Civil Service Compensation Scheme

Peter Dowd Excerpts

Friday 2nd December 2016 Commons Chamber

[Chris Stephens (Glasgow South West) (SNP)]

Welcome, Madam Deputy Speaker, to part 2 of the SNP Partick Thistle supporters’ day. Part 1 was led superbly by my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black), who gave a tour de force.

I want to discuss the civil service compensation scheme. May I take this opportunity to refer to my entry in the Register of Members’ Financial Interests and to my position as chair of the Public and Commercial Services Union parliamentary group? I also thank the House staff for their excellent briefing on the issue, which I recommend to all Members.

We are finally getting to discuss this issue in the Chamber. After at least three business questions, a point of order, early-day motion 310, which, as of yesterday, has been signed by 109 Members, including representatives from seven political parties and two independent Members, and many requests for a debate, it is a pleasure finally to represent the voice of those who contribute to our public services and who find themselves, through no fault of their own, losing out financially.

On 22 September, the Government set out their formal response to the consultation on the civil service compensation scheme, including proposals that radically reduce that compensation. The issue will affect thousands of loyal civil servants, whose jobs are now at risk as departmental budgets continue to be cut and hundreds of Government offices are earmarked for closure. Areas affected include Her Majesty’s Revenue and Customs and the Equality and Human Rights Commission, which are experiencing cuts.

[Peter Dowd (Bootle) (Lab)]

There are thousands of civil servants in my constituency, 750 of whom are residents. Is the hon. Gentleman aware of suggestions that civil service managers are encouraging staff to take redundancy on current compensation terms to help with the downsizing of the civil service, or lose out under the new proposals?

[Chris Stephens]

The hon. Gentleman is correct to highlight that issue, because that is exactly what is happening. It takes away from our efforts, because we are both opposed to HMRC office closures, but the Government are forcing people to go on older terms rather than the new, drastically reduced terms.

For the benefit of those watching these proceedings, let me provide some background. The civil service compensation scheme is a statutory scheme that provides compensation for loss of office for reasons including compulsory and voluntary redundancy. In July 2009, the then Labour Government set out proposals to reform the scheme in order to control costs and to address elements that may be age-discriminatory. In broad terms, the existing scheme provided severance for those under 50 and early retirement for those aged 50 to 60. The civil service unions opposed the proposed changes on the grounds that they represented a reduction in terms for most members; that they did not adequately compensate those faced with compulsory redundancy; and that they compared unfavourably with other public sector schemes.

In February 2010, the Cabinet Office announced a modified set of proposals on which it had reached agreement with five of the six civil service unions. That agreement limited the maximum payment on compulsory redundancy to three years’ pay, where that led to a payment of no more than £60,000, and to two years’ pay for high earners. Additional protection was provided for those who were closest to retirement. The civil service compensation scheme was amended accordingly. The largest trade union, the Public and Commercial Services Union, opposed the changes and applied for a judicial review. On 11 May, the High Court ruled in favour of PCS and the amendments to the scheme were quashed, with the exception of certain changes designed to address elements that were considered to be age discriminatory.

On 6 July that year, the Conservative-Liberal Democrat coalition Government said that they would legislate to cap payments at 12 months for compulsory redundancy and 15 months for voluntary redundancy. They hoped to negotiate a permanent and sustainable agreement with the civil service unions, at which point the caps would be withdrawn. The trade unions objected to the proposed caps because they were less than those in other public sector schemes, where a limit of two years’ pay was normal.

The current announcement about changes to the civil service compensation scheme comes just five and a half years after the then Minister Francis Maude imposed changes to the civil service compensation scheme in December 2010, promising that those changes were fair, affordable and right for the long term. It is hard to see what has changed so radically since then to justify this fresh attack on civil servants’ terms and conditions.

The changes can be summarised as follows. There is currently one month’s salary per year of service, but after the proposed changes there will be three weeks’ salary per year of service. There is a cap of 21 months’ salary for voluntary redundancy and voluntary exit, but there would be a cap of 18 months’ salary for voluntary redundancy and 15 months’ salary for voluntary exit if the trade unions were not to accept the offer that has been put to them. There is a cap of 12 months’ salary for compulsory redundancy, but the Government propose to change that to nine months’ salary. There is employer-funded access to the early pension option when individuals reached the minimum pension age of 50, but access to that option will now start at age 55.

