Orders of the Day — Pensions (Increase) Bill

– in the House of Commons at 12:00 am on 29 January 1974.

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Order for Second Reading read.

10.15 p.m.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I beg to move, That the Bill now be read a Second time.

I am very pleased to move the Second Reading of this important Bill. It is important since it will bring benefits to about 100,000 public servants who retired in 1973 or will retire in 1974 and in some cases 1975. They include teachers, police, fire service officers, civil servants, local government and National Health Service officials. All those whose pensions are calculated by reference to pay that has been affected by stage 1 and stage 2 or by stage 2 alone of the Government's counter-inflationary policy will have their pensions increased by supplements of up to 9 per cent. The cost of this is about £5 million of which £4 million will fall on the Exchequer and £1 million on local government expenditure. If we did not introduce this Bill, all those who retired after 1st January 1973 or during 1974 and in some cases 1975 would have lower pensions permanently.

We are also taking action to allow the private sector pension funds to make similar provision for their pensioners if they wish to do so, and to this end the Inland Revenue will be making changes to the Code of Practice for Approved Occupational Pension Schemes.

Previous income policies—I am sure the House will appreciate this—including that of the last administration, have affected pensions adversely. This is the first time that action has been taken by any Government to mitigate the effects on pensions of an incomes policy. It fulfils a specific pledge given by the Prime Minister in relation to stages 1 and 2. This Government have a fine record in improving public service pensions, a record of which we can be proud.

To understand the precise nature of the problem which this Bill is intended to solve the House should bear in mind the very substantial improvements to public service schemes which we introduced in 1972. The most important of these was that any man or woman retiring from the public service since 1972 has his or her pension based upon the best salary he or she earned in the last three years, rather than the average of the last three years' salary, and in general this means that the pension is based upon the salary in the last year of service. Pensions, therefore, which are now being awarded are substantially higher than they were a few years ago, but they also—and the House will appreciate this—reflect rapidly and to a much larger extent than before any distortions or restrictions that occur in pay.

This Government also introduced the Pensions (Increase) Act 1971. Under this, cost-of-living increases are now given each year to public service pensioners to take account of rises in the cost of living since they retired. This arrangement puts public service pensions in a very good position—indeed, in a better position than that of many pensions in the private sector, though by no means all—since public service pensions are now inflation proofed.

As from 1st December last the pensions of all those pensioners who retired in 1972 or any time earlier were increased by percentages related to cost of living increases. This means that, because of the interaction of those two measures of improvement—the pension based on pay in the last year of service and the regular annual increase—if no mitigating action were taken, with effect from 1st December those whose pensions are based on pay affected by stages 1 and /or 2 would receive smaller pensions than those who had retired earlier. This would impose on them a permanent disadvantage in terms of pension for the rest of their lives and the lives of their widows.

That is the problem to which the Bill provides a solution. As I have said, we think it is important that we should not introduce measures only to assist public service pensioners, and so by selecting this solution which is based on the cost of living concept embodied in the Pensions (Increase) Act 1971 it has proved possible to make changes in the Inland Revenue Code of Practice for Approved Occupational Pension Schemes to allow the private sector to make comparable arrangements.

I do not want to detain the House for long at this late hour, but I should like briefly to explain the concept behind the Bill, which is difficult to read through and understand. It is written by actuaries and professionals for actuaries and professionals. I shall try to explain the basic concept because I know that what I say will be read with great interest by many public service pensioners affected by the Bill, who will have some difficulty in understanding its details.

The concept of annual cost of living increases and the method of calculating those increases provides the basis of the scheme in the Bill. The exact amount of an individual's supplement will depend on the date of retirement and whether or not he suffered a deferment of a pay increase under stage 1 of the incomes policy. The percentage increases are given in the Schedule.

Paragraph 17 of the Schedule gives the general formula for calculating the supplements. They are made up of a combination of 10·4 per cent.—the cost of living increase given to pensions beginning at the end of 1972—and 6·1 per cent.—the increase given to pensions beginning in the first half of 1973.

The basic concept is to divide into months the last year of service, which normally determines the pension, and apply a 10·4er cent. or 6·1 per cent. increase for each month according to whether the pensionable pay was received during 1972 or was affected by stage 1 or stage 2.

