Public Service Pensions Bill

John Healey Excerpts

Tuesday 4th December 2012 Commons Chamber

[Chris Leslie]

The situation now is different because of the level of trust on which public service employees feel tested when looking at significant changes by the Government. Employee contributions were unilaterally increased by 3% without consultation or discussion—that was simply imposed, even though Lord Hutton was putting measures through. The evaluation arrangement was unilaterally changed from the retail prices index to the consumer prices index. A typical public service employee must have said, “Hold on a minute. Are we supposed to just take this on faith? We are glad that the Government are in negotiations, but as we know, Ministers are here today and gone tomorrow.” In no way do I cast aspersion on the Economic Secretary who I am sure will remain on the Front Bench in days to come. However, we cannot simply rely on statements from particular Ministers at a particular point in time.

[John Healey (Wentworth and Dearne) (Lab)]

My hon. Friend is absolutely right about trust, which is critical following the experience of many public service workers and Government decisions on pensions. Does he not underplay the importance of the fair deal? He described it as a positive development in the negotiations, but for many public service workers and their unions it was not just a positive development but a deal maker that allowed them to accept a package which, as he said, was detrimental in other areas. It was important that people took that provision as a clear guarantee, but doubt has now been cast on it, which underlines the importance of including it in the Bill and therefore the importance of new clause 3.

[Chris Leslie]

My right hon. Friend is correct. When we get a sense of the Government pulling the odd thread here or there or watering down elements of the provision—if I may mix my metaphors—it is no wonder that people start to question whether the words of Ministers at a particular point in time will carry through into what should be a 25-year commitment as set out in legislation. The provision was part of those negotiations but it has not found its way into the Bill.

Even more worryingly, the Economic Secretary made some peculiar statements in Committee about something that we thought was a done deal. He said:

“it is important that we consider in full the views of all stakeholders, including of course those who will be affected, through further consultation before making a final decision on the issue. It would therefore be inappropriate to include the fair deal policy in the Bill.”––[Official Report, Public Service Pensions Public Bill Committee, 22 November 2012; c. 459.]

It is as though negotiations had not been completed or decisions reached. Indeed, it sounded very much as if the Government were reneging on their commitment.

The Government need to lay to rest any suggestion that they are going back on their promise, and the only way to do that is to accept new clause 3. Failure to do so risks reopening debates and potential disputes with public service workers who will—justifiably—feel they have been misled.

[Chris Leslie]

Indeed; we will debate some of the worst aspects of clause 3 later. It feels as though when writing the Bill Ministers did not consider it as enshrining an arrangement involving give and take on both sides. They have included certain things to the advantage of the employer, but there are scant—if any—safeguards of sufficiency and longevity for the employee, and that is causing anxiety.

[John Healey]

My hon. Friend is making an important argument in response to the intervention by my hon. Friend the Member for Hayes and Harlington (John McDonnell). It is not just that the Bill includes certain things that advantage employers; the measures are principally to the advantage of the Treasury, which is given the whip hand and ultimate say over schemes that should be run by their members and managers accountable to them.

My hon. Friend quoted the Economic Secretary in Committee. When the Minister rises to his feet, is it not important that he explain the discrepancy between what he said in Committee and what the Chief Secretary to the Treasury said to this House in December last year? He said:

“Because we have agreed to establish new schemes on a career average basis, I can tell the House that we have agreed to retain the fair deal provision and extend access for transferring staff.”—[Official Report, 20 December 2011; Vol. 537, c. 1203.]

There is a big difference between those two statements and the Economic Secretary needs to explain himself on that point.

[Mr Speaker]

Order. Before the hon. Member for Nottingham East (Chris Leslie) replies, let me say that although I have indulged the right hon. Member for Wentworth and Dearne (John Healey) on this occasion I hope he will not repeat such a long intervention. I do not want him to induce the hon. Member for Corby (Andy Sawford) into following bad habits. That would be a very undesirable state of affairs.

