Lord Wallace of Saltaire
My Lords, the Bill is an important step in implementing the coalition programme for government, which set out a commitment to,
“reform the Civil Service Compensation Scheme to bring it into line with practice in the private sector”.
The Government’s intention is to put in place a scheme, following consultation with the Civil Service unions, that is affordable and that not only is fair to civil servants but can be justified to taxpayers at a time of severe economic hardship. Noble Lords will be aware that this follows closely what the previous Government had intended to do, so I hope that there will be a certain measure of support from the Benches opposite. Indeed, in March 2009, the then Prime Minister, Gordon Brown, announced an intention to reform the existing arrangements in order to control costs and to improve departmental accountability. He said:
“The Government therefore intend fundamentally to reform the severance and early retirement terms for all civil servants in order to control costs. The current arrangements have been in place since 1987 and are inflexible and expensive. The new terms require departments to reduce costs and will improve accountability and value for money for the taxpayer, saving up to £500 million over the next three years”.—[Official Report, Commons, 31/3/09; col. 60WS.]
It may help your Lordships if I set out some of the background to compensation schemes in the Civil Service which we are now hoping to reform. The first legislation to cover the possibility of payment of compensation to civil servants on the loss of office was created under the Superannuation Act 1859. This Act did not create a right to compensation but it did create a framework under which such payments could be made. The Superannuation Act 1965 consolidated the previous superannuation Acts. It included a provision for the early payment of pensions to those aged 50 or more who had been asked to take early retirement in the interests of efficiency. The 1965 Act repeated the provision of a much earlier Superannuation Act—the first one, of 1834—under which authority to pay pensions to civil servants was granted for the first time. It also spelt out that civil servants had no legal entitlement to the benefits. The 1965 Act was supplemented by an administrative code, which set out the payments that a civil servant could expect but also made it clear that there was no legal entitlement to such payments.
Alongside the Fulton committee review of the position of civil servants, the Joint Superannuation Committee of the National Whitley Council was set up in 1968 to review the provisions of the 1965 Act. It reported in February 1972 that improvements were needed for the superannuation scheme,
“to restore to the Civil Service the position it had traditionally held as one of the leaders in pension practice”.
This view was reflected in the Superannuation Act 1972, which granted civil servants rights to their pensions.
I think that it is worth noting here that, unlike a pension, which all civil servants hope to enjoy in their retirement, the provisions for compensation were intended for use only in exceptional and very specific circumstances and that the vast majority of civil servants neither wanted nor expected to benefit from them.
The compensation scheme was amended in 1987 to its current form, which has lasted for over 20 years. However, by 2008 it had become increasingly clear that this scheme would no longer be sustainable when compared with equivalent schemes in the private sector. Indeed, public sector schemes had then become more generous than those in the private sector. Reform became even more urgent when it became clear that cuts in public expenditure were bound to lead to an increase in public sector job losses. Accordingly, with all-party support, in the summer of 2008 Ministers of the previous Government embarked on lengthy negotiations to reform the compensation scheme. The previous Government’s negotiations led to a new scheme, which was still generous compared with schemes in the private sector and most of the rest of the public sector. That new scheme was finally agreed after 18 months of discussions with five of the six main Civil Service unions in February 2010.
Ministers then took the view that, notwithstanding the failure to achieve agreement with one of the unions—the Public and Commercial Services Union, or PCS—the scheme should be reformed. Accordingly, the previous Government laid the necessary order to give effect to the reformed scheme as from April 2010. The PCS, without the support of the other five unions, sought a judicial review. It succeeded in obtaining an order to quash the February scheme on the basis that the previous Government had failed to get the agreement of all six of the Civil Service unions. This was because the Superannuation Act 1972 requires not only consultation but the agreement of the unions concerned to any reduction in benefits where those benefits are calculated by reference to service already rendered. Therefore, the PCS had in effect exercised a veto on the previous Government’s reforms.
That position cannot continue, which is why, in Clause 1 of the Bill, we are introducing provisions to remove the requirement in Section 2(3) of the Superannuation Act 1972 to obtain the consent of Civil Service trade unions to any changes that would lead to a reduction in benefits offered under the Civil Service Compensation Scheme. We cannot operate in a position where a single union can block any change, however reasonable that change may be. However, this does not mean that we will not consult fully with the unions, as we are continuing to do day by day at present. As was offered in another place by my right honourable friend the Minister for the Cabinet Office, I can give a commitment today to look at how we might amend Clause 1 of the Bill in Committee so as to write into the Bill a requirement for meaningful consultation with the unions.
The coalition Government’s view, which was accepted on all sides in the Commons when this Bill was under consideration there and which was the view of the previous Labour Government, is that the current compensation scheme is unaffordable and unsustainable. It allows for payments of up to three times annual salary or, for older workers, enhancements to pension and lump sum payments costing more than five times salary. For some, those payments can total as much as six years and eight months’ salary. This compares to a maximum for statutory redundancy of 30 weeks’ pay with a weekly cap of £380.
Noble Lords will have seen a number of stories in the press headlining what enormous sums the highest paid might receive if taking redundancy and estimates of the very significant costs to the Exchequer of redundancies to higher-paid officials under the current scheme. The level of payments would be excessive even if we were not facing such a difficult financial situation. To maintain the current scheme would simply be unfair and unacceptable to the vast majority of ordinary taxpayers. It is also unfair to lower-paid civil servants. The effect of the current scheme is that it is prohibitively expensive to make redundant civil servants who are highly paid and long serving. The result, therefore, is that when money has to be saved through reducing headcount, the burden tends to fall disproportionately on the lower paid, more of whom will lose their jobs than is necessary or desirable.
That is why Clause 2 of the Bill introduces limits on the benefits that can be provided under the Civil Service Compensation Scheme. Clause 2(2) imposes a cap of 12 months’ salary in cases of compulsory severance and 15 months’ salary in cases of voluntary severance. My right honourable friend made it clear, during debates in another place, that these caps, as set out, are a blunt instrument. He is right, because the caps at Clause 2 are not intended to be the last word. It still remains the coalition Government’s intention to reform the scheme by negotiated agreement rather than by relying on an imposed cap. However, the caps are necessary so that we do not fall into the trap that faced the previous Government of trying to negotiate a reformed scheme that cannot be implemented within the foreseeable future.
The most generous terms currently available are for those aged 50 who have a significant number of years of service and who are compulsorily retired early. A large part of this cost is the enhancement to their pension. Under the Bill, rather than receiving an enhancement to their pension, such staff will now receive a cash lump sum equivalent to the appropriate cap. I emphasise that the Bill will affect only those staff who are issued with their notice or agree a departure date after the legislation comes into effect and while the caps are operating, so any civil servant who has already been issued with a redundancy notice, or receives one before the Bill passes into law, is not affected by the restrictions introduced by this Bill.
Clause 2 also provides definitions to clarify who is covered by the compulsory cap and who is covered by the cap on voluntary departures. Clause 3 provides for the effects of the Bill to be time limited. We have no desire to see this legislation continue any longer than is absolutely necessary. Inclusion of a sunset provision prevents the legislation from continuing ever onwards. Instead, if we wish to renew it, the Government would be obliged to return to it.
Alongside the provision for prolonging the effects of Clause 2, there is also an option to bring forward its termination date. Our firm intention is to resolve this issue by discussion rather than legislation and, provided that that is possible, we will then make the order that repeals what will be Section 2 of the Act.
