Enterprise Bill [ Lords ] (Sixth sitting)

Lucy Frazer Excerpts

Tuesday 23rd February 2016 Public Bill Committees

[Kevin Brennan]

My hon. Friend makes that point far better than I would have made it. Again, her intervention is astute and understands the implications of what the Government have done by including pension payments within the exit cap. If the Government were serious in their rhetoric that doing so would affect only the best paid, it would be straightforward to include a provision in the Bill to exclude those on average earnings or below. On Second Reading, the Minister said:

“What we do know is that there is a very small number of workers in the public sector on about £25,000 who could be caught by this… But those are extremely rare conditions.”—[Official Report, 2 February 2016; Vol. 605, c. 886.]

We are concerned about the Government’s reluctance to make the necessary exemptions to ensure that those unfortunate few, which is what Ministers tell us they are, are not disproportionately affected. If the low and average paid are affected in rare circumstances only, excluding them from the cap will not result in the Government losing a great deal of money, so what is the problem with exempting the low paid from the provisions?

[Lucy Frazer (South East Cambridgeshire) (Con)]

Does the hon. Gentleman know of any private company that pays three times annual salary as an exit payment?

[Kevin Brennan]

That is not what we are discussing here. We are discussing the terms and conditions that public sector workers signed up to in agreement with the Government. In many cases, such people may have been in service for a long time and may well have given up the opportunity to earn more in the private sector by working as loyal public servants.

During the clause 26 discussion on Report in the Lords, Baroness Neville-Rolfe indicated that a drop of £500 would not be disproportionate for someone previously entitled to a pension of £12,500. I have to say that a drop of 4% is significant for somebody on a relatively small income, especially when that income is below that of someone on the national minimum wage. To say that a 4% cut is not significant is highly misleading.

The Government made the case in the House of Lords that leaving with a payment of £95,000 or above would be a large amount for any employee. For example, the Minister in the other place said that she does

“not accept that those exiting with a payment of £95,000”—

which is not the case—

“will generally be subject to hardship”.

The idea that someone will receive £95,000 is a myth. A large amount will never actually be seen by employees on low to average incomes, because the payment includes compensation paid to the pension scheme. My noble Friend Baroness Hayter pointed out that

“they cannot go off and use that money to live on while trying to retrain or move or find another job; it is an actuarial payment that never comes near their bank account… This is not a sum of money they can use to buy themselves an annuity to help train or move or anything else—it is money they never see.”—[Official Report, House of Lords, 30 November 2015; Vol. 767, c. 984-985.]

--- Later in debate ---

[Anna Soubry]

That is a good point. I am more than happy to take that one away and give her a response later.

[Lucy Frazer]

Subsection (9) states:

“Regulations may substitute a different amount for the amount for the time being specified in subsection (1)”,

so it looks as if there is provision to up the cap in future.

[Anna Soubry]

I am grateful to my hon. Friend. Another question that has been asked is why so much will be in secondary legislation. One reason why we are doing that is that it is genuinely a much better way to introduce something that will undoubtedly—I am not going to pretend otherwise—have its complications and nuances. It is important that we do not just introduce blanket rules, but have provisions to look at any cases that might or should be exempted.

Somebody asked a question—forgive me for not remembering who, but I think it might have been the hon. Member for Wakefield in an intervention—about the national health service, which, as she identified, has a cap of £160,000. This legislation will affect the existing cap, taking it down to £95,000.

I want to make some progress and deal with the amendments. Amendment 109 seeks to raise the cap to £145,000. I would argue that it is unclear whether the Opposition favour completely uncapped exit payments or a cap set at what could be over 10 times the maximum statutory redundancy. The Government have made it clear, however, that we want to put the figure at £95,000. We were very clear about that in our manifesto.

Amendment 105 seeks to impose a £27,000 earnings floor for the cap, but the cap will have no impact at all on the large majority of public sector workers. As I have said, it will affect only the top 5%. We are really struggling to find an example of any civil servant earning below £25,000, for example, who would be in any way affected by the cap. Those earning below £27,000 will not be caught and, in any event, we believe that this represents a generous package that many will be entitled to.

Amendments 106 and 115 would exclude those in long-term service. There may be some instances where individuals with very long-term service on more modest salaries could be affected by the cap, but as I have explained, the £95,000 represents a generous package compared with what is available to those on similar pay in the private sector. The majority of long-serving employees caught will be those with high or very high salaries.

Amendments 112, 116, 122 and 128 relate to annual revaluation. Amendments 112, 122 and 128 all seek to subject the cap to annual revaluation, while amendment 116 seeks to impose a minimum level of £95,000 for the cap. All those amendments fail to offer the flexibility that the clause provides for. The clause allows the Government to amend the level of the cap to take into account all prevailing circumstances, with the additional scrutiny of the affirmative procedure. Any form of fixed-term revaluation would just create an artificial and arbitrary mechanism. As any amendments to the cap require an affirmative procedure, the current mechanisms for changing the cap offer both flexibility and full parliamentary scrutiny.

Amendments 104 and 121 would exclude pension top-ups and payment in lieu of notice. We are not discussing retirement in the normal manner; we are discussing the additional top-ups linked to redundancy, funded by employers. As I mentioned previously, any earned pension that has been accrued by an individual is outside the cap. Again, it is really important that everybody appreciates that any sums of money paid by an employee into a pension pot of any description—anything accrued by them through their own money—is outside the cap. These top-ups linked to redundancy can greatly increase the value of pension payments above the level that has been earned through years of service. They often represent a substantial amount of an individual’s exit payments.

Payments in lieu of notice are also part of an exit payment and can be substantial for high earners—again, the emphasis really is on high earners—as some recent high-profile exits have shown. Excluding such payments would not just be unfair, but provide an obvious loophole to avoid the effect of the cap.

Amendments 108 and 124 relate to extending the waiver to local authorities and public authorities. Although we note and agree with the intentions of amendment 108 to give the full council of a local authority waiver power, I would argue that the amendment is unnecessary. Our indicative regulations, published on 3 November 2015, demonstrate that it is already our policy to give the full council of a local authority waiver power, and that will be articulated in the final regulations.

Amendment 124 seeks to grant all public sector authorities waiver powers. However, the potential inappropriate use of settlement agreements and exit payments more widely is precisely why the clause requires approval by a Minister of the Crown— rather than the employer—to relax the cap. Ministerial or full council approval means that the power will be exercised objectively with full accountability and will prevent circumvention and misuse.

For all those reasons, I very much hope that Committee members will take the view that the amendments add nothing and are not necessary, and that the Government have done the right thing by introducing the cap at £95,000. The reality is that in any event very few, if any, lower-paid workers will be affected if they are made redundant. It has to be said again that, compared with what is available in the private sector, an exit payment of £95,000 for someone who has been on low pay must be seen as generous.