Mr Truell, founder of the Pensions Corporation, a pensions buy-out firm, said research by the London School of Economics estimated the public sector pension liability at £1.3 trillion.
If the Treasury issued gilts to plug the gap, the resulting fund could bankroll infrastructure projects that would generate returns used to meet the pension liabilities as they fall due, he said.
He said issuing the gilts would create a “virtuous circle” of income meeting future pension liabilities. “A decent power project yields around 7pc. The Treasury have to pay 2.5pc at the moment to issue gilts so you have 4pc to pay off the liability,” Mr Truell said.
There’s certainly some truth to this.
We all know, the markets all know, that this money is owed. So making it explicit by issuing the gilts shouldn’t change very much.
It’s also trivially easy to point to some projects that could be invested in. We could even, if we were good little Keynesians, point out that borrowing to spend will give the economy a boost.
However, there is just that one little fly in the ointment.
No, it’s not the idea that the government would end up owning a largish chunk of the economy: there’s plenty of ways in which such investments could be structured so that we’ve not got the social workers pension fund actually trying to manage things.
No, rather, well, hands up everyone who trusts politicians to invest in profitable deals? No, not “profitable” on a social basis, that’s not what we’re talking about here. We need to have projects that are profitable on a cash basis, a pure business basis. No, not even on a creating jobs basis, a raising aggregate demand basis, a taxes coming in basis.
We need to make a straight accounting profit off this £1.3 trillion, that’s the whole point of it.
Given that we’ve got private sector companies sitting on hundreds of billions of cash (dunno, maybe it’s a trillion or more?) and they can’t seem to see profitable projects to put that into, where are all these projects that are going to make the money to pay the pensions?
We cannot, for example, put it into solar panels. They don’t in fact make a profit on this basis (not unless we rook the people even more on their electricity bills at least). We can’t insulate every building in the country with it because this again doesn’t make an accounting profit. Sure, it might reduce our dependance on foreign energy, might lower fuel poverty, might reduce climate change but however desirable you might think these things are they’re notactually accounting profits that can be taken to the bank to pay the pensions. We can’t spend it all on education, not unless we charge the students for their education in some manner and so on.
That’s what the problem is. Absolutely anyone can draw up a list of things to invest £1.3 trillion in that would make the country a better place by their particular lights. But that just isn’t what we need from this proposal, we need to be generating £60 billion or more a year in straight cash profit, after financing costs, for this to work.
And what the fuck do we invest in to gain that?
If we’re allowed to use the “ah but think how much richer the country will be as a whole” argument then I’ve an idea. We know very well that there would be large transitional costs from abolishing the welfare state and replacing it with a citizens’ basic income, with scrapping our absurd tax system and replacing it with a simple flat consumption tax. £1.3 trillion would cover that and more: but we still cannot do that because that’s not what we need from this plan.