Pensions Bill

Debate between Steve Webb and John McDonnell

Tuesday 29th October 2013 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) has addressed the spirit of new clause 7, which stands in my name. It may well be that we are not able to discuss amendment 37, but she has addressed the core principle behind the new clause.

Parliament has a moral responsibility that is separate from government. When Governments give promises to people, Parliament has a role in ensuring that they are adhered to. That is what new clause 7 is all about. As my hon. Friend said, on privatisation, the principle should apply across the piece.

We have discussed the background to new clause 7 before in a wider debate about what happened to the Jarvis workers when Network Rail withdrew its contracts and the company collapsed. As many involved in that debate know, the Jarvis workers, many of whom were not transferred to successor companies, suffered greatly: they lost their jobs and could not find alternative employment, and some have become nomads, circling the country trying to pick up work to bring in at least some income. In addition, they lost their pension protection, and that is what the new clause deals with.

As my hon. Friend mentioned, section 134 of, and schedule 11 to, the Railways Act 1993 enabled the Secretary of State to create a new pension scheme for the railways industry, to transfer the assets and liabilities of the old British Rail pension scheme to the new scheme and, above all, to protect the rights of members of the scheme once they became members of the new scheme. The debate was extensive. Few Members now were in the House then, but as Hansard shows, there were extremely heated, but detailed debates about the principle and detail of the legislation, particularly the protections for individual workers.

Three orders were introduced. First, the Railways Pension Scheme Order 1994 created the railways pension scheme, set out its rules and designated it as the successor industry-wide scheme replacing the British Rail pension scheme. Secondly, the Railway Pensions (Transfer and Miscellaneous Provisions) Order 1994 transferred the assets and liabilities of the British Rail pension scheme to the new railways pension scheme. Thirdly, the Railway Pensions (Protection and Designation of Schemes) Order 1994 set out the protection to be afforded to members of the British Rail pension scheme who transferred involuntarily to the railways pension scheme.

After months of debate in the House and negotiations between the Government and the sector unions, members of the British Rail pension scheme who were already pensioners or deferred pensioners were transferred to a special pensions section and had their rights guaranteed by the Crown. Their rights have never been put at risk and are not at risk, but that is not true for members still employed in the industry who were contributing at the point of privatisation. Their accrued rights were transferred to the section of the railways pension scheme applicable to their new employer, and a matching share of the assets from the British Rail pension scheme was also transferred to the relevant section, but nothing was done in those debates and negotiations, and eventually the orders, to protect their transferred rights in the event of their new employer becoming insolvent.

The actively contributing members were also given the right to participate in the new railways pension scheme on a basis that entitled them to accrued rights for future service and which was no less favourable than the basis of the former British Rail pension scheme. They have to contribute to the scheme to accrue their rights, and so must their employer, in the normal way. Active members are also protected if they move involuntarily between railway employers. In law, they must be permitted to transfer their accrued rights to their new employer’s section of the railways pension scheme and be permitted to accrue future pension rights on the same basis as before.

That also applies to involuntary transfers. As one franchise moves between companies, so do the pensions and the pension rights and responsibilities. A member who moves employer of his or her own volition retains the right to be a member of the pension scheme, but the right to accrue future service rights on the same basis is lost. So those protections were thought to be relatively robust at the time; transferring from the old British Rail pension scheme into the new scheme, and then, as the franchises moved and new employers took over the staff, their rights would transfer as well.

When a railways employer enters administration, its undertaking—the franchise—is usually transferred to another employer and, again, what happens is that the employees working for that employer are generally protected. Even when a company becomes insolvent and employees are transferred to a new company, if there are sufficient assets those are transferred and the employees are protected again. The problem we now face as a result of the Jarvis incident is what happens when an employer becomes insolvent and there are insufficient assets. That is what happened with the Jarvis workers, who were transferred to Babcock Rail or Volker Rail. Because the Jarvis section of the railways pension scheme is not in a position to transfer the accrued rights on a fully funded basis—because Jarvis never had the assets—a pension transfer could not be made at all. Instead, what the Jarvis workers now have to rely on is the pension protection fund, which does not provide what they would have gained as members of the full pension scheme.

