Can Royal Mail’s pension assets be called a ‘windfall’?

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Budget 2012: Can Royal Mail’s pension assets be called a ‘windfall’?

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During his Budget speech Chancellor George Osborne gleefully announced that the transfer of £28 billion worth of assets from the Royal Mail to the Exchequer was a 'windfall' for the government.

However a closer read of the Budget reveals that the government is taking on a £37.5 billion pension liability, which rather than appearing in the country’s national accounts affecting the amount to be borrowed, will remain out of view.

Philip Booth of the Institute of Economic Affairs, a think tank, said the decision to nationalise Royal Mail’s assets was a ‘dangerous’ move and the real liabilities will be ‘hidden from the government’s accounts’.

The staggering £37.5 billion figure will add to the country’s unfunded pension liabilities, which stand at over £1.1 trillion. These are paid from government income rather than a pot of money set aside to deal with the deficit.

The move comes following a government-commissioned review of Royal Mail’s finances. Following the recommendations of this report, the government is aiming to attract private investment into the business, by helping it offload its stifling pension liabilities to see the company return to long term profitability.

No Budget ‘windfall’ if Royal Mail’s liabilities are considered

During the Budget Osborne announced that borrowing from 2012 to 2017 would also be reduced by £11 billion.

However when the Royal Mail pension scheme's assets and liabilities are transferred to the public balance sheet on April 1, the public will effectively be taking on an additional £9.5 billion in liabilities.

The £28 billion in assets from the transfer will come from the government’s sale of the schemes non-gilt assets, to raise £23 billion, leaving £5 billion of gilts sitting on the government’s balance sheet.

Booth continued: ‘As things stand - the increase in future pensions obligations represented by this debt will appear in some, barely noticed, figures that are published by the ONS. But, when the government faces the electorate in three years, it will claim that the national debt has been reduced by this £28bn. Whereas, in fact, the national debt has been increased as a result of this transaction.’