House of Lords

Wednesday 19th December 2012 Lords Chamber

Wednesday, 19 December 2012.

11:00

Prayers—read by the Lord Bishop of Lichfield.

Royal Assent

Wednesday 19th December 2012 Lords Chamber

11:06

The following Acts and Measure were given Royal Assent:

Civil Aviation Act

Prisons (Interference with Wireless Telegraphy) Act

Financial Services Act

Police (Complaints and Conduct) Act

Small Charitable Donations Act

Church of England Marriage (Amendment) Measure.

Armed Forces: Long-Term Care

Wednesday 19th December 2012 Lords Chamber

Question

11:06

Asked By

[Lord Empey]

To ask Her Majesty’s Government how many members of the Armed Forces have sustained life-changing injuries as a result of their service in Iraq and Afghanistan; and what additional resources will be made available for their long-term care.

[The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)]

My Lords, for reporting purposes serious UK operational casualties are usually categorised as having either serious or very serious wounds and injuries. Between 2003 and 2009, 222 UK casualties in Iraq were included in these categories, while the number for Afghanistan between 2001 and November this year was 591. We constantly invest in staff, facilities, patient welfare and treatments, including rehabilitation, to ensure that casualties get the best possible medical treatment and ongoing care.

[Lord Empey]

I do not wish to get into an argument over statistics, but clearly the Minister’s figures cannot possibly at this stage include people who will suffer from mental illness, which, as we know, emerges over time. However given that many of these casualties will require care for anything up to 60 years or more and that the care is of a specific nature which cannot inevitably be supplied by the Armed Forces, what strategy is in place to ensure that the National Health Service, which will have to bear this burden, is adequately resourced? The resources will have to be not only financial but professional, with specific knowledge required to treat these casualties whose sacrifice ensures that we continue to enjoy the freedoms which sadly we so often take for granted.

[Lord Astor of Hever]

My Lords, the noble Lord asks an important question. I assure him that my department takes this issue very seriously. The continued care of veterans injured while in the Armed Forces remains a key component of the military covenant. When personnel leave the services, responsibility for their healthcare is transferred from the Ministry of Defence to the NHS. We are working closely with the Department of Health to ensure that any service-related medical needs are met throughout their civilian lives. For example, the NHS is introducing national specialist prosthetic and rehabilitation centres to address the long-term needs of amputee veterans. It also recognises concerns about their mental health and is introducing a nationwide network of new veteran-focused mental health outreach and assessment teams.

[Lord Lee of Trafford]

Could my noble friend give any breakdown between regulars and reservists in the figures he gave earlier? In their ongoing situations, is there any differential between the resources and support given to regulars and that given to reservists?

[Lord Astor of Hever]

My Lords, I can answer my noble friend. In Iraq, of the 222 UK casualties listed as having serious or very serious injuries, 25, that is 11%, were members of the Reserve Forces. In Afghanistan, of the 591 UK casualties listed, 22—4%—were reservists. Those reservists who sustained wounds or illness while mobilised will be retained in service prior to being demobilised and returning to work, to ensure that they receive the best possible welfare support and care and are eligible for the full range of Defence Medical Services care. Once reservists have been demobilised, their local reserve unit continues to ensure that they have access to welfare services.

[Lord Davies of Stamford]

My Lords, when we were in government there was a rule that no one would ever be fired from the services as a result of wounds sustained in the course of duty. Anybody in those circumstances always had a choice of taking a compensation payment and an immediate pension if he or she preferred or taking a compensation payment and remaining in service. I will never forget the occasion when, talking to someone doing an important job in Camp Bastion, I suddenly realised that what he had in place of a left leg was a wheel. Is that rule still in force and will the Government commit to maintain it?

[Lord Astor of Hever]

My Lords, to the best of my knowledge that rule is still in place. If it is not, I will write to the noble Lord.

[Lord Jenkin of Roding]

My Lords, I very much welcome what my noble friend said in Answer to the noble Lord, Lord Empey, about servicemen who suffer severe mental stress. But will he confirm that this does not in any way reduce the need for the very splendid voluntary organisations that work in this field—I mention in particular Combat Stress—which do splendid work with people who often have very long-term mental illness problems following service?

[Lord Astor of Hever]

My Lords, my noble friend raises a very important point. I have seen some of the excellent work that Combat Stress and the other charities that help with mental health issues do and I have enormous respect for it.

[Baroness O'Loan]

My Lords, is the Minister aware of the number of members of the Armed Forces coming home from Iraq and Afghanistan suffering from life-changing levels of post-traumatic stress disorder? Is he aware that in Northern Ireland anyone who has served in the Armed Forces and who is seriously ill in this way is not able to avail themselves of the services offered by Combat Stress—that applies only in England—since it will not deal with a person who is regarded as too unstable, following repeated hospital admissions? For those former soldiers, there is only very limited treatment available on the NHS, with no appropriate therapeutic interventions. I raised a case three years ago of a former soldier who was hospitalised repeatedly for very long periods over three years, was self-harming and had no therapeutic help. Is there nothing Her Majesty’s Government can do to assist such former soldiers in Northern Ireland?

[Lord Astor of Hever]

My Lords, the noble Baroness raises an important point. I was not aware of this issue. I will look into it and get back to her on this very important point.

[Lord Wills]

My Lords, I also very much welcome what the Minister has said so far. In helping the Afghan army and police develop responsibility for their own security, what efforts are the Government making for the rehabilitation and long-term care of people in those forces who have suffered life-changing injuries? For example, are processes in place to pass on all the knowledge and expertise gained over the years at Headley Court? What plans are there for the trauma hospital at Camp Bastion after 2014?

[Lord Astor of Hever]

My Lords, there will be a Statement on Afghanistan later. I will be briefed for that and should be able to answer the noble Lord’s question then.

[Viscount Slim]

My Lords, the noble Lord is aware that a number of wounded and sick servicemen have fallen out of the net and live rough in our cities. The coalition Government have decided to remove, and make redundant any minute now, some 25,000 servicemen. The numbers who will fall out of the net will increase. What is required is a national plan to bring these people back into the fold, involving the Ministry of Defence, other departments and the National Health Service, as the noble Lord, Lord Empey, said. What are the MoD’s plans to cater for this?

[Lord Astor of Hever]

My Lords, most veterans, including the seriously wounded, make a successful transition to civilian life and require little if any assistance after service. The MoD is working very closely with other government departments, the devolved Administrations and voluntary and community sector organisations to address all issues faced by ex-service offenders and homeless veterans.

EU: United States Free Trade Agreement

Wednesday 19th December 2012 Lords Chamber

Question

11:16

Asked By

[Lord Anderson of Swansea]

To ask Her Majesty’s Government what steps they, and the European Union, will take to make progress on proposals for a European Union-United States free trade agreement.

[The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)]

My Lords, the European Union-United States high-level working group on jobs and growth, which is tasked with examining the options for enhancing the transatlantic economic relationship, is expected to release its report in the coming weeks. The UK Government look forward to receiving the conclusions of this report and to working with other EU member states and the European Commission to take forward this important agenda and achieve—if at all possible—an EU-US free trade agreement.

[Lord Anderson of Swansea]

My Lords, following the failure of the Doha round of global trade negotiations, does the Minister agree that the focus will increasingly be on regional arrangements and where better than the EU-US following the EU summit with the US last year, which accounts for half of the total GNP of the world and one third of world trade? Will he give an assurance that the conclusions of this working group will be speedily worked upon? What steps does he see following that?

[Lord Green of Hurstpierpoint]

I agree with the noble Lord that this is an extremely important negotiation. It is indeed the case that in the wake of the stalling of the Doha round, regional arrangements of this kind is the inevitable way forward in practice for free trade. The EU has a heavy agenda; a couple of weeks ago, it agreed a mandate for negotiating with Japan—obviously another major economy. The EU-US deal will be the most important one for the reasons that the noble Lord has indicated—the importance of the two blocks in world trade—and I assure him that the British Government will pursue every avenue that we can to encourage, support and cajole others into working to get this deal done.

[Baroness Hooper]

My Lords—

[Baroness Falkner of Margravine]

My Lords—

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

My Lords, I think it is the turn of my noble friend Lady Falkner.

[Baroness Falkner of Margravine]

Is my noble friend aware of the United States’s concerns about its influence with both the United Kingdom and the European Union should the United Kingdom seek to distance itself from the current arrangements it has as a serious partner in the EU? Will he consider, in the light of the US-UK free trade agreement what the implications might be if we proceed to distance ourselves from within the European Union?

[Lord Green of Hurstpierpoint]

My noble friend asks a very important question which embraces the wider issue of the British relationship with the European Union. I think it is appropriate for me to stress that as far as trade and the single market are concerned, Britain’s role in the EU is extremely important, both to it and to the EU. Our chances of a good trade agreement that is of interest to the US are much greater in the context of a European Union negotiation.

[Lord Peston]

My Lords, I speak as an ardent free-trader. I hate to sound cynical, but is the noble Lord aware that, if by free trade you actually mean free trade—namely, free trade in all goods and services, which on the one hand must certainly include agriculture and on the other hand must certainly include financial services—there is not the slightest chance that the Americans will agree to anything resembling free trade as understood by most people, including Adam Smith, who believed in it?

[Lord Green of Hurstpierpoint]

The noble Lord has pointed out a number of the issues which will indeed be points of difficulty in the negotiations. Agriculture will clearly be a significant demand on the part of the United States. On the part of the European Union, and indeed so far as the UK is concerned, freer access to the services market in the US is an important demand. The complexity at that end lies in part in the fact that some of the regulations are at state level not at federal level in the US, and this just points to the general theme that this is going to be a difficult, long and painstaking process. It would be naive of any of us to believe that it will take merely a few months to get a deal done.

[Baroness Hooper]

My Lords, given the recently concluded treaty between the European Union and the region of central America and the ongoing negotiations with the Mercosur countries—Uruguay, Paraguay, Argentina and Brazil—is there any scope for going one step further and, once the bilateral agreement with the United States is completed, having an EU-NAFTA treaty?

[Lord Green of Hurstpierpoint]

My noble friend asks an important question about the wider ramifications of a US deal. Indeed, NAFTA is the first consideration here. The EU already has an agreement with Mexico—I think I am right in saying that it was signed in 2000. It is a deal which covers only tariffs and not non-tariff barriers, and Commissioner De Gucht has publicly mused on the value of updating that agreement in time. The EU is in the midst of negotiations with Canada and is hoping to conclude them within the first few weeks of the coming year. As far as Mercosur is concerned, I think that there is a lot further to go. At the moment, the negotiations are rather stalled, but a recognition of their importance is the fact that we will keep going, not least because of the importance of the Brazilian economy.

[Lord Harrison]

My Lords, is the Minister aware that, under the Irish presidency, Dublin hopes to host a meeting for the promotion of the European Union- United States free trade area agreement? However, does he believe, as I do, that, while there may be resort to plurilateral, bilateral and indeed regional meetings, we still require, for the most efficient purposes, multilateral agreements along the lines that Doha proposed?

[Lord Green of Hurstpierpoint]

I completely agree with the noble Lord. The ideal position is a completed Doha round, but I am afraid the reality is that that has stalled. However, we do not conclude that there is therefore nothing that we should do, and we will be encouraging the Commission to work to complete a trade facilitation agreement in the context of the WTO that we hope can be improved at the next ministerial meeting of the WTO in about a year’s time.

World Sepsis Declaration

Wednesday 19th December 2012 Lords Chamber

Question

11:23

Asked by

[Baroness Greengross]

To ask Her Majesty’s Government whether they intend to support the goals of the World Sepsis Declaration; and what action they are taking to improve knowledge and skills regarding sepsis.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, the Government fully recognise the importance of addressing sepsis—a potentially life-threatening condition. We support the overall thrust of the World Sepsis Declaration. We have taken a range of actions to address sepsis, focusing on those interventions directly relevant to England—for example, the training of healthcare professionals in the awareness of sepsis. I commend the Global Sepsis Alliance for its initiative in raising the profile of this serious condition.

[Baroness Greengross]

I thank the noble Earl for that reply. However, given the problem of even adequate recognition of the problem of sepsis, and to ensure that the desired treatment improvements are fully underpinned by quality standards, can he assure the House that the Government are able to identify where sepsis sits within the NHS Outcomes Framework and the QIPP workstreams?

[Earl Howe]

Yes, my Lords. The NHS Outcomes Framework is, as the noble Baroness will know, a high-level document intended to drive improvements in the service generally. A condition such as sepsis would be covered in three separate domains of the framework, depending on which aspect of the condition was being considered—for example, safety, most obviously, or quality, or indeed the patient experience. The patient safety aspects are reiterated under Section 5 of the mandate as well, and under this general direction it will be for clinicians to take responsibility for delivering the clinical outcomes.

[Lord Walton of Detchant]

My Lords, can the Minister tell the House what research the Government are supporting for the development of new and effective antibiotics for the treatment of sepsis? Can he also comment on a recent report from Southampton, which is based on a huge controlled trial of treatment where antibiotics were prescribed for patients with minor respiratory tract infections, and showed that such treatment was of no particular value but inevitably leads to increased bacterial resistance to current antibiotics? What is the Government reaction to that report?

[Earl Howe]

My Lords, on the research on antibiotics, the noble Lord alights on a real problem. There is a dearth of such research; I am aware of at least one company engaging in it but in view of the increasing prevalence of antibiotic resistance it is a real issue. As the noble Lord will know, there are extensive guidelines to ensure that there is responsible prescribing of antibiotics. I am not aware of the Southampton example which he quotes, although I shall look into it and write to him as appropriate. He may like to know that the department has been developing a five-year antimicrobial resistance strategy—an action plan. It has an integrated approach and builds on a range of initiatives, such as the 2000 UK strategy and the 2011 EU strategic action plan.

[Baroness Gardner of Parkes]

My Lords, I believe it was the same report from Southampton that said the public have no idea of the difference between sepsis and septicaemia, which of course is a fatal condition if not treated. In view of the success of educating the public on strokes and how effective that has been, does the Minister think that as well as educating professionals there should also be a wider publicity campaign given to the general public to make people aware of the very important differences between these conditions?

[Earl Howe]

My noble friend makes an important point. Public awareness is a key focus of the Global Sepsis Alliance’s declaration. On raising awareness, the NHS Choices website has extensive information about sepsis, its causes, symptoms and treatment. I do agree, however, that it is important to empower both patients and the public to ensure that everybody is on their guard against this very serious illness.

[Baroness Pitkeathley]

My Lords, since sepsis accounts for more deaths than bowel, bladder and breast cancer put together and for one-third of all the expenditure on critical care in the NHS, would the Minister agree that early diagnosis is the key here? I declare an interest as someone who recovered from full-body sepsis, thanks to early diagnosis.

[Earl Howe]

My Lords, I absolutely agree with the noble Baroness. The need to rapidly identify sepsis when it occurs is vital to ensure that unnecessary death is prevented. A crucial measure to tackle sepsis when it appears is early treatment with broad-spectrum antibiotics. My understanding is that once the bacterium has been identified, the treatment of choice is to have a more focused antibiotic, but rapid reaction is of the essence.

[Baroness Jolly]

My Lords, every year sepsis kills 37,000 people and costs the NHS £2.5 billion. Can my noble friend please tell the House what research programmes are in place across the NHS into care pathways and diagnosis?

[Earl Howe]

My Lords, the department’s National Institute for Health Research is funding a range of research on sepsis, which includes a study into the clinical and cost-effectiveness of early resuscitation protocols for emerging septic shock. Other examples include a trial of vasopressin versus noradrenaline as initial therapy; a study on how risks associated with nutropenic sepsis are conveyed to and interpreted by patients undergoing chemotherapy; and there is also a very interesting project on a point-of-care test for sepsis.

Finance: Peer-to-Peer Lending

Wednesday 19th December 2012 Lords Chamber

Question

11:30

Asked By

[Baroness Wheatcroft]

To ask Her Majesty’s Government what is their assessment of the impact of peer-to-peer lending on major financial institutions.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords—

[Noble Lords]

Hear, hear.

[Lord Sassoon]

Wait for the Answer—but I believe it is a good news story.

Peer-to-peer platforms are currently small in the context of the UK lending market but they are growing fast. It is too soon to assess what impact they might have on other financial institutions but, over time, we expect alternative forms of finance, including peer-to-peer platforms, to bring additional choice and greater competition to the lending market.

[Baroness Wheatcroft]

I thank my noble friend for his response. This positively being his last time at the Dispatch Box, I take this opportunity to thank him for all his work there.

[Noble Lords]

Hear, hear.

[Baroness Wheatcroft]

Although there is a place for peer-to-peer lending, small firms really require lenders who understand their business, who can see them through difficulties as they arise, who understand what they need in the way of advice and who certainly will not pull the rug away from them at the first sign of difficulty. The Government are doing what they can to encourage lending to small businesses but can my noble friend tell me whether they are managing to encourage a longer-term approach?

[Lord Sassoon]

My Lords, I am grateful for my noble friend’s remarks. I certainly agree that we want diversity in lending. I do not believe that p-to-p lending will solve every problem but I think it has an important role to play. Alongside the money that BIS put in to support two of the p-to-p businesses only last week, through the Business Finance Partnership, BIS also put some money into funds managed by lenders that I think will probably fit more with my noble friend’s model. It is also worth noting that some of the new bank lenders, such as Aldermore, have been some of the biggest takers, relatively, of funds under the Funding for Lending scheme. I agree that diversity is needed.

[Lord Barnett]

My Lords, I wish the noble Lord well in his retirement. I hope he is retiring only from the Treasury. I have very much enjoyed our exchanges over the past two-and-a-half years.

Can he confirm that one of the many subsidiaries of the huge new Bank of England under the Financial Services Act will have the power to regulate in this case? When it is really a business-to-business matter—it is a big and growing business and I gather that some trade associations are already involved—can the Minister say whether it would be liable to tax relief and therefore part of a possible new tax avoidance scheme? Of course, that will be very different from one Peer lending to another, or one Baroness lending to another.

[Lord Sassoon]

As always, I am grateful to the noble Lord, Lord Barnett, who keeps me on my toes until the end. On regulation, we had some interesting debates in the course of the passage of the Financial Services Act but, on balance, I think it is appropriate that p-to-p lending comes within the FCA’s regulatory framework. We also need to look at the experience in places such as the US and ensure that regulation does not kill off what could be a very valuable contribution to lending. There are some issues on tax, which are the subject of ongoing debate between the industry and HMRC. We certainly do not want anything to stand in the way of the growth of industry. I do not believe that tax issues do that. There is a big, ongoing agenda of which the noble Lord, Lord Barnett, identifies some of the key issues.

[Lord Forsyth of Drumlean]

My Lords, I add my thanks to my noble friend for the careful way in which he has dealt with our questions and issues and wish him every success. How do the Government expect the banks to lend more money to small businesses if we are requiring them to hold more capital in the form of government bonds or deposits with the Bank of England and taxing them more by increasing the banking levy? Where are they going to find the money? Is there not a case for relaxing, in a counter-cyclical way, the capital requirements so that the money is there to get growth in our economy?

[Lord Sassoon]

My Lords, these are critical issues. There is a fundamental trade-off between stability in the system, which clearly has to improve over what it was before the financial crisis, and the need to boost growth. The fact that the Financial Policy Committee at the Bank of England is up and running in shadow mode and is identifying the counter-cyclical tools that it will need is a very important new step in this area. The Funding for Lending scheme is, I believe, the most important sign of what can be done with the strength of the Government’s balance sheet. Lower funding costs are already coming in to wholesale bank funding, declining by over 100 basis points since June. One indication of the impact on consumers is that quoted rates on fixed-rate mortgages have declined by 0.3 percentage points since the Funding for Lending scheme has come in. However, I certainly agree that we need to be very attentive to this issue.

[Lord Davies of Oldham]

My Lords, yesterday the Opposition expressed their best wishes to the noble Lord on leaving the Front Bench. In the Treasury team, that Motion was carried by seven votes to one, and I am not quite sure whether I should confess to being the one. Nevertheless, I have enjoyed the cross-Dispatch Box jousting that we have had from time to time and I appreciate the Minister’s skill in replying—often, of course, defending the indefensible. Will he, on this occasion, give us real hope for the future? There is a possibility of very rapid growth of peer-to-peer lending. Is he certain that what will be in place is rigorous regulation of this developing sector? We obviously failed with regard to the banks in the past and there are a lot of anxieties about the new scheme now. This one presents particular challenges and I would like some reassurance from the Minister.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Davies of Oldham. I would not want, on an occasion like this, to point out that the previous Government did not take any policy on p-to-p lending, but it was very small then. These lenders only got into business in 2005. The critical thing is that now, having handed the challenge and the responsibility to the FCA, we will see a draft plan very soon, certainly in the first quarter of the new year, as to what the framework for regulation will be. Draft rules will come in later in the year and, as I said earlier, it is very important that we get the balance right in providing an appropriate degree of regulation, not something that kills off what is likely to be a very fast-growing and important area of activity.

Arrangement of Business

Wednesday 19th December 2012 Lords Chamber

Announcement

11:38

[Baroness Anelay of St Johns]

My Lords, we have reached 30 minutes, and therefore Question Time is concluded.

