuring that the maximum amount possible goes towards todays public services. Businesses have been pushed towards focusing on that balance for 14 years.

Realistically it is hard to see how private pensions could be encouraged by government action now even if it might be feasible to take such measures at some point in the future when the economy is growing strongly. Even if they were to become suddenly heavily unionised it does not look credible that private sector workers could seek to force their employers into investing in new pension provisions by strike action. Even if they did, how could they guarantee that this would not be at the expense of the productive investments in R&D and so on that are needed rather than by cutting profits? Cutting profits would itself depress the value of dividends on those companies’ shares and so harm the performance of the pension schemes that employers would be being encouraged to invest in.

So, while I have some sympathy on an individual level with public sector workers who perceive that through no personal fault they are being unfairly “picked on” to pay more for their pensions, in practice, there is not a more attractive alternative. Nothing can presently be done to help private sector workers to get better pensions and those workers should not be called upon in the circumstances to safeguard public sector pensions which even after the proposed changes would be far more generous than those they could access themselves. As the adverse changes to private pensions were also used in part to fund the expansion in public sector jobs, increases in their pay and to maintain things like the pension arrangements, private sector workers have already been called on to look after their brethren in the public sector first for 14 years.

Perhaps, had private sector pensions not already been raided and killed there would have already had to have been a reckoning on public sector jobs, pay and pensions. It will come as little comfort to the strikers on November 30 but they really have been protected too long.


Oxbridge Interviews

Pimms on the Quad

An old joke goes, “Q: How can you tell if someone went to Oxbridge? A: You don’t need to, they’ll tell you first.”. I’ll prove it right by saying, yes, I did my degree at Oxford. It is university application season and coming into December, it is also the time when Oxbridge applicants will be girding themselves for the apparent ordeal of the infamous interviews.

In most areas, things will have changed so much over the years that personal experiences from the past will have little value. However, Oxbridge moves and changes slowly. From media coverage it seems that the interviews held by Oxford and Cambridge are not so very different now to what they were 22 years ago when I boarded a bus with a handful of others from my sixth form college to spend 3 nights among the dreaming spires.

I was fortunate enough to have attended a state sixth form college with a record of success at Oxbridge entrance that is beaten only by a couple of public schools. Being in Cambridge also meant that the risk of being architecturally intimidated by either of the two universities was low, even though at the time I attended most classes were conducted in temporary classrooms and huts some dating back to the 1950s and there was a frozen food distribution centre in the middle of the school which meant that what is now “the quad” was then during breaks a reversing area for lorries. There was also less of a feeling that competitive universities were not for “people like us” as some of the 1000 students were from academics’ families even if the vast majority were not.

Despite this, there was relatively limited support for applying to Oxbridge. Additional classes were available to discuss the entrance exams and teachers were willing to mark attempts at practice questions. The interviews themselves were not something which we got particular preparation for other than to expect them to be challenging and to try our best to answer questions. I have no recollection of what I put in my UCCA (as it then was) form’s personal statement or that I got any particular feedback or guidance on drafts and rewrites from anyone. I did become aware during one of my interviews that it might have helped if someone had told me it would potentially be a bad idea to have included a joint-honours course as one of my applications to another university: the interviewers at my first choice college picked up on my having chosen “Law and Accountancy” at Manchester to probe my commitment to Law in ways that they wouldn’t have done had I just put down 5 applications for single-honours Law. Hedging my bets for practical and career purposes was perhaps unwise when being assessed on my academic interest in Law by people who had devoted their lives to the academic study of the subject.

Other than that, the interviews I had did not really throw up any peculiar or intentionally obtuse questions. The few wintry days spent in the city and its numerous pubs did give a better feel for what it would be like to be a student there than open days, including the mild panic induced by the message in the porters’ lodge on my penultimate morning inviting me to an interview at my second choice college. That panic was mainly down to being rather hungover and the realisation that my only smart pair of trousers unfortunately rather smelled of the beer that one of my fellow interviewees had inadvertently spilled on them the previous evening in the King’s Arms. Perhaps my ability to perform moderately while hungover and underprepared was what swung it for me at that interview as a good indication of whether I’d cope with real undergraduate life!