It may be helpful to give a few examples of what the Bill means to individual pensioners. I take first an assistant teacher, on Scale 2, working outside London who, on retiring on 31st July 1973, has qualified for a full pension of £1,224 per year. Teachers as a group were not affected by the incomes standstill under stage 1 but they received a pay increase on 1st April 1973 within the limits of stage 2. The Bill gives the teacher whom I quoted an increase of 7·9 per cent. on his basic pension with effect from 1st December—a cash increase of £97. Teachers retiring at later times—up to March 1975—would receive smaller increases as their pensions are less affected by stage 2 of the counter-inflation measures.

My next example is a National Health Service manual worker—a hospital porter, say—who had both stage 1 and stage 2 pay restrictions, retiring at the end of August 1973. He will receive an increase of about £41–8·6 per cent. of his basic pension of £476.

Let us take a public servant for whom I bear direct ministerial responsibility, a clerical officer in the Civil Service, again a grade whose pension was affected by both stages 1 and 2, retiring at the end of July 1973. He will receive a 9 per cent. increase.

In all the cases the supplement will be treated as part of the pension for the purposes of future pensions increases. Therefore, this is a correction lasting for ever, not just for this year. The supplement will also be added to the preserved pensions of those who leave during the period covered by the legislation, that is, those who retire from the public service and have preserved pension rights. Contingent widows' and other dependants' pensions will be similarly increased.

The Bill contains a provision for the appropriate Minister, with my approval, to make regulations modifying the special supplement arrangements in those relatively few cases where the pension is not based on pay received during the final year of service.

In Clause 3 we have taken the opportunity to include two unrelated further improvements in the pension increase arrangements for dependants. We have raised the upper qualifying age limit for increases in children's pensions from 16 to 17 to take account of the raising of the school leaving age by one year. We have removed, with effect from 1st December 1974, to coincide with the effective date of the next annual review, the age restriction for the payment of normal pension increases to widows without dependent children. At the moment we cannot pay such increases to widows under the age of 40 who have no dependent children.

As to the date of payment, for retirements before 1st December 1973 the increases will be paid with effect from that date. That is the date of the cost-of-living increases, and it is only at that date that the problem of distorted relative values of pensions occurs. For retirements after that date the problem is apparent immediately on award, and the increase will thus be given with effect from the date that the pension comes into payment. That is why I am anxious to have the Bill on the statute book as soon as possible. We want to get the increase paid to pensioners as quickly as possible.

In short, what we seek to do in the Bill is to reduce the disadvantage which public service pensions would bear as a result of stages 1 and 2 of the counter-inflation policy. It is the first time that any Government have taken this step. It is only fair and equitable that we should do so. I commend the Bill to the House.

10.26 p.m.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

The House will be indebted to the Minister for the clarity with which he has attempted to introduce a Bill which by its nature is difficult to understand. The hon. Gentleman in his speech dealt with two groups of pensioners—namely, the public service pensioner and what he described, I think, as the private pensioner in an occupational scheme. It is rather surprising that he left out pensioners or would-be pensioners of the nationalised industries. They represent a numerous group adversely affected by the counter-inflation legislation.

Nationalised industry pension schemes are, in a sense, half way between the normal public service scheme and the straight private occupation scheme. In the nationalised industries the pension schemes are best described as statutory schemes. Under the various nationalisation Acts it has not been left to the boards as employers to introduce pension schemes as they think fit or as a result of negotiations with trade unions. Under the statutes the nationalised industries are compelled to establish such schemes. What I have to say probably applies to all the nationalised industries but I intend to concentrate my remarks on electricity supply because I happen to be closely concerned with the welfare of the technical staff employed in electricity supply.

There are in the nationalised electricity supply industry two statutory schemes. One scheme is for the industrial staff and the other is for the salaried staff. The salaried staff scheme embraces all the professional, technical and administrative employees. It is a final salary scheme. As the Minister is aware, that is a most important point in relation to the Bill because it was those who had final salary schemes who in many ways were most acutely affected by the counter-inflation legislation. If nothing is done, they could have a reduced pension until their dying day and afterwards their widows would suffer the reduction.

Until two or three years ago—this is true of the electricity supply industry and, I think, the gas industry and probably other nationalised industries—it was necessary before any major change could be made in a statutory pension scheme to seek the approval of the Minister. But in 1971 certain amending legislation was introduced, by regulation, under which the statutory nationalised industry pensions schemes were released from the obligation to seek direct ministerial approval for changes. Those schemes were then placed more or less in the same position as occupational pension schemes in private industry. They were left only subject to normal Inland Revenue control because of the income tax relief on contributions which is allowed under the Finance Acts.