Last night I made a business statement, and at that time I undertook to notify the House when a new date had been found for a debate on the Leveson report. The usual channels have met and have agreed that, in order to enable the debate to take place at the earliest opportunity, it will be rescheduled for Friday 11 January, which previously had been a non-sitting day, so it does not displace any business of any other Peer. Those noble Lords who were signed up to speak last night will be automatically transferred on to the list of speakers for 11 January and naturally will be notified of that by e-mail. Of course, if that date proves inconvenient for any noble Lords, they may withdraw their name.

[Lord Peston]

My Lords, I was puzzled by what was scheduled originally. Will there be enough time on the day that the noble Baroness has mentioned for Peers who have major contributions to make on this subject—and I mean major contributions—to make proper, lengthy speeches? I understood that yesterday they were to get between three and four minutes. You can hardly get to your feet and take a breath before you are told to sit down again. Will the noble Baroness assure noble Lords that they will not be told, “We all have to go home early on a Friday; therefore you cannot make a major speech”?

[Baroness Anelay of St Johns]

My Lords, last night I made a statement at 6.46 pm, going into some detail on the circumstances surrounding why it was necessary in the minds of several Peers taking part to delay the Leveson report debate. I do not propose to repeat the comments I made at col. 1522, where I explained why the business that had been scheduled had gone outside the range of time that would normally have been taken for Third Reading. That is better left for reading.

I gave undertakings to the House last night that we would seek a very early opportunity. In answer to several questions last night, I fully supported the view of those who wished to speak that they should not be hindered by anything other than the rules of the House in the Companion in so doing. Therefore, I can confirm that the normal process on a Friday is that we sit at 10 am. This will not be a time-limited debate. We shall follow the usual processes that we have with defence, economics and foreign affairs debates. It is in the hands of those who speak; they decide how long their speeches will be. No doubt, if they become a little overlong, those present may make that view felt.

[Lord Prescott]

My Lords, the noble Baroness last night informed us of the cancellation of this important debate, but said it was influenced by “a forceful delegation” who approached her. Can she give me the names of this forceful delegation, since they were the eiderdown brigade who prefer bed to debate? Does she also realise that, in missing the opportunity last night, this House has missed the opportunity to discuss the alternatives that there are on the Leveson issue, which are likely to be decided in the next week or so and before we have the debate? Does she also recognise that it has denied us the opportunity to discuss the latest issue of the Mitchell police affair, which is moving into charges of conspiracy between the Sun, the Telegraph and the police? It would have been a good opportunity, as Leveson recommended changes and the press refuse to accept them.

[Baroness Anelay of St Johns]

My Lords, I was very ready last night to agree with everything that the noble Lord, Lord Prescott, said. I made that clear and I do so again today. He makes a forceful point. Of course, the usual channels had originally scheduled the debate for yesterday to reflect the view that it was important for the debate to take place before anything had been set in stone. However, in politics I understand that stone sometimes moves anyway in any Government, so it is not quite as we might think.

I certainly believe that we have found the earliest available opportunity. I understand that there are Members present in the Chamber today who were part of that delegation who came to see the Leader and me. As I mentioned last night, they were speaking on behalf of others as well. That was certainly the case. I was also aware, as I made clear last night, that other Members of this House would have preferred to go on into the late night—whether they brought their duvets with them, I am not too sure.

[Lord Fowler]

My Lords, I think I have done as many all-night sittings in the other place as the noble Lord. I congratulate the noble Baroness on her decision. The Leveson report is immensely important to the press and public. It would have been completely absurd, and would not have done justice to the report, to start a debate with more than 40 speakers at 8 pm. Surely, as far as the noble Lord, Lord Prescott, is concerned—and on Leveson we tend to work arm in arm, if that is not too close a relationship—I do not think that a series of time-limited speeches in the early hours of the morning would have had any influence whatever outside this House. Therefore, it underlines the correctness of the decision taken by my noble friend.

[Lord Soley]

I want to speak very briefly because my noble friend Lord Prescott identified this matter. I happily put my name forward as one of the people involved. Without hesitation, I can say that this is not about eiderdowns, beds or anything else as I manage quite well with very little sleep. However, the reality is that, as the noble Lord, Lord Fowler, said, if we had had our debate yesterday my noble friend Lord Prescott would have been making his speech at about 1 am and it would not have been noticed—and it ought to be. That is why we have the debate when we do, when we can also respond to some of the things that have been said or discussed elsewhere.

[Lord Cormack]

I am sure my noble friend has made the right decision. Will the House still sit on Friday 18 January, as is currently the plan?

[Baroness Anelay of St Johns]

I am grateful to my noble friend Lord Cormack for that question. I can confirm that the business of the House already set down for 18 January will proceed as normal. One of the considerations I had to take into account was that any scheduling of the Leveson debate should not displace Peers’ Private Members’ Bills because I know that Peers of this House value every opportunity to bring those Bills forward.

Scotland Act 1998 (Modification of Schedule 5) (No. 2) Order 2013

Wednesday 19th December 2012 Lords Chamber

Motion to Approve

11:45

Moved By

[Viscount Younger of Leckie]

That the draft order laid before the House on 7 November be approved.

Relevant document: 11th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 13 December

Motion agreed.

Disabled Persons’ Parking Badges Bill

Wednesday 19th December 2012 Lords Chamber

Order of Commitment Discharged

11:46

Moved By

[Baroness Thomas of Winchester]

That the order of commitment be discharged.

[Baroness Thomas of Winchester]

My Lords, I understand that no amendments have been set down for this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

Public Service Pensions Bill

Wednesday 19th December 2012 Lords Chamber

Second Reading

11:46

Moved By

[Lord Newby]

[Lord Newby]

My Lords, this Bill offers a rare opportunity to introduce primary legislation that pulls together a new common UK legal framework for public service pensions, and it is right and necessary that we do so. We must have public service pensions legislation that is fit for purpose and ensures that those who commit their careers to delivering our valued public services continue to receive guaranteed benefits in retirement that are among the very best available.

However, we also have an obligation to ensure that these generous arrangements are provided on a fair, transparent and sustainable basis. This Bill is based on the recommendations of the independent Public Service Pensions Commission, which was chaired by the noble Lord, Lord Hutton of Furness, who I am delighted will be taking part in the debate today.

In June 2010, the noble Lord accepted an invitation from the Government to conduct a fundamental structural review of public sector pension provision and to make recommendations on pension provisions that would be affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights. This Bill fulfils the Government’s commitment to bring forward fundamental changes to public service pensions based squarely on his recommendations.

I thank the noble Lord, Lord Hutton, for his significant role in bringing about these important reforms. His recommendations mark an important milestone in the history of public service pension provision, and we are extremely grateful to him for having undertaken this somewhat thankless task. I must also thank those in the other place for their work on the Bill to date.

As was made clear on Report in the Commons by my ministerial colleague the Economic Secretary there are some areas in this Bill that we are reflecting on further, following representations made in another place. For example, we are looking at the best way to reflect our commitment to member representation on scheme boards and at how personalised information is provided. As for the powers that would allow scheme managers to make retrospective changes to schemes, I am aware that this is an issue about which many feel uncomfortable and that the Delegated Powers Committee has also expressed concerns. The Government are considering their response to the Committee’s report, and we will return to that matter.

As we begin our consideration of the Bill, we must not underestimate the importance of what it is trying to achieve. We are in a world where people are living longer. While this is obviously an extremely important and welcome trend, we must face the consequence of this improvement on the costs of providing public service pensions. As well as looking at how to keep the increasing costs under control, we must also consider the fairness of the arrangements. I hope and believe that the Bill gets this important balance right.

The Bill is in one respect rather curious, in that many features of public sector pension schemes are not covered in detail. They will be set out in detailed scheme rules which will eventually come before Parliament in the form of negative resolution statutory instruments. What the Bill does is provide an overarching framework for all public service pensions schemes. This is not a new approach. The Bill before us today supersedes the Superannuation Act 1972, which followed the same principle. The reason for this is simple: detailed pension schemes are extremely complicated, will vary between different parts of the public sector and will need in some respects to change over time. They are much better suited to secondary legislation.

This inevitably means that many of the most important aspects of the schemes—for example, the accrual rates and the revaluation rates—are not in the Bill. The key principles which underpin public sector pensions and the way in which pensions schemes will be determined are, however, covered by the Bill, and I should like to turn to some of its principal provisions. However, I stress at the outset that the Government intend that public service pensions continue to set a high-quality benchmark and one to which many in the private sector could usefully aim.

The Government intend that public sector pensions should continue to be based on defined benefits. For many years, these have been based on an individual’s final salary. This has had a degree of inequity in that, per pound contributed to the scheme, those on high final salaries have received a greater return in terms of the pension that they have received. This Bill proposes that members’ benefits should be calculated on a fairer basis; namely, on an individual’s career-average earnings. By following this approach, low earners will no longer be expected to subsidise the benefits of higher earners.

The Bill links normal pension age to state pension age for most members. This will automatically track changes in longevity and protect the taxpayer from the associated cost risks. Historically, improvements in longevity have not been well managed, and the failure to do so in a timely manner has represented the single biggest risk to the future affordability of these pension schemes. The establishment of the link between public sector and the normal state pension age addresses this problem. As an exception to the link, a normal pension age is set at 60 for firefighters, police officers and members of the armed services in recognition of the unique characteristics of those public servants’ work. We want to be sure that these normal pension age provisions remain appropriate, which is why the Government intend to review the provisions as and when the state pension age changes. This will ensure that a consistent approach to pension age policy is taken across government as a whole.

Of course, normal pension age does not represent the age members must work until; rather, it is a point on which to base the calculations. Members can choose to retire earlier or later if they wish and, should they decide to do so, a fair adjustment will be applied to their benefits. The same principle applies in other pension arrangements—it is built into annuity rates, for example—and it is right that it applies to public service pension arrangements, too.

In addition to the longevity link, the Bill includes provision for an employer cost cap which will provide additional protection against unforeseen changes in the cost of public pensions. If the cost of a scheme rises, the scheme rules must set out a process for agreeing how they can be brought back under control. The cap may well in practice not be breached, but if it is, the Bill provides for a clear way of dealing with what could otherwise be an unacceptably high cost to taxpayers. In effect, the employer contribution to the scheme is being fixed within specified margins. Any change beyond those will result in benefits or member contributions being adjusted to bring costs back under control. Details have been made available in the House Library regarding the practical application of the cap and the Government’s intentions around the valuation procedures to be followed in the new schemes. These are new and important elements of the Government’s policy, and I hope that these papers provide useful clarification to the House.

As I said earlier, I emphasise that this Bill is not just about fairness to taxpayers; it is also about fairness to scheme members. This is why we propose transitional arrangements for members of most schemes who have less time than others to adjust their retirement plans. Those who were 10 years from their current normal pension age on 1 April this year may continue to accrue benefits on their existing terms; their pensions will be unaffected by the Bill—

[Lord Naseby]

I apologise for making an intervention, and I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund, but I would like to tell my noble friend that in Committee I shall be moving an amendment to Clause 31, concerning the rights of the members of the PCPF and their appropriate protection in legislation. The Bill, as currently drafted, casts doubt in that it could be read as enabling IPSA, in relation to MPs’ future pension provision, to break the link between members’ accrued benefits and their final salaries. I wish to place that on the record.

My understanding is that we are going to have the Committee stage pretty soon after we come back. I hope very much that my noble friend and I can have a discussion on that amendment before we come to the Floor of the House.

[Lord Newby]

My Lords, I am very happy to have an early discussion with my noble friend and look forward to debating any amendment that he may wish to bring forward.

As I was saying, we want public pension recipients to be reassured that, as a result of the provisions set out here, the new schemes will be administered and governed as effectively as possible. The new open scheme arrangements will ensure greater accountability and transparency through a common approach, an approach that will be independently overseen by the Pensions Regulator. The Bill builds on the regulator’s existing role and powers in relation to public service schemes and, as far as is appropriate, mirrors the existing approach to other occupational pension schemes. The regulator’s new powers will help public service pension schemes deliver good standards of administration and governance, ensuring that scheme costs and risks are understood and managed effectively.

All these changes demonstrate that the end of the current benefit arrangements and the creation of these fairer, more sustainable pension schemes are the right and proper way forward. It is right that public service pensions continue to set a good-quality benchmark for the private sector, and a race to the bottom in terms of pension quality must be avoided.

A consistent approach across schemes regarding consultation processes and the application of financial directions from the Government will also mean that members see unprecedented certainty about how their pensions are handled. It will no longer be the case that a member in one scheme can look over to another public service workforce and marvel at the myriad different quirks and anomalies within the scheme rules. There is some scope for variation to suit the needs of each workforce but, as the noble Lord, Lord Hutton of Furness, recommended, this is a common framework which brings all these schemes together under one legislative umbrella.

We have said that we hope and expect that the new schemes that will be drawn up under this Bill framework will last for at least 25 years. Of course, no Parliament can bind its successors, but we have included in the Bill enhanced consultation procedures, both with those who would be affected by any significant changes and with Parliament, to ensure that there is a high hurdle to be cleared before any such changes could be made.

The approach we are following will apply across all public service pension schemes, including smaller public body arrangements. We are aiming to reform the pensions in those bodies by spring 2018, and there will be no exceptions. This is why I am pleased that the Northern Ireland Government have indicated their intention to maintain parity with the changes set out in this Bill when they bring forward their legislation. Likewise, I hope our colleagues in Scotland and Wales will follow suit for the handful of schemes where competence for pension legislation sits outside Westminster.

Finally, we have also taken the opportunity of the Bill to reconsider whether certain generous historical entitlements remain appropriate in the modern age. The Great Offices of State pension arrangements, which apply to the Prime Minister, the Lord Chancellor and the Speaker of the House of Commons, give unusually generous pensions to these office holders. The scheme will now be closed to new office holders. Future holders of these positions will be entitled to a scheme that is the equivalent of those available to Ministers, thus ending this historical anomaly.

In conclusion, I believe that the package of measures contained in the Bill will fulfil the legitimate and worthy aim of bringing about long-term structural changes that are in the best interests of members, employers and other taxpayers. This is sound, reforming legislation, which I hope will continue to command cross-party support. We must, however, get the detail—

[Lord Whitty]

My Lords, in everything that the Minister has said, he has failed completely to make a distinction between those public sector pension schemes which are unfunded and those that are funded—principally, the local government scheme. Can he give us a guarantee that he will address that difference during Committee, since the Bill and his speech do not adequately reflect that now?

[Lord Newby]

Of course, my Lords, but at the moment I am explaining the common elements of the framework that we are putting in place. At this point, the key thing we all have to have before us is that we are putting in place a common framework, within which all the schemes will fit. The Local Government Pension Scheme is obviously very different, in that it is funded rather than unfunded. There have been many discussions on it; I have agreed to meet the LGA and hope to do so between now and the first day in Committee. The Government are very conscious of the need to ensure that the benefits of current local government arrangements are not undermined in any way by this scheme. I certainly anticipate that we will be discussing aspects of the local government pension arrangements in some detail in Committee.

Indeed, I was about to say that we are committed to getting the detail right and to giving detailed consideration to all these things in Committee. We have to take this opportunity to set in place a sustainable future public service pension landscape. I look forward to our debates on the legislation, and I commend the Bill to the House. I beg to move.

12:02

[Lord Davies of Oldham]

My Lords, in the unavoidable absence of my noble and learned friend Lord Davidson, I beg leave to take his place and make the initial response of the Opposition to the Minister’s speech, which I very much appreciated. We all recognise the need for further reforms to public service pensions. That does not detract in any way from the continuing need for public service employees to have good quality, sustainable pension schemes after what for many will have been a lifetime’s career in public service. In government, we established a framework to manage the changes in the demography of the UK—changes which inevitably impose a need for public sector pensions to reflect them. We all know of the increased longevity of our population and therefore we support the basic principle underlying this Bill.

The area of public sector pension reform has of course been recently and independently investigated in depth by my noble friend Lord Hutton of Furness, who I am delighted to see in his place. I look forward to his contribution to this debate a little later. The report which he produced has been broadly welcomed and has substantial acceptance from this side of the House. It is regrettable that the many sensible long-term reforms suggested by my noble friend have been disrupted somewhat by the Government’s sudden imposition of a 3.2% increase in contributions and a crucial switch in the indexing from RPI to CPI, all without any prior negotiation and without the benefit of falling within any of the recommendations in my noble friend’s report. That has somewhat queered the pitch and made life very difficult for those representing public sector employees.

Nevertheless, that does not alter the fact that we all recognise that this Bill is based upon sound principles and needs to be supported across the House. Of course, we understand the increasing cost of pension benefits caused by increased longevity. We also understand the range of proper concerns about the Bill raised by a number of trade unions and professional associations representing public sector employees. We share some of their concerns.

We are concerned that Clause 3 is couched in the broadest of terms that permit the Government to amend through secondary legislation public sector pension provision at any time of their choosing. I accept what the Minister said, that the complexity of public sector schemes and the differentials across them require amendment from time to time. In the Bill, there does not seem to be any clear limitation on the power that may be deployed by the Government and being carried through by SIs on negative resolution procedures. Clause 21(2) provides some attempt at control, but it is expressed as applying subject only to the negative procedure as a generality. We all know the limitations of the negative procedure.

That is hardly much of a fetter on the relevant authority, which will seek to make changes. Additionally, there is little to alert the many thousands of public employees who may be affected by the use of such a power. That does not sit easily with parliamentary scrutiny on what could be very significant issues for people in receipt of public sector pensions. The capacity of Clause 3 to enable amendment, by secondary legislation, to future pension statutes, not yet enacted, is providing an extraordinary measure of discretion to the Executive in an area where the goal, we are told by the Chief Secretary to the Treasury, is apparently

“no more reform for 25 years”.

Those changes, which will inevitably be necessary over a period of time, will be subject to limited scrutiny. Governance in this vital area of people’s lives requires a sturdier safeguard than the one that the Minister has identified, which is in the Bill. That is why, when we get to Committee, we expect considerable debate on this issue.

Furthermore, the capacity of Clause 3(3)(b) to allow retrospective change to pension schemes by way of secondary legislation is concerning. It raises real concerns that adverse changes may be visited on existing schemes, thereby undermining accrued pension rights. The Minister sought to give a categorical assurance that accrued benefits would not be affected. That is not quite what the Bill says, so we will again wish to press him in Committee on this crucial area. Although not wholly unprecedented conceptually, retrospective alteration sits a little oddly with the Government’s aspiration that there is to be no more reform for 25 years.

At Clause 21(1)(b) there is a degree of recognition by Government of the inherent undesirability of retrospection in this area in so far as retrospective regulation is subject to affirmative procedure where, in this limited area only, it,

“appears to the responsible authority to have significant adverse effects in relation to members of the scheme”.

The well-known problem with this approach, through secondary legislation, is that it is not susceptible to any amendment, leaving as the only possible response acceptance or rejection.

The Opposition do not see such a possibility of retrospection as either desirable or sound in this area. The Government will be aware that secondary legislation that serves to erode or remove accrued entitlements is very much the terrain where, among other grounds, Article 1 of Protocol 1 of the European Convention on Human Rights may be effectively deployed to challenge. Such a challenge would be based on the concept that the Government should not lightly interfere with individual’s property rights. That is what pensions are, of course; the accrual of pensions is the sacrifice of resources by the individual concerned and the placing of them in a pension. It is of the greatest concern that there should be any threat in this area. Surely public sector pensions should not be subject to the uncertainty and possible litigation that such retrospection invites. If the Government are opposed to creating such a situation, as one would hope, then this must be reflected in the Bill. The observations already made regarding the need for effective parliamentary scrutiny apply even more when the Government assume a power retrospectively to change or reduce pensions’ accrued benefits. Why, if no more reform for 25 years is intended, is such a power incorporated within the Bill without adequate safeguards? This is an issue that we are bound to address in Committee with considerable deliberation.

In relation to defined benefit schemes, the Economic Secretary to the Treasury stated in another place on 4 December:

“We do not intend to move away from defined benefit schemes in public services. Defined contribution schemes would not be the right kind of pension provision for many public servants”.—[Official Report, Commons, 4/12/12; col. 770.]

That is a welcome commitment by the Government. Without appearing in any way to challenge the sincerity of such a statement by the Economic Secretary, though, is there not much to be said in favour of making that commitment clear in the Bill? It would demonstrate a resolve to support defined benefit schemes that the language of Clause 7 does not impart. We shall be looking to amend this aspect in Committee.

Similarly, regarding the provisions in Clause 11 relating to the employer cost cap, to which the Minister has made reference, that place this subject under Treasury direction, would it not be an improvement that consultation be a requirement prior to any such direction? The general obligation in respect of consultation at Clause 19 does not appear to cover this particularly significant part of the Bill.

Clause 9, in linking state pension age to normal pension age, which is set to rise to 68 years, is understandable in the light of improving longevity, and by and large makes proper exception for the Armed Forces, to which the Minister made reference, police and firefighters. Our concern is the insufficient flexibility in the clause to allow for those public sector employees, especially in the National Health Service, whose roles impose physical and mental demands well above the ordinary. Such staff should not always be obliged to accept an increasing retirement age, especially if independently reviewed evidence of capability shows later retirement to be inappropriate for specific groups. It is also desirable that reasonable notice be afforded prior to any rise in the pension age to permit proper planning for retirement. We hope to look closely at these aspects for amendment in Committee.