We are close to getting a negotiated agreement. My right honourable friend the Minister for the Cabinet Office announced on 7 October that the Government had concluded negotiations with five of the Civil Service unions on a new Civil Service Compensation Scheme. The new scheme would offer significant extra protection for lower-paid staff and for those with long service who are close to retirement. As part of the Government’s commitment to fairness, it would also limit the maximum payments to the highest earners.
Key measures of that proposed new scheme include, first, a standard tariff, where each year of service provides one month’s salary in the event of redundancy. The tariff would be capped at 12 months for compulsory redundancy and 21 months for voluntary redundancy. The other key measures are, secondly, that all civil servants who are made redundant—voluntarily or compulsorily—would be entitled to a three-month notice period; thirdly, that there would be significant protection for lower-paid civil servants, so that any civil servant earning less than £23,000 who is made redundant would be deemed to earn that amount—that is to say, £23,000—when their redundancy payment was calculated; fourthly, that payments to the higher paid would be limited, so that staff earning more than six times the private sector median average earnings—currently just short of £150,000—would have their salary capped at this figure for the purpose of calculating their redundancy payment; and, finally, that staff who have reached minimum pension age may be able to opt for early payment of pension when they leave, in return for surrendering the appropriate amount of any redundancy payment.
This offer is a good one and we seriously hope that it will still be possible to secure the agreement of the sixth Civil Service union, the PCS. However, should this not be so, the Bill will mean that the Government and the country will not be subject to an indefinite veto over the reform of this scheme.
I can confirm to the House that a delegated powers memorandum on the Bill has been submitted to the Delegated Powers and Regulatory Reform Committee. Also, my right honourable friend the Minister for the Cabinet Office has written to the Joint Committee on Human Rights about the reasons why we believe that this Bill is in line with the United Kingdom’s human rights obligations. I look forward to reading any comments that these committees may have to make on the Bill.
Finally, and to avoid any doubt, I want to underline that this is not in any way an attack on the principles that govern the British Civil Service. The Government believe in the continuation of the British system of a permanent and non-political Civil Service, with its values of integrity, honesty and impartiality and with open recruitment and advancement on merit. These values are as much to be cherished and nurtured today as ever.
I shall now listen with great interest to the points that noble Lords have to make both on the Bill and on the practical implementation of the scheme. The Government are convinced that reform of the Civil Service Compensation Scheme is in the national interest and the interests of the British economy and I earnestly hope that a successful negotiation will render the provisions in Clause 2 unnecessary. That is the coalition Government’s aim and I will do all that I can to help to deliver it by guiding this Bill through your Lordships’ House. I commend the Bill to the House.
Lord McKenzie of Luton
My Lords, I start by thanking the Minister for his explanation of this short Bill and some of the history associated with the compensation scheme and for his courtesy in facilitating meetings yesterday, which I found very helpful.
Despite its brevity, the Bill has the potential to impact the lives and aspirations of many. We approach it in a constructive manner that recognises the sensitivity of the issues that it is intended to address through the reform of the Civil Service Compensation Scheme. The Government have said that they put great stock in wanting to reach a negotiated settlement, and there was indeed a consensus in the other place that that would be the right course of action. However, it is our duty, in seeking to improve the Bill, to ensure that it reaches the statute book in a way that is practical, fair and in the long-term interests of the country.
Let me be clear: we agree that the current arrangements are in need of reform. That is why in February this year, when still in government, we brought forward proposals that would have saved £500 million over three years, protected the lowest paid, tackled the disproportionate settlements for some very highly paid people and ensured that the terms were not age discriminatory. Those proposals were underpinned by extensive negotiations with the trade unions concerned, five of which were in agreement but one of which—I refer to PCS, which represents the largest number of civil servants—was not. There followed, as has been set out by the Minister, a judicial review and the quashing of the reformed arrangements.
We accept that the position would have had to have been addressed by any incoming Government, but before commenting on how this Government have responded we might just reflect on the context in which these matters must be considered. We know that the Treasury predicts half a million public sector job losses over the CSR period. Of course, not all of those will be Civil Service jobs, but perhaps the Minister will update us on his latest estimates of how many will be. With PricewaterhouseCoopers predicting half a million private sector job losses caused by the spending cuts, the British Chamber of Commerce expecting unemployment to rise for the next two years and the CIPD forecasting that unemployment will not fall below 2010 levels for the whole of this Parliament, there will be a difficult alternative employment market for many civil servants who lose their jobs.
Being fair to those who lose their jobs is paramount. We must be fair not only in terms of compensation and pensions but in the support that individuals receive when they leave the service. Evidence given to the Committee in another place gave testament to how, through a range of sophisticated techniques—including redeployment, reskilling and, of course, good quality voluntary redundancy schemes—the service has successfully managed a headcount reduction of more than 80,000 over recent years. Fairness means ensuring a credible bridging policy for those individuals affected by the Government's cuts. The Minister's press release prematurely announcing the conclusion of negotiations with the trade unions also refers to significant changes that are planned to shorten the process for making staff redundant. Can the Minister confirm that, the CSR and the press release notwithstanding, the same levels and quality of support will be available for those who will depart the service over the next four years?
There is a perception that civil servants cope with such things because they are all on large salaries and feather-bedded pensions. This perception is false and is often fuelled by untypical examples that arise in the public sector at large being extrapolated to suggest that those examples are the norm. The reality is that pay in the Civil Service is substantially below that of the private sector or other parts of the public sector. The median salary is around £22,000 per year, with 40 per cent of civil servants paid less than £20,000 per year. For these people, enhanced protection for redundancy formed part of a package, which helped to ensure reasonable levels of job security and made it more palatable to accept lower levels of pay. At Second Reading in another place, the Minister himself referred to the great myth that all civil servants are highly paid.
We should also be mindful of the hugely important part that the Civil Service plays in our national life. Its professionalism and integrity make the process of government work. Through its commitment and work, government continues to function normally even during the heady periods of the electoral cycle and changes of political Administration. The Minister now has first-hand experience of that.
I turn to the specifics. As we have heard, the Bill has three clauses, and in their current form we have difficulties with each of them. Clause 1 was a rather rushed addition that the Government introduced late in the proceedings of the other place and that no one, including the Government, appears to be wholly satisfied with. The clause proposes to remove the statutory requirement on the Government to have the agreement of the Civil Service unions before decreasing any compensation benefits. The clause will amend Section 2 of the Superannuation Act 1972.
The trade unions are understandably concerned that, if the Bill is passed as drafted, their ability to engage meaningfully in negotiations will be undermined. In its current form, we cannot support that provision. We accept that, where a serious and concerted effort to reach agreement has failed, the Government should ultimately be able to compel a settlement. However, such a right should be exercised only on the basis of clear, systematic, open and proper negotiations with the workforce and its recognised trade unions, and the process should be reported to Parliament, which should be the arbiter of whether the process is fair and transparent.
We understand and have heard that the Government have committed to redrafting Clause 1 in consultation with the trade unions. The wording of any such amendment will be critical, so we will look at it in detail when it is introduced. We will be particularly interested in whether it incorporates natural justice elements and enables due process for consultation. We look forward to seeing the Government’s amendment in due course and to having sufficient time to consider its implications.
Clause 2 has been controversial from its introduction. It proposes to introduce a crude capping mechanism by placing a maximum amount of compensation payable to civil servants—12 months for compulsory redundancies and 15 months for voluntary redundancies. If implemented, that would produce dramatically worse outcomes for many civil servants in comparison with the existing scheme and the February 2010 scheme. Compared with existing arrangements, some civil servants could lose two-thirds of their current entitlement. That is particularly unfair to longer-serving individuals, given that current arrangements are based on years of service.
