Public Sector Pensions

Sheila Gilmore Excerpts

Thursday 8th December 2011 Commons Chamber

[The Parliamentary Under-Secretary of State for Scotland (David Mundell)]

The weather in Scotland today is very stormy, and our thoughts are with those who are having to endure the consequences of that. I do not know whether this debate will be equally stormy.

[Sheila Gilmore (Edinburgh East) (Lab)]

I hope the Minister will not think just about the people enduring travel disruptions, but will realise that the majority of those who will be working hard to resolve any problems that arise will be public sector workers.

[David Mundell]

I do realise that—and that may be the only point on which I agree with the hon. Lady.

I thank the hon. Member for Arfon (Hywel Williams) for opening the debate. He spoke for about 20 minutes, and in that time he at least said exactly the same about Scottish National party policy on this issue as was revealed in a two-and-a-half-hour debate in the Scottish Parliament last week, which was precisely nothing. I will return to that subject.

As the hon. Member for Edinburgh East (Sheila Gilmore) has already mentioned, no Member would disagree with the following sentiments in the motion:

“That this House recognises and appreciates the valuable work done by public sector workers”

and

“believes that they should receive pensions which are affordable, sustainable and fair”.

Indeed, those sentiments form the foundations of our reform of public service pensions. Our objective is to put in place new schemes that are affordable, sustainable and fair both to taxpayers and public service workers. Let us be clear: public service pension reform is needed. The costs have increased by a third in the last 10 years, to £32 billion, and the Office for Budget Responsibility forecasts that, without reform, spending on pensions will rise by almost £7 billion over the next five years.

Understandably, this is a contentious issue, but fairness remains the cornerstone of our approach. We believe that public service workers deserve a good pension in retirement, as a fair reward for a lifetime spent serving the public. We recognise the vital contributions made by teachers, nurses, council employees and civil servants to the well-being of our society now and in the future.

That is why in June 2010 my right hon. Friend the Chancellor commissioned Lord Hutton, a Work and Pensions Secretary in the previous Government, to take an unbiased and clear-headed look at public service pensions and make proposals for reform. His landmark report has set the parameters of the debate, and it has been rightly lauded for its depth and vision.

Lord Hutton set out an overwhelming case for reform. He said that

“the status quo is not tenable”,

that

“future costs are inherently uncertain”,

and that at present the public

“cannot be sure that schemes will remain sustainable in the future.”

In his interim report, he found that there was a clear justification, based on the past cost increases borne by the taxpayer, to increase contributions in the short term to ensure a fairer distribution of costs between taxpayers and members. We accepted that recommendation, and increases in member contributions will take place, starting next year. However, next year’s increase merely reflects the increase already planned by the previous Government. We remain committed to securing in full the overall savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15 that we announced at the 2010 spending review.

In his final report, Lord Hutton produced a blueprint for a new landscape of public service pensions. It is based on retaining defined-benefit schemes but moving to a fairer career-average basis, and increasing the retirement age in line with the state pension age to protect the taxpayer against future increases in life expectancy.

--- Later in debate ---

[Jackie Doyle-Price]

I totally agree with that comment. I do not recognise any criticism that we are levelling down public sector pensions. We are trying to take this forward in a consensual way.

I welcome the fact that in our proposed reforms we are sticking with defined benefit systems. Many private sector schemes have had to migrate to defined contribution schemes because of the unaffordability of their existing schemes. We recognise that public sector workers are going to have to make a much bigger contribution, but they are doing so to achieve benefits that would be much more expensive if offered to workers in the private sector.

[Sheila Gilmore (Edinburgh East) (Lab)]

One of the things that might have brought more money in and created some fairness in the pensions system would have been to limit the tax relief on payments into private pensions to the basic rate of tax. Would the hon. Lady agree with that proposal?

[Jackie Doyle-Price]

I am trying to set out a case for wider structural reform. We have a massive structural challenge across the board in pensions for public sector workers and private sector workers. As regards tax relief for pension contributions, I will not take any lectures from Labour Members given what was done under the previous Government.

