Living Standards
Nick Gibb Excerpts(11 years, 2 months ago)
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Rachel Reeves (Leeds West) (Lab)
I beg to move,
That this House believes that the Government is failing to turn things around for the UK’s hard working families; notes that this has been the slowest economic recovery on record, and that the Government is out of touch with the difficulties faced by ordinary families; recognises that average earnings are almost £1,500 a year lower in real terms than they were in 2010; notes in addition that tax and benefit changes since 2010 are costing families an average of £891 in 2013-14 according to the Institute for Fiscal Studies; further notes that the Government is making hard-working families pay more than their share to bring down the deficit while cutting income tax by an average of £100,000 for the 13,000 people with incomes over £1 million; and calls on the Government to ensure that the recovery is strengthened, sustainable and its benefits fairly shared by getting more people into work, bringing forward capital investment, as recommended by the IMF, introducing a compulsory jobs guarantee, backing fair taxes by reintroducing a 10p rate of income tax, paid for by a mansion tax on houses worth over £2 million, taking action on rip-off rail fares and soaring energy bills, standing up for families in the private rented sector, reforming the pensions industry, curbing payday lenders and implementing long-term reforms to banking, infrastructure planning and the skills system.
During the 2010 election campaign, the Conservative party made the rather bold claim that it would strive to
“see an economy where not just our standard of living, but everyone’s quality of life, rises steadily and sustainably”.
Looking back more than three years on, time has served that particular Tory manifesto pledge disastrously, as it has so many others. It is no wonder that people are feeling let down. Today, average earnings are almost £1,500 a year lower than they were when that pledge was made.
Since the end of 2010, the UK has seen the biggest fall in workers’ income of any country in the G7. Prices have risen faster in the UK than in any other major economy. It is another broken promise from this out-of-touch Prime Minister.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
Does the shadow Chief Secretary accept Labour’s responsibility for its catastrophic stewardship of the public finances, which left this country with a budget deficit in excess of 11% of GDP?
Rachel Reeves
As the hon. Gentleman knows, there was a global financial crisis that hit every country in the world, and all countries are now dealing with the aftermath. As the Office for Budget Responsibility and the Institute for Fiscal Studies have said, budget deficit reduction has now stalled, not because the Government have not cut public services or put up taxes for ordinary people but because unemployment remains too high and economic growth too weak to get the deficit down.
This Prime Minister is ripping up the record books when it comes to overseeing falling wages for ordinary workers. Average wages have been falling behind prices for 37 of the 38 months of David Cameron’s prime ministership. Which month is the odd one out? It is April of this year, when the bankers reaped the rewards of deferring their bonus until George Osborne’s cut to the top rate of tax was implemented. That tax cut resulted in 13,000 people with an income of more than £1 million receiving a tax cut worth on average £107,000. That is four times average earnings in this country.
The rest, ordinary people, will be on average £6,660 worse off by the end of the Parliament. That is enough to have paid for the family weekly shop for more than a year and a half. Although he has said repeatedly, “We’re all in this together” and “Those with the broadest shoulders should bear the greatest burden”, how can families trust this out-of-touch Prime Minister, who has prioritised millionaires over millions of working people?
Investing in Britain’s Future
Nick Gibb Excerpts(11 years, 4 months ago)
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Danny Alexander
If the right hon. Gentleman were giving a balanced account, he would also have referred to the flood defences we are investing in, and the local road project around Exeter that has been completed.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
I welcome the capital for the A27 Chichester bypass, for which my hon. Friend the Member for Chichester (Mr Tyrie) and I have been pressing for a number of years. I also welcome the initial agreement the Government have reached with the insurance industry based on the Flood Re proposals, and the new powers they are contemplating, which may help to tackle the refusal by a minority of insurance companies to insure houses that have suffered flooding, such as the company that has just written to one of my constituents withdrawing cover because the boundary of his property suffered flooding in June last year, despite neighbouring properties being insured by other companies. Will my right hon. Friend look into the practices of companies that are refusing to abide by the current statement of principles?
Budget Resolutions and Economic Situation
Nick Gibb Excerpts(11 years, 8 months ago)
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Ed Balls
The economy has flatlined and the national debt is rising year on year, and the hon. Gentleman does not want to know the truth.
Not only is the Chancellor pressing ahead with a tax cut for millionaires; it now seems that his mortgage scheme announced yesterday will help people, no matter how high their income, to buy a subsidised second home worth up to £600,000. From what I have seen so far, the Government are basically saying, “If you’ve got a spare room in a social home you’ll pay the bedroom tax, but if you want a spare home and you can afford it, we’ll help you to buy one.” Are the Government really going to allow millionaires, who will get a tax cut averaging £100,000 in two weeks’ time, to get a taxpayer guarantee if they use that money as a deposit on a house, a second home, or even a buy-to-let house? That is not just tax cuts for millionaires; it is subsidised mortgages for millionaires—or should I say a spare homes subsidy? I will take an intervention if the Chancellor wants to clear up the absolute confusion and chaos over this policy. Surely people struggling to get a mortgage—those who want to get their first home—should be the priority for help, not the small number who can potentially afford to buy a second home or a buy-to-let home. We will solve the housing crisis and help first-time buyers only if we finally build the new affordable homes that we said should be built but which he ignored in this Budget.
This is more of the same from a Chancellor who does not even understand the Budget he has announced, as we saw a year ago. I ask him again—is the taxpayer subsidy available for second homes to people with incomes over £100,000 or for buy-to-let properties? Yes or no? If he does not clear it up, the confusion and chaos will continue. Does he want clarify it? Pasties, caravans, churches, skips—and now subsidised second homes for millionaires. It is not “Who Wants To Be A Millionaire?”; it is “Who Wants To Help A Millionaire?” It is not “phone a friend”; it is “cut taxes for your friends.” As for “ask the audience”, he must be hoping that he does not have to ask the electorate any time soon—certainly not after the past 12 months.
What a 12 months it has been for this Chancellor! The omnishambles Budget, the double-dip recession, booed at the Paralympics, forced to upgrade on the train, downgraded by Moody’s, his fascinating biography—and now his colleagues are even speculating that he might have to be replaced by the Foreign Secretary, the Defence Secretary, or even the right hon. Member for Wokingham (Mr Redwood). A year ago they feted him as the next leader of the Tory party; now, according to the Tories, they are touting him as our next man in Brussels. It used to be Calamity Clegg they were sending off to the Commission; now it is Calamity George. Well, we do know he likes a bit of “Whip crack-away, whip crack-away, whip crack-away.” [Interruption.] Are you suggesting that I do not sing it, Mr Deputy Speaker?
A few weeks ago, the Chancellor reportedly told his colleagues at a Cabinet meeting that if they did not make a decision that day they would have to do so after 2015, sitting round the shadow Cabinet table. That is going to be the one forecast that he actually gets right.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
This is all very amusing, but not very serious. Is the right hon. Gentleman aware that in his own constituency over the past 12 months unemployment has fallen by 2.5% and youth unemployment has fallen by 12.5%? Why is he complaining about higher borrowing and at the same time advocating higher borrowing? Is it not right that the Chancellor is letting the automatic stabilisers kick in?
Ed Balls
The problem with what the Chancellor is doing this year—cutting in-year spending—is that it is the opposite of the automatic stabilisers. He is cutting spending and the OBR says that it is having a direct impact on economic growth. I sympathise with everybody who loses their job, including the hon. Member for Bognor Regis and Littlehampton (Mr Gibb). In my constituency unemployment has come down, but working families are worse off because of cuts to tax credits, the bedroom tax and cuts to child care. The £700 million-a-year tax break for new child care is no compensation for the £7 billion a year cut in support for families.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
It is a pleasure to follow the hon. Member for Airdrie and Shotts (Pamela Nash), but I should point out to her that unemployment in her constituency has fallen by 3.8% over the last 12 months and youth unemployment by 9.3%.