This group of workers accepted the assurance of the Government on privatisation that their pensions would be fully protected. They have entered employment with a new employer and have paid their contributions, and they expect the same pension as every other worker around them in the industry. They are now faced with a pension that is significantly less. I think that that is grotesquely unfair. It certainly flies in the face of the promises that were given on the Floor of the House to railway workers when privatisation was being advocated and when legislation was going through the House.

[Steve Webb]

The hon. Gentleman is obviously very knowledgeable about the history of the matter. Can he point to a specific assurance that was given about what would happen in the event of the insolvency of the private employer?

--- Later in debate ---

[Steve Webb]

I thought that was what I just said. Let me be clear: we want to get this thing going. The hon. Gentleman raised the issue of the £10,000 pot size limit. Clearly I would like to go further, and we look at a £20,000 pot size limit in our consultation document, but we have to get the thing going. May I tell hon. Members who were not here at the start of the debate that he said he had sat and watched a video of a speech of mine? I commend him for that, as watching videos of me speaking shows real devotion to the world of pensions. In my speech last week, I made it clear that we see this as the beginning of a process. The pot size limit could go up and the scope of pot follows member could be increased, but we envisage beginning with auto-enrolment pots. I am clear about that, and there is no ambiguity: we are beginning with auto-enrolment pots.

The hon. Member for Brighton, Pavilion (Caroline Lucas), who is not in her place, asked when further action would be taken on fiduciary duties. For the record, in case she should happen to read it later—or watch a video—I can confirm that the Law Commission’s final report on the issue will be published in June 2014. Obviously, further debate will take place at that point.

I wish to respond to the related issues raised by the hon. Members for Hayes and Harlington (John McDonnell) and for North Ayrshire and Arran (Katy Clark). The hon. Lady asked about the important issue of the position of protected persons, on which we have consulted and on which I hope we will shortly reach a conclusion. We think that slightly more workers are involved than she suggested, but certainly tens of thousands of workers are affected. One challenge we face is that this is not just a matter for our Department. For example, if we place a cost on the energy employers through the abolition of the national insurance rebate and if we exclude their employees because they are protected persons, that has the potential to feed its way into energy bills. Her party leader has a view on energy bills, as do we, but the knock-on effect of a decision we take on energy bills has to be thought through. The same applies in the transport sector, to which the hon. Member for Hayes and Harlington referred. If railway and other employers cannot pass on through the pension scheme the costs we are imposing on them through the ending of the rebate, that will find its way through into fare increases and to consumers. So we have to think through a wide range of consequences of these decisions. That is why this is taking a while, but I appreciate the need to get on with it.

The hon. Gentleman said that there was a special case for the railway industry. His new clause 7 does not provide any protection in respect of any of the other privatised utilities; there is no suggestion that if any of those employers went to the wall pension protection should apply—it would just apply to the rail industry. If he feels so strongly about the justice of this issue for rail workers, why does his new clause not say that any protected person should be protected if the sponsoring employer goes bankrupt? I know his affiliation, and I have spoken to him in his role as leader of the group on rail workers, but if Parliament were to accept his new clause, we would have to deal with the question about why we did not do this for everybody else, too.

[John McDonnell]

I have a lot of time for the hon. Gentleman, but I find that beneath him. He knows that I have been involved in this campaign for a number of years, since Jarvis went into administration as a result of the network intervention. We faced a specific issue that could be dealt with very speedily; it does not have to await further consultation with other industries. That does not mean that I do not concern myself about other industries and other workers, but this particular campaign is related to my constituents and to a specific industry in which I have taken an interest over time.

