NHS Pensions

James Gray Excerpts

Wednesday 26th June 2019 Westminster Hall

[Sir Robert Syms (Poole) (Con)]

I beg to move,

That this House has considered NHS pensions, annual and lifetime allowances.

I begin by declaring an interest, because anybody who has been in the parliamentary pension scheme is affected by annual allowance and lifetime allowance. Therefore, some of the things I say may reflect on me and maybe other hon. Members, so I suggest they make a declaration as well—

[James Gray (in the Chair)]

Order. The hon. Gentleman may be right to say that all hon. Members may be affected by that matter, but for each individual to have to make that declaration would, I think, be otiose.

[Sir Robert Syms]

Thank you, Mr Gray. This is an important subject, and the more I learn about it, the more I realise its implications for the national health service. I had originally been told that the Treasury would respond to the debate, but I understand that the Department of Health and Social Care has manfully stepped up to the plate—the first example I have seen of a hospital pass to a Department.

The subject has devastating implications for the NHS, dental services and many other services in this country unless it is addressed by the Government. When the coalition Government came into office in 2010-11, they were quite right to reduce the amount of money that could be put into pension funds. At that time, someone could put £255,000 into a pension fund tax free; clearly, if they had such resources, it was unfair on the lower paid. The Government moved to reduce the tax leakage by reducing a number of the allowances.

The problem today is that the Government have drawn the allowances too tight, and in 2015-16 they also introduced a taper to the annual allowance. All that is having a pernicious effect on the NHS and creating what the British Medical Association has called a “perfect storm”. The lifetime allowance, which is just over £1,055,000, is such that most senior doctors and general practitioners get pulled into additional tax, paid at 55%. That raises the question whether they should continue working or retire early; there is a lot of evidence that members of the medical profession are deliberately retiring early because of the implications of working longer.

The annual allowance of £40,000 is creating problems of supplementary tax bills, which are falling at the doors of consultants, doctors and senior nurses. That £40,000 is made up of the increase in the fund and contributions, in a slightly convoluted formula, but the introduction of the taper and the way that it operates cause particular havoc. For higher earners, a strict regime applies to annual contributions, which is known as tapered annual allowance. It applies to people who have both adjusted income over £150,000 per year, which is total taxable income plus the real growth in value of pension rights over the year, and threshold income above £110,000 per year, which is essentially total taxable income, but net the value of any employee pension contributions.

Where an individual ticks both boxes, for every £2 of adjusted income that they receive above the £150,000 level, their annual allowance is reduced by £1. This means that those with an adjusted income of £210,000 have their annual allowance tapered down from £40,000 to £10,000, the lowest level to which tapering can reduce the annual allowance. That tapered allowance was introduced in 2016-17. The ability to carry forward unused allowances for years before the taper was enforced has so far helped to dampen down its impact, but in 2019-20, carry-forward will be from no earlier than 2016-17, when the taper came into force. That will reduce the number of people with significant amounts of underused annual allowance available, and as a result the taper will bite rather more than in earlier years.

If we look at the figures, we see the number of people who exceed annual allowance or hit the taper multiplying each year, pulling many more people into the system. Many senior doctors earn enough money from their core hours plus additional shifts to be potentially affected by the tapered annual allowance. In addition, because of the relative generosity of the NHS pension scheme, pension rights can be built up quite quickly, especially for those who have experienced a step-up in pension rights because of a promotion. Paradoxically, in most cases overtime shifts are not pensionable. That means that a doctor can find that, by working more, he or she has built up no extra pension but, because of the operation of the tapered annual allowance, has reduced the amount of pension that he or she can build up within the tax relief limits.

All that leads to more complexity within the system. It is extremely difficult for someone to work out whether they have an annual allowance issue; that is true for any high earner, but may be particularly true for those in the NHS, because they have rights under different sections of NHS pension schemes—for example, a final salary pension and a career average pension. Those rights are tested against annual allowance, but a negative accrual in one scheme cannot be set against a positive accrual in another scheme.

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[Steve Brine (Winchester) (Con)]

I add my congratulations to my good friend, my hon. Friend the Member for Poole (Sir Robert Syms), on securing the debate, kicking things off and so clearly setting out the challenge that we face. In recent weeks, we have worked as a tag team between Winchester and Poole— earlier this month I raised the issue in the Chamber during an urgent question on the NHS people plan, which is a logical place for the subject to sit, and he, obviously, is leading the debate today—and that is entirely appropriate given that we are relatively near constituency neighbours and that many of our constituents work in Winchester, Bournemouth, Poole and Southampton NHS trusts and do shared work across those trusts.

