Parliamentary Contributory Pension Fund

Lord Young of Cookham Excerpts

Monday 17th October 2011 Commons Chamber

[The Leader of the House of Commons (Sir George Young)]

I beg to move,

That this House reasserts its view that the salaries, pensions and expenses scheme for hon. Members ought to be determined independently of this House; accordingly invites the Leader of the House to make an order commencing those provisions of the Constitutional Reform and Governance Act 2010 which transfer responsibility for the pensions of hon. Members to the Independent Parliamentary Standards Authority (IPSA); supports the approach to public service pension reform set out in the Final Report of the Independent Public Service Pensions Commission chaired by Lord Hutton of Furness; believes that IPSA should introduce, by 2015, a new pension scheme for hon. Members which is informed by the Commission’s findings and their subsequent application to other public service pension schemes; recognises the case for an increase in pension contributions made in Lord Hutton’s interim report; and accordingly invites IPSA to increase contribution rates for hon. Members from 1 April 2012 in line with changes in pension contribution rates for other public service schemes.

[Mr Speaker]

I should inform the House that I have selected the amendment in the name of the hon. Member for Christchurch (Mr Chope).

[Sir George Young]

Should the House agree to this motion, we will have completed the transition to a wholly independent system for setting and administering MPs’ remuneration. The first and most pressing task was to establish a transparent new expenses scheme in time for the beginning of this Parliament. That was achieved, albeit not without some issues about the operation of the scheme, which have been aired on other occasions. Since May this year, responsibility for setting MPs’ pay has also rested with the Independent Parliamentary Standards Authority; under the relevant legislation, MPs will not vote on their own pay again. Today’s debate on MPs’ pensions represents the final piece of the jigsaw. Once the powers in relation to pensions have been transferred to IPSA, it will have responsibility for looking in the round at the whole remuneration package for Members of Parliament.

The motion before us should not come as a surprise to the House.

[Bob Russell (Colchester) (LD)]

The right hon. Gentleman says this is the last piece of the IPSA jigsaw. Is he satisfied that all the other pieces of the jigsaw are perfectly placed?

[Sir George Young]

I know that my hon. Friend is not so satisfied. He will know that a Committee of the House is looking into the legislation and that there is a committee that liaises between this House and IPSA. I think that the latter is aware of his views on the improvements that need to be made to the scheme. This motion relates not to the allowances that, I believe, are his preoccupation but to pensions.

Before we rose for the summer recess, I set out the Government’s approach to hon. Members’ pensions in a written ministerial statement, and I also published the motion we are debating. Should the House agree to support the motion, we will have protected the principle that MPs’ remuneration should be independently assessed and determined and demonstrated to our constituents that we understand that Parliament must not be insulated from the fiscal circumstances affecting the rest of the country.

[Mr John Redwood (Wokingham) (Con)]

The Leader of the House said that we will never vote again on these matters. Does that mean that the House will not vote the money needed to pay these salaries? What will be done about the overall budget for the costs of government and Parliament, which I thought was of interest to the Government?

[Sir George Young]

The position is exactly as I said: under legislation passed by the House we will not vote on our own pay, which IPSA will determine independently. It will have the authority to do that and, without primary legislation, which the House would have to agree, its determination will be the last word.

[Mr Peter Bone (Wellingborough) (Con)]

May we get this clear? Some of us will be rather surprised to hear that we will never again vote on our salaries, because Ministers have told us that before but we have always been persuaded to vote again on them.

[Sir George Young]

Primary legislation precludes that. Were the Government to be minded to change that, they would have to persuade the House to reintroduce primary legislation overturning the Parliamentary Standards Act 2009, which deals with IPSA, and the Constitutional Reform and Governance Act 2010, which have taken the matter out of our control, so there is no longer a parallel with the previous position.

[Mr Redwood]

I understand the narrow point about rates of pay, but my question is rather different: are the coalition Government still interested in the overall costs of Parliament and of MPs? Will we vote through the money, or will somebody else do that?

[Sir George Young]

It would be quite wrong to say that, in principle, our pay should be determined by IPSA but to try, by the back door, to circumscribe that decision by voting down the money it had determined should be paid as our salaries. That would not be an independent determination of our salaries.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

rose—

[Sir George Young]

I will give way to the chairman of the trustees.

