William Bain
Main Page: William Bain (Labour - Glasgow North East)Department Debates - View all William Bain's debates with the Scotland Office
Public Sector Pensions
William Bain Excerpts(12 years, 11 months ago)
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Mr William Bain (Glasgow North East) (Lab)
I apologise to the hon. Member for Arfon (Hywel Williams) for missing the first few moments of his opening remarks. Let me begin by paying tribute to the contribution made by those who work in our public services, including 595,000 in Scotland, such as those who care for the sick and elderly in hospitals and care homes, those who provide inspiration to children through the gift of teaching and those who clean up our communities. They are the backbone of our society. They had no part in causing the great recession or the slump in tax revenues and demand in 2008-09. They deserve better treatment from the Government, whose economic policy is based on a further 310,000 of them being made redundant by the end of this Parliament, and their families suffering an uncertain future, and all because of the Chancellor’s adherence to a deflationary economic theory that is not working and is sapping hope and potential from communities across our country.
Mr Graham Stuart (Beverley and Holderness) (Con)
I agree with the hon. Gentleman’s sentiments towards public sector workers and the excellent work they do, but they were a part of unsustainable Government spending, even in years of boom revenues. Does he accept that they deserve an apology for the role that he and his party played in giving us unsustainable public funding, which has now led to hard decisions having to be made by the Government?
Mr Bain
The current Chancellor agreed with every penny piece of spending from 2005 to 2008. He decided to change course on public spending only when the recession was beginning to hit. We can see from the economic illiteracy of the previous Budget and the autumn statement that to have adopted a deflationary policy at that time would have seen unemployment and public sector redundancies soar even higher. That is not the approach that would have safeguarded a recovery, and it is one that we were right to reject.
Mr Bain
I will give way to the hon. Gentleman later.
Today’s concessions by the Secretary of State for Health on NHS pension contributions show that the Government’s plans are already unravelling under the weight of their own contradictions and injustices. Is it not disgraceful that the Chief Secretary to the Treasury did not come to the House today to make a statement on the details of this partial climbdown, instead of the Government briefing the press?
At first sight, the concessions stand up to no more scrutiny than the Government’s previous partial climbdown, which would have required a near 50% increase in annual contributions from affected workers, for up to eight years longer, with the claimed increased pensions paid for as much as eight years fewer, losing real terms value each year due to uprating in line with the consumer prices index rather than the retail prices index. Unison has already said in response to today’s announcements that a one-year delay before low-paid workers will pay higher contributions is cold comfort.
This is the Government who refuse to impose a tax on bank bonuses, but believe that nurses, teachers and catering staff should face additional tax rises instead. This is the Government who in the autumn statement sought to slash £1.2 billion a year from the tax credits of these same workers, hurting women and children four times more heavily than the balance sheets of the banks. We need a negotiated solution in which both sides give ground. The Opposition accept many of Lord Hutton’s points, but the Government pre-empted this with the hike in contributions, which must be subject to negotiations.
Let me set out the reasons why we find the Government’s current proposals unacceptable and urge them to produce plans for the future of public sector pensions that genuinely do not penalise those who are least able to shoulder the burden. First, the Chancellor’s proposals are not about fairness or long-term stability. They are motivated by a reckless plan of spending reductions that are made worse by his failure to grow the economy in the last year and the slump in growth that the Office for Budget Responsibility predicts for this year, next year and the year after. The Chief Secretary to the Treasury set out in the comprehensive spending review last October cuts in the public sector pension bill from next April of more than £1 billion, rising to £2.8 billion by 2014-15, coming from the 3.2% hike in contributions paid by 750,000 public sector workers, all as part of the Government’s plan to take £81 billion out of the economy by 2015 through public spending cuts. However, given that the lack of demand and growth is the biggest problem facing the country today, how will reducing the living standards of hundreds of thousands of public sector workers on top of the two-year pay freeze increase consumer confidence or strengthen the retail and service sectors, which will be harmed by this tax on public sector workers?
David T. C. Davies
How much will this plan B that the hon. Gentleman is outlining add to the national debt, and what will be the increase in interest payments each year as a result of the money he wants us to borrow from the banks that he despises?
Gordon Banks (Ochil and South Perthshire) (Lab)
Does my hon. Friend agree that it is all about priorities and that the Conservative party has the wrong priorities and we have the right ones?
Mr Bain
I want to make some progress and will give way again in a moment.
The Government are attempting to create the politics of division between low-paid workers in the private and public sectors and to engage in a race to the bottom on public sector pensions instead of focusing on increasing provision among employees in the private sector, but the public will not be fooled. Cutting a dinner lady’s pension will do nothing to increase the pension of a call centre worker or end unfairness in private pension provision. Two in three private sector workers are not in a workplace pension scheme. Two in three public sector staff earning between £100 and £200 a week are in a pension scheme, but only one in seven private sector workers in the same wage band are in a pension. Only 11% of private sector employees are in defined benefit pension schemes. The Government simply fail to grasp or take action on the unfairness in the pension packages of top directors in the private sector, who have pensions worth nearly £4 million on average.
