Public Service Pensions and Judicial Offices Bill [Lords]

Lloyd Russell-Moyle Excerpts

Report stage
Tuesday 22nd February 2022 Commons Chamber

[Peter Grant]

The hon. Member is absolutely right. If the new clause was intended purely to limit the activities of the BDS movement as a precursor to possible further restrictions later on, a very different new clause would have been tabled, and it might have been possible to word it in a way that we would not have significant problems with, but this new clause is far too wide. It could give the Secretary of State—any Secretary of State—the power to prevent any public pension fund from considering any kind of ethical, sustainability or other factors simply because they decide that they are contrary to UK foreign or defence policy.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

The hon. Gentleman is making an interesting argument about why the new clause is too wide. Is there not also the problem that it risks investments themselves due to a chilling effect for investors who might not withdraw from an investment when it is economically advisable to do so because of fear of breaking the rules under the new clause, so we could end up with the devaluation of pension schemes?

[Peter Grant]

I will come on to that later. We need to remember, in all of this, that the trustees of any pension scheme have an absolute fiduciary duty to those who rely on the performance of the fund for their current or future pension. We do not want anything that ties their hands, such as someone saying they should go only for very low-yield investments because that person has objections to the activities of companies that might give a higher yield. There are times when we must question whether it is right to put trustees under that kind of pressure. It is also wrong to suggest that pension trustees, in addition to or instead of their absolute duty to pension scheme members, should have some kind of duty to be a mouthpiece for the British Foreign and Commonwealth Office or the British Ministry of Defence. They are not an arm of Government; these are legally independent trustees, and they have to have that legal independence properly protected.

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[John McDonnell]

I was once, in my callow youth, an adviser to the mineworkers pension scheme, and then I was an adviser at the TUC, working with Lord Bryn Davies, who is one of our colleagues in the Lords at the moment, and there was never a problem with our fiduciary duty of maximising the income to the pension fund itself because of the range of investment opportunities available to us. I think we found in the past that exercising such moral judgment can prove effective in the long term, because it ensures that the fund is not investing in countries that may in the longer term become unstable as a result of the actions they take. I would just say, and I am making a personal point, that I think new clause 1 flies against my ability to exercise my moral duties about investments by my pension fund.

[Lloyd Russell-Moyle]

Will my right hon. Friend give way?

[John McDonnell]

Yes, but then I want to move on to my amendments.

[Lloyd Russell-Moyle]

Is there not a problem with this, in that it leaves the Secretary of State to decide what the foreign or defence policy might be in an arbitrary way, rather than requiring pension funds to set an ethical policy in which they can say that they do not want to invest in countries where there are human rights abuses? We would still have to treat all countries equally, so they could not target one country or another, but there would be an ethical framework, and this new clause does not allow an ethical framework.

[John McDonnell]

I would also come out fairly pragmatically and say that there may be some countries that, according to the Government, were not appropriate to invest in a few years ago but now are. I do not want a little red book to be thrown at me again, but I would just cite the fact that the relationship the Government have had with China has changed over the years and, I hope, is changing again at the moment with regard to the Uyghurs.

Let me move on to the new clause and amendments in my name. New clause 10 is a simple reflection of new clause 8, tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq), on the pensions trap. I want to echo what I think she said really eloquently in Committee and today about how the dialogue on this issue must continue, because there is an unfairness at the heart of the legislation we are pushing through at the moment. This affects firefighters, police superintendents and so on, who feel aggrieved, and I feel that a bit more dialogue may enable us to find a solution and restore their confidence in the pension scheme itself. That is why I support new clause 8.

My new clause 10 is simply more explicit about ensuring that there are consultations with the trade unions and other employee representative bodies, and that we seek to overcome the problem so that we have a non-discriminatory approach that does not fall foul of the law.

I turn to my amendment 24, which addresses a complex issue. It reminds me of the debate we had on the d’Hondt proportional representation system, as there were only two people who understood it: Mr d’Hondt, who died, and Jack Straw. Let me just go straight to the point on this matter. I am sorry if I go into some detail. The Chief Secretary to the Treasury said in Committee that

“it is vital that we establish now, for the avoidance of any doubt, that no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations. Any benefit improvements due will be honoured, but no additional costs will be imposed. I reassure the hon. Lady”—

my hon. Friend the Member for Hampstead and Kilburn—

“on her important question, that the costs of our remedy genuinely sit with the Exchequer, not scheme members.”––[Official Report, Public Service Pensions and Judicial Offices Bill [Lords] Public Bill Committee, 27 January 2022; c. 10.]

