Public Service Pensions

Rachel Reeves Excerpts

Tuesday 20th December 2011 Commons Chamber

[Danny Alexander]

Opposition Members never have any answers, so they chunter from the sidelines instead.

At the same time, by offering transferred staff the right to remain members of the public service scheme, we are no longer requiring private, voluntary and social enterprise providers to take on the risks of defined benefit that deter many from bidding for contracts in the first place. Replacing so-called bulk transfers of pensions with continued access to public sector schemes means that we continue to protect public service workers’ pensions, manage the risk to the taxpayer and forge ahead with our ambitious plans for public service reform.

I have made the commitment that these reforms will be sustained for at least 25 years. The Government intend to include provisions on the face of the forthcoming public service pensions Bill to ensure that a high bar is set for future Governments to change the design of the schemes.

What does this deal really mean? For our work force, it means that they will continue to receive the best-quality pensions available in this country—and rightly so. In the private sector, these pensions could be bought only at a cost of one third of salary. This is a proper reward for a lifetime’s commitment to serving the public. The new scheme is fairer to women too. By moving to career average, we will give a better pension in future to those, mainly women, who have low or steady salaries throughout their careers.

The Government have been clear that because we are living longer, public service workers must work a bit longer and pay a little more for their pensions. But in return we have also made an important commitment—that at retirement, those on low and middle incomes will get at least as good a pension as they do now. I can confirm today that we have met that commitment. For people who depend on our public services, it means that most unions will be asking their executives to lift the threat of further strike action while work is done to conclude the final agreement, and I hope that the remaining unions will do the same. For the taxpayer, it means that tens of billions of pounds extra that would have been spent on unreformed pensions over the next 30 years is now available for other pressing demands. These are reforms that significantly improve the long-term fiscal sustainability of this country, and reinforce the credibility of our fiscal stance.

The Office for Budget Responsibility will provide a forecast of the savings in its next fiscal sustainability report. For industrial relations, I believe this shows that it is possible to reach agreement through negotiation in good faith, based on clear objectives. That is the right way to approach relations between government and the trade unions. Sometimes the talks have been difficult, but it has been right to stay at the table. In these difficult times, it is important to show that people can come together to achieve genuine reform, preserving the best of the past, but recognising the realities of the future. This is a fair deal for public service workers, an affordable deal for the taxpayer, and a good deal for the country. I commend this statement to the House.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Chief Secretary for his statement. Families and businesses who rely on public services, as well as the millions of public service workers worried about their finances and their future, will be relieved to see that real progress is finally being made in these talks. Labour has been clear from the beginning that the Government and public service employees would need to find ways of adjusting to the welcome fact that people are living longer. We said in response to the Chief Secretary’s previous statement on 2 November that any resolution to the dispute needed to be fair to taxpayers, fair to public service employees and genuinely sustainable for the long term, and that that would be endangered by a search for quick cash savings or the playing of party political games.

The vast majority of public sector workers, including dinner ladies, community nurses and police community support officers, retire on very modest pensions; moreover, they are already being hit hard by a pay freeze and worried about mounting redundancies. It was clear to us that tearing up decent public service pension schemes or imposing punitive and unaffordable contribution increases would be entirely counter-productive if it resulted in lower savings and inadequate retirement incomes that only left more people retiring into poverty, dependent on state benefits in their old age.

We will be looking at the detail of these proposals on the basis of the tests that we have set out. In particular, can the Chief Secretary offer clarification on the following points? Can he set out the timetable for further consultations and negotiations for each of the four schemes discussed today? When will he come forward with details for the police, armed forces, judiciary and fire service pension schemes? For each scheme, can he give us the new schedules for contribution increases across the schemes, the timetable according to which they will be introduced and how he will ensure fairness and affordability for lower-paid employees, especially those who work part time?

For each scheme, can the Chief Secretary give us the new accrual rates and methodologies for uprating pensions, and say what the timetables for introducing them will be? What assessment has he made of the impact of the changes on the number of public sector employees opting out of the schemes, and the implications of that for future scheme income and viability, as well as future pensioner poverty and the demands on state benefits?

How will the Government ensure that older workers, especially those in physically demanding jobs, are not forced to work beyond a point that would be detrimental to their health, or their ability to do their job? What will the Government do to maintain the morale and engagement of public service employees doing vital work for our country at a time of falling real pay, heightened job insecurity and significant changes to their pensions? Although we are pleased that there is agreement on a fair deal, there is a genuine fear across the public sector that the Government intend to use that deal more as they privatise parts of our NHS and schools, as well as other parts of our public sector. Crucially, how will the Government make good on their promise to deliver a deal that is secure and sustainable for the next 25 years, so that in future we do not face the uncertainty, anxiety and disruption that we have seen over the past year?