Those caps are punitive, unfair and unworkable. They were put forward without any consultation, have led to mistrust and have created real concerns among staff. It is clear from the evidence provided by the trade unions that the inclusion of the caps in the Bill was not helpful in creating a climate for negotiations and was demoralising for staff who see themselves assailed by redundancies, proposed extra costs of pensions and freezes on pay.
The Cabinet Office Minister referred to the caps—this has been repeated today—as a bit of a blunt instrument, which he recognised cannot represent a comprehensive, sustainable scheme. He stressed the importance of a negotiated settlement with greater protection for the low paid and caps on payments for the highest paid. If the Government do not see the caps in Clause 2 as a sustainable basis for maintaining the compensation arrangements, why introduce such caps, especially given that Clause 1 now gives the Minister the power ultimately to impose modifications to the scheme without agreement? The purpose of the caps is now redundant. If the Minister does not ultimately need agreement for changes to the scheme, as proposed in Clause 1, one has to ask why the caps should be retained.
As we have heard, things have moved on and an agreement has been reached with four or perhaps five of the Civil Service trade unions—including Prospect, FDA, Unite and GMB—which the Minister is minded to implement under the provisions of Clause 1, immediately following the entry into force of the Bill. As we have also heard, Clause 3 permits the Minister for the Civil Service to repeal Section 2 by order. If we are not able to convince noble Lords to seek the removal of the Clause 2 caps during the passage of the Bill, we might be comforted that it is planned to repeal the provision as soon as the Bill is passed. I think that the Minister earlier confirmed that that is the intention and that that will definitely happen.
Clause 3 also contains a sunset provision, so that while Clause 2 will otherwise expire at the end of 12 months unless earlier repealed by an order, it can also be either extended for a period of six months or, bizarrely, revived for six months following its expiry or repeal. Having been laid to rest, it can be brought back from the dead—it was rather aptly coined the “zombie clause” in the other place—so the effect is that the clause will be a continuing threat to those who might challenge the arrangements that the Minister will implement.
Like zombies, zombie clauses are not common—one of the few examples relates to emergency terrorist legislation—so can the Government explain why such a measure is now necessary and appropriate? If the Minister is not confident that the amended scheme that he has negotiated is secure, whether in its dealing with accrued rights or proper consultation, he should seek to amend it. To hold in reserve draconian caps as a continuing threat to the workforce, on the pretext that someone might challenge the amended scheme, is, frankly, unacceptable. The Clause 2 caps must not be a default position for the scheme. With the assurance of the Minister that Clause 2 is to be repealed the day after the Bill becomes law, we will seek to have the provisions that allow for the revival of the clause to be removed from the Bill.
We welcome the Government’s commitment to draft amendments to reinforce the obligation to consult and to make the process more transparent. We hope that those amendments will allay our concerns, and we look forward to the opportunity to consider them during the passage of the Bill. Like removal of the right to revive Clause 2, progress on an amendment to address Clause 1 would help to redress some of the fears which have been created during the process surrounding the Bill because of the arbitrary caps, the premature announcement of an agreement and the move to impose a scheme.
We have heard today an update from the Minister on negotiations with the trade unions and the extent to which agreement has been reached. Our preference would have been to see the February 2010 proposals as the starting point for an updated scheme, but this is not where we are now. The agreement being advanced is in some respects a less generous package, but we acknowledge that it contains improved protections for the low paid, which we support. The Minister, it is to be hoped, will be able to confirm that it addresses, in so far as it is considered relevant, the issues of accrued rights and the Human Rights Act.
It is not the most comfortable position to have to proceed without agreement with all the trade unions. It is to be hoped that there is a chance yet for all six to be part of a negotiated way forward, but we are under no illusions about how difficult this would be. The Government could yet contribute to that end by removing from the legislation the Clause 2 caps and by ameliorating its approach to imposing a scheme. We hope that they will do so and that we will ultimately be able to support the Bill.
Baroness Noakes
My Lords, it is a pleasure to follow the noble Lord, Lord McKenzie. It was good to hear the support of the Benches opposite for what the Government are trying to achieve in the Bill.
Last week my right honourable friend the Chancellor of the Exchequer set out the outcome of his spending review. The message could not have been more stark: 13 years of Labour government have left the economy of this country on its knees. Our Government are now taking some painful but necessary steps in order to restrain public expenditure. We will be able to begin the long road back to a healthy economy once the budget deficit is eliminated, and that requires the tough action set out by the Chancellor. Even then we will not get back to the economic health that existed when we left government in 1997, and no one should be in any doubt that the expenditure cuts are in any way optional.
The decisions that follow from the need to cut public expenditure may seem harsh to those in the public sector, but private sector businesses face these kinds of decisions all the time. Businesses constantly have to adapt their costs to meet market imperatives, whether caused by recessions or changing markets, and they often have to resort to redundancy programmes. What the public sector is now confronting is not an unusual phenomenon.
The Office for Budget Responsibility estimated in June that nearly half a million jobs would be lost in the public sector. According to the Office for National Statistics, public sector employment was just short of 6.1 million earlier this year. That means that the loss of jobs in the public sector will be around 8 per cent. Reductions of this scale may well feel huge in the public sector—and there will be areas where the percentages will be larger than the average—but private sector efficiency programmes have had to handle much worse than this.
It should not be a big surprise to the public sector that there will be reductions in jobs. In the past 13 years, a disproportionate share of employment growth in the UK has been in the public sector. A report earlier this year from Manchester University’s Centre for Research on Socio-Cultural Change estimated that in the 10 years after 1997, 57 per cent of the jobs which were created were either in the public sector or were funded by the state. The public sector picture has been one of a relentless rise in employment.
I mentioned that the current figure is around 6.1 million. When the previous Government came into power, the figure was 5.2 million directly classified to the public sector. Even if we exclude the nationalised banks from the current figures, the rise in public sector employment under the previous Government was 13 per cent. That rise in direct and indirect public sector employment was not sustainable on a long-term basis when it was created. Indeed, the Manchester University report to which I referred described it as an unsustainable and undisclosed business model for the UK. The courageous way in which our Government are dealing with the economy will ensure that the UK’s business model will start to revert to one which has more staying power for the future.
When reducing jobs in the public sector, I am sure that the Government will look first to the scope for natural wastage to play a part. As I understand it, retirement and other natural wastage runs at a rate of around 8 per cent each year in the public sector, which is not far adrift from the total reductions required as a consequence of the spending review. But of course life is never that simple; natural wastage rarely does the full job, and some tougher action by way of redundancy will inevitably be required. That brings me to the Bill, the aims of which I completely support.
The plain fact is that the current redundancy scheme operating for the Civil Service is too generous by a country mile. It allows some individuals, as we have heard from the Minister, to take more than six years’ pay when they leave. That means that if the Government wish to remove jobs by way of redundancy, the net cost savings achieved might be deferred until the seventh year after the redundancy. That is a personnel policy for the madhouse.
Those of us with a private sector background are simply astounded that a scheme which entails a six-plus year payback continues to exist. In the private sector, redundancy terms range from the extremely modest statutory scheme to voluntary schemes which involve higher payouts. Oral evidence given to the Public Bill Committee in another place showed that caps of two years’ pay would be the maximum in the private sector, with most companies currently reducing that maximum to nearer one year. By any comparison, the current Civil Service scheme is out of line.