Mr Bain
I will give way to the hon. Gentleman a little later, because I want to make more progress with my argument.
The average public sector pension in local government is £3,000 a year, and half of female public sector pensioners receive less than £4,000 a year, or £80 a week. As Lord Hutton’s report makes clear, the notion that current public sector pensions are gold-plated is entirely wrong. The Government’s plans mean that a part-time 45-year-old school dinner lady with five years’ service, who is in the local government pension scheme and on a salary of £8,000 per year, would receive £400 a year less in her pension by the age of 65, or £672 a year less if she took it at 68, while she would pay £5,500 more in contributions by her retirement.
In April, the Government altered the indexation of public sector pensions from the retail prices index measure of inflation to the consumer prices index measure. The TUC estimates that the change has reduced the average value of public sector pensions by 15%, and the OBR has assessed the reduction to be 8.7% by 2017.
Dr Whiteford
If the hon. Gentleman is so concerned about the switch from RPI to CPI, why did he not vote against it on 17 February?
Mr Bain
Sadly, this Government will have had another three Budgets and, perhaps, another three autumn statements by the next general election, so we will make our spending plans clear at that general election—[Hon. Members: “Ah!”] We will, and those plans will not involve the massive cuts in capital spending that have put construction workers on the dole in Scotland—which the Scottish National party has made over the past two years.
Mr Bain
I accept that Liberal Democrat Members might be prisoners of a coalition agreement that they have signed up to for five years, but the hon. Gentleman has to explain to the Scottish people why the Chief Secretary to the Treasury now proposes further austerity, with £23 billion more in cuts in the first two years of the next Parliament, and to explain its effect on the lives of the Scottish people. The switch is a permanent change that will still hurt ordinary families even after the public finances have been restored to stability. The Government’s proposals harm those who are within 10 years of retirement and would have to pay the 3.2% increase in contributions for a pension that would be 15% smaller due to the Government’s changes to contributions and indexation.
The Government’s plans are a further attack on the living standards of women, as 90% of those affected are women, and they add to the effect of the Chancellor’s other cuts in spending, which hurt women twice as hard as men.
Mr Bain
I will in a second. I just want to make further progress on this point.
The Government’s plans measure income with reference not to gross pay, but to full-time equivalent earnings, treating a part-time employee on a salary of £14,000 a year as if they were a full-time employee on a salary of £28,000 a year. The Office for National Statistics’ own figures from last year show that 806,000 public sector workers who work part-time earn less than £15,000 but have full-time equivalent earnings above that amount. Of that number, 91% are women. Only 16% of public sector workers have full-time equivalent earnings of less than £15,000 a year and would escape the rise in contributions. The 3% hike in contributions means that some women would pay almost 50% more in pension contributions.
Secondly, the OBR’s fiscal sustainability report, published this July, makes it clear that, even without implementing the recommendations in the Hutton report but taking into account the likely rise in the elderly population, the cost of providing public sector pensions as a proportion of GDP will fall from 2% to 1.8% by 2030, and to 1.6% by 2060. Lord Hutton has not disagreed that, even without those changes, the costs of providing public sector pensions in the long term are sustainable.
The previous Government signed an agreement with civil service unions, ensuring that new civil servants entered a career-average scheme with a pension age of 65 years old, thereby benefiting low-paid workers whose pay rises are generally less than inflation and who are unlikely to benefit from regular promotions. The agreement helped in particular women, black and ethnic minority workers and people with disabilities. The National Audit Office, in December 2010, evaluated that 2007 deal and concluded that it
“reduces costs to taxpayers by 14 per cent”,
saving £67 billion over the lifetime of existing schemes.
Thirdly, a 3.2% increase in contributions by public sector workers in return for a lower pension would fail the test of fairness at a time when people on low and middle incomes face the biggest squeeze in living standards since the 1920s. For a public sector worker on average pay, the effect of this further attack on living standards is to the tune of a £3,000 cut in gross pay. A worker on a salary of £18,000 per year could lose more than £1,500 over the years from next April.
Fourthly, average incomes are set to fall by 7.4% by the end of this Parliament—the largest slump on record, and all because of this Government’s economic failure; and disposable incomes are set to fall by 4%, according to the Institute for Fiscal Studies in data published last Wednesday. Imposing a higher tax on public sector workers at such a time, with those trends in falling disposable income, is grossly inequitable. The hike in pension contributions, together with the current pay freeze and the future 1% pay cap, will lead to an average 16% cut in living standards by 2014 for public sector workers.
Mr Graham Stuart
Will the hon. Gentleman share with the House his party’s views? I know that he is putting off an awful lot until near the next general election, but, given his level of criticism, will he explain why he did not vote against the RPI-CPI change, as he has singularly failed to do, and whether he thinks that the system of public sector pensions which this Government inherited was entirely fit for purpose and in need of no reform whatever?
Mr Bain
The responsibility for the hike in pension contributions, and for the loss in pensions that public sector workers are going to suffer, is the responsibility of this Government, and I will not be deflected from ensuring that they take full account of it.
