Armed Forces: Capability

Lord Hutton of Furness Excerpts

Thursday 12th January 2017 Lords Chamber

[Lord Hutton of Furness (Lab)]

My Lords, I draw the attention of your Lordships’ House to the interests I have declared in the register. I act as an adviser and consultant to Lockheed Martin here in the United Kingdom. I start by associating myself with the words of my noble friends Lord Robertson, Lord West and Lord Reid, and those of the noble Lord, Lord Campbell, and the noble and gallant Lord, Lord Craig, all of whom I agree very strongly with.

I believe that the 2015 Strategic Defence and Security Review is a more coherent and impressive strategy and framework than the 2010 document, which, as we all know, was largely designed to make painful and difficult cuts in the capability, capacity and strength of the UK Armed Forces. The most important element in the 2015 strategy is the Government’s very welcome and positive commitment to ensuring that the United Kingdom and our Armed Forces are able to contribute large-scale expeditionary and amphibious war-fighting capabilities against a technologically equivalent power. That is a very important commitment and aspiration. But, as we all know, herein lies the rub: even though that capacity and capability are vital for Britain’s long-term strategic goals, after several years of cuts to our defence forces we are trying to deploy and maintain that capability with pitifully few platforms and too few trained and deployable personnel.

If one looks at the strategy that the Government have set out—consciously and deliberately limiting salary increases to our Armed Forces—at a stroke, it made the work of the pay review body superfluous. They are restricting the important elements that will attract and recruit the people we want at a time when wage growth is significant and employment is high, so there is a very serious problem here. We have too few platforms and too few people who are readily deployable and trained.

In the time I have, I will make two or three points. Some have been made by noble Lords but it is worth dwelling on them. The noble and gallant Lord, Lord Craig, was the first to mention the importance of attrition. As far as I can see, no allowance at all is made in the strategy for any attrition of our key weapons and platforms. In times of peace that may be fantastic, but at times of war it is not such a clever strategy—particularly if, heaven forbid, we found ourselves pitted against a technologically equivalent power; that is not an impossibility.

Of the three armed services, my real concern today is the Royal Navy. The Royal Navy is under the greatest pressure of all the three services and has been cut disastrously to below a sustainable level, both in platforms and in people. I do not dispute for a second that the Type 45 destroyers and the Type 26 frigates will be much more capable platforms, delivering much more kinetic power. But there is one problem: they can only be in one place at a time, and we simply do not have enough platforms, particularly if we have to prepare for the possibility of the carrier battle groups. The Queen Elizabeth class ships would have to be defended entirely by Royal Navy assets. I think we are going to struggle to do that, and it is critical that the Government address that point.

The RAF is already operating flat out on its existing missions. The air police work in the Baltics, in Syria and in Iraq, and provide quick-reaction aircraft in the Falklands. Those are all fairly modest operations, and I do not see any spare capacity there at all. Although I strongly welcome General Carter’s new focus on deploying the Army at divisional strength with new strike brigades, no provision at all seems to be made in SDSR 2015 regarding where the air defence role is going to come from. Our Rapier forces are fully committed to defending the Falklands. Pulling them out of there would send a very unfortunate signal.

There is more work to be done. I do not think the strategy is complete. Of course, Ministers will have to make a very difficult set of decisions about resources. But the bottom line is simply this: these are the most dangerous times since the end of the Cold War. We are taking more risks with the defence of the United Kingdom than we reasonably ought to be taking.

Queen’s Speech

Lord Hutton of Furness Excerpts

Wednesday 3rd June 2015 Lords Chamber

[Lord Hutton of Furness (Lab)]

I want to confine my remarks to the question of pensions and retirement savings, but first I want to extend a very warm welcome to the new pensions Minister, the noble Baroness, Lady Altmann. Many of us have known her for many years. She is a lady with a formidable reputation for independent thought and advocacy of the rights of older people, and I very much hope that she continues in that vein in her new job at the Department for Work and Pensions.

The noble Baroness has a very large agenda to occupy herself with. Of course, very little was said in the Queen’s Speech about pensions or retirement savings. I am aware that the gracious Speech is a programme for one Session and that there will be many more before we reach the end of the life of this Parliament, but this issue is not going to go away. We are not done with getting and setting the right framework, and maintaining a consensus about how we can encourage more people to save more for their retirement.

I say that with some regret, because the last few years have seen a massive change in pensions policy in the UK—but those changes have been necessary for one overriding reason: we are facing a tidal wave of demographic change that is affecting our society and others like it. To put it into context, the recently published latest estimate from the Office for National Statistics of longevity in the UK is quite extraordinary. What was once exceptional is going to become the norm. Today in Britain, about 2,500 baby boys and girls will be born. That is fantastic for their parents, but for their pension plans and their pension trustees, it is probably not so good. Nearly 40% of those young boys and girls will reach the age of 100—something that was quite exceptional when I was born, when the figure might have been nearer 2% or 3%. What was exceptional is now going to be the norm.

Those changes have been broad in their scope and range in the last few years. We have changed the very concept of the basic state pension—it is now a single, flat-rated pension that is designed to encourage more people to save. We are enrolling millions of people in the workplace in new defined contribution savings plans, and many of them are saving for the first time. Importantly, age discrimination legislation has been introduced to make it illegal for employers to terminate people’s contracts of employment simply on the grounds of age—encouraging, we hope, more people to stay in work for longer.