In relation to the local government pension scheme, Clause 16 creates possible unintended consequences. As the scheme is, unusually, a funded pension scheme, the use of the term “closure” could permit an interpretation with unfortunate consequences, such as the splitting of funds and crystallisation events. Smaller admitted bodies, normally with limited reserves, might similarly be affected, but potentially even more seriously, if the crystallisation of debt were to arise.

I appreciate that the Government have undertaken to look at this matter. It would be helpful to know whether the Government intend to tackle this issue in a forthright manner in the Bill, and avoid the potential for considerable instability within the Local Government Pension Scheme. We welcome the acceptance by the Government of the principle that scheme members should be kept informed of their pension rights and provided with an annual update.

We will want to scrutinise a proposed amendment that the Economic Secretary promised in another place earlier this month. Accurate and effective information is the objective to enable scheme members to know where they stand and to plan for their future.

On the issue of fair deal, the Government have stated a commitment to retaining the fair deal in respect of the pension rights of employees transferred from the public sector to the private. We do not, however, see any unequivocal reflection of that statement in the Bill. Clauses 22 and 26 are prayed in aid by the Government to support the fair deal policy, but it is very far from clear that those clauses offer any kind of firm commitment. Suggestions that contracts with independent contractors could incorporate the fair deal leave very much to be desired if the objective is its retention. Surely the best way is to make a stated commitment real by placing it in terms on the face of the Bill.

Ministers may argue that the fair deal need not be enshrined in statute, but in an area which can easily be the subject of litigation, we suggest that the time has come to provide both clarity and certainty. We do not, with respect, find ministerial assurances sufficient on this topic if those assurances are to form the basis of the next 25 years of public sector pensions. We shall seek to propose changes on this subject in amendments in Committee.

On the issue of Scotland, Scottish Ministers have been responsible for the negotiation and design of the LGPS in Scotland and have not been subject to Treasury approval. As the Bill proposes to extend provisions on normal pension age and the shift from final salary to career average benefits to the scheme in Scotland, should not the consent of the Scottish Parliament be sought for such extensions? I do not suggest that this is necessarily an issue of legislative competence requiring approval by the Scottish Parliament. Rather, taking account of the distinct approach of the Scottish scheme seems a reasonable means to proceed. We shall look also at this matter in Committee.

There remains one further issue, which as I understand it operates as an anomaly under the Bill. It concerns firefighters who are employed in defence establishments and who qualify for exemption from the normal pension age neither as firefighters nor as members of the armed services. If we are correct on this point, it would appear to be an oversight that we would want rectified. I would be pleased to hear any clarification the Minister might be able to provide, perhaps when he winds up in this debate.

To conclude, I wish to make clear that we accept the need for reform of public sector pension provision, as we expressed while in government. Where we differ from the Government’s proposals is that we consider that public sector employees deserve greater clarity and security than the Bill currently provides. It is for that reason that we look forward to a lively Committee debate on the Bill.

12:19

[Baroness Noakes]

My Lords, I can just about support the Bill, because it is in the right direction of travel. However, I do not think that the Government have got their policy on public sector pensions right. They most certainly cannot claim to have produced a lasting solution. I am profoundly disappointed by the policy that this Bill will implement.

I am not against pensions for public service employees. I fully support workplace-based pension provision, but I have great difficulty in supporting public sector pension arrangements that are disconnected from those in the majority of the economy—namely, the private sector.

Put simply, I do not believe that taxpayers should be asked to pay for public sector pensions on terms that are increasingly not available outside the public sector. There is no fairness in that. I have the greatest respect for the noble Lord, Lord Hutton of Furness, and his report, but I think that he was wrong to have landed his recommendations in a space that is not in touch with what is happening to pension provision generally. The noble Lord characterised alternatives to his recommendations as a race to the bottom, and that formulation has been used whenever his recommendations have been discussed. But that language grossly overstates the argument. The majority of private sector employees currently have no pension provision, although after auto-enrolment we hope that most of them will be in what is admittedly a minimalist version of a pension scheme, via the NEST arrangements. But no one, not even from the right-wing think tanks that I occasionally dip into, suggests that public sector employees should be levelled down to that. This is not an issue about racing to the bottom. The real issue is about the available issue of defined benefit pensions.

The facts are stark. In the last Office for National Statistics survey, 79% of public sector employees had access to DB pensions, while the figure is only 9% for the private sector. In 1995, there were more employees in open private sector DB schemes than in public sector ones, but the blow dealt by Gordon Brown's ACT raid added to other emerging factors, notably longevity, resulted in pension burdens that the corporate sector simply could not bear. Some companies have even been forced into bankruptcy because of the impact of their DB pension liabilities. In 1995, 4.9 million private sector employees were active members in open DB schemes; by 2011, this was just 0.9 million. This is the real background to public service pension reform. The reforms which are delivered in this Bill continue to give DB pensions to public service employees, and this is simply out of alignment with the rest of the economy.

There is, of course, a policy shift to a career average approach, rather than a final salary one, in line with the recommendation from the noble Lord, Lord Hutton. This will put downward pressure on the costs of providing pensions to public sector employees, but mainly for the minority who have significant salary progression through their career. However, the public sector will still unambiguously be entitled to defined benefit pensions, which is beyond the grasp of the vast majority of the UK's workforce.

There are some good things in this Bill. The alignment of the pension age with the state pension age, as recommended by the noble Lord, Lord Hutton, is long overdue and welcome. The inclusion of judicial pensions, so long virtually a no-go area in pensions reform, is also welcome. Control of the costs and risks of providing public sector pensions must be at the heart of these reforms, and I welcome the cost control clauses. The Government have accepted the recommendation of the noble Lord, Lord Hutton, of a fixed-cost ceiling. It remains to be seen how robust the arrangements will prove to be in practice, if faced with very high cost increases, but I agree that it is well worth the effort to see if an automatic cost-stabilising mechanism can be made to work.

The most important measures, which will help to reduce the cost of public sector pensions, will come from other sources. The noble Lord, Lord Davies of Oldham, has already referred to these. By far the biggest financial impact will come from shifting pensions indexation from RPI to CPI. The fiscal sustainability report issued by the Office for Budget Responsibility this year shows that the vast majority of the forecast reduction in the costs of public sector pensions as a percentage of GDP comes from this source, from the shift to CPI, and calculates it as 0.4% of GDP benefit by about 2050.

The second most important contribution to reducing the cost burden on the public sector is additional member contributions. However this produces only about 0.1% of GDP and is a long way behind the contribution of CPI. All the rest of the changes facilitated by this Bill trail in behind that, accounting for around 0.1% of GDP. As I have mentioned, these cost reductions are not fully delivered until around 2050, according to the charts in the OBR’s report. Of course, massive modelling assumptions lie behind those figures. Without any sensitivity analysis, it is difficult to be certain about whether a long-term benefit will actually be delivered by the reforms in this Bill.

In the short term, however, there will be an increasing net cash cost of pensions, according both to the OBR’s figures and the Treasury’s public expenditure survey figures. An excellent paper for the Centre for Policy Studies by Mr Michael Johnson shows that the expected cash cost for public sector pensions over the three years to 2014-15 has risen by £10 billion in just the past year. This is cash that the Treasury has to raise from today’s taxpayers. This Bill should fight against the shorter-term real costs, as well as the longer-term implications of public service pensions.

[Lord Hutton of Furness]

I did not intend to interrupt the noble Baroness’s speech, which I was enjoying. However her last point is very important. If she is saying that the Government should reduce those additional costs that she just identified, the only way would be to interfere with the accrued rights of those pensioners. To do so would raise serious legal challenges. Does she advocate a policy of retrospectively amending accrued rights?

[Baroness Noakes]

Perhaps the noble Lord can wait. I will deal with part of the issue of accrued rights in a few moments. I said that the Bill should fight against this short-term cost as well as the longer-term cost because of the large and growing cash impact—which is a real impact that we can measure—set against the rather more esoteric longer-term modelled reduction expressed as a percentage of GDP. Given the assumptions embedded in there, those longer-term projections are not much more than conjecture.

[Lord Flight]

I thank my noble friend for giving way. The issue of funding the growing cash deficit is not necessarily about altering rights, but also about contributions for as long as there is a pay-as-you-go system.

[Baroness Noakes]

My noble friend is right. Nobody would pretend that the solutions are easy, but there are solutions other than altering accrued rights. The important aspect of needing to deal with the short-term cash costs brings us to the transitional provisions. I believe that the Government’s transitional provisions are nearly incomprehensible, certainly to those who have had to make the hard decisions about changing pension arrangements in the private sector. First, the Government adopted a classic short-term/long-term political fudge by giving protection to all those within 10 years of retirement. This is designed to buy off most of those who might work out how much it would cost them. Most private sector changes to pension arrangements come with transitional protections, but I have never come across a transitional protection extending to 10 years, as the Government have devised theirs.

Secondly the Government have adopted the definition of the noble Lord, Lord Hutton, of accrued rights and protected the final salary element of pensions for anyone who has accrued rights prior to the implementation of the changes. This is out of line with private sector practice where schemes are increasingly closing to further accrual, with indexation of accrued benefits rather than salary-based post-award dynamism. This makes a significant difference to the ultimate costs. All this adds up to a very disappointing Bill. At the very least, I hope that the Government will remain committed to resisting calls to dilute this Bill further.

I conclude by saying that I firmly believe that the total pay package for public sector workers should be comparable in the round with those available in the majority of the economy—namely, the private sector. This is fair. However, it is not fair for taxpayers to have to support the preservation of benefits in the public sector beyond those available to employees more generally, unless—and this is a big proviso—the value of those benefits is fully reflected in other elements of pay, generally in basic pay. I fully support the recommendation of the noble Lord, Lord Hutton, which stated that public service employers should,

“take greater account of public service pensions when constructing remuneration packages”.

I had hoped that this Bill would enshrine that requirement and its absence is yet another disappointment.

12:30

[Lord Sharkey]

My Lords, this is a necessary Bill which addresses fundamental problems left largely unaddressed by successive Governments. Unlike my noble friend Lady Noakes, I believe that it is broadly successful in achieving a practical balance between the interests of the taxpayer and of those in the public service.

In many ways, the Government had no choice but to act. The cost to the taxpayer of public service pensions has been increasing at a truly alarming rate. The taxpayer cost of public service pensions has increased by a third over the past 10 years and now stands at around £32 billion annually. Without reform, this amount would rise by a further £7 billion by 2016-17 to a total of £39 billion. That is a 22% increase. The current scheme has failed to respond to the rising life expectancy of the population. As the noble Lord, Lord Newby, said, as things now stand, highly paid workers get more for their contributions than those on much lower, steadier incomes. That is because final salary pension schemes benefit high fliers and those with big salary increases awarded near retirement. That is obviously unfair.

Overall, taxpayers have seen their contributions to public service pensions rise very significantly. For example, when the teachers’ pension scheme began, employees contributed 5% and so did the taxpayer. The figures now stand at around 6% and 14%. Although previous Governments have in fact made some attempt to sort out the situation, the fundamental problems still remain and these and the growing gap between private and public pension provision clearly make the current position unsustainable. Indeed, the noble Lord, Lord Hutton, said in his interim report of October 2010:

“It is my clear view that the figures in this report make it plain that the status quo is not tenable”.

I think the Government were right to take corrective action and have done very sensible things. It was eminently sensible to ask the noble Lord, Lord Hutton, to review and report on the situation and to make clear remedial recommendations. It was eminently sensible to agree to implement those recommendations and to set out to negotiate with the trade unions in an inclusive, detailed and non-adversarial way. My right honourable friend Danny Alexander and Mr Brendan Barber deserve a lot of credit for this even if they probably will not get much at all.

There are lots of good things in this Bill. The lowest paid public sector workers are protected. There will be no increase in contributions for those earning less than £15,000 and no more than 1.5 percentage points for those earning between £15,000 and £21,000. All pension rights already accrued will be protected and there will be transitional arrangements for those who are within 10 years of their normal pension age on 1 April 2012. The taxpayer is protected from unforeseen changes in scheme costs by the employer cost cap. Linking the normal pension age to the state pension age, with some exceptions to which I will return later, is also a vital change.

But having said all that, some aspects of the Bill may be a cause for concern and certainly call for detailed discussions in Committee. I have five areas in mind. The first is the retrospective power in Clause 3 that has been mentioned by other noble Lords. Clause 3(3)(c) states that scheme regulations may “make retrospective provision”. This clause generated much discussion as the Bill made its way through the Commons, with some claiming that the Bill allows for the reduction of accrued pension benefits. The Government have said that this will not be the case. The Chief Secretary to the Treasury said in a speech to the IPPR in June 2011:

“We will honour, in full, the benefits earned through years of service. No ifs, no buts”.

Despite this, the issue was still controversial at Report stage in the Commons. There the Minister, Sajid Javid, said on 4 December in response to these concerns:

“I can tell the House that the Government do not have a closed mind on this serious issue … I can only reiterate that we are listening and do not have a closed mind. I am sure that the issue will be discussed in the other place, and we shall listen carefully then as well”.—[Official Report, Commons, 4/12/12; col. 786.]

I think that this is the right approach and acknowledges that the issue is serious, that it is a cause of real and justified uneasiness and that it is unresolved.

The second area relates to the powers of the national boards, currently defined in Clause 5(1) as “assisting the scheme manager”. I know that many have argued that unless these boards have the power to recommend or even to direct, they have little real discernible purpose. I look forward to hearing the Government’s views on this in the debate at Committee stage.

Thirdly, there is the question of member representation on scheme boards. I think there is a strong case for having on the face of the Bill a requirement to have one or more member representatives. I was very glad to hear that the Government are reflecting seriously on this. Fourthly, there is the rather vexed question of whether the Bill is entirely in compliance with EU pensions regulations. I look forward to the debate, as I am sure does the Minister, on whether the LGPS is or is not in compliance with Articles 8 and 18 of the well known institutions for occupational retirement provision directive.

Fifthly, and finally, I have heard a very strong and compelling case for the inclusion of ambulance staff who are 999 responders, with firefighters, the police and the Armed Forces, among those who may retire at 60. I look forward to discussing that further in Committee.

I hope that the Minister will take these comments on board and reflect on them before Committee stage. If he does, I believe that it will help to make a good Bill even better.

12:30

[Lord Monks]

My Lords, I declare an interest as a trustee director of NOW:Pensions, an offshoot of the giant Danish Pensions Institute ATP, which now seeks to make a success of auto-enrolment in this country.

The growth of occupational pensions was one of the outstanding, if rather unsung, features of 20th-century Britain. As the noble Baroness, Lady Noakes, said, there has been a relationship between the public and private sectors, in this case, with the public sector, along with some enlightened private companies, leading the way in pensions provision. Pensions spread after the Second World War, particularly in the 1960s, to white-collar workers in the private sector on a fairly general basis and then to more and more blue-collar workers in that same sector. Some missed out, including many women and part-time workers. It was not a universal progress. Some companies did not introduce this provision but many did. However, overall, there was substantial progress. Indeed, by the 1990s, the surpluses of pension funds were used to fund generous redundancy packages in both the public and private sectors and many employers took pensions holidays. However, all that seems a long time ago. As others have said, today, defined benefit schemes in the private sector are in full-scale retreat, are closed to new starters or are being wound up altogether.

This issue was looked at by the noble Lord, Lord Turner, and the noble Baroness, Lady Drake. We miss the noble Baroness who is not present as she is unwell. We all send her our best wishes for a quick recovery. Their report showed the paucity of provision in the private sector for many people. This matter is being addressed by the auto-enrolment programme to a degree: that is, the compulsory provision of pensions by all employers in due course with the auto-enrolment of employees in the scheme. We simply need this programme to work, and to work well, certainly much better than the stakeholder pension scheme which was the last attempt at dealing with the problem.

Why did we get into this mess? Gordon Brown was mentioned in dispatches by the noble Baroness, Lady Noakes, but there was a range of issues that are now fairly clear. Actuarial revaluations were done rather suddenly; longevity rates—a very welcome development —increased; new accountancy rules highlighted pension liabilities in company accounts and the Maxwell scandal triggered some tightening of the rules. Legal and tax changes certainly played their part. Apart from those introduced by the Labour Government, the noble Lord, Lord Lawson, made some changes which encouraged the sale of personal pensions—or should I say the mis-selling of personal pensions—on a pretty large scale. The noble Lord, Lord Lamont, also made some changes which encouraged pensions holidays by employers.

A further factor was the practice of top managers establishing their own top hat schemes, which, not surprisingly, seemed to lessen their commitment to maintaining the scheme of their employees.

[Lord Flight]

I thank the noble Lord for giving way. I would like to add two other factors. First, stock market performance has been weak for more than a decade—stock markets are generally lower than they were 10 years ago. Secondly, pensions became overburdened with obligations in the private sector, the costs mounting all the time. Financially, those have been two of the most important ingredients.

[Lord Monks]

I acknowledge that they were important, but it is just a pity that so many employers did not make provision for that when they took their pensions holidays. They did not put away for a rainy day—it certainly came, and it is still with us.

This brings me back to the relationship between the public and private schemes. There have been many like the noble Baroness, Lady Noakes, who have been suggesting that because the pensions provision in the private sector, although not collapsed, has seriously receded, we should see some equivalent steps taken in the public sector. I am very pleased to see that the Government’s view was significantly modified during a series of talks with the public sector unions, which were facilitated by the TUC general secretary, Brendan Barber, to whom the noble Lord, Lord Sharkey, has paid due tribute. Incidentally, Brendan retires at the end of the month, and I know the House will wish him well and record our appreciation for the job that he has done in many areas, not just in this one. I think those talks have been successful, particularly in the continuing commitment to defined benefit schemes across the public sector.

Then the talks move down to sectoral level, where the picture varies. Some agreements have been made, some talks are continuing, and we have some disputes in certain sectors. In the view of some of the public sector unions, the Bill uses legislation to make changes that were not acceptable in the negotiations. The reaction in the fire service, parts of the Civil Service and parts of the teaching profession bear this out at the present time. The inevitable reality for these groups of workers is that pensions are becoming more expensive and they could be unaffordable at the rates of contribution that are being charged for many staff. Retirement ages are increasing and the scope of the benefits is being cut. I hope that during Committee there will be an opportunity to look at the way these changes are going to affect particular groups of workers for whom it will be different according to, for example, the arduous nature of their job, as my noble friend Lord Davies mentioned at the start.

This framework has been sorted out nationally, and that is reflected in the Bill. However, the Bill has some problems which I hope that we can address. There is some unnecessary detail in some areas including revaluation rates where it cuts across some of the packages agreed at sectoral level. There is an omission in some cases of a full commitment to the Fair Deal policy for workers contracted out of public services. Where is the recommendation of the noble Lord, Lord Hutton, for a review of the link between the state pension age and the normal pension age in public sector schemes? I think that the noble Lord, Lord Newby, expressed some assurances that had been made in the other place, which I hope will be put into effect when we get into the detail in this House.

The Local Government Pension Scheme is in many ways is a distinctive scheme, and I will want to pursue issues about its governance in Clauses 4 to 6. Again, some assurances have been given, and we will be testing in due course exactly what they will mean. One other technical area that could be important is scheme closure, which has the potential to trigger major changes in the local government scheme’s investment strategy. I hope that we can close down legal ambiguities in this area.

Some public sector workers will be paying more for their pensions and working longer before they are eligible to take them. For some individuals, that will be a bitter pill that will change their expectations of the future. However, I pay tribute to those in the talks who have softened some of the proposals by taking a diametrically opposite view to that of the noble Baroness, Lady Noakes. The pensions remain good, and we should continue to be proud of that. I hope they will provide an example to the private sector as they did in the early years of the 20th century about what its direction of travel should be.

I hope that the Government will take fresh note of the concerns that have been expressed in this debate and be ready to address them in Committee.

12:47

[Baroness Eaton]

My Lords, as I will be speaking about the Local Government Pension Scheme, I wish to declare my interest as a vice president of the LGA and also a member of the scheme.

I was very pleased to hear the Minister say that he is going to have detailed conversations with the LGA about the Local Government Pension Scheme. As we have already heard, the LGPS is a funded scheme. Its members and employers pay contributions which are invested to meet the costs of paying benefits. The funded nature of the LGPS means that pension benefits are paid for by underlying investment funds and not general taxation. It is therefore unlike the rest of the public sector pension schemes, which are unfunded and paid out of tax receipts—that is, current workers’ contributions and taxes.

The LGPS is collectively the biggest pension fund in the UK and the fourth largest in the world. There are 89 funds in England and Wales holding some £145 billion in investments and assets, which is enough to pay benefits for over 20 years. The 89 LGPS funds in England and Wales are required under scheme regulations to undertake a valuation of the fund every three years setting the employer contribution rates for the following three years. This framework allows for local circumstances—for example, life expectancy—to be considered when determining the employers’ costs.

The scheme has a positive cash flow, with income from investments and contributions exceeding expenditure. Unlike other public sector pension schemes which work on a pay-as-you-go model, the LGPS has sufficient funds to cover benefits for over 20 years. Members contribute an average of 6.5% of pay to the scheme, with higher earners paying proportionately more—currently up to 7.5%—and there is also provision for the lowest-paid workers to pay a lower percentage of contributions, currently 5.5%.

