Public Service Pensions: Government Contributions
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The Minister for Policing and the Fire Service (Mr Nick Hurd)
It is a great pleasure to serve under your chairmanship, Sir Christopher. As a humble foot-soldier in the Government, it is not for me to reason why I drew the straw for this debate. I assume it is because I am the Minister for Policing and the Fire Service, and I understood that the primary concern of the hon. Member for Merthyr Tydfil and Rhymney (Gerald Jones), as was reflected in the debate, was the impact on emergency frontline services. It is a great pleasure to respond to the debate, and I congratulate the hon. Gentleman on securing it. It is an important debate, because it throws a spotlight on two important issues.
The first is how we ensure that public pensions are funded in a sustainable way to protect the value of the pensions of those of our constituents who work in the public services; I know the Labour party cares about that and I would not want to give the impression that it does not. It is entirely legitimate to probe and ask questions about the impact, particularly on emergency frontline services, which we recognise on a cross-party basis are stretched and under pressure. This is an entirely legitimate debate and I welcome it.
The hon. Gentleman rightly asserted that our emergency services deserve our thanks and respect—particularly at this time of year but, frankly, every week and every month of every year—but they also deserve a decent pension, and our constituents as taxpayers deserve full debate and reassurance on how those pensions will be funded in a fair, sustainable way that strikes the right balance between the contributions of the central taxpayer and the local employer. That is what underlies the Treasury position, as I will explain. I hope to reassure the hon. Gentleman and others that the Treasury, which is not here to explain itself today, and the rest of the Government are doing everything we can to help our emergency services in particular, but also other Departments, to manage any uncertainties in terms of unexpected costs in 2019-20. I will go into some detail on that.
Quite rightly, the hon. Gentleman and others voiced concerns about what happens after 2020-21, but they will know that the fundamental truth is that at that point we will be into a new comprehensive spending review period. That is an extremely important moment in setting the framework for longer-term funding, not just for our emergency services, but for other Government Departments. I can give the hon. Gentleman my absolute assurance, if I continue to be Minister at that point—we live in uncertain times—that I am determined, as I have said publicly and as my boss the Home Secretary has said publicly, to ensure that the emergency services are properly resourced against demand and risk. That includes a need to ensure that they have the resources necessary to meet their obligations to public pensions.
The hon. Gentleman will understand that at this moment in time, no Government could give absolute reassurances about what the next CSR period will bring, but we have signalled clearly that increased employer contributions to public pensions from 2020-21 will be taken care of in the CSR. In the meantime, the Treasury has set aside £4.7 billion, which I think would seem to all our constituents to be an extremely large number, to help Departments cover unforeseen additional costs in 2019-20. I will go into some detail on the areas of my direct responsibility, police and fire, because concerns have been expressed about people in those services from both sides of the Chamber.
Before I address those concerns, I acknowledge an important point made both by the hon. Gentleman and by the hon. Member for City of Durham (Dr Blackman-Woods) about concerns within the community of universities. That is not my area of direct responsibility or expertise, but I undertake to write to the new Universities Minister on their behalf to highlight the concerns expressed in the debate and to ask him to respond to the hon. Member for Merthyr Tydfil and Rhymney in the light of those concerns.
To give a bit of context, the Government—I am sure with cross-party support—want to make sure that public sector pensions remain among the best pensions available, especially for police officers and firefighters, in recognition of their role. We are determined, as any Government would be, to make sure that the cost of providing pensions is fair to the scheme’s members, the employers and taxpayers. I think any Government would take the same approach. We want to be sure that they remain affordable and sustainable for generations to come. That is the context of the changes announced to the discount rate at the Budgets in 2016 and 2018. As the hon. Member for Lincoln (Karen Lee) said, they were based on the latest independent Office for Budget Responsibility projections of GDP growth.
