NHS Pensions

Steve Brine Excerpts

Wednesday 26th June 2019 Westminster Hall

[Steve Brine (Winchester) (Con)]

I add my congratulations to my good friend, my hon. Friend the Member for Poole (Sir Robert Syms), on securing the debate, kicking things off and so clearly setting out the challenge that we face. In recent weeks, we have worked as a tag team between Winchester and Poole— earlier this month I raised the issue in the Chamber during an urgent question on the NHS people plan, which is a logical place for the subject to sit, and he, obviously, is leading the debate today—and that is entirely appropriate given that we are relatively near constituency neighbours and that many of our constituents work in Winchester, Bournemouth, Poole and Southampton NHS trusts and do shared work across those trusts.

I must say that the debate should be responded to by a Minister from Her Majesty’s Treasury. That is no criticism of the excellent hospitals and workforce Minister, who until very recently I was honoured to call a ministerial colleague in the Department of Health and Social Care. This is the first debate being responded to by a Minister from the Department of Health and Social Care that I have spoken in since I left office. However, seeing as we have a Health and Social Care Minister here, I will focus my remarks on patient care, which my hon. Friend the Member for Poole has discussed.

Over the past few weeks, I have spoken on a number of occasions to the chief executive of Hampshire Hospitals NHS Trust, Alex Whitfield, and I have spoken either through her or directly to numerous consultants and senior clinicians about this challenge. I am aware how serious it is, both for the individuals adversely affected—as we heard from my hon. Friend the Member for Cheltenham (Alex Chalk) and the hon. Member for Newport West (Ruth Jones)—and for patient care and wellbeing, because the NHS is about its people if it is anything.

When I first spoke to my local trust about this, the chief executive told me that

“the pension situation is having a significant impact on our people”

in Winchester and Basingstoke, and:

“The NHS scheme is particularly affected by changes to the pension tax system relating to the Annual Allowance and the Life Time Allowance.”

She is not wrong when she says:

“These changes are complicated and for individuals in the NHS defined benefit pension scheme the implications are not at all transparent.”

That point was well made by my hon. Friend the Member for Poole. She says:

“As a result, individuals are receiving unexpected tax bills of tens of thousands of pounds. It particularly impacts on consultant doctors, senior nurses and managers. Individuals are making different decisions as a result of these bills.”

I will pause on that point, about the senior NHS staff on whom this is having an impact.

I was privileged to be part of a Department that, under the previous Secretary of State, who is now the Foreign Secretary, and under the current Secretary of State, has delivered a record funding settlement for the NHS—£20.5 billion a year. I saw that play out in Winchester a few weeks ago, when I opened the new emergency department of the Royal Hampshire County Hospital in the heart of the city. That is excellent news. In my opinion, the challenge for the NHS will not be too little money, as a result of the settlement and the excellent long-term plan, but having the right people, who can spend that money in the right way to deliver the patient care outcomes that we want. If we are losing senior people, we have a senior problem.

As well as speaking to the leadership at my local trust, I wanted to find out more from the horse’s mouth, so I asked members of the local clinical community to come forward with their own stories and, if I may, I shall put a few of them on the record. One consultant set the scene very clearly. He told me that the issue is the annual allowance pension tax taper, which I will come back to, and the inflexibility of the NHS pension, which is landing consultants with huge tax bills for doing extra work on top of their contracted hours. The consultant was clear—and I agree, not least as a former Health Minister—that that extra work keeps the NHS running in the face of ever increasing demand.

I was told that, in certain circumstances, the marginal tax rate on earnings for the extra work is greater than 100%, which means that senior doctors working in my local hospital are in effect having to pay to do extra work. They are some of the most committed individuals in public service in our country, and I have had the privilege of working closely with many of them, but that is taking things a bit too far. It is clearly not a sustainable situation and, now that the huge tax bills are landing on doorsteps, it is causing a huge change in the behaviour of consultants at all levels in my local trust.

