Public Service Pensions: Government Contributions

Karen Lee Excerpts

Wednesday 19th December 2018 Westminster Hall

[Karen Lee (Lincoln) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I thank my hon. Friend the Member for Merthyr Tydfil and Rhymney (Gerald Jones) for securing such a vital debate.

The decision to reduce Government contributions to public sector pensions is highly flawed. I will give a short introduction to the damaging reforms, before outlining their flaws and seeking some clarifications from the Minister. The Government’s SCAPE—superannuation contributions adjusted for past experience—discount rate expresses the amount of central Government funding committed to public sector pensions. In the 2016 Budget, the Government announced that they would reduce their contributions from 3% to 2.8%. Then, without further consultation, they announced a further 2.4% reduction to contributions. The Treasury has acknowledged that the reform is a result of the Office for Budget Responsibility forecasting lower long-term economic growth rates—in spite of that, we are told we have a booming economy.

It is vital that the reform is not mistaken as a necessity, much like the wider incorrect assertion that austerity was a necessity. The reform is the Conservatives’ ideological response to lower growth caused by their austerity programme, which incidentally took place alongside tax cuts for the very wealthy. It would seem that the country can afford tax cuts even if it cannot afford to properly fund our public service pensions—something I find really reprehensible. That policy must be understood within the Government’s wider agenda.

The effects of the reduction cannot be understated: it will mean a reliance on employers to increase their contributions to ensure public sector pensions continue to receive sufficient funding. Importantly, the Treasury has made no guarantee that additional funding will be provided beyond 2019-20 to help to compensate employers. Let us see this policy for what it is: a pay cut—yet another pay cut—for our local public services, under the guise of fiscal tinkering. The Treasury even acknowledged that in 2016, when it announced that Departments and devolved Administrations would have to foot the cost.

Although we are reassured—I am sure the Minister will reaffirm once again—that employee contributions will not be impacted, let us be completely honest: staffing costs will increase and public services will keep having to do even more with fewer resources. We hear a lot of praise for our services, especially at Christmas time, but let us remember that no one can spend a pat on the back. To clarify, the Government’s policy aims to force costly changes upon our crippled public services with no future certainty of financial support. It might be expected that after studying the work by the Treasury’s own advisory teams, the Minister would raise various objections with the Chancellor and the Chief Secretary. Estimates forecast that the reduced pension contribution will require employers to increase their contributions by £1,970 in 2019-20. I am extremely concerned that the cost will be met through back-door spending cuts for public sector budget that are already at breaking point.

The Government heard concerns from the FDA in 2016 about budgets being set across the public sector. Now, an additional £3.5 billion may have to be found through another efficiency review. This is a direct transfer of funding from our public services into the Treasury. That may as well have been an additional tax on our public services, which have been starved and deprived of funding for years. One would hope that the money would be reused and invested in areas where our public services desperately need funding; although that still would not be sufficient, the rationale would make sense.

However, the reality will be much different. Like the last eight years of Tory rule, we can expect corporate tax cuts alongside prolonged austerity. We know who suffers the most from those. The effects of this policy on the police service were discussed in the Adjournment debate in November by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden). Although I will not repeat a lot of the powerful points that Members have already raised, it is important that a crucial element is identified: the substantial financial pressure will be too much for the current budget settlements to sustain.

The current chair of the National Police Chiefs Council, Sara Thornton, raised concerns about the incurred cost on the police service. She stated that forces are organising their medium-term forecasts, which means that forces in England and Wales may need to find an extra £417 million from existing budgets by 2020-21. I find it very uncomfortable that while the Government present the narrative that they are addressing the shortage of police officers, this policy may result in the equivalent of 10,000 job losses and severe damage to the sustainability of local police forces.

The fire service will be put under immense pressure if this policy is implemented. The service has suffered swingeing cuts for eight consecutive years now, and in 2017-18 employer contributions equated to 7% of English fire services’ net expenditure. Office for Budget Responsibility figures estimate that fire services across England will suffer from cuts of at least £150 million by 2023, which will be absolutely devastating for the service. I speak to firefighters, the Fire Brigades Union and councillors often; I am sure the Minister does too, so he should know full well the devastation that such cuts may cause. He may well have heard the same concerns that I have been privy to.

That sum of £150 million is the equivalent of running 30 fire stations for five years or paying the annual wage of thousands of firefighters, but alongside that, local government settlement funding for fire authorities in England is forecast to decrease by 15% between 2016-17 and 2019-20. As of March, fire and rescue authorities in England have £61.2 million in unallocated reserves. How can they be expected to pick up the bill without central Government assistance?

The situation of fire services is very worrying. We have heard Matt Wrack, who as general secretary of the FBU really ought to know what he is talking about, assert numerous times that budget cuts are putting our communities’ safety at risk. The Minister is hearing that from true experts in the field, and I do not think it can be doubted. We can see the risks of additional cuts. The Merseyside fire and rescue service has been forced to cut overnight cover at six stations. The Tyne and Wear fire service has been forced to consider new cuts in its integrated risk management plan, having already been forced to save £25 million since 2010. Surely neither would do that if they had any other choice.

I would like the Minister to explain what measures he intends to implement to cushion the blow to the fire service’s budget post 2019-20, and whether he has assessed the consequences of the pension reform on specific fire services across the UK and across different regions. Furthermore, will he undertake to implement a funding review for the fire service alongside the pensions consultation?