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[Mr Gibb]

Alas, I no longer speak on behalf of the Government, but that is a commitment given by Ministers of this coalition Government. The hon. Gentleman is trying to create a division between the Conservative party and the Liberal Democrats in our approach to public service pension reform, and there is no such division. There is no such difference in attitude between the two parties on public service reform.

[John Healey]

I rise to support the hon. Gentleman. Unlike my hon. Friend the Member for Nottingham East, the House and the public have a right to take at face value the words of a Chief Secretary—a Chief Secretary is a Chief Secretary is a Chief Secretary. That is a statement of Government policy and of coalition Government intent. Therefore, I think the onus is not on the hon. Gentleman, but on the Economic Secretary to the Treasury to explain why his statement is different from the Chief Secretary’s statement.

[Mr Gibb]

I listened carefully to my hon. Friend and to the Chief Secretary and I did not find any difference. My hon. Friend was addressing whether particular matters should be in primary legislation; the Chief Secretary was setting out the case for the policy.

On teachers’ pensions, there was anxiety that the current arrangements, under which teachers in the independent sector can be members of the teachers’ pension scheme if their employer signs up to the scheme, might be put in jeopardy by the words of Lord Hutton’s interim report, so the Chief Secretary’s statement was welcome news to teachers. Paragraph 8 of the proposed final agreement states:

“the Government agrees to retain Fair Deal provision and extend access to public service pension schemes for transferring staff. This means that all staff whose employment is compulsorily transferred from maintained schools (including academies)…under TUPE…will…be able to retain membership of the Teachers’ Pension Scheme when transferred.”

That is welcome news. The agreement goes on to state:

“The Government’s decision on Fair deal means that…independent schools which already have access to the Teachers’ Pension Scheme will continue to do so (for existing and new teachers); and new teachers and independent schools will continue to be able to join the scheme under the existing qualifying criteria.”

When we debated the issue in Committee, the hon. Member for Nottingham East conceded that the new fair deal

“is an improvement on the current fair deal arrangements”,

but, as he has just now, he complained that

“the promise does not appear in the Bill.”––[Official Report, Public Services Pensions Public Bill Committee, 22 November 2012; c. 458.]

He will be aware, however, that the fair deal arrangements were non-statutory when they were introduced in 1999, and that they remained non-statutory when they were revised in 2004. Notwithstanding the fact that the new fair deal arrangements are an improvement on the old ones, if it is good enough for a Labour Government for the policy to be non-statutory, it ought to be good enough for the hon. Gentleman. As my hon. Friend the Minister made clear in Committee, the recently published Government response to the fair deal consultation included draft guidance setting out how the new policy would work in practice. Given all the public statements by my hon. Friend the Chief Secretary and the published guidance and consultation documents, the hon. Gentleman should be assured by the commitments given.

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[Robert Neill]

I have worked it out; it must be well over 30 years in chambers of one kind or another around London. We do not always come to the same conclusions, but I take on board the expertise that he brings to this topic. I agree with his point that it is important, when dealing with the schemes that he and I have been involved with, to give the members of the schemes an assurance that they will have a secure pension in future.

I have spent most of my life dealing with the local government pension scheme, and I am going to talk about that today. Indeed, I should declare an interest as a member of that scheme. I recognise that change often raises concern and creates a measure of insecurity, and it is the job of those of us who have governance of these schemes, locally and nationally, to deal with that. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr Gibb) pointed out, however, the biggest cause of insecurity and the biggest risk to scheme members would be the lack of a secure financial basis for the future of the scheme. That is why the Government’s reforms are necessary; that is the most important reassurance that we can give to people.

There are other important points that we can take on board in the context of the amendments, and I want to talk about the local government schemes in particular. It has already been recognised in the House that they fall into a different category because of their substantially funded nature, which places them in a different position, and because of the considerable diversity within the sector. There are a number of schemes involved, and they generally have a good management track record and a system of management that creates transparency and democratic accountability. I hope that we can ensure that the regulations that will finally embody the schemes will recognise those differences.

I agree with the right hon. Member for Wentworth and Dearne (John Healey) that we should take at face value the assurances given by those on the Treasury Bench, and I have no hesitation in doing so. I put it as gently as possible when I say that there has been a degree of needless raising of concern among scheme members, perhaps—dare I say it?—for partisan reasons. That is unhelpful.

