A one year freeze of the basic state pension and the minimum income guarantee (MIG), and an increase of a third in employee contributions to all unfunded public sector pension schemes would contribute almost £4,000million from 2010-11 onwards in savings, according to the TaxPayers' Alliance (TPA) and the Institute of Directors (IoD).

A joint report, entitled How to save £50 billion, looks at ways of saving £50bn a year of public spending, and was inspired by the 'dire' state of the public finances. The report backs up David Cameron and Alistair Darling's claims this week that public finances must be addressed.

Thirty-two practical steps are outlined in the report, which have the potential to save £42.5bn a year from 2010-11, and a further two steps to save £7.5bn from 2011-12.
The report also looks at the urgent need for reductions in public expenditures, and compares the behaviour of the public sector to the widespread streamlining and efficiency improvement in businesses forced to adapt in order to remain profitable or even to survive. The report also urges the Government to make expenditure more transparent, allowing the IOD, TPA and the British public in general to identify further savings.

The proposal to freeze the Basic State Pension and MIG for a period of one year would, the report claims, save £1,441million from 2010-11 onwards, while an increase in employee contributions of all unfunded public sector pension schemes by a third would save £2,508million from 2010-11 onwards.

The IoD is scheduled to publish a major study on retirement reform in October, but the report says a later retirement age, an end to means-testing and the incentives associated with it, and a higher basic state pension are all reforms that would improve the prospects for future generations of pensioners, and save money in the long-term.

The report said: 'We have avoided including items, such as an increase to the state pension age, which are sensible for the long-term but would yield little in the first one or two years.'

Miles Templeman, director general of the IoD, said: "The UK is in the middle of a government debt crisis and our report sets out tangible proposals to cut the deficit. Businesses are right now making savings and cutting back on costs to get through the recession, and there is no reason why the public sector should not have to do the same. Any cut in spending naturally has the potential for some pain, but our list shows that large sums can be saved without hurting vital services. We hope this will start a serious public debate about the best ways money can be saved, and whether the state needs to withdraw from certain activities it can no longer afford."

Matthew Elliott, chief executive of the TPA, added: "It is absolutely essential that public spending is reduced to rebalance the nation's finances. These proposals offer practical, reasonable ways to save large amounts of money and politicians in Westminster would do well to take them on board."

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