I welcome this Budget, in particular the cut in corporation tax to 20% from April 2015; the rise in the personal allowance to £10,000; the cancellation of the planned fuel duty rise; the new measures to counter tax avoidance, particularly the information-sharing agreements that have been reached with the Isle of Man, Guernsey and Jersey; and the abolition of stamp duty on share transactions on small company growth markets, which will help to reverse the bias in the tax system towards debt financing and improve the tax position of equity financing. I also welcome the new remit for the Monetary Policy Committee, which means it can issue guidance about future interest rate expectations. Monetary policy is key to reviving growth, and the fact that the monthly 12-month growth rate of M4—the broad money supply—has been negative since October 2010 demonstrates the need for continued low interest rates.
Above all, I welcome the Government’s continued commitment to fiscal consolidation and restraint in public spending—policies that in my view have been remarkably successful over the last three years in reducing the budget deficit from a staggering £159 billion in 2009-10, or some 11.2% of GDP, to £121 billion in 2011-12, or some 7.9% of GDP. There have been two guiding principles to the Government’s fiscal policy—the fiscal mandate—which says that the structural deficit shall be eliminated within the five-year forecasting horizon. As table B.6 on page 105 of the Red Book makes clear, the cyclically adjusted surplus on current account—that is, the structural deficit—will move into a surplus of 0.1% of GDP by 2016-17, a year ahead of the five-year time horizon. The supplementary target—that the Government’s total accumulated debt should be starting to fall as a percentage of national income by 2015-16—will be met by 2017-18, with a fall from 85.6% of GDP in 2016 to 84.8% in 2017-18. That is two years later than the target; nevertheless, it is forecast to be achieved. The fact that the Chancellor has not tightened the fiscal position further in order to meet the target by 2015-16 is evidence that the Government’s economic policy is far more nuanced than critics suggest.
My right hon. Friend the Business Secretary, in his article in the New Statesman cited a paper by Carmen Reinhart and Kenneth Rogoff that made the important point that
“financial crises are typically followed by slow and difficult recovery.”
Given that Britain had the biggest banking sector relative to GDP of any major country, it is inevitable that Britain’s recovery was going to be slow and difficult. The key is that it is heading in the right direction, which is also the view of most informed commentators, such as the OECD. As it said in its 2013 economic survey of the UK, which was published last month,
“The fiscal stance remains appropriate”.
It went on:
“the Government’s decision in the December 2012 Autumn Statement to continue with its existing consolidation plans and not to override the automatic stabilisers in order to meet the supplementary debt target is appropriate.”
In other words, the fact that accumulated debt will not start falling as a percentage of GDP until 2017-18 instead of 2015-16 is not only acceptable; it is also a beneficial fiscal stimulus—the automatic stabiliser. As the Institute for Fiscal Studies says in its “Green Budget”,
“since meeting the target would do little to ensure the sustainability of the UK’s public finances, the fact that it looks set to be missed should not, on its own, cause significant concern about fiscal sustainability.”
As my right hon. Friend put it in his article, the Government have been
“sufficiently pragmatic to allow the fiscal consolidation to drift from four years to seven.”
When I listen to the shadow Chancellor arguing that we should spend and borrow more to stimulate demand in the economy, I would argue that because the Government have done that, but through the automatic stabiliser, they maintain the confidence of the capital markets, whereas his approach would not. As a consequence, there are 1.25 million new private sector jobs, while unemployment has fallen over the last 12 months by 4% and youth unemployment by 13%. Indeed, in the shadow Chancellor’s own constituency, unemployment has fallen by 2.5% and youth unemployment by 12.5% over the last year.
To those who argue for stronger spending cuts to fund further tax cuts, I would argue that the fall in public sector employment of 300,000 between 2010 and 2013 represents a sizeable reduction in the state sector, with the IFS forecasting that the figure will fall by 900,000 in total by 2017-18. I would also argue that the cuts in corporation tax are precisely the supply-side tax cuts we need to stimulate the business sector, while the rise in the personal allowance is likely to be the most effective tax reduction measure to boost demand.
If there had been more time, I would have said more about exports and the damage and the threat that the eurozone crises have already caused and may continue to cause to the economy’s growth prospects; about the importance to Conservatives of continuing to maintain strong spending on the NHS, particularly with a growing elderly population and ever more developments in medical science; and more about domestic demand in the economy, which the figures show is strong. In short, I believe it is vital that the Government continue on this rocky road to recovery and do not allow themselves to be pushed off course by siren voices claiming that there are short cuts, which of course there are not.
Oral Answers to Questions
Nick Gibb Excerpts(11 years, 8 months ago)
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Mr Gauke
I am not going to get drawn into individual cases, but I will say that under this Government the number of prosecutions will increase fivefold. We are giving additional resources to HMRC to help to deal with prosecutions, and we have strengthened its offshore team. Our record on dealing with tax evasion—dealing with those who have cheated the system—is one of which we are proud, and it compares very favourably with the record that we inherited.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
Private equity is an important source of investment for expanding businesses, but when they over-leverage it can lead to disasters such as that with Castlebeck. It can also lead to protracted negotiations with the Revenue over the deductability of interest and an erosion of the tax base. Will my hon. Friend consider the German approach of limiting the level of interest that can be deductible in any tax year as a proportion of a company’s profit—the so-called bright line?
Mr Gauke
We did look at interest deductibility when we first came into office. However, in the corporate tax road map that we set out in 2010, we took the view that we were not going to change the rules fundamentally with regard to interest deductibility. What we have done, of course, is favour equity more by cutting corporation tax. My hon. Friend also raises wider issues about private equity and leverage that the Banking Commission is considering.
Tax Fairness
Nick Gibb Excerpts(11 years, 8 months ago)
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Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
I am waiting to hear the shadow Minister mention that this Government have taken £2.2 million of the lowest earners out of tax altogether. Does Labour’s support for a mansion tax signal its return to high-tax policies, and a end to the new Labour project so admirably led by Tony Blair and Peter Mandelson, which transformed Labour into an electable party? Are we now seeing signs of a return to the hard left, high-taxing Labour party of the past?
Chris Leslie
No. The hon. Gentleman is in a coalition with partners, whom he no doubt does not regard as hard lefties, who are advocating the very policy that we recommend in our motion. We took the advice of the Business Secretary, a Liberal Democrat, who said “Table a very simple motion, and we will support it.” According to any objective measure, even the hon. Gentleman can see that we have held back from party-political rhetoric. The motion is very plain and simple, as requested. We have tried to find some common ground. If those 57 Members of Parliament—and perhaps even some Conservatives; who knows?—were to join us in the Lobby tonight, that would make the mansion tax a reality.
Chris Leslie
I do not think the hon. Gentleman should be so partisan; he should look at the issues on their merits, as we have tried to do in our motion. We have stripped out all that party political rhetoric and put clearly on the table the proposition, “This House supports the principle of a mansion tax.”
Chris Leslie
We urge all Members, including the hon. Gentleman to whom I am about to give way, to support that proposition.