In the dying days of the last Parliament, we had perhaps one of the biggest changes to pensions policy in a century: the sweeping away of the statutory requirement, dating back to 1921, on people saving in defined contribution plans to annuitise their pension pots when they cease working, guaranteeing them—we hope—an adequate stream of retirement income. However, as we know, for many, that stream horribly dried up as interest rates crashed.

Against that backdrop, surely people will curl up into the foetal position when people like me say, “Actually, we are not done with this yet”. To those who say, “Surely we are done with it”, I say, “We are definitely not”. In essence, the last Government and the previous one tried to do two things to deal with this change. We had a great deal of legislative reform, and welcome though it is, it is early days for most of it. We were trying to do two things. We wanted to encourage more people to save more for their retirement; and, wherever possible, we wanted people to work a few more years before they drew their pension. Of course, that was needed to ensure the long-term financial stability of the public social security pension, and the financial viability of their workplace pension schemes.

I think we can say, “So far, so good”. We are entitled to be reasonably optimistic that Britain slowly but surely is becoming a nation of savers. We have to be a nation of savers because the taxpayer can no longer underwrite the inadequate retirement savings of people in the workplace. There is now good evidence that people are beginning to retire later, and we should welcome that, too.

However, none of the manifestos of the main parties—and we now have to add another to the three established parties—set out any plans at all to encourage more workplace saving. Again, a bit of context might help us. A Lloyds Bank report in 2013 showed just what a mountain we have to climb. It confirmed that nearly a third of all UK households had no savings of any kind at all—zero savings—and that a further 14% of households had savings of less than £1,500. So nearly half of all UK households are just not prepared to deal with the force of these demographic changes.

Sadly, the savings ratio, although it goes up and down, has been more down than up; we are simply not saving enough. I would say to the new Minister, in whom I have a lot of confidence, that she probably has three substantial challenges ahead of her. The really big questions are: are people saving enough today and do they know how much they should be saving if they are properly to prepare themselves for what could be 30 or 40 years of retirement? We are talking about people spending almost as much time in retirement as they spent in their working lives. That is an extraordinary change.

I am afraid that the answer to both those questions is a resounding no. We are definitely not saving enough and people do not know how much they should be saving. Therefore, in this Parliament we are going to have to give some consideration to the adequacy of retirement savings. It is a public policy challenge of first-order significance. It is probably too early to think about changing the primary legislation on automatic enrolment. We need to get everyone in before we start changing anything else, and auto-escalation needs to settle down. However, I think that Ministers should now give urgent attention to setting a national retirement savings target and to helping people understand the sort of amounts they need to save now if their expectations for retirement are to be fulfilled.

I remain profoundly concerned that all the main parties are now looking at pension tax relief as a cash cow to spend on other priorities. Billions of pounds are maybe being inefficiently spent—I think that they probably are—encouraging people to save. Perhaps people would save anyway—they almost certainly would—but these are billions of pounds that we could redirect to encourage others to save more for their retirement, and we are not doing that. We are taking that money and spending it on other priorities, and that is a mistake.

Secondly, the Minister would be very well advised to do everything she can to try to retain the consensus that has been built since 2005, established by the noble Lord, Lord Turner. The annuities market reforms of 2014 have fractured that consensus to a considerable extent. Personally, I think that the reforms were justified; I do not think that it is acceptable any longer to tell people what to do with their money. None of us wants to be treated like an idiot, and we have to be given at least that sense of control. I have no problem with that. However, there is a very real risk that people will deplete their savings and the next generation of retirees and pensioners will find themselves impoverished—the curse of every previous generation. We have to avoid that.

Therefore, I hope that the Minister will give active consideration to the one outstanding recommendation of the report of the noble Lord, Lord Turner, that was not enacted by the last Labour Government. I hold my hand up and say that I was responsible for that. We now need to give active consideration to establishing a new, independent pensions commission, because auto-enrolment is at a critical stage. We have major decisions still to face but sometimes Ministers—bless them—are not the people to forge and build a national consensus; sometimes they need a bit of help. We certainly did and I am pretty sure that this Government will, too.

Finally, I hope that the Minister does not let go of her predecessor’s agenda of looking at the whole question of defined ambition pensions, which can improve the outcome for people who save in defined contribution pension schemes. If the Minister wants a steer, she need go no further than the extraordinary analysis by Bob Merton, the Nobel prize-winning economist, who has made a devastating critique of the inadequacies of defined contribution schemes. Basically, we are managing the wrong risk. When it comes to DC schemes, the most important thing for a saver to know is what sort of retirement income they can expect. At no point in the entire regulatory envelope surrounding defined contribution pension schemes is anyone addressing that fundamental question. The language of DC is one of asset valuation; it is not about retirement income. That is the strength of defined benefit, which is now, sadly, part of the history of pensions in the UK. However, for those millions of people now saving in defined contribution schemes we have to keep our focus on the adequacy of their retirement income. No one today is doing that. The defined ambition pension agenda began to give us the prospect that we might at last do that and I hope that we do not lose sight of it.