Royal Mail pensions deal ''short-sighted''

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The government has confirmed that it will take on the Royal Mail pension fund assets and liabilities from next month, guaranteeing retirement benefits for workers.

However, the move has been described as "short-sighted and dangerous" and a clear example of "shoddy" and "underhand" manipulation of the figures.

While unions have welcomed the news regarding pensions, they have expressed concern that the way is now clear for Royal Mail to be privatised. One of the issues putting off private investors was said to be the size of the pension liabilities.

The attraction to the Chancellor George Osborne is that the transfer will generate £28bn which will immediately be wiped off the budget deficit. At the same time, the pension fund's £37.5bn liabilities will only show up in the deficit over the next two decades. In the long run, however, there will be an overall cost to the Treasury from the transfer because the scheme's liabilities outweigh its assets.

However, nationalising the assets of the Royal Mail pension fund didn't go down with Professor Philip Booth, editorial director at the Institute of Economic Affairs, who described it as "short-sighted and dangerous".

"The assets will be used immediately to reduce the government's debt whilst the liabilities – made up of future pensions to workers – will no longer be funded and will have to be met by future generations of taxpayers," he said, adding that the liabilities will be hidden from the government's accounts.

He went on: "According to the government's own figures, the liabilities are £10bn greater than the assets which stand at £28bn. However, if valued properly, the liabilities would probably be well over £20bn more than the assets. Government accounts will show a reduction in the government's national debt of £28bn whereas, in reality, the national debt will be increasing by over £20bn.

"Although the government claims that it will not be spending the £28bn raised from taking over the assets because it will be used to reduce its borrowing, future governments are less likely to feel so constrained. The government would not allow a private sector company to get away with such shoddy – indeed, underhand – accounting practices."