Chris Leslie
That was one of the solutions that the Deputy Prime Minister suggested. I think it is entirely possible to find solutions to deal with those rare circumstances. However, I ask the hon. Gentleman: what is he saying to all of his constituents who, like mine, face having to move out of their properties because of the bedroom tax that his Government are introducing in a few weeks’ time? Many of those people are probably still not aware what charge is going to hit them when the change to housing benefit comes in. He is expecting great upheaval—people having to move house—at one end of the spectrum but when the Deputy Prime Minister comes up with a particular solution his response is, “Oh no, that is entirely unworkable.” We need to get the Treasury and the Office for Budget Responsibility to think about these things in a detailed way.
We had hoped that Government Members would support the motion, but what does the Government amendment say? I urge hon. Members to pick up their Order Paper, turn to the relevant page and just look at the Government amendment—this pantomime amendment, whose logic is contorted. It proposes to delete the whole proposition of a mansion tax and replace it with a pleading defence of the different views held by different parts of the coalition. It would remove the resolve to back a mansion tax and retreat into a messy fudge as a means—I mix my metaphors—of brushing the whole issue under the carpet. It is an amendment that seeks to face both ways yet go nowhere. It is a push-me, pull-you amendment, and the Government should be deeply embarrassed at the drafting, which of course descends, as we can see, into a general attack on the Opposition.
Liberal Democrats need to grow some courage and stand up for themselves, for once. This measure is not just a bygone pledge from their now notorious 2010 manifesto; the Deputy Prime Minister made it the centrepiece of his leadership in the past few weeks. Kicking off the Eastleigh by-election last month, he called for
“taxes on mansions, tax cuts for millions”.
That is what is in our motion. He said:
“The mansion tax is an idea whose time has come.”
He said that opponents of it should
“join with the Liberal Democrats…seeking to make our tax system fair.”
Indeed, others have joined in that chorus.
On this Sunday’s “The Andrew Marr Show” Lord Ashdown said it would be “weird” if the Liberal Democrats did not vote in favour of the tax. The “Sunday Politics” had an interview with the Lib Dem president, the hon. Member for Westmorland and Lonsdale (Tim Farron), in which an interesting exchange took place. Andrew Neil said:
“It’s a simple motion. Will you vote for it?”
The hon. Gentleman said:
“Well, let’s say, I mean, when all’s said and done, that is pretty much Liberal Democrat policy”.
Andrew Neil then asked:
“Well, what part of that motion do you disagree with?”
The hon. Gentleman said, “None of it.”
Chris Leslie
The hon. Gentleman makes an important point about finding ways to help those who aspire to own their home. I am certainly interested in discussing options for how that might be achieved, because it is important. It is becoming very difficult for people in those circumstances. They are the home owners that we really need to focus on. It is amazing that so many Government Members want to defend the massive super-wealth of those with properties of £2 million and above. All we want is that they pay their fair share, as the motion states in plain and simple terms. We are giving a timely pre-Budget opportunity for the House to express support for or opposition to a mansion tax as
“part of a fair tax system.”
It could not be more straightforward. The country is crying out for a tax system that focuses on helping the majority of the public and ensures that the wealthiest 1% pay their fair share.
First and foremost, Government Members have a duty to their constituents, who will be astonished if their MP flunks this opportunity to make real change because they are suppressing their principles in a bid to cling on to power.
Mr Speaker
I do not think the hon. Member for Nottingham East is giving way; he has completed his speech. I call Mr David Gauke.
Mr Gauke
There is no particularly sensible reason why there should be a different personal allowance for someone who is 64, compared with 65 or 75. It is clearly a simpler and, I believe, fairer system that one personal allowance should apply to everybody. That was never an option available to the Labour party because the main personal allowance for someone under the age of 65 was so low. We have been able to increase it substantially so that one personal allowance can apply to everybody. That is a simpler and fairer way to deal with that issue. At the same time, we have increased pensions, thanks to the triple lock guarantee, by much more than we would have done if we had stuck with the plans that we inherited. Last year, pensioners saw their biggest increase in the state pension.
Mr Gibb
While my hon. Friend is on the subject of the last Labour Government, he will recall that in 2009-10, the last financial year of the last Labour Government, expenditure exceeded income by £159 billion, equal to 11% of the whole country’s income. Since he has been a Minister at the Treasury, have civil servants explained to him why that was allowed to happen, virtually bankrupting this country?
Mr Gauke
My hon. Friend makes a very good point. There is no explanation that civil servants can give for that. An explanation and an apology are due from the Opposition, but we await either of those. I think that they persist in the view that there was no structural deficit even before the crash—
Oral Answers to Questions
Nick Gibb Excerpts(11 years, 9 months ago)
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Mr Gauke
I should point out that those units were not in existence under the previous Government and were introduced as a consequence of our reinvestment programme. On enforcement and compliance more generally, I also point out that if we are looking only at numbers, under the previous Government the number of people working in HMRC’s enforcement and compliance department fell by 10,000. Under this Government it will increase by 2,500.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
The managing partner of Ernst & Young has dismissed the concerns of the House about aggressive tax avoidance by stating:
“The simplest solution is to stop banging on about morality and change the law.”
Does the Minister share my view that in a civilised society we do not live by rules and regulations alone, but by what we consider to be right? Should not boards of companies that operate in this country be asking themselves a key question about all their activities, including their tax policy: is this the right thing to do?
Mr Gauke
Increasingly, artificial contrived behaviour is something that all of us, including the public, simply do not accept. My hon. Friend is right to say that this is a board matter, and boards should take tax policy seriously. Companies should think very seriously about aggressive, artificial, contrived behaviour and there is low tolerance for such behaviour.
Corporate Tax Avoidance
Nick Gibb Excerpts(11 years, 10 months ago)
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Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
I pay tribute to the work of the Public Accounts Committee, particularly its questioning of executives from Starbucks, Google and Amazon on 12 November. I will focus on just one of those companies: Amazon.
I preface my remarks by paying tribute to the brilliant service that Amazon provides. It has made buying books far simpler and cheaper for millions of consumers, myself included. The speed of delivery and its innovative logistics make it a company about which there is a huge amount to admire. The question, though, is: which company? The way in which Amazon is structured means that, when I buy a book from Amazon, I am in fact buying it from Amazon EU SARL, a Luxemburg company. The profit on the sale of a book belongs to this Luxemburg company, notwithstanding the fact that Amazon owns no warehouses in Luxemburg and that the book, if it is in English, will have been sent from one of Amazon’s eight warehouses in the UK. Amazon.co.uk Ltd, a UK company, is just the service company for the Luxembourg company, fulfilling a customer’s order on behalf of Amazon EU SARL. Therefore, although Amazon’s sales in the UK are in the billions of pounds, the sales income of the UK company is just £207 million.
The technical thing that the tax planners at Amazon are keen to avoid is creating what the tax authorities call a permanent establishment of the Luxembourg company in the UK. If the UK tax authorities perceive there to be such a permanent establishment, all the income of the Luxembourg company that relates to that permanent establishment would be taxable in the UK. When I drive up the M1 and see the huge Amazon buildings that package and dispatch millions of books a year, I cannot help thinking that they look pretty permanent, but technically they are not. There will have been great effort and attention to the detail of the documentation to ensure that the warehouses are the operation of the UK service company and that all Amazon’s property and activity in the UK relate to that service and not to the activities of the Luxembourg company.
Mr Gibb
My hon. Friend makes a good point. Everyone knows that this structure is a legal fiction. All the real economic activity for the transaction of my book purchase takes place in the UK. Andrew Cecil, the director of public policy at Amazon, in his evidence to the Public Accounts Committee, said that Amazon.co.uk is the trading name of the Luxembourg company. Therefore, although it sounds as though I am buying my book from the UK company, in fact I am not. However, according to the e-mail that I received in December confirming a book order that I made, if I want further details on my statutory rights, I should contact Amazon.co.uk customer services at 2 to 4 Waverly Gate, Edinburgh. The trading name for the Luxembourg company therefore has premises in Edinburgh. Does that not sound like a permanent establishment of the Luxembourg company?