It used to be the case that the generous pension provision for public sector workers was a quid pro quo for working in the public sector, as higher salaries were traditionally enjoyed more regularly in the private sector. That is no longer the case. I refer to the comments by my hon. Friend the Member for Aberconwy (Guto Bebb) about average salaries in Wales, which show that public sector workers there often enjoy much higher levels of reward than private sector workers. This will reduce dynamism in the labour market and make us less competitive. Our economy benefits greatly from having people moving from the public sector into the private sector so that we all enjoy their expertise, but when there are such significant levels of differential between salaries, that is not going to happen. If we then add in the benefits that come from the generous pension provision, it becomes impossible for people to move from one job to another.

Let me give an example. In my last job, I worked for the Financial Services Authority, where I had a very senior colleague who had worked for the Bank of England and the FSA for some 28 years. She was offered a very highly paid job with a bank, as one would expect—we all expect bankers to be offered higher salaries than public sector workers. When she worked out the cost implications of moving from her job, with 28 years of a final salary pension, compared with what she would have to be paid by the bank to come anywhere close, she was somewhat crest-fallen to realise that in the longer term she would be taking a pay cut. That illustrates the competitiveness issues raised by how much we have in our pension schemes.

--- Later in debate ---

[Guto Bebb]

That is an interesting question, and I am not sure. My father certainly ended up voting Conservative, but I cannot comment on my mother, because I think that how somebody votes at the ballot box is their choice entirely.

We are quite often accused of attacking the public sector or introducing unfair policies, yet the coalition Government are trying to deal on a long-term basis with issues that the previous Labour Government did not deal with. When we talk about fairness, which is important in this debate, I wonder where the comments of Labour Members were on the raid on private sector pensions. Where were their comments in defence of people with poor rates of pension provision who were saving with their own money—working people saving for their retirement? Where was the Labour party when it came to defending those people when the previous Labour Government raided pensions to the tune of £5 billion a year? That was a scandal. It was not fair, but we heard nothing from Labour Members.

Even worse, the raid on private pensions was made with the justification of helping young people back into work. In 2010, the rate of unemployment among young people was higher than in 1997. The raid was unjustified, not effective and unfair.

[Sheila Gilmore]

The hon. Gentleman’s 2010 figure is not wrong—[Interruption.] Excuse me! It is true to say, however, that the money that was put into reducing youth unemployment worked and that youth unemployment was brought down from the very high level that was inherited in 1997—[Interruption.] No. Only the recession caused youth unemployment to rise.

[Guto Bebb]

I find the argument that my point was “not wrong” but that somehow the raid was justified to be bizarre to say the least. However, I would challenge the hon. Lady: if she thinks the raid on private sector pensions was justified because the policy miraculously worked—even though youth unemployment went up—I invite her to say that we should reduce public sector contributions because that would help in relation to youth unemployment.

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[Iain Stewart]

The hon. Gentleman makes a good point.

As well as the nightmare of disaggregating the fund, a range of dynamics would be set in train that would be difficult to forecast. I remember when the Scottish Executive set a pay increase for teachers that was more generous than that given to teachers in England—I think it was back in 2001. That resulted in a significant transfer of teachers wanting to work in Scottish schools because of the more beneficial terms. If we move from a unified pension scheme, we will set in train in those difficulties in accounting for who is responsible for paying what.

[Sheila Gilmore]

Will the hon. Gentleman give way?

[Iain Stewart]

If the hon. Lady will forgive me, I will not give way. I have been quite generous, and I want to bring my remarks to a conclusion shortly to allow as many other Members as possible to take part.

The other thing about which we have heard nothing from the Scottish nationalists is how they would pay for a more generous pension scheme in Scotland—if, as I assume, that is their intention. In the confines of a short speech, I shall not go into the whys and wherefores of the cost of separation from the United Kingdom; my point is that we should consider pension reforms in the context of the United Kingdom. There are passionate views on both sides about what that future should be, and I completely respect the views that many hold in arguing for a sustainable pension scheme for the future, which is what we all want.

