Civil Service Compensation Scheme

Oliver Dowden Excerpts

Tuesday 19th March 2019 Westminster Hall

[The Parliamentary Secretary, Cabinet Office (Oliver Dowden)]

It is a pleasure to serve under your chairmanship, Ms Buck. I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this debate, and welcome the opportunity to respond to the points he has made.

Further to the point raised by the hon. Member for City of Chester (Christian Matheson), I want to put on the record right from the beginning that of course the trade unions have a valuable and important part to play in debates around civil service terms and conditions. Indeed, I have met them frequently—both PCS and the other principal unions, Prospect and FDA, as well as GMB and others.

I know that in his role as chair of the PCS parliamentary group, the hon. Member for Glasgow South West takes a close interest in these matters, and I pay tribute to him. Whatever our political differences, I know he is a strong and effective advocate for the trade unions and for PCS, and he has demonstrated that again today. In my experience both as a Minister in the Cabinet Office and in my previous time working at 10 Downing Street, I have worked with some of the most committed, talented and hardworking public servants in our country.

At a time when the nation faces significant challenges, those public servants’ work is more important than ever, so I am happy to join hon. Members, in particular the hon. Members for Coatbridge, Chryston and Bellshill (Hugh Gaffney) and for Edinburgh East (Tommy Sheppard) in paying tribute to them. As the hon. Member for Edinburgh East said, we need their skills more than ever at this time, as we face Brexit.

I certainly share hon. Members’ belief that all civil servants should be rewarded for the work they do, so that we can attract the best and brightest into the heart of Government. This debate relates principally to the compensation package available to civil servants when they are made redundant, but since hon. Members, particularly the hon. Member for City of Chester, have raised the question of pay I want to address that briefly before addressing the rest of my remarks to the substance of the debate. The hon. Gentleman raised the point about the Government’s fiscal position and the spending backdrop against which we are making these decisions. I am glad he has recognised that the Government have made considerable progress in reducing the deficit. He is right that we have made a lot of progress: the deficit is down by four fifths since 2010, from about 10% of GDP to about 2%. None the less, the Government are still borrowing more than £40 billion every single year, so the pressure has not gone away and we must still take some difficult decisions.

The reason we must take those difficult decisions is that we spent over £50 billion on debt interest last year. That is more than we spend on schools, and more than we spend on our police and armed forces combined. There is still a strong countervailing pressure from the need to continue to bear down on expenditure. Pay forms a large part of Government expenditure, so pay has to be part of that mix.

The overall approach taken to pay is that the Chief Secretary to the Treasury has made it clear that the overall cap has been lifted, but given the financial constraints within which we are operating, which is what the chief executive of the civil service was alluding to, it remains the case that central Government Departments have pencilled in—in fact, penned in—their funding. It is very clear from the Treasury how much budget has been allocated for pay rises, and in the coming financial year that is 1%.

That does not mean that Departments cannot go beyond that, but if they do, they must find efficiency savings to do so. In respect of all delegated levels of pay—that is to say, below the senior civil service—the process for determining pay awards is that it is up to each different Department to determine its pay award.

[Chris Stephens]

I am hoping to secure a separate debate on civil service pay, but since we have touched on it, I am sure the Minister remembers, as he was on the Front Bench, that we debated this last year and he agreed to look at the situation of having 200 separate pay negotiations across UK Government Departments. I think he is sympathetic to my view that that is a bit foolish. Given that permanent secretaries have agreed a joint position, as I understand it, of 1% to 1.5% across Departments, is it not better to have one pay negotiation for the whole civil service?

[Oliver Dowden]

I should say from the outset that no decision has been taken or agreed by permanent secretaries. There is a very clear process for this, which is that for delegated pay, which is that for civil servants below senior civil service level, the framework is set by the Cabinet Office in conjunction with the Treasury and then it is up to each individual Department to make individual decisions.