Paul Farrelly (Newcastle-under-Lyme) (Lab)
I am glad that the hon. Gentleman has chosen to talk about Amazon, because it gives me the opportunity to pay tribute to my great friend and former journalistic colleague, Ian Griffiths, who wrote the seminal investigation on behalf of The Bookseller in The Guardian in April, which showed that Amazon had made £7.6 billion of sales in the UK but had paid zero corporation tax because of the Luxembourg structure, even though the warehouses are here. I am sure that the hon. Gentleman will come on to this, but does he think that it is right that the tax playing field should be levelled, because booksellers and record retailers are going out of business day after day in this country?
Mr Gibb
That is why this issue is so important. It is not just about the corporate tax base, which is hugely important, but about the competitiveness of British-based businesses.
Another thing that I found odd about the Amazon structure was that the accounts filed at Companies House report that the company has 2,265 employees, which is vastly different from the 15,000 employees that Andrew Cecil told the Public Accounts Committee Amazon employs in the UK. The other strange thing about Amazon’s group structure is that even the Luxembourg operation, with its €9 billion turnover, appears to have made a post-tax profit of just €20 million.
As we have seen with Starbucks and Google, profits can be siphoned off from individual jurisdictions by payments for intellectual property rights through royalties or technical fees. Starbucks pays a royalty of 6% of its turnover to its company in the Netherlands. Google also pays for the use of its technology. Although that technology was developed in California, the rights to use it outside the USA are held in Bermuda.
Much of this area of law is governed by a network of double tax treaties, of which the UK has signed more than 100. They are based on a model double tax convention that was agreed at the OECD and have been highly effective in boosting worldwide trade and overseas investment over the decades. Britain benefits hugely from that network of treaties. We have £10.9 trillion of investments abroad, which generated £188 billion of income in 2011. The Government are therefore right to want to tackle the problem of corporate tax avoidance through international negotiation. As the Prime Minister wrote in his letter to G8 leaders on 2 January:
“in a globalised world, no one country can, on its own, effectively tackle tax evasion and aggressive avoidance. But as a group of eight major economies together we have an opportunity to galvanise collective international action.”
One such action is the OECD’s study into the transfer pricing aspects of intangibles. In its discussion draft, snappily entitled “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”, published in June last year, the OECD concluded:
“It should be emphasized that not all intangibles deserve separate compensation in all circumstances, and not all intangibles give rise to premium returns in all circumstances.”
In other words, the OECD is coming to the view that the huge royalty payments that some international groups make their overseas subsidiaries pay to their home country or to tax havens may no longer be allowable against tax in the overseas jurisdictions. However, the OECD, by necessity, moves slowly. Speedier action could be taken by the UK tax authorities by speeding up transfer pricing inquiries. It is therefore welcome that the Chancellor has allocated additional funding to HMRC to do that. HMRC could also take powers to require companies to disclose in advance all international connected party payments and to supply the associated documentation. There could be tougher penalties when a company’s tax return is wrong because of over-aggressive transfer pricing.
I conclude by touching on a wider issue relating to corporate tax avoidance: the ethics of companies and their boardrooms. In our everyday lives, we are all governed by a sense of morality, not just by law and regulation. Corporations are artificially created legal personalities. The morality of a corporation is determined by its board—by both executive and non-executive directors. It is no good for individual companies or for free market capitalism, which I support passionately, if directors interpret their role too narrowly. Too often, people who sit on company boards fail to ask the simple and straightforward question that governs moral behaviour: is this the right thing for us to do? Too often, directors seem to take the view that their fiduciary duty as directors stops at the maximisation of shareholder value, but section 172 of the Companies Act 2006 makes it clear that the duty of a director to promote the success of the company must be subject to a number of wider considerations including
“the desirability of the company maintaining a reputation for high standards of business conduct”.
I question whether the directors, including the non-executive directors, of the three companies so ably questioned by the PAC were fulfilling that duty.
Action needs to be taken to ensure that the corporate tax contribution of a multinational to a nation’s Exchequer is broadly consistent with the level of economic activity in that jurisdiction. We need to ensure that that action does not hamper world trade: it must be multilateral, but it needs to be swift. There are measures that HMRC can take in the meantime to ensure that it has the intellectual resources to match those of the international accounting firms. There are also questions that the boards of corporations need to take seriously as business leaders and members of society.
Oral Answers to Questions
Nick Gibb Excerpts(11 years, 11 months ago)
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Mr Osborne
When the Labour party was in office, its approach led to the economy shrinking by 6% of GDP. We have set in place plans to ensure that the deficit it left us is dealt with and that our economy is more competitive. I would have thought that the hon. Lady would welcome the fact that we have over 1 million new jobs in the economy and a record rate of small business creation. That is something to celebrate in our economy.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
May I welcome the Government’s announcement in the autumn statement to put more resources into ensuring that multinationals pay their fair share of tax? That is a key measure to help UK-based business creation. May I also suggest that the Chancellor consider introducing a requirement on multinationals to disclose in advance significant connected party transactions as a way of speeding up transfer pricing inquiries?
Public Service Pensions Bill
Nick Gibb Excerpts(11 years, 11 months ago)
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Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
The hon. Gentleman will know that the fair deal arrangements introduced in 1999 by the Labour Government were not statutory. Why was he happy to support and serve in a Government who had a non-statutory approach to the fair deal, but in opposition he seeks to make that approach statutory?
Chris Leslie
The situation now is different because of the level of trust on which public service employees feel tested when looking at significant changes by the Government. Employee contributions were unilaterally increased by 3% without consultation or discussion—that was simply imposed, even though Lord Hutton was putting measures through. The evaluation arrangement was unilaterally changed from the retail prices index to the consumer prices index. A typical public service employee must have said, “Hold on a minute. Are we supposed to just take this on faith? We are glad that the Government are in negotiations, but as we know, Ministers are here today and gone tomorrow.” In no way do I cast aspersion on the Economic Secretary who I am sure will remain on the Front Bench in days to come. However, we cannot simply rely on statements from particular Ministers at a particular point in time.
Chris Leslie
That comes down to how the legislation is drafted. There are different financial consequences for local government pension schemes than for other public service pension schemes. That is why we need clarity in the legislation. I am conscious that the Scottish National party Government in Scotland have argued that there is no need for a legislative consent motion to cover the matter because, in theory, the UK Parliament always had primary legislative power over the local government pension scheme in Scotland but has hitherto chosen not to use it. The Government in Scotland have been quick to accept the UK’s proposals, which is unusual, because they normally argue that more power should sit with Holyrood. The movement of the regulation-making powers means that the Scottish Government will not need to grapple with difficult decisions on the reform of certain pensions, but the Opposition feel it would be better for Members of the Scottish Parliament to have an opportunity to scrutinise and debate the application of the legislation to the local government pension scheme in Scotland. Amendment 11 to clause 3 would mean that the Bill would not apply to the local government pension scheme in Scotland unless that is explicitly approved by the Scottish Parliament. The hon. Member for Banff and Buchan (Dr Whiteford) and others have tabled parallel amendments—I gather they are in the third group, so we will probably return to this debate later.
Amendment 12, which is in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), relates to another key Government promise made to public service workers. It seeks to enshrine in the legislation another Government promise made to public service workers—the Government promised that their final salary schemes would be replaced with career-average revalued earnings schemes. That would ensure that public service workers continue to receive a defined benefit pension.