The Inland Revenue control is extremely complicated—sometimes called "the Code". It is called a code but the explanation of it, which I have here, runs into 275 clauses contained in 60 pages of close type. To be certain that a scheme really has the approval of the Inland Revenue in all respects an enormous amount of research is necessary. To make any change it is necessary fully to understand the code and its detailed application.

This has some relation to what the hon. Gentleman said because if he is telling me that the nationalised industries schemes are now to be in the same position as normal private occupational schemes as a result of changes to be made in the Inland Revenue code I should like him to give us an assurance that the nationalised industries schemes are to be covered and will have no difficulty in obtaining the necessary approval if they apply for it.

I pursued this matter earlier and tabled a Parliamentary Question last year. I received an Answer to the effect that it would be quite in order for occupational schemes to make adjustments to compensate any pension prospects for losses which would be incurred because of the working out of the counter-inflation policy. Strengthened by this reply I took the matter up on behalf of my own union, the Electrical Power Engineers' Association, with the Electricity Council. I ended by corresponding with the chief labour relations member of the Council, Mr. Harold Spear. In spite of the assurance given to me by a Minister from the Department of Employment that it would be plain sailing and could be easily done by adjustment, it was discovered by the electricity industry administration that this could not be done in fact.

If a person was about to retire and had served a full 40 years entitling him to the maximum of two-thirds pension there was no latitude allowed under the code because no pension and lump sum must exceed two-thirds of final remuneration apart from cost of living adjustment. If a change upwards is to be made it cannot be done for those who, by their long service, have already qualified for maximum pension. This was not obvious to the Department of Employment but it became clear in the discussions I had with Mr. Spear. He told me that unless something was done by way of special legislation these people would be adversely affected throughout their pensioned life. Could I finally therefore put these questions? Is this Bill intended to cover the nationalised industries and pensioners who retired during the time at issue? Is it intended to cover the nationalised industries in any way directly or indirectly? If not, will steps be taken to ensure that when changes are made in the Inland Revenue code there will be no difficulty about statutory occupational schemes obtaining exactly the same relief as that which the private industry occupational scheme is likely to obtain?

When exactly will the changes be made in the Inland Revenue code? Is it intended to make them in the next Finance Bill? May we have an assurance that they will not take a tremendous time? Experience teaches us that such alterations often take a tremendous time. It would be most unfortunate if after this legislation—which has been introduced fairly speedily to assist the public service pensioner—the nationalised industry pensioner had to wait for another year or two before any corresponding relief was granted. I should be much obliged to have the Minister's answers to my questions.

10.36 p.m.

Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington South

My hon. Friend the Parliamentary Secretary has introduced an extremely proper Bill which, of course, will be approved by the House. However, although the amount of money in terms of the total cost of Civil Service pensions is small, the implications are important and it is worth dwelling on them for a minute or two.

My hon. Friend the Parliamentary Secretary said that this proposal puts the public service schemes ahead of the private sector but by no means ahead of all private schemes. I differ from him in his emphasis. Final salary schemes which are, in effect, fully transferable and which are totally inflation-protected make public servants into a privileged élite in pensions. One may well say that there is nothing wrong with that or point out that the public sector schemes have led the way for a century or more. I do not object, but the matter is worthy of comment. The private sector cannot commit itself to make comparable arrangements.

First, without going over all the ground again, one must deplore the fact that the Government have not done what they undertook to do in making existing pension rights in private schemes fully transferable on change of employment. But no private scheme can offer full inflation protection as a guaranteed element of the benefit. A private scheme may achieve that if its investment policy is adroit or if the employer undertakes to top up the scheme to subsidise it to achieve this result. But I do not think I have heard of any scheme in which the element of total inflation-proofing can be guaranteed and is written into the scheme by the employer. For the Civil Service there is now no element of doubt: the taxpayer must find the funds. The Bill merely adds emphasis to the point.

The Civil Service scheme constitutes a significant addition to remuneration—an element which is perhaps higher than is achieved by any private scheme because the inflation guarantee is, in the present context, such an important element. Civil servants have a measure of job security which plainly, in present circumstances, cannot be guaranteed by many firms, if any, in the private sector. Those two factors constitute a significant element in the total package of Civil Service remuneration and terms of employment, and they must not be left out of account in the negotiations on Civil Service pay which take place from time to time.