[Mr Donohoe]

May I ask why the motion does exactly what the right hon. Gentleman is saying?

[Sir George Young]

I am not sure that I follow the hon. Gentleman. The motion transfers responsibility for determining MPs’ pensions to IPSA and delivers a commitment made in the Parliamentary Standards Act and the CRAG Act, which I believe were passed without dissent in the previous Parliament.

[Mr Donohoe]

The second part of the motion does the exact opposite. The Leader of the House is trying to suggest that the independent IPSA should take on board what he proposes in the motion, which is that the contributions made by Members of Parliament should increase in line with those of people in the public sector.

[Sir George Young]

I am grateful to the hon. Gentleman for clarifying his point. If he looks at the legislation, he will see that he and the House are statutory consultees for IPSA: if it wishes to make any changes to the scheme, it is obliged to consult the trustees, the Senior Salaries Review Body and anyone who might be affected, which includes all of us in this Chamber. We therefore have some locus in the consultation. The second part of the motion expresses a view on behalf of the House, which we are entitled to do under the legislation. It is right that Members make it clear to their constituents that they expect to be treated no differently from others in the public sector in the determination of their pension contributions.

[Several hon. Members]

rose—

[Sir George Young]

I would like to make a bit of progress before I give way.

It is accepted by Members on both sides of the House that the UK faces an unsustainable structural deficit that must be brought down. The Government have been forced, as any Government would be, to take difficult decisions across the public sector that have consequences for hon. Members. In March, the House agreed that Members’ salaries should be frozen this year in line with the two-year pay freeze on public sector workers earning more than £21,000. After that debate, I commenced the relevant parts of the CRAG Act, formally transferring power to IPSA. I am sure that the chairman of the trustees and the House will recognise the comparison of that procedure and the one we are debating this afternoon—we are transferring responsibility while at the same time expressing a view.

Before the election, all parties publicly agreed that the current final salary terms of the parliamentary pension scheme should be brought to an end. However, as with other public service pension reform, changes will not be made retrospectively, nor will they have an impact on past benefits—an assurance that is as important to Members of the House as it is to those in other public sector schemes.

Looking ahead to a future scheme, the coalition agreement committed us to consult IPSA on moving from the final salary arrangements. In June last year, the Government established the independent public service pensions commission, chaired by Lord Hutton of Furness, to make recommendations on how to put public service pensions on a sustainable footing. Although the Hutton report did not include hon. Members within its scope of inquiry, it was immediately apparent that reform of the parliamentary pension scheme must be tackled in the light of the commission’s findings and their subsequent application to other public service schemes. I do not believe that there is any case for our scheme being treated differently from other public service schemes. Indeed, there would be justifiable disbelief if it were.

[Mr Mark Field (Cities of London and Westminster) (Con)]

I accept that there is much to be said about our needing to set the public an example, particularly given the reforms we are trying to make to public sector schemes, but unlike many public sector schemes the parliamentary scheme is—or is near to being—fully funded and the contributions are rather larger. Will the Leader of the House go into more detail on the nature of the parliamentary scheme, which is slightly misunderstood in much of the press coverage?

[Sir George Young]

The contributions for those subscribing at one fortieth are indeed higher than those for many elsewhere in the public sector, but so are the benefits. The Exchequer contribution, at some 28%, is also substantially higher than for other public sector schemes. One needs to consider it in the round when one comes to a judgment about the appropriate treatment of the scheme.

Today’s motion supports the approach to public service pension reform set out in the final report of the independent public service pensions commission.

[Mr Julian Brazier (Canterbury) (Con)]

Some of us strongly support the principle behind my right hon. Friend’s motion, but our dilemma is that once again IPSA is acting as administrator and as the body that sets the rates—an arrangement that one does not often find anywhere else. If the committee chaired by my hon. Friend the Member for Windsor (Adam Afriyie) finds that there should be some division between the administration of our pay, pensions, allowances and so on and the setting of their rates, will my right hon. Friend reassure us that the motion, if passed, will not be the final word on the matter?

[Sir George Young]

The administration will be performed by the trustees; there is no change in that. The contribution rates and ultimately the shape of the scheme will be determined by IPSA, which will set the rules. The trustees will continue to administer the scheme, with some slight change in their membership to reflect IPSA’s new involvement.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the Leader of the House give way?

