Gold-plated public sector pensions are the real timebombs bankrupting Britain, writes LIAM HALLIGAN 

When the new Prime Minister at last takes office on September 5, he or she will issue an emergency budget statement — and the horrifying scale of the country’s debt mountain will be laid bare once more. 

The numbers are so huge they will make your head spin. Ten years ago, public sector net debt stood at £1.2 trillion — equivalent to 72 per cent of the UK’s gross domestic product, or GDP. By March this year, that debt burden had almost doubled to £2.3trillion, or 96 per cent of GDP. 

Since then, the Office of Budget Responsibility (OBR) — Whitehall’s spending watchdog — has warned that public sector debt will rise still higher. 

And as our politicians throw around spending commitments like confetti, amid rising interest rates, the cost of servicing that debt burden also spirals ever upward.  

Government debt interest payments reached £19.4billion in June alone — more than twice as much as the same month last year. That’s more than a third of what the Government spends on schools in an entire year. 

But while the OBR rightly warns of the consequences of this ever-growing burden, there is an even larger Government debt pile which our entire political class wilfully — and disgracefully — ignores. 

Because we are on the hook for another £2.6trillion — yes, trillion — of debt, amounting to 106 per cent of GDP, that no one wants to talk about. 

In fact, our official debt total isn’t even the half of it. Where does this additional debt come from? It comprises the cost of the gold-plated, inflation-proof pensions for public sector workers — past, present and future. 

Around one-fifth of the UK workforce is employed by the state, including Health Service workers and managers, teachers, police officers, firefighters and civil servants. 

The majority of such workers are members of extremely generous final-salary pension schemes based on the salary they are on when they retire. 

Private-sector employers typically make pension contributions of 7-14 per cent of monthly salary if a worker is lucky enough to be in a bespoke pension scheme. 

But for civil servants earning above £45,500 per annum, the contribution is 28 per cent of salary, rising to a whopping 30 per cent for those earning more than £77,000 a year. 

The outcomes are extremely generous — and expensive for taxpayers. A mid-ranking mandarin on £60,000 a year, having joined the civil service aged 35, could retire aged 60 and receive £25,000 a year, upgraded each year for inflation, for the rest of their life. 

Such occupational schemes, once common across the entire UK economy, have been abolished for almost all private-sector employees. The word ‘scheme’ might give the impression that these public sector pension arrangements are well organised. 

Nothing could be further from the truth. Incredibly, the vast majority of UK public sector pensions aren’t funded in the same way as private pensions — by paying in contributions which, over many years, benefit from investment returns and accumulated interest. 

So chaotic and ill-designed are our public sector pension arrangements that most state workers receive retirement payments directly from current taxation. 

It is disgraceful that in a country which is arguably the centre of the global asset-management industry, years of Whitehall buck-passing and obfuscation have resulted in us running a public sector pension scheme that is almost entirely unfunded. 

And that is why our public sector pension system is so vulnerable to changing demography: as the baby boomers quit work and the number of pensioners grows, the tax base — which is meant to pay for them all for life — shrinks. 

Some say that we shouldn’t be alarmed about rising public sector debt. After all, national debt soared after both world wars and was gradually brought under control — not least because inflation eroded the value of that debt. 

But the £2.6trillion of public sector pensions liabilities — which, remember, are bigger than our official national debt — have annual inflation increases baked-in, which means they cannot be eroded in this way. 

What is more, unlike with private pensions, those inflation increases are not capped at all. And the Government is legally bound to meet these payments, so taxpayers will need to stump up, come what may. 

The fact is that the UK’s public sector pension system — little understood, and barely remarked upon — is on course to bankrupt Britain. 

Deemed untouchable by trade unions, mandarins and politicians alike, public sector pensions have remained immune to serious reform for decades. 

As long as civil servants cling on to their massive pension entitlements, why should they care? The same goes for successive governments, with MPs and ministers repeatedly ducking this crucial issue. 

Back in 2005, the ‘root and branch’ Turner pension review — chaired by a former head of the Confederation of British Industry — failed even to discuss public sector pensions. 

Later reform efforts kept the public sector pension age at 60, even as the basic state pension age for men and women was equalised at 66 to reflect rising longevity — and continues to creep upward. 

Indefensible Meanwhile, for the vast majority of private sector workers, final salary pensions have been replaced almost wholesale by ‘defined contribution’ money purchase schemes, which are far less generous and subject to the ups and downs of stock markets. 

Today’s overly generous public sector pension provision, designed more than half a century ago when retirements were much shorter, is now entirely indefensible. 

Many state workers, becoming eligible for their occupational pensions far earlier than their private sector counterparts, will draw benefits based on their final salary and index-linked for more years than they actually worked. 

Civil servants, politicians or trade unionists who don’t accept that this is financially insane are either innumerate or incredibly selfish. 

And, either way, they show scant concern for the very financial stability of this country. 

In the U.S., major cities such as Chicago, Pittsburgh and Detroit have gone bankrupt due to bloated pension entitlements dished out by weak politicians to heavily unionised fire and police services. 

There is simply no reason why public sector workers should be treated so much better than the four-fifths of the workforce in the private sector — those who generate the wealth upon which everything else depends. 

Despite what you often hear claimed, public sector workers earn more on average than private sector workers — and have done for decades. 

The average weekly public sector wage in 2021 was £579, compared with just £536 in the private sector. 

I’m astonished that this reality is so rarely commented upon. Dangers Public sector workers are also generally entitled to far more holiday and sick leave — to say nothing of better job security. 

And then they get astonishingly generous taxpayer-backed pensions on top of all that. 

So I say the new Prime Minister should be bold. 

In these tough times, the general public is increasingly angry at shelling out ever more tax to pay for state workers’ guaranteed occupational pensions, while having to work longer before receiving their own pension, the size of which has been slashed. 

Liz Truss will surely prevail over Rishi Sunak in the ridiculously over-extended battle for No. 10. And when she takes office, as a priority she needs to bring to light the spiralling costs of our public sector pension system, and the dangers that those costs represent. 

If she does that, I reckon recalcitrant trade union leaders will be blown away by a barrage of public disdain.

So bring on a full-scale battle over public sector pensions. Because, in these increasingly tough times, the case of the genuinely needy for state support grows stronger each day. 

Of all the excessive government spending that goes on, the huge bill for these gold-plated final salary schemes for mollycoddled state workers is surely among the most difficult to swallow.