CPI/RPI Pensions Uprating

Debate between John McDonnell and Harriett Baldwin

Thursday 1st March 2012 Commons Chamber

[John McDonnell]

I am pleased that the National Pensioners Convention supports the quadruple lock, because that is what I have proposed in the House when we have debated this matter previously. It would come as a bit of a surprise if the NPC were to support the switch to CPI, given that a number of its members handcuffed themselves and blocked the road outside Parliament last week in protest against the measure. That is a form of direct action that I support.

The switch has had an impact on millions of people, as I have said. That is because, historically, the difference between CPI and RPI has been between 0.7% and 0.9 %. When the Government introduced their statutory instrument to force through the change, the Office for Budget Responsibility assessed that the difference would be 1.1%. Since then, in November, the OBR published a working paper that indicated that the gap would widen, and so increased its forecast for the long-run difference between CPI and RPI to 1.4%. What that means in practical terms for people’s pensions is that after 15 years a CPI-indexed pension would be 17.4% lower than an RPI-indexed pension, and after 20 years it would be between 23% to 25% less. That is a significant amount. That was confirmed by the much-cited Hutton report on pensions, which stated:

“This change in the indexation measure, from RPI to CPI, may have reduced the value of benefits to scheme members by around 15% on average. When this change is combined with other reforms to date across the major schemes the value to current members of reformed schemes with CPI indexation is, on average, around 25% less than pre-reform schemes with RPI indexation.”

Many hon. Members will have received representations from people working in different jobs about what the switch means to them. Let me cite some examples to give the House a flavour of why there is such depth of feeling out in the country on this issue. Let us take the case of Jim Singer himself, the creator of the e-petition. Jim has worked for the Department for Work and Pensions as a partnership development manager in the east of Scotland, based in Aberdeen. He has worked for the civil service for 35 years. He has just turned 60, and he will retire on a salary of £29,000.

As a result of the pay policy imposed by his Department and the Government, Jim has had a pay increase of only 3% in the last five years. That has had the effect of reducing the value of his final salary by around 25%, as against RPI inflation over the past five years. Even if his pay had kept pace with the Government’s favoured indicator, CPI, his final salary would have been 13% higher. That in turn means that his pension will start at a level of over £3,000 a year lower than if his pay had kept pace with RPI, and that his lump sum will be cut by over £9,500. So, he will have a £1,600 pension loss and a £4,960 lump sum under CPI. In addition, the switch from RPI to CPI is likely to cost Jim nearly £23,000 in pension over a normal retirement. Jim’s wife, Sheena, worked for British Telecom and has a pension which is also affected by the switch from RPI to CPI. She stands to lose £9,000 over a 20-year retirement.

[Harriett Baldwin (West Worcestershire) (Con)]

I thank the hon. Gentleman for giving us the range of examples. Is it his understanding that it is not his party’s policy to fight the next general election on a promise to revert to RPI?

[John McDonnell]

I scoured the Welfare Reform Bill Committee discussions on that point, and as I understand it, those on the Labour Front Bench made it clear that they were not going to write their manifesto in advance of 2015. The hon. Lady can be assured, however, that I shall be pressing for that policy to be adopted.

Let me press on with Jim’s example. The guide to his pension—the “principal civil service pension scheme, classic”, as it is called—was published by the civil service in 2009. It explained that his pension would be “index-linked”. On page 24, the guide explained that this index-linking meant that

“your pension is guaranteed to increase in line with inflation, as measured by the retail price index”.

When he heard that the Government had changed the index-linking of his pension to CPI, he wrote to the Minister for the Cabinet Office and Paymaster General, the right hon. Member for Horsham (Mr Maude). He received the following reply:

“In hindsight, because the Minister has the discretion to decide which indicator best reflects the general level of prices, perhaps the booklet should have been drafted differently”.

That gives no satisfaction to Jim, who has lost so much money. He worked for 35 years with a guarantee of RPI, then, within a year of reaching his 60th birthday, the Government reneged on that guarantee. Over his retirement, the switch from RPI to CPI will not just be a minor change to an inflation indicator. For him, the switch will cost thousands.