Throughout the process of reforming the LGPS, the Local Government Association worked closely with the UNISON, GMB and Unite unions through the LGPS 2014 project board, leading to a scheme design which received overwhelming support from both employers and trade union membership. The Bill as drafted does not fully reflect this agreement and therefore, in my view, requires amendment. It does not reflect the unique nature of the scheme or the fact that the arrangements have been fully agreed by the unions and the Government.

The scheme regulation provisions contained in Clause 3 could see detrimental changes imposed on scheme members without agreement. This is not the case under current scheme regulations. If left unchanged, the Bill would undermine confidence in the scheme and provision for future benefits. The provision for retrospective changes, which could have a material detriment for scheme members, would be in stark contrast to provision in private sector pensions, which allows for consultation and agreement before introducing any such retrospective changes.

As the noble Lord, Lord Monks, said, there are concerns that measures in Clauses 4 and 5 could impact on the transparency of the LGPS because there is no segregation between the scheme manager and the scheme board. For the LGPS, local boards are responsible for each of the individual 89 funds and are concerned with the effective and efficient administration of the scheme at local level. The scheme board would have concern for the scheme at national level, with a central focus to ensure efficient and effective overall management of the LGPS nationally. The scheme board and scheme manager being, in effect, the same committee would not promote good governance of the scheme and would not allow for effective separation of responsibilities at local and national level. Furthermore, the agreement reached between the unions, employers and the Government specified the need for a national board, as proposed by the noble Lord, Lord Hutton, in order to give it a national focus in line with the treatment of other public service pension schemes under the Bill.

There is a lack of clarity around the impact on fund valuations which are included in the Treasury’s scope within Clauses 10 and 12. This lack of clarity surrounds the apparent inclusion of both local fund valuations and the national notional model fund valuation within the control of Treasury regulations. Individual fund valuations are currently undertaken by fund actuaries under parameters set out in scheme regulations and assumptions agreed with the individual fund. It would be a marked change if such valuations were now to come completely under Treasury control. If the intention were to include only the notional model fund in the Treasury’s scope, the clauses would need to be amended to prevent future misunderstandings.

Clause 11 provides for the Treasury to set the scope, extent and methodology of cost management in the LGPS. It is difficult to see how the principles agreed in December 2011 for self-determination can sit easily with this clause. In contrast to the unfunded schemes, the agreement reached for the LGPS called for a separate cost management process and for the control of cost management issues to be the responsibility of the principal stakeholders of the LGPS. As a funded scheme, this is particularly important, given that funding of the LGPS is carried out independently of the Treasury.

In summary, although I acknowledge the need for the Bill to cover the LGPS, I remain concerned that it does not fully reflect and cater for the unique funded nature of the scheme or the agreement reached by the LGA and unions for the LGPS from 2014. That agreement received overwhelming support from employers and members alike, and the concern is that the progress made following agreement with the Government would be at risk should the Public Service Pensions Bill not fully reflect the unique nature of the LGPS among other public sector schemes.

12:54

[Baroness Donaghy]

My Lords, I should declare an interest as I am in receipt of two public sector pensions—one from my university career and the second from ACAS. I have been involved in public service pensions since the early 1970s and I helped to establish a final salary pension scheme for non-teaching and support staff at the University of London in the mid-1970s. Many of the schemes established before that were administered by insurance companies, which charged significant administration fees and allowed the staff no voice. I mention this because I have direct experience of the world before a decent occupational pension was established. There was no consultation with staff and no transparency, and the insurance companies exercised powers that would make Henry VIII look like a wimp. Therefore, I do not want to go back to that world.

I should also say that I was president of NALGO in 1989. This was a lay member position. NALGO was one of the forerunners of the union UNISON, and I am grateful to it for briefing me on this subject.

Framework agreements were reached with most of the unions involved in the negotiations last year. The main objective is to make sure that some of the fundamentals are adhered to in this Bill—that Treasury powers should not undermine scheme arrangements or introduce retrospection. The trust of public sector workers, which has been shattered by having to negotiate two major changes in a very short space of time, should now be rebuilt. The Bill should not cut across negotiations which are taking place in the health service and fire service on normal pension age, and the unique features of the Local Government Pension Scheme should be recognised. I fully support the noble Baroness, Lady Eaton, in what she said on that. Ministers have given certain assurances which are not reflected in the Bill, and I will be seeking to table amendments, if necessary, to try to make sure that those assurances become a reality.

The Bill is based on negotiations in England and Wales, and has not been subject to the same level of negotiation in Scotland. I am aware that the noble Lord, Lord Newby, referred to this and hoped that the Scots would come along, but my emphasis would be that the Scots should be given full consultation rights and that the Bill should be amended to maintain the powers of the Scottish Parliament to design and regulate the public service pension schemes that are devolved to Scotland. The Bill prescribes the design of Scottish schemes in a way that current UK primary legislation does not.

As has already been referred to, the Chief Secretary to the Treasury, Danny Alexander, incorporated an assurance that:

“The Government intend to include provisions on the face of the … Bill to ensure that a high bar is set for future Governments to change the design of the schemes”.—[Official Report, Commons, 20/12/11; col. 1203.]

The wording of the Bill erects a much lower hurdle for scheme design changes than currently exists by introducing wide-ranging new Treasury powers, repealing relevant sections of the Superannuation Act 1972 and replacing them with limited consultation rights.

On retrospection changes, which have already been referred to, the Government indicated at the Report stage in the Commons that they do not have a closed mind on this issue, and that is welcome. Clause 3(3)(c) provides for enabling provisions which would allow scheme regulations to make retrospective changes. Although I do not object to that in principle, it is essential that regulations that have the effect of reducing accrued rights to pension benefits cannot be made unless the scheme members or their representatives agree to that change. The absence of such wording could undermine the commitment given by government that accrued rights up to the date the schemes are changed will not be reduced. This would ensure that workers in public service pension schemes enjoyed the same protection in relation to their accrued pension rights as exist for workers in the private sector under pensions law.

On the subject of retrospection, the Bill currently allows for pension revaluation rates to be negative, meaning that someone’s accrued pension earned to date can be negatively revalued if inflation is negative. This was not mentioned in the scheme negotiations and is a change from current practice whereby scheme revaluations can never be less than zero. This would have been a deal breaker in the local government scheme and Civil Service schemes where a revaluation of CPI alone has been agreed. No other pension funds outside those provided for in this Bill have the potential for negative revaluation and I hope the Government will be prepared to accept an amendment to ensure that a revaluation will never be less than zero.

On consultation and scrutiny, members should receive the same level of protection accorded to scheme members as that provided under the Superannuation Act 1972. It is essential to the spirit of the agreement that any future changes to the scheme design that are likely to have an adverse effect on members’ benefits are subject to meaningful consultation and at least require the affirmative procedure rather than the negative. There are a number of issues on governance which need to be clarified in the Bill and on these matters I support the words of the noble Lord, Lord Sharkey. There should be a clear separation of powers between scheme managers and scheme boards to avoid conflict of interest, as recommended by the noble Lord, Lord Hutton. There should be national and local boards for the Local Government Pension Scheme to ensure effective separation of responsibilities. Although there was a small amendment in Committee in the other place, it identifies only the structure of the local boards within the Local Government Pension Scheme and not the relationship between them and the national board. Once established, national boards must have explicit powers to make real recommendations to scheme managers, as they do now, otherwise they have little purpose. The Bill should clarify the advisory nature of such boards. Although I accept there was no agreement in negotiation about the number of member representatives on scheme boards, nevertheless the Bill should require explicitly that boards must include member representatives among their number.

I hope the Minister will give an assurance that all the schemes will comply fully with the European legislation—namely, the institutions for occupational retirement provision. The Bill sets the local authority as a scheme manager but does not say how that board is to be constituted. The current Local Government Pension Scheme is not compliant with Articles 8 and 18 of the European directive. Article 8 requires the legal separation of fund institution from any sponsoring employer. Article 18 requires pension funds to invest in accordance with the “prudent person” rule. That is, investments should be made in the sole interest of members and beneficiaries. Will the Minister agree to add sub clauses on compliance with Articles 8 and 18 of the EU directive and ensure that one of the pension board’s functions is to ensure such compliance?

The power currently in Clause 7 of the Bill, to replace defined benefit schemes, will undermine confidence in the negotiated agreement and we will have to come back to that in Committee. We will also have to return then to the issue of normal retirement age. The current wording of the Bill restricts the work currently being undertaken by the NHS Working Longer Review Group to make evidence-based recommendations. There is also no mention in the Bill to there being regular review of the link between state pension age and normal pension age, which was a specific recommendation of the review of the noble Lord, Lord Hutton. At the very least, ambulance service staff should be included in any exemptions.

In Clause 10 on scheme valuations, it should be made clear that Treasury directions should be subject not just to consultation but to the agreement of the Government Actuary. Also, the Treasury should be required to consult and to take into account the opinions of the existing scheme governance structures before making a direction. To do otherwise would undermine the role of scheme-specific governance structures.

Clause 11, as it stands, gives the Treasury discretion over how the cost cap is set. The negotiated agreement in local government ensures that control of cost management issues are the responsibility of the principal stakeholders of the scheme and, as mentioned by the noble Baroness, Lady Eaton, this should be made clear in the Bill. The issue of Fair Deal has already been mentioned by other speakers and I simply wish to endorse this.

There is much to be done. If the trust of public service workers is to be rebuilt, it is vital that the Government keep faith with the negotiated agreements by reflecting them in the Bill.

13:04

[Lord Flight]

My Lords, I begin by paying tribute to the work done by the noble Lord, Lord Hutton. I have worked in the pension investment management industry going back almost 40 years and, as a result, have been significantly involved in the pension sector. I want to talk about the 85% of public sector employees in schemes that are not funded, rather than the remaining 15% referred to by the noble Baroness, Lady Eaton, who are largely local government employees.

This Bill is not just about pensions; it is about sorting out the public finances and, we must admit, fairness in society. I remember that many years ago I asked my economics master why people in the public sector were paid approximately 10% less, level by level, than those in the private sector. He replied that they generally had better pension provision and better security of employment. There was therefore an overall fairness to the situation. It should be noted that today pay level, layer by layer, is now some 10% higher in the public sector than in the private sector and there is a question mark as to why there should also be considerably better pension provisioning.

The problem for decades has been that contributions have been set well below the subsequent financial cost of meeting the pension payments to today’s retired workers. Pay as you go masks the true cost of labour and pushes the problem into the future. The legacy of successive Governments’ inability to implement the necessary reforms is now increasingly manifesting itself as a rising tax burden on the majority of people working in the private sector whose pension provision, as others have pointed out, has been severely ravaged and reduced not just under the Labour Government but currently under the coalition Government also. Following the reforms, most employee contributions will still be less than 10% of incomes. The Chief Secretary to the Treasury made this point himself on 2 November 2011, in his Statement to the House of Commons, when describing the pensions that a teacher or a nurse could expect. He said:

“To earn the equivalent pension in the private sector… Both would require an annual contribution of around a third of salary”.—[Official Report, Commons, 2/11/11; col. 928.]

Focusing on the liability is, in a sense, a red herring; it is a nebulous concept too remote from individuals’ day-to-day experience. Consequently it does not impose any meaningful political pressure. What matters is cash flow, cash cost. Today there is a rapidly growing and highly visible cash flow shortfall between contributions and pensions in payment which is immediately unambiguous. A prerequisite of pay as you go is that over time what comes in broadly covers what goes out. It is this that should provide the political pressure point which needs addressing and where the reforms in the Bill do not address this problem.

The cash flow in 2005-06 was an innocuous £200 million; it has grown rapidly since. It was £3.2 billion in 2008-09; it is forecast to rise to £14.3 billion in 2015-16 and £15.4 billion in 2016-17. If you take the actual cash flow shortfall in this last period and add the contributions being made by employers into employees’ pension schemes, the total being paid by the tax payer amounts to £32.6 billion, representing the equivalent of £1,230 for every household in the country. That means that nearly £4 out of every £5 paid in pensions to former public sector employees comes from taxpayers. Particularly surprising is the increase in the forecast shortfall between the two OBR reports, because the 2012 report includes the proposed cost-saving reforms. It might have been expected that the forecast shortfall would start reducing after 2014, when the reforms are due to be implemented, but, unfortunately, the opposite is expected to happen.

We all know the various causes of the shortfall: improving longevity, with the latest analysis indicating that people will live some six years longer than expected; a growing headcount imbalance, with fewer workers per pensioner and schemes maturing—PAYG works only if scheme membership continues to grow; and now the reality of Madoff economics in our public sector pension arrangements. The wage freeze in the public sector limiting contributions has also had an impact, while pensions in payment remain indexed to CPI. The coalition's last-minute concession to the unions to ensure that all those within 10 years of retirement will suffer no detriment to their retirement income means that at a stroke this concession vaporised the prospect for at least the next decade of exerting any significant control on the widening cash-flow shortfall. Finally, the inclusion of the Royal Mail pension scheme between the last two Budget reports added, from 2012 to 2013, some £1.5 billion per year to the forecast shortfall.

The reforms increase employee contribution rates by an average of 3.2% of income and are expected to raise an additional £1.2 billion in 2012-13, rising to £2.9 billion in 2016-17. This additional income is included in the 2012 Budget report but, alas, is dwarfed by the scale of the relentless increase in pensions in payment. Staring at one is the point that, if public sector pensions are to remain defined benefit pensions, there is an onus on employees to pay adequately for that arrangement, particularly given what has happened in the private sector.

Defenders of the status quo point out that with a pay-as-you-go framework, contributions are intended to correspond to the economic cost of employees' accruals and not to meet concurrent pensions in payment. That may be so but, in the mean time, public sector workers will continue to enjoy certainty of income in retirement, based on career-average wages, until the day they die, mostly paid for by 80% of the workforce in the private sector, almost none of whom will have such security. Furthermore, over the next few years, it will be become impossible to ignore the alarm bell that is the burgeoning cash-flow shortfall between contributions and pensions in payment. If we are to leave the system in place, I believe that one way or the other the finances will need to operate so that the cash-flow shortfall is minimal.

The coalition Government have justified their reforms on the grounds that they achieve a 40% reduction in the total liability, going down from 2.2% to 1.3% of GDP by 2061-62. This 40% reduction is significant but it is half a century away, which is far too late to address public opinion in the next few years and, as others have pointed out, we have no idea what GDP will be 50 years hence. We are already falling well behind the assumed GDP growth rate and early deviations compound. The noble Lord, Lord Hutton, has made the point:

“What we've seen is how very quickly the assumptions which underpinned my assessments of the long-term sustainability of public service pensions have been shown to be too optimistic. That is going to affect the sustainability of public sector pensions in a negative way”.

It is time to consider a solution that will be lasting, affordable and fair. The coalition might start to prepare the public sector for a risk-sharing arrangement, such as an unfunded cash balance scheme, or, as the noble Baroness, Lady Noakes, argued, for looking at a wholly DC framework. Personally, I think the latter is almost too difficult, largely because of the issue of paying twice. If the unfunded pay-as-you-go DC schemes are to stay in place, it is not fair that they will end up costing ordinary taxpayers more and more.

Finally, the Government might look at what has happened in Ireland, admittedly faced with acute economic problems, but this is a difficult world. It is a world where our public finances are unsustainable, if they continue with present deficits, a world where increasingly across the nation people expect the solution to problems to be seen as fair between one group of citizens and another.

13:16

[Lord Hutton of Furness]

My Lords, it is always a great privilege to speak in your Lordships’ House. I think we all feel that privilege and responsibility very acutely if we also feel a sense of parental responsibility towards the legislation. I confess that I feel some parental responsibility for this Bill.

A little context might not go amiss. We should all remind ourselves how significant a part public service pensions play in our savings culture in the United Kingdom. Today, it has been estimated that about 12 million people have a direct stake in a public service pension scheme. That is one in five of the total UK population. They are hugely significant. About 85% of those who are employed directly in the public service contribute to one of those pension schemes. In other words, they are doing exactly what successive Governments, we in this House and those in another place have urged employees to do for a very long time, which is to do the right thing, to act responsibly and to prepare for the time when they may no longer be economically active. They are making a sacrifice now to enjoy the rewards when they retire.

All of those things are really good and we should try to hold on to them in this debate. Most people in the public sector are saving for their retirement. As many noble Lords who have spoken in the debate so far have confirmed, that is not the case in the private sector today. The contrast with the private sector is pretty stark. Probably only about one-third of the private sector workforce participates in an employer-sponsored scheme of any kind and those numbers are going down—they are not increasing. That is a huge problem and even with that context, many in the private sector who are contributing are not saving enough.

Successive Governments have been trying to address this formidable challenge and my noble friend Lord Turner has done sterling work for the country in proposing the reforms he did a few years ago. I hope that we are now beginning to head very much in the right direction. Given the importance of public service pension schemes, in this House we should try to do all that we can to ensure their long-term sustainability. We also need to ensure their adequacy. We face a huge demographic challenge. I do not think that the price that we should pay as a society for becoming older is that more and more old people retire in poverty. We face that risk right now and I do not think that we should compound it by ill-thought-through reforms to public service pensions.

I hope it is clear to your Lordships' House that the Bill will help us to achieve those important public policy goals. I welcome the new legislative framework that this measure will introduce. I hope it will provide the necessary underpinning to secure the long-term future for public service pensions, which is a very important objective. As we all know, no legislation is perfect; we have not yet devised that sort of procedure. I say to the Minister, for whom I have very high personal regard, that the Bill is certainly not a flawless piece of drafting. Many who have spoken in this debate have highlighted those areas where there is scope for improving the Bill in its later stages in your Lordships’ House.

However, today we are debating the principles of the Bill, and these I can strongly support. So far, no one has mentioned what these principles might be, so perhaps your Lordships will allow me to make a few important points that I think need to be made. I see these principles as, first, trying to find the right way to respond to the challenge of demographic change in a fair way, so that we strike a better balance between what employees pay and what taxpayers pay for these schemes. Secondly—this is a hugely important advance in the Bill—we need to ensure that the schemes themselves are fair to those saving within them; and that is absolutely not the case in the vast majority of public service pension schemes at the moment. Only the new Civil Service scheme is a career average scheme; the final salary schemes that make up the rest of the public service pension schemes are essentially unfair to the people we should be most concerned about—those in the public sector who earn the least. It is those people who earn the least in a final salary pension scheme who subsidise the pensions of those who earn the most. That is profoundly unfair, and this Bill will remove that unfairness from the public service schemes.

The Bill will also ensure that pension schemes are better governed in the future than they are now. This is not just a bit of process that we tend to get fixated by; it is a very important principle. Through better governance, there is a prospect that these schemes can command the confidence of both employees and employers alike.

Successive Governments have recognised the need for reform in this area if these pension schemes are to be sustained and supported for the long term. Costs have been rising dramatically in recent years, and it was clear in my report that that was set to continue for some time to come. The noble Baroness, Lady Noakes, and the noble Lord, Lord Flight, referred to these increased costs in their contributions. It is true that the increase in these costs has been borne largely by taxpayers, not scheme members, and I took a very strong view in my report that that was an unsustainable benchmark for the future.

However, it is very difficult to think about short-term measures that we can take to reduce the inevitable rise in costs, because that rise is driven by a number of factors. It is driven largely by scheme members’ accrued rights and by the increasing number of people retiring from these schemes. Unless we are prepared either to reduce those rights or to further increase contributions to those schemes, this is a cost that we will have to manage as best we can. After the 3% increase in contributions that the Government have required scheme members to make, I doubt that there is a way of controlling these costs through further contribution increases unless we are going to drive hundreds of thousands of people out of these schemes altogether. That would represent not an advantage to the taxpayer but very much a loss.

The previous Government introduced higher pension ages for new entrants and cap-and-share arrangements to try to share risk more equitably between taxpayers and employees. I welcome all of those reforms. They were necessary and the right thing to do. However, in my two reports of 2010 and 2011, I set out in some detail why I thought that these important reforms had not gone far enough. Your Lordships will be delighted to know that I do not intend to rehearse these arguments in any detail today. It was quite clear from the debate after the publication of my report that not everyone shared my analysis. That is a feature of our democracy and I have no problem with that. However, I did try to set out the facts as I saw them and to try to draw the right conclusions from them. For me, they pointed very strongly to the need for further reform.

I am glad that we have found a way to sustain defined benefits schemes into the foreseeable future—I regard that as a very big gain—and I am delighted that the Government did not take a slash-and-burn approach to solving this problem. That would have served only to impoverish future generations and would almost certainly have led to higher welfare costs. That would have been entirely the wrong thing to do. It would have undermined the personal responsibility that we have to encourage in the UK among all those in the workforce, whether in the private or public sector, to save for their retirement. I am glad that that is not the Government’s intention.

It was very clear from this debate and from other debates that people are beginning to recognise that public service pensions are far from being the gold-plated employee benefit that some people have claimed. I hope that today we can dispense with that myth. On the whole, public service pensions provide, on average, fairly modest retirement incomes. However, without reform there would be a danger of these costs eventually spiralling out of control. That would put at risk what I think is really important in this debate, which is the necessary public support to sustain these pensions over the long term. So again, I think that the Government have very much taken the right path in bringing this Bill forward.