The hon. Member for Central Ayrshire (Mr Donohoe) is not in his place now, but earlier he referred to his new grandson. I recall following him in a debate a few weeks ago in which he announced to the House the safe arrival of, I think, Rosie, his new granddaughter. It is those children—those being born now—for whom we should be looking to ensure we can afford a decent pension, whether in the private or public sector, when they reach retirement. I hope that we can come to a decent consensus and conclusion on pensions, but it is not helped when the Scottish nationalists raise a smokescreen and attempt to turn this into a constitutional point, in order to achieve their aim of separating Scotland from the rest of the United Kingdom. Breaking up that system would be a nightmare.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

I do not intend to repeat the statements about the importance of public sector pensions that have been made so eloquently by many of my colleagues.

I am surprised that SNP Members, who among others have called this debate, have apparently not wanted to speak in it, because only one has done so. However, some of the comments they have made in interventions need to be addressed. It is not true to say that Labour Members have not raised the subject of public sector pensions in this House. Perhaps SNP Members were not here on 30 November to hear what the Leader of the Opposition said at Prime Minister’s questions and were not here during the Opposition day debate that followed, when several Members from my party made very strong speeches in support of public sector workers and on the pensions issue.

Moreover, in this week’s Opposition day debate on the economy, only one SNP Member was present, for a short time—the hon. Member for the Western Isles (Mr MacNeil). I will not attempt to pronounce the Gaelic name for his constituency because, as a lowland Scot, Gaelic is not native to me, and I am not going to pretend that it is. That was the extent of their interest in debating the economy and the issues that are so important in underpinning this debate on pensions, because unless we get the economy right, we will be in some difficulty. Today, several SNP Members left the Chamber early, presumably to put out their press releases to say how they had raised this important issue, but in reality they have not.

In the motion, SNP Members condemn the coalition Government for not being prepared to give them the money directly so as to be able to relieve some, but by no means all, public sector workers in Scotland of the contribution increase. They cannot have their cake and eat it within the system. They cannot have the Barnett consequentials when they like them and decide that they do not want them when they do not like them. Yes, it would be different if they achieved independence, although at that point we would have to ask, “How are you going to afford all the things that you say you are going to afford?”

[David Mundell]

Is the hon. Lady as surprised as I am that we have not heard a single mention of independence from SNP Members? As I understood it, that was their solution to all the pension issues in Scotland.

[Sheila Gilmore]

I suspect that in the fantasy world of the debate on independence, as it tends to be, SNP Members would indeed say that that is the answer, but they have to know how they would fund that and about issues to do with tax and making people as well off as possible.

During the SNP Member’s brief appearance in Tuesday’s debate on the economy, he kept talking about the Scandinavian economies. Of course, in the Scandinavian economies there is a very different view of taxation. It is disingenuous of the SNP to want to pose as a low-tax party and tell people that they can have wonderful public services and, at the same time, council tax freezes—which, by the way, are very regressive because they most benefit the people who are best off. The SNP has to decide where it wants to be. It deliberately put such a sentiment in the motion because it wants to be able to say that Labour Members will not support it.

We are in support of public sector workers. We do not think that what the Government are doing is right. We feel, very strongly, that we have to stop what this Government are doing, which is constantly to pit one group of workers against others. They are setting public against private, setting people in work against people who are out of work, and stirring up what I heard described on two occasions on Radio 4 at the weekend as an atmosphere of anger and bitterness. In the discussions on phone-in programmes about what is happening, all the clips were of people shouting at each other, saying, “Why should I, as a private sector worker, pay for your pension?” No commentator said, “Where is that anger being generated from?”, but it is being deliberately stirred up by this Government—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. I am sorry, but we have to start the wind-ups now.