Some have argued that generous pension and redundancy terms are part of an overall bargain which goes alongside pay, which is lower in the public than in the private sector. However, that argument has been largely turned on its head by an explosion in public sector pay. Again, the evidence given to the Public Bill Committee in another place showed that public sector pay was now higher than pay in the private sector at levels up to about £40,000 or £50,000 per annum, and that covers the vast majority of the Civil Service.
The Government face the economic imperative of eliminating the deficit, and the Civil Service cannot be exempt from the cuts to public expenditure which have to be made. But it is obvious that with the current redundancy terms, the Government will not realise enough by way of early benefits from Civil Service redundancy and may therefore have to make deeper cuts elsewhere in order to meet the unaffordably high transitional costs of Civil Service redundancy if the current scheme is maintained.
To be fair to the previous Government, they tried to revise the current scheme and, as we have heard, to bring in a new scheme earlier this year. Some aspects of that we still thought were too generous, but the direction of travel was right. As the Minister has explained, that deal was struck down as a result of action by the PCS union. The Government have no choice but to bring this Bill before Parliament. I am glad that the noble Lord, Lord McKenzie, acknowledged that, had his party been in power, it would have felt it necessary to bring a Bill of some kind before Parliament.
I completely support Clause 1, which has the effect of removing the need for consent to a compensation scheme. This would bring the Civil Service scheme into line with arrangements in the private sector, where redundancy terms are commonly discussed with workforce representatives, including unions, but where it is rare that an employer is absolutely required to achieve agreement. This, too, was clear from evidence given to the Public Bill Committee in another place.
Furthermore, the evidence showed that it is not regarded as good practice in the private sector to hard-wire redundancy terms into employment contracts, which is the effect of the Superannuation Act 1972. Clause 1 represents an essential modernisation of employment terms in the Civil Service. I should stress that I completely support the need for consultation and for it to be substantive and not a mere formality. I therefore welcome the Minister’s assurance that such a requirement will be placed clearly in the Bill by way of amendment in Committee.
Like the noble Lord, Lord McKenzie, I am less certain about Clauses 2 and 3. In fact, I do not understand why they are in the Bill. Clause 2 introduces caps and Clause 3 contains complicated sunrise and sunset provisions. Why are these clauses necessary given that Clause 1 removes the necessity for consent? It seems to me that these clauses amount to no more than negotiation by statute. If I am correct, that is not a good use of legislative time. The Government have said quite clearly that they are negotiating with the unions involved on the basis of a scheme which is far more generous than the limits set out in Clause 2. What is the purpose of Clauses 2 and 3 other than to act as a gun to point at the head of the unions? The noble Lord, Lord McKenzie, and I may be missing something here. If so, I hope that the Minister can explain it.
I can understand why individuals in the Civil Service see it as unfair that the current redundancy scheme is to be taken away just at the point when redundancies, both voluntary and compulsory, seem to be much more likely. But there is another aspect to fairness—for the taxpayers of this country. Why is it fair that someone in the private sector on average earnings of £25,000 a year should pay tax to fund Civil Service redundancy terms which are beyond that taxpayer’s wildest dreams? Why is it fair that our chances of restoring the health of our economy by reducing the deficit are seriously hampered by outdated and overgenerous redundancy terms?
Baroness Drake
My Lords, continuing the constructive approach adopted by my noble friend Lord McKenzie, it is understood that the Civil Service Compensation Scheme needs to be reformed to strike a fair balance between the taxpayer and the legitimate expectations of civil servants and that the Government must have authority to act on behalf of the taxpayer. But the reform needs to meet four criteria: be fair in its level of compensation consistent with the actions of a good employer; show sensitivity and understanding in the manner of its introduction; be the product of meaningful consultation and negotiation; and provide protection for the lowest paid. All these criteria are consistent with good HR practice of a good employer or large company in the private sector.
However, the Bill as drafted fails to meet those standards. In determining the process for changing the Civil Service Compensation Scheme, a process which should have integrity over the long term, it is not necessary for the Government to give themselves unbridled powers. Compelling a change should be a course of last resort not an action of first resort, which the current draft of the Bill allows and facilitates. The Bill should give clear recognition of the need to change to be preceded by meaningful consultation and negotiation. As drafted, it fails to do that. The Bill should provide for safeguards to be put in place to ensure a fair and transparent process for change to take place. As drafted, it fails to do that. Such safeguards need to strike the right balance between the powers of the Government, the involvement of Parliament and the engagement of trade unions. I fear that the Bill as currently drafted does not achieve an equitable balance. When considering Clause 1 of the Bill, I urge the Government to make it clear that proper consultation and negotiation must take place before changes are put into effect. If the Government do not explicitly support effective consultation processes in the treatment of their own civil servants, it sets a poor benchmark for other employers to follow.
Clause 2 seeks to impose caps on the level of compensation which, in my view, are punitive and unfair and far below what constitutes fair and reasonable. That is particularly so when considered against the extent of the movement from the current scheme provisions. There is no necessity for such compensation caps to be in the Bill. As the Government themselves have conceded, these caps are not intended as a long-term replacement scheme. As such, they can be interpreted only as intending to provide the Government with a negotiating tool. The very inclusion of sunrise and sunset clauses in the Bill is confirmation of that opinion. When the Bill seeks to secure the Government's authority to change the terms of the Civil Service Compensation Scheme, it is not then necessary to have these caps laid out in the Bill in the way that they are, precisely because that authority would have been secured, making those caps unnecessary. Furthermore, if those caps ever took effect, the protection offered for the lowest paid is weakened and could produce perverse incentives to select lower-paid staff for redundancy.
It is all too frequent in difficult economic circumstances to observe popular calls for scapegoats and in that vein to demonise civil servants as overprivileged and overindulged. That is unfair and unfounded. The vast majority of civil servants are hard-working, conscientious employees, who come to work to do a good job and are motivated to deliver in the interests of the citizens of this country. The efficient discharge of their functions is an essential component of our democratic structures and delivery mechanisms. Civil servants are not just a set of numbers, but ordinary people who have children to raise, rent to pay, bills to meet, and in common with many private sector workers, feel increasingly insecure about job losses and employment.
Half a million civil servants are covered by this scheme. How change to the compensation scheme is managed will influence their morale and motivation. I welcome the articulation of the Government’s commitment to meaningful consultation by the noble Lord, Lord Wallace, but urge the Government, in securing the process for and the change to the compensation scheme, clearly to recognise in the Bill itself the importance of due process, consultation and negotiation before change is effected both in the short term and over the long term, and to remove the caps, which are both unfair and unnecessary.
Lord Maclennan of Rogart
My Lords, it could never be easy to introduce a statutory scheme reducing the compensation entitlements of those leaving the Civil Service prematurely. That was manifested by the experiences of the outgoing Labour Government when their proposals for reform of the scheme under the 1972 Act were taken to the High Court and quashed. That is the immediate background against which we have to judge this Bill and recognise the difficulties that face any Government.
It is also important to reflect that the dramatic headlines about the loss of people employed in the Civil Service have concentrated the minds of those who might not otherwise be so concerned about the terms of the Bill. The previous legislation has lasted for a long time, since 1972. It was not challenged before because there was a gradual expansion rather than contraction of the numbers working in the public sector. That expansion was substantially accelerated in the lifetime of the previous Government; the contraction now envisaged will not reduce the Civil Service to the level at which it stood in 1997 when the last Labour Government took office. It is my understanding that we shall end up with 400,000 more jobs in the public sector than in 1997, notwithstanding the cuts envisaged.