[Steve Webb]

I know that the hon. Gentleman has taken a particular interest over time in this industry. My point is that his argument about justice—his argument that pension protection should mean not just the same terms and conditions, which was what it did mean, but protection against insolvency—should apply equally across other industries, and should not just apply to the rail industry, if that is what he believes. When John MacGregor made the promises that the hon. Gentleman quoted, he was saying that the terms and conditions of the pension scheme would be the same with the privatised employer as they were with the state employer. Subsequently, a pension protection fund was created. Jarvis paid pension protection fund levies and that is why the employees are in the pension protection fund. The three privatised railway firms paid—

[John McDonnell]

On a point of order, Mr Deputy Speaker. There comes a time when accuracy is important in this House. John MacGregor, as Secretary of State, gave assurances that when British Rail was privatised pensions would be protected. He said not that they would have the same protections as private companies but that pensions would be protected. There is a point of accuracy, so that Ministers do not attempt to mislead this House.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I am sure that nobody would deliberately mislead this House—let us clear that one up. That is not a point of order but it has certainly been corrected for the record, which will be read tomorrow.

--- Later in debate ---

[Steve Webb]

Let me reiterate: Jarvis and the other firms paid the pension protection fund levy.

[John McDonnell]

That is irrelevant—absolutely irrelevant.

[Steve Webb]

It is not irrelevant—

Benefits Uprating

Debate between Steve Webb and John McDonnell

Tuesday 6th December 2011 Commons Chamber

[John McDonnell]

Many of my constituents would have welcomed the increase but they cannot because they are no longer receiving their benefit, particularly as a result of the Atos assessments of disability living allowance. In addition to that, having lost, or not gained, their benefit, they are waiting long periods for their appeals. Will the Minister look at the length of time that people are waiting for their appeals and the number of appeals that have been postponed as a result of lack of staff?

[Steve Webb]

The hon. Gentleman is bringing together several different issues. It is entirely the case that at the time of the election the previous Government had given Atos a contract for the work capability assessment for ESA—not DLA—and we have gone through with the Harrington process, independent reviews and recommendations for change, all implemented by the Government. Good progress is being made on making the system fit for purpose, but getting the decision right first time is better than speeding up the appeals process, and we are doing that more and more because we are reforming the system.

Social Security

Debate between Steve Webb and John McDonnell

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

We are doing it this year for pretty much every benefit in the entire uprating order, which runs to many pages. The ones we are not doing it for are the basic pension and the pension credit. We are not doing it for the basic pension because the budget we inherited provided for a larger increase and we did not want to pay a smaller increase than was planned. If the right hon. Gentleman thinks we should have done so, I will take that advice, but he probably welcomes the fact that we did not follow it.

The Chair of the Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), indicated that unfortunately she could not be in the Chamber for the wind-ups. She asked why we had chosen a different figure for the pension credit. As I think I explained in my opening remarks, as we were putting the basic state pension up by about £4.50 a week, we did not want the increase in pension credit to be less than that, because the poorest pensioners would not have the full benefit of the pension rise. That was the basis for the increase in pension credit.

The right hon. Member for East Ham asked about the impact assessment on occupational pensions, and I am happy to say a few words about that. In December, we published an impact assessment suggesting a £76 billion impact from the reduction in revaluation and indexation. To respond to a point made by my hon. Friend the Member for Finchley and Golders Green (Mike Freer), one way of looking at that is to see £76 billion less in pensions, but another way is to see a £76 billion boost for British business. We are trying to reduce the regulatory burden on British business, so an advantage of the change—albeit not the purpose—is that major British firms will make a saving, and they and their pension funds will be in a stronger position as a result. Many pension schemes and companies have welcomed the change for that reason.

We discovered an error. We made a mistake, for which I apologise. As soon as we found it, we decided to give the House a revised estimate. In addition, we were asked by the Regulatory Policy Committee to revise the way we calculate net present values; I know that the right hon. Gentleman takes a close interest in such matters, and if he is not careful I shall tell him what it was. To draw the threads together, we reissued the figures last week, ahead of this debate, with an £83 billion estimate. That is a further interim estimate. We then undertook field research, as I mentioned, to ask companies how they will respond to CPI/RPI. We have early results; it would be premature to say what the impact will be, but early indications are that fewer pension funds will take advantage of CPI than we had thought. Such things are complex and there could be factors that move them in the other direction, but my sense is that the final version of the figures is more likely to be lower than the one we have already published, but we thought we should give the latest estimate as soon as we had it.