On the point about co-ordination, the Chancellor of the Duchy of Lancaster and I want to ensure that we have a proper process of engagement with the principal trade unions as we set the delegated framework, but it is important to say that that is not a pay negotiation. We need to understand their position, but the individual pay negotiation must be done by each individual Department. I think having each Department make its individual determination is the right approach, but I am keen to ensure that we engage with the trade unions and others as we consider the overall approach to delegated pay. As I understand it, correspondence is ongoing with the trade unions on the best way of doing that.

Beyond the delegated framework, there is also potential for further efficiency savings to allow for higher pay rises. I have signed them off as a responsible Minister; for example, the Foreign Office recently agreed a two-year pay deal funded by efficiencies, allowing for a 6.4% average uplift for non-SCS staff. It is possible, through smarter ways of working, to fund higher pay awards. I hope that gives hon. Members an overall sense of the approach the Government take to pay.

[Christian Matheson]

Can the Minister describe some of the smarter ways of working that helped to encourage the signing off of that particular pay rise?

[Ms Karen Buck (in the Chair)]

Order. May I encourage the Minister not to stray too far from the subject matter of the debate in responding to that intervention?

[Oliver Dowden]

Thank you, Ms Buck; I will take that injunction seriously and, if I may, I will write to the hon. Gentleman to set out the policy in more detail, so that I do not detain Members any longer on this point. Following your lead, Ms Buck, I turn to the substance of the debate.

The Government have a responsibility to ensure that the civil service is both efficient and cost-effective, and that includes the compensation scheme to support civil servants when exits are necessary—the hon. Member for Glasgow South West outlined the overall history. Important steps towards this goal were taken in 2010 when Lord Maude, then Minister for the Cabinet Office, introduced important reforms to modernise redundancy arrangements in the civil service. A revised civil service compensation scheme was launched in December 2010; at that time, Lord Maude set out his hope and intention that it would be a fair settlement for the long term. I fully acknowledge that point.

However—this is the key point—over the years since 2010, it has become apparent to the Government that those reforms did not fully deliver on their aims. If hon. Members will allow me, I will set out the reasons for that. Part of the rationale for the 2010 reforms was cost savings, and it has become clear that the expected cost savings did not fully materialise. The average compensation entitlement under the 2010 scheme is considerably higher than was intended when the scheme was first introduced. In 2010, the average compensation entitlement for voluntary exits and voluntary redundancies was expected to be £33,754, but by 2017 it was estimated to be £40,513.

More widely, it has become clear that other aspects of the scheme were not appropriate. To give an example, the compensation scheme provisions for early access to pensions for staff aged as young as 50 enable them to retire and draw all of their civil service pension without a reduction for early payment. That is often very expensive for the employer and is increasingly out of line with the Government’s wider aim of encouraging longer working lives.

In recognition of those concerns, the Government introduced new civil service compensation scheme terms in 2016, which, as the hon. Member for Glasgow South West highlighted, were challenged by way of judicial review in 2017. It is important to point out that the court accepted the Government’s reasons for making the reforms, but it found that the Government had not fully met their obligations with regard to how the consultation process was carried out. The 2016 terms were accordingly struck down and the 2010 terms reinstated.

Although the Government of course accepted the court’s judgment—as we must—we still believe that the 2010 compensation scheme reforms have not fully met their objectives, and that there remain good reasons for reforming the scheme. Accordingly, we launched a new consultation on reforming the civil service compensation scheme in September 2017, which set out the Government’s objectives. Principally, the objectives are to align with the principles of the compensation scheme reform expected across the wider public sector; to support employers in reshaping and restructuring their workforces to ensure that they have the skills required for the future; to create significant savings on the cost of exits and ensure the appropriate use of taxpayers’ money; to ensure that any early access to pensions remains appropriate; to ensure that efficiency compensation payments are appropriate for the modern workplace; to support the flexible use of voluntary exits; and, where possible, to implement a set of reforms that are agreed by the trade unions.