That is all well and good. The principles are sound and robust and will withstand criticism from inside and outside the House. However, it is probably necessary, too, to refer to where I think the Bill needs further work. It is not a simple piece of legislation. There are a number of areas where I hope it can be improved during its progress through your Lordships’ House. One thing on which I reached a very firm view during the course of my commission, and particularly afterwards in the public debate that ensued, is that if we have any prospect of building support for pension reform, and if it is to command a strong consensus, it absolutely must be built on a solid foundation of trust and confidence in the nature of the changes and, equally, in the way that those changes will be implemented and delivered. I accept that this is what Ministers have sought to do in the clauses of the Bill, but it is here that I have the greatest concerns over the current drafting.

I have three concerns that I want to raise this afternoon. I have already stressed the importance of good governance and how central that is to building confidence and support for these schemes going forward. I welcome the establishment of the new pension boards. That was the instrumental part of my filed set of recommendations and it is absolutely the right thing to do. I am convinced, in particular, of the need for employee representation on these boards. This is not spelt out on the face of the Bill but it needs to be. We should remind ourselves that in private sector schemes there is a legal requirement for a third of the trustees to be employee nominations, and there is a very strong case for something similar for the pension boards that the Bill will set up. This is not a bit of window dressing; it is absolutely fundamental to good governance and the building of strong support for these schemes. Again, I have reason to believe that this is very much what the Government are thinking about, and I hope that somehow they can convert their intentions into the Bill, because that will do the Bill a lot of good and give it a strong tail wind. I think that would be important.

Many in this debate have raised the position of accrued rights and how they are to be protected. That was absolutely part of my recommendations. In my report I recommended that the Bill should contain a definition of what these rights are. We tend to assume that we know what they are. They are not spelt out anywhere in the Bill. We do not have a definition for the purpose of the public sector pension schemes of what an accrued right is. We all probably think we know that, but I think that if we were all asked what it was, we would all come up with a completely different set of understandings. For those in private sector defined benefit schemes, there is a statutory definition of these accrued rights in the 1995 legislation, and there would be some benefit if the Bill were to take a similar path.

The issue of how accrued rights are to be protected is important, too. We will not build confidence and long-term sustainability in these schemes if there is any sense that what you have paid for can somehow be taken away from you. That, I am afraid, is a possible interpretation that could be placed on Clause 3. So I do not believe that the Bill in its present form is quite good enough. The danger of retrospective changes to accrued rights would strike very much at the heart and soul of building support for the savings culture, and we should not allow that to pass unchecked.

[Lord Flight]

If the noble Lord thinks that the growing cash-flow deficit cannot be solved by increasing contributions and should not be solved by changing benefits, how is he going to solve it?

[Lord Hutton]

One of the great things about no longer being in government is that I can point to the government Front Bench—to people who can answer that question. I do not want to put words into the Minister’s mouth or the Government’s mouth, but they have set out their stall as to how they can manage and contain these costs. There is going to be an increase in costs—there is no doubt about that—but through higher contributions and changes to the indexation rules for public sector schemes, they have set out their strategy for managing that pressure on public spending. That is the Government’s concern. I think the noble Lord has more of a concern with his own Front Bench in this regard than with anything that I have proposed.

However, I accept that it is a big challenge. These are difficult things to wrestle with. To be fair to the Government, they have set their sights on ensuring an adequate level of pension benefits from these schemes and I support that principle. I do not think that there is an answer to the demographic challenge we face in simply stripping away further benefit entitlement from retirees in the public sector. The combined effect of both the changes that the Government, whom I was proud to serve, and now the changes that this Government have made has been to reduce the value of these pensions by about 25%. That is a substantial change. If we were to go very much further we would undermine the principle point and purpose of those pensions, which is to give people adequate income when they retire.

The noble Baroness, Lady Noakes, referred to a lack of public support for these schemes but I wonder whether that is so. I have never found anyone in the country who begrudged a soldier, sailor or airman a proper defined benefit pension. I never met anyone who did not think that police, firefighters and others did not deserve one. There is one job that is probably more important than anything else in our society. We entrust those who teach our children with a very great deal of responsibility and I for one do not begrudge teachers a defined benefit pension.

In relation to retrospectivity, the Government have a serious problem. We have to be mindful if there are to be DB schemes in the public sector. We know that there are fewer in the private sector, but those 2.6 million people in the private sector who still have access to a defined benefit scheme know for certain, because of the current law, that their accrued rights cannot be changed unless they give their consent to that change. The same rules should apply in the public sector. I do not believe that we can have a different set of rules in relation to accrued rights for people in public sector schemes.

Many people have spoken in this debate—this is my final concern—about how this Bill affects the Local Government Pension Scheme. It is fundamentally different in its characteristics because it is not just about contributions for employers and employees; it is about assets and the investment income that is produced. My concern about the Bill and Clause 16 in particular, with its reference to closure, is that it implies some sort of segregation between the Local Government Pension Scheme as it now is and as it will be post-2014. That could run the risk of a whole set of additional costs and complexities creeping in and we should try to avoid that.

Again, I know from studying proceedings in the other place that Ministers have made it clear that that is not their intention. As a good rule of thumb, if it is not the Government's intention, they should have that on the face of the Bill, because once this Bill reaches Royal Assent, which it will, how are pension advisers to reconcile the difference between what the Bill says and what a Minister may or may not have said in Committee in this House or the other place? That is a difficult set of challenges. If the purpose of this Bill fundamentally is to create a simpler, straightforward legal framework, we will have absolutely failed if we end up with a contradiction between what the Bill says and what ministerial intentions are.

That is all I want to say about the Bill. I am looking forward to working with the Minister and colleagues on both sides of the House in improving its detailed clauses as we make further progress with it.

13:33

[Lord Davies of Oldham]

My Lords, I will keep my remarks brief because I have been obliged to speak twice in this debate and I am quite aware of the tolerance of the House in that respect.

I have drawn sustenance from the debate in so far as it has been quite clear on all sides of the House that the basic principles of the Bill command assent and support. We certainly want to see effective legislation enacted but we have clear areas of anxiety. They have been reflected in several of the speeches made during the course of the debate. I was grateful to the noble Lord, Lord Sharkey, for emphasising aspects with regard to governance. It is certainly an area that we need to look at quite carefully and there is no doubt that the Minister will be under considerable pressure to improve on the model that obtains within the Bill at present.

I understand that the noble Baroness, Lady Noakes, and the noble Lord, Lord Flight, have certain fundamental positions with regard to public sector pensions and the gold-plated nature and indulgence of the public sector in terms of provision these days. I think my noble friend Lord Hutton in his remarks indicated that in fact the average public sector pension is quite a minimal amount. It is not the case that we should point out to the private sector that there are enormous advantages in being in the public sector. There are not enormous advantages. One of the points that the noble Lord, Lord Flight, emphasised was security. Where is the security when the Government are involved in several hundred thousand jobs being lost at the present time? Where is the security when in quite an arbitrary way the Government have indicated that the costs of pension contributions must increase? We all know the reasons for that, but that is not to deny the degree of reduction in resources that apply to those people, who are often on quite modest salaries in the public sector.

I was also grateful to my noble friends Lord Monks and Lady Donaghy for identifying crucial areas in the Bill about which there is real anxiety among those who know the representations that have been identified by trade union negotiators. We must take these points very seriously. I am sure that the Minister will do so. Of course they identify particular areas on which the Bill at present does not command a great deal of assent across the country, which is essential. I was grateful to my noble friend Lady Donaghy for emphasising the issue with regard to the Local Government Pension Scheme in Scotland.

As was pointed out, in the past all arrangements were on the basis of full consultation and participation. There is an arbitrary quality about the way in which this is expressed in the Bill, which the Minister has an obligation to respond to.

Most of all, I am grateful to my noble friend Lord Hutton for participating in this debate. He has proposed a report that has given us the basis on which to consider very seriously what we all recognise is a fundamental issue with regard to public finances and public provision. We are as one with the Minister in wishing to see aspects and principles of the Bill achieved, but my noble friend identified crucial areas in which the Bill falls far short of what is necessary to win the confidence of the nation, and it is on that basis that the legislation will become effective.

13:37

[Lord Newby]

My Lords, I start by thanking all noble Lords who have taken part in the debate today. It is a great pleasure to hear the noble Lord, Lord Davies of Oldham, twice. It must take him back to his time as a Minister. No doubt he is sorry that he will not be speaking twice more often in the coming months.

At the outset, I must say that while I will try to deal with as many points as I can, I almost certainly cannot deal with them all. We will have ample time in Committee to look at them all. I also declare an interest. Although it is more than 30 years since I resigned as a civil servant, if I live long enough, I will be in receipt of some pension for my time there, although I do not think that anything that the Bill does will have an impact on that. That is a good segue into talking about retrospective powers, about which much concern has been expressed.

There is a lot of suspicion about this that is misconceived. Pensions legislation has historically contained such powers, which have been seen to be necessary for the lawful and efficient operation of the scheme. They are generally used for minor and technical changes, for rectifying errors and making changes for the benefit of members. The intent of the Bill is simply to allow for these minor changes. There is no sinister intent.

There is concern about the broadness of existing powers in the Bill. I should perhaps explain that at the moment there is no set standard of protection offered across the current schemes. That is why we have not carried across the protections in retrospectivity that can be seen in the previous legislation, such as the Superannuation Act 1972. We have also been clear that taking forward the most extreme of these—member consent locks—for any retrospective changes is not the way forward and it would not be right to do that.

However, we understand that there is a considerable strength of feeling on this issue reflected not just in today’s debate but also by the Delegated Powers Committee. We will therefore further consider the provisions of the Bill to make sure we are striking the right balance between the protection of members and the efficiency of the scheme. I hope that gives some reassurance to noble Lords.

The noble Lords, Lord Davies and Lord Sharkey, and the noble Baroness, Lady Eaton, asked about the local government pension fund and the possible crystallisation of liabilities if the fund is closed. We believe these concerns are unfounded. We set out in detail in another place why Clause 16 does not have that effect. It only prevents members of the local government schemes accruing further service under current terms unless transitional protections apply. The existing funds will continue in respect of service prior to and following the reform of these schemes and the crystallisation of liabilities does not arise. I hope we are able to reassure people fully on this in Committee.

There has been an exchange of letters between the Economic Secretary to the Treasury and Chris Leslie. The letters were copied to Sir Merrick Cockell at the LGA. Subsequent correspondence with Sir Merrick should really put the matter to rest. I think it may be of benefit to noble Lords who have spoken in the debate if I circulate that correspondence. It is technical but pretty conclusive.

The noble Lord, Lord Davies, asked why the Bill contained reference to defined contribution schemes when the Government do not intend them to replace defined benefits schemes. There are a couple of reasons for this. First, there is already a defined contribution scheme—the partnership scheme—operating within the Civil Service. It is a small scheme with only a few thousand members but it needs to be covered. Secondly, although the Government have absolutely no intention to change the basis of the schemes, it makes sense for a piece of legislation, which we hope has a long life itself, to allow flexibility in the future if there are unforeseen changes.

The noble Lord, Lord Davies, was concerned about limited parliamentary scrutiny on the Treasury powers. I agree that, as a general principle, a negative resolution instrument does not give you much scope for scrutiny. However, they are not like normal statutory instruments as there will have been a very considerable degree of formal negotiation outside Parliament. I think it is fair to say that Parliament has never seen its role as being to decide on the detailed components of pension schemes. In that respect we will simply continue on the same basis that we have up to now.

Noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Donaghy, asked about the Scottish Government’s consultation. The overall principles in the Bill are very much based on those put forward by the noble Lord, Lord Hutton, and his recommendations were, I think, accepted by the Scottish Government. They accept the generality of our proposals; in terms of more detailed consideration, the Chief Secretary has written to Scottish Ministers inviting them to propose amendments if they feel the provisions of the Bill are not suitable for the Scottish pension scheme. So far, no such amendments have been proposed. Any regulations made by Scottish Ministers will be subject to the procedures in the Scottish Parliament,

The noble Lord, Lord Davies, asked about MoD firefighters. MoD firefighters are in the Civil Service Pension Scheme at the moment. They will have their pension age linked to the state pension age to ensure consistency within the scheme. The Bill does not move any groups from their current schemes. Indeed, these MoD firefighters have always had different terms and conditions from other firefighters. This already includes a pension age of 65 for new joiners as a result of changes implemented by the previous Administration.

I turn now to the comments made by the noble Baroness, Lady Noakes, and the noble Lord, Lord Flight. They both drew very heavily on Michael Johnson’s paper for the CPS which looked at the cash flow implications of the proposals. The noble Lord, Lord Hutton, dealt extremely eloquently with the question of whether the Civil Service and public sector pension schemes should now, because of their cost, be moved to a newer lower level. I do not want to reiterate his points other than to say in as clear terms as I can that the Government have set their face against defined contribution schemes and are proposing a reformed version of defined benefits schemes.

It is obvious, and nobody disputes it, that the Government are topping up member contributions to fund pensions. This is extremely expensive but it is not surprising. Longevity is increasing and in recent years the size of the public sector has shrunk. I suspect this is a development that the noble Baroness, Lady Noakes, and the noble Lord, Lord Flight, probably support. However, one of the consequences is that the inflow of member contributions has fallen as numbers have fallen. We have taken steps to remedy this by rebalancing contributions—saving nearly £3 billion a year by 2014—and as the noble Lord, Lord Flight, pointed out, the total reform package is projected to save £430 billion. It may be over the next 50 years but it is a very significant sum. The employer cost cap means that we cannot have a runaway cost here without formal legal requirements to deal with it through reformed contribution levels or lower benefits.

The noble Baroness, Lady Noakes, felt that the transitional provisions were too generous. There are going to be transitional provisions of some sort. We have taken the view that they are a balanced package. Although people within that transitional phase will get the same pension that they would otherwise have got, they will be paying more for it. They are not completely unaffected.

The noble Lord, Lord Sharkey, made a number of points including retrospection, which I have covered. He asked about the local government pension scheme and, in particular, whether it was in compliance with the relevant IORP directive. The Government believe it is fully compliant with Articles 8 and 18 of this directive. We believe this compliance is achieved by the high standard of legal security that applies to LGPS funds and benefits. LGPS benefits are guaranteed by statute, not the existence or levels of any funds. There is no risk to members and no means by which local government employers can access pension funds or entitlements. I suspect that that is one of the many aspects of the local government scheme that we will want to clarify in Committee.

The noble Lord, Lord Monks, brought his considerable experience to bear in his contribution. I join him in congratulating Brendan Barber on the role which he played in this scheme. Those negotiations, which led to agreement in principle along much of the framework, were crucial in getting us to where we are today. I join the noble Lord, Lord Monks, in wishing Brendan Barber well for his retirement.

The noble Lord asked specifically asked about Fair Deal, as did other noble Lords. Perhaps I may deal with it because it is very important. The Government are committed to reforming the Fair Deal policy and formally announced their intentions for newly transferred staff back in July. We agreed to maintain the overall approach to Fair Deal but to deliver it by offering access to public service pension schemes for newly transferred staff, which will ensure that those transferred staff will continue to have access to good-quality pensions while helping to remove the barriers to plurality of public service provision. We recently published a formal response to the Fair Deal consultation, with further consultation questions and draft guidance. In the light of the details that emerged from the original consultation, it is appropriate to do some further policy work on contracts retendered under Fair Deal that were let under previous Fair Deal arrangements. We are currently considering how the new Fair Deal should be implemented. A start date for the arrangements will be announced in due course.

Fair Deal has always been a non-statutory policy. The new requirements will be reflected in contracts before public services are tendered, and I see no prospect of this Government moving away from their commitment to providing newly transferred staff access to public service pension schemes. However, it is important that we consider fully the views of stakeholders, including those who will be affected, through further consultation before making a final decision on the issue. It would be inappropriate to include Fair Deal in the Bill until all the policy detail is worked through.

The noble Baroness, Lady Eaton, gave us the benefit of her very considerable experience on local government issues. I do not intend to deal in detail with her points now other than to say that I hope to talk to the LGA before we reach Committee and that we will look very carefully then at all the points that she raised.

The noble Baroness, Lady Donaghy, raised a number of important points. We have one thing in common if nothing else. The noble Baroness is a former president of NALGO. As a boy, I benefited from NALGO because my father was an active member in the Yorkshire Electricity Board branch and we used to take our family holidays at NALGO conferences. I have particularly fond memories of one in Brighton where I got as a present—because he had been given it—a particularly gaudy, purple Biro, which, as a seven year-old or whatever I was, I treasured very greatly.

The noble Baroness slightly overdid it when she said that trust had been shattered as a result of these negotiations and what we are putting forward. As we have heard in the debate, there is not absolute unanimity that everything that we are doing is the best. There are many people who wish that we were being a lot less generous. We think that we are striking the right balance. The noble Baroness asked whether the bar was high enough. Again, it is a question of balance. It is quite tricky to set a very high bar because no Government can bind their successor. We are trying to make it more difficult to make changes. It is quite important to get agreement, as I believe there is, between the parties that there should be no thought at present other than that this should be a persisting scheme and that it should last for at least 25 years. Politicians come and go, but all we can do is make our position as clear as we can and do what we can in the legislation.

The noble Baroness asked whether the Government Actuary should have a more decisive, rather than advisory, role. I am advised that the Government Actuary believes that his role is advisory—that is the nature of the job—and does not want to have in essence a quasi-policy or an actual policy role because that would bring him into the area of public debate, which he believes would be inappropriate.

The noble Baroness asked about the Bill providing for the Treasury to direct how local authority pension fund valuations are to be undertaken. Clause 10 provides for the Treasury to specify how scheme-level valuations are undertaken. This is quite distinct from the valuation of local authority pension funds, which are provided for under Clause 12 instead. Local authority pension fund valuations continue to be a matter for the scheme actuaries. Treasury directions will not apply to those valuations.

The noble Baroness pointed out how under Clause 5 there appeared to be no separation of the scheme manager from the pension board. The clause allows for scheme regulations in the LGPS to establish pension boards that are entirely separate from any existing local government committees. It also provides for them to be combined if that is what is wanted. This is a matter for scheme-level discussions. We are committed to establishing a national board in the LGPS in England and Wales and will consider what is needed in the Bill to deliver that.

Until the last minute or two of the speech of the noble Lord, Lord Hutton, I thought that my only comment was going to be, “I agree with Lord Hutton”. I think that I nearly agree with him in his concerns about employee representation, accrued rights and the LGPS at Clause 16. We will come back to him. It is not in the nature of Ministers, far less Treasury Ministers, to give Christmas presents, so I shall not do that at this point, but we will come back to those points, I hope in a positive and generous spirit, in the new year.

This is, as everybody agrees, an important and much needed Bill which will put public service pensions back on a sustainable and affordable footing. Although the Bill itself does not directly implement the reformed pension schemes’ designs, it provides a sensible framework for their creation. The Bill’s measures on cost control and monitoring, and those to improve standards of governance and administration, go further than previous legislation on public service pensions. I therefore commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.

Regulation of the European Parliament and of the Council on the Fund for European Aid to the Most Deprived: EUC Report

Wednesday 19th December 2012 Lords Chamber

Motion to Resolve

13:58

Moved By

[Lord Boswell of Aynho]

To resolve that this House considers that the Commission proposal for a Regulation of the European Parliament and of the Council on the Fund for European Aid to the Most Deprived (COM(2012)617, Council Document 15865/12) does not comply with the principle of subsidiarity, for the reasons set out in the 6th Report of the European Union Committee (HL Paper 87); and, in accordance with article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the Parliaments to forward this reasoned opinion to the Presidents of the European institutions. Considered in Grand Committee on 13 December.

Motion agreed.

Afghanistan

Wednesday 19th December 2012 Lords Chamber

Statement

13:59

[The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)]

My Lords, with the leave of the House, I am repeating a Statement made in the other place. The Statement is as follows:

“With permission, Mr Speaker, I should like to make a Statement on Afghanistan. Let me once again pay tribute to the brave men and women of our Armed Forces serving in Afghanistan. Theirs is a difficult and dangerous job; they operate in the most demanding of environments, displaying courage and heroism on a daily basis.

Since operations began in 2001, 438 members of our Armed Forces have made the ultimate sacrifice, 11 since my right honourable friend the International Development Secretary made the last quarterly Statement on Afghanistan on 13 September. In the face of such sacrifice, we should be in no doubt about why we are operating in Afghanistan. It is for one overriding reason: to protect our national security. Atrocities on the scale of September 11 2001 must never be allowed to happen again.

We seek an Afghanistan able to manage its own security effectively and prevent its territory from being used as a safe haven by international terrorists to plan and launch attacks against the United Kingdom and our allies. This is an objective shared by our coalition partners in the ISAF and by the Afghan Government.

We in NATO fully support the ambition of the Afghan Government to have full security responsibility across Afghanistan by the end of 2014. Our strategies are firmly aligned. The phased process of transition of security responsibility, agreed at the Lisbon summit, is well advanced and on track.

In accordance with ISAF planning, by the end of 2013 we expect that UK forces will no longer need to routinely mentor the Afghan national army (ANA) below brigade level. This is a move up from our current battalion-level mentoring. It is a reflection of rapidly improving Afghan capacity and capability, and in line with the Chicago milestone.