The right hon. Gentleman raised the important issue of accrued rights. It is a fundamental point and it relates to my pre-election remarks about a pension promise made being a pension promise kept. What is the accrued right of someone in a public sector pension scheme, or any pension scheme? The first point is that everything accrued to date—all the revaluations to date, based on RPI—stand; we are not going back and saying that all the revaluations to date have to be reworked according to CPI. The provision is prospective, not retrospective.

The question then is what future expectation people legitimately have. If they are in a company scheme that has RPI in the rules, we actively chose not to override that. If that was their expectation, because it was in the rules, that is what they will get. However, people in the public sector are members of a scheme whose rules are tied by statute to what we do to SERPS. That is the accrued right they have always had, and we are not changing it. We shall go on indexing their pensions in line with what we do to SERPS each year. That was the pension promise they were made; that is the pension promise we are keeping. We are indexing SERPS by CPI. I accept that, and I also accept that on average that will be lower than RPI, typically by about 0.8% a year. I do not dispute that. The accrued right is the one we are honouring.

The right hon. Gentleman said in parenthesis that pensioner inflation is typically higher than general inflation. I do not know whether he actually believes that; it was never something his Government took into account when setting pensions. They never uprated pensions differently because of pensioner inflation. There are certainly periods when pensioner inflation is higher when, as the right hon. Gentleman said, the costs of fuel and food are rising faster than the norm, but there are other periods when it is lower. I have asked officials to look at the matter and there is no evidence over a 20-year run that pensioners buy goods that have that inflation time bomb ticking away inside them. There are times when inflation is higher, which may include recently, and times when it is lower, but over the long run there is no evidence for that proposition.

My hon. Friend the Member for Cardiff Central (Jenny Willott) welcomed the restoration of the earnings link, and the triple lock. I am grateful for her support. She quite properly put me on the spot about the future of the pension system. I accept her analysis; we need a pension system fit for the future. If we are to auto-enrol 10 million of our fellow citizens, we need to be confident that it pays to save, and that they will be better off. I assure her that that is absolutely central to our thinking about long-term pension reform. We are making good progress on that project.

The Chair of the Select Committee asked a number of questions. I will respond to one or two on the record, although she has explained why she is not here to hear the response. She kept making the point that the basic state pension is not the only part of a pensioner’s income. Of course it is not.

I thought that the hon. Member for North Ayrshire and Arran (Katy Clark) made some sincere comments. She raised the issue of people with relatively modest occupational pensions who will get less under CPI. The state pension is bigger than all of those figures. Every one of the figures she quoted is less than the basic state pension. The package of Government policy on pension indexation is for an earnings link on the basic and a CPI link on the additional. The basic pension of every person she is concerned about is bigger than their additional pension, the earnings link in the long run is worth 2% more than prices and CPI is 0.8% less than RPI. The people she is most concerned about will overwhelmingly benefit from our package of policies. Therefore, I can assure her on that point. Taking the package as a whole, they will be better off, not worse off.

My hon. Friend the Member for Gillingham and Rainham (Rehman Chishti) made an important contribution and pointed out that Age UK, which is very much an independent organisation, was delighted by the triple lock, because it is a historic move to give pensioners the best of earnings, prices, plus 2.5%. I wish only that we were able to do this in a normal year—in 16 of the past 20 years, earnings were greater than prices. People would then start to see the benefit of the earnings link and the triple lock, and in time they will.