Another consultant told me that she has been an NHS doctor for 19 years and has worked as a consultant in my local trust for the last seven. She is employed on a full-time contract, with additional out-of-hours cover. Moreover, she regularly covers additional lists and shifts that require cover, sometimes at very short notice. She could not have been clearer with me that she is happy to provide that cover in the interest of safe patient care, which is of course what this is all about, as everyone has said. However, she has now been hit with a £30,000 tax bill, and she tells me that the only way she can avoid regular large tax charges, which may be for tens of thousands of pounds a year and which of course are in addition to her not insignificant income tax payments, is seriously to reduce the hours that she works for the NHS and not to take on any additional duties. As has been said, that goes to the heart of the issue. The consultant fears, as does her MP, that that is the conclusion that many of her colleagues will be forced to accept.

Let me again give some facts from trust level. Hampshire Hospitals NHS Foundation Trust recently ran a survey on the pension issue and received a healthy 2,500 responses. It is the case that 42% of all the respondents have reduced their work commitment; 20% have avoided promotion; and, critically, when the people were asked who might change working practices in the future, the figure goes up to 80%, including 33% considering early retirement and just over a quarter considering leaving the NHS altogether.

I have no doubt that the changes were introduced in good faith. They are aimed at top rate earners, as my hon. Friend the Member for Poole said, but in practice this has had a damaging effect on key people in the NHS, and if it is not sorted quickly, we will see that escalate further, and it will become harder and harder to retrieve the position. The suggestions put to me for fixing it include removing the annual allowance tapering. When I spoke during the urgent question earlier this month, a number of consultants from across my local trust and Poole and Southampton contacted me. They are pleased that the consultation, which I am sure my hon. Friend the Minister will say more about, is imminent, but what they fear from that is that the 50:50 fudge will just not work. We need wholesale reform, and the taper really does need to be scrapped.

In addition, I ask the Minister whether it is worth considering removal of the annual allowance taper for public sector workers. Of course, that is a decision not for him but for the Treasury and for whoever is inhabiting No. 10 in a few weeks’ time—I may be well placed to influence that, or I may be not at all placed. The point is this. If we want to make the NHS a great place to work, why not provide a tax benefit to working for the public sector—one of the biggest employers in the world? That is food for thought.

Let me finish in the same way as I have tried to make the whole of my contribution this morning—with a real-life example from Hampshire Hospitals NHS Foundation Trust of what we are seeing at trust level. In Winchester, like everywhere else and as I have set out, the Royal Hampshire County Hospital, one of the three hospitals in the trust, relies on many doctors and other senior staff doing additional sessions over and above their timetabled work in order to fill gaps in the medical workforce. Locally, we have seen that especially in radiology, where the additional sessions are used for radiologists to review scans and write the reports about what they see. The reporting of scans is clearly required so that patients can be told what the scan shows and clinical staff can work with patients on the most appropriate treatment.

My good friend from the Scottish National party, the hon. Member for Central Ayrshire (Dr Whitford), whom we will hear from shortly, and I spent many hours in this Chamber when I was the Minister with responsibility for cancer, and I was extremely proud to get the 75% stage 1 or 2 diagnosis ambition into the long-term plan, as announced by my right hon. Friend the Prime Minister. That is critical: early diagnosis is cancer’s magic key, as has been said by me and others many times in this Chamber. If we are to get anywhere near realising that ambition, we have to have a functioning, improved and expanded radiology service. Any reduction in radiology and the diagnosis stage will have an adverse impact and make that ambition unattainable, in my opinion. I am reliably told by my local trust that it has seen the backlog of scans waiting to be reported growing each week over the last few months. That concerns me greatly. It is of course just one department—it is an area that I know a little about—but it is a sobering example and one that we simply cannot ignore.

I shall finish by saying that we must act. I have so much respect for this Minister, but we need the Treasury to take this issue seriously and we need the next Prime Minister to act. If we do not, it will only get worse. We need to grip it, and we need to grip it fast.

[James Gray (in the Chair)]

Despite his late arrival to the debate, I call Mr Paul Sweeney.

--- Later in debate ---

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I congratulate the hon. Member for Poole (Sir Robert Syms) on securing this important debate, and I underline the fact that I am a shadow Treasury Minister responding on behalf of the Opposition.

