'Government liable for £3bn of BT pension gap'

John Ralfe, an independent consultant who switched Boots' pension scheme into bonds while at the retailer, has provided the first estimate of the Government's liability under the secretive guarantee arrangements.

Government departments are understood to have begun an investigation to uncover the scale of the pension liabilities that were underwritten as the state privatised businesses in the 1980s and 1990s. BT's "Crown guarantee" emerged this month, although the telecoms titan claims it was already known about.

The treatment of BT's pension fund deficit, of about £4bn, has become a major talking point in the City as it seen to be an obstacle to a private-equity offer for the company. According to a report by Mr Ralfe, for the finance house RBC Capital Markets, the Government appears to be liable for one-quarter of the pension fund's £12bn buyout deficit. He said BT had not managed to reduce the size of the deficit since 1997.

The report said despite the Crown guarantee, BT could make a payment of between £1bn and £2bn to plug part of the deficit. "Putting a large amount in is the only way to begin to shift the deficit," Mr Ralfe said. He added that the state pensions backing would not help BT shareholders as it kicks in only if the company goes bust. The scheme covers pension rights earned by individual members before privatisation in 1994.

A spokesman for BT said: "It's no secret that BT has a Crown guarantee for part of the pensions liabilities of its defined benefit scheme, which closed to new members on 1 April 2001."