The big difference between then and now is the entrance exam. This meant that there was somewhat less pressure in terms of wondering whether I was “good enough” while at interview as I would not have been at interview at all had I not managed the exams with some degree of credit. It also meant that there was something beyond my interview performance and application form for the tutors to see in order to gauge my writing style. Now, as the entrance exam has gone, there is a lot more pressure on candidates and interviewers to get more out of the interview than an assessment of whether either thinks they’ll enjoy spending three years in the other’s company.

Part of the problem with the entrance exam was that it was hard for those candidates who did not have any support or preparation for them. This was, perhaps, less of an issue in my case as I deliberately chose papers that did not rely on specific prior knowledge – having attempted past questions in Maths and Physics I realised that I hadn’t a hope of performing creditably in competition with those who were aiming for science degrees and that Law tutors would only be able to judge those papers on the basis of the marks received rather than seeing the answers themselves. As on this blog, being able to witter away on a number of random topics in two General Papers or to do some unseen English comprehension exercises was more my style and probably not too bad an indication of ability to process the vast amounts of argumentation involved in academic study of law!

Reintroducing the entrance exam would potentially be a positive move to open up access. The issue of the ability of schools to prepare candidates for entrance exams ought to be less significant now than in the late 1980s. This is because it would be much easier to provide more information about the exams, past papers and mark schemes now through the internet. The information advantage held by schools which have more experience of Oxbridge application would be significantly lower and possibly reduced towards zero. If there’s one thing which Oxbridge tutors can see right through either at interview or in entrance exams, it’s detailed and targeted but superficial preparation of “gobbets” like in The History Boys.

Oxbridge shouldn’t however, be fetishised. Oxford and Cambridge are excellent universities but missing out on a place or deciding that other institutions would be more suitable for good reasons is not a mark of failure either by candidates or the universities. There may well be several people in your year at Oxford or Cambridge who go on to lead illustrious careers in the public eye. You might even be one of them. Or, you could be like the vast majority of Oxbridge graduates and move on to mundane obscurity after having chosen not to focus relentlessly on networking and “hacking” in politics, drama or journalism and just getting on with studying and doing what countless other 18 year olds do around the country. Good luck to those who have applied and to those who have chosen to do something else that suits them better.

The Slap

It is not that often that a television or film adaptation of a literary novel can lay claim to have improved upon the original. Now, having seen the first five episodes of The Slap I think it might be one of those rare instances. This is not because I think the book is bad, unlike a surprising number of the reviewers. It was a more enjoyable read than either of the last two Booker prize winners despite being a surprising omission from the shortlist. Rather because the adaptation has so far managed to balance between remaining faithful to the book while remedying many of the areas where the novel might have been seen to fall short.

The plot revolves around “the” slap given by a guest at a 40th birthday party barbecue to an unruly 4 year old child and its repercussions as the child’s parents decide to press charges for assault against him. However, the plot is somewhat secondary to the characters.

The characters show a slice of the uneasy multiculturalism of Melbourne. Hector, whose party it is, is the son of Greek immigrants and married to Aisha (slightly curiously played as Black or Aboriginal rather than from the Indian subcontinent as in the book). His cousin Harry is the “slapper”. Harry is married to Sandi, who is of Serbian origin. Aisha’s two best friends are Anouk, who is Jewish, and Rosie, the mother of the “slappee”, Hugo. Rosie is married to Gary. Hector’s old school friend, the Aboriginal convert to Islam, Bilal (formerly Terry) and his white wife, Shamira are also at the party. As are Connie, a 17 year old schoolgirl who works at Aisha’s veterinary practice and her best friend, Richie who comes out as gay. Some of the Amazon reviewers have commented that this seems artificial, but my experience of having worked for an Australian company and spent some time in Melbourne is that it would not seem unusual beyond, perhaps, ironically, having an Aborigine within Hector’s middle-class professional social circle.