We are here today to discuss the impact of changes to allowances on tax relief on pensions specifically in regard to NHS pensions. As people in this Chamber will know, in 2016-17, an estimated £38.6 billion in tax relief was provided on contributions to approved pension schemes; obviously that is the overall figure and does not cover just those who work for the NHS. It is a very substantial amount of relief.

As I am sure Members will also know, the last Labour Government introduced the annual allowance and lifetime allowance back in 2006. The annual allowance was initially set at £215,000 and the lifetime allowance at £1.5 million. Since then, as other Members have discussed, we have seen gradual reductions. Under the coalition Government and the Conservative Government, the lifetime allowance was reduced from £1.8 million to £1.5 million in April 2012, then to £1.25 million in 2014, and to £1 million in April 2016. It has actually floated up a little bit with inflation up to 2019-20, when it will be—as has been mentioned—£1,055,000. There has been a similar trend with the annual allowance, which was reduced from £255,000 to £50,000 in April 2011 and it then went right down to £40,000 in 2014.

Of course, the particular changes that we have focused on today are around the interaction of all of these measures with the taper, which George Osborne introduced in the summer Budget of 2015. From April 2016, the annual allowance would be tapered at a rate of £1 for every £2 of taxable income, including pension benefits and not subtracting employee pension contributions, received over £150,000 in adjusted income, going right down to £10,000 for those with an income of more than £210,000. As has also been mentioned, that final change affects those people whose pay is more than £110,000 a year, excluding pension benefits and employee pension contributions, and who see an increase in their pension benefits of more than £40,000 in a given year.

As my hon. Friend the Member for Newport West (Ruth Jones) said, and the hon. Member for Central Ayrshire (Dr Whitford) underlined, all that obviously amounts to a considerable number of changes in a very short time. So we have seen the tax treatment of pensions for all high-paid workers changing very substantially, indeed in a way that they probably could not have envisaged when they first joined their pension scheme. The hon. Member for Central Ayrshire was right to indicate the parallels between this situation and what has happened to several other groups of taxpayers.

I see that the Minister is kindly scribbling things down at the moment. I hope that he will pass on to his Treasury colleagues that it is simply unacceptable if, at the very least, these taxpayers do not receive adequate information about what their liabilities will be. I was deeply concerned to hear from the hon. Member for Central Ayrshire that, for example, people are not receiving their pension statements. Surely that is the very minimum that is required.

On principle, it is surely necessary for the pension allowance to decline gradually for those people who earn very high incomes. It is fair, and consistent with other core principles of our tax system, that tax charge exemptions should be reduced for people who have very high incomes. However, there is of course the issue about the interaction of that system with other pension schemes, especially the NHS pension scheme, and given the fact that we have a very tight labour market for those in the NHS with substantial expertise. As has been mentioned, about 30% of doctors earn £110,000 or more, and nearly 10% earn more than £150,000. Clearly, this group of staff are the people who have the necessary expertise, as has also been mentioned a number of times.

I am aware of course that official representations have been made on this issue. We have heard what has been stated by the British Medical Association and the British Dental Association, and I think that the polling to which the hon. Member for Winchester (Steve Brine) referred was very interesting in that regard. It was also helpful to hear from my hon. Friend the Member for Glasgow North East (Mr Sweeney) about the impression that he received from his local NHS trust about what is going on.

When we consider this issue, it is very important that we do not just talk about tax treatment; we must also consider how it inter-relates with what is a very complex NHS pension scheme, one that, as I understand it, was not fully consulted on with representative organisations when it was introduced.

As has been mentioned, we now have three different schemes, and my hon. Friend the Member for Newport West indicated how working out how these schemes relate to each other and how that will impact on tax outcomes is very difficult for individuals. As the hon. Member for Poole rightly said, the impact of these changes—related to this combined test of both the threshold and the annual income, plus the taper—makes it very difficult for individuals to work out what their liability is without any kind of professional help. Of course, that professional help is also expensive.

