Public sector largesse in the UK

British teachers should not be striking over changes to their pensions when 'real' national debt is £5 trillion, writes Mark Littlewood

The strikes and protests witnessed in Britain's cities this week may well signal the start of a phase of industrial disputes, as public sector employees fight to retain the rather substantial privileges granted to them by successive governments over the years. Teachers provided the bulk of this week's non-attendees at the workplace, but the wider trade union movement appears to be gearing up for a protracted campaign in the months ahead.

Public opinion may end up being the determining factor in whether the coalition government feels obliged to make concessions. According to one poll, less than a third of the British public sympathise with the strike action, but attitudes can change rapidly in a febrile and unpredictable environment. This makes it doubly important to properly describe and explain the economics of the situation.

The first thing to say is that the protests are those of the disproportionately privileged and protected. It is understandable, of course, that these relatively affluent people are seeking to defend their own financial interests, but it would be wrong for them to be portrayed as poor or oppressed. Public sector pay is, on average, higher than pay in the private sector. But there are substantial other benefits too – the sort of pensions teachers are awarded are the equivalent of a contribution of around 40 per cent of their annual salary. The vast bulk of people in the private sector can only dream of such a copper-bottomed, financially-secure retirement. The government's relatively mild suggested reforms in this area have been the key catalyst for the strike.

Teachers also have a level of job security that is bewildering and implausible. Less than 20 teachers have been fired for incompetence in the last four decades. This is not an indication of the British teaching profession being the most competent of any in human history, but of the near impossibility of removing a sub-standard teacher from the workplace. Needless to say, teachers' unions remain almost implacably opposed to any reforms which would make the profession subject to the normal, performance-related market pressures that are common place in the private economy.

Secondly, the mantra that all economic ills in the country have been caused by the banking profession has become a common refrain for the protestors. But it is not an accurate one and nor does it provide much guidance about how to remedy the worrying state of the nation's finances. Bankers have become a convenient scapegoat to be blamed for any and all belt-tightening or efficiency gains. The global financial crisis has clearly had a profound impact on the fragility of the economy, but there is sometimes an implicit suggestion that if only hedge fund managers and investment bankers were taxed a little more heavily, everyone else could continue to live in the style to which they've become accustomed. But even if there had been no banking collapse, the UK's public finances were fast moving to an unsustainable position.

The real national debt is around £5 trillion – when off balance sheet liabilities such as pensions are included. This was not suddenly racked up due to the bank bailouts, but rather due to governments spending – or promising – money today and shuffling the bill onto the next generation. The tax burden in Britain is already at an eye-wateringly high level and government spending accounts for around half of total GDP. Even if financial services had been in the rudest possible health over recent years, the reality of overspending would still have to be grasped.

Banking reform is necessary – but a mindless persecution of those who work in financial services will not magically plug the gaping hole in the nation's finances. Indeed, it would inhibit the growth of a sector which is crucial to our wider economy. We are already expecting our children and grandchildren to pick up a large part of the bill for this generation's largesse. If the strikers get their way, this inequitable and enormous burden will grow greater still.

Mark Littlewood is director general of the Institute of Economic Affairs, in the UK