[John Healey]

The hon. Gentleman is urging us to take at face value the statements from those on his Front Bench. Let me tell him what the Economic Secretary to the Treasury said in Committee about the concerns over the fair deal. He said that

“it is important that we consider in full the views of all stakeholders, including of course those who will be affected, through further consultation before making a final decision on the issue.”––[Official Report, Public Services Pensions Public Bill Committee, 22 November 2012; c. 459.]

I put it to the hon. Gentleman that, taken at face value, that suggests that the final decision has not yet been taken, contrary to the agreements reached with the trade unions on pensions reform.

[Robert Neill]

The right hon. Gentleman will know, as a former local government Minister, that there has already been considerable consultation and discussion on the shape of the local government schemes. In any event, there is to be a formal consultation as well. I do not read the same connotations into the Minister’s words as the right hon. Gentleman does. That is not my reading of the discussions to which I was party when I was a Minister. However, the right hon. Gentleman is right to suggest that we should be as transparent and upfront as possible in our discussions with scheme members.

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[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.

[John Healey]

I rise to support my hon. Friend the Member for Nottingham East (Chris Leslie) in the amendments he has tabled. Each and every one of them is important. Given that we are having a reflective debate on Report, I hope we will get a reflective response from the Economic Secretary at the end of our debate on this group.

Let me start where it seems to me that there has been a strong measure of agreement across the House—on the importance of having good, regular and accurate pensions information for scheme members. I think we could all agree that what should underpin our pension schemes—this relates to new clause 2—are higher standards of governance, openness and administration. Such underpinning, then, should be provided in this Bill’s provisions for those public service pension schemes in the future. There is bound to be greater confidence and trust in the schemes, along with better understanding of them, if members are given more information.

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[Andy Sawford]

One of my worries about the pension scheme changes relates to the different impacts that they will have on different communities. Sadly, as my right hon. Friend may know, Corby has one of the 10 lowest life expectancy rates in the country. As we review the schemes, and, in particular, as we seek to give people information about the future benefits that they may expect, we should recognise that there are huge regional variations in life expectancy, and that it is important for people and their families to be able to plan for their future.

[John Healey]

My hon. Friend’s constituency is in Northamptonshire and mine is in south Yorkshire, but we share an industrial heritage and a strong tradition of steel-making, and I entirely understand the point that he has made. It is as relevant to Corby and to east Northamptonshire as it is to Wentworth and Dearne and parts of Rotherham and Barnsley.

New clause 3 is simply intended to ensure that the undertaking given to the House by the Chief Secretary to the Treasury, and given to the unions that have been negotiating about pension schemes changes on behalf of their members, is guaranteed, and that Ministers will not be able to change their minds and change the schemes in the future. This must be legislation for a 25-year deal, which is what the Government originally promised us.

The question of access to public service pension schemes for public service workers who may face compulsory transfer to non-public service employers and organisations is critical. As has already been pointed out, the Government’s commitment to an extension was a deal-maker for many unions and for many of their members, particularly on the local government side. It would have been a deal-breaker for those unions and members if the guarantee had not been in place, or if what the Economic Secretary said in Committee—which I have quoted—had been on the table instead. We had a clear and principled commitment. That commitment ought to be included in the Bill, and then, as is appropriate in the case of enabling legislation of this sort, the details of the mechanism for how it is to be implemented can be provided in further regulation or scheme rules.

I must say to the Economic Secretary—as some of my hon. Friends have already said—that trust is a problem for the Government in the public services, particularly when it comes to public service pensions. That should come as no surprise to them. After all, they commissioned Hutton to produce the report, and before the publication of the final version, they hit public service workers with a 3% tax surcharge on their pension payments, and with not just a temporary but a permanent switching of the link with pensions from the retail to the consumer prices index. A commitment in the Bill will serve as a confirmation and a reassurance for public service workers that the Government do indeed mean what they say in this regard.