This is complicated stuff. There is a confusion of two issues here. The Government did make a mistake and were challenged in the courts. I fear that that cost burden will now fall on to members of the pension fund, if it is included in the cost mechanism as an employee cost. That is the issue.

I turn to two points in that regard. First, there is the cost to the scheme of giving members the option to choose which benefits—old or new—they want to accrue during the remedy period. Some members will choose benefits that are better for them than they would have received before the McCloud and Sargeant judgments. The scheme will clearly have to meet the cost of paying those benefits—fine. We got the assurance from the Minister that the money will flow—we think it is £17 billion; that is the last estimate—and the burden will not fall on to the members themselves, but that is not what we are talking about here. The issue here is what impact the cost of the remedy should have on the cost control mechanism. I remind Members that this is the mechanism for deciding whether members’ benefits should be changed or, alternatively, whether contributions could be changed.

There is no doubt that treating the cost of the remedy as an employee cost for the purposes of the cost control mechanism leaves members worse off than they would have been had it been treated as an employer cost. I draw the Chief Secretary’s attention to the helpful report from the House of Commons Library entitled “Public service pensions: the cost control mechanism”, which tells us that if we go back to the initial results of the 2012 scheme valuations, which were reported in 2018, the Government said that

“the protections in the new cost cap mechanism mean public sector workers [would] get improved pension benefits for employment over the period April 2019 to March 2023.”

It is those improved benefits that I believe are now at risk if the cost of the remedy is included as an employee cost and not an employer cost.

What does this mean? The improved benefits were required because members had suffered a reduction in the value of their expected benefits over the period 2012 to 2016 because of lower than expected pay increases and because longevity had not increased by as much as had been expected. In other words, the changes would not make members better off; they would simply maintain the value of the benefit package at the level that had been agreed. I apologise to Members, because this is complicated stuff, but it has to go on the record if we are to get redress on this, either today or in subsequent legal actions.

Given the requirement under the cost control mechanism, the respective scheme advisory board then set about agreeing the necessary changes in benefits. In other words, because the pay settlements had not been as large as predicted, and because people were not living as long as the predicted life expectancies, the cost burden on the scheme was less, which should have been reflected in benefits given back to members. The scheme advisory board started looking at what those benefits would be, and the Library report gives an example of packages of changes proposed for the civil service scheme, which included

“a reduction of member contributions; reform of the current contribution rate structure; and increased death benefits.”

The other schemes reflected similar sorts of benefits, so members would gain significantly as a result of this unfortunate situation—unfortunate because they never got enough pay settlements and never had the increase in life expectancy. Nevertheless, because those costs never fell on to the scheme, they should have been paid back to members.

In December 2018, the Court of Appeal ruled that part of the reforms amounted to unlawful discrimination. That was followed by the decision by the then Chief Secretary that the cost control element of the 2016 valuations should be put on hold. In other words, the members were to gain those benefits because of the cost control mechanism, the court decision took place, and the Government then froze the whole process. Eventually, the Government restarted the process and published the Treasury directions in October last year. The problem with the directions is that they treat the cost of remedying the Government’s mistake, as calculated for the purposes of the cost control mechanism, as a member cost, not an employer cost.

The important point to understand is that there is nothing inevitable about the remedy as a member cost. It has always been accepted that there are certain elements in the calculation involved in the cost control mechanism that are regarded as member costs that will impact on the cost control mechanism itself, but there are also other elements in the calculation that are employer costs and do not impact on the cost control mechanism. For example, the impact of changes in pay increases and mortality are obviously member costs, but changes in the discount rate and price increases are the employer costs. It is strongly argued by the trade unions, completely understandably, that mistakes made by the employer—that is, the Government—are employer costs.

What has never been discussed is how to treat the cost remedy incurred by the Government’s own error, and that is what needs to be addressed today. It was the Government’s mistake to have age discrimination in the scheme. The Minister in Committee said it was reflected in trade union representations, but as has been said by the Public Accounts Committee and others, the Government are the Government; they should have foreseen that there was the potential for discrimination. It is the Government who introduced the measures. It is the Government who are responsible for the Treasury directions and any legislation. It was a mistake by the Government. It is therefore logical that the cost of the remedy should be treated as an employer cost for the purposes of the cost control mechanism.