It is unquestionably highly desirable in making the changes to the terms available to civil servants on premature termination of their employment that the scheme is broadly acceptable to all categories in the service and, in particular, that its provisions ensure proper protection for the lower paid. I believe that the coalition Government have recognised that that is an important condition and have moved to ameliorate the terms on offer in earlier proposals. I have listened with interest to the speeches of the noble Baroness, Lady Drake, and my noble friend Lady Noakes about the precise terms of this legislation and particularly their concerns with Clauses 2 and 3, which would be widely shared. It is not reasonable not to accept and acknowledge the substantial movement towards acceptance of a better deal than was originally proposed in the months since the Bill was published.
When changes were mooted to the current scheme by the Labour Government, five of the six unions involved in the negotiations were prepared to recommend to their members acceptance of what was proposed. That appears to be the position in respect of the proposals of the present Government. It is to be hoped that the sixth union, the PCS, will acknowledge that substantial improvements have been made in what was originally proposed. It has not as yet given any indication that I have discovered of what particular complaints it has, or what proposals it would make to amend the proposed scheme, which has been acceptable to their colleagues. It would be helpful to the Government and the legislature to have a clearer idea of what its goals are.
As for the provisions of Clause 1, it seems entirely right that no single body of employees in a union should be able to hold the country to ransom. It is entirely right that there should be requirements to ensure proper, meaningful consultation about proposed changes. I very much hope that that will appear in the Bill, and I was glad to hear my noble friend Lord Wallace give that assurance. On the other hand, pay in the private sector—and indeed in the rest of the public sector, including in the National Health Service—appears to have risen more rapidly in the past 10 years than in the Civil Service. That trend may not continue. In considering comparability between sectors, we should recognise the differential pay levels of the different sectors and the difficulties that will be faced by civil servants, made redundant, who have accepted lower levels of reward than their opposite numbers in the private sector.
It may be unusual to be considering a Bill whose terms could be amended by such sunset provisions as have been provided, but this underlines both the urgency of the situation and, I believe, the willingness of the coalition Government to negotiate. I very much hope that it will be possible to introduce the arrangements that encourage flexible voluntary redundancy arrangements in the months that lie ahead.
Redeployment within the service may not always be possible, but in the present circumstances systematic consideration should be given to it, including postponement of final service of notice, to allow public servants the best opportunity of re-employment. In April 2008, the then Government introduced protocols of the kind that I understand have been operated ever since to ensure what was called the Efficiency and Relocation Support Programme, when there were surplus staff situations. I would be grateful if the Minister would indicate that it is in no way the Government’s intention to resile from those protocols, which would help to ameliorate the difficulties faced by, admittedly, a larger number of people than were affected in spring 2008.
It is immensely important that these changes come about with the least hardship. People who are employed in parts of the country far from the capital city will not find it easy to be redeployed within the public sector, and many of them will find it exceedingly difficult, in areas of existing high unemployment, to find alternative employment in those areas. They may have to move, and for some that would constitute enormous difficulties. I hope that the maximum flexibility will be exercised in terminating employment and issuing redundancy notices.
I recognise that there has been valuable movement in the direction of easing that situation by increasing pay in lieu of notice to three months; and other changes in the proposed new scheme, such as the readier access to pension arrangements at pensionable age, are welcome and could help considerably in those respects. We await with interest the tabling of the amendments that the Government propose to see whether they themselves will contribute to the easing of the difficulties that are faced, particularly by the PCS. I profoundly hope that that will be done.
Lord Turnbull
My Lords, to the outside world it may look as though the changes proposed to the Civil Service Compensation Scheme are part and parcel of the coalition’s spending cuts. In fact, this issue has been under discussion for at least seven or eight years—long before spending cuts were mooted. Early in Labour’s second term, when I was Cabinet Secretary, the compensation scheme was identified as an issue to be addressed. This was driven by three considerations.
First, at around this time thinking on the issue of ageing was changing. The Strategy Unit had produced a seminal report drawing attention to the changing demographics. In particular, it criticised the early retirement culture in a world in which longevity was increasing rapidly. Incentivising people barely past the age of 50 to retire rather than seek other employment may have been convenient for employers, but for the economy as a whole it made no sense. It was this change in thinking that led eventually to the increase in pension age that is now proposed and the lifting of the compulsory retirement age in the Civil Service. The Civil Service Compensation Scheme is therefore a piece of unfinished business in this wider agenda.
Secondly, the arrangements for Civil Service compensation which date from 1972 were, for some categories of leavers, out of line with the rest of the public sector, massively out of line with the private sector, and bore no relation at all to the statutory scheme. There was therefore a growing sense of unfairness because taxpayers were funding a scheme for civil servants that was vastly more generous than anything they had access to.
Thirdly, too much of the compensation took the form of enhancement and earlier payment of pensions. Since these pensions came notionally from a non-existent fund, the costs were lost in the mists of the public accounts. Had the money come from a funded scheme, the drain on the fund would, I believe, have been identified much earlier and addressed.
The Government—both the previous one and this one—are right to tackle this issue. I support the Bill, albeit as a regrettable necessity made necessary by the failure to achieve a negotiated settlement. I also endorse the tactics used—that is, negotiate if possible, legislate if necessary. I hope, however, that the eventual outcome will be a negotiated settlement whose terms are close to those agreed recently with most of the Civil Service unions. That scheme is simple. It is also fair in a number of ways. It is fair between different parts of the public sector, fair between taxpayers and civil servants, and fair between the different grades of the Civil Service through the provision of the underpinning and the cap on reckonable salary levels. It reduces the extent to which pension provision is used to subsidise early retirement. It provides a premium and encouragement for voluntary rather than compulsory redundancies—rather than the other way around. It also removes the incentive to lay off lower-paid rather than higher-paid people.
There is a hard lesson here for the PCS and its approach of total resistance. If it had agreed to the terms put forward last February by the Labour Government, the coalition would have been put on the spot. Would it have allowed a negotiated agreement to stand, or would it have overturned it? Francis Maude hinted in another place that the coalition may well have let that agreement stand, since the gain then to be made would have been smaller and the resentment caused by overturning it would have been even greater. I urge the PCS to rethink its position. What is on offer in the October package is already worse than what was suggested in the February package. The PCS can go for broke and challenge the legislation. However, if it fails—and the legal advice in the various briefing notes that we have received indicates that it may well—it could end up with worse terms even than are available now, let alone last February, not just for the PCS but for the other unions in the Civil Service council. Since the underpinning means that the majority of PCS members are getting an uplift, that would be inexcusable.
Finally, there is a lesson here for the debate about public sector pensions which will follow the final report of the noble and learned Lord, Lord Hutton. The PCS could make the same mistake by trying to hang on to every aspect of the status quo and refusing to negotiate constructively, but ending up with a worse deal.
Baroness Turner of Camden
My Lords, I am unhappy about this Bill. I know, of course, that we do not oppose Second Reading in this House and I am not seeking to do that. However, I hope that the Bill will be substantially amended before it leaves us.
As the Explanatory Notes make clear, the object of the Bill is to cut payments to employees who are made redundant. It is being introduced in the wake of the spending review, when employees in the public service anxiously await news of the way in which their employment may be threatened or perhaps even terminated. In essence, as the Minister has explained, the Bill caps the amount of compensation paid to civil servants under the Civil Service Compensation Scheme to a maximum of 12 months for compulsory redundancies and 15 months for volunteers. It also removes the statutory requirement for the Government to have the agreement of the unions before decreasing any superannuation benefits.
