Armed Forces (Pensions and Benefits)

Jim Shannon Excerpts

Tuesday 8th March 2011 Westminster Hall

[Nick Harvey]

The hon. Gentleman makes the point that we are having to take measures now to eliminate the deficit that we would not have taken or needed to take if the deficit had not grown over seven or eight years in the first place. Nobody in Government is saying that the precise measures that we are taking now are those that got the country into deficit, but the fact is that between 2001 and the banking crisis, we ran a budget deficit, some of it during a boom period in which traditional Keynesian economics should have dictated that we run a budget surplus.

The Government are now being forced to take drastic measures to address the structural deficit, not on the logic that these are the specific issues that built up the structural deficit, but because we must deal in the art of the possible. None of us came into politics to cut armed forces numbers or delete military capability, but we are driven to do so now by the scale of the budget deficit. It is simply not fair to say that nobody said anything. Throughout the period, my right hon. Friend the Member for Twickenham (Vince Cable) said that both personal debt and debt in the state’s coffers were mounting to the point of unsustainability and would sooner or later go pop. I do not claim to have been a soothsayer myself, but to say that nobody said it is simply inaccurate and untrue.

[Jim Shannon (Strangford) (DUP)]

I apologise for not being here earlier, Mr Streeter. I was at the Health and Social Care Bill Committee. I noticed in the paper that the Army Families Federation, which represents soldiers and their families,

“said that it had received 2,000 complaints in the past five days about the impact of cuts from people who feel that pensions and pay changes are a sign that the offer they laid down their lives for has been reneged on”.

I understand the Government’s position clearly in relation to the Budget, but in the middle of it all are the families and those serving on the front whose benefits and pensions are being reduced. That is the clear issue for many of us in this Chamber.

[Sandra Osborne in the Chair]

[Nick Harvey]

It is a serious issue—I do not deny that for one minute—but I think that what the hon. Gentleman refers to was an online survey run by the Army Families Federation that had 2,000 participants in its first five days. Of course there is a lot of concern and anxiety about the measures; I do not deny that for a minute. It is understandable. Some of the changes that we have had to make to the allowances package, which is what I think the survey was specifically about, are unpopular and will require lifestyle adjustments, but they are a necessary part of the Department’s contribution to the overall Government effort to reduce the deficit and bring the defence budget into some sort of balance.

The strategic defence and security review set out a requirement to reduce expenditure on service and civil service allowances, amounting to £300 million a year. Allowances are designed to support service personnel in particular circumstances, not to supplement income. It is entirely right that the package of allowances is reviewed from time to time to ensure that it fits the needs and circumstances of today’s armed forces fairly and affordably. There is no getting away from the fact that the measures will have an impact on individuals; I acknowledge that. However, to minimise the effects, we have concentrated on ensuring where we can that no group is disproportionately affected by changes. We have also sought to mitigate the effects by phasing in some of the changes over two years.

Operational allowances have not been affected by any of those changes. The House will be aware that we have doubled the operational allowance, backdated to 6 May last year. We have also changed the policy governing rest and recuperation for service personnel deployed on operations. Personnel deploying for six months will remain eligible for 14 days’ R and R, and personnel who lose out on that, whether as a result of operations or of disruptions to the air bridge, will be guaranteed additional post-operational leave in lieu as compensation. An appropriate set of allowances is a vital part of our support to personnel, and it will remain so. We believe that the changes announced in January by my right hon. Friend the Minister with responsibility for defence personnel, welfare and Veterans, struck the right balance between the need for savings and the need to get the package right.

The emergency Budget in June announced that from this April, the indexation of benefits, tax credits and the state second pension will be based on CPI rather than RPI. The change looks forward to the future. Future increases in the value of deferred pensions—all pensions in payment—will be based on CPI. Public service pensions will continue to be index-linked, which will continue to protect individual pensions against increases in the cost of living. The change is not a reduction of accrued rights, but we accept that, in the long term, CPI tends to increase at a lower rate than RPI. That is not always true—a year ago, RPI was negative and CPI positive—but I think that everybody accepts that, over the long term, CPI increases more slowly.

We have to link pensions to the appropriate target measure. CPI is the target measure used by the Bank of England, the headline measure of inflation in the UK, and the international standard measure. It uses a methodology that takes better account of consumer behaviour in response to price increases. The Government believe that it is the right index to use for uprating additional state pensions, public and private pensions and social security benefits, and that it is a more appropriate measure.

It is in the nature of public sector pension schemes that individual schemes cannot be seen in isolation. Much as I would wish, as the Armed Forces Minister, to see the armed forces pension schemes as utterly individual, the fact of the matter is that other workers in other areas of public service could not and should not be expected to see that. We cannot change one scheme without it at the very least having implications for others, and we cannot treat armed forces pension schemes inconsistently. The armed forces are part of the society they serve. Service pensioners do not live in a different world where prices move in different ways and the economy operates in a different fashion.