Public Service Pensions Bill

Sheila Gilmore Excerpts

Monday 29th October 2012 Commons Chamber

[Andrea Leadsom]

The hon. Gentleman will recall that the Government made great efforts to ensure that the cliff edge affecting certain women born in a certain couple of years disappeared. He will also be pleased to note that the pensions of those with less than 10 years until retirement will not be affected by this measure, which provides the ring-fencing for those with not long to go until retirement age. I would have thought that he would welcome that—again, on the basis of fairness between those workers and the taxpayer.

Of course, two thirds of private sector workers are not members of a pension scheme. We have heard hon. Members from all parts of the House say that we do not want a race to the bottom. We are proud of our public sector pension provision, and nobody would wish to see it brought down to the abysmal level of private sector pensions. However, it would be pleasing if Opposition Front Benchers were to concede their part in the destruction of private sector pensions, which has made a significant contribution to putting us into this pitiful position; private sector pensions have been decimated by the actions of the previous Prime Minister.

An important point of fairness is involved in the fact that the taxpayer contributes three times more to a civil service employee’s pension than the average private sector employer pays in. The employer contribution rate to the civil service pension scheme is 19%, whereas the average private sector employer contribution rate for a defined contribution pension scheme is only 6.4%. To get the same pension in the private sector, someone would have to contribute about a third of their salary.

[Sheila Gilmore (Edinburgh East) (Lab)]

There is something extraordinary in what the hon. Lady has just said, which several of her colleagues also said. They say, “We don’t want to compare with the private sector. We don’t want to have a race to the bottom.” They then say, “But” and come out with a long string of comparisons about employers not paying as much. If this has nothing to do with comparisons with the private sector, they should stop comparing.

[Andrea Leadsom]

The hon. Lady makes an extremely good point. I am not advocating that we reduce public sector pensions to the private sector level, but this does, of course, absolutely bear comparison. This Government are not reducing public sector pensions to the pitiful state the Labour Government left private sector pensions in when they left office. That is precisely the point I am trying to make. We are proud of the fact that our public sector pensions will remain among the best in the world. That is something to be very proud of, and the Opposition should be congratulating the Government on having achieved that at this extraordinarily difficult time.

Let me disabuse Members of one final myth. The Opposition like to say that private sector workers earn more, so private sector pensions make up for the shortfall in salaries. That is not the case. The Institute for Fiscal Studies calculates that on average hourly public sector wages are 7.5% higher than hourly private sector wages, even when we take into account an individual’s education, age and qualifications. That is a very important point. Public sector pensions do not subsidise lousy working rates—quite the opposite, in fact. Those in the public sector rightly have a good deal in their employment and in their pension. That is what we wanted to achieve and I commend those on the Front Bench for doing so.

The most important aspect is sustainability, because what we had was unsustainable. Over the past decade, public sector pension costs increased by a third in real terms. Between 1999-2000 and 2009-10, the amount of benefits paid from the five largest public service pension schemes increased by 32% in real terms. In five years’ time, we are set to spend £33 billion a year on public sector pensions—more than on police and transport combined and 1.8% of GDP.

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[Sheila Gilmore (Edinburgh East) (Lab)]

I have a feeling that an instruction has gone out to those speaking in support of the Government, and it appears to have been, “Be nice to the public sector.” Speaker after speaker has taken great pains not only to praise the public sector and public sector workers, but to accuse the Opposition of daring to suggest that there might be another view.

I have sat in the Chamber over the past two and a half years, and I do not think I imagined the numerous occasions on which Government Members spoke of gold-plated pensions and the overall extra cost of pensions, or indeed imagined the whole way in which the public sector has been treated. We are clearly now meant to assume we imagined that, but public sector workers have had a pay freeze and are facing job losses in many parts of the country.

On top of that, the view expressed for two and a half years that the public sector is holding back the economy formed much of the justification for many of the policies that followed. We have been told time and again that if we cut back the public sector, the country’s economy will spring to life, and that the public sector is exercising a great drag on the economy. If we put those things together, it is perhaps not surprising that Opposition Members, and many workers in the public sector, have concluded that the coalition Government do not particularly like or support the public sector, however supportive they may be of individuals or people they have come across. That is the backdrop against which the whole debate has been set, and that is why people are still sceptical and concerned about some aspects of the Bill.

If contributions had not been made, quite separately, on the restructuring of the pension schemes, and if we were not working against the general backdrop of the Government’s view of the public sector, many people, including Opposition Members and public sector unions, would perhaps not be asking: where is the guarantee? It is not good enough to say that we want to put pensions on a firm and definite footing; we must ensure that that happens. When parts of the Bill suggest to any casual reader that that may not be the case, one can understand why people have doubts.

The Bill does not rule out further changes for any number of years, let alone 25 years; nor does it rule out the possibility that some public sector schemes in future might be defined contribution schemes. We have heard lots of praise for defined benefit schemes by hon. Members on both sides of the House, but the Bill opens up the possibility—this is what people have spotted when reading it—that we could see the introduction of a defined contribution scheme.