The Bill does not explicitly honour that promise, and clause 7 provides that schemes created under the Bill can be defined benefit or defined contribution schemes, or any scheme of any other description. That is fundamental to the arguments on the Bill, but it is also fundamental to the arguments that Hutton made and the agreements that were reached. All schemes were supposed to be succeeded by career-average defined benefit schemes. In some cases, the Government might like to continue small defined contribution schemes, but the amendment would not affect those; it would apply only to final salary schemes and ensure that they are replaced with another defined benefit arrangement. The amendment therefore simply seeks to put the Government’s promise to public service workers on a statutory footing.
A similar amendment was opposed in Committee, but the reasons given by the Minister were concerning. He claimed that the Government intended to replace the final salary schemes with career-average schemes, but that “the flexibility embedded in” the Bill
“could be helpful to scheme members in future.”
He added that
“it would not be appropriate for this Government to tie the hands of future generations and pension scheme members who might decide that, subject to the protection offered by the enhanced consultation and reporting obligations of clause 20, defined benefit schemes were no longer the most appropriate for public service workers.”––[Official Report, Public Service Pensions Public Bill Committee, 13 November 2012; c. 291-92.]
That is not the first time we have heard the Minister’s bizarre argument that legislation could bind the hands of future Governments. No Government can bind the hands of their successors in that way. Unless the Minister has an insight into changes in the democratic process of which we are unaware, that remains absolutely the case.
Therefore, the argument that clause 7 provides welcome flexibility to scheme members now or in future is, in the Opposition’s view, potentially misleading. In the rare circumstances that a defined contribution scheme is better than the defined benefit one, and scheme members and the Government wish to change schemes to defined contributions schemes, clauses 19 and 20 allow that to happen. Clause 7 provides no flexibility that does not exist in clauses 19 and 20. If we do not make the amendment, we allow the Government to go back on their promises. We seek to keep them to their word on those arrangements.
I know that many hon. Members wish to speak to proposals in this large group, so I shall make my final point on the question of closing local government pension schemes. My hon. Friend the Member for Corby (Andy Sawford) and the hon. Member for Finchley and Golders Green (Mike Freer), among others, have had extensive experience of local government schemes. In Committee, there was anxiety that the Bill mentions closing existing LGP schemes and beginning new ones. The problem with closing schemes is that there can be unintended and adverse consequences. We heard in Committee about triggering debts which might need to be crystallised on closure. Of course, not just big local authorities but small academies, charities and others are members of such schemes. They might find that they suddenly need to shell out one great lump of money simply because an existing scheme closes and the deficit needs to be dealt with there and then.
The Minister assured us that regulatory provisions did not require such crystallisation, and that there could be protections. The Opposition are not massively happy with that, but even if we accept the Minister’s word that closure does not mean closure, thousands of employers in the local government pension fund have individual admission agreements governing the terms of their participation—the agreements are not necessarily in a standard form, meaning that there could be thousands of different admissions contracts for the schemes. It is likely that at least some of the agreements will set out various powers for local authorities in the event of closure, including the power to collect a debt from the employer equal to its share of the scheme’s deficit. That would put a massive strain on participating employers and could put some of them out of business.
The Minister gave assurances on some of those points in Committee, but he missed the problem that the Bill allows local authorities to close their funds. The Government cannot prevent them from doing so under the Bill. The problem of triggering debts therefore remains substantive. There is also the question of whether closure means closure or continuing a scheme. The Opposition believe that a different approach is needed and that the Bill needs better drafting, which is why we have tabled amendments 20 to 28. We are not trying to add costs to the public purse and are keeping the Government’s proposals, but we are saying that it would be better to amend an existing scheme rather than to close and reopen it. They are in some ways technical proposals, but it would be better to err on the side of caution and provide that new regulations can amend scheme rules to ensure that all future benefits are accrued according to the provisions of the Bill and negotiated arrangements.
Those are essentially my comments on the Opposition’s proposals. My hon. Friends and others have tabled amendments in this group, but I shall let them make the case for them.
Mr Gibb
I rise to speak briefly to Opposition new clause 3, which is on fair deal arrangements. Hon. Members will be aware that fair deal arrangements were originally addressed by Lord Hutton in his interim report in October 2010. Hutton was concerned that the arrangements at that time created barriers to the plurality of public service provision. He said:
“At present, when employees are transferred to non-public service bodies, the organisation they move to is required to ensure that there is ‘broadly comparable’ pension provision for future service, through the Fair Deal provisions…This arrangement has maintained the level of pension provision for those compulsorily transferred out of the public sector. However…this can make it harder for private sector and third sector organisations to provide public services because providing a ‘broadly comparable’ defined benefit pension scheme can be significantly more expensive and risky for private sector organisations than for public sector employers.”
That was the starting point of the debate. In box 1.A—a shaded box, the hon. Member for Nottingham East (Chris Leslie) will be intrigued to know—Lord Hutton concluded:
“Ultimately, it is for the Government to consider carefully the best way of moving forward with Fair Deal in a way that delivers its wider objective of encouraging a broader range of public service providers while remaining consistent with good employment practices.”
Andy Sawford (Corby) (Lab/Co-op)
My principal concern, fresh from the doorsteps of Corby, is for the many individual members of the pension scheme. In his extensive piece of work, Lord Hutton considered the future of public service reform and the relationships between the public and private sectors. What I am most concerned about in the debate today and in supporting the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) on the fair deal, is giving an assurance to those individuals in Corby and East Northamptonshire—cleaners and nurses and so on—that the goalposts will not be constantly shifted away from what they expect from their pension. From the 3p in the pound change to the RPI to CPI change, they feel buffeted by huge changes that are really affecting them at the moment. That is why we need the assurance in the Bill.
Mr Gibb
I congratulate the hon. Member for Corby (Andy Sawford) on his election to the House. His intervention indicates the seriousness with which he takes his new role. I am grateful for that and I take his point. All of us on the Government Benches want to ensure that we have sustainable, good-quality defined benefit pensions in the public sector, but to achieve that there has to be major reform to public service pensions for a raft of reasons to do with longevity, cost, poor performance of the stock market in the past 12 years and tax changes that occurred in 1997. For all those reasons, if we are to have good-quality, defined benefit pensions for public service employees, there have to be major reforms.
The Government have been clear, open and transparent in the negotiating process, and an ample number of documents are circulating that set out precisely the conclusion to the negotiations, not least the proposed final agreements. The idea that without changing primary legislation the Government can somehow slip through major changes to the quality of benefits to the employees, which the hon. Gentleman is talking about, is just not in the real world. All Governments have to behave reasonably, and this Government are no different from any other. Not only have they behaved reasonably in these negotiations, but, I believe, they have given rise to high-quality public service pension arrangements that offer benefits way beyond the arrangements in the private sector. That is a sign that the Government recognise the important contribution that public sector employees make to our society.
I point the hon. Gentleman to the consultation on the new deal that took place between March and June 2011. That was a broad consultation, to which there were more than 100 responses. In July this year, in a written ministerial statement, the Chief Secretary to the Treasury stated:
“the Government have reviewed the fair deal policy and agreed to maintain the overall approach, but deliver this by offering access to public service pension schemes for transferring staff…this means that all staff whose employment is compulsorily transferred from the public service under TUPE…to independent providers of public services will retain membership of their current employer’s pension arrangements.”—[Official Report, 4 July 2012; Vol. 547, c. 54WS.]
That is on the record and should provide the hon. Gentleman and the rest of the House with the assurance they need.