As the Prime Minister recently announced, a progressive move to brigade-level mentoring will also allow us to make further reductions to our force levels from the 9,000 we will have at the end of this year. Our current planning envisages a reduction to around 5,200 by the end of next year. This number is based on current UK military advice and is in line with the NATO strategy agreed at Lisbon and the emerging ISAF planning. It also reflects the real progress being made in Helmand. We will keep this number under review as the ISAF plan firms up and other allies make draw-down decisions in the new year. Let me be clear; this reduction is possible because of the success of the Afghan national security forces in assuming a lead role.

Across many parts of Afghanistan, security is already delivered by the Afghan national security forces. Today the ANSF have lead security responsibility in areas that are home to three-quarters of the population, including each of the 34 provincial capitals and all three districts that make up the UK’s area of operations. Across Afghanistan, the ANSF now lead over 80% of conventional operations and carry out 90% of their training. They set their own priorities, lead their own planning, and conduct and sustain their own operations. By the middle of next year—marking a moment of huge significance for the Afghan people—we expect the ANSF to have lead security responsibility for the whole country.

This national picture is replicated in Helmand. The ANSF are now firmly in charge in the populated areas of central Helmand, with increasing ability and confidence to operate independently. As the ANA’s confidence in its own ability grows, it is showing an appetite to conduct Afghan intelligence-led raids and we are focusing our advisory effort accordingly.

The focus of our assistance to the ANSF is increasingly switching from company-level activities to mentoring at battalion level. Kandaks from the ANA’s 3/215 Brigade in Nad-e Ali and Nahr-e Saraj have already moved on to the new model, working alongside the UK-led Brigade Advisory Group, and further Kandak advisory teams will be in place shortly. The reaction of the leaders and commanders at all levels in 3/215 Brigade has been one of pride based on self-confidence. This phased transition has allowed the UK-led Task Force Helmand to reduce its footprint significantly. Since April, nearly 50 permanent British base locations have been closed or handed over to the ANSF.

While progress on security has been real and meaningful, partnering is not without risk. The attacks on our forces, including so-called insider attacks perpetrated by rogue members of the ANSF, remind us how difficult this mission is. We are working at every level to suppress this threat. However, we are clear that we will not allow these terrible incidents to derail our strategy or our commitment to the Afghan people.

The insurgents remain committed to conducting a campaign of violence in Afghanistan. They continue to represent a threat to the future stability of the country. The ANSF, supported by the ISAF where necessary, are taking the fight to the insurgents and pushing them away from the towns, markets, key transport routes and intensively farmed areas towards the rural fringe. As a result, the Afghan-led security plan is increasingly able to focus on disrupting the insurgency in its safe havens.

While we cannot be complacent, the picture as a whole is of an insurgency weakened. Enemy-initiated attacks have fallen by an average of more than 10% in those areas that have entered the transition process, demonstrating that the Afghans are capable of managing their own security. More importantly, the geographical pattern of enemy-initiated attacks shows a significant reduction in impact on the local population.

While our combat mission will be ending in 2014, our clear message to the Afghan people remains one of firm commitment. On the security front, at the Chicago summit in May the international community agreed to provide funding to support the continued development of the Afghan national security forces in the years after 2014. NATO has also agreed to the establishment of a new, non-combat mission after transition completes. The UK will support this, including through our role as the lead coalition partner at the new Afghan national army officer academy.

In terms of supporting the Afghan Government as a whole, the Kabul conference in June sent a clear message of regional engagement, and at the Tokyo conference in July $4 billion per year was pledged to meet Afghanistan’s essential development needs. The UK’s combined funding commitments from Chicago and Tokyo are almost £250 million a year.

For the value of this support from the international community to be fully realised, the Afghan Government will need to address the corruption that remains rampant and could become a real threat to the long-term stability of Afghanistan. The Afghan Government now need to deliver on their commitments through the Tokyo Mutual Accountability Framework (TMAF) to establish a legal framework for fighting corruption, improving economic and financial management, and implementing key economic and governance reforms, including elections.

Democracy is taking hold in Afghanistan. Not in the same shape as here in Britain, but Afghan voters can look forward to a future of their choosing, rather than one that is imposed on them. Afghan women enjoy a level of participation in their society and its politics that few could have envisaged even half a decade ago. DfID will continue to provide funding and support to further advance this agenda.

In Helmand, the process of local representation has seen marked improvements. Voter participation during 2012 for district community council elections in the traditionally challenging districts of Sangin, Nahr-e Saraj and Garmsir has been impressive by comparison with levels during previous presidential and parliamentary elections in the same areas. October’s announcement of the 2014 presidential elections is another important milestone in Afghanistan’s history. Many challenges remain, but an inclusive and transparent electoral process will be a real sign of progress.

Ultimately, the best opportunity for a stable and secure Afghanistan for the long-term lies in a political settlement; one that draws in those opponents of the Afghan Government who are willing to renounce insurgency and participate in peaceful politics. Any process will, in the end, require the Afghan Government, the Taliban and other Afghan groups to come together to talk and compromise. We appreciate how difficult this is for the respective parties, so we are working with our international allies to help bring all sides together—in particular, through the engagement of Pakistan in the process. Our aim is to generate confidence and dialogue. Our message to the Taliban is that reconciliation is not surrender; it is an opportunity for all Afghans to sit down together and help shape their country’s future. Common ground can be found, focused on the need for a strong, independent and economically viable Afghanistan.

The future of Afghanistan can be seen in the increased level of economic activity across the country. Bazaars that had been deserted are re-opening and commercial investment is evident in the towns. Basic public services are available to increasing percentages of the population. Nevertheless, Afghanistan, although rich in culture and natural resources, remains one of the poorest countries in the world—a legacy of 30 years of conflict. Its people are proud and hospitable, yet they have suffered unimaginable brutality and deprivation.

Over the last 11 years, we have been helping to ensure that Afghanistan’s past is not inevitably its future. As we move towards full transition at the end of 2014, it is clear that there remain huge challenges ahead for the Afghan people. Our combat mission is drawing to a close but our commitment to them is long term. Progress is clear and measurable, and our determination to complete our mission and help Afghanistan secure its future remains undiminished. I commend this Statement to the House”.

My Lords, that concludes the Statement.

14:11

[Lord Rosser]

My Lords, I thank the Minister for repeating the Statement made earlier today in the other place by the Secretary of State. These updates on the situation in Afghanistan provide us with a welcome opportunity to express again our continuing appreciation of the bravery and commitment shown by our Armed Forces. It is also a sombre opportunity, particularly as we approach Christmas and prepare to celebrate it with our families, to remember and reflect on the sacrifices made by members of our Armed Forces who have lost their lives or suffered life-changing injuries, whether physical or mental, in the service of our country.

The commitment to success in Afghanistan runs deep on all sides of the House, and while we on these Benches will scrutinise government decisions we will support the intentions with which they are made. Afghanistan has seen significant but not irreversible progress. Al-Qaeda has been dispersed, we have overseen elections, the army and police forces are being trained and the rule of law is evolving. None of these tasks, however, can be said to be complete. There are immense challenges to overcome. Facilitating free and fair presidential elections, tackling green-on-blue attacks, improving the representativeness of the police and the army, developing an education system and, above all, helping to deliver political reconciliation are all issues which necessitate our commitment up to and beyond 2014.

We all want to see our troops home as soon as possible and we welcome today’s announcement. When will the Minister be able to tell us which units will leave and from which part of Helmand? We are all concerned about the continuing risk to UK personnel who will remain, so can he say whether any force protection capabilities will be drawn down as a consequence of today’s announcement? Can he give an assurance that the full current range of facilities and amenities available to our forces in Afghanistan, including medical facilities, will continue to be provided for our remaining Armed Forces once the reduction in the overall size of our forces in Afghanistan commences?

The Minister spoke in general terms; however, can he be more specific about how the capacity of those departing can be sufficiently replaced by Afghan forces? Can he give the House more detail on the capability of the Afghan forces, specifically on what capacity they have in providing an air bridge, aerial surveillance and intelligence? He told us, in repeating the Statement, that 3,800 of our forces will leave by the end of next year. Does he currently envisage most remaining until the end of the fighting season and does he now expect the remaining UK forces, post-2013, to be withdrawn throughout 2014 or to remain until the end of combat operations?

Can the Minister say whether he envisages any circumstances that might lead to the decision announced today being changed or reversed? The co-ordination of the military coalition is essential, so is this part of a synchronised set of announcements? Once the reduction in our Armed Forces in Afghanistan begins, will our remaining forces continue to undertake their current roles and responsibilities—albeit on a scaled-down basis—or will the roles and responsibilities of our Armed Forces change from what they are at present?

There are currently some members of our Reserve Forces in Afghanistan. Will it be the intention to continue to deploy Reserve Forces as our Armed Forces in Afghanistan are reduced, or will members of our Reserve Forces no longer be deployed once the reductions start? Can the Minister also say whether all those who will be returning from Afghanistan, whether in 2013 or 2014, will be exempt from any future tranche of compulsory Armed Forces redundancies?

While the focus is rightly on withdrawal, it is also necessary to consider the post-2014 military settlement, which was referred to in the Statement. The Chief of the General Staff is right when he says that our commitment to Afghan institutions must be long-term, but we need more clarity on the nature of that commitment. Can the Minister therefore be more specific about the role of non-combat personnel? Is it current thinking that our trainers will be embedded with the ANSF and, if so, who will have responsibility for force protection?

It is still unclear how many UK forces will remain post-2014 or from which services they will be drawn. When will the Minister be in a position to give us greater detail on this, as well as on the UK’s equipment legacy to Afghanistan? I appreciate that firm decisions may almost certainly not have been made on these aspects, but if he is able to provide some more detail it would be extremely helpful. I accept that if he is able to do so, it may well be in writing subsequently.

We all know that a long-term settlement for Afghanistan will be achieved through politics rather than just military might. There have been recent reports of a “road map to peace” from Afghanistan’s High Peace Council, outlining plans for talks between the Afghan Government and the Taliban early next year. What confidence does the Minister have that such talks may indeed take place, and can he say whether he believes talks between the Taliban and US officials will recommence in Qatar in the new year? Can he also comment on the significance of Pakistan releasing a number of Afghan prisoners, and whether he sees that as marking a potentially significant shift in the Afghanistan-Pakistan relationship?

One of the main measures by which we will judge progress in Afghanistan will be the progress of women, to which the Minister referred in repeating the Statement. Sadly, a detailed recent UN report showed that Afghan women remain frequent victims of abuse. What efforts are the UK Government making, beyond those that the Minister referred to, to ensure that women’s safety does not deteriorate once ISAF forces have left? In particular, what are the Government doing to bring more women into the political process, the police and the judiciary?

Finally, as we enter what I believe to be the 12th and penultimate year of UK combat operations in this bloody but unavoidable conflict, there will rightly be lessons and consequences from Afghanistan. The time will also come for us to reflect as a nation on how we mark in a lasting way our commemoration of the fallen and injured. I look forward to the Minister’s replies about how NATO achieves withdrawal while maintaining the stability that so many have fought for. We need to get this right, since none of us has any intention of there ever being another conflict in Afghanistan.

14:20

[Lord Astor of Hever]

My Lords, in the lead-up to Christmas time, I join the noble Lord, Lord Rosser, in remembering all those who serve in the Armed Forces and all those who lost their lives in Iraq and Afghanistan. We remember particularly the members of the Armed Forces serving in Afghanistan now and their families. I agree with the noble Lord in commending their bravery and commitment.

I agree that we face a huge number of challenges to overcome. I am grateful to the noble Lord, Lord Rosser, for his and his party’s support for our intentions and for the thrust of the announcement today. We are in Afghanistan to protect our national security by helping the Afghans to take control of their own. We are not trying to build a perfect Afghanistan, rather one that does not again provide safe haven for international terrorists.

The noble Lord, Lord Rosser, asked me a number of questions. I may not be able to answer them all, but I will endeavour to write to him. The first question was about the number of units replaced. Planning continues to refine the detail of our force levels throughout 2013, but our drawdown will be gradual, responsible and in line with operational needs. As ANSF capability continues to improve and it takes on increasing responsibility for its own security, the focus of our efforts will gradually shift from one based primarily on combat to a training, advisory and assistance role. By the end of 2013, we expect that UK forces will not need routinely to mentor below brigade level, and this will allow us to reduce our military footprint in central Helmand accordingly.

The noble Lord, Lord Rosser, asked me about the capability of the Afghans. I know that a number of noble Lords and noble and gallant Lords have been to Afghanistan and seen for themselves the huge progress that the Afghan forces have made. I have been out there four times now. Each time I see substantial progress.

Developing the ANSF is obviously a key part of our strategy. It has an essential role in providing security and governance in Afghanistan. Transition of security to Afghan control, as agreed at the Lisbon conference in 2010, is well advanced and on track to be achieved by the end of 2014. Seventy-five per cent of Afghans now live in areas where the ANSF has the security lead, including all 34 provincial capitals and the three districts that make up Task Force Helmand. By mid-2013, we expect all parts of Afghanistan will have begun transition and the Afghans will be in the lead for security nationwide. This will mark an important milestone in the Lisbon road map.

Building the capacity and capability of the ANSF will allow the Afghans to take increasing responsibility for their own security. While it has been critical to achieve the quantity of forces required, work continues to ensure that the quality of the forces steadily improves. There has been real progress since the NTM-A was established in 2009. The capacity and capability of the ANSF have improved significantly over this time. It is deploying in formed units, carrying out its own operations and, as the transition process demonstrates, it is increasingly taking responsibility for security in Helmand and across Afghanistan.

The noble Lord, Lord Rosser, asked me about capabilities in particular. Artillery, close-air support, medevac, intelligence, surveillance and bomb disposal are areas in which we are working hard to try to build up capability. He asked me if there is any chance of today’s announcement being reversed. A lot of discussions are going on between us and our ISAF allies, but I am not aware that there will be a reverse on this. He asked me whether this is synchronised with our international allies. We have regular and routine discussions with a number of our NATO and ISAF allies on our force levels in Afghanistan.

On the specifics of our drawdown plans in 2013, we have spoken to a number of our key ISAF allies and to the Afghan Government. With our allies, we remain firmly committed to the strategy and timescales agreed at the NATO Lisbon summit in 2010 and to the principle of “in together and out together”. This announcement is entirely consistent with what we have previously said about our force trajectories in Afghanistan, and there should be no cliff-edge reduction at the end of 2014.

The noble Lord, Lord Rosser, also asked if the role of our Armed Forces will change. As we work with the Afghan forces we will be taking much more of a mentoring and less of a combat role. He also asked me about reserves. As part of our overall drawdown plans, a small number of reservists, who would have expected to deploy to Afghanistan in 2013, will no longer be required to serve there. Reservists still form an important part of our deployment planning and will continue to play a crucial and valuable role in the mission in Afghanistan. The Reserve Forces (Safeguard of Employment) Act 1985 requires employers to re-employ reservists when they are demobilised. As the reservist has to be re-employed, there is no reservist entitlement to compensation.

The noble Lord, Lord Rosser, asked me about our future commitment to Afghanistan. The UK and the international community are committed to Afghanistan for the long term. The Prime Minister has stated that we will maintain a relationship with Afghanistan post-2014 based around trade, diplomacy and military training. We are clear that in 2015 the UK contribution will not take the form of a combat role. After the end of 2014, we will have some service men and women there to ensure that all of our kit still there—we hope most of it will come back—comes back. We will have troops on the ground helping the Afghan national army officer academy and getting it off the ground. No decisions about the numbers have been made, but as the noble Lord rightly surmised many discussions are taking place.

The noble Lord, Lord Rosser, asked me whether the Taliban could be persuaded to return to the Qatar negotiations. I cannot answer that. I will write to him. There was also the question about Pakistan releasing prisoners. That country is key to the future of Afghanistan, and it is important that we have positive discussions with Pakistan.

Finally, the noble Lord, Lord Rosser, asked me about women’s rights. The British embassy in Kabul will continue to monitor threats of violence towards human rights activists, with a particular focus on women. Where appropriate and useful to do so, the embassy will issue statements condemning violence and will raise concerns with senior interlocutors in the Government of Afghanistan. Embassy staff will maintain a regular dialogue with the Afghan Independent Human Rights Commission and other leading human rights and civil society organisations, offering support, sharing views and building understanding.

14:28

[Lord Lee of Trafford]

My Lords, I join my noble friend and the noble Lord, Lord Rosser, in their tributes to our Armed Forces.

We welcome the significant drawdown that is planned for 2013. Can my noble friend reconfirm that our forces during 2013 and 2014 will be focused increasingly on training and mentoring and less on combat missions?

There are four questions that I would like my noble friend to answer; I appreciate that he may well prefer to write to me rather than answering at the Dispatch Box. First, he referred to the discussions with our allies. Does he have any idea of the percentage reductions in the US forces during 2013, compared with our reductions? Secondly, there is no mention in the Statement of equipment withdrawal. Will he indicate the latest thinking and timing regarding our equipment withdrawal? Thirdly, allied military expenditure clearly represents a significant percentage of Afghanistan’s GDP—something like 15%, I believe. Is the Minister aware of any efforts being made by the international community to stimulate or encourage the Afghan economy post-2014? Fourthly, and the Minister will probably prefer to make this statement in writing, will he please confirm and make a clear statement on the Government’s attitude and responsibility towards interpreters and their dependants, where quite clearly we have a considerable degree of moral responsibility?

[Lord Astor of Hever]

My Lords, I reconfirm to my noble friend Lord Lee of Trafford that more and more members of our Armed Forces will take on a training and mentoring role. As the Statement said, 80% of operations are now led by the Afghan national security forces. I have been out there and seen for myself the mentoring and how successful our Armed Forces and our allies are in training up the Afghans.

I will write to my noble friend but, in answer to his questions, so far as I am aware the US forces’ reduction discussions are still taking place. I understand that the Prime Minister spoke to President Obama yesterday, but I will write to my noble friend on this as I am not aware of the exact figures.

Equipment withdrawal is an issue that has come up a lot in the House. We are making quite good progress on the different routes through which equipment would be withdrawn; it will not just be through Pakistan or the northern routes. Obviously some would come back directly by air, while some would go directly by air to countries in the Middle East. A lot of work is going on regarding this issue. Decisions about gifting and what to do with equipment will be made on a case-by-case basis, using the principle of operational priority and value for money to the UK taxpayer. We are reviewing our policies of gifting to ensure that any gifted equipment is appropriate and follows parliamentary, Treasury and National Audit Office rules, but obviously a number of bits of kit will be gifted. Work on managing the recovery of UK equipment is under way. Redeployment began in earnest, and as planned, on 1 October.

My noble friend asked me about efforts to stimulate the economy post-2014. I know that the international community, as the Statement said, has donated a great deal of money to the Afghan Government for that very end, and DfID has a number of different initiatives in Afghanistan.

With regard to the attitude towards interpreters, I have the line on that somewhere, but I assure my noble friend that we stick by our interpreters and will do everything to safeguard their security.

[Lord King of Bridgwater]

Does the Minister recognise that there will be general agreement in this House, and widely in the country, that 11 years at this level of military commitment in Afghanistan is quite long enough? I welcome the announcement of this withdrawal since the real threat to our national security, which was Al-Qaeda in Afghanistan, has long since ended. We should pay tribute to all those who have lost their lives and the enormous number who have suffered life-changing injuries in this very long campaign.

Is the most important part of this Statement not the recognition that it will not be by military means but through political discussions that a better future for Afghanistan will be achieved? I welcome the content of the Statement regarding the efforts that will be made in this respect. That will be very important, if the political discussions move well, as we move towards the extremely difficult exercise of withdrawal of men and materiel from that area. The noble Lord leading for the Opposition referred to the fact that we have been there before and our withdrawals have often been the most difficult part of the exercise. I hope that that will not be repeated in this situation.

We are now committing ourselves to considerable financial support. The Prime Minister said that we are in for the long term, but nothing could be more damaging to that than if there are continuing allegations of corruption. We are aware that certain UK funds ended up in real estate development in Dubai in the hands of certain private individuals, and any suggestion of continuing corruption would be enormously damaging to the national will to continue to support the Afghan people and to carry on the work that has been carried forward so far with the courage, resilience and good spirit of our Armed Forces.

[Lord Astor of Hever]

My Lords, I agree with my noble friend that it is now time that our Armed Forces started to come back. We have done a very good job in building up the capability of the Afghan national security forces. As my noble friend did, I pay tribute to those members of our Armed Forces who have lost their lives and to the large numbers of members of our Armed Forces, as we heard in a Question earlier, who have had life-changing injuries and wounds. As my noble friend said, it is not just by military means that Afghanistan will end up in a better place. I know that those in the Foreign Office and our ISAF allies are in deep discussions with the Afghan Government and Pakistan. As my noble friend said, we are certainly in this for the long term, and we must do everything possible to try to get on top of the corruption.