I must say that the debate should be responded to by a Minister from Her Majesty’s Treasury. That is no criticism of the excellent hospitals and workforce Minister, who until very recently I was honoured to call a ministerial colleague in the Department of Health and Social Care. This is the first debate being responded to by a Minister from the Department of Health and Social Care that I have spoken in since I left office. However, seeing as we have a Health and Social Care Minister here, I will focus my remarks on patient care, which my hon. Friend the Member for Poole has discussed.

Over the past few weeks, I have spoken on a number of occasions to the chief executive of Hampshire Hospitals NHS Trust, Alex Whitfield, and I have spoken either through her or directly to numerous consultants and senior clinicians about this challenge. I am aware how serious it is, both for the individuals adversely affected—as we heard from my hon. Friend the Member for Cheltenham (Alex Chalk) and the hon. Member for Newport West (Ruth Jones)—and for patient care and wellbeing, because the NHS is about its people if it is anything.

When I first spoke to my local trust about this, the chief executive told me that

“the pension situation is having a significant impact on our people”

in Winchester and Basingstoke, and:

“The NHS scheme is particularly affected by changes to the pension tax system relating to the Annual Allowance and the Life Time Allowance.”

She is not wrong when she says:

“These changes are complicated and for individuals in the NHS defined benefit pension scheme the implications are not at all transparent.”

That point was well made by my hon. Friend the Member for Poole. She says:

“As a result, individuals are receiving unexpected tax bills of tens of thousands of pounds. It particularly impacts on consultant doctors, senior nurses and managers. Individuals are making different decisions as a result of these bills.”

I will pause on that point, about the senior NHS staff on whom this is having an impact.

I was privileged to be part of a Department that, under the previous Secretary of State, who is now the Foreign Secretary, and under the current Secretary of State, has delivered a record funding settlement for the NHS—£20.5 billion a year. I saw that play out in Winchester a few weeks ago, when I opened the new emergency department of the Royal Hampshire County Hospital in the heart of the city. That is excellent news. In my opinion, the challenge for the NHS will not be too little money, as a result of the settlement and the excellent long-term plan, but having the right people, who can spend that money in the right way to deliver the patient care outcomes that we want. If we are losing senior people, we have a senior problem.

As well as speaking to the leadership at my local trust, I wanted to find out more from the horse’s mouth, so I asked members of the local clinical community to come forward with their own stories and, if I may, I shall put a few of them on the record. One consultant set the scene very clearly. He told me that the issue is the annual allowance pension tax taper, which I will come back to, and the inflexibility of the NHS pension, which is landing consultants with huge tax bills for doing extra work on top of their contracted hours. The consultant was clear—and I agree, not least as a former Health Minister—that that extra work keeps the NHS running in the face of ever increasing demand.

I was told that, in certain circumstances, the marginal tax rate on earnings for the extra work is greater than 100%, which means that senior doctors working in my local hospital are in effect having to pay to do extra work. They are some of the most committed individuals in public service in our country, and I have had the privilege of working closely with many of them, but that is taking things a bit too far. It is clearly not a sustainable situation and, now that the huge tax bills are landing on doorsteps, it is causing a huge change in the behaviour of consultants at all levels in my local trust.

Another consultant told me that she has been an NHS doctor for 19 years and has worked as a consultant in my local trust for the last seven. She is employed on a full-time contract, with additional out-of-hours cover. Moreover, she regularly covers additional lists and shifts that require cover, sometimes at very short notice. She could not have been clearer with me that she is happy to provide that cover in the interest of safe patient care, which is of course what this is all about, as everyone has said. However, she has now been hit with a £30,000 tax bill, and she tells me that the only way she can avoid regular large tax charges, which may be for tens of thousands of pounds a year and which of course are in addition to her not insignificant income tax payments, is seriously to reduce the hours that she works for the NHS and not to take on any additional duties. As has been said, that goes to the heart of the issue. The consultant fears, as does her MP, that that is the conclusion that many of her colleagues will be forced to accept.

Let me again give some facts from trust level. Hampshire Hospitals NHS Foundation Trust recently ran a survey on the pension issue and received a healthy 2,500 responses. It is the case that 42% of all the respondents have reduced their work commitment; 20% have avoided promotion; and, critically, when the people were asked who might change working practices in the future, the figure goes up to 80%, including 33% considering early retirement and just over a quarter considering leaving the NHS altogether.