10.40 p.m.

Photo of Mr Guy Barnett Mr Guy Barnett , Greenwich

I hope that the hon. Member for Kensington, South (Sir B. Rhys Williams) will excuse me for not following his train of thought. I want to look at the Bill from a different point of view, largely because I act as consultant to the Society of Civil Servants. It is in that rôle that I am speaking tonight, and I should declare an interest.

At the outset—although I shall make a couple of criticisms—I give a general welcome to the Bill. It is a highly complex Bill which the Parliamentary Secretary introduced with a remarkable degree of clarity. He said that the purpose of the Bill was to ensure that no civil servant was at the time of his retirement disadvantaged as a consequence of the counter-inflation policy. In view of that, it is right for me to point out what appear to be a couple of anomalies in the provisions of the Bill, on which I should be grateful for the Parliamentary Secretary's comments, as they affect mostly members of the Society of Civil Servants who retire.

The first is that the Bill appears to make no satisfactory provision for those pensioners whose pay had fallen furthest behind at the time when the incomes policy legislation was first introduced in November 1972. Secondly, it does not appear that any provision has been made for a recalculation of the lump sum where a pension scheme provides for part of a pension to be commuted in a cash payment.

To illustrate the first point, I draw attention to the way in which the Bill would operate within the Civil Service. Part I of the Schedule gives the percentage increases of basic rates of pensions calculated on pay rates where increases were deferred by stage 1 of the counter-inflation legislation. This Part will apply to practically all Civil Service pensioners, but the whole of the Civil Service is not due under the Bill to be treated in the same way.

The Civil Service pay agreement provides for Civil Service pay to be reviewed by the Pay Research Unit every two years, but to facilitate administration the job is done in two halves—one half of the service is reviewed in one year and the other half in the next year—and the review date is 1st January.

When stage 1 of the Government's counter-inflation legislation was introduced in November 1972, one-half of the Civil Service, mainly the professional and technical staff, had had their pay brought up to date from 1st January 1972. The other half, mainly the clerical, executive and messenger staff, were due to have their two-year review from 1st January 1973. The increases due from this review could not be implemented from the due date of 1st January 1973 because of the standstill, and they were further delayed because of the requirement under stage 2 that increases had to conform to the £1 plus 4 per cent. formula.

The House will recall that it was because of this difficulty that many clerical and executive grade civil servants took industrial action in the early part of 1973, and it was while discussing the situation that the Prime Minister first indicated to the House that because of the representations he had received from the Staff Side of the Civil Service he was aware of the difficulty about pensions and was hopeful that something could be done to put the situation right.

In the event, the Government conceded that civil servants due their PRU increase on 1st January 1973 were a special case, and the stage 3 pay code provided for them to receive what was due to them outside the pay limit. The code did not, however, allow increases to be retrospective to the normal operative date of 1st January 1973; instead, these pay increases were dated from 7th November last year—the beginning of stage 3.

As a result, the staff retiring from the Civil Service between 1st January 1973 and 6th November 1973 were in two distinct groups. One group was the professional and technical staff who had had their two-yearly pay review, and their pay was, therefore, very much in the same position as that of other workers who had an annual pay review deferred because of the standstill legislation. For this group, the proposed legislation provides a reasonable supplement to their pensions, but the other group, of which I am speaking, the clerical and executive staff, were in a different position. Their pay review was not implemented and the pay on which their pension was calculated was some two years, or 20 per cent., out of date.

For this group, the proposals in the Bill provide a pension enhancement very much less than is required to ensure that they are not disadvantaged as a result of the counter-inflation legislation. The Government have already recognised the special position of this group as an anomaly from the beginning of stage 3, and have ensured that staff continuing in employment do not suffer in pay, but the Bill does not do the job completely for the pensions.

I accept that it is not possible to assess the extent of the effect of the counter-inflation legislation on the pay and, therefore, the pensions of most groups of workers. Because of this, the somewhat crudely calculated pension increase supplements shown in the schedule are generally agreeable. But in my view there is no need to use this rather hit-and-miss method of calculation for those workers who were worst hit by the counter-inflation legislation and who were accepted by the Government as suffering a pay anomaly.

