Superannuation Bill

John Pugh Excerpts

Tuesday 7th September 2010 Commons Chamber

[Mr Maude]

I will come on to precisely that point, because the hon. Gentleman puts his finger on a real concern that I have. I will deal with it in detail later, if I may, because how to protect effectively the position of the lowest-paid in the civil service is a really important issue that will concern everyone in the House.

It is now more than 20 years since the last serious reform of the compensation scheme and more than two years since the current reform process began, with an unchanged set of arrangements still in place. Frankly, that position cannot be allowed to continue. The current scheme is unaffordable and unsustainable. It allows for payments of up to three times annual salary or, for older workers, enhancements to pension and lump sum payments costing more than five times salary. For some, those enhancements can total as much as six and two thirds times annual salary. That compares with a maximum of 30 weeks’ pay under the statutory redundancy scheme, with a weekly cap on the salary allowable of £380, giving a total of about £11,000.

The level of payments under the current scheme would be excessive even if we were not facing such a difficult financial situation. The last Government left the country with, in the immortal words of their last Chief Secretary to the Treasury, “no money left”. The Government are having to borrow a pound out of every four just to keep pensions paid and schools and hospitals functioning.

[Dr John Pugh (Southport) (LD)]

The Minister has mentioned that the scheme was last revised in 1972, but did not that revision leave all previously accrued rights in place? Is he not doing something different now?

[Mr Maude]

The extent to which rights are accrued is an issue to consider. We are talking not strictly about redundancy but about compensation for loss of office under a statutory scheme, and the relevant rights are those in force at the time when redundancy or loss of office happens. If the statutory redundancy scheme changes, the terms that govern the entitlement are those in place at the time when the redundancy happens. I understand my hon. Friend’s point, but I do not believe it applies in this case. I shall deal with that matter a little more in due course.

Our view is that to maintain the current scheme would be unfair as between taxpayers and civil servants and as between workers in the civil service and those in the private sector or the wider public sector. It is unfair also to less well-paid civil servants, which is related to exactly the point that the hon. Member for Birmingham, Selly Oak (Steve McCabe) made, with which I shall deal.

The effect of the current scheme is that it is prohibitively expensive to make redundant civil servants who are highly paid and long-serving. The result is therefore that when money has to be saved by reducing head count, the burden currently falls disproportionately on the lower-paid, more of whom lose their jobs than is necessary or desirable. My view is that lower-paid civil servants suffer disproportionately and are more likely to lose their jobs under the current scheme than would be the case under the arrangements that we are seeking to negotiate. In addition to the very simple cap incorporated in the Bill, we are seeking in parallel to negotiate different arrangements with significantly enhanced protection for lower-paid civil servants.

--- Later in debate ---

[Dr John Pugh (Southport) (LD)]

I shall be fairly brief, as I have only one fundamental concern. Despite the persuasive skills of the Minister, I sensed in what he said the iron fist within the velvet glove.

I have concerns about the scheme which focus on the fundamental issue of a unilateral alteration of contract and how that stands in this place. I accept that the scheme as it stands is, as many hon. Members have said, generous. It is certainly superior to any available to other public sector workers, such as teachers, NHS staff or local government workers. It is expensive and everybody accepts that it needs an overhaul. I am aware that successive Governments, worried about affordability, have sought agreement on changes and got very close to agreement, which must give some hope for the future.

What I have difficulty with—it is a genuine difficulty, and perhaps the Minister can help me—is a unilateral variation of contract in any context, and not because it is ruled out, as it was in the courts, by the Superannuation Act 1972, which Parliament is, of course, free to amend, and which we are in the process of amending here. Let me briefly explain why. The scheme as I see it is referenced in civil service contracts of employment. Those contracts are freely entered into by the state and by the employees who work for the state. The scheme therefore features, though not in specific detail, as a term and condition of that contract.

When an employment contract is ignored or discarded by any other employer, there is normally a redress in law. Some unscrupulous employers view that as an occupational hazard, preferring to pay people off with meagre compensation than to honour contracts. That is a calculation, but it is not something that a Government should engage in. Such people belong to what I would call the brutalist school of management, and working for such people is a unhappy experience. The hon. Member for Hayes and Harlington (John McDonnell) mentioned how things could go in the civil service.

The state should, in theory, be a model employer, and legislates in this place on employment law for other employers. What we have here, apparently, is the courts telling the civil service that they cannot vary a contract unilaterally as a result of action by the previous Government, and this Government legislating to ensure that they can. However it is dressed up, that represents the naked—albeit legal—use of power to alter a contract unilaterally. Such managerial brutalism, as I call it, is likely to have long-term detrimental consequences, in terms of morale and the willingness of employees to engage satisfactorily in their employment.

Leaving aside the fact that this sets a poor example, there is a danger that it may also be poor politics. Good politics is based on ethics, and who wants to defend breaking contracts at one’s convenience? To be sure, keeping to them in this case costs money—Members have spoken about affordability—and more money than people ever thought it would. We do not argue in this place that because private finance initiative contracts cost much more than imagined, we should pass legislation to drop some of their clauses, but that strikes me as an exact parallel of what the Bill appears to do.

Keeping contracts is fundamental to any scheme of law. Even when football teams that are saddled with managers who drag them down into lower divisions finally come to sack them, they honour contracts that they have made with them, sometimes at huge cost: they keep the terms and conditions of their contract. We do not hire people to work on our premises or our houses and, when our bank balance declines and our fortunes get worse, insist on paying them less than agreed, unless we have some sort of justification. Only in the direst national emergency can a democratic Government sacrifice the principle of honouring contracts, and they should do so only when there is no alternative course of action.

I genuinely appreciate the Government’s dilemma. I wish to see the scheme reformed to become more affordable, at less public cost. We must all accept that since 1972 the scheme has grown and grown, and there might be a difference between reneging on the scheme and varying some detail of it, but that is a legal question above my pay grade. I do not seek to answer whether that difference exists, or to create difficulties for anyone. I simply want to know whether the Bill before us is in effect a unilateral variation—a rewrite of a contract. If it is, how in this case can we provide a wholly rational and ethical defence for it?