The changes to the discount rate have resulted in an increase to public sector employers’ contributions to their pension schemes, including the police and firefighters’ schemes. The hon. Lady was quite right that the intention was not to increase the members’ contribution rate. I confirm that that is not being contemplated. It is an increase in employers’ contributions. Critically to the point of this debate, the Government have provided financial support for additional pension costs that could be reasonably expected to be unexpected. The extra funding is £98 million for fire in 2019-20 and £153 million for the police. As I have said before, funding levels for future years will be considered as part of the spending review. That is inevitable, given where we are in the funding cycle for Departments.
A lot of concern was expressed on behalf of both the services. I know the hon. Member for Merthyr Tydfil and Rhymney is aware of the police funding settlement that I proposed last week, although obviously it has not been passed by Parliament. That recognised the additional pension costs to the police. He mentioned a number of more than £400 million. Actually, in 2019-20, the additional costs to the police system would be approximately £330 million. He will be aware that the overall police funding settlement enables up to £970 million of additional investment in our police, although that depends very much on what individual police and crime commissioners do on the precept.
The hon. Gentleman will also know that this funding settlement sees the first increase in the Home Office grant since 2010. The proposed funding for South Wales police, for example, which faces the pressure of additional pension costs of £6.8 million next year, is an additional £3.3 million in Government grant and £3.1 million in specific pension grant, while the police and crime commissioner, Alun Michael, will have the flexibility to increase the precept up to £12.7 million, making a total of £19.1 million. I hope he will welcome that.
The hon. Gentleman also talked about Gwent police, which I know partly covers his constituency. The funding settlement enables additional public investment of up to £8.5 million in Gwent police, which faces pensions pressures of £2.9 million. He will be aware, because he will have heard me bang on about it, that Gwent police is an outlier, with £56 million in reserves—more than 45.3% of its total funding. Those reserves have increased since 2011.
I hope the hon. Gentleman will acknowledge that the provisional police funding settlement, which is yet to be ratified by Parliament—I hope he will support it—goes well beyond meeting the specific additional pension costs and tries to support police forces both with their cost pressures and in their ambitions to increase capacity. That is part of a broader funding settlement that proposes a substantial increase of up to £970 million in the police system, compared with additional pension costs of £330 million.
I should also note that the police funding settlement talks about a word that never comes up in these conversations, but that is important for all our constituents, who ultimately pay for all this through their taxes: efficiency. The shadow Minister views austerity as ideological but, after eight years of austerity, that we can still sit down with our police leaders and agree £120 million of further cost savings through smarter procurement—they are spending our constituents’ money—tells us that we are still not at the end of the journey of making sure that our public services are efficient. Where the police lead, the fire service will undoubtedly follow, not least as they are both under the guidance of Her Majesty’s inspectorate of constabulary and fire and rescue services.
Gerald Jones
We have had eight years of austerity. I come from a local authority background myself, and identifying efficiencies at first is relatively straightforward, but it gets more difficult over time. The Minister mentions reserves, and I know that some areas have reserves. However, there is a big difference between reserves earmarked for certain projects, which all local authorities, police authorities and others have, and undisclosed reserves, which are much lower for many organisations. The point about reserves is that, once they are spent, they are gone. They are there for a rainy day; they cannot be used as part of a recurring budget. It is unfair for recurring expenditure to fall on council tax payers to an even greater level than it does already.
Mr Hurd
I understand the hon. Gentleman’s point and I absolutely respect his local authority experience. I am certainly not in denial about the financial pressures, particularly on our police system but also on certain fire services as well. He is right that, in the early years of needing to get back to living within our means and controlling public expenditure, some fruit was easier to pick than others, and it gets harder. However, I was making the point that we are talking about £120 million of savings agreed by the police—this is not a Home Office number—over the next two years through collective procurement. That is just smart buying.
The hon. Gentleman will know very well, and it is the same for the fire service, that a fragmented system of more than 40 different forces each doing their own thing —buying helmets, uniforms and equipment independently—is not necessarily the most efficient route to getting the best value for our constituents. All I am saying is that, even after eight years of tightening and reducing budgets, we can still find £120 million left on the table because of inefficient procurement practices. I hope he welcomes that. That money was effectively being wasted and can be better used for frontline service delivery. I hope he agrees.
