David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

I beg to move, That the clause be read a Second time. We are now into the last five new clauses—four of them, I am pleased to say, Liberal Democrat and one, no doubt, an expensive probing amendment from the hon. Member for Northampton North. That will allow me to triangulate my prudent and reasonable position wonderfully in the middle of these various contesting parties.

New clause 22 is an extremely important one, and the Minister will be delighted to see that I have tabled one that will help him to save money and, maybe, answer some of the problems that the Government have about funding a decently founded basic state pension. Hon. Members will immediately recognise and, I think, be instinctively sympathetic to the wording of new clause 22. The wording is lifted from the report of the Work and Pensions Committee, which concluded, in paragraph 418:

“We agree with the point made”—

by the right hon. Member for Birkenhead (Mr. Field)—

“that informed discussion, rather than ‘merely shuffling our prejudices’ is necessary for a debate on the future level and terms of public sector pensions. We recommend that the Government commission an independent review, which includes involvement from both the private and public sectors, about the future terms, benefits and financing of these schemes.”

You will note, Mr. Taylor, that our new clause also calls on the Government to establish an independent commission,

“to evaluate the future terms, benefits and financingof public sector pensions.”

So, I am hoping for considerable support from both sides of the House on this reasonable and prudent disposal, which was supported by Labour, Conservative and Liberal Democrat members of the Select Committee. This is not one of the dogs that  barked very much during the Pensions Commission report. Lord Turner had, after all, started off with a fairly narrow remit, but had understood that the remit could only make sense if he broadened it somewhat to include a lot of the state pension architecture. It would, perhaps, have been a bridge too far if he had debated the issue of public sector pensions as well.

Nevertheless, it was quite clear in the Pensions Commission report—I think it was in its first rather than its second report—that it was flagging up the growing inequality of provision between the public and private sectors, and the need for public policy to address that issue. In some of the evidence that outside groups gave the Select Committee, there was concern about the growing cost of public expenditure on public sector pensions. Adrian Waddingham, from the Association of Consulting Actuaries, told the Committee:

“I think there will be political resentment in future if we do have the ‘them’ in the public sector and the ‘us’ in the private sector with this huge disparity”.

When Lord Turner himself gave evidence to the Select Committee in December 2005, he took the view that it was perfectly reasonable to have salary-related pensions in the public sector as long as there was a process of “continual adjustment” so that as life expectancy goes up the generosity and cost of public sector pensions is kept reasonably stable.

I think that the Select Committee was particularly influenced by the right hon. Member for Birkenhead, who made a sensible contribution. He pointed out that a lot of the debate about public sector pensions is not informed by statistics and tends to involve a shuffling of people’s prejudices rather than a thoughtful and considered debate. That is why he and the Select Committee argued, as we are doing today, that there is an extremely strong case for establishing precisely the kind of independent commission that the Government established to look at the rest of the pension system in order to investigate that issue and ensure that public policy is informed by facts, not spin or prejudice from either end of the spectrum.

Why is that so important? In a few years’ time, public sector pensions will account for about £2 or £3 in every £100 of public expenditure. Public sector pensions represent an extremely rapidly growing area of public expenditure. At the moment, they account for about 1.5 per cent. of gross domestic product, and even after the relatively modest savings in the existing reforms that the Government are banking, the cost of those pensions will rise by about 50 per cent. as a share of GDP by 2020 to 2030, to about 2.1 or 2.2 per cent.

I suspect that when we get new figures on the cost of public sector pensions, relating to the unfunded liability and their share of GDP in the future, we will find that the rising cost profile will continue more rapidly, and that it will be powered not only by the terms of public sector pension agreements, but by the increasing numbers of public sector workers since 1999, and increasing pay costs, which recently have been a matter for public debate and comment in the NHS and elsewhere. Those things are bound to fuel the cost of public sector pensions.

It is ironic that the Government are constantly telling us that they have no money to repair the state pension architecture. Their figures show that between 2010 and 2020 the share of GDP spent on the state  pension architecture will fall by 0.1 per cent. at precisely the time when the cost of public sector pensions will continue to increase rapidly. That looks odd and we wonder why the Government’s priority is not to first restore a decent state pension architecture for every member of the public and then to fund a decent public sector pension on top of that.

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