Chris Leslie
We hear what the Liberal Democrat Chief Secretary to the Treasury says, but can the hon. Gentleman, as a Conservative MP, give us a guarantee that that would also be the case under a future Conservative Government?
Mr Gibb
Alas, I no longer speak on behalf of the Government, but that is a commitment given by Ministers of this coalition Government. The hon. Gentleman is trying to create a division between the Conservative party and the Liberal Democrats in our approach to public service pension reform, and there is no such division. There is no such difference in attitude between the two parties on public service reform.
John Healey
I rise to support the hon. Gentleman. Unlike my hon. Friend the Member for Nottingham East, the House and the public have a right to take at face value the words of a Chief Secretary—a Chief Secretary is a Chief Secretary is a Chief Secretary. That is a statement of Government policy and of coalition Government intent. Therefore, I think the onus is not on the hon. Gentleman, but on the Economic Secretary to the Treasury to explain why his statement is different from the Chief Secretary’s statement.
Mr Gibb
I listened carefully to my hon. Friend and to the Chief Secretary and I did not find any difference. My hon. Friend was addressing whether particular matters should be in primary legislation; the Chief Secretary was setting out the case for the policy.
On teachers’ pensions, there was anxiety that the current arrangements, under which teachers in the independent sector can be members of the teachers’ pension scheme if their employer signs up to the scheme, might be put in jeopardy by the words of Lord Hutton’s interim report, so the Chief Secretary’s statement was welcome news to teachers. Paragraph 8 of the proposed final agreement states:
“the Government agrees to retain Fair Deal provision and extend access to public service pension schemes for transferring staff. This means that all staff whose employment is compulsorily transferred from maintained schools (including academies)…under TUPE…will…be able to retain membership of the Teachers’ Pension Scheme when transferred.”
That is welcome news. The agreement goes on to state:
“The Government’s decision on Fair deal means that…independent schools which already have access to the Teachers’ Pension Scheme will continue to do so (for existing and new teachers); and new teachers and independent schools will continue to be able to join the scheme under the existing qualifying criteria.”
When we debated the issue in Committee, the hon. Member for Nottingham East conceded that the new fair deal
“is an improvement on the current fair deal arrangements”,
but, as he has just now, he complained that
“the promise does not appear in the Bill.”––[Official Report, Public Services Pensions Public Bill Committee, 22 November 2012; c. 458.]
He will be aware, however, that the fair deal arrangements were non-statutory when they were introduced in 1999, and that they remained non-statutory when they were revised in 2004. Notwithstanding the fact that the new fair deal arrangements are an improvement on the old ones, if it is good enough for a Labour Government for the policy to be non-statutory, it ought to be good enough for the hon. Gentleman. As my hon. Friend the Minister made clear in Committee, the recently published Government response to the fair deal consultation included draft guidance setting out how the new policy would work in practice. Given all the public statements by my hon. Friend the Chief Secretary and the published guidance and consultation documents, the hon. Gentleman should be assured by the commitments given.
Chris Leslie
Does the hon. Gentleman not understand the sense of anxiety that many public sector employees feel? Their trust was shattered because of the unilateral decisions on RPI to CPI and the 3%. They are saying, “Don’t we need more safeguards?” Can he understand why they would want safeguards now that might not have been necessary in the past?
Mr Gibb
Of course, that is an assertion by the hon. Gentleman. I do not recognise that crushing of confidence. What the Government had to do when they came into office was tackle a huge public sector deficit of £156 billion, and they have done that. As a consequence of the difficult decisions the Government have taken, the capital markets have been assured that the Government are getting the public finances under control. That itself should assure beneficiaries of public service pensions that the Government will put the public finances in a stable condition and so avoid the need for the sort of draconian changes to public service pensions being implemented in other European countries as they seek, rather belatedly, to tackle their public deficits.
Sheila Gilmore
Why does the hon. Gentleman think that that is a comfort, given that, as far as we can see, the Government’s deficit reduction plans are failing and debt is rising? In the light of that, many public service workers might well expect another bite at the cherry.
Mr Gibb
I fear that we are straying slightly from new clause 3 and the group of amendments, but I believe that the Government’s economic strategy is right. It is a judgment call, but one that I believe has been proven right by the fact that the Government’s borrowing cost for 10-year bonds, as they seek to fund the deficit, which has been reduced by a quarter over the last two and a half years, is 1.8%. That is a tribute to the difficult judgments Treasury Ministers have made, and they should be given credit for their achievements. As a consequence, however, there have had to be increases in the contribution rates of active members of public service pension schemes. In addition, Lord Hutton believes that even if there was not a deficit, major reform of public service pensions would still be needed, if they are to be sustainable in the long run.
The Government’s commitment to sustainable public finances is of more concrete value than a proposal from a party with a track record of undermining the public finances. Ultimately, in a pay-as-you-go public service pension scheme, the quality and assurance that members want will depend on the ability of the Government to maintain stable public finances.
John McDonnell
I rise to speak to the amendments in my name: amendments 4, 7 and 8.
Throughout the progress of the Bill, I have tabled a series of amendments with a central thrust—the same one raised by my hon. Friend the Member for Nottingham East (Chris Leslie)—which is about trust. The amendments would ensure that at each stage and for each grouping, there would be full consultation with and the full involvement of representatives of employees and scheme members. I apologise: I should have declared an interest as a member of the local government pension scheme. Nevertheless, each amendment would address the issue of confidence and secure a recognition, as promised by the Government, that employees will be fully consulted and represented and kept fully informed of changes to their pension schemes, which has not been the case up to now.
It is worth remembering that the pension deal was not a deal for a large number of unions; for more than 1 million workers, it was imposed. The Northern Ireland Public Service Alliance, the National Union of Teachers, the Public and Commercial Services Union, the Prison Officers Association, the University and College Union and Unite did not agree to the deal or the heads of agreement; instead, the deal was imposed upon them. There is deep scepticism amongst workers, and if Government Members do not recognise that, they are not living in the real world, or encountering the same constituents I am, or receiving the letters I get from police officers, teachers and local government workers across the piece.
Even organisations that signed up to the heads of the deal are now expressing concerns. The British Medical Association, whose briefing Members will have received, thought it had signed up to an assurance from the Government, which I remember being made, that there would be a 25-year guarantee of no change around a number of protected issues. The Government said:
“This means that no changes to scheme design, benefits or contribution rates should be necessary for 25 years outside of the processes agreed for the cost cap. To give substance to this, the Government intends to include provisions on the face of the forthcoming Public Service Pensions Bill to ensure a high bar is set for future Governments to change the design of the schemes. The Chief Secretary to the Treasury will also give a commitment to Parliament of no more reform for 25 years.”
Yet clause 3, described in briefings by the Royal College of Nursing, the BMA and others as a Henry VIII clause, gives extraordinary powers to the Secretary of State to return to these issues, introduce further reforms and make fairly significant changes through statutory instruments, not primary legislation to be debated in the House. Consequently, there is a lack of confidence in the words of Ministers, particularly given that, as my hon. Friend the Member for Nottingham East said, those words are contradictory, not just across Government, but within the same Department. It is extraordinary.
Others also signed the deal. The RCN wrote to us explaining its concerns:
“Clause 3(3) is a Henry VIII clause which enables the Government to amend the Act at a later date through the use of secondary legislation. The RCN is concerned that, as a result, the Bill gives powers to the UK Government to amend and make retrospective provisions to any other related legislation without sufficient member consultation or scrutiny by Parliament.”