[Sir George Young]

If I may, I will make a little more progress, and then I will give way.

The amendment tabled by my hon. Friend the Member for Christchurch (Mr Chope) suggests that the parts of the motion relating to the Hutton review should be removed. Its implication is that our scheme should not be treated the same as other public sector schemes, and I do not think our constituents would welcome such an interpretation.

[Mr Christopher Chope (Christchurch) (Con)]

On what basis does my right hon. Friend think that is a fair assessment of my amendment, which seeks to put in the motion the fact that IPSA is independent and should reach its own judgment? That is the effect of my amendment and I am sorry that my right hon. Friend seeks to misrepresent its purpose.

[Sir George Young]

My hon. Friend’s amendment would delete the following words:

“and accordingly invites IPSA to increase contribution rates for hon. Members from 1 April 2012 in line with changes in pension contribution rates for other public service schemes.”

It is perfectly legitimate to say that one can deduce that he does not want Members’ pension schemes to reflect other public service schemes.

[Mr David Anderson (Blaydon) (Lab)]

On that point, will the right hon. Gentleman give way?

[Sir George Young]

Let me make a bit more progress and then I will give way.

The motion also states that

“IPSA should introduce…a new pension scheme for hon. Members which is informed by the Commission’s findings”

by 2015. That is a similar timetable to that for the rest of the public service. However, as with other public service pension reform, changes should neither be retrospectively made nor have an impact on past benefits.

[Mr Love]

In his final report, Lord Hutton spoke warmly about the continuation of defined benefit schemes in the public sector. Is the Leader of the House fully aware of that, and does he support that recommendation?

[Sir George Young]

Indeed; the Government welcomed Lord Hutton’s report, including the interim report, the final report and the budget. He made it clear that he wanted to retain a defined benefit scheme, and on that basis negotiations are continuing. IPSA will be mindful of that recommendation by Hutton—and, indeed, of the hon. Gentleman’s views.

The Constitutional Reform and Governance Act already provides full protection for pension benefits already earned, including a link to the salary on leaving the scheme, so any new scheme would apply only to future service. Furthermore, the legislation includes comprehensive provisions requiring IPSA to consult widely before making any changes to parliamentary pensions.

[Bob Russell]

rose—

[Sir George Young]

I think I had better give way first to the hon. Member for Blaydon (Mr Anderson).

[Mr Anderson]

I was pleased to sign amendment (a), but I want to make it clear that my case is very different from what the Leader of the House described. I believe that we are in exactly the same boat as every other public sector worker in the country and that we should be treated the same. We should be allowed, with our trustees, to negotiate with IPSA as local government pension schemes are being negotiated with their trustees and their employers. It should not be the Government who set the standard for the pensions—it should be the pension schemes.

[Sir George Young]

The hon. Gentleman will know that paragraph 15 of schedule 6 to the CRAG Act states:

“Before making a scheme under paragraph 12 the IPSA must consult…the trustees of the Fund,”

so there is that opportunity for dialogue.

[Tony Lloyd (Manchester Central) (Lab)]

I should make it clear that I will support the motion, but something is causing alarm bells to ring. The Leader of the House rightly says that the motion means that the parliamentary scheme will not be better than those for other public sector workers, but will he make it quite clear that nothing in the motion has any implications for the negotiations that are taking place with other public sector schemes?

[Sir George Young]

The motion is purely declaratory, so the hon. Gentleman is quite right. The second half of it expresses a view, on behalf of the House, that we believe we should be treated no better or worse than those in other public sector schemes. It is important that our constituents know that that is our view and that we do not expect to be treated any differently from others in the public sector.

A further development is the increase in pension contribution rates for public service schemes, as already announced by my right hon. Friend the Chief Secretary to the Treasury. The case for public service employees to pay more into their pensions and therefore reduce the burden on the taxpayer was made clearly in Lord Hutton’s interim report, which was published last autumn. The report states:

“In the short term, however, I consider there is also a strong case for looking at some increase in pension contributions for public service employees, to better meet the real costs of providing these pensions, the value of which has risen in recent years with most of these extra costs falling to taxpayers”.