The Government propose to cut the cash compensation payment, which means that they will reduce the rate at which compensation accrues for each year of service from one month’s salary, as it is currently, to three weeks’ salary. That will affect those with short and medium service, cutting redundancy payments by 25%. The Government also propose reducing the cap on payments, as I have said, which will drastically reduce payments, for some by as much as 30%.

In addition to changes to compensation payments, the Government propose restricting employer-funded access to early pension. That option is currently given to staff in voluntary redundancy situations who have reached minimum retirement age, which is 50 in the classic and premium schemes and 55 in the nuvos and alpha schemes. Staff are offered a compensation payment based on their salary and length of service, or they are offered the option to take their pension, with the employer buying out any actuarial reduction resulting from drawing the pension early. Cabinet Office statistics show that the average value of compensation for the 50 to 54 age group will fall dramatically, by more than 50%, under the new proposals. That demonstrates the profound impact that the reform could have.

Early access to pension has been a popular alternative to the cash lump sum compensation payment for those with long service who are nearing retirement, because it provides a level of security. That is important, because it has been shown that those aged over 50 often find it harder to get a new job, and that if they do, it may be for fewer hours and/or lower pay. We are all concerned, therefore, that restricting that option will create hardship and distress. In some cases, it will result in people relying on benefit payments.

[Chris Stephens]

My hon. Friend makes an excellent point. It is clear that the civil service is reducing. Her Majesty’s Revenue and Customs, for example, is now half the size it was 10 years ago, which is important to note when it is dealing with tax avoidance and all those other issues.

[Peter Dowd]

In the light of what the hon. Gentleman has said, is this policy not just another kick in the teeth to loyal civil service staff? Over the past few years, they have had substantial pay restraint, huge job cuts and a tax on pensions, on top of the previous changes to the compensation scheme, which he mentioned a few moments ago.

[Chris Stephens]

I agree with the hon. Gentleman. He is being moderate when he says that the policy is a kick in the teeth. It certainly is, and we need to remember that these civil servants deliver precious public services every day, and they deserve to be treated better.

--- Later in debate ---

[The Deputy Leader of the House of Commons (Michael Ellis)]

I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this debate, and I welcome the opportunity to respond to his concerns. I know that, in his role as chair of the PCS parliamentary group, he takes a close interest, as do I, in matters relating to the civil service. I, too, greatly value and appreciate the work of the civil service. Now more than ever, the work of the civil service is vital to delivering the best service to the public and to allowing us to meet the challenges and opportunities that lie ahead.

To provide the best service for the public, the civil service needs to be ready to meet challenges and opportunities. The Government must therefore ensure that the civil service can recruit and retain the best people, but we must also ensure that there is an efficient and cost-effective compensation scheme in place to support civil servants when exits are needed.

As the hon. Gentleman set out, important steps towards this goal were taken during the last Parliament. My noble Friend Lord Maude, in his then role as 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, when my noble Friend Lord Maude set out his hope and intention that it would be a fair settlement for the long term.

In the years since 2010, however, it has become apparent to the Government that the reforms did not fully deliver on their aims. For example, we were concerned that the 2010 compensation scheme provisions for early access to pensions were no longer appropriate. These provisions allowed staff aged as young as 50 to retire and draw all their civil service pension without any reduction for early payment. This was often very expensive for the employer, and it is increasingly out of line with the Government’s wider aim of responding to very welcome increases in longevity by encouraging longer working lives.

More widely, the Government’s view was that, even after the 2010 reforms, the civil service compensation scheme was simply too expensive, when considered against the background of the current economic situation. We of course recognise the need to provide good financial support to bridge the gap into alternative employment or retirement—we of course recognise that—but the Government also have a duty to balance that against the wider financial situation and the interests of the taxpayers who ultimately fund the scheme.

The 2010 compensation scheme terms were becoming increasingly out of line with those the Government believe should be available more broadly across the public sector. For example, we have made it clear that we do not believe it is appropriate to pay six-figure compensation payments within the public sector, and we are legislating to put a stop to that. We are also embarking on reforms to compensation schemes across the main public sector workforces, so it is right that the civil service scheme is consistent with those wider reforms. For all those reasons, it was clear that further reform of the civil service compensation scheme was needed.

[Peter Dowd]

With public services under absolute stress and strain—many are at breaking point—what is modern and efficient about cutting wages, numbers and training, and massive negative restructuring, in the light of the chaos in the civil service that is about to unfold with Brexit?

[Michael Ellis]

The hon. Gentleman should not underestimate the skills of the civil service. In fact, the challenges and opportunities that lie ahead can and will be adequately dealt with by our excellent civil service, which we value greatly.