Public Sector Pensions

Mel Stride Excerpts

Thursday 8th December 2011 Commons Chamber

[Mr Bain]

My hon. Friend, who has been involved in setting up and running a business, knows what is needed for job creation in these difficult times.

[Mel Stride (Central Devon) (Con)]

Will the hon. Gentleman give way?

[Mr Bain]

I want to make some progress and will give way again in a moment.

The Government are attempting to create the politics of division between low-paid workers in the private and public sectors and to engage in a race to the bottom on public sector pensions instead of focusing on increasing provision among employees in the private sector, but the public will not be fooled. Cutting a dinner lady’s pension will do nothing to increase the pension of a call centre worker or end unfairness in private pension provision. Two in three private sector workers are not in a workplace pension scheme. Two in three public sector staff earning between £100 and £200 a week are in a pension scheme, but only one in seven private sector workers in the same wage band are in a pension. Only 11% of private sector employees are in defined benefit pension schemes. The Government simply fail to grasp or take action on the unfairness in the pension packages of top directors in the private sector, who have pensions worth nearly £4 million on average.

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[Mr Bain]

I accept that Liberal Democrat Members might be prisoners of a coalition agreement that they have signed up to for five years, but the hon. Gentleman has to explain to the Scottish people why the Chief Secretary to the Treasury now proposes further austerity, with £23 billion more in cuts in the first two years of the next Parliament, and to explain its effect on the lives of the Scottish people. The switch is a permanent change that will still hurt ordinary families even after the public finances have been restored to stability. The Government’s proposals harm those who are within 10 years of retirement and would have to pay the 3.2% increase in contributions for a pension that would be 15% smaller due to the Government’s changes to contributions and indexation.

The Government’s plans are a further attack on the living standards of women, as 90% of those affected are women, and they add to the effect of the Chancellor’s other cuts in spending, which hurt women twice as hard as men.

[Mel Stride]

Will the hon. Gentleman give way?

[Mr Bain]

I will in a second. I just want to make further progress on this point.

The Government’s plans measure income with reference not to gross pay, but to full-time equivalent earnings, treating a part-time employee on a salary of £14,000 a year as if they were a full-time employee on a salary of £28,000 a year. The Office for National Statistics’ own figures from last year show that 806,000 public sector workers who work part-time earn less than £15,000 but have full-time equivalent earnings above that amount. Of that number, 91% are women. Only 16% of public sector workers have full-time equivalent earnings of less than £15,000 a year and would escape the rise in contributions. The 3% hike in contributions means that some women would pay almost 50% more in pension contributions.

Secondly, the OBR’s fiscal sustainability report, published this July, makes it clear that, even without implementing the recommendations in the Hutton report but taking into account the likely rise in the elderly population, the cost of providing public sector pensions as a proportion of GDP will fall from 2% to 1.8% by 2030, and to 1.6% by 2060. Lord Hutton has not disagreed that, even without those changes, the costs of providing public sector pensions in the long term are sustainable.

The previous Government signed an agreement with civil service unions, ensuring that new civil servants entered a career-average scheme with a pension age of 65 years old, thereby benefiting low-paid workers whose pay rises are generally less than inflation and who are unlikely to benefit from regular promotions. The agreement helped in particular women, black and ethnic minority workers and people with disabilities. The National Audit Office, in December 2010, evaluated that 2007 deal and concluded that it

“reduces costs to taxpayers by 14 per cent”,

saving £67 billion over the lifetime of existing schemes.

Thirdly, a 3.2% increase in contributions by public sector workers in return for a lower pension would fail the test of fairness at a time when people on low and middle incomes face the biggest squeeze in living standards since the 1920s. For a public sector worker on average pay, the effect of this further attack on living standards is to the tune of a £3,000 cut in gross pay. A worker on a salary of £18,000 per year could lose more than £1,500 over the years from next April.

Fourthly, average incomes are set to fall by 7.4% by the end of this Parliament—the largest slump on record, and all because of this Government’s economic failure; and disposable incomes are set to fall by 4%, according to the Institute for Fiscal Studies in data published last Wednesday. Imposing a higher tax on public sector workers at such a time, with those trends in falling disposable income, is grossly inequitable. The hike in pension contributions, together with the current pay freeze and the future 1% pay cap, will lead to an average 16% cut in living standards by 2014 for public sector workers.

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[Mr Donohoe]

We live, at this stage, in the United Kingdom. If the SNP is suggesting that Scotland has a different set of circumstances for pensions than England or Wales, there is something wrong with the system. We live in the United Kingdom and SNP Members have to accept that. I have more in common with a joiner in Newcastle than with the director of the Royal Bank of Scotland. That is the way that SNP Members should think as well. They had choices and they denied themselves the opportunity to make them.

This matter affects many of my constituents. My constituency has 4% more public sector workers than the United Kingdom average. Some 39,300 of my constituents work in the public sector, about two thirds of whom are women. The pension proposals will affect women more than men, because they are the lower-paid in society.

[Mel Stride]

As Christmas approaches, could the hon. Gentleman find it in his heart to congratulate the Government on taking more than 1 million low-paid workers out of tax altogether, many of whom are exactly the women he describes?

[Mr Donohoe]

I do not accept that at all. This Government have put up VAT, which is affecting all the low-paid people across the country more than it is the likes of the hon. Gentleman. He should not delude himself that the situation is different.

My mind has been taken away from this subject over the past week, because young Jack Samuel Donohoe, my second grandchild, was brought into this world at five past 12 on Monday. Jack, his mother Pauline and his father Craig are all doing very well. I mention that only because when my first grandchild was born about three weeks ago, I mentioned it in a debate and I felt that it was only right to mention the second.