We need to look at NHS pensions, and I hope that it will be possible for the Minister to take that issue away and discuss it with his Treasury colleagues. However, I will just say to those in this Chamber that, as well as talking about the problems for high-paid NHS staff, we of course also need to look at the issues for low-paid NHS staff. The pension situation is quite concerning for them. The annual report on retirement by Scottish Widows indicated that overall one in five young people are saving nothing for their later life, and many of those people who are working in our NHS on low pay have opted out of pension schemes, because they feel that they need the cash now to make sure that they can make ends meet.

A freedom of information inquiry in 2018 found that more than 245,000 workers from across the NHS in England had opted out of the NHS pension scheme in the previous three years. A lot of those were low-paid workers, so that is enormously concerning. Although I agreed with much of what the hon. Member for Winchester said, I do not agree with him that the levels of resource currently being considered by his Government will be adequate in the future.

Let us consider the current situation. We obviously have the cumulative impact of the pay cap over many years. The Government finally saw sense on that, but it took them a long time to do so. There are also groaning waiting lists, extended waits for accident and emergency, and the rationing of NHS services, with many procedures no longer being offered by the NHS. Until we see a change in that situation, it will be difficult for many of us to argue that the NHS is heading in the right direction resource-wise.

I know that the Government have made a commitment to improve funding in the future, but the Opposition continue to believe that that commitment is not sufficient.

[Steve Brine]

My point was that the NHS long-term plan has been significantly funded, with record funding, which, for the record—seeing as the hon. Lady has gone there—is significantly more than was promised by the Opposition. Yes, other resources will be required, around public health for instance, and around the people plan, but perhaps the hon. Lady can tell us what Labour’s fiscal promise is to the NHS, and how it will be paid for.

[Anneliese Dodds]

Absolutely. I am grateful to the—

--- Later in debate ---

[Stephen Hammond]

The hon. Lady is right to make that point; as I said in my remarks about her speech, I recognise the impact on training. There is clearly concern that unless we address this matter, it will have a number of impacts, of which that is one.

The hon. Member for Oxford East (Anneliese Dodds), speaking for the Opposition, rightly opened her remarks by pointing out the scale of the cost of tax release for pensions to the Treasury. She made valid points about doctors’ knowledge about that liability, and about the interaction of core tax principles with particular schemes. I was rather hoping that she would also welcome the long-term plan and the cash settlement, but I suspect that element of unity was probably a step too far.

As my hon. Friend the Member for Poole may have mentioned at the beginning of his speech, we have fewer Members here and a lower number of contributions. However, those contributions, combined with some of the interventions, have meant that we have had a debate of high quality.

Needless to say, I have heard the representations from everyone in the Chamber. It will not surprise anyone that I have received, as has the Department, representations from NHS employers reporting exactly what we have been discussing—that consultants are increasingly no longer willing to work additional sessions. The lost capacity is clearly difficult to replace, especially in some clinical areas where there are already shortages, and it can be expensive, as employers can pay a premium for locums to fill the gap. It is obvious and right that where there is evidence of an impact on the delivery of services, the Government should be prepared to take action.

At the outset, I reiterate that the Secretary of State and I take seriously the concerns of doctors. That is why we have been involved in a number of discussions with the Treasury, which has resulted in the 50:50 flexibility and the consultation. I will come to that in a moment, but, as Members will hear as I develop my remarks, that will not be the end of our conversation with other Departments.

Looking at the case for pension flexibility, it is true that outside public service, employers in some cases have flexibility to adjust benefit packages to allow high-earning employees to target a lower level of pension saving and so reduce the potential for large regular annual allowance tax charges. That flexibility is not currently present in the NHS. The NHS pension scheme does not allow any flexibility over the level of pension growth. Staff who participate in the scheme must pension all regular earnings from their employment. The Government are right to take the view that it is important to ensure that staff have a good level of pension savings, but senior clinicians, particularly consultants and GPs, have a unique degree of flexibility over their workloads and obviously can reduce their commitments. Consultants can reduce the number of additional sessions undertaken, and many GPs are self-employed. That can create incentives for clinicians to seek to control their income and pension growth by limiting or reducing their NHS work to avoid breaching their annual allowance. As a number of Members have discussed, that clearly has an impact on the delivery of patient care.