I apologise to hon. Members for the complexity of this, but it is important that we get on the record very explicitly that members of these pension funds should not have to pay in the long term for Government mistakes and should therefore have gained the benefit of either reduced contributions or enhanced benefits, because that is contained in what the Government agreed a number of years ago as the cost control mechanism.

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[Zarah Sultana (Coventry South) (Lab)]

I rise to speak to new clause 1. The year was 1985. After a campaign lasting decades, 123 councils answered the call for solidarity with the South African anti-apartheid movement and adopted policies opposing that injustice, including 39 councils that had divested from companies operating in South Africa and Namibia. While the Prime Minister, Margaret Thatcher, was calling the African National Congress and Nelson Mandela terrorists and Young Conservatives were proudly wearing badges calling for him to be hanged, local authorities were on the right side of history, standing up to the horror of apartheid. Of course, the Conservative Government could not tolerate that, so, a few years later, to weaken the anti-apartheid movement, they brought in laws making it illegal for local councils to boycott South African and Namibian goods. Looking back, it is crystal clear who was on the right side of history and who was on the wrong side.

The new clause, in the name of the right hon. Member for Newark (Robert Jenrick), would ban local councils from taking such a stand. Had it been in place back in 1985, because the Conservative Government supported apartheid South Africa—let us not forget that—local councils, no matter the strength of local feeling or the righteousness of the cause, would have been prevented from divesting pension funds from apartheid South Africa. They would have been compelled to be complicit in injustice.

Government Members may argue that that is history and things are different now. I contest that the facts say otherwise. The House knows that British-made weapons and diplomatic support are integral to the Saudi war in Yemen. Even as that war has claimed the lives of more than a quarter of a million people, pushed more than 20 million into absolute destitution and resulted in grave violations of international law, British complicity has continued. The new clause could deny councils the right to divest from arms companies whose bombs rain down on the people of Yemen. Similarly, if a local authority wanted to align its pension fund with international law and divest from companies operating in illegally occupied Palestinian lands, the new clause risks denying it that right, too.

[Lloyd Russell-Moyle]

The Israeli Labor and Meretz parties, our sister parties in Israel, have both written to the leaders of the Labour party and to all of us to say that they want divestment from companies that invest in the occupied territories. Israeli Members of Parliament are asking us to do this. New clause 1 goes against what they are asking us to do, does it not?

[Zarah Sultana]

Yes, it does, and I was proud to stand on a Labour manifesto committed to that policy, too.

With the rapidly accelerated threat of climate catastrophe and the need to consign the fossil fuel industry to the dustbin of history, new clause 1, at the worst possible moment, risks outlawing councils from standing up for climate justice and banning divestment of pension funds from companies that are setting our planet on fire. [Interruption.] The hon. Member for Brigg and Goole (Andrew Percy) laughs, but this is an actual threat. I am not sure if he is a climate denialist, but he should really look into that.

These are just some of the blatant affronts to local democracy and ethical investments. New clause 1 is so vague and so badly worded that it would have a chilling effect on public sector pension investments. It could be weaponised against any human rights campaign that raises concerns about pension investments in any company that is not formally on a UK sanctions list. As Amnesty International and Human Rights Watch warn, it is so badly worded that, in fear of committing an offence, pension scheme managers could be forced to break their fiduciary duties.

In 1959, an anti-apartheid campaigner and Nobel peace prize winner called Albert Lutuli put out a call for global solidarity. In Britain, hundreds of thousands of campaigners responded, launching a boycott of South African goods. People across the country did what they could do to end the injustice. In my city of Coventry, the local Labour party led the fight, distributing leaflets, holding public rallies and even displaying a large poster in the city for a whole month, publicising the boycott and raising awareness about apartheid. As so often in history, it was the actions of local people, anti-racist campaigners, trade unionists and local councils that led the way, counteracting Westminster’s complicity.

Those actions, while small in themselves, were part of a global anti-apartheid movement that was instrumental in bringing an end to this injustice. We should learn that lesson. I strongly encourage Tory Members to learn the lessons of history. We should empower local councils to make democratic ethical investment decisions, not outlaw them, as new clause 1 does. [Interruption.] I therefore encourage Members on the Government Benches, especially the very enthusiastic hon. Member for Brigg and Goole, to vote against it.