With the leave of the House, I will answer the question asked by my noble friend Lord Lee about the interpreters. People who put their life on the line for the United Kingdom will not be abandoned. Locally engaged Afghan staff working for our Armed Forces and civilian missions in Afghanistan make an invaluable contribution to the UK’s efforts to help to support the spread of security, stability and development in their country. We take our responsibility for all members of staff very seriously and have put in place measures to reduce the risks that they face. Precautions are taken during recruitment, and staff are fully briefed before taking up employment about any risks involving their work. We regularly encourage staff to report any security concerns immediately. We follow an agreed cross-government policy in considering cases of intimidation or injury on a case-by-case basis. This policy ensures that we take into account the individual circumstances of each case and allows us to decide a proportionate response.

[The Earl of Sandwich]

My Lords, in the absence of any political settlement after 2014, security will be essential to international development, as it is at the moment. What conversations has the MoD had with DfID about the overlap of funding? There will be projects that are close to defence, such as the Sandhurst-type academy, and other, more general humanitarian programmes that will need protection. What provision has the MoD made for that? I have one further question: the road into Pakistan now being open, will some collaboration on the defence front be visible at the time of the handover?

[Lord Astor of Hever]

My Lords, I must make it clear to the noble Earl that our Armed Forces will be out of the combat role in Afghanistan at the end of 2014. Any security for international development efforts will be the responsibility of the Afghan national security forces. We are confident that we have built up their capability to take this on. It is still early days. There is a lot of discussion still to take place about how we can develop all these very important development initiatives that will be taking place in Afghanistan.

I think some equipment has started to leave Afghanistan for Pakistan to make its way home—not a lot, but it will start to flow quite soon. Obviously, as I said earlier, relations with Pakistan are key to the future of Afghanistan.

[Baroness Farrington of Ribbleton]

My Lords, the Minister replied to the point raised by the noble Lord, Lord King. I ask him what work will be done for the many post-active-service service men and women and indeed ex-service men and women around in the country in 2013 and 2014. I am told that those who suffer a life-changing experience sometimes have trouble adapting to civilian life and end up in trouble with the police. Is there any way that the MoD could provide a service so that those whose behaviour brings them to the attention of the police can be referred to the MoD for the support that they need? Some of those—not all of them, I appreciate—who end up in trouble have suffered enormously because of the work that they have done on our behalf.

[Lord Astor of Hever]

My Lords, the noble Baroness makes a very important point. Indeed, the noble Viscount, Lord Slim, asked a similar question earlier on. This is a really important issue. I want to take it back to the department and dwell on it. I will write to the noble Baroness when I have had a chance to consider it.

[Lord Hylton]

My Lords, I am grateful to the Minister for his civil replies to the noble Lord, Lord Lee of Trafford, on the question of interpreters. Can he confirm that in Afghanistan these people and others who have served our forces will be treated no less generously than those who were in a similar role in Iraq? I think in most cases it will involve either compensation or refugee status in this country, but in all cases will the Government endeavour to make sure that Afghan families are not split up as a result?

[Lord Astor of Hever]

My Lords, as I said to my noble friend, people who have put their life on the line for the United Kingdom will not be abandoned. We will honour that commitment.

[Viscount Slim]

My Lords, I would first like to thank the noble Lord for his great kindness in keeping your Lordships appraised of matters of defence and the meetings that he has within the MoD. This is a new development and it is much appreciated by everybody in your Lordships’ House.

I would like now to come down on to the ground and talk for two seconds or so about this land line. In a withdrawal, people become very defensively minded. I myself have been in one or two. It is vital that we keep the offensive spirit going during this period. Many attractive items will go out on the land line which the Taliban would like to get their hands on. The same goes for Bastion. Therefore it is not only defence of the convoy, but a proper offensive force that is going to disrupt any attack at all that is made. In Afghanistan, even in the old days, when there is a very attractive target those who are disagreeing among the tribes can come together. They might well think of this. In this event, one would be dealing not with the couple of dozen who were infiltrating into Bastion. The force levels of the Taliban—and there are quite a number waiting—would give us something to think about. The offensive spirit has to be maintained to disrupt the problem as it comes. I hope that, in planning the withdrawal, the ground air support that the army needs so much will not be thinned out to a state where it is not at full strength and in support of our forces. Withdrawal is very difficult and dangerous. The best way to handle it is not to be defensive-minded all the time and to retain a proper offensive force.

[Lord Astor of Hever]

My Lords, I thank the noble Viscount for his kind words about the briefings. These are two-way briefings. I learn a lot from noble Lords who have a lot of experience, like the noble Viscount, of Afghanistan and other areas. Certainly I, my officials and the military who attend these briefings have learnt a great deal. I am very grateful for what the noble Viscount said.

The noble Viscount made a very important point about the drawdown of equipment. We have had a number of discussions about that. We are on the case. I can assure the noble Viscount that it will be properly defended. There will be ground air support and whatever else is necessary to make sure that we get these attractive bits of kit out.

[Lord Lyell]

Will my noble friend first accept my congratulations and thanks for what he has given us today and, as far as I can remember, over the entire campaign in Afghanistan, or at least most of it? The noble Viscount, Lord Slim, has said virtually everything that I would want to say, but my noble friend will know that the House of Lords defence group receives marvellous professional and detailed briefings on a constant basis from my noble friend. Could I possibly look at one more accountancy-style problem that will almost certainly be affecting my noble friend? Of course we want to bring back—and will bring back—the brave men and women, the forces and the equipment. Please will he accept that when everybody is safely back here we on all sides of the House want to see that they are first of all appreciated and that all the work that my noble friend spoke about this morning at Question Time in medicine, health and above all welfare is continued? I hope that he will be able to do that in 2013. I thank him, his officials and each and every person who is in Afghanistan.

[Lord Astor of Hever]

My Lords, I thank my noble friend for his kind words. In return I commend him for all the work he does as secretary of the House of Lords defence group. He asked whether we will ensure that the work of our Armed Forces is fully appreciated. As he knows, all the brigades that return from Afghanistan are invited to march into Parliament. They march in through Westminster Hall, have their photograph taken, and then go downstairs for tea—which invariably ends up as drinking a lot of beer as well as tea. I have spoken to a lot of the officers and other ranks who come in, and they appreciate it enormously. They feel that what they are doing in Afghanistan is fully appreciated by Members of Parliament who send them out there.

Local Government: Provisional Finance Settlement

Wednesday 19th December 2012 Lords Chamber

Statement

14:49

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, with the permission of the House, I would like to repeat an oral Statement made by my right honourable friend the Secretary of State for Communities and Local Government. The Statement is as follows:

“I should like to make a Statement on finance for English local authorities for 2013-14 and 2014-15.

The autumn Statement sets out how the coalition Government are putting our public finances back on track after the catastrophic deficit left us by the last Labour Government. Local government has shown great skill in reducing its budgets. Committed local authorities have protected front line services. Little wonder, then, that at a time of retrenchment, satisfaction in council services has gone up. This year’s settlement will see council expenditure fall in a controlled way. English local government accounts for £1 of every £4 spent on public services; it spends £114 billion, which is twice the defence budget and more than the National Health Service. So this settlement recognises the responsibility of local government to find sensible savings and make better use of its resources.

It marks a new settlement for local government, based on self-determination and financial independence, a move from the begging bowl to pride in locality. It begins the biggest shake-up of local finance in a generation. We are shifting power from Whitehall direct to the town hall. From April, authorities will directly retain nearly £11 billion of business rates instead of returning them to the Treasury. Striving councils will benefit by doing the right thing by their communities; if they bring in jobs and business they will be rewarded. Similarly, the new homes bonus remunerates councils for building more homes. Next year, the bonus will be worth more than £650 million and more than that in 2014-15.

Under our reforms, an estimated 70% of local authority income will be raised locally, compared to a little over half under the current formula grant system—a giant step for localism. The start-up funding assessment, which gives each council a share of the funding, confirmed in the Chancellor’s autumn Statement, will see £26 billion shared between councils across the country, with the smallest reductions for councils most reliant on government funding. We consulted local authorities on the settlement over the summer, and we have listened to what they told us. They told us that there should be less money held back from the settlement, so we have reduced the amounts that we are setting aside for new homes bonus, for the safety net and for academies funding. In total, that means an additional £1.9 billion for local authorities upfront in 2013-14.

Local authorities also told us that they wanted a stronger growth incentive. We were happy to respond, so we have made the scheme more generous, ensuring that at least 25 pence in every pound of business rate growth will be retained locally. The settlement leaves councils with considerable total spending power. The overall reduction in spending power next year is just 1.7%. A small number of authorities will require larger savings to be made, but no councils face a loss of more than 8.8% in their spending power, thanks to a new efficiency support grant. As the name implies, to qualify, councils will have to improve services. It is unfair on the rest of local government to expect them to subsidise other councils’ failure to embrace modernity. But this settlement is not about what councils can take—it is about what they can make. The settlement continues protecting fire and rescue as a blue light emergency service. Today, we have announced £140 million of capital grant money to fire authorities.

Predictably, the doom-mongers have been consulting their Mayan calendars, issuing dire warnings of the end of the world as we know it on Friday—a billion pound black hole in the local budgets. Some have shamefully predicted riots on the streets. Nostradamus need not worry, because all those Malthusian predictions have come to naught. Concerns that the poorest councils or those in the north would suffer disproportionately are well wide of the mark. The spending power for places in the north compares well to those in the south. For example, Newcastle has a spending power per household of £2,522, which is more than £700 more than the £1,814 per household in Wokingham. We have also maintained the system of damping, whereby government sets a floor below which council funding will not fall. This year’s average grant reduction for the most dependent upper tier authorities will be less than 3%, compared to 8% for the wealthiest. That is more support and protection than last year.

I can also confirm today that local authorities will be able to use the receipts from assets sales raised from 2012-13 onwards to fund outstanding equal pay claims. On top of what I have announced today, the Secretary of State for Health will in due course be confirming public health funding for local councils. In his autumn Statement, the Chancellor recognised that the sector has risen to the challenge. That is why, unlike most of central government, local government was exempted from the 1% top slice next year, worth approximately £240 million to councils. But as we look to 2014 and beyond, local government needs to continue finding better, more efficient, ways of doing things. There remains scope for sensible savings; with the exception of a handful of authorities, nobody has got to grips with procurement. More can also be done to share offices and services, cut fraud and provide more for less.

I have also asked the outgoing chief fire and rescue adviser, Sir Ken Knight, to pinpoint practical ways in which to help fire and rescue authorities to save money and protect the quality and breadth of frontline fire services. It is disappointing that the shadow fire Minister has signalled his opposition. That has been noted.

Today, true to my Yorkshire roots, I have published 50 Ways to Save, setting out practical ways for councils to save money, big and small. But it all adds up. If councils merged their back offices, like the tri-borough initiative in London, they could save £2 billion. Procurement fraud costs taxpayers almost a billion a year. Councils are sitting on £16 billion of reserves. Councils are not collecting more than £2 billion of council tax. Better property management could save £7 billion a year.

We have also announced today that further savings will be made by the abolition of pensions for councillors. Councillors should be champions of the people, not the salaried staff of the town hall state. Today’s guide gives more power to the elbow of the public to challenge crude cuts and champion sensible savings. Next year’s exemption will give local authorities time to put their house in order, but let us remind ourselves what this is all about. It is about safeguarding vital public services; protecting families and pensioners; and ending the something-for-nothing culture. That is why, despite financial pressures, we will continue to support, for the third year running, those who insulate residents from further council tax hikes. We have set aside an extra £550 million for local authorities to support council tax: £450 million over the next two years for the freeze and £100 million for council tax support will be available in the new year.

All councils have a moral duty to freeze council tax. It doubled under Labour. It became unsustainable; we have cut it in real terms. Just to be clear, this year’s freeze grant goes into base for the spending review period and has the same status as every other item in base. Those who would prefer to carry on with increases and see residents miss out should be ready to answer to their local taxpayers and not dodge them by setting the increase just below the threshold. For next year, we have set the referendum threshold at 2%. I will also introduce flexibility to support small district, police and fire authorities that have kept council tax low for years. My right honourable friend the Local Government Minister has set out the details in a Written Ministerial Statement. This is democracy in action: if you want to hike taxes, put it to the people. I would contrast the action we have taken to freeze council tax with the new housing tax being introduced in the Republic of Ireland. Tackling the deficit helps to keep taxes down. If you deny the deficit, taxes on everyday families will rise.

To those who want to play the politics of division, let me say this. This is a fair settlement, fair to north and south, rural and urban, shire and metropolitan England. But this settlement is also a watershed moment. For the first time in a generation, striving councils now have licence to go full steam ahead and grab a share of the wealth for their local areas—to stand tall, and seize the opportunities of enterprise, growth and prosperity.

I commend this Statement to the House”.

My Lords, that concludes the Statement.

15:00

[Lord McKenzie of Luton]

My Lords, I start by thanking the noble Baroness for repeating the Statement. From my perspective, its credibility was undermined almost from the start by the assertion that:

“The Autumn Statement sets out how the coalition Government are putting our public finances back on track”.

If “back on track” is an environment of little growth, increasing debt and the IFS suggesting another £27 billion of so far unspecified cuts, I wonder how much of the cuts will come from local government—a worry indeed. I detected more than a few smiles around your Lordships’ House with the assertion that the Government are,

“shifting power from Whitehall direct to the town hall”.

We shall remind the Minister of that when we debate the Growth and Infrastructure Bill in just a couple of weeks. As ever, with this Statement, the devil will be in the detail, which we have yet to peruse in depth. We ought also to have the opportunity to have a full debate here when we have gone through the detailed figures. The Statement covers details of funding under the new system of business rate retention, and we will need in particular to examine the impact on council tax baselines, tariffs and top-ups, business rate holdbacks, the treatment of the early intervention grant, the topslicing for academies as well as public health funding—although I understand that this is outwith the Statement—and the RSG settlement itself.

As for the latter, for 2013-14 this will presumably utilise the whole of the central business rate share—and more. Can the Minister confirm that? The noble Baroness will recall debates during the Local Government Finance Bill about updating data used in the revenue support grant. Can she say what, if any, are the key changes to the methodology and data sets used in comparison with preceding years? This is particularly important because it is understood that the data will remain fixed between resets of the business rate retention scheme. Can the Minister confirm this? In anticipating this Statement, we should remind ourselves of the recent past and, indeed, the present. The Government have already imposed swingeing cuts on councils of 28%, with central Government grant reduced over the current spending review period.

This is all part of passing responsibility for cuts to services to local authorities and communities. We will have to see how much more is cut as a result of today’s announcement, but the LGA estimated a further £1 billion for next year. Is it right? The Autumn Statement, of course, announced a further reduction of £445 million for 2014-15. Many local authorities have been pushed to the brink, with their long-term viability in question. We know that the poorest areas are shouldering the greatest reductions. Between 2010-11 and 2012-13, the 10 most deprived local authorities are having their spending power reduced per head of population by eight times as much as the 10 least deprived authorities in England. Will the Minister reassure the House that this ratio has gone down, not up, following today’s announcement? The 50 councils worst affected by government cuts will receive reductions of £160 per head on average, despite having on average a third of children living in poverty. By contrast, the 50 least affected councils received a £16 per head cut on average, despite child poverty rates of 10%.

Although the Prime Minister described local government as officially the most efficient part of the public sector, this Government have made bigger and earlier cuts to councils than any other part of the public sector. This front-loading of cuts has made it harder for councils to cope and has hit front-line services hard. The LGA forecasts a rising funding gap, starting this year and growing to over £16 billion by 2019-20. What is the Government’s assessment for this period and how will that gap be closed? This year, we enter new territory with local council tax schemes, business rate retention, top-ups and tariffs. We hear the Secretary of State’s strictures about councils’ responsibility to keep council tax bills down, but the reality is that hundreds of thousands of people—working families on the lowest incomes—will be brought within the scope of that tax, possibly for the first time. In the words of the noble Lord, Lord Jenkin of Roding, it will be a “poll tax mark 2”.

If the 10% cut in council tax benefit support is to be endured, it must surely be right that the 10% reflects actual costs. Will the Minister say on what basis the grant has been allocated? Is it the case that, although at national level the total grant has been made available on the basis of the latest data, with claims having gone down nationally, the allocation to individual authorities is to be based on 2011-12 out-turn data, which for some will have gone up? Why is there this approach, other than because it advantages the Treasury at the particular expense of deprived areas? How much of the transitional grant—the pot of £100 million—is not initially expected to be called on by local authorities? Will the Government commit to recycling any balance to local authorities, especially those whose claim levels have increased during 2012-13?

Another issue which we debated extensively both during the Welfare Reform Bill and the Local Government Finance Bill was the demise of the discretionary Social Fund and the transfer of responsibility—but with no formal duties—to local authorities for provision otherwise met through community care grants and crisis loans. How much has been included in the proposed settlement for this and on what basis will this be communicated to local authorities? Under the Local Government Finance Act 2012, there is a requirement on the Secretary of State to specify the basis on which relevant authorities will make or receive payments under the tariff or top- up provisions. What is the basis of this calculation?

Today’s Statement brings little festive cheer to local authorities and to the individuals, families and communities they seek to serve. Local authorities will continue to innovate, address the awful choices that this Government impose upon them and play their part in fostering growth when the Government have vacated the field. Frankly, local authorities deserve better.

15:08

[Baroness Hanham]

My Lords, I thank the noble Lord for his response. Having been in his position, I appreciate that it is quite a task to respond quickly to a Statement after it has been made. The noble Lord addressed a huge number of detailed questions, with some of which I shall try to deal, but because I do not have in my head the figures he asked for, I shall make sure that questions I cannot answer now are dealt with.

It would be fair to say at the outset that while there is great questioning, particularly from the other side, about the reduction in grant, if the noble Lord’s party had been in power, it would have done exactly the same. We know that when the previous Government were coming to an end, they had already made provision for a substantial cut in local government grant for precisely the same reason. They were going to have to deal with the deficit they had generated but responsibility has now passed to this Government in their place. Therefore, I think it would be better if we could get that on to a more equitable plane.

The Government are shifting the responsibility for running local affairs on to local authorities. However, they are shifting not only power but also resources. I do not think that the noble Lord made any acknowledgment of that. Local government has asked for a long time to be able to retain the business rate. Although I appreciate that it cannot retain all of it, it will certainly be given the opportunity to retain at least 50% of it. That will be an encouragement to generate business and business activity because the more business local government has, the more it can grow and the more business rate it has to retain locally.

I was asked about the updating of data between resets. Data never stand still entirely so while the resets, the tariff and top-ups will remain, there will be some adjustments to data, but not such as to upset the resets that have been laid down this year.

The noble Lord referred to swingeing cuts. Local authorities hold this very much in their own hands now. As I said in the Statement, we have pointed to a number of ways in which local authorities can still make savings, including coming together and pooling resources and making adjustments in that way. Therefore, they should not be faced with having to make enormous cuts to services. We have also prevented any of the reductions in grant exceeding 8.8%. There is considerable variety across the country as regards the formula and the amount of spending power that each local authority has.

I know that we will discuss this matter further and more detailed questions will come up, but the Local Government Finance Act laid down the basis for tariffs and top-ups, which the noble Lord asked me about. Top-ups are based on a 92.5% level of finance, so local authorities expecting more than a 7.5% figure automatically get a top-up. The tariffs will be set against those councils that have more than the expected allocation of resources.

To go back to the data, the data updates will include population, so they will be changed if that varies. A range of data updates were set out in this summer’s technical consultation, which I am sure the noble Lord has read closely.

15:13

[Lord Tope]

My Lords, I join the noble Lord, Lord McKenzie, in thanking the Minister for repeating the Statement in this House. Perhaps I should thank the noble Lord for enabling her to do so. This is the first time that I can recall this happening for many years, so we must thank the Opposition for this very welcome Christmas present.

I declare my interest as a councillor in the London borough of Sutton. I gather that I must now declare an additional interest as a member of its pension scheme which I joined at the age of 60, by which time I had more than 30 years’ council service which did not count towards the pension.

I also thank the Minister, and through her the Secretary of State, for the very welcome recognition of all that local government has achieved in reducing its budgets, and that it is, indeed, the most efficient and effective part of the public sector. In view of that, does the Minister agree that local authorities would be much better advised to learn from each others’ good practice than to take any notice at all of the Secretary of State’s 50 top tips from the TaxPayers’ Alliance?

Will the Minister say a little more about the new efficiency support grant and the criteria that local authorities will have to meet to qualify for money from that grant? What sort of money we are talking about?

Finally, can she give any indication of when the Secretary of State for Health will announce the public health funding, which is crucial to many local authorities in finally setting their budgets?

[Baroness Hanham]

My Lords, I thank my noble friend for his contribution. I also thank him for acknowledging that we recognise that local government is efficient—at least most of it is, although some is not. As regards the 50 areas of good practice that my right honourable friend in the other place has produced, the noble Lord, Lord Tope, is correct: local authorities can learn from each others’ good practice, and there is good practice. There is good practice already across the piece where people are sharing services, chief executives and back office services and are procuring together. However, this applies to by no means all local authorities. This is where they need to learn from each other.

The Local Government Association has in its midst councils that are doing this and organisations within councils that are setting these good examples. I agree that local authorities can do good practice, but what they need to do is to bring it together and work together as much as they can.

The new efficiency support grant affects a very small number of councils above the 8.8%. I will let the noble Lord know the exact amount of it, but it is there to help them bring down their expenditure. Regarding public health announcements, we are still waiting for those but I cannot tell my noble friend when they are going to be announced.

