BHS and Tata Steel; they have a lot in common
BHS is a failed retailer, a tired brand with 11,000 employees and a medium sized pension scheme with a hole in it.
Tata Steel is a failed steelmaker, an iconic business (we know as British Steel) with 14,000 employees, a large pension scheme with a relatively small hole in it.
Both businesses are past their sell-by date. They have carried on this long because of the momentum of the past , and they appear to have little or no future without Government support.
We can argue about management issues and no doubt they are where they are for different reasons. The ongoing enquiry into the manner in which BHS conducted its affairs is not going to include Tata. But – bottom line – it is the pension promises of both that have sunk them.
And most importantly, what they have in common is ordinary people who work for them and are paid or will be paid pensions by them. These pensioners have the same deal. That deal is a promise backed by the company they worked for and a lifeboat called the Pension Protection Fund (PPF).
But BHS and Tata Steel are being treated radically differently – why?
Tata Steel seems to be a company that’s worth saving , the jobs must be maintained, the furnaces must remain fired. Yesterday the Government announced a consultation into how we could detox the Tata Steel pension scheme, putting forward a number of options that the nation is asked to consider between now and the Brexit vote (June 23rd).
A large part of the consultation is about the importance of Tata Steel to Britain, presumably the same argument cannot be made of BHS.
BHS is being allowed to slip into liquidation, its assets will most likely be sold off, where a store which is a going concern emerges , it will be snapped up at a discount by Mike Ashley or his like. The jobs at the remaining stores will go. The BHS Pension Scheme will go into the PPF, pensioners will get the PPF pensioners deal and those awaiting their pensions will get more or less 90% of what they’d hope to get.
A common lifeboat?
I haven’t yet had time to properly look at the special deal being put together for Tata Steel pensioners. I do not properly understand whether this is a “Tata only” deal or an alternative to the PPF for any employer who gets into trouble and is considered “strategic”. The special deal appears to include not just a switch from RPI to CPI pension increases but a loss of pre-97 GDP indexation and some rights to spouse’s pensions. The technical analysis will come later.
What comes now is the principal -based reaction to the paper.
As I said yesterday, we have a Pension Protection Fund which is solvent, well run and into which there is a clearly defined entry process. If Tata Steel declares it cannot meet its pension obligations and no employer is prepared to underwrite them, the law says Tata Steel’s pensioners go into the PPF and Tata Steel moves into administration.
I don’t want to see jobs lost or blast furnaces turned mothballed. But I can’t see why the Government should intervene on behalf of one set of pensioners and not on another. I can see every large employer in the country turning to their PR functions to plead they are strategic and I can see every large employer in the country wanting the special treatment accorded Tata Steel.
And I can’t see why a case couldn’t be made for Network Rail, Rolls Royce, Lloyds Bank , British Telecom, Centrica, British Gas, National Grid British Petroleum or any other of the part privatised companies that have been considered strategic enough to get Government Money – turning to the DWP with a pistol to its head, threatening to pull the trigger unless a deal to detox their pension scheme is allowed.
Political expediency drags pensions back into the mud
The fragile but brilliant settlement that has been made between private sector pension schemes and the Pension Regulator, that has worked so well these past fifteen years, is under threat. For what?
So that the Government can be seen to be on the side of the Steel Workers. So the romance of the Port Talbot furnaces can be maintained, so that we don’t have a political problem between now and June 23rd.
Once again (the last time being the ditched pension taxation reforms), pensions and pensioners are treated as a political football to be kicked into touch till Brexit is out of the way. At a macro-economic level, the Government’s behaviour is no more than cynical realpolitik.
But much more sinisterly, the policy being put forward puts the jobs and pensions of a steelworker above the jobs and pensions of a retail worker, for no reason at all. The shop worker has the same financial needs as the steelworker, the same rights to work and to pension. Why should one set of workers and pensioners be singled out against another?
Confusing politics and pensions destroys transparent governance
We are seeing a Zeitgeist towards transparency. To my mind that Zeitgeist is about telling things as they are and not dressing pensions up as something else. Andy Haldane cannot understand pensions, small wonder if a Steel Worker’s pension is deemed more valuable than a Shop Worker’s. David Cameron rails against the fund managers for obfuscation but is happy to put his personal and party’s interests (including Brexit) before open Government.
I do not know how this consultation about Tata Steel will turn out, but I fear it will not turn out well. I fear that those who are bargaining about the future of Port Talbot and the remains of our steel industry have already discounted the “giveaways” in the document into their price.
The fragile peace that the PPF has brought to the settlement of the defined benefit conflict risks being shattered by new legislation that further complicates pensions, sets boardroom against trustee, sets BIS against the DWP and drags pension recovering reputation back into the mud.