I also received a letter from Mary Bousted of the Association of Teachers and Lecturers, which also signed up to the deal. She wrote:
“As you may know, the ATL accepted the Government’s proposed final agreement on changes to the teachers pension scheme as the best that could be achieved through negotiations. We now find the Bill contains additional elements that go beyond what was agreed in March 2012 and believe that the proposed changes could adversely and unfairly affect the quality of education that the nation’s children receive in our schools.”
Chris Leslie
While I do not disagree about the bravery of those in the professions listed in the Bill, I counsel the hon. Gentleman against taking the prescriptive view that only those categories of employee are engaged in brave acts or in risky professions. I accept that there are risks that go beyond the question of physicality, but there are other professions where the distinction is not as black and white as the Bill makes out. Mental health workers often take significant risks in the course of their duties, for example if they have to restrain patients. Prison officers are often in dangerous situations. Paramedics, hospital porters and others also have very physically demanding duties. There are gradations of physicality and risk.
My point is that there is an anomaly in the legislation, because one cannot be quite as prescriptive as to set out in the Bill particular classes of job and suddenly regard all others as not involving the same level of physicality or risk. I will not say that there are 50 shades of grey, but there are certainly gradations.
Mr Gibb
Perhaps I may help the hon. Gentleman to address the conundrum with which he is challenging himself by referring him to the Hutton report, which the Bill is implementing. I refer him to one of the shaded boxes that I know he is very keen on. Recommendation 14 states that the exception to linking the normal pension age to the state pension age should be
“in the case of the uniformed services where the Normal Pension Age should be set to reflect the unique characteristics of the work involved.”
Hutton also states that the uniformed services are in a different position because their current pension age is 55 or less. That is another key reason why there is a different normal pension age for the uniformed services, which Hutton specifically lists as
“the armed forces, police and firefighters”.
Chris Leslie
I do not deny the important role that is played by the professions listed in the Bill. What I am saying is that it is not as simple as saying that all other professions should therefore be exempt from considerations about the physicality of their endeavours. One could argue that prison officers, being a sort of uniformed service, have cause to have such protections. My point is that it is inconsistent and unfair to make exceptions for some workers in physical roles and not others. It is by no means clear that 60 is the appropriate age for all firefighters, police and Army personnel, when some of them undertake such demanding physical activity. There is no room in the Bill to make further exceptions to the state pension age link or to respond to any review that makes recommendations about the appropriate retirement age for firefighters, the police or Army personnel. Members who served on the Committee will recall that we cited the working longer review in the national health service, which was set up by Government Members. There is also an ongoing review of the working age in the fire service.
Chris Leslie
If only we had been talking about jockeys when the Under-Secretary of State for Skills, the hon. Member for West Suffolk (Matthew Hancock) was in the Chamber; he would have found that helpful intervention most interesting. My respect for the hon. Member for Finchley and Golders Green (Mike Freer) grows by the minute and I am grateful for that interjection.
The key point is whether the reviews can find their course into effect. In Committee, the Minister repeatedly stressed that the working longer review for NHS staff was
“not in any way looking at the link between the normal pension age and the state one.”
Instead he said that it was
“considering the implications of working longer for NHS staff,”––[Official Report, Public Service Pensions Public Bill Committee, 13 November 2012; c. 327-28.]
That seems a slightly contradictory statement. Linking the normal pension age to the state pension age means that people will work longer, and therefore the review will look at the effect on the state pension age link for NHS workers.
The terms contained in the Department of Health document “Reforming the NHS Pension Scheme for England and Wales” include the following objectives for the working longer review:
“Identify any categories of worker for whom an increase in Normal Pension Age would be a particular challenge in respect of safe and effective service delivery and consider how this may be addressed;
Identify any categories of worker for whom an increase in Normal Pension Age would be a particular challenge in respect of their health and wellbeing.”
If that NHS review concludes that a higher normal pension age is inappropriate for certain categories of worker, either because working longer would be physically damaging or because it could lead to unsafe practices in the NHS, the current Bill would not allow those workers to be exempt from the state pension age link in clause 9. I therefore contend that it is irresponsible to make legislation before the findings of the Government’s review are published, without allowing the legislation to accommodate some or all of that review’s recommendations. Given that the working longer review was a key component of the agreement reached between health service workers and their employers, it is unfair to fetter the recommendations that the review can realistically make. It is similarly inappropriate and unfair to fix the retirement age for firefighters at 60 when the working longer review in the fire service is yet to report.
This is an incredibly important issue. I accept that we must note that the cost-cap mechanism in the Bill would ensure that any extra costs of the extra exemptions to the state pension age link will need to be met by the scheme—the Opposition are not saying that the additional costs should fall on the shoulders of the taxpayer—but bearing that in mind and the fact that the clause does not require the Secretary of State to make exemptions, the amendment simply allows flexibility. I cannot see how the Government can object to it.
Mr Gibb
Before hon. Members speak to other amendments in the group, may I refer the hon. Gentleman to the proposed final agreements? I have in front of me the one that applies to teachers pensions, but it is similar to other schemes. It states:
“Actuarially fair early/late retirement factors on a cost-neutral basis”
will apply in the agreement. That means that teachers can take early retirement if they wish. If the normal pension age is above 65, they will have an early retirement factor of 3% per year for up to three years. People can therefore take early retirement with a small actuarial reduction in the pension. That deals with the problems the hon. Gentleman describes.
Chris Leslie
With the greatest respect, that does not deal with the problems, because there is a difference between the early retirement benefits to which an employee is entitled and those they can get at the normal pension age as defined in scheme regulations. The Government set up working groups and committees in the NHS, fire services and services throughout the country. Those groups have been given terms of reference, but now discover that they cannot implement their findings because of a drafting anomaly in this Bill. All the Opposition are asking is that the Government think again about how the scheme capability reviews come to fruition. This ought not to be a partisan point. I am simply seeking to ensure that we have flexibility in the legislation.
Others will want to speak to the amendments in the group that they have tabled, but I strongly urge the House to support amendment 16.
Ian Lavery
The hon. Lady makes a powerful point. Prison officers in Northern Ireland have had a particular problem with security for decades. They have the same security problem here, although it is definitely not as bad as the problem experienced during the troubles in Northern Ireland. Nevertheless, prison officers put their neck on the block at all times. I have been out socialising with members of the Prison Officers Association when they have been approached by ex-convicts. They were out having a decent time, and those people were coming up to them. They addressed the prison officers very politely, but I have to say that they looked rather strange. I would not want them coming to talk to me. We need to look at the security of the people who work in the Prison Service. As I have said, we need to protect those people.
The hon. Member for Finchley and Golders Green said that members of the police force were highly trained, and that they needed shields and other forms of protection. He said that they were out on the front line when there were problems, and that they would get stuck in to try to resolve them. Prison officers and psychiatric nurses do that on almost a daily basis, and it is not very pleasant for them. There are also problems in the Prison Service and the health service, when prisoners are not only violent but spit in people’s faces and when blood is thrown at people’s faces causing all sorts of distress.
It is common sense to try to ensure that prison officers and psychiatric nurses are added as part of the exemption under clause 9(2), just as we rightly wish to protect police officers in their daily duties. Our brave armed forces and our firefighters are other examples, so we should look to protect the prison officers and psychiatric nurses, whose duty is solely to protect us, in the same way.
I will not press my amendment to the vote, as I do not want to divide the House. Should I say that we are too conciliatory on this issue, and should I say that Members of all parties seem to agree—albeit to different degrees—on it? Rather than split the House on it, I gently ask the Minister at least to consider the amendment to ensure that psychiatric nurses and prison officers are included in the provisions of clause 9(2).