They have now negotiated pay increases—they were due earlier—and these pay rates have been vetted by the Pay Board on behalf of the Government. There is no dispute, therefore, about what they should have been paid and also no dispute about the time from when it would normally have been paid. For this group, the Bill should be amended to provide the opportunity for pensions to be calculated accurately, based on proper pay rates from the correct operative date, as recommended by the PRU.

The second point of criticism is that the Bill does not provide for that part of the pension which is commuted into a lump sum to be enhanced. This will mean that there will be unfairness between pension schemes, with some pensioners losing several hundreds of pounds. In pension schemes where a lump sum is payable, it is not paid by a benevolent employer in addition to a full pension. It is a cash sum paid for by the pensioner by accepting a lower regular pension payment. Therefore it seems quite unfair to enhance the full pension for those like the police, for example, who do not commute while only enhancing part of the pension for those who commute and take a pension and a lump sum. I hope that the Government will look at the possibility of amending the Bill with a view to correcting the anomalies which I have tried to point out.

However, I congratulate the Government. Undoubtedly the Bill is an advance. In view of these apparent injustices, I hope that something will be done to put these matters right during the Bill's passage through its various stages.

10.50 p.m.

Photo of Mr Tom King Mr Tom King , Bridgwater

I join the hon. Member for Greenwich (Mr. Guy Barnett) in welcoming the principle of the Bill. We all recognise that this is a necessary and fair corollary to the impact of the counter-inflation policy and that we should not penalise those who by accident find that they are about to retire or have already retired at the time when this policy has come into force.

I was surprised, however, that the hon. Gentleman resurrected the comment about certain seotors being more than two years out of date. This is a common fallacy which has never been answered satisfactorily. It is known that the Pay Research Unit does its exercise during the year and that it produces a result as at 1st January which usually is published in about April or May of the following year.

It seems to be embedded in people's minds that the unit's researches on comparability are based upon salaries which were paid at the beginning of the previous year. But industry makes salary increases at many different times of the year. If an industry with which Civil Service pay is compared makes its increases in September, October, November or December—the latter being a very common month—there is very little gap between its pay and that of the Civil Service. I am advised by those on both sides of the argument that late increases are included in PRU findings, with the result that they may be no more than one month out of date. It is quite wrong to suggest that there is a two-year gap. At most there may be a one-year gap.

The hon. Gentleman will convince me that I am wrong only if he can show me that the contrary is the case by telling me the dates of increases of industries, groups or sectors used in the comparability exercise and taken into account. But no one has been able to identify them clearly, and the information is not provided in the PRU reports submitted to this House.

Photo of Mr Guy Barnett Mr Guy Barnett , Greenwich

The hon. Gentleman may have misunderstood my argument. I was paid on Civil Service rates, and I received an increase at the beginning of 1971. I believe that that was the rate of pay still operative at the beginning of 1973. It was in that sense that I talked about two years.

Photo of Mr Tom King Mr Tom King , Bridgwater

In that case, I understand the hon. Gentleman's point. However, he will be aware of the argument raised over the two-year lapse and how many civil servants felt that they were always two years behind when a pay review was made. It has been argued before Committees of this House by officials of the unions concerned, but when challenged they have had to admit that it was not necessarily the case.

The Minister said that he was pleased to introduce a measure which was of benefit to all public service pensioners affected by the counter-inflation policy. We all recognise this to be abundantly true, and we are conscious of the comments of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) to the effect that some inflation-proofing is necessary. In the company with which I am associated, we look upon 3 or 4 per cent. as the required cost-of-living increase at the moment. We are about middle field, if not well above average, in occupational pension schemes.

Many pension schemes have very little inflation-proofing at all. If one knows in advance the cost of providing even a 3 per cent. inflation-proofing for pensions, one realises the substance of the point made by my hon. Friend the Member for Kensington, South about these inflationary times and the value of a Civil Service pension of this scale. The sums are very substantial if we are to attempt to fund them in advance, as in the private sector.

My hon. Friend referred to public service pensioners. I recognise the equity in this matter. However, he will be aware of my interest. It seemed that in all the equity for public service pensioners a grave injustice was about to be committed against those in private occupational pension schemes, no less worthy, who appeared to be about to be omitted from the Government's consideration.

