Public Service Pensions Bill

Angus Brendan MacNeil Excerpts

Tuesday 4th December 2012 Commons Chamber

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Does the hon. Gentleman agree that, if the Scottish Government can find the ways and means to fund their pensions, they should be free from penalties from the Treasury at Westminster?

[Chris Leslie]

That comes down to how the legislation is drafted. There are different financial consequences for local government pension schemes than for other public service pension schemes. That is why we need clarity in the legislation. I am conscious that the Scottish National party Government in Scotland have argued that there is no need for a legislative consent motion to cover the matter because, in theory, the UK Parliament always had primary legislative power over the local government pension scheme in Scotland but has hitherto chosen not to use it. The Government in Scotland have been quick to accept the UK’s proposals, which is unusual, because they normally argue that more power should sit with Holyrood. The movement of the regulation-making powers means that the Scottish Government will not need to grapple with difficult decisions on the reform of certain pensions, but the Opposition feel it would be better for Members of the Scottish Parliament to have an opportunity to scrutinise and debate the application of the legislation to the local government pension scheme in Scotland. Amendment 11 to clause 3 would mean that the Bill would not apply to the local government pension scheme in Scotland unless that is explicitly approved by the Scottish Parliament. The hon. Member for Banff and Buchan (Dr Whiteford) and others have tabled parallel amendments—I gather they are in the third group, so we will probably return to this debate later.

Amendment 12, which is in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), relates to another key Government promise made to public service workers. It seeks to enshrine in the legislation another Government promise made to public service workers—the Government promised that their final salary schemes would be replaced with career-average revalued earnings schemes. That would ensure that public service workers continue to receive a defined benefit pension.

The Bill does not explicitly honour that promise, and clause 7 provides that schemes created under the Bill can be defined benefit or defined contribution schemes, or any scheme of any other description. That is fundamental to the arguments on the Bill, but it is also fundamental to the arguments that Hutton made and the agreements that were reached. All schemes were supposed to be succeeded by career-average defined benefit schemes. In some cases, the Government might like to continue small defined contribution schemes, but the amendment would not affect those; it would apply only to final salary schemes and ensure that they are replaced with another defined benefit arrangement. The amendment therefore simply seeks to put the Government’s promise to public service workers on a statutory footing.

A similar amendment was opposed in Committee, but the reasons given by the Minister were concerning. He claimed that the Government intended to replace the final salary schemes with career-average schemes, but that “the flexibility embedded in” the Bill

“could be helpful to scheme members in future.”

He added that

“it would not be appropriate for this Government to tie the hands of future generations and pension scheme members who might decide that, subject to the protection offered by the enhanced consultation and reporting obligations of clause 20, defined benefit schemes were no longer the most appropriate for public service workers.”––[Official Report, Public Service Pensions Public Bill Committee, 13 November 2012; c. 291-92.]

That is not the first time we have heard the Minister’s bizarre argument that legislation could bind the hands of future Governments. No Government can bind the hands of their successors in that way. Unless the Minister has an insight into changes in the democratic process of which we are unaware, that remains absolutely the case.

Therefore, the argument that clause 7 provides welcome flexibility to scheme members now or in future is, in the Opposition’s view, potentially misleading. In the rare circumstances that a defined contribution scheme is better than the defined benefit one, and scheme members and the Government wish to change schemes to defined contributions schemes, clauses 19 and 20 allow that to happen. Clause 7 provides no flexibility that does not exist in clauses 19 and 20. If we do not make the amendment, we allow the Government to go back on their promises. We seek to keep them to their word on those arrangements.

I know that many hon. Members wish to speak to proposals in this large group, so I shall make my final point on the question of closing local government pension schemes. My hon. Friend the Member for Corby (Andy Sawford) and the hon. Member for Finchley and Golders Green (Mike Freer), among others, have had extensive experience of local government schemes. In Committee, there was anxiety that the Bill mentions closing existing LGP schemes and beginning new ones. The problem with closing schemes is that there can be unintended and adverse consequences. We heard in Committee about triggering debts which might need to be crystallised on closure. Of course, not just big local authorities but small academies, charities and others are members of such schemes. They might find that they suddenly need to shell out one great lump of money simply because an existing scheme closes and the deficit needs to be dealt with there and then.

