Brown's pension deal with unions leaves private sector holding the bill

London Briefing: New Labour's ability to mess things up has been apparent to many of us for quite some time. But the big blunders - Iraq excepted - have generally come in esoteric areas that attract few headlines and cause little loss of votes. Gordon Brown's attack on pension funds in the early days of the first New Labour parliament has contributed to a growing crisis in pension provision.

One of the largest of his stealth taxes - if not the largest - it nevertheless excited few tabloid editors because of that stultifying word, "pensions". By removing an important tax break from pension funds, Brown compounded the woes facing Britain's savers.

We now need to add a qualification to that last observation. Brown has added to the retirement problems facing Britain's private sector workers. In an extremely shabby deal reached last week, the government agreed with the public sector unions that all existing workers can still retire at 60 on index-linked pensions. Such a deal is beyond the financial reach of only a tiny minority of people not working for the government.

All this came in the same week that the government's own actuaries announced that average life expectancy for a baby boy born today in the UK is now 86. That we are all living longer is hardly news, but what is still not widely appreciated is how quickly this process is actually accelerating. That expectation of 86 years, for example, has been raised by a full three years since the last estimate, made only a year ago.

It won't be long before civil servants can confidently expect to retire on a lavish pension and spend longer enjoying it than they did working to earn it.

The government's deal with the unions has drawn widespread condemnation. Most people see it as a simple climb down in the face of the last vestige of trade union power, and it is very easy to write cheques that won't be cashed until long after the current lot have been booted out - or retired. It must be a coincidence that MPs have some of the most spectacularly generous pension schemes of all public sector workers. While ordinary people are going to be forced to save more and retire later, the brothers and sisters can head for the beach.

Of course, the financial consequences of all of this will be dire. If life expectancy continues to rise, it is not inconceivable that the arithmetic will force a future government to renege on the promises just made. Whatever happens, we are all going to have to pay more taxes to fund these promises, thereby diminishing our own ability to save for retirement.

Why did the government cave in, particularly as they have shown all the signs of recognising how huge the liabilities will be? A straightforward capitulation, with fear of public sector strikes? Maybe. But some analysts are pointing the finger squarely at Gordon Brown who, of all people, knows the fiscal consequences of what has just been agreed.

More than one commentator has pointed out that Brown will need the support of the unions in any forthcoming leadership contest and that this was a simple pay-off for bloc votes when that day arrives.

Brown, of course, would deny ever stooping so low, and we will never know what backroom deals may or may not have been done. But Brown should have stood up to this deal. He knows the numbers and how bad they look. He is the one that has called for a "national debate" on pension reform. Well, that appears to be a debate only for those not working for the government.

Tony Blair has stated recently that every time he thinks back to any reform he has introduced he wishes he had gone further. Well, when you don't do any reform at all that's a very obvious aspiration. Blair has pledged to undertake all sorts of public sector reforms. Back when he started throwing money at public services before negotiating reforms, he was warned that this was exactly the wrong way to proceed. You don't need to be a skilled negotiator to realise that you don't concede everything to the other side in the hope that you can come back to them at a later date and rely on their goodwill.

The public sector unions have taken the money and services have barely improved. The union bosses will know that Blair now stands no chance of progressing with a reform-based agenda. They said boo, he ducked. Game over.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.