I beg to move,
That this House
recognises and appreciates the valuable work done by public sector workers;
believes that they should receive pensions which are affordable, sustainable and fair;
further believes that the changes announced since June 2010 by the Government are primarily for the purposes of deficit reduction rather than a move to secure the long-term sustainability of public sector pensions;
notes that these changes are unfair on public sector workers who will have to work longer, pay more and receive less in their pension when they retire;
further notes the findings of the National Audit Office that the 2007-08 pensions re-negotiation changes will generate estimated savings of 14 per cent. by 2059-60 and the conclusions of the House of Commons Committee of Public Accounts’ Thirty-eighth Report of this Session on the Impact of the 2007-08 changes to public sector pensions (HC 833), that the cost of public service pensions has reduced substantially because of these changes;
agrees with criticism in both reports of the failure to develop a long-term strategy for the role of pensions in recruitment and retention to the public sector;
condemns the Government’s threat to cut devolved administrations’ budgets if they do not implement the Government’s immediate levy on pensions contributions;
and calls on the Government to reverse its unfair changes to public sector pensions.
The motion stands in the names of my right hon. and hon. Friends from the Scottish National party and Plaid Cymru, and of Members from the Labour party and, I understand, from the Social Democratic and Labour party.
Last week, a day of action saw more than 2 million people across the UK join in protests against changes that will make those affected—mainly women—work longer, pay more and receive less when they retire. This year alone, bankers walked away with £7 billion in bonuses. As one constituent said to me last week:
“This is just a way of getting extra cash from public workers. And it is just not fair.”
We are proud to hold this debate on behalf of all those people across the UK who are directly or indirectly affected by the Government’s changes, and we note that despite having 36 Opposition day debates since the changes were announced in June 2010, the official Opposition have not seen fit to devote even one of those opportunities to debate the public sector pensions proposals. Whatever the evasions, the nods and the winks, and the ducking and diving of others, we are glad of the opportunity to show clearly where we stand.
This is characterised as a joint debate between Plaid Cymru and the Scottish National party, yet last week we saw SNP Members of the Scottish Parliament cross the picket lines to ensure that the Scottish Parliament functioned, while Plaid Cymru Members of the Welsh Assembly refused to cross picket lines and the Welsh Assembly did not function. Where is the coherent position in that?
It has clearly escaped the right hon. Gentleman’s attention that the SNP are in government in Scotland, while in Wales—alas—we are not.
I am afraid that I do not find that a tenable explanation. All SNP Members of the Scottish Parliament are not in the Government, although they may act like it. Those people crossed the picket lines and spoke in a debate on this very subject.
Honestly, I think we need to move on to the subject of the debate. I am sure that the right hon. Gentleman will have time later to make those and other fatuous points.
Well, honestly, I am sure that you would not want me to be diverted down this particular route, Madam Deputy Speaker.
Much as this topic might interest some Members, I think the hon. Gentleman should return to the subject of this afternoon’s debate.
Thank you, Madam Deputy Speaker.
To summarise our motion, we appreciate the valuable work done by public sector workers and believe that they should receive pensions that are affordable, sustainable and fair. I think that we can have agreement across the House on that. We believe that the Government’s changes are primarily for the purposes of deficit reduction—I do not think we are going to have agreement on that—rather than to secure the long-term sustainability of public sector pensions. These changes are, to our minds, unfair on public sector workers.
We also note that the findings of the National Audit Office for the 2007-08 period show that pensions re-negotiated at that time will generate estimated savings of 14% by 2059-60. The conclusions of the 38th report of the Public Accounts Committee reveal that the cost of public service pensions has reduced substantially because of those changes. We agree with the criticism in both reports of the failure to develop a long-term strategy for the role of pensions in recruitment and retention in the public sector, and we condemn the Government’s threat to cut the devolved Administrations’ budgets if they do not implement the Government’s immediate levy.
I am following my hon. Friend’s argument closely and I agree entirely with what he says. Does he agree that there is a link between this drive to the bottom on public sector pay and the Chancellor’s view that we should be looking at regional pay? This flexibility is all about a drive to the bottom, and it is unacceptable out there; people will not have it.
My right hon. Friend makes an excellent point, to which I shall return later. The Prime Minister’s numerous assurances that he is not in favour of driving down public sector pensions, and that it is not a race to the bottom as far as he is concerned, are strange in view of the actions of his Government.
Finally, our motion calls explicitly on the Government
“to reverse its unfair changes to public sector pensions.”
Let me make clear from the outset that no one to whom I have spoken wanted to go on strike. Everyone wants a reasonable settlement. My nationalist party colleagues and I hope that the talks between the unions and the Government will continue, and will reach a successful conclusion in the terms that I have outlined. We understand that the unions have accepted the continued need for negotiation and further change. Perhaps the Minister who winds up the debate will tell us when the two sides met most recently in the last month, who was involved—there have been questions about who was speaking for whom—and when they intend to meet again.