The Minister assured us that regulatory provisions did not require such crystallisation, and that there could be protections. The Opposition are not massively happy with that, but even if we accept the Minister’s word that closure does not mean closure, thousands of employers in the local government pension fund have individual admission agreements governing the terms of their participation—the agreements are not necessarily in a standard form, meaning that there could be thousands of different admissions contracts for the schemes. It is likely that at least some of the agreements will set out various powers for local authorities in the event of closure, including the power to collect a debt from the employer equal to its share of the scheme’s deficit. That would put a massive strain on participating employers and could put some of them out of business.

The Minister gave assurances on some of those points in Committee, but he missed the problem that the Bill allows local authorities to close their funds. The Government cannot prevent them from doing so under the Bill. The problem of triggering debts therefore remains substantive. There is also the question of whether closure means closure or continuing a scheme. The Opposition believe that a different approach is needed and that the Bill needs better drafting, which is why we have tabled amendments 20 to 28. We are not trying to add costs to the public purse and are keeping the Government’s proposals, but we are saying that it would be better to amend an existing scheme rather than to close and reopen it. They are in some ways technical proposals, but it would be better to err on the side of caution and provide that new regulations can amend scheme rules to ensure that all future benefits are accrued according to the provisions of the Bill and negotiated arrangements.

Those are essentially my comments on the Opposition’s proposals. My hon. Friends and others have tabled amendments in this group, but I shall let them make the case for them.

--- Later in debate ---

[John McDonnell]

Exactly, but I think it is across the piece. Whether or not we agreed with the last negotiations, or whether they were imposed or signed up to, at least some people felt there was some security for the future. People are becoming demoralised, which is why it is important that we insert in the Bill provisions for full consultation and agreement with organisations representing employees and for full openness and transparency. That is why new clause 3, moved by my hon. Friend the Member for Nottingham East, is critical. As has been said, at least in the private sector there is full display and transparency in what people sign up to, but there is no display or transparency in the public sector, particularly now that the Government have given themselves these powers.

[Mr MacNeil]

Given the comments about the police pension scheme, I am sure the hon. Gentleman understands the wish of the Scottish Police Federation that police pensions be controlled independently in Scotland. For England and Wales, however, does he feel that in future Governments should act more morally in relation to the terms of agreements that were made years before and under which police officers expect to retire, while also understanding, of course, that in Scotland they want clear of the system?

[John McDonnell]

I can fully understand the feelings of police officers in Scotland, as I can those of officers across England and Wales. People now just want safety and security in their pensions, which are theirs—they have paid for them and contributed to them. As my hon. Friend the Member for Nottingham East said from the Front Bench, they are nothing more than deferred wages.

--- Later in debate ---

[John McDonnell]

I fully agree. What concerns me is that the Henry VIII powers in clause 3 are retrospective. This is another reason why the valuation process is so critical: if there is not full openness, transparency and consultation, in particular with employee representatives, the Government could in future use the valuation process to withdraw some of the benefits of the scheme or increase the contributions retrospectively. People can sign up to a scheme and pay into it for 20 years, but then be told that the benefits are different—although I think that will be tested in law, because I believe that legally we are talking about accrued rights that are protected under European legislation. The Government do not accept that argument, but it is a critical point. That is why I have tabled my amendments. The Government underestimate the anxiety and fears out there—particularly among trade unions, but also in other organisations—which arise from the lack of confidence in the future management of the schemes in the best interests of employees and members.

Let me turn to my amendments 7 and 8. The Government’s reform was meant to change the nature of the schemes, so that they would be based on career averages, exactly as my hon. Friend the Member for Nottingham East said from the Front Bench. However, that is for a defined benefit scheme, not a defined contribution scheme, yet the Government have not committed themselves to that in the legislation. That is why I have tabled amendments 7 and 8, so that where a scheme is rearranged or staff are transferred into a new scheme, they must be defined benefit schemes, because that is what was promised in the negotiations with the trade unions. It is argued that we are binding future Governments, but all legislation is meant to bind future Governments, and any future Government could revisit this matter. At the same time, we need to try to give at least some security and ensure that the promises given by the present Government are adhered to. That is not much to ask, and it is all my amendments are designed to do.

[Mr MacNeil]

The hon. Gentleman puts his finger exactly on the issue: insecurity for future pensioners. That, combined with ever-growing inequality in our society and the economic multipliers that we might see operating, means that people who are now living quite comfortably might be facing penury in their old age, due to the root insecurity at the base of this Bill, which he is doing a good job of exposing.

