Public Service Pensions Bill

David T C Davies Excerpts

Monday 29th October 2012 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

With advances in medical science meaning people are living longer and a pressing need to ensure that our public finances are on a sustainable path, it is right that we put in place the long-term reforms we need to manage the cost of public service pensions. That is why when in government we took important steps to ensure public service pensions were sustainable, and it is why we regret that this Government have behaved in a way that has made reform harder and that has undermined confidence in occupational pensions for teachers, nurses, police officers and others who work in the public sector.

We remain of the view that the Government’s imposition of steep contribution increases across the board and a permanent switch in the uprating of pensions to a lower measure of inflation were unfair and unnecessarily provocative. However, we support in principle the Bill’s main measures.

[David T. C. Davies (Monmouth) (Con)]

Do the hon. Lady’s comments mean that if she were the Minister, she would reverse that Government reform?

[Rachel Reeves]

We have said that we support the shift from the retail prices index to the consumer prices index for the period of this Parliament to reduce the deficit, but we do not support a permanent shift from RPI to CPI that will continue long after the deficit has been eliminated. I will discuss shortly some evidence from the Pensions Policy Institute and the Royal Statistical Society on the appropriate measure of inflation for uprating pensions.

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[David T. C. Davies (Monmouth) (Con)]

I will try to keep my comments as brief as possible. I want to address some of the remarks that I have had thrown back at me as a supporter of this Bill and this coalition Government—not so much by Members, whom I have listened to carefully this evening, but in the newspapers, from the unions and from politicians in other political parties who have sought to make capital out of this issue.

Let me say clearly from the start that I—and, I believe, every single member of this coalition Government, whether from our position as Members of Parliament or from personal experience—very much support and respect the role of public sector workers across the United Kingdom. I know from personal experience about the very hard work done by the police officers in London with whom I work. I know about the paramedic who came to the aid of a member of my family recently and solved a problem for them. I also know about those who are teaching my three children the three Rs in a local state school. I know from personal experience, not just through my work, just what a good job public sector workers do, and I do not think there is anyone in this coalition Government who wants to do anything to undermine the pensions of public sector workers or undermine their role in any way whatever.

It was the hon. Member for Banff and Buchan (Dr Whiteford) who talked about the problems in the private sector. Although we should not be making comparisons, it is perfectly true to say that people in the private sector have lost out greatly, and they have done so partly as a result of the previous Government’s policies. We have heard all about the tax on dividends, but there are all sorts of other, subtle ways in which private sector pensions were undermined by the previous Government. They included, for example, demanding that financial institutions buy Government bonds and gilts, instead of allowing them to invest larger proportions of their money in stocks and shares, as well as enacting policies that kept stocks and share prices down. However, those are matters to be debated on another occasion.

What is clear is that we are not going to allow what happened in the private sector to happen in the public sector. We saw the misery that that caused for people—our constituents—and we do not wish to see it happen to other hard-working people. At the same time, however, we cannot ignore the fact that although people may well be doing physical jobs in the public sector, there are people in the private sector who also have to do physical jobs. We do not seem to have heard much about them. What about the lorry drivers? I used to do that job for four or five years, and it can be hard and physical. What about all the people who work in factories? What about builders? Why should they have to work so many extra years to pay for the pensions of people retiring years before them who may not be doing physical jobs at all? To some extent we have to make some comparisons.

[Mr Anderson]

I agree with the hon. Gentleman about workers in the private sector who should also have better arrangements. If he comes forward with a private Member’s Bill, will he allow me to become part of that process, so that we can legislate to ensure that those people are looked after properly, as public servants should be too?

[David T. C. Davies]

There is of course a wider problem. When I bring forward that Bill, which the hon. Gentleman will be supporting, I will be looking carefully at the maths, because what I think is absolutely disgraceful is promising people in the public or private sector things that cannot possibly be afforded.

I have heard the argument from trade union officials that says: “Why is this happening? It’s all because of the banks.” It has not been mentioned today, but that is something that people have come out with. However, when we examine the figures, we see that the problem has absolutely nothing whatever to do with the banks. The Treasury Committee looked at the amount of money that some banks were given—on a temporary basis; most of it will be coming back—which it calculated as about £120 billion. However, the national debt today stands at £1 trillion, which is almost 10 times that figure. Most of that debt has been caused by politicians overspending. However, when we take into account public sector pensions, the figure for the national debt goes from £1 trillion to £2 trillion at the very least. Indeed, last April the Office for National Statistics issued figures suggesting that the total amount that Britain will need to cover its pension liabilities over the next few years is £7 trillion. I must admit that I do not know how many years ahead that figure covers—I assume it covers quite a few—but it is an absolutely astonishing sum of money. I did a quick calculation and worked out that if £1 million represented 1 cm on a graph, we would need a graph that was 40 miles long, stretching all the way to Reading, to show our current liabilities. We cannot ignore the current financial situation.

Thinking about what has gone on with pensions in the past few years reminds me of an analogy. I used to work in the private sector, for a small family transport business. I wonder what would have happened if, one day, the directors of the company had gone through the books and, instead of collecting money from their workers over the years and investing it for the pensioners of the future, they had simply taken their workers’ contributions and used them to pay for the pensions of the people who were retired at that time. It would have been a sort of giant pension Ponzi scheme, and it would probably be illegal if it were ever tried out.

Anyone bringing about such a situation would have two options. One would be to pretend that there was no problem, and to try to gain short-term popularity with their work force by continuing to pay generous pensions that they could not afford. One way of doing that would be to borrow a vast sum of money from the banks to employ more people whom they could not afford, and to use their contributions to pay for the pensions of the workers who had just retired. That is more or less what has been happening over the past few years.

The alternative is far more sensible, and it is what this Government have done. We have opened up the books and said that we simply cannot afford to do this. We know that a much larger work force is going to retire in the future, and that they are going to live even longer, so there is no point in making promises that we cannot possibly keep. We have only to look at the recent history of the past 30 or 40 years to see what happens when countries can no longer balance their books. That is happening in Greece at the moment, and it has happened in recent years in Russia and Argentina, and across south-east Asia in countries such as Thailand. It happens over and over again, and we must not think that, just because this is the United Kingdom, we can somehow buck the basic rule of economics.

I am proud that this is the first Government to have gone into an election saying, “We’re not going to spend more of your money. We’ll spend as much as we can, and we will spend it well, but we are not going to make promises that we cannot afford to keep.” We are going to protect public sector workers, particularly the lowest paid, but we are also going to ensure that the country is in a financial situation that will allow it to guarantee the pensions of those public sector workers who are going to retire not just in the next few years but in the decades ahead. In other words, we are going to trade short-term popularity—the easy thing to go for—for the long-term interests of public sector pensioners in this country. I hope that Opposition Members will, for once, do the responsible thing and support us in this vital work.