Public Service Pensions: Government Contributions

Stephanie Peacock Excerpts

Wednesday 19th December 2018 Westminster Hall

[Gerald Jones]

I agree. All our emergency services do important work on our behalf, and that work needs investment. They cannot do that important work while worrying about how they are going to fund it.

There are significant concerns that the Treasury has introduced the changes as back-door spending cuts for already tightly squeezed public bodies and those delivering public services. In 2016, the trade union for senior civil servants, the FDA, said:

“It’s only three months since departmental budgets were set and yet departments are now expected to deliver an additional £3.5bn of savings in 2019/20 through another efficiency review…By announcing a change to the discount rate on public sector pensions—without any consultation—they are effectively removing a further £2 billion from public services and transferring it to the Treasury to give the illusion of a surplus”.

[Stephanie Peacock (Barnsley East) (Lab)]

I congratulate my hon. Friend on securing the debate. On the cuts that he refers to, the South Yorkshire fire and rescue authority concluded in its financial plan that combined with the cuts and the 10 years of austerity, the pension contribution hikes will leave it no choice but to reduce fire services, with an increased risk to people and property as a result. Does he agree that the pension changes pose a clear and direct risk to the safety of our constituents?

[Gerald Jones]

My hon. Friend makes an important point. Emergency services, such as firefighters and the police, are highly regarded and do important work on behalf of all our constituents. Safety will be an issue if the finances are not put in order to ensure that the accounts allow firefighters to continue their important work.

Earlier this year, the trade union Prospect said:

“Public sector employers will have to find additional resources to reflect these changes…However there is a real danger that Treasury will not recycle this money back to public service providers; that this process will, in effect, be a hidden cut to public services.”

As I said earlier, the discount rate change is estimated to cost firefighters £150 million by 2023, based on figures from the Office for Budget Responsibility. That is the equivalent of running 150 fire stations for a year. In 2017-18, employer pension contributions accounted for 7% of the total net expenditure among fire and rescue services in England, and for 7.6% of it in Wales. In England, local government settlement funding for the fire authorities is forecast to decrease by 15% between 2016-17 and 2019-20.

The impact on police is equally stark. By 2020-21, the police will face a financial black hole as their pension liability rises by around £420 million. The chair of the National Police Chiefs Council has warned that it could amount to a loss of a further 10,000 police officers, because the police are legally obliged to set a balanced budget. The recently announced settlement offers no certainty on the issue.

The National Police Chiefs Council is reported to have sent a formal letter to the Treasury saying that it will seek a judicial review of the Government’s proposals, and it is protesting against the fact that forces will have to find an extra £417 million in just two years’ time to pay for an increased minimum contribution to officers’ pension pots. That figure is set to rise from 2% to 3% by 2019 and, as I said, equates to the funding of around 10,000 officers a year. In response to an urgent question on 6 November about liabilities for the police pension schemes, the Minister said that funding arrangements for 2020-21 onwards would be discussed as part of the spending review.

I have covered the national picture, but I will highlight the local impact on my constituency. Two-thirds of my constituency is covered by South Wales police. The gap in that force for 2020-21, and for every year after, is likely to be around £7 million. If that burden is dumped on police forces, it will effectively be another massive cut to police budgets and lead to a further cut in police numbers. Those changes come on top of the additional £20 million that South Wales police have to find for local policing, having lost about a third of the police grant since 2011. In south Wales, the changes would be the equivalent of 130 fewer police officers on the streets, on top of the 444 officers who have already been lost since 2010.

The Home Office appears to have accepted that the police budgets are under severe constraints and, in the absence of central Government money, flexibility is being granted to raise local police precept to help to offset an enormous sustained challenge to police funding from seven years of cuts. Raising ever-increasing amounts from council tax payers, however, is not sustainable. Will the Minister fight to restore police funding to sustainable levels in the planned comprehensive spending review? Will he promise that the gap in funding for police pensions will be paid in full by the Government, having accepted that the police pensions costs increases cannot be funded from existing police budgets for 2019-20? I ask the Minister to note that the Home Affairs Committee said that the police funding formula must be addressed urgently. Can he assure us that that will also be tackled in the comprehensive spending review in 2019?

The other third of my constituency falls within the area of Gwent police. In cash terms, the changes add £2 million of extra costs to its budget in 2019-20—although some of that will be offset by the Home Office—and a further £3 million of extra costs in 2020-21. That totals around £5 million, recurrently. A recurrent pension pressure of £5 million for the Gwent force equates to 100 police officers in Gwent communities. It would be necessary to increase the local precept in Gwent disproportionately, by about 8% by 2021. Such figures are not sustainable and would transfer ever more pressure to local council tax payers.

As I said at the start of my contribution, the changes will impact across the public sector. I have focused on police and fire, but I will highlight briefly the effect of the recent changes to the teachers’ pension scheme on universities throughout the UK. The Treasury appears to have shown little awareness of the significant impact that those changes would have on universities and students, and has failed to commit any additional support for the institutions affected. I accept that the Minister will respond on behalf of the Home Office, but I hope that he will convey our concerns to his colleagues. I understand that the Government themselves estimate that the changes will mean additional pension costs of £142 million, shared across only 70 of the modern, or post-1992, universities. That will clearly place huge strain on budgets that are already under significant pressure.

Today, I hope that the Minister will be able to offer some good news to our overstretched public services. We all acknowledge, I know, that public services—our public servants—and our emergency services in particular, work incredibly hard on our behalf and deserve our thanks and appreciation. However, public services cannot survive on thanks and appreciation.