[John McDonnell]

In part, this is linked to other reforms that the Government are introducing—my hon. Friend the shadow Minister touched on this. Where changes have been made to the delivery of public services—some of this relates to outsourcing, reorganising government or delivering direct services through new Government agencies or public bodies—people understood that there would be a commitment from the Government that they would be transferred into the same scheme they are in now, which would be a defined benefit scheme. That is not in this Bill, which is why I have tabled my amendments.

The amendments put the onus on whatever bodies are established—non-departmental public bodies or whatever—to ensure that they offer a defined benefit scheme. If they do not, they are breaking the commitment that the Government gave. In addition, it will create a disincentive. When staff transfer, they transfer into the new scheme that will be established. Many people now in a defined benefit scheme—whatever its nature, whether final or average salary, although we are moving towards average salary—fear that if at some stage they move, they will be offered only a defined contribution scheme. That is why I want more certainty in the legislation. The amendments propose that whatever happens in the future, whatever restructuring the Government bring in and whatever new schemes are established, the Government will adhere to their promise that there must be a defined benefit scheme. I do not want to be cataclysmic about this, but if that does not happen, the legislation could undermine the whole provision of public service pensions. People could start to withdraw from the schemes because they did not have the certainty that they thought they had when they entered them.

The amendments might seem relatively minor, but they are absolutely key. If we do not bring the employees with us, if we do not consult their representatives, if we do not involve them in the valuation process and if we do not stand by the guarantee of a defined benefit scheme that they have been given, we will break down people’s confidence in the public sector pensions system overall, and we will certainly break down their confidence in this Government’s ability to adhere to their promises. This is not the 25-year guarantee of no further reform that we were given from the Dispatch Box only a matter of weeks ago.

--- Later in debate ---

[Robert Neill]

I congratulate the hon. Gentleman on his arrival in the House. I have been dealing with him in the local government world for many years. I did my best to prevent him from coming here, but it clearly was not quite enough! He anticipates one of the technical issues that I was going to mention, and it is perhaps the most substantial one. Chronologically, it is not the first in relation to the Bill, but I might as well deal with it now for the sake of completeness.

I read with care the assurance that my hon. Friend the Minister gave in Committee. I entirely accept that it is not the Government’s intention to create crystallisation. However, I note that the finer details of the proposals are being considered, and we should look carefully at that. The Minister said that there was no requirement for the funds to be wound up, and I accept that, but I hope that he will consider the issues that have been raised by the Local Government Association about legal ambiguity.

I do not doubt that the Minister has no intention of creating a closure that would crystallise the debts of a scheme. That was always the basis on which I approached such negotiations when I was a Minister, and I am certain that nothing has changed in that regard. However, this was one area in which some of the nuttiest legal advice needed to be obtained—[Interruption.] I should have said “knottiest”. There is sometimes a risk of legal ambiguity, and that must be avoided at all costs. I would therefore urge my hon. Friend and his advisers at the Treasury to take on board the work that has been done in the DCLG and other Departments to find a means of resolving this issue. We all know where we want to end up, and I am sure that there is a means of achieving that. I know that the Minister’s skills and abilities will get us there. It is right to point out that some issues still need to be addressed, but they are not insurmountable in the context of where the Government want to get to. It is an important area to clarify to the maximum extent.

The other issue I want to touch on is governance. I hope that the Minister will consider the concerns raised by the Local Government Association and the unions about the lack of segregation between the scheme manager and the scheme board. Again, I do not think there is any dispute between us about where we want to end up, but it is a fact that the local government schemes have a good record in their management and a good record on transparency. When experienced representatives of local government employers raise concerns that the two functions of the scheme manager and the scheme board are difficult to reconcile within the same body, those concerns should not, in my judgment, be lightly dismissed. I note that the Minister sensibly and properly took on board the fact that there are still developments going on here and that proposals are still being developed. I hope that that will continue to be the case, and when he responds to the debate, he may be able to update us and reassure us that continuing discussions will take place with the experts in the local government sector to make sure that we get the best possible design for those matters.

Finally and more generally, I ask the Minister not to be deterred by undue reference to Henry VIII clauses. When I was taking the Localism Bill and the Local Government Finance Bill through the House, if I had £5 for every time I was criticised about Henry VIII clauses, I would have retired to some tax haven as a very rich man. [Interruption.] I probably would not have not done that actually as I enjoy being here so much. However, it is part of the knockabout banter we get here that Oppositions always say that there are excessive Henry VIII clauses, but when one looks back, one finds that when the Opposition move into government, they construct Bills with exactly the same sort of clauses. That is why I urge the Minister not to be put off by that; it is necessary to build in the flexibility that such clauses provide in any piece of legislation of this kind. What are important are the statements of intent about the manner in which those clauses should be used. I am sure that the Minister will be able to reassure us on that.