Mr Gibb
I shall make a brief contribution and oppose amendment 2, tabled by Opposition Members, which would leave out lines 22 and 23 of clause 9— essentially subsection (1)(a) and (b)—and insert in its place
“65, or current pension scheme age if lower”.
That would drive a coach and horses in many ways through one of the Bill’s key provisions, which is to have a link between the normal pension age and the state pension age. I think that is an important way to minimise the risk of longevity to the taxpayer.
Paragraph 4.5 of the final report of Lord Hutton says:
“It is generally assumed that longevity will continue to increase in the future, but there is significant uncertainty about the scale of any future changes.”
He goes on to say:
“Increases in life expectancy have historically been… underestimated”
when the calculations have been made.
In paragraph 1.2 on page 22, Hutton says:
“As a result”
of this underestimation,
“pension costs…have been much higher than originally expected.”
He cites the example of a female pensioner in the NHS scheme who would retire at the age of 60 in 2010, and says that she would be expected to spend around 45% of her adult life in retirement, compared with about 30% for pensioners who retired in the 1950s. That is the issue that Hutton is trying to address. Spending 45% of one’s life in retirement is simply not sustainable for any pension scheme—even one backed up by the vast coffers of the state sector.
Page 9 of the Hutton report states:
“The main risks within defined benefit schemes are: investment; inflation; salary”—
because salaries can be put up without actuaries being aware of the rises—
“and longevity risk. While government, as a large employer, is capable of bearing the majority of the risk associated with pension saving…present schemes involve too much risk for government and the taxpayer.”
He went on to say:
“There should be a fairer sharing of risk between government”
and scheme members. It is that risk that amendment 2 would push back to the taxpayer.
Hutton says that the increases in life expectancy have been recognised within the state pension scheme, and he therefore recommends that we should follow that lead when it comes to helping members bear pre-retirement longevity risk. That is why he recommends the link between the state retirement pension age and the normal pension age. Recommendation 11—it is in a shaded box, which will please the shadow Minister—states:
“The Government should increase the member’s Normal Pension Age in the new schemes so that it is in line with their State Pension Age.”
Lord Hutton also says:
“The introduction of the link to the State Pension Age, which will initially move Normal Pension Ages to 65, will move the proportion of adult life in retirement for public service pension scheme members back to about a third: roughly where it was in the 1980s. The current State Pension Age of 65 is already the Normal Pension Age for most new entrants to public service pension schemes.”
Teachers, for instance, have a 2007 scheme and a pre-2007 scheme. For those who joined before 2007 the normal pension age is 60, while for those who joined after that date it is 65. Lord Hutton goes on to say:
“In the long term, the timetabled increases in State Pension Age should help to keep the proportion of adult life in retirement for members around this level”—
that is, a third—
“on current life expectancy projections.”
I believe that amendment 2 is a mistake, and would increase risk disproportionately for the taxpayer.
Sajid Javid
The hon. Lady spoke passionately in the debate about this issue and I am sorry that we ran out of time to deal with it. I will respond to it now, but I am sure that she will not be surprised to learn that I cannot give that commitment. There are exceptions to the link to the state retirement age for certain services—Lord Hutton mentioned the police, firemen and others—and that is what we have taken on board. If she will allow me, I will move on.
As Lord Hutton and others have sought, we have committed to review the appropriateness of that link as changes are made to the state pension age in the future. That commitment is important in ensuring not only that the link continues to remain appropriate in terms of members’ capacity to work, but that the costs of schemes are appropriately managed.
The Bill will introduce stronger governance, administration and transparency frameworks so that Parliament, the public and scheme members can be assured that the schemes are being run and managed properly. Taken together, the key changes will put public service pensions back on to an affordable and sustainable footing—a sound foundation that can prevail for the next 25 years, a deal that can endure for a generation.
Throughout the Committee’s consideration of the Bill and earlier in this Chamber, it has been clear that both sides recognise the urgent case for reform. The Opposition have set out their support on occasion. It is, of course, fair to say that there remain a few areas—we have discussed some today—where matters are not yet resolved to all parties’ satisfaction. However, I suggest that those areas of disagreement are few and do not detract in any way from what the Government are seeking to achieve with the reforms. We have committed to considering further how members and their representatives are engaged in the administration and future change to their schemes.
Mr Gibb
I am listening carefully to my hon. Friend. From the evidence session, he will be aware that even Kevin Courtney, deputy general secretary of the National Union of Teachers, which has not signed up to the agreement, said:
“We are strongly advising our members to opt in and stay with the pension scheme. It will still be a good scheme”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 205, Q115.]—
even after the reforms.
Sajid Javid
My hon. Friend makes an excellent point. I thank him for the excellent contributions he made in Committee and the tremendous experience he brought to it. His point about opt-in is absolutely right. We all heard it in the evidence session. There has been barely any change to participation in public sector pensions, despite some of the changes the Government have already introduced.
We have committed to ensuring that scheme regulations provide for members to be regularly informed of their pension benefits, so that they understand their value and can better plan for their retirement.
Mr Gibb
I support the Bill, because I want to see good-quality defined benefit pensions maintained in the public sector, even at a time when the private sector is experiencing a wholesale shift away from final salary and defined benefit schemes. In the mid-1990s, 5.5 million private sector employees were in some form of defined benefit scheme, yet membership of such schemes had fallen to 2.1 million by 2010, with only 1 million in schemes that were still open to the public. Longevity, low stock market returns and accounting rules have been blamed for the switch, but the last Labour Government’s decision to end the repayment of dividend tax credits also had a huge impact, taking £3.5 billion a year from the income of the pension funds. From a total asset value of £650 billion, that represents a significant drop in income.
Treasury papers from 1997 that were published in 2007 under the Freedom of Information Act revealed civil service concerns about the impact of that decision on private sector pensions and a fear that it might accelerate the shift towards defined contribution schemes. The Labour Government believed that the stock market would continue to rise, and therefore make up any loss to pension funds caused by the loss of the dividend tax credits. The FTSE index stood at 6,900 in 1999, whereas last night it stood at 5,876. It is still more than 1,000 points below its peak in 1999.
I believe that the proposed final agreement negotiated by the Government will result in public service pensions that are still the best available. They will be defined benefit pensions and will still be regarded as good schemes by the trade unions, even those that have still to accept the negotiated settlement. Chris Keates, the general secretary of NASUWT, has said:
“Our advice to our members…has to be that they must opt into the scheme.”
This is a very good Bill. It reflects a good outcome to the negotiations on the reform of public service pensions, and it means that the public sector can be assured of good-quality defined benefit pension schemes that are sustainable in the long run and that address the main concerns raised in Lord Hutton’s report.
Oral Answers to Questions
Nick Gibb Excerpts(12 years ago)
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Greg Clark
I am amazed that the hon. Gentleman has the temerity to talk about debt when the legacy of the previous Government has made it clear that it has been the worst in the G7. The Office for Budget Responsibility has said that the changes in Government spending have directly added to gross domestic product, and have helped matters, rather than subtract from it.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
Government borrowing will be higher when multinational companies pay royalties, management charges and technical licence fees between group companies and across borders, which will depress taxable profits in the UK and shift them abroad. Ensuring such payments properly reflect the service or technical knowledge provided is a complex transfer pricing issue, so does the Minister share my view that tackling abuses in that area is not about the number of HMRC staff but about ensuring that they have the right expertise and experience?
Greg Clark
My hon. Friend is absolutely right. It is crucial that the right skills are there, but we have taken a role internationally in leading this. In fact, in Mexico, the Chancellor is leading the way across the world in making sure that we have a co-ordinated regime.