The subsequent statement made by the Chief Secretary made it clear that each scheme would be required to find savings equivalent to a 3.2 percentage point increase, phased in over three years, with scheme-specific discussions to make proposals on how the savings were to be achieved.

If the House accepts the principle that hon. Members should not be out of step with changes that affect other public service schemes, we should also accept that our contributions should rise at the same time. I can therefore confirm that the Government propose to increase contributions to the ministerial scheme, with increases being applied from 1 April next year on a staged basis, and we will consult on that proposal as required by the Constitutional Reform and Governance Act.

Finally, I shall end where I began: the most important development of which account needs to be taken is the acceptance that MPs’ remuneration should be assessed, determined and administered independently.

[Claire Perry (Devizes) (Con)]

Does my right hon. Friend agree that, although there might be concerns over IPSA’s role, we should not make the perfect the enemy of the good and that this debate is long overdue? We must all look our public sector constituents in the face every day and justify changing their pensions schemes.

[Sir George Young]

I am grateful to my hon. Friend for her support and for the views she expresses.

There were constraints on IPSA taking over absolutely everything right at the beginning of this Parliament. The priority was allowances, so that was its first commitment, followed by pay. As I have said, this is the final piece in the jigsaw puzzle. We will have then passed over responsibility for the total package by 1 April next year.

[Sir Menzies Campbell (North East Fife) (LD)]

Let me make it clear that I support the motion and the thinking that lies behind it, but what will be the role of the trustees between now and 2015, and what will it be after 2015? Will they have any fiduciary responsibility for the new scheme, or will their responsibility be limited to the current scheme?

[Sir George Young]

The trustees will continue to administer the scheme. The chairman of the trustees might want to catch your eye, Mr Speaker. Under our changes, the rules that govern the scheme will no longer be made by the Government or the House; they will be made independently by IPSA. After the process of transfer on 1 April next year, the scheme will continue to be administered by the trustees until such time as IPSA makes any change. If it wants to make changes, it must consult the trustees. The motion indicates that the first change should be an increase in the contribution rate. It then suggests that, along with other public sector schemes, a new scheme, perhaps moving from final salary, should be introduced by 2015, but the scheme will continue to be administered by the trustees, and I pay tribute to the work they do.

[Ms Angela Eagle (Wallasey) (Lab)]

Will the right hon. Gentleman confirm my understanding that the arrangements being put in place for the trustees, some of which come from the Constitutional Reform and Governance Act, are in line with best practice for other pension schemes?

[Sir George Young]

Yes; I believe that to be so. There has been no representation on the issue the hon. Lady raises. There are some changes in the composition of the trustees to reflect IPSA’s responsibility, as part of the 2010 Act.

[Mr David Winnick (Walsall North) (Lab)]

Will the right hon. Gentleman give way?

[Sir George Young]

I propose to conclude.

Independence is a crucial part of the process of restoring trust in Parliament. Any decision to defer the transfer to independence would result in MPs continuing to determine their own remuneration, which the House has firmly rejected. It is not incompatible—this goes back to some of our discussions during the debate—to argue that responsibility for our pensions should be made independent and, by agreeing to the motion today, to send a strong signal about the direction we feel the scheme should take in the light of the application of the Hutton recommendations to other public service schemes.

Subject to today’s debate, I will move as quickly as possible to commence the relevant sections of the CRAG Act, transferring all responsibility for MPs’ pensions to IPSA. Once responsibility for MPs’ pensions has been handed to IPSA, the House will have finally relinquished the power to set the terms of its own remuneration. I hope that that will represent a significant further step in drawing a line under the problems of the past and in helping to rebuild public confidence. I commend the motion to the House.

--- Later in debate ---

[Sir George Young]

rose—

[Ms Eagle]

The right hon. Gentleman is rising, so there may be a different interpretation. I am happy to give way.

[Sir George Young]

The hon. Lady is right. Paragraph 12 of schedule 6, which deals with the MPs’ pension scheme, makes it absolutely clear that it is up to IPSA to devise the scheme. There are rights of consultation, but it is an independent scheme set out by IPSA.

[Ms Eagle]

The question from the right hon. Member for Wokingham (Mr Redwood) that I was answering was about the duties of the trustees. My understanding, from reading the primary legislation, is that it does not impact in any differential way on the legal duties of trustees.