[Mr MacNeil]

What the hon. Gentleman said gives me the opportunity to peg in as a general point the fact that this debate is set against a backdrop of mood music that pensions are spiralling and are actually increasing, but the effect of the Bill is not to arrest pensions, but to cut them and to cut net contributions to pension schemes by 0.1% of gross domestic product, which is what the Government are saving. That, of course, is taken out of the pockets of many people who have worked hard for many years in our public services.

[Robert Neill]

The hon. Gentleman and I once worked out that we might have a very, very, very—however many “verys” we put into it—distant relative in common, but with every gentleness and respect, I would have to tell him that we do no good service at all to our public services by being unrealistic about the affordability of pension arrangements.

I talked about the intent with which we approach these matters and about honesty, transparency and being frank about the financial realities that underpin the schemes. This measure is a critical part of that. The most important service we can provide is to be frank and to produce a scheme, which I am satisfied the Bill does, that is financially sustainable for the future. We have talked about the technical issues, but the overall thrust of being financially honest about the affordability of our public sector pension schemes is absolutely critical—and the Government have got that right.

--- Later in debate ---

[Dr Whiteford]

I am afraid that I am not privy to the Scottish Government’s processes on this, so I cannot answer the hon. Lady’s question with any certainty whatever. What I can say is that the Scottish Government got clarity only a few weeks ago on the extent to which they can deviate from the proposals for England and Wales, and that the degree is quite limited indeed. I think the Scottish Government will have some flexibilities on accrual rates and some revaluation bases.

[Mr MacNeil]

Will my hon. Friend give way?

[Dr Whiteford]

I will not give way to my hon. Friend at the moment because I want to make some short remarks in this part of the debate, and save my fuller comments for later.

The Scottish Government also require explicit consent from the Treasury for any cost-sensitive changes to the NHS or teachers schemes.

Will the Minister accept my amendment and recognise how tight the time scales are, given the complex range of responsibilities—varying responsibilities relating to different schemes—and how tough the negotiations are? Not all partners to the negotiations even accept the need for this set of reforms. In 28 months’ time, when the provisions would otherwise commence, the Scottish Government would have had not only to complete the negotiations and prepare and pass legislation, but ensure that the employers and scheme administrators could prepare their systems and processes before the 2015 deadline.

This is a very technical amendment in some respects, but it is a very important one. I hope that the Minister will have listened carefully and will be pragmatic in his response to it later.

--- Later in debate ---

[Mr MacNeil]

In respect of this Bill and the commitment to public sector pensions, what change in GDP are we likely to see?

[Mike Freer]

I am not qualified to judge that. I am not an economist, so I do not have information about the impact on GDP. It might be appropriate to ask the Economic Secretary that question, however.

--- Later in debate ---

[Mike Freer]

My hon. Friend makes a good point. The pensions time bomb is not only to do with the fact that people are making insufficient provision; it is also about there being insufficient taxpayers to make up the gap between the contributions made by employer and employee and that gap having to be made up from general taxation. There are two parts of the time bomb, therefore. Unless accurate information is provided on pensions, people will not be able to make the appropriate decisions.

[Mr MacNeil]

Will the hon. Gentleman give way again?

[Mike Freer]

As long as the intervention is not a question about GDP.

[Mr MacNeil]

In terms of the provisions in the Bill, the House of Commons Library informs us that this time bomb will be cut from 1.6% of GDP to 1.5% of GDP.

[Mike Freer]

I am not sure what point the hon. Gentleman is making. After our debate, I may have to check whether I have said something that I cannot remember saying, and I apologise that I cannot respond to that point at present.

The House spends a huge amount of time regulating. The Food Labelling (Nutrition Information) (England) Regulations 2009 spell out in considerable detail the information that must be on food labels. The labels specify for consumers the fibre content, edible carbohydrate polymers, synthetic carbohydrates, salt content, kilojoules and calories, sugar content, fatty acids of trans fatty acids, yet when we ask people to make choices about their pensions, which is one of the biggest decisions of their life, we give them no information at all. I urge the Economic Secretary to go further by ensuring accurate information is included in our pension statements.