Let me say something about amendments 19 and 20, and about the Bill’s use of the concept of “closure”. During this debate and in Committee, the terms “closure” and “winding up” have been used almost synonymously, but they are not, of course, synonymous. The winding-up provisions in the Pensions Act 1995 apply principally to occupational pension schemes. Those schemes are different from local government pension schemes, which are funded and have the quasi-constitutional backing of local government.

As my hon. Friend the Member for Nottingham East pointed out, the Economic Secretary has said that that it is not the intention to close local government pension schemes. If, as the Government seem to be arguing, closure does not mean closure and there is no intention to legislate for closure of any of the funds, this change should be straightforward. It is evidently needed, especially given that the concern of employers, scheme members, trustees, and unions representing many of the members has been consistent and clear. Why risk uncertainty, why risk a legal challenge, why risk financial jeopardy for some funds, by allowing debts to be triggered in the particular circumstances of a funded scheme for local government?

It may not be the Government’s intention at present to reduce people’s benefits that they have already accrued. It may not be their intention to end any flexibility in the link between the normal pension age and the state pension age. It may not be their intention to make further and sweeping radical changes or cuts in people’s pension provision. As it stands, however, the Bill allows all those things to happen. That is why the new clauses and amendments are so important. They will reassure pension scheme members, now and in the future, that this is a settlement for the long term, that the Government mean what they say, and that the Government can, in the longer run, be trusted with public service pensions. Scheme members have seen little evidence since 2010 that that is really the case.

[Mike Freer]

Members have discussed the technical definition of “closure”, and I ask the Economic Secretary to make it clear in his response that closure does not mean closure, but instead means the scheme is frozen while a new scheme is run alongside and in parallel. Members have talked about the effects of closing a scheme and the crystallisation of outstanding liabilities. In respect of the local government pension scheme, the council tax payer would then be forced to meet those liabilities in one fell swoop. That runs contrary to all the other efforts the Treasury is making to keep council taxes down, so if closure is, indeed, what is intended, there would appear to be a lack of joined-up thinking in the Treasury.

[John Healey]

I support the hon. Gentleman’s remarks, and I hope the Economic Secretary will, too. For clarity’s sake, will the hon. Gentleman confirm that this does not only affect local councils, as schools that are academies, charities and a number of non-government organisations also use the local government pension scheme?

[Mike Freer]

The right hon. Gentleman makes a good point. Having chaired the London borough of Barnet pension fund committee for several years, I know that while the council is by far the largest fund, there are also many admitted bodies for which it administers funds, such as Middlesex university, academies and various charities. The crystallisation of debt that may arise if there is any vagueness in the legislation could therefore have massive impacts not only on councils, which could, perhaps, withstand the financial shock by using reserves and spreading the effects over many years, but on smaller admitted bodies, who certainly could not do that.

As we have seen in respect of Equitable Life, once a fund closes and becomes a zombie fund, all the good fund managers flee. No decent fund manager worth their salt wants to manage a zombie fund. Therefore, because of the performance of the zombie fund, the liability grows still further. The implications of crystallisation of liabilities in this context must be taken into account. I urge the Economic Secretary to explain precisely what he means when referring to closing a fund. I believe he means that one fund would remain but would have no new contributions and no new members, and a new fund would run in parallel. I urge him to make that clear.

On the issues addressed in new clause 2, I urge the Government to go further, because best practice in the public sector in respect of providing information is not enough. It is my hon. Friend the Economic Secretary’s birthday tomorrow; I think he will turn 43 years of age. I calculate that by the time he reaches the normal pensionable age of the parliamentary scheme he will have contributed some 24 years of accrued service, presuming that he is in a one fortieth, one fiftieth or one sixtieth scheme with the various contribution rates that attach to them. My hon. Friend the Economic Secretary is a man of finance and has a head for figures, so I have no doubt that he understands the pension choices he has made, but I spend a surprisingly large amount of my time explaining to teachers and others—on Saturday I spoke to a police officer—exactly how their pension works, because they do not know and do not understand.