Superannuation Bill

Debate between John McDonnell and Harriett Baldwin

Wednesday 13th October 2010 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

Following the final comments by the hon. Member for Birmingham, Yardley (John Hemming), I fully agree that we have been trying to create an environment in which agreement can be reached. However, if I were a civil servant watching this debate, with the prospect of the large-scale redundancies that will happen after the comprehensive spending review, I would almost despair. It will be extremely difficult for all of them to come to terms with the loss of their jobs. As a manager in the public sector in a former life, I have always found that people are realistic as long as their views are respected and they are involved in the discussions and negotiations, which have been entered into in a spirit of good will. To achieve that, we need to create a climate of good will where people feel that their views are being heard.

Despite my having opposed every cut of every job in recent years under the previous Government, we were told in the Public Bill Committee that 80,000 jobs were lost but there were only 80 compulsory redundancies. The negotiations that took place on the basis of the protocols established with regard to redundancies and transfer between Departments resulted in a system whereby large-scale compulsory redundancies were avoided. The Minister referred to past practice under the previous Government. As I said, I did not support the cuts that went on, but I genuinely think that they were committed to a negotiated settlement. In my view, had it not been for the interference of No. 10 and the Treasury—this is almost like history repeating itself—we would have obtained a negotiated settlement that all unions would have accepted. However, the settlement was imposed, and I opposed that. The PCS took the then Government to court because it believed that the accrued rights of its members were being interfered with contrary to law because it was an imposed settlement, not an agreed one. It was proved right in the court of law, and we have to come to terms with the reality of that.

[Harriett Baldwin (West Worcestershire) (Con)]

I am interested in the hon. Gentleman’s point of view on this. Does he believe that it is possible for the Government to negotiate to a satisfactory conclusion with the PCS given its position in all the negotiations?

[John McDonnell]

I do. I will come to that in a few minutes.

The position of the unions in the Public Bill Committee represented an attempt to acknowledge their responsibilities to their members. The PCS was in a similar position whereby, if it had not taken the Government to court to assert its members’ rights to their accrued rights and to consultation and agreement, it could have been taken to court by any individual member for failing to undertake its duty to its members.

Under the previous Government, there was a genuine attempt to negotiate a settlement. Under the current Government, I have found in my discussions with civil servants—not only PCS members but members of the other unions—that there is uncertainty among many of the people who may well be affected by the cuts to come as to whether the Government genuinely want a settlement, and anxiety that the Government are seeking to provoke a dispute. I listened to the Minister’s words, and I am grateful for them: they were positive and tried to create the climate in which a negotiated settlement can be achieved. However, the pattern of negotiations and ministerial statements in the past few months has not engendered an atmosphere in which a negotiated settlement can be brought about. That is why the Opposition have tabled their amendments. Every trade union representative at the Public Bill Committee made it clear to us that it was unprecedented for a Government, in the midst of negotiations, to introduce a Bill to impose a settlement in this way. It has never happened before in negotiations between a Government and the public sector.

--- Later in debate ---

[John McDonnell]

I meant 90% of the trade union members with whom the Government are negotiating.

May I tell the Minister what the POA has said about his words? Its general secretary Steve Gillan has said:

“I am annoyed that Mr Maude has leaked without prejudice discussions but I believe this has been deliberate in an attempt to drive a wedge between the POA and PCS. The POA will not allow him to do so.”

The Minister’s actions have meant that the union has now rejected the deal. Those actions were not responsible, and they were in contrast to the words of comfort that he has used here today and elsewhere in trying to engender a good industrial relations climate.

As my right hon. Friend the Member for Dulwich and West Norwood (Tessa Jowell) said, Members need to understand the strength of feeling among PCS, POA and other trade union members about the impact that the changes will have on their lives. We have had heart-rending cases submitted to us by people who have entered into mortgages, for example, believing that they had the security that even if they lost their job, they would have redundancy pay that would cover their mortgages. Now, they might lose their homes. We have heard of other people who were expecting significant compensation related to their salaries, one of whom would now lose £90,000 as a result of the Government’s proposals. No wonder people are angry and concerned. That is why they want their Government and their trade unions to come together to agree a fair way forward.

[Harriett Baldwin]

May I ask again the question that I asked earlier? Can the hon. Gentleman see a way for the PCS to agree to any negotiating position?

[John McDonnell]

Yes I can, and the PCS has written to the Minister again recently asking for meetings. I believe that one meeting has taken place, so there is potential. However, we cannot expect a negotiated settlement to take place when tactics are used that undermine the confidence not only of the PCS but now of the POA. That lack of confidence is now infesting other unions as well.