I was pleased when my hon. Friend responded to a Question that I put down to him shortly after his original statement in which he said that the Inland Revenue rules would be changed so that the same or equivalent treatment could be permitted by firms wishing to make similar arrangements for their pensioners. That is obviously fair and right.

I share the concern expressed by the hon. Member for Bristol, Central (Mr. Palmer). My hon. Friend said that he hoped that the Bill would have a swift passage through the House, because all hon. Members would recognise the urgent need to implement these arrangements. We understand that the new rules will be introduced. But surely the same criteria and the necessity for urgency must in equity apply to private occupational pensioners as to Civil Service pensioners. I hope that my hon. Friend will be able to say that the amendment to the rules will be introduced at the earliest possible opportunity.

It is a little surprising that a matter of considerable importance to a substantial number of people in our community—I believe that over 100,000 are affected by these proposals—has attracted relatively little attention. However, I have had one important submission made to me, which I passed to my hon. Friend some weeks ago with a considerable number of detailed queries on the proposed measures. I am concerned that I have not yet had a reply to those points. I hope that my hon. Friend will give me an assurance of an early reply, certainly before the Bill proceeds into Committee. In conclusion, I should like to ask my hon. Friend a totally unfair question. I was intrigued by the reference to the special variation of the situation of dependants consequent upon the raising of the school leaving age. A number of issues and aspects of Government policy relating to treatment and finance could and are said to be affected by the raising of the school leaving age. As far as I am aware, this is the only proposal where the raising of the school leaving age has been taken into account in any adjustments in any area of Government finance. My hon. Friend may decline to enter into this wider sphere, but I should be interested to know whether the raising of the school leaving age has entered into any other adjustments in Government measures.

11.0 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

This is a short Bill and a very important Bill, but it is hideously complex. There is hardly an intelligible clause in it. It is a good thing that we are considering this Bill late at night because only a few hon. Members on both sides of the House are present to misunderstand it. It is always a great encumbrance in our debates when a large number of hon. Members are trying to understand a complicated Bill.

I give the Minister his self-congratulation on the Government's record on public service pensions. It is good, and he is entitled to say so. On this Bill, however, the Minister said several times that this was the first time that any Government had made pension adjustments for losses of pay suffered during deferments owing to economic circumstances. That is true, but in the past when pensions were calculated on the average of the last three years, any temporary losses of pay increases due to economic policy had a much smaller effect upon the final result than they do at present, when reckonable salary is that in the last year of service. Obviously, therefore, any deferment of increases in one year is of more importance than a deferment in three years. However, I shall not crab this extremely useful adjustment.

As the hon. Member for Bridgwater (Mr. Tom King) said, there has been no assurance so far that the principle to be applied to public service pensioners will be universally or even substantially applied to the private sector. After all, the conditions of many private occupational schemes will probably preclude this kind of adjustment being made except at considerable additional expense, which the funds may not be able to bear. However, private occupational pensioners are not in the Bill. One can only wish them well. They are just as entitled as those in the public sector to this adjustment, because all suffered alike and for the same reason. There seems to be no reason in equity for one section of occupational pensioners to be treated differently from another.

My hon. Friend the Member for Bristol, Central (Mr. Palmer) raised the question of nationalised industries. They are not in the Bill, either. As far as I recall, the Minister did not mention them. We are always in this difficulty about the nationalised industries. They are closely allied to the public services and yet not covered by the same statute law regarding their superannuation schemes. Having regard to the parlous financial condition of most of the nationalised industries at present, one can only hope that those affected in the nationalised industries will not be prejudiced in their relationship with the remainder of the public sector by the temporary difficulties of the nationalised industries—though I am sure that the House would be glad to hear something about those industries if the Minister is able to give us the information.

I come to the public servants covered by the Bill. These include teachers, police, fire service officers, civil servants, local government officials and National Health Service officials. That is a very large area of employment with wide variations in conditions of service and pay and, in some respects, in conditions of superannuation. I am sure that the aim had to be to find a formula which would apply to all of them rather than to have the matter made more complex and probably create even more anomalies by attempting to deal with the various problems that arise in the different sectors of the public service pension schemes. The principle is right. The formula is probably the best that could be made of a difficult problem.