Further requirements in terms of transparency and quantity of information are needed, therefore, because people need to make rational decisions. If we want to defuse the pension time bomb, people have to make a rational decision based on information, not supposition. A constituent of mine who is a doctor has been trying for six months to get information from the NHS about his pension contributions and likely benefits. That is simply not good enough. The Government must go further in this regard.

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[Sheila Gilmore]

At least with regard to new clause 2 and the need for good communication and good information, it appears that there is a fair degree of cross-House agreement. Members may have different motives for wanting such information to be given, and may hold different views about what behavioural change that might drive. Some Members might also hint that they want this information to be given so that public sector workers are properly and humbly grateful for retaining better pensions than the absolutely dreadful pensions of many in the private sector. I hope the Economic Secretary will respond positively, however, and agree that this is an important step. It will be deeply ironic if better and more thorough information is given to people with private sector pensions than to those with public sector pensions.

We all want to avoid too much information being given, of course, with people receiving many pages of information, much of it hard to understand. We do not want to over-egg that pudding. There is a parallel debate happening in the world of private sector pensions on giving good, accurate but still efficient information, so that people can look at a single page of information—that is preferable—and understand what their likely pensions are going to be. On that matter I hope that the Minister, having heard the debate in Committee and again today, will be happy to make some changes to the provisions. I cannot see why new clause 2 should not be in the Bill, as it deals with such a major issue.

I wish briefly to discuss new clause 3, which deals with the issue of a fair deal. Again, there would appear to be a substantial degree of agreement across the House on the substance of the issue. Nobody is saying, “We don’t think these should be the provisions.” The question that has been raised is whether they should be in the Bill. Some Government Members have suggested that accepting what the clearly stated view of Ministers has been at various points should be good enough, because it is on the record and we should be confident that that is sufficient. However, as far as I am aware, it is not possible to litigate on the basis of what people simply said, rather than what is in legislation. People have attempted to say in the past, “But that was the intention”, even doing so in respect of debates in this House. However, legal disputes about rights or obligations turn on the much narrower construction of what is written in the Bill.

I am not suggesting, in any way, that those who have spoken during our consideration of the Bill do not intend what they have said, but many public sector workers are genuinely concerned. As I said in my earlier intervention, the matter becomes a great deal more important if the Government continue, as they presumably will, over the next two years to do what they say they want to do: outsource more of what we would regard, or have traditionally regarded, as public sector activities. That has already happened to some extent. Some people have explained how this could be very positive, with employee mutuals and all kinds of social enterprises springing up to provide public services. If the Government are genuinely serious about wanting current public sector employees not just to have to do this, but to be enthusiastic about doing it, these safeguards have to be in place. If this is the road that is to be pursued, it is even more important to have these provisions than it may have been in the past. Saying, “You didn’t do it before so we don’t need to do it now” is not a particularly good argument; some of us might disagree about what had been done previously. Even if we do not, the argument is still not particularly good, as we have also to learn from experience. I hope that the Government will seriously consider legislation on this matter, because if they genuinely have no intention of departing from the promised arrangement I cannot see what the problem is. When people begin to say there is a problem, that is when those paying into these schemes—the employees likely to be affected—begin to smell a rat. There may be no rat there, but why not make things absolutely clear?

That is also true of what we are trying to achieve in amendment 12, which deals with an apparent possibility arising from clause 7. Again we were given assurances in Committee that we should not be reading into this something that the Government do not intend. Clause 7 says:

“Scheme regulations may establish a scheme…as

(a) a defined benefits scheme”.

It then goes on to talk about

“a scheme of any other description”.

It is not at all clear what is actually meant. We were told that one or two specialist defined contribution schemes are in existence, but people are clear that the promise that was made as part of this negotiation is that the defined benefits schemes would remain in place. They will, however, be changed, and during the negotiation employees in various parts of the public sector accepted substantial changes in the kind of pension because they accepted the imperatives. In moving from final salary pension schemes to career average schemes, changes are being made in accrual rates. All sorts of changes have been made—for example, the forthcoming changes to pension age—but they were made on the basis that the scheme will remain as a defined benefit scheme.

[John Healey]

My hon. Friend is making a powerful case and sounding a clear warning. She mentions that clause 7(1) refers to

“a defined contributions scheme, or

( c) a scheme of any other description.”

