Postal Services Bill

Part of Planning (Developer Bonds) – in the House of Commons at 2:05 pm on 27th October 2010.

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Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills 2:05 pm, 27th October 2010

Yes, it is true, but the liabilities are much bigger. I shall explain in a moment how we will deal with the assets.

The pension deficit, which is the starting point, threatens the very existence of the company. It is draining cash from Royal Mail's modernisation and preventing it from undertaking the reforms it needs to survive. That is why the Government have to take action today. As part of the sale, the Bill will allow the Government to take on responsibility for the pension deficit. We will not only address the deficit, but reduce the size of the Royal Mail pension plan to a more manageable level for the business. The liabilities of Royal Mail are more than 50 times annual profits. By comparison, the liabilities of the average FTSE 100 company are closer to one times profits-an enormous difference.

We intend to reduce the plan to about one tenth of its size today. We will do so by creating a new public sector pension scheme that will assume responsibility for paying out the past pension benefits of Royal Mail employees. In effect, all members of the Royal Mail pension plan will have their past service moved to a new Government scheme like that of the NHS or teachers. It is the same solution to Royal Mail's pension problems as the previous Government proposed in their 2009 Bill.

I know that hon. Members will be concerned about the detail of the proposed pension arrangements, and we will provide a note to Parliament in order to explain the practical effects of those very complex changes, but I should like to reassure the House on two points in relation to pensions.

First, let me be clear that this solution is by far the best outcome for the employees of Royal Mail. The action that we are taking in the Bill will ensure that all the benefits that employees have earned will be safeguarded. The benefits that become the responsibility of the Government will be protected in the Bill, and all members of the Royal Mail pension plan will benefit from that support-Post Office and Royal Mail employees alike.

As a bottom line, the Bill places an obligation on the Government to ensure that our action leaves members in no worse a position than they were in before. This means that the amount of benefits that they receive will be at least as good as if the Government had not acted. There will also be a restriction on the Government's ability to make to the new public scheme in future any changes that would adversely affect members. The Government intend to use that restriction to reflect as closely as possible the current protection that members of the pension plan are afforded under section 67 of the Pensions Act 1995.

Secondly, the measure is not a Government plan to massage the Government's accounts, for the very simple reason that the Royal Mail pension plan has a deficit of £8 billion. That is the cost to the Government of implementing the solution on behalf of the company and its employees. Let me be clear: the Government are taking on liabilities that are much bigger than the assets. I have seen reports-perhaps this is what Mr Cunningham was referring to-that the Government will be selling off the Royal Mail pension plan's £24 billion of assets. It is certainly true that the surplus assets above the level needed to leave the ongoing pension plan fully funded will be transferred to the Government. It is also true that these transferred assets will be sold because it makes no sense for Government to sit on a massive investment portfolio.

I, for one, do not wish to see central Government taking such a huge investment risk with taxpayers' money. So yes, we will sell the portfolio of assets which transfer across to Government, and this is likely to involve over £20 billion of asset sales over time. But the important point-it is absolutely crucial to this argument-is that we will be making payments to members of the Royal Mail pension plan for at least the next 50 years.