[Lord Beecham]

My Lords, I declare an interest as a member of Newcastle City Council not in receipt of a council pension. I ask the noble Baroness, the Minister to explain the relevance of the comparison of Wokingham to Newcastle, given that, for example, the rate of unemployment in Newcastle is four times that of Wokingham. Does she not consider that there may well be a greater spending need in Newcastle and authorities like it than in councils in the Royal County of Berkshire, such as Wokingham, Windsor and Maidenhead, which has also been adduced in support of the Government’s position?

Secondly, given that the Secretary of State is so exercised about reserves, what are the Government proposing to say to the Greater London Authority which has added 60% to its reserves—£585 million in the past year—while at the same time receiving £27 million of damping grant? What will she say to Surrey County Council, which has received £40 million of damping grant, which it put into its reserves and added further amounts to it? Is this a matter of concern, and if so what will the Government do about it?

I have two other questions, the first of which is: will the Government reconsider their position on the cost of appeals against rating valuations for business rates, which at the moment they propose not to finance, even in respect of appeals relating to the period before the new business rate regime comes in. The Government, having had the money, apparently do not intend to contribute to the cost of any successful appeals. What is the logic behind that?

Finally, in relation to council tax benefit and the grant that is to go to local authorities, why have the Government chosen to ignore the most recent figures of benefit claims for the current year with the result that, in Newcastle for example, an anticipated 10% reduction will probably translate into more than 14% because of the failure to use the most recent figures. If it is too late to alter that figure for this year, and I hope it is not, will the Government at least use the most up-to-date figures for the remaining years of the settlement?

[Baroness Hanham]

My Lords, let us start with the reserves. The Government have a very firm position on this. They recognise that local authorities need reserves; indeed, in the current economic situation, they may have to call on reserves to help them deal with some of their finances. However, there are local authorities that are sitting on enormous unallocated reserves, and those are the ones that the Secretary of State believes ought to be challenged. Where local authorities are sitting on vast sums, they should be looking at how best they can use them to support their expenditure.

Regarding the cost of appeals, within the business rate retention scheme an allowance will be made for appeals that are already in the pipeline. Those that will come subsequently are a different matter and they will have to be dealt with at that time. The 10% reduction in council tax benefit is there to help with efficiency; to ensure that local authorities administer this in the best way that they possibly can; and to ensure that any system they set up can, if necessary, be supported by other reductions within their council tax budgets.

[Lord Bates]

My Lords, I welcome the Statement by my noble friend and the fact that it places a great emphasis on getting the housing building market going. Has my noble friend seen the statistics produced by the National House-Building Council in the past week, which suggest that new housing starts in the north-east of England, for example, are at 3,048 for the first nine months of this year? This represents an increase of 25% on the same period last year, and an increase of some 47% on the same period in 2009. Will this not funnel through the new homes bonus programme to provide important additional revenue streams to councils in the north-east? In the past few days, the House Builders Federation has said that planning applications and planning permission granted for new homes have increased by 36% on the previous quarter. For further clarification, has my noble friend’s estimate of the £650 million that will be provided through the new homes bonus next year taken account of that welcome news?

[Baroness Hanham]

My Lords, I thank my noble friend for pointing out good news relating to the housing figures. We have been very aware—everybody else in the House will be aware—that a lot of the economy needs a boost and much of that boost will come from housing and housing construction. I am very pleased about the figures in the north-east, which is perhaps one area in the country where we particularly need to see new housing—not only to ensure that there is housing but because it will stimulate the economy even more in that part of the world.

The new homes bonus is part of the funding stream. It is not ring-fenced but it does relate to the number of houses that are being built and so would add to local authorities’ revenue. If the number of planning permissions has increased in the north-east as well, that is good, as there has been a lot of criticism that planning permissions are somewhat slow in being granted. Therefore, I thank my noble friend for those points.

[Lord Kennedy of Southwark]

My Lords, I thank the noble Baroness for her Statement, although it did not give me much comfort. Can she tell the House what advice she has for the London fire authority? I think that potentially up to 17 fire stations in London could close, and up to six of those would be in south London—Woolwich, Downham, New Cross, Southwark, Peckham and Clapham. As a south London resident, I wonder where a fire engine would come from if you needed the fire services in the future. What words of comfort does the Minister have for the fire authority and what are we going to do about this?

[Baroness Hanham]

My Lords, the fire authorities are in the same position as everybody else in that they are having to make economies, but they have been pretty well supported. The noble Lord will know that the fire authorities have benefited from the protection in the formula used to set the base line, which used an existing adjustment to provide top-ups for the fire and rescue relative needs formula. That helps in the rural areas. The metropolitan fire and rescue authorities overall, which of course do not include London, are seeing grant reductions of 7.2%, but London has had a reduction and the noble Lord has to make up his own mind about how to deal with that. As I pointed out in the Statement, a review by the retiring chief officer is taking place, and I am sure that that will produce something useful.

[Lord Shipley]

My Lords, I thank the Minister for the Statement. I declare my interest as a vice-president of the Local Government Association and as a recipient of a small local government pension.

I should like to raise two issues with the Minister. The first concerns the tri-borough initiative in London and the basis for the statement that if councils merged their back offices, as in the tri-borough initiative, they could save £2 billion. Can the Minister circulate further details of that calculation? It is extremely important. In Tyne and Wear, where the number of residents amounts to just a little over 1% of the population, that would imply a saving of more than £20 million, which could be spent on, for example, keeping libraries open and improving services. Therefore, any information as to how that might be achieved would be helpful.

Secondly, I support the comments from other noble Lords concerning the council tax support grant distribution and the fact that the DCLG is not taking account of benefit caseload changes since the end of the 2011-12 year. I suggest that there is a case for using the unallocated transitional grant to assist councils that have faced higher caseload and cost figures in recent months, and I believe that there is a very strong case for using final outturn caseload figures for 2012-13 in the grant figure for 2014-15.

[Baroness Hanham]

My Lords, I thank my noble friend. I am very happy to ask the councils involved in the tri-borough initiative to let us have full details of the savings they hope to make. I suppose that I ought to declare an interest as having been a member of at least part of that tri-borough arrangement many years ago. However, they are very clear that they have made tremendous efficiency savings and, more than that, that they are much more efficient. As a resident of that tri-borough, I can say that they certainly demonstrate that. I shall certainly see that my noble friend receives those details.

I believe that the benefit caseload for this year is based on the figures for 2010-11 but I shall let my noble friend know if that is not correct. I shall need to write to him regarding the final outturn for council tax.

[Baroness Donaghy]

I thank the Minister for her Statement, although I realise that she is not responsible for the rodomontade contained within it. Does she appreciate that the word “need” does not appear once in the Statement? Would she also like to comment on the word “grab”, which does appear? However, there is no reference to the fact that 800,000 working people are going to be worse off under the council tax benefit arrangements or that, at the same time, better paid people—although it is not, strictly speaking, her departmental responsibility—will experience a tax cut. Would the Minister like to comment on the fact that the Statement may contain some of the truth but not all the truth?

[Baroness Hanham]

My Lords, as I gave the Statement to the House I must accept responsibility for it. I therefore take responsibility for the word “need” not appearing and the word “grab” appearing once or twice; whether this would be my way of putting it I am not sure. The noble Baroness makes the point about the 800,000 people; again, those are the figures that appear in the Statement and I am afraid I cannot comment on them further.

[Lord Cormack]

My Lords, I am not entirely sure that Malthus would be happy to be coupled with Nostradamus. To follow the previous question, it is quite clear there can be savings if local authorities combine. What precisely are the Government doing to encourage the sharing of facilities and resources to provide better services and save money at the same time? Have the Government done a detailed study on this and could we have some facts and figures in the Library?

[Baroness Hanham]

My Lords, the Government have been espousing this situation for several years and discussing it with the Local Government Association. I have addressed various elements of local government on the need to make efficiency savings and had discussions with groups of local authorities, which are already coming together to see what can be done. I am not sure there are any helpful figures I can give my noble friend. The only thing I can do is reassure him that this is very much government policy which has been promulgated to local government and that many areas of local government are already carrying it out and demonstrating that it is a valuable way of making efficiencies.

[Lord Kennedy of Southwark]

My Lords, can the Minister say when she thinks Sir Ken Knight will report on his chief fire officer review?

[Baroness Hanham]

My Lords, he has been asked to do it and I suspect I can provide the noble Lord with the date the inquiry is to start.

[Lord True]

My Lords, as no one else has, can I thank my noble friend for the transfer of the business rate to local authorities? We debated the matter in this House and many of us feel that it needs to go further. This is however a very important reform for which I thank the Minister. Will she restrain her right honourable friend in some of his remarks about reserves? For many of us reserves are the schools of the future and this issue needs to be looked at carefully. As one who joined local government when no allowances were paid, I would ask whether there will be legislation on this announcement about pensions for councillors, many of whom surrender work—sometimes all work—in order to fulfil a public function. Will that legislation cover other forms of elected representative?

[Baroness Hanham]

My Lords, I thank my noble friend for his comments. He will know that we discussed in the Local Government Finance Bill that, as the economy improves, we hope to extend the percentage of revenue that can be maintained by local authorities as a result of the business rate retention scheme. We have touched on reserves already and I accept, as does my right honourable friend the Secretary of State, that reserves in moderation are an important aspect of local government. Where reserves are allocated against particular projects, that is acceptable, but there are a number of local authorities sitting on very substantial sums of money which they could use to support their revenue responsibilities without having to say they do not have any money. Local government pensions were dealt with in a Written Ministerial Statement that came out a couple of days ago. I suspect it will need secondary legislation but I need to confirm that.

Motion to Adjourn

Moved by

[Baroness Anelay of St Johns]

That the House do now adjourn.

15:35

[Baroness Anelay of St Johns]

My Lords, I beg to move that the House do now adjourn. That is something that is said every day that the House sits, but it is very special at this time of year. It is customary, and my privilege, to pay tribute to our staff on behalf of the whole House. The staff have supported us throughout the year. They do so with great professionalism and dedication, which I know is recognised and appreciated by us all.

This is also an opportunity to put on record our particular thanks to long-serving members of the staff who have recently retired or who are about to do so. I would like to begin by acknowledging the work of Mr Allan Roberts, who retires as Counsel to the Chairman of Committees at the end of next month. His office goes back more than 200 years and was originally established to provide legal support for the Lord Chairman’s responsibilities for private legislation. We now see few private Bills compared with those early days when the construction of canals, turnpikes and railways was at its peak. In modern times, the House’s need for legal services in other areas has continued to grow. We have seen much of that quite recently. Mr Roberts now leads a team of three lawyers which, as well as dealing with private business, also provides advice to the Clerk of the Parliaments and other parts of the House administration and to committees on very diverse topics such as statutory instruments, ecclesiastical measures, delegated powers and Bills.

I know that the House will miss not only his considerable professional skills, but also his sound judgment and his quiet dedication to supporting us in our legislative work. The respect in which we all—both Opposition, Cross Bench and the Government—hold the Delegated Powers Committee has, for many years, been in large part due to Mr Roberts’s measured legal advice. We wish him well in his retirement, which I understand should afford him the chance to follow even more closely the fortunes of—this is a football club I do not usually make reference to but I will this time—Tottenham Hotspur Football Club in which he takes a keen interest.

I would also like to thank Rosemary Mannering, who is retiring after 25 years working in the House. Rosemary started work in the Public Bill Office in 1987, but for the past 15 years she has worked as a committee assistant, supporting the Justice, Institutions and Consumer Protection Sub-Committee of the European Union Committee. The Committee Office has had a particularly busy year supporting our increased committee activity and we owe a great debt of gratitude to all those who work, usually of course behind the scenes, to make all that possible. Our Select Committees are so rightly praised as the jewel in the crown of the work of this House. Rosemary is regarded with much affection by all those who have worked with her and I understand that many clerks and chairmen have had particular cause to thank her for her scrupulous attention to detail and thorough proof reading, something which I cannot do. That has prevented such infelicities as “daft legislation”. Hey ho. Good luck to those who will continue her dutiful work. I am sure that the House will wish to join me in wishing Rosemary all the best for her retirement, which will certainly be starting in the right way with a visit to the Tate’s excellent pre-Raphaelite exhibition.

Finally, I would most warmly like to thank Peggy Vega Byatt whose friendly service in the various bars around the House—that sounds awful but we know what we mean—will be familiar and welcome to all of us. What may be less well known is that Peggy started working in Peers’ Dining Room in 1974, which means that she has clocked up a very impressive 38 years of service. I understand, therefore, that in the case of many hereditary Peers, she has served multiple holders of the title in the family along the way. I am sure she has trained them well and I am sure we wish her all the very best in her retirement and in her relocation to Spain with her husband. I understand that she plans to visit when she returns to the country on holiday, and we look forward to seeing her back around the House, I hope, before too long. She really is a very special person in this House, and I know that many Peers have taken the opportunity over the past weeks and months to make a personal statement to her of how much they have appreciated what she has done and how we really will miss her.

All that remains for me to do is to wish all Members and staff of this House a most restful and enjoyable Christmas. Before this House adjourns, I know that the noble Lord, Lord Bassam, the Opposition Chief Whip, will wish to speak, and that the deputy Convenor of the Liberal Democrat Benches, the noble Lord, Lord Dholakia, and the Convenor, the noble Lord, Lord Laming, will also wish to make their contributions.

[Lord Bassam of Brighton]

My Lords, I am most grateful to the Government Chief Whip for enabling us all to pass on our good wishes to our staff and our thanks for their long and active service in your Lordships’ House. At this time I always like to put on record my thanks to our catering staff, cleaners, conservators, police, secretarial support, librarians, and maintenance and security staff, because I know that they work very long hours on our behalf and do a fantastic job.

I, too, want to make particular reference at this time to three members of staff for their long service. The first is Elaine Morgan, who was a committee assistant in the Committee Office, and was also formerly a higher personal secretary to the Law Lords Office. Elaine had 23 years of service and has retired this year. She initially worked in the House of Commons—the other place—joining the Parliament Office in 1989. In 1998 she was promoted to higher personal secretary in the Committee Office. In January 2002 she was transferred to the Judicial Office, electing to return to the Committee Office in 2009, when the Supreme Court was established. She was highly regarded by all of her colleagues in the Committee Office, who miss her conscientious attitude to her work and her kindly and supportive manner. Elaine was one of the pioneers of flexible working among House of Lords staff and for a while worked on a week on, week off basis. She plans to start her retirement apparently with some home improvements—well, good luck to her; it is a very noble cause—but is also looking forward to having more time to pursue her hobbies of sailing, cycling and walking. She also hopes to do some voluntary work for local organisations in and around Chichester harbour in the very fine county of Sussex.

The second member of staff I want to pay tribute to is Simon Jones, who has been an executive officer in the Printed Paper Office for much of the past 30 years that he has worked here, and he has only recently retired. He joined the House of Lords in 1982 as a clerical officer in what was then the Record Office and is now, of course, the very well regarded Parliamentary Archives. On promotion to executive officer, he moved to the Printed Paper Office in 1990, where he covered the front desk, which he enjoyed very much. In 1992 he was one of three staff on a small team assisting the staff adviser to check the grading of staff right across the House’s employ. In 1996 he transferred from the Printed Paper Office to the Law Lords Library, and in 1999 he moved back to the Printed Paper Office, this time to deal with office supplies, photocopiers and the mechanics of making the office function well. That post was transferred to the Facilities Department in April of this year, and Simon retired on 27 October. Outside work, Simon’s interests include film-making, photography and art. He plans an extended break in New Zealand during 2013. Colleagues commenting on Simon’s hard work said that he was always helpful, unfailingly polite and an incredibly helpful and courteous colleague, and I am sure that all Members of the House who came across Simon would agree with that.

The third person I want to make reference to is Richard Jacques. This is a rather sad one because Richard passed away this year very unexpectedly. He was a doorkeeper and joined the staff here in 2003 following a very long career in the RAF. Doorkeepers tell me that he was very watchful and mindful of the health of colleagues in the House, particularly Members of the House. During his time in the RAF, Mr Jacques was highly trained in the field of medicine, and his final years in the RAF were spent at RAF Lyneham as part of a tactical medical team flying all over the world to bring casualties back to the United Kingdom —no easy task.

Sadly, Mr Jacques was found dead at his home in Lyneham at the end of September. I know that everyone in the House who knew Mr Jacques was saddened by that, especially his colleagues.

I know that three other Doorkeepers are leaving the employ of the House; Mr Duff, Mr Benny and Mr Dryden. They are all formerly Metropolitan Police officers. It is not my intention to go on at length about their great service here, but I know that we will all miss them. Their good humour, their wit and careful and watchful eye keeps us all in good order and ensures that the House functions as it should.

It remains to me, too, to say a word of thanks to all Members of the House for their tireless work and to pay tribute to the Government Chief Whip for the courteous way in which she conducts business. I pay tribute to her work in the usual channels. I wish everyone else in the House a happy Christmas and all the best for the new year.

15:46

[Lord Dholakia]

My Lords, we on the Liberal Democrat Benches wish to associate ourselves with the tributes paid to staff. This is one of the few occasions on which we all come together and speak with one voice. Visitors marvel at the courtesy, help and often humour they receive from the time they enter Peers’ Entrance to the time they leave. We thank our staff for the service that they provide throughout the year.

Many will continue in their role for years to come. Others may retire after a long service and, in some cases, sadness prevails for those who die unexpectedly while in service. I pick out two individuals among many. We remember Latifa Zounagui, our Senior Housekeeper in the Department of Facilities. Latifa joined the House of Lords as a housekeeper in February 1986. She was promoted to Senior Housekeeper and given the area of the Principal Floor that included the offices of Black Rod, the Chairman of Committees and the Director of Facilities. This high profile area demanded keen attention to detail and the team led by Latifa proved itself to be up to the job and highly professional.

Latifa worked at many State Openings providing assistance in the Peeresses Retiring Room with many and varied requests. Latterly, at her request, she became the team leader at Fielden House where she continued to lead a highly motivated team providing excellent services to Members and staff alike. She retired from the House of Lords in March 2012 after 26 years of service. We wish her a very happy retirement.

The other person, who unexpectedly died earlier this year, is Steve Chamberlain. Mr Chamberlain was the Reprographic Officer in the Parliamentary Archives Department. He joined the staff of this House in 1985. He died suddenly in service in July. He had been a digital imaging technician in the Parliamentary Archives since 1984. His job was to create copies of historic records for use by the public, staff and Members—an essential part of any research service.

Cheery and modest, Steve took great pride in his work and moved from paper and microfilm to digital photography during the course of his career as technology changed. He was always willing to help other colleagues or advise the public on their record-copying needs in the archives search room and his genial presence and contribution to the office life are very much missed by his colleagues in the archives. We join his family and friends in this sad loss.

We say to all our staff that we appreciate what you do to enhance the reputation of your Lordships' House. Thank you and we wish you all a very happy Christmas.

[Lord Laming]

My Lords, on behalf of colleagues in the Cross-Bench Group, I am very pleased to be associated with all that has been said in the well-deserved tributes to the staff of this House. There are many customs in the House of Lords, but surely none is more worthwhile than occasions such as this when we have the opportunity to thank the staff for the part they play week in, week out in the service of this House.

The staff constantly demonstrate a commitment to the success of this House. Their hard work is matched by their thoughtfulness, professionalism and great courtesy; and, whether we meet them day by day or they work behind the scenes, they should know that their help and support is always of immense value to us all. Put simply, we are most fortunate in the quality and dedication of our staff and it is right that we should take every opportunity to acknowledge this and to thank them for what they do.

I am pleased to have the honour of making special mention of three former members of staff who served this House over many years—each with a job of great importance, but which may not have brought them into contact very often with your Lordships. The first one is, I fear, a source of great sadness. Desmond Asiedu, who very sadly passed away only last week, was an enormously popular kitchen porter. He was very highly thought of by everyone in catering and retail services. Throughout his years in the House he was known for his impeccable manners and good nature, as well as his excellent standard of work. He was very conscientious in all his duties and was always willing to carry out any task asked of him. In 2009, in recognition of his contribution to the catering department, Desmond was rightly voted employee of the Session, which was testament to his dedication and the very high regard in which he was held by all his colleagues. He will be greatly missed and we pass sincere condolences to his wife and daughters for their sad loss.

Next I refer to George Newton. He started working for the House in July 1990 as a senior general assistant and was promoted to head storekeeper in 2001. He was a very popular and hard-working member of the catering staff. He also thoroughly enjoyed his free time—I am told that he lived life to the full—and he has now retired to Yorkshire to be with his family and friends. We thank him and wish him a long and happy retirement.

Then there is Mohammed Zounagui who started in June 1992 and worked as an assistant chef for many years before being promoted. He worked in the main kitchen and latterly in the River Restaurant, where he started work each morning at 6.30 to prepare and cook the breakfasts that are most popular with pass-holders from all over the Parliamentary Estate—I see them often but at a much later hour. He retired in October to be with his family and friends. As with others, we wish him a long and happy retirement.

All that remains for me is to add my own personal thanks to the staff as a whole and to Members of this House for the courtesy that they show towards me and the help they give me throughout the year. I wish you, and them, a very happy Christmas.

Motion agreed.

House adjourned at 3.54 pm.