Dr Blackman-Woods
I thank the Minister for those comments. I accept his point about efficiencies. However, we are really talking about the overall size of the cake. The police force and the fire authority in Durham have already significantly reduced in size since 2010, to the point that they struggle to run an effective service. We can talk about procurement and efficiencies, but the pressure on our public services is enormous. That has to be the starting point of these discussions.
Mr Hurd
I have the greatest respect for the hon. Lady and I absolutely understand the point she makes. She will not have followed all my public utterances over the last two years or for however long I have been in this role, but I acknowledged right from the start, after listening to the police and fire services, that the frontlines of our emergency services are stretched. I have said so publicly. The actions I have taken through the police funding settlements last year and this year demonstrate, frankly, a move from cuts to increased investment, in direct response to conversations I have had, not least those with frontline officers expressing their frustration about how stretched they are. I absolutely accept that point.
Of course, £120 million, in the context of the £970 million funding settlement, is still at the margin, but the central point is that we cannot give up pushing those who spend public money to demonstrate that they spend it in the most effective way. It is not Government money; it is our constituents’ money. They pay it in taxes and expect it to be used properly. We will not let up on that, because £1 saved through smarter procurement is £1 that can be used for more effective frontline delivery.
I will talk about the implications for the fire service, because that was the main thrust of the shadow Minister’s points. I reassure her that, as we work towards the next comprehensive spending review, the Home Office will do a similar exercise to that which we have done with the police—I will be leading this—to genuinely try to understand the demand on the system, both in terms of the demand on the core statutory duty and also the financial pressures that the system is under. We will ask tough questions on efficiency, the use of reserves and all the things that we debate, but we only do so because we are ultimately stewards of public money—it is not Government money, it is taxpayers’ money—and that is our job. I am absolutely determined, through the CSR, to make sure that both the police and the fire service have the resources they need. I have shown through my words, and more importantly through my actions, that we have responded to those messages about genuine stretch and pressure on the frontline.
In 2019-20, single-purpose fire and rescue authorities will see an increase in core spending power of 2.3% in cash terms. The additional employer pension costs for the fire service will be an additional £10 million in 2019-20. The Government will cover the rest of the increase by providing an additional pension grant of £98 million. Standalone fire and rescue authorities, excluding Manchester, will be able to raise an additional £38 million in 2019-20 if all fire and rescue authorities increase the precept by 3%. We believe that will allow fire authorities to meet their financial pressures and continue to invest in key capabilities.
In addition, fire and rescue authorities hold significant financial reserves, which have increased—this is the point—by over 80% to £545 million between the end of March 2011 and the end of March 2018, which is equivalent to 42% of their core spending power. I will always refer to that, because there needs to be proper transparency and accountability.
The hon. Member for Barnsley East (Stephanie Peacock), who is no longer in her place, talked about the pressures on South Yorkshire. Again, its core spending power increased by 1.7%. It sits on reserves worth almost 50% of its core spending power, and those reserves have increased by £9.5 million since March 2011. Like most fire authorities, it is starting out on the road to independent inspection and it is, I understand, in tranche 3 and will be inspected in summer 2019. One of the things it will be inspected on is efficiency. It will be interesting to see how it comes out of that inspection.
In relation to the police, I genuinely believe that the combination of the specific pension grant, the increase in the Home Office grant, the efficiency savings that we have agreed to realise, the high level of reserves that still remain in the system and a financial settlement that enables increased investment of up to £970 million in 2019-20, if fully realised—it does depend on the actions of police and crime commissioners—will mean that as a country we will invest over £2 billion more in 2019-20 than we did in 2015-16. While Labour MPs continue to make comparisons to 2010, the reality is that since 2015, the Government have recognised that the demand on the police system has risen and become more complex, and we have responded with additional public investment.
Finally, I hope that I have reassured hon. Members that the Government are working closely with both the policing and fire sectors, to ensure that they have the resources to enable them to do their challenging work efficiently and effectively. Alongside that, we are taking steps to ensure that the future funding of public pensions is affordable, sustainable and well balanced.
Question put and agreed to.
Resolved,
That this House has considered the reduction in Government contributions to public service pensions.