The Scottish National party should also—
Mr Bain
I have been generous enough in giving way. With respect, I encourage the hon. Gentleman to catch Madam Deputy Speaker’s eye if he wants to make further points.
The Scottish National party should thoroughly disown the proposals submitted by the Scottish Public Pensions Agency, which is accountable to Scottish Ministers, as its recommendations would be even more unfair for tens of thousands of Scottish public sector workers. The Scottish Government have power over the NHS, teachers, local government, police and firefighters pension schemes, with the exception of the local government pension scheme. They have not yet declared what they intend do in relation to local government workers, who face the possibility of paying additional contributions to their pensions, so they should end that uncertainty and make their position clear now.
The Government need to change course, to sustain and not destroy the living standards of public sector workers and to recognise that the crushing austerity that they seek to entrench for years to come will leave a legacy of higher child and family poverty. This country deserves better than a Government who are out of touch, out of growth and out of ideas for the future.
The Parliamentary Under-Secretary of State for Wales (Mr David Jones)
This has been a lively and at times impassioned debate—quite understandably, because the issue that we have been discussing is of the most extreme importance.
I should like to put a number of matters squarely on record at the very start of my remarks. First, I wish to make it absolutely clear that Government Members greatly value the services that the public sector performs, both in contributing to the economy of this country and in providing the services that each and every one of us needs. To suggest that we do not is grossly to misrepresent the case.
Secondly, I wish to object most strongly to the expression “gold-plated pensions”, which has been bandied about on the Opposition Benches. No one on the Government side of the Chamber is in any way suggesting that public sector workers enjoy gold-plated pensions—I have not heard that expression voiced by Government Members. Nevertheless, it was clearly a deliberate tactic on the part of Opposition Members to misrepresent the position by suggesting that Government Members regard the public sector as feather-bedded—we do not.
The fact of the matter, as one hon. Member mentioned some time ago, is that this time bomb has been ticking for a very long time indeed. The previous Government sought to address it but did so only partially. This Government are taking the difficult decisions that will be needed to put public sector pensions on to a sustainable footing for the years to come.
The hon. Member for Arfon (Hywel Williams), who opened the debate, suggested that it was positively Government policy for public sector workers to work longer, pay more and get less in return. The fact is that the Government’s proposals are aimed at ensuring that this generation and future generations of public sector workers receive pensions that properly reward their efforts after a lifetime’s work.
I echo the congratulations offered on the arrival of Jack and Rosie, the grandchildren of the hon. Member for Central Ayrshire (Mr Donohoe), but I should point out that they will benefit from the Government’s proposals. As the hon. Gentleman says, at the age of 70 they will require sustainable pensions, and they will thank this Government for taking the necessary decisions to put pensions on to a sustainable footing.
Lord Hutton’s analysis—many hon. Members said that they agreed with the general thrust of his report—shows that there are three drivers for reform, the first and most important of which is longevity. The average 60-year-old in this country will live 10 years longer than the average 60-year-old in the 1970s lived. Over the same period, the annual cost of public service pensions has increased by a third—it reached £32 billion last year. That simply must be addressed.
The second driver is flexibility, because public sector pension provision no longer reflects how the modern labour force work and live. The third driver is fairness, which is also important. The current schemes, which are predominantly final salary schemes, mean that lower-paid public sector workers effectively subsidise the pensions of the higher paid.
The reforms implemented by the previous Labour Government have not been sufficient to reverse the huge increase in the costs of public sector pension schemes as a consequence of increased longevity. The position is straightforward: either public service pensions are reformed, or our children and grandchildren—Jack and Rosie—will bear the cost of a virtually unsustainable financial benefit.
Mr Bain
The OBR fiscal sustainability report, which was published in July, makes it quite clear that public sector pensions are affordable. I refer the Minister to the chart that illustrates that the public sector pension share of gross domestic product will fall to 1.6% by 2060. Surely that does not tie up with his last remark.
Mr Jones
I refer the hon. Gentleman to the comments of Lord Hutton, who pointed out that his commission felt that there was a rationale for short-term cost savings in recognition of a substantial, unanticipated increase in longevity. In practice, these savings can be realised only by increasing member contributions. To suggest that it is impossible to address this problem in any way other than by increasing contributions is frankly fallacious and deceitful, and the Opposition know that.
The hon. Member for Arfon and others asked what negotiations were taking place. It is important to put it on the record that my right hon. Friend the Secretary of State for Health has met the NHS unions today, and my right hon. Friend the Minister for the Cabinet Office is also meeting the civil service unions later today. Negotiations are indeed proceeding apace, and to suggest that they are not—as the hon. Member for Hayes and Harlington (John McDonnell) did—is wrong.
The hon. Member for Angus (Mr Weir) claimed that 27% of workers will leave public sector pension schemes as a result of increased contributions. The Government have set out that those earning less than £15,000 will see no contribution increase whatever, and those earning less than £21,000 will see a maximum increase of 1.5 percentage points by 2014-15.