We must be clear, therefore, on whether we are giving long-term protection. Pensions are a long-term business. The problem for pension provision in this country—whether state, public sector employee or private sector pensions—is that taking the long-term view has proved to be difficult. I will not take lectures from Conservatives, who suggest that the only reason why the private sector moved away from defined benefit schemes, or indeed from providing pensions altogether, is due to a policy of the previous Labour Government, because the Tory Government under Mrs Thatcher destroyed the state earnings-related pension scheme. They did not reform it and say, “Over the longer term this may prove to be quite expensive and we might have to look, for example, at its accrual rates,” which were generous; they destroyed it, in the name of giving people the freedom to make their own choices. I remember exactly what happened. People said, “Oh well, if I don’t have to pay in to this, I won’t pay in to anything.” Twenty or so years later, those people are no doubt approaching retirement with very little pension. That was extremely destructive legislation. In its place, people did not at that stage get defined benefit schemes. Often, they were encouraged to go to insurance companies and other such organisations to take out pensions of a defined contribution type, but those schemes have not provided them with an adequate pension in their upcoming retirements. If we are to have a cross-party consensus—I do not know whether we will—security for the future must be built in to the Bill.

Hon. Members have said warm words about why some people will not be fit to work through to normal retirement age. However, if people are not fit to work, we need flexibility in the Bill—it cannot be left until later. Ministers have criticised previous legislation on a range of issues for being too inflexible, and have argued that that makes it difficult to make changes later. We need flexibility on the pension age. If we lock the normal retirement age for public sector pensioners to the state pension age in the Bill, it will be difficult to have flexibility, even if it proves to be needed on health or other grounds. We do not want people who do not work to that later age claiming benefits and losing a lot of their assets. Nowadays, many people who claim employment and support allowance can do so on a contribution basis for only a year. If they have other income, they will not get means-tested benefits. Many people who end up leaving work early on health grounds lose a great deal of money.

We are concerned about those in the private sector who are in that position. Even with the state pension age as it is, many people, particularly men in the 60 to 65 age group, are not working on health grounds. I therefore urge the Government to look again at that factor. If they are serious about their concern for people who might find it difficult to work in public sector jobs on health grounds, they need to make it possible to relax the rules in future.

Parts of the Bill require changing. It is important that we go ahead and make those changes, and that we do not say, as has been suggested by some Government Members, that the Bill is already perfect.

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[The Economic Secretary to the Treasury (Sajid Javid)]

I thank Members for the lively debate that we have had this evening. In the short time that I have spent as Economic Secretary, I have been helping the Government to try to get three Bills through Parliament, this being the third. In each case, the Opposition have backed off from calling a Division. I am becoming a little concerned: I hope that that does not become a pattern of behaviour.

The Bill represents a milestone in the history of public service pension provision, and I am not surprised that some Members feel strongly about it. Legislation that affects the pension rights of more than 6 million public servants is worthy of serious consideration and scrutiny.

I think that we should bear in mind the economic backdrop to these reforms. During its last year in government, the Labour party burdened the UK with the largest budget deficit since the second world war and the largest in the developed world. It amounted to £159 billion. Labour was borrowing £5,000 a second, which means that it would have borrowed about £90 million between the moment we started today’s debate and now. [Interruption.] The hon. Member for Leeds West (Rachel Reeves) asks how much we are borrowing. That gives me a good opportunity to remind everyone that we have cut the deficit by a quarter. That is what has brought the country economic credibility, and that is what has kept interest rates low and given us the time in which to make serious long-term adjustments to public spending costs.

[Sheila Gilmore]

Will the Minister give way?

[Sajid Javid]

I will in a moment.

Because of their long-term nature, pension reforms will not save money quickly, but they make an essential long-term contribution to the health of public finances. We have heard that today from a number of Conservative Members, including my hon. Friends the Members for Bognor Regis and Littlehampton (Mr Gibb), for Bromley and Chislehurst (Robert Neill), for Monmouth (David T. C. Davies), and for Thurrock (Jackie Doyle-Price). As the Chief Secretary has said, it has been forecast that the Bill will save UK taxpayers £65 billion over the next 50 years.

[Sajid Javid]

My hon. Friend raised the same issue in his speech. I think it fair to say that that would have involved an excessive fiscal cost, and would have been much more complex than the approach that we have taken. I hope my hon. Friend accepts that.

In preparing this policy, we have been careful to follow the recommendations set out by the former Labour pensions Minister Lord Hutton in his independent report. We have heard much about trade unions today. The head of the TUC, Brendan Barber, whom I met recently to discuss our reforms, has described the report as a “serious piece of work”. He has taken a very constructive approach to the problems that the Government are trying to address.

While we are on the subject of trade unions—

[Sheila Gilmore]

Will the Minister give way?

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[Sajid Javid]

As I said, unions representing two thirds of union members have accepted our proposed schemes, and the vast majority of unions have taken a very constructive view.

[Sheila Gilmore]

rose—

[Sajid Javid]

I give way to the hon. Lady.

[Sheila Gilmore]

I thank the Minister for giving way. I want to take him back to what he said previously. As usual, he chose to frame his comments in the context of the deficit. His Government came to power saying that they would eradicate the deficit within the term of this Parliament. Now, after two and a half years, he says that we should be grateful that he has reduced it by a quarter. His economic policies are not working.

[Sajid Javid]

I was expecting a lot more than that from the hon. Lady. I am proud that this Government have already cut the deficit her Government left behind by a quarter. That is a significant achievement. The shadow Chief Secretary, the hon. Member for Leeds West, said she was unable to commit to keeping the CPI change we have introduced to public sector pensions beyond the term of this Parliament. According to the Office for Budget Responsibility, that would leave a black hole in the public finances of up to £250 billion in current GDP terms over the next 50 years. I look forward to hearing how the Opposition plan to fill that black hole.