The Chief Secretary has made much of Lord Hutton’s review of public sector pensions. We have always said that Lord Hutton’s report provided an important starting point for negotiations, and we have always recognised that change is needed. However, Lord Hutton has also stressed the need to approach these issues in a careful and balanced way, with particular care for the affordability of any additional contributions for lower-paid public service workers, and to avoid fuelling a race to the bottom on pension provision. However, the Government have made it much harder to make progress on many of Lord Hutton’s sensible long-term recommendations by seeking to impose, prior to any negotiations, a steep 3.2% rise in contributions and a permanent switch in the way in which pensions are uprated—from the retail prices index to the consumer prices index—neither of which formed part of Lord Hutton’s recommendations.

However, it is good to see that the Chief Secretary recognises that he needed to do more to address the genuine concerns about his plans over the last 10 months—concerns about the need to do more to protect lower-paid public service employees from unaffordable increases in contributions; about the need to reassure older employees worried about how long they will have to work; and about the need to ensure that people who dedicate their working lives to our public services can expect a decent income in retirement. However, it must be a matter of regret for everyone in this House that it took 10 months of stalemated negotiations and strike action that resulted in closed schools, cancelled operations and disrupted lives for families and businesses around the country, for us to reach this point, just five days before Christmas.

The last Government agreed and established a framework to negotiate reform and manage long-term costs; this Government chose to tear that up and take an aggressive and provocative approach to this serious and sensitive issue. For months the Government have refused to engage in constructive talks to address the issues concerning public service employees, engaging instead in unhelpful megaphone diplomacy. Major changes to public service employees’ current contributions and future security have been announced without warning and imposed without negotiation. Last month’s strikes could and should have been avoided. In short, the Government have displayed negotiating skills similar to those that we saw at the European summit, being more interested in going for the cheap headline than putting in the hard graft necessary to get an agreement that works for everybody.

Clearly the Government still have a lot of work to do over the next few weeks. Ministers and employers will need to clarify the details of their latest proposals, and trade unions will rightly want to inform and consult their members. Reaching a final agreement will be a difficult and delicate process, and we must hope that it is not jeopardised by provocative tactics or inflammatory rhetoric, as we have seen in previous months. We hope that further progress will be made and that early in the new year the Chief Secretary will be able to return to the House and report that a fair and sustainable agreement has been reached, and that we will not see further industrial action. That is what the Opposition want to see, and it is what the country wants to see as well.

[Danny Alexander]

I am not sure that the hon. Lady was listening to anything that I said in my statement, because I have already answered almost all the points that she raised. She certainly seems to have forgotten that this is the season of good will. She said that the Opposition’s position was clear, but she did not say what it was. As she and her party have opposed most of the reforms, perhaps they should have the good grace to admit that they got it wrong. It is no doubt uncomfortable for the Labour party that many of its union paymasters have been willing to come to an agreement in the interests of their members—and, indeed, in the national interest.

Lord Hutton’s contribution was significant; indeed, he is the only Labour Member—or former Labour Member—who has made a contribution. It is worth telling the hon. Lady that he welcomes the deals that we have announced today. She asked a question about the agreement put in place by the previous Government, so let me tell her what Lord Hutton said about that cap and share deal:

“Cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer. Also, untested, complex cap and share arrangements cannot of themselves, address the underlying issue of structural reforms, nor significantly reduce current costs to taxpayers.”

That is why we could not rest with the position agreed with the previous Government.

The hon. Lady asked a few questions about the timetable. As I said in my statement, the timetable for reaching heads of agreement is finished. Negotiations on the heads of terms have finished, and as I said in my statement, those heads of terms are agreed by most unions in all schemes. That is a good result, which I hope she would welcome. The other schemes—for the judiciary, armed forces, police and so on—will be agreed in due course. For the firefighters the deadline is 20 January; for the police service the second round of the Winsor report, due at the end of January, will take forward that process.

I think that the hon. Lady still opposes the increase in member pension contributions, but I have to tell her that, as a consequence of today’s announcements, that is continuing. She asked a question about the relationship between accrual rates and revaluation factors. I listed the precise accrual rates and precise revaluation factors for each scheme in my statement; I do not propose to repeat them now, but they will certainly be available in Hansard later. As for older workers, one of the reasons why the trade unions favoured the relationship in question between accrual rates and revaluation is precisely that it works more strongly to the advantage of older workers. We will bring forward legislation, I hope in the next Session, that will include the changes that we want to make to ensure the 25-year guarantee.

The truth about this exchange, as with so many others, is that there are two parties on this side of the House acting in the national interest and one party on the other side that seems to find it increasingly hard to see even its own self-interest. While we on this side of the House are working together to build confidence in the future of the British economy, Labour Members are fighting with each other, as they lose confidence in their own leader. As a result of this statement, at least the hon. Lady can assure the Leader of the Opposition that if he falls on his sword there will be a good pension available to him. All that the British people will see is a party that has not a shred of economic credibility left.