My hon. Friend the Member for Greenwich (Mr. Guy Barnett) referred to a particular section of the Civil Service. I regret that he did not mention that what is in the Bill is an agreement as regards the Civil Service on the Civil Service National Whitley Council. As a former chairman of that body, I attach great importance to the writ of the Civil Service National Whitley Council running for all when an agreement has been reached on a general Civil Service question. That is the position about the proposals in the Bill.

I am not criticising my hon. Friend for raising the point. I criticise the Society of Civil Servants for asking him to do so, because the Society is part of the Staff Side of the Civil Service National Whitley Council. I do not think that it helps the system of collective bargaining, nor do I think it is fair to the House, if sections of the Staff Side of the Civil Service National Whitley Council are to raise or seek to raise on the Floor of the House matters which have been dealt with in the negotiations and upon which, notwithstanding all the difficulties and problems, an agreement was reached.

I do not speak with the authority of the Staff Side of the Civil Service National Whitley Council, but I am informed that the Staff Side regards the agreement reached as binding on the whole of those who compose the Staff Side of the Whitley Council. That is not to say that the anomalies that my hon. Friend mentioned are not important. There are probably many more throughout the whole field of this superannuation scheme.

It is very important that as far as possible a common formula should run throughout the public sector. That may have to apply, if it can be applied, to the nationalised industries. These detailed questions are always extremely difficult to get right when the rhythm of pay increases has been disturbed by interruption on account of economic measures taken by the Government of the day. As the Minister said, it has happened before and nothing has been done about pensions, but this time something has had to be done about pensions because of the more serious effect on the pension of non-reckonability of deferred increases for pension purposes, and that would have occurred had there been no adjustment made by the Bill.

I am sorry to mention that critical note, but it is important for the House to uphold the authority of the Civil Service National Whitley Council where an agreement has been reached and where all concerned have had their say in the negotiations even though it has not been possible to meet all points of view.

This is a good Bill. I am sure that all interests concerned hope profoundly that the Bill will reach the statute book without delay. I do not want to talk about elections. We have had enough such talk lately. Nevertheless, it would be a pity if a Bill of this kind were to become a casualty on account of any change in our parliamentary arrangements. I give the Bill my blessing. I am sure that we all want to see it through all its stages as quickly as possible.

11.9 p.m.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

With the leave of the House, I will reply to the debate. In these stirring times the minds of hon. Members are perhaps turning to other things. It is something of a rarity to find a Bill which is welcomed on all sides of the House. "A good Bill and we congratulate the Government on it" were the words I heard from the Opposition. I was glad to hear them.

Many interesting points have been raised. The hon. Member for Bristol, Central (Mr. Palmer), with his deep knowledge of nationalised industries, particularly electricity, asked about the position of nationalised industries under the Bill. They are not covered, as I am sure he is aware, since nationalised industries are independent managerially in matters of this kind and are responsible for their own pension funds. Therefore they are in the same position as private industry because, as the hon. Member remarked, there is no longer any managerial control over the detailed schemes.

Having said that I appreciate that, this position raises problems since the nationalised industries are part of the public sector. The House will appreciate that I cannot give any undertakings tonight about the nationalised industries. I do not have ministerial responsibility for them. I should need to check, but I do not think that my ministerial colleagues who are responsible for nationalised industries have authority in this matter.

What has generally happened in the past is that fundamental changes have been made in public pension schemes which have tended to be followed closely by the nationalised industries, we having set the example. I will undertake to write formally to my colleagues responsible for nationalised industries drawing their attention to the fact that we have taken these measures and to the remarks made in the debate.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

Has the hon. Gentleman had any representations from the nationalised industries about the management of these schemes?

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I do not know whether my ministerial colleagues have received any. The changes made in the Inland Revenue code will give the pension funds of nationalised industries an opportunity to make similar adjustments. Whether they do so is entirely up to them.

The hon. Member also asked about cost-of-living increases under the Inland Revenue code and about someone who was up to the two-thirds limit. I am advised that consultations are taking place on the code which would allow a cost-of-living increase in the specific period covered by the Bill to exceed that limit. He also asked me, as did my hon. Friend the Member for Bridgwater (Mr. Tom King), about the speed in introducing the measure. We want to get the Bill through quickly. When can the Inland Revenue code be amended? We do not need specific legislation and it does not have to involve a Finance Bill. I am advised that the Inland Revenue have begun discussions with a view to announcing early changes in the code. I am sure the discussions will be concluded rapidly.