The consultation also set out a proposed new set of civil service compensation scheme terms that the Government believe would deliver on those objectives. In summary, those are a standard tariff of three weeks’ salary for a year of service, voluntary exit and redundancy payments of up to 15 months’ salary, compulsory redundancy payments of up to nine months’ salary, employer-funded pension top-up payments allowed only from the age of 55, increasing in line with the state pension age, and that the efficiency compensation tariff should align with the compulsory redundancy tariff.

The Government took the view that those terms would meet the objectives set out in the consultation document, and considered that the scheme would offer a good level of support to civil servants to bridge the gap until they found new employment or entered retirement, and would provide the flexibility needed to support employers in reshaping and restructuring their workforces to meet the challenges that they will face. It will also be fair to taxpayers, who ultimately fund the cost of civil service exit payments, as Members know.

I recognise that this is an area in which trade unions rightly have strong views. The Government are therefore carefully consulting with unions with the aim of reaching an agreement if at all possible. The consultation has already stretched for more than 18 months—a very long period—and has included numerous meetings between my officials and union representatives and between my predecessor and union representatives, and I myself have now held two rounds of meetings with union representatives, which have been extremely useful in helping me to understand the unions’ positions on the proposed reforms.

I am pleased to say that throughout the process PCS and all the other unions engaged openly and constructively with the consultation, notwithstanding their overarching position, which I acknowledge, that the Government should not be reforming the compensation scheme. I place on the record my thanks to all the unions—Prospect, FDA and PCS—for their work in engaging constructively with the process.

As well as engagement through meetings, unions have also put forward detailed counter-proposals setting out their alternative vision of what a reformed scheme should look like. As has been highlighted by hon. Members—particularly the hon. Member for Glasgow South West—those proposals are detailed and well thought through and reflect the considerable effort that has clearly gone into their preparation. Again, I thank the unions for that constructive engagement.

As a result of the meetings and counter-proposals, I am left in no doubt as to the unions’ positions. I understand the areas that they consider priorities for reform, their concerns about the Government’s proposals and their preferred alternative reforms. Contributions to the debate have further increased my understanding of the position of PCS and the other unions it is working with on this consultation. I am very grateful to hon. Members for their contributions.

[Chris Stephens]

The Minister has been most generous in giving way. If the trade unions put forward a counter-proposal that met the Government’s expected savings target, would the Government be more sympathetic? Does he understand the principles behind what the trade unions have put forward, including looking after those who are lower paid rather than those at the top?

[Oliver Dowden]

I certainly understand what the trade unions are trying to put forward and I completely understand their concerns about lower-paid workers. However, it should be noted that there is already provision for a minimum payment that covers lower-paid workers, although a discussion about the level at which to set that forms part of the consultation.

I do not want to pre-empt my final determination, but I am concerned about the scale of the cost savings. At the moment, I still have significant questions about whether what has been proposed by the trade unions meets the cost-saving requirements of the reform that we have set out. That is one principal consideration that will affect my final determination. However, I am very much conscious of the arguments that have been clearly put forward by the trade unions on these points, particularly on help for the lower-paid.

As I have said in recent meetings with union representatives, I am now genuinely carefully considering the counter-proposals that all unions have made. I remain keen to reach agreement with the unions if at all possible, and I am considering whether the Government’s proposals can be adjusted to help to facilitate that, while remaining consistent with our overall objectives for reform. As Members have noted, I intend to make a decision on any amendments to the Government’s proposals shortly. Following that, my intention is then for a period of further consultation with the unions, in advance of the Government’s making a formal offer of revised terms to the unions in the hope that they are accepted.

I conclude by repeating that the Government greatly value the work of civil servants. We are keen to reach agreement on a set of compensation scheme terms. I believe that the consultation proposals are fair and provide a good level of support to civil servants, while recognising the need for continued reforms and savings. I once again thank hon. Members for their contributions and I hope I have set out the Government’s approach clearly.