I have been in touch with the Public and Commercial Services Union—one of the largest unions, with 300,000 members working across government departments. According to it, the Bill means that, in the event of redundancy, members working across the country will receive a vastly reduced compensation payment; some could even lose 50 per cent of the payments that they have accrued while working for the Government. According to the Explanatory Notes and to the statement made by the Minister this afternoon, an earlier attempt to amend the terms of the scheme was nullified when the union successfully brought judicial review proceedings.
I understand that there have been negotiations between the Minister and representatives of the PCS and the Prison Officers Association, the other large union involved, which has also objected to the main provisions of the Bill. An offer was made that was unacceptable, as the terms would have been detrimental to the majority of members earning more than £20,000 a year with accrued rights to two years’ service or more, although it is understood that more favourable provision was available for the very low paid. The legal advice that the union has received indicates that civil servants should continue to be entitled to accrued rights under the compensation scheme. The union states that it is anxious to secure a negotiated settlement. If no agreement is secured, the union would have to consider taking legal action, which could take many months to resolve. If the union were successful, as it could well be, the Government would be bound to adhere to the original entitlements.
As things stand, however, it looks as though the Government are intent on making many civil servants redundant without incurring the costs originally laid down as a result of collective bargaining. As a former union official, I find that unacceptable. What sort of message does that send out to many public service employees—many of them women—already worried about the future in the light of the spending review? “They want to get rid of us as cheaply as possible and they are going to tear up our agreements”, is what they will be saying—and that is the impression that will be created. The only way forward is a negotiated settlement with all the unions. As I said, we do not oppose Second Reading in this House, but we must seek to take this further in Committee.
Lord Newby
My Lords, the noble Baroness, Lady Drake, said in her excellent speech that staff in the public sector feel demonised. I have had a number of conversations with senior staff in the NHS and my experience is that they indeed feel demonised. As a former member of the public service and as an active trade unionist as a young man, I find that extremely worrying because I do not believe that it is my noble friend’s intention to demonise the public sector. Certainly, from the Government’s point of view, it would be completely foolhardy to pursue that course given that they are embarking on extraordinarily ambitious changes to the way in which we run virtually everything in this country. Therefore, it is important that civil servants feel that they are respected and taken seriously by Ministers.
However, one reason why this view is taken—in my view falsely—is that many people working in the public sector have not the faintest clue of what is happening in the rest of the world. Incidentally, it is true that many people in the private sector do not have the faintest clue of what is happening in the public sector. However, many in the public sector would be surprised to know how out of line their current redundancy terms are with those that obtain in the private sector. The typical provision, at least for compulsory redundancy, is that people receive one week’s payment for each year that they have been employed. Indeed, I am told that this is the standard that DBERR, as it was, recommended to private sector employees. That is very different from what is happening in the public sector.
Even for voluntary redundancies, as the noble Baroness, Lady Noakes, pointed out, the most generous terms in the private sector are now no better than those currently on offer from the Government—indeed, those terms are being reduced all the time. In fact, if you are made compulsorily redundant in the private sector, it is virtually impossible to get a year’s pay. You would have had to have started at 16 and still be working at 68 to qualify. The one year that has been proposed in the public sector is a level of compensation unobtainable by anyone in any circumstances in the private sector.
Many people in the public sector do not realise how differentials in pay have changed over the past 10 years. A number of noble Lords have mentioned this already, but recent IFS research shows a public sector pay premium of 2 per cent for men and 7 per cent for women, based on hourly rates. That ignores the other benefits that the public sector has in enhanced pensions and redundancy rights.
As the noble Baroness, Lady Noakes, said, over the past two to three years, in addition to making a lot of people redundant in many firms, the private sector has been adopting a range of flexible labour practices in order to keep the maximum number of employees in work, including reduced hours, frozen or reduced pay and the abolition of bonuses. That has worked to a considerable extent and unemployment in the private sector has not increased to anything like the extent that was originally envisaged.
One of the challenges for those in the public sector, including the unions, is the extent to which they can follow this practice, because surely, more than anything else at this point, they should be seeking to reduce the number of people who are made redundant and who have to leave public service. That should be the logical aim of a public sector or Civil Service leader, because the Government have imposed, in effect, a cash limit in aggregate on public sector pay. The question is what you can get for that and how best you protect people within the sector.
In local government, steps that to a certain extent replicate private sector behaviour have been taken by a number of councils. In Salford, for example, staff are being asked to work an extra hour a week for no pay—a pretty common thing in recent times in the private sector. In Stockton, refuse workers have been put on a four-day week. That kind of practice, although not desirable in an ideal world, is what we, and the Civil Service and public sector trade unions, should be looking at, instead of fighting tooth and nail, as is happening in some cases, to preserve overgenerous redundancy terms that, if they were continued in their current form, would mean only that in the medium term more people would be made redundant or the size of the Civil Service would shrink even more.
The story so far reads rather like a throwback to the industrial relations that I remember from when I worked in the Civil Service—and indeed went on strike as a civil servant. The Government produced proposals—in this case on redundancy payments—that were still, by private sector standards, extremely generous. The PCS went to court and won. The negotiations dragged on beyond the election, so we now have a situation, not surprisingly, in which a new Government, in worse economic circumstances, find themselves offering less propitious terms than were available earlier in the year. It is a classic case of a union biting off its nose to spite its face. As the noble Lord, Lord Turnbull, said, if the deal offered earlier this year had been in place, it is highly unlikely that the coalition would have sought to overturn it.
Now the question is: what alternative do the Government have to the current proposals? A settlement is urgently needed. Without it, more civil servants will undoubtedly lose their jobs. I am a great believer in negotiations and would have hoped that it was possible to get them in this case, but I, too, have read the PCS briefing, which says:
“In considering the offer, the test PCS used has been a practical one—how many of our members, particularly the lower-paid—are protected by the proposals. The last scheme, with an underpin of £60,000 and a cap of two years, was rejected as our estimate was that it only protected 50% of our members”.
The implication of that statement is that any scheme that has any detrimental effect on a significant number of PCS members will be rejected by the PCS. However, I am afraid that if it does not have a detrimental effect, there is no point in changing the scheme. The attitude exemplified in that brief means that the Government have no option but to proceed broadly as they are doing.
I hope, of course, that the maximum amount of consultation and negotiation will take place; indeed, I think that the Government are committed to that. I also have difficulties with the sunset clause simply because, despite the best efforts of my noble friend Lord Wallace, I cannot understand it. To cover an extraordinary series of circumstances in which zombies might be resurrected seems less than satisfactory. However, that is a second-order point. We are now at a point where we have to get a conclusion to a most unsatisfactory situation. I hope that the Bill, as amended, will allow us to do that.
Lord Morris of Handsworth
My Lords, I have listened carefully to this debate and have also read some of the documents associated with the Bill. My first impression is that the Bill arises from a good old-fashioned dispute between an employer—the Government—and one of their trade unions. There is nothing strange about that. The employer wants to reduce its costs and the trade union wants to protect its members. However, it is on the process of dealing with the dispute that I want to comment. I say that because I see process rather than politics as the real issue here.
In a normal world, an employer would seek to negotiate a settlement and, if necessary, to have the issues properly dealt with through the medium of arbitration, conciliation or whatever mechanism is open for dispute resolution. That, of course, is the action that the Government always advise to others in disputes. “Go back to work, seek negotiations, go to ACAS”. There is nothing wrong with that advice. However, what we see today is a Government employing what I call the political sledgehammer of legislation to crack what is in reality a minute nut compared with all the other issues that they are currently engaged with. I worry about this because it sets a very dangerous precedent. It seems to me that the Government are saying, “You must abide by one set of principles while we abide by a different set”. Are we drifting into a situation where on every occasion that a trade union says no to an employer, a Bill will be introduced in another place and then come to your Lordships’ House?
