UK `may be forced to pay other countries' pensions'

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The Independent Online
A Commons select committee yesterday gave new ammunition to the Eurosceptics when it warned that, if Britain joined a single currency, taxpayers could be called on to help finance the pensions of other EU members.

The Commons social services committee said the UK's national debt was pounds 5,000 a head, which rose to pounds 9,000 if the cost of meeting unfunded government pension commitments was taken into account. However, most EU countries have far larger unfunded pension commitments.

The committee said: "If we took on also our share of the total unfunded pension liabilities of the EU, that figure would increase to pounds 30,000 of debt for every man, woman and child in the country."

The Commons claims came as the European Commission endorsed a one-off advance payment by France Telecom to help the French government cut its 1997 budget gap so it can qualify for the EU single currency. It has been criticised as an accounting dodge to allow France into monetary union.

The Commons committee's claims about UK taxpayers bearing other countries' pension costs were immediately denied by the European Commission.

The committee report said: "As the UK's outstanding public pension liabilities are substantially below those of other EU members, there would be a risk that if the UK joined a single currency that British taxpayers could be called upon to help finance the pay-as-you-go obligations of other EU members."

It added that the alternative was to "suffer the consequences of being tied to interest rates on the single currency that were forced up by the market pressures of financing certain countries' inherited pension commitments".

Brussels insists there was no mechanism to make EMU members subsidise each others' budget deficits, whether or not caused by pension payments. However, the committee said countries inside EMU might borrow extra to pay their pension bills, raising interest rates and damaging UK employment prospects.

The committee said: "In this way taxpayers in the UK, whose pensions derive largely from funded occupational pension schemes, could find themselves subsidising the large unfunded pension liabilities of other member states - even with no element of fiscal union in the EU."

In its report on pension liabilities, the Commons committee cited OECD figures that gave the net present value of public pension schemes in the UK as 19 per cent of gross domestic product, compared with 98 per cent for France, 113 per cent for Italy and 139 per cent for Germany. A similar study by the International Monetary Fund (see chart) also showed Britain to be in a much more favourable position, with far lower unfunded state pension commitments to meet.

The committee said the extent of unfunded pension liabilities in some European countries cast serious doubt on the long-term sustainability of their finances. When pension commitments were taken into account, they gave a "wholly different picture of the relative financial strengths of our EU partners".

The remedy, said the committee, was to take full account of unfunded pension liabilities in the criteria for EMU entry set by the Maastricht Treaty. The liabilities should be used to help decide which countries are eligible to join.

It also suggested a series of steps to provide new data on unfunded pension liabilities, including an expert European working group to provide national statistics, together with annual statements for each country showing how the liabilities increased.

However, an appendix to the committee report shows the Commission had already published a report rejecting pressure to include pension liabilities in the Maastricht criteria.

Meanwhile, there were concerns that Commission approval of the payment by the state-owned French telecoms company was setting a bad precedent for other countries trying to qualify for EMU.

The France Telecom payment will shift Fr37.5bn from its pension fund to the treasury, reducing the national deficit by 0.5 per cent of gross domestic product. It is an advance payment of France Telecom's future contribution to the pension plan of its employees.

Klaus-Dieter Kuehbacher, a German Bundesbank council member, said it "encourages those who appear not to meet the [single currency] criteria to take similar measures". The British government is unhappy with the decision. The head of the Commission's statistics office, Eurostat, cleared the plan despite protests by German, British and Dutch experts.

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