The structure of the series replicates that of the book in having each episode focus on the story from the perspective of a single character. The first episode (about Hector and showing the events of the day of the barbecue) sticks very closely to the text of the book but later episodes depart in significant ways from it. Anouk’s life as a childless, frustrated author working as script editor for a trashy soap opera whose much younger star, Rhys, she is in a relationship with, is coloured in and Rhys is fleshed out. Harry in the book is somewhat one-dimensionally boorish and violent so that even though there is a degree of sympathy for finding Hugo’s behaviour unacceptable this dissipates very quickly. In his episode he remains far from pleasant but the echoes of his own abusive upbringing and the tensions of being too flashily successful for other people’s liking give a little shade to this.

Other areas where the series has been able to improve upon the book are in the sequencing of events. In the book there is a long section about Connie and Richie attending a party after their end of school exams which comes after the main arc of the story of the slap itself has finished. It seemed to me on reading it that this was somewhat artificial and didn’t really belong in the story other than to show something of what the next generation of Australians would be like and how they differed from the second generation children of immigrants like Hector and Harry and were a world apart from the first generation like Hector’s parents. As Hector’s father gets a chapter in the book and an episode (yet to be screened in the UK) this theme is not an unimportant one for what the book was attempting but possibly one that is less of interest to a non-Australian. Or rather that it appears to be because the travails of European immigrants and their changing attitudes over the generations may be less of an issue in a European country. The Slap set in Britain might have Hector’s family as Afro-Carribeans or Indian/Pakistani.

In the series these scenes come earlier to show the parallel life of Connie as a child approaching adulthood alongside her relationship with Hector where she pretends at adulthood (the acting and cinematography are strong enough that when we first see Connie at the beginning of the first episode in Hector’s dream she appears adult, then when we see her in “reality” she is clearly a child in the eyes of any adult).

Other touches which I’m not sure Christos Tsiolkas was able to get across as well in words as the series did was the character of Gary, Hugo’s father and Rosie’s wife. On reading the book the lack of a chapter from his perspective seemed to be an odd omission. Rosie and Gary, unlike their friends, live a life that is both somewhat bohemian and realistically poor. Rosie is still breast-feeding Hugo at four and comes across in the book as a weak earth-mother hippy type. Gary, we are endlessly told in the book is a drunk and thwarted artist carrying on thundering about the iniquities of a capitalist and philistine world that has only allowed him to earn a living by menial work. One of the advantages of the screen is that it allows for this sort of detail to be introduced more unobtrusively. So, the only mention of Gary’s talent is a short scene where Rosie is sitting in Gary’s home studio with his paintings (of himself) around her. There isn’t a lot of discussion about his drinking until Harry’s trial, but he is constantly shown beer in hand. Harry’s trial is visually as much a trial of Gary’s parenting (he is shown more than Harry as the defendant) and when Rosie comes home to tell Hugo that “the bad man has been punished”, Gary’s muted echo of “yeah, he has mate” suggests that he knows who has really been punished. Whereas in the book I wanted to see more from Gary’s perspective, he was written and played in such a way in the series that this was no longer an omission.

Another aspect which Amazon critics of the book seemed to take a prurient dislike to is the frequent portrayal of sex. It didn’t particularly bother me as it didn’t appear to me to be gratuitous or especially badly written and did show the characters’ differences in their perceptions of themselves and others. The series is shot in a sensual way so that these scenes work well in fleshing out the characters. For a British audience used to Little Britain’s “Bitty” sketch of the adult son breastfeeding who might have had to suppress a titter in the first episode as Hugo shouts “Boobies” to Rosie the sight of her involuntarily expressing milk when she hears Hugo’s voice while she’s having a bath takes away any element of comedy to remind you that these are meant to be real people to empathise with. Even if you find that there aren’t any characters that you might like in the abstract, actually, many of them are rather more like you or people you know than you’d like to admit.

I recommend the book as it is an interesting and illuminating read despite its flaws. For a generation that has grown up watching Neighbours it is a glimpse at a more naturalistic portrayal of Melbourne and Australia with rather more warts. Watching the series will be at least as rewarding and there is still time to catch up on iPlayer (the DVD comes out on 1 December). A lot better than following “celebrities” in the making, enjoying that status on the dancefloor, or on their way down in the jungle. It is a shame that it is only being shown on BBC4 as it deserves a wider audience, perhaps with a repeat on BBC2 in the New Year.