Would she like to point out to the House that this potential change in clause 7 could in theory, under subsection (5), be brought in by way of a negative resolution—by a statutory instrument that would not allow a debate in this Chamber or even a 90-minute debate in a Committee upstairs?

[Sheila Gilmore]

I thank my right hon. Friend for his intervention, because that is an important point. If the rest of the clause did not give rise to the possibility of substantial changes, that provision might be acceptable. However, where we are talking about much greater changes, it is particularly important that the full debate takes place.

Again, there appears to be a difference between giving an assurance and a reluctance to see that assurance embedded in the Bill. Various people have mentioned that the whole debate we have had, particularly since 2010, has eroded some of the public sector workers’ trust. I do not generally seek to be overly alarmist in these matters, but even in Committee—I am pleased to say that this has not happened today—there were points when we could see exactly why many public sector workers are apprehensive, There were those, admittedly not at ministerial level but on the Government Back Benches, who clearly still feel that public sector pensions are too generous. The underlying thinking is that at some point, perhaps in the not-too-distant future, further attempts will be made in that regard.

I fully accept that even with the changes that come through this Bill and through other negotiations that have taken place, public sector pensions remain far better than private sector pensions. However, we always have to remember that the comparator we now have is absolutely dreadful private sector pensions, regardless of where we place the blame and how that has happened. One thing that politicians should be doing in the next few months and years is trying to improve private sector pensions.

Finally, I wish to discuss amendment 11, which relates to the local government scheme in Scotland. Generally, the arrangements for many public sector schemes in Scotland have been that Scottish Ministers could make regulations, but that they were subject to Treasury approval. For the most part, whether because of that need for Treasury approval or because until relatively recently there has been no reason to depart from the UK-wide arrangements as doing so might create various anomalies that would not always be helpful, the regulations for schemes—all those that are not funded, at least—have lain with Scottish Ministers but have been made in the same way.

The exception is the local government pension scheme and the difference is that that is a funded scheme. It has been regulated in a way that has not normally had Treasury approval. The purpose of our amendment is to exclude the Scottish local government pension scheme from the Bill, which would enable matters relating to that scheme to be dealt with by Scottish Ministers. The amendment would perhaps add clarity to the devolution of power, but, more importantly, it would embed the practice as regards that scheme and safeguard it. Otherwise, the Bill would mean that the Treasury would be involved in setting aspects of the Scottish local government scheme and, for the first time, local government workers in Scotland might find that changes can be made to their pensions by the UK Government.

[John Healey]

My hon. Friend is making another powerful point about amendment 11. She is right that the Scottish Government are not normally backward in coming forward to demand new powers and for decisions to be taken in Scotland for Scotland. Would she care to speculate about why they have not chosen to apply for a legislative consent motion that would allow them to make these decisions in Scotland? Could it be that they are looking to allow the broad shoulders of the Economic Secretary to take the blame and responsibility for the changes to the local government pension scheme in Scotland?

[Sheila Gilmore]

I was going to come to that point, because I am surprised that that opportunity has not been taken, given the context. As my right hon. Friend will know, this is a difficult and sensitive subject, but—this point might well be speculative and I am sure that people will wish to deny that it is the case—it is no secret that we are in a particular stage of politics in Scotland, and it would—

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[Sajid Javid]

My hon. Friend makes a good point and I hope that he is also reassured by the commitment I have just given.

I also want to thank my hon. Friends the Members for Finchley and Golders Green and for Bedford (Richard Fuller) for their input on this issue in Committee.

[John Healey]

I welcome that commitment. The Minister said that the information should be provided “to some scheme members”. May I urge him to take a maximalist approach and make sure that the maximum reasonable number of members get the most regular and at least annual information that will allow them to understand the scheme better and to plan for retirement and manage it better as well?

[Sajid Javid]

I agree. All scheme members, one way or the other, should receive annual information. That is the type of amendment we will table in the other place. However, there are different types of members of schemes, such as deferred members and active members. That needs to be taken into account when they receive that information.