I have no doubt that the changes were introduced in good faith. They are aimed at top rate earners, as my hon. Friend the Member for Poole said, but in practice this has had a damaging effect on key people in the NHS, and if it is not sorted quickly, we will see that escalate further, and it will become harder and harder to retrieve the position. The suggestions put to me for fixing it include removing the annual allowance tapering. When I spoke during the urgent question earlier this month, a number of consultants from across my local trust and Poole and Southampton contacted me. They are pleased that the consultation, which I am sure my hon. Friend the Minister will say more about, is imminent, but what they fear from that is that the 50:50 fudge will just not work. We need wholesale reform, and the taper really does need to be scrapped.

In addition, I ask the Minister whether it is worth considering removal of the annual allowance taper for public sector workers. Of course, that is a decision not for him but for the Treasury and for whoever is inhabiting No. 10 in a few weeks’ time—I may be well placed to influence that, or I may be not at all placed. The point is this. If we want to make the NHS a great place to work, why not provide a tax benefit to working for the public sector—one of the biggest employers in the world? That is food for thought.

Let me finish in the same way as I have tried to make the whole of my contribution this morning—with a real-life example from Hampshire Hospitals NHS Foundation Trust of what we are seeing at trust level. In Winchester, like everywhere else and as I have set out, the Royal Hampshire County Hospital, one of the three hospitals in the trust, relies on many doctors and other senior staff doing additional sessions over and above their timetabled work in order to fill gaps in the medical workforce. Locally, we have seen that especially in radiology, where the additional sessions are used for radiologists to review scans and write the reports about what they see. The reporting of scans is clearly required so that patients can be told what the scan shows and clinical staff can work with patients on the most appropriate treatment.

My good friend from the Scottish National party, the hon. Member for Central Ayrshire (Dr Whitford), whom we will hear from shortly, and I spent many hours in this Chamber when I was the Minister with responsibility for cancer, and I was extremely proud to get the 75% stage 1 or 2 diagnosis ambition into the long-term plan, as announced by my right hon. Friend the Prime Minister. That is critical: early diagnosis is cancer’s magic key, as has been said by me and others many times in this Chamber. If we are to get anywhere near realising that ambition, we have to have a functioning, improved and expanded radiology service. Any reduction in radiology and the diagnosis stage will have an adverse impact and make that ambition unattainable, in my opinion. I am reliably told by my local trust that it has seen the backlog of scans waiting to be reported growing each week over the last few months. That concerns me greatly. It is of course just one department—it is an area that I know a little about—but it is a sobering example and one that we simply cannot ignore.

I shall finish by saying that we must act. I have so much respect for this Minister, but we need the Treasury to take this issue seriously and we need the next Prime Minister to act. If we do not, it will only get worse. We need to grip it, and we need to grip it fast.

[James Gray (in the Chair)]

Despite his late arrival to the debate, I call Mr Paul Sweeney.

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[Anneliese Dodds]

Absolutely. I am grateful to the—

[James Gray (in the Chair)]

Obviously, in the context of the debate.

[Anneliese Dodds]

Great. I will keep it within the context of the debate as much as possible, because in fact this debate is around taxation—

[James Gray (in the Chair)]

Order. The hon. Lady will not keep it within the context of the debate “as much as possible”; she will keep it within the context of the debate.

[Anneliese Dodds]

I certainly will, Mr Gray. Thank you.

As I was saying, this debate is broadly around the contours of the taxation system and how they affect high-paid workers in particular. I am sure that the hon. Member for Winchester is aware that Labour has a different approach from that of the current Government around progressive taxation. We set out our proposals at the last general education: we indicated how, by increasing the tax paid by the very best-paid workers, we would free up the resources that are necessary. I am sure that he has seen what Labour produced in that regard—in particular, we would not pay for the boost in spending that the NHS needs only through a short-term windfall, which in practice is what the Chancellor did, because all the commitments that the Government made to the NHS were as a result of lower than projected spending and higher than projected taxation receipts.

That is not a sustainable way to fund our NHS in the long run. Instead, we should look at the longer-term measures that are necessary, which is exactly what we have been doing.

We need to ensure that NHS workers on lower incomes can save properly for retirement, but we also need to look at the situation that has been the focus of today’s debate. We need to focus on the changes that were made in the 2015 pension scheme, and how they interact with the variety of alterations that have been made to tax release. It is especially important to do so in the context of staff retention, and I understand the comments that Members have made about that topic. We have a particular problem with NHS staff leaving their jobs early, which in my experience is not merely because of these issues, although of course they are important. When I talk to senior staff in the NHS, they also mention stress, a general lack of resource, having to deal with short-term changes such as operating theatres being closed because of a lack of staff, and so on. A whole variety of features is driving those retention problems.