The hon. Member for Greenwich (Mr. Guy Barnett) raised interesting and important points and I was much in sympathy with the wise words of the right hon. Member for Sowerby (Mr. Douglas Houghton) who spoke from the Opposition Front Bench. The measures in the Bill have been approved by the National Whitley Council by the national Staff Side and, like the right hon. Gentleman, I attach great importance to this. Since I have borne responsibility for the day-to-day running of part of the Civil Service Department I have experienced what this means in terms of good participant management consultation at all levels constantly.

There is a tradition that when the Staff Side reaches an agreement, it is accepted that the whole staff side has agreed. I do not reproach the hon. Member for putting the view of the Society of Civil Servants, but it is important to place on record that it is the view of only a section of the Civil Service and of only certain ranks represented by the society.

What the hon. Member was asking for, in effect, was for the pension increases to be based on notional pay and for lump sums——

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

With respect, he was, because he was asking for pay increases agreed from 7th November to be deemed to be the basis for pensionable pay as from 1st January. That is what is known in pension jargon as notional pay.

There are four reasons why that solution is unsatisfactory. First, the "anomalies grades" involved form only about 10 per cent. of the people working in the public service and our solution must apply to all public servants, not only civil servants. The hon. Gentleman spoke repeatedly about the Civil Service, but the Bill is about the public service. For 2½million staff in the public service, his solution has no meaning, because they were not affected by anomalies and no notional pay figures are available on which to base the pension.

Secondly, it was concluded that the only reasonable approach was to find a solution applying to everybody in the public and private sectors. Accepting a degree of benefit for particular groups would not necessarily reflect their comparative pay situation. Once again the subject of notional pay does not arise in the public sector.

Third, the Inland Revenue, when approving pension arrangements for tax purposes. is not prepared to approve pensions based on a notional amount of pay which the employee might have received. Pay and methods of arriving at it vary from firm to firm and from individual to individual, and it would be impossible in most cases to judge whether notional figures were genuine or reasonable. This could of course lead to tax avoidance. We believe that our solution is sufficiently generous to be just—in some cases roughly just—to everybody.

The fourth reason why we do not pursue the solution that the hon. Gentleman suggests is that, because of the variation of the personal limit and the bias in the stage 2 formula in favour of the lower paid, the proposals in the Bill favour the lower paid. This is in accordance with general Government policy. There is indeed little difference between our solution and full compensation for the effects of stages 1 and 2 on pensions of, for example, the large number of civil servants at clerical officer level and below who are not represented by the society.

In the case of the NHS manual workers, our proposed solution is more favourable than notional pay. Individual pensions of highly-paid civil servants may be up to 5 per cent. lower than had the anomalies settlement been back-dated, but the overall effect is much less and even for those people who are so affected our proposals provide substantial compensation.

The hon. Member also mentioned lump sums. The Bill does not cover lump sum payments. We have been concerned to mitigate the continuing effects on remaining pensions, because that is the remaining disadvantage relative to pensions of those who retired earlier. This problem arises when cost-of-living increases are given with effect from 1st December 1973, and the disadvantage remains throughout the life of the pensioner and his dependants. But lump sum payments, once awarded, are not given cost-of-living increases. Anyone retiring in the period covered by the Bill will receive a similar lump sum to one paid to a similar person with the same length of service who retired earlier. This would not happen with pensions, and that is the problem that the Bill seeks to solve.

The case for enhancing these once-for-all payments falls far short of that for continuing payments. We have concentrated our substantial assistance—I would not call it "generous", because that does not denote the right sort of connotation of the Bill—of a public expenditure increase of £5 million on the pension, applying the cost-of-living increase in the most favourable way.

I am conscious of the comments of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) about the position of civil servants in pension matters. I could not help recalling them when the hon. Member for Greenwich was speaking. We have provided a solution which covers all public service pensions, we think very fairly, in a way which was not available to the previous Government because they did not have an annual Pensions (Increase) Bill. But to make the extra concessions that the hon. Member seeks would lay us open to the sort of comment that my hon. Friend made—I know that he did not make it pejoratively—that the Civil Service is a privileged élite in this matter.

I am proud of our record over public service pensions and I am glad that in this Bill we have been able to remedy what would have been a long-term disadvantage to those who retired after 1st January 1973 and in 1974 and 1975. I hope that it will have a speedy passage.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Kenneth Clarke.]

Committee tomorrow.