The noble Lord, Lord Wallace, and the noble Baroness, Lady Noakes, blame the PCS for retarding the deal. I do not cast any blame. I say only that it was not the PCS that brought the issue to a shuddering halt but the High Court of our land. However, that is not new. The trade unions cannot win. If they take industrial action, they are wrong; if they go to the High Court and get a judgment to stop unreasonable behaviour, as the law interprets it and provides for, they are wrong. I recognise the need to amend the existing regulations but I say that this should happen through negotiation. We should negotiate first, find an agreement and then enshrine it in legislation, because that is the way that the Civil Service works. You do not legislate and then negotiate; you negotiate and then legislate.
The people who will be adversely affected by the Government’s proposals for a reduction are not benefit scroungers or people who stay in bed as a lifestyle choice, as it has been termed, waiting for the sun to set; they are hard-working civil servants—public servants. Many of them have made the choice of long-term security over a quick pay packet, and they serve all of us. Of course, in the current situation we recognise that job security is at the top of everyone’s agenda. Indeed, there is no secret about the number of public servants who stand to lose their jobs—at the last count, it was more than 500,000. That is the impending problem facing many civil servants.
I see this short Bill as having the propensity to do immense harm. It strikes at the very heart of what we are so proud of in this country—free, democratic trade unions—because it undermines the right of a trade union to say no to an employer. The trade unions should, and must, have the freedom to disagree without legislation being introduced to retard that course of action. Of course, I impugn concerns over the Government’s expediency in trying to get their legislation through, but the fact that they have sought to pursue this matter in another place with a money Bill indicates, to me at any rate, that all is not well in terms of the overall intention. The attempt to avoid scrutiny of the Bill, short though it is, only raises suspicions rather than engenders confidence. With this Bill, it seems as though the sledgehammer of legislation is being brought out to crack the proverbial nut.
Like everyone in your Lordships’ House, I wish to see a speedy resolution to this issue, as it breeds uncertainty, not merely for the legislators, but more importantly for the individuals involved and for those who depend on the public servants who provide public services. I wish to seek assurance from the Government. I should like to know whether the Government now intend to resort to legislation as a first step every time a trade union disagrees. Will the Government take their own advice and use the instruments which are available, such as ACAS, to resolve industrial disputes? Do the Government recognise the ruling of the High Court, as set out in the briefing to which the noble Lord, Lord Newby, referred?
Trade unions want not only free collective bargaining, which is one of the tenets of our democratic society, but they also want fair collective bargaining. The people affected and the people at the negotiating table see the proposals as neither fair nor indeed free. A commitment has been made from this side of your Lordships’ House to work with the Government to ensure the speedy passage of a Bill giving proper consideration to the need for some adjustments but equally recognising that the trade unions, by their contribution, can also bring about a speedy resolution for the benefit of all concerned.
Lord Brett
My Lords, I will echo a number of contributions by noble Lords but I start by declaring an interest. For 10 years, I was the general secretary of the Institution of Professional Civil Servants, whose new name is Prospect. It was then the second largest union with trade union membership in the Civil Service and it remains that today. At that time, in the days of national pay bargaining and then departmental bargaining, I had some 25 years of experience of negotiations in the Civil Service and before that 12 years in the private sector—not least under the watchful eye of my noble friend Lady Turner, who was my boss for a number of years.
In all that time, particularly in the Civil Service negotiations, I learned that getting a solution involved two very clear requirements: trust and motivation. There needed to be trust that both sides were seeking agreement and motivation to find the means to reach that agreement. I negotiated with many senior civil servants, some of whom are Members of your Lordships’ House, and a number of Ministers in the Cabinet Office, some of whom are also now Members of your Lordships' House, and never at any time did I find any lack of trust or motivation in seeking agreement. In no way do I impugn the motives of the Government, the Ministers in the Cabinet Office and the noble Lord representing the Government today or suggest that they have anything other than the same pure instincts of negotiation. However, that is not the problem; the problem is the Bill before us.
In this House, we also have many captains of industry, captains of finance and moguls of the retail sector who all have experience of motivating staff in large companies to achieve change, but I doubt that any of them would recommend, by accident or by design, the present situation facing the Civil Service. There is denigration. That denigration does not necessarily involve demonising by individual Ministers—Ministers are supportive of the Civil Service—but somebody has been briefing the press that there is a wasteland of inefficiency occupied by civil servants. If civil servants resent that, it is because the previous Administration placed on them year-on-year efficiency cuts of not less than 3 per cent, so there has been a long-term pressure on productivity. Yes, we hear of wage freezes in the private sector, but wage freezes are being imposed in the public sector also. Now we face massive job cuts.
I felt that in our discussions this afternoon, we on occasion got confused between the public service and the Civil Service. The Civil Service has not benefited financially as much as some other parts of the public service, but it looks like it will be hit just as badly as, if not worse than, some other parts of the public service in facing massive job cuts. To be added on top of that cake is the reducing of redundancy compensation.
Is that a way to motivate staff to reorganise and render substantial increases in productivity? I think that the answer is obviously no. If I was asked, “Do you see it enhancing trust?”, I would have to say, “No, rather the reverse”. Yet that is where we are in respect of this Bill. The issue is not what we would like to have but where we are, and this Bill is about coercing the Civil Service trade unions to the negotiating table and at the negotiating table. I share with the noble Baroness, Lady Noakes, a fear of negotiation by statute. At the end of the day, negotiations may lead to an impasse which, in governing a country, may lead a Government to determine that there needs to be a legal remedy. It is not normal to have that in front of the negotiations. When we have a clause, in Clause 2, that the Government say that they hope not to use and that they will repeal the day after there is an agreement, it begs the question whether that is helpful to the trust and motivation to bring about an agreement at all.
The other question is: what is the likely reaction of civil servants and their trade unions to seeking to coerce and bully them? The normal British reaction to bullying—going back hundreds of years in all four parts of this country of ours—has been to resist. Therefore, it will be counterproductive to reaching a negotiated settlement if Clause 2 remains in the Bill. Discussions are taking place—in good faith, I hope, on both sides—to find an amendment to the clause that will introduce the caps. We should be seeking to create the right atmosphere to bring that about. As my noble friend Lord McKenzie of Luton said, we want the Government and Civil Service trade unions to find an agreed solution in those discussions. We wish those discussions well, but the solution has to be acceptable to all.
We are told that, in that event, we will have the immediate dropping of Clause 2, but we will still have Clause 3—the zombie clause, although I would prefer to call it the twilight zone clause—which suggests that, even if there is a solution at that stage, there may be a retention or resuscitation of the clause in one or two years’ time. How does that help the climate of negotiation? How does that increase the degree of trust of the trade unions either at active level—the trade union negotiators—or at the level of the trade union members, who direct those negotiations?
What can we do to help? We must help to create the ambience for those negotiations to succeed. We therefore need to see how we can improve the Bill. I agree with my noble friend Lord Morris, and others, who said that the negotiating process is the way forward. Therefore, we believe that it would assist progress if we amended the Bill in the manner suggested by several noble Lords on both Government and Opposition Benches by removing the cap and the zombie clause in the hope that negotiations will bring a solution in early course. That would allow us to see the Bill in a much more benign form at Report. Those discussions can take place between now and then. I believe that we can help that in Committee by more thorough discussion of each of the clauses.