It is clear that retaining and maximising the contribution of our highly-skilled clinical workforce is crucial to the NHS and the long-term plan for the NHS. While any pension tax regime should seek to achieve the fiscal ambition of distributing pension saving incentives fairly, it has to be recognised that, in combination with the fixed structure of the NHS pension scheme, that could produce—listening to the evidence today and the evidence I have directly received—unintended consequences for service capacity and the delivery of patient care. The Government are prepared to change the rules to give clinicians more flexibility.

Alongside the publication of the “Interim NHS People Plan” earlier this month, my right hon. Friend the Secretary of State announced our intention to consult on new flexibility for clinicians. The consultation will be published in the coming days—I hope very shortly—and will set out proposals for a 50:50-style option, offering 50% pension accrual and halved contributions. Earlier this year, as part of the new five-year GP contract, the BMA and NHS England asked the Government to consider introducing that option. While I recognise that the BMA has not been unequivocal in its support, it has welcomed the proposal as a step in the right direction.

The Government believe that a 50:50 option balances the benefit of flexibility with the fiscal impact to the Exchequer. The 50:50 option will allow clinicians to build up their pensions more slowly and at a lower cost. Clinicians will still need to make their own personal assessment as to whether their financial interests are best served by taking advantage of the 50:50 model or continuing with full-rate accrual, but I have heard—not necessarily in the debate today, but directly from a number of consultants—that the 50:50 option is not flexible enough and that other measures should be considered.

The new pension flexibility should be viewed as a positive development for clinicians. My hon. Friend the Member for Winchester mentioned that he has asked me about the consultation period on the Floor of the House and that he has spoken to consultants about it. The consultation will be an opportunity to listen to a range of views before any final proposition is agreed. I encourage all Members here today to encourage their local clinicians to take part in that consultation. Equally, I encourage anyone from the health system in its widest context to take note of the debate and take part in the consultation. We want not only to hear any suggestion that there is a generic case for tax changes, but to listen carefully to what clinicians say using their own personal examples to provide evidence for any change they seek.

[Steve Brine]

Is the consultation discussing the merits or otherwise of a 50:50 option, or is it genuinely open to discussion about whether that option in itself is a good idea? As I said in my speech, the initial responses I have seen have not broadly welcomed, to put it politely, the idea of 50:50.

[Stephen Hammond]

The consultation is both. I recognise, as I said a few moments ago, that the 50:50 option has not received unequivocal support from the BMA, but to its great credit, it has asked us to consider that. We have come forward with this proposal. The BMA has welcomed it, but has said that it would want to discuss further options for flexibility and other pension matters. We have said that the consultation will look at the merits of the 50:50 option—or question it—but we will rightly open up that consultation to other suggestions. My hon. Friend will have just heard me say that I hope Members will encourage their local clinicians to use the consultation as a way of expressing their concerns about the 50:50, if they have any, and to express their views on other measures they would like to see introduced in terms of pension contributions. I stress that point again in response to his intervention. He will probably be interested in my next set of remarks, which are on flexibility.

Although the 50:50 option provides a new flexibility, we recognise that it does not provide unlimited flexibility for clinicians to target their own personalised level of pension growth and contributions. The financing model for the scheme means that any flexibility that reduces contribution income has an immediate fiscal impact on the Exchequer. The 50:50 option does not set aside the annual and lifetime allowance tax policies, but will give clinicians a new flexibility to manage their pension growth.

Where 50% accrual reduces pension growth by more than they wish, clinicians can use the contribution savings from the 50:50 model to buy additional pension to customise their own pension growth incrementally. Additional pension can be purchased in units of £250. That clearly adds some flexibility to their ability to manage their own contributions. However, some clinicians may continue to experience annual allowance tax changes, even with accrual rates reduced to 50%. For that group, while 50:50 reduces the charge, it does not eliminate it. We recognise that a number of individuals may wish to target a lower level of pensions growth. We will listen carefully to that suggestion through the consultation.