The hon. Member for Arfon (Hywel Williams) quoted some civil service pension figures. I make the same point to him. All the figures he quoted, based on average civil service pensions, prove my point. If we take them in isolation, CPI is lower than RPI, but people do not just get their civil service pension—they also get their state pension. We are putting more in through the state pension than we are taking away typically through the additional pension because of the relative sizes and the difference between the various indices. Our constituents write to us and raise the bit they see, but overall the state pension will more than make up for that for the vast majority of people, although not for people with very large pensions.

On the ratchet, I simply accept the hon. Gentleman’s rebuke for fiscal irresponsibility. I will take it on the chin and pass it on to the Chancellor for him.

I enjoyed the contribution of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) and his account of his conversation with Jack Jones. I am delighted to say that both coalition partners supported that. We needed the Chancellor on board for that one. I regard it as being to the credit of both coalition partners that we have been able finally to restore the earnings link. I am grateful to my hon. Friend for raising the case of his constituent. As he was describing it, I was thinking that I was sure I signed a letter on that the other day, and I gather he has now received it. I apologise to his constituent for the mistake that was made and I hope that that has now been resolved.

The hon. Member for Hayes and Harlington (John McDonnell) perfectly properly says that he will not support the order and that he is against mass means-testing and so am I. A pension system that allows too many people to retire poor and means that they have to be swept up by a leaky safety net is not a good, sustainable long-term pension system. I have set it as my goal to do something about that. We may not agree about these orders but we have common cause on that principle.

[John McDonnell]

Did the Minister ever consider a quadruple lock so that, earnings or inflation, CPI or RPI, whichever was the higher, would be used?

[Steve Webb]

We did look at that. Either one could say that what one is trying to do with pensions and benefits is protect pensioners’ spending power—that would be a price measure—or one could protect people’s position relative to the rest of society, which is an earnings measure. One wants to avoid silly small figures such as 75p, which is where the 2.5% comes from. To say, “But we will measure inflation according to different measures and we will pick the biggest” conceptually does not work for me. We could have done that, but in our judgment the point of revaluation is to maintain spending power fairly for the group in question. Our judgment is that CPI is the answer to that question.

There is a separate question about whether pensions should be higher or lower. In a way, the hon. Gentleman and the hon. Member for North Ayrshire and Arran are saying that we should be paying bigger pensions. It seems to me that that is an entirely separate debate from how we should correct for inflation. That is where CPI comes in.

[John McDonnell]

There is a point of principle that the Minister and I have argued over the past 13 years at least, which is that, whatever measure is introduced, there should not be a loss. Having that quadruple lock would convince people that this is at least a way forward, because people would be protected against years such as those five out of the past 20 where CPI was higher than RPI.

[Steve Webb]

I come back to my point that as the basic state pension is a big part of pensioners’ income, particularly for the most vulnerable, we are protecting their living standards overall—they will get bigger increases under this package of indexation than they would have on the basis of a straightforward RPI level alone. I believe we are doing the right thing.

I am grateful to my hon. Friend the Member for Finchley and Golders Green (Mike Freer) for his kind comments and I appreciate the expertise he brings to the debate. He was absolutely right that the idea that large numbers of pensioners will have large mortgages is quite implausible. It is true that 7% have some mortgage interest at the moment, but even those who face mortgage interest will typically have lower average amounts because they will be towards the end of their mortgage terms. Basing an inflation measure on an index that includes mortgage interest seems to me to be quite inappropriate for pensioners. As my hon. Friend pointed out, one consequence of CPI schemes such as the local government pension scheme is that it will help to put pensioners on a more even keel. As he also rightly said, this money has to come from somewhere—somebody has to find it—and this order will have the consequence of getting the systems on to a more sustainable basis. My hon. Friend tempts me on public sector pension reform, but I obviously must not pre-empt what Lord Hutton will say. He will be saying what he is going to say within the next few weeks, so we do not have much longer to wait.

Drawing the threads together, this debate has provided a worthwhile exploration of the issues. Our fundamental point is that the principal order will cost the Government £4.3 billion to protect and enhance the benefits for the people who need them the most. I am proud to commend these provisions to the House.

Question put,