Lord Wallace of Saltaire
My Lords, I thank noble Lords for a serious and good-tempered debate. I should declare an interest as my wife was a civil servant for some time and my daughter is a civil servant. Many of us have great respect for the Civil Service as a whole, and I know that many noble Lords have similar close links to the Civil Service. I do not think that any of us intend to denigrate the Civil Service. The noble Lord, Lord Brett, referred to briefing. I regret to say that I do not think that anyone needs to brief the Daily Mail against the Civil Service. It has its established narrative and does not need prompting. One does not need to brief the Daily Mail against the Liberal Democrats either. It carries on with its narrative in the same way. It is unfortunately part of the way we are.
I reiterate that the aim of this Government—an aim which we share with the previous Administration—is to make the Civil Service Compensation Scheme affordable, sustainable and fair to civil servants and other taxpayers while, very importantly, providing protection for the lowest paid. It is our strong intention to do this through a negotiated settlement with the Civil Service unions. However, as the noble Lord, Lord Turnbull, remarked, the Bill is a regrettable necessity.
The noble Lord, Lord Newby, raised the question of whether we would like to be where we are. Of course we would much prefer to be in a different place. This is not—as the noble Lord, Lord Morris of Handsworth, described it—a political sledgehammer to crack a nut. It is not a question of legislation coming first and negotiations coming second. The current Government have been in active negotiation since they took office, and we remain in active negotiation. The previous Government were in active negotiation for 18 months. The legislation is here only because there is strong evidence that PCS has been dragging out the negotiations without a willingness to join the consensus which has been reached between the other unions and the employers about an acceptable package. Therefore we hope that the legislation will not be necessary, but it is here as a reserve power. So we have legislation as a reserve but negotiation as our strong preference. I regret to say that my understanding is that PCS has been very slow in replying to initiatives and has regularly delayed the date on which it will reply to government proposals. I understand that the PCS executive is at last meeting again today. We hope to hear further from them soon.
The noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, asked what the Government intend to do about Clause 1. We all understand that this is the most important clause in the Bill and that getting the language right is important for the Government and the unions. We therefore hope that consensus will be achieved by Committee stage on the exact language of this clause. We all also understand that consultation has a legal meaning. We need to get that absolutely right and, if possible, agree it with our trade union partners.
The noble Baroness, Lady Noakes, and others asked whether Clauses 2 and 3 are an appropriate use of legislative time and an important part of the Bill. We think that they are a necessary part of the reserve powers. These negotiations have been dragging on and the Government, like our predecessors, felt that it was useful to spell out a minimum level of support which would be there if we failed to achieve negotiated agreement. However, we much prefer to reach a negotiated agreement if we can. We are confident that—with the majority of the unions, but not yet with those representing a majority of the workforce—we are within sight of an acceptable agreement by consensus.
The caps set out in the Bill of 12 months’ pay for compulsory redundancy and 15 months’ pay for those who leave voluntarily under the scheme, represent the minimum below which the Government are clear that they should not go. The caps are a fallback if—following our discussions and what we believe to be the conclusion of a new workable compensation scheme, with terms improved beyond the caps—we find that, for whatever reason, we cannot implement the scheme. In other words, they are there to avoid having no choice but to revert to the old scheme, which looks increasingly like an historic anomaly and is not affordable.
Baroness Noakes
I am struggling with why, once we have Clause 1, which removes the requirement for consent, there is any requirement for anything else to be a fallback in Clause 2 with the underpinning of Clause 3. If Clause 1 takes away the need for consent and puts in place proper consultation, what is the necessity for any other part of this Bill?
Lord Wallace of Saltaire
I shall come in a moment to Clause 3, which is of course different. I am advised that Clause 2 is useful and necessary for spelling out the minimum that, under any conditions and without negotiation, the Government would offer. In answer to the point made by the noble Lord, Lord McKenzie, it is the Government’s intention to repeal Clause 2 by the time the new scheme is in force. Clause 3 allows for the Bill to lapse once the new scheme is fully in operation. That is the timescale under which we will allow the Bill to fall in the sunset clause.
Lord McKenzie of Luton
Can we be clear on that? Is the Minister saying that if there is a repeal of Clause 2 once the settlement is under way, he will be amenable to the removal of the revival provision in Clause 3, which could bring back the sunset clause?
Lord Wallace of Saltaire
The question of the zombie clause, the revival clause, or however one wants to put it, needs to be discussed further in Committee, when the Government may wish to return to that question in some detail with new proposals. All of us who have looked in detail at the legislation understand that sunrise clauses and revival clauses are a delicate issue for Parliament as a whole.
On turnover and natural wastage, I confirm that the Civil Service is suffering something of the order of 7.5 per cent a year. We nevertheless anticipate that the reduction in some areas will be a good deal more than that and that it will be necessary to ensure that the provisions set out in the Civil Service protocol for redeployment and assistance when people become redundant will be thoroughly available for all those who go through this scheme. Our preference is, where possible, for voluntary redundancy and redeployment, and we will be working extremely hard with the unions and with different departments to ensure that that is the case.
The noble Baroness, Lady Noakes, also remarked that there has been an explosion in public sector pay and that the private sector finds it difficult to accept the levels of compensation provided in the Civil Service. I noted in the PCS briefing, which was helpfully sent round to all of us, that the 1972 Act was intended to bring pubic sector packages up to the level of the private sector. The evidence to the Public Bill Committee from the Hay Group was that public sector packages are now in many areas better than those in the private sector. We are doing our best to keep them roughly in parallel. In the higher levels of the Civil Service, of course, the comparative level of award falls away, but this is partly because the narrower distribution of pay levels within the Civil Service does not compare to top executive pay.
On compensation, any statutory arrangements in relation to employment provide a minimum underpin for all workers. However, the Government are attempting, through negotiation, to provide an example to other employers of good practice in staff issues. Again I emphasise that negotiations are continuing and that a much more generous package than the minimum is on offer.
The noble Lord, Lord McKenzie of Luton, asked about human rights issues and accrued rights. The Government’s human rights analysis has been set out in the Explanatory Notes to the Bill. In sum, we do not consider that Civil Service benefits are possessions within the meaning of Article 1 of Protocol 1 of the European Convention on Human Rights. Even if, contrary to the Government’s view, the changes we propose are seen as representing an interference with possessions, we believe that such interference is fully justified in light of the pressing need to reduce the budget deficit.
As I understand it, the judgment of Justice Sales was not about accrued rights but about the form of agreement under the existing legislation. This legislation therefore removes the basis for the judgment of Justice Sales. In any event, I emphasise that the limits in Clause 2 do not apply to departures agreed before the Bill comes into force. We are not trying to take away from staff a right that has been upheld by the court, because the court did not rule that staff had a right to the current terms. The question is about the nature of the negotiations and the right of the unions to veto any agreement made. Again I stress that we have been, and continue to be, close to an agreement and I hope that we will succeed in reaching one.
Our intention is to provide amendments that both reinforce the requirement for the Government to consult and ensure that the extent and outcome of the consultation is made more transparent. This will be further informed by points raised today before we present the necessary amendments to your Lordships’ House in Committee.
I confirm that the level and quality of support offered to surplus civil servants who are made redundant will continue at the current level and that a copy of the April 2008 protocol for handling surplus staff situations is now in the Library of the House. That protocol will be updated to reflect the additional measures that the Government intend to introduce.
I hope that I have covered the points made by noble Lords in a serious and sober debate about what we all recognise is a difficult issue. I look forward to further discussions in Committee.