As the hon. Gentleman develops his argument, will he be comparing the positions of employees in the public sector with those in the private sector, who for many years have been having to increase their contributions in order to receive decent pensions?
Government Members have deployed such arguments time and again, which is strange given that in other contexts, such as that of education, they always deny that they are lowering standards. It is not about levelling down, they say, but about levelling up—yet when it suits them, it is the other way around. The hon. Gentleman clearly was not listening when I made that point earlier.
Julian Smith has advanced a spurious argument. There are some very good private sector schemes and some very good public sector schemes. Some private sector schemes have gone bust, and some public sector schemes require an in-year top-up. This is not about “private good, public bad”, or the other way around. It is about having good schemes, full stop. It is about fairness, and about not levelling down in either the private or the public sector.
The hon. Gentleman has made a good point. If Government Members are concerned about the private sector, they should be concerned about the large number of people who have no pensions at all. That is what concerns me, and concerns my colleagues.
Certain members of the Government are suggesting, as one of their “public against private” arguments, that public sector schemes are gold-plated. In fact, the average public sector pension is about £5,000 a year, and local government pensions can be as low as £3,000 a year, or £80 a week.
The hon. Gentleman has anticipated a point that I was going to make, which will doubtless be made again by other nationalist party members.
Anyone reading the popular press would imagine that public sector workers were driving around in this year’s model of car and enjoying two or three foreign holidays a year, but that is not, of course, the case.
We say “Let us have negotiations”, but is the 3.2% imposition itself negotiable? What the Government have announced today will merely shift the burden from one group of workers to another. They are trying to squeeze out some sort of deal, but we utterly reject that way of going about things.
I think it important for the hon. Gentleman to clarify whom he means by “we”. The Scottish National party is in government in Scotland, and a number of choices are available to it. For instance, there are funds that it could allocate to reduce pension contributions, but it has chosen not to do so.
Again, I do not want to go down that particular avenue—[Interruption.] I have some things to say that the Minister might like to listen to. My hon. Friends will be responding to his point later, but let me say now that the possibilitiesto which he alludes constitute a broad spectrum of theoretical options for consideration, and that the Scottish Government have expressed no preference. I am sure that others will say more about that later.
The Minister said that a number of choices were available to the Scottish Government. As he will know, the choices are rather limited by the UK Government’s threat to withdraw £8 million a month— £100 million a year—from the Scottish budget if we do not stick to their timetable. I am sure he agrees that that rather limits the choice of manoeuvre for a Government who do not want to go down that path.
I am sure that the £100 million cut that the UK Government are dangling before them is proving very persuasive for the Scottish Government, given the difficult position that they are in. I am sure that more will be said later about that as well.
Because of the council tax freeze in England, the Barnett consequentials provided an extra £66 million for the Scottish Government, and they received hundreds of millions extra as a result of the autumn statement. Does the hon. Gentleman not agree that the Scottish Government can choose whether or not to use that money to prevent an increase in pension contributions?
The hon. Gentleman is a keen student of Scottish affairs, and possibly of Welsh affairs as well. He will know that the block grant has been falling, and that the choices available are limited.
Does the hon. Gentleman not accept that the Labour-run Scottish Executive also had to make choices? When they undertook to introduce free travel for the elderly, they had to do so on the basis of the block grant, and the SNP would have to take a similar hit if they did what the motion suggests.
As my Scottish colleague says, the budget was going up then.
Does the hon. Gentleman agree that what was said by Mr Reid was completely wrong? The Chief Secretary to the Treasury has specifically said that if the Scottish Government do not implement the UK Government’s proposals, their budget will be cut. Barnett consequentials emanating from elsewhere are irrelevant, and besides, the Liberals in Scotland have already called for the money to be spent on numerous things.
The hon. Gentleman has put it much better than I could have done. It is not surprising that the Liberals are, as usual, trying to spend other people’s money.
No, I must try to make some progress. No doubt the hon. Gentleman will have an opportunity to speak later.
Whatever the Government say, the 3.2% is seen by workers and by the general population as an additional and carefully targeted tax, aimed largely at those who have the least means to pay. As for the negotiations, they must be based on proper evidence rather than on the cases that the Prime Minister quoted selectively during last week’s Question Time, which were so effectively debunked in Radio 4’s “'More or Less” programme and in Channel 4’s “FactCheck”.
I congratulate my hon. Friend on the excellent speech that he is making. Is he aware of a study by the Fire Brigades Union, which found that 27% of its members were likely, or very likely, to leave their pension schemes if employee contributions were raised? What effect does he think that would have on the sustainability of schemes if it were translated across the public sector?
There is clearly a danger that some schemes will become unviable, which would mean that in the longer term those who no longer had pension schemes would become even more dependent on the state. I am sure that Government Members would not want that to happen.
I am sure I heard the hon. Gentleman say that the 3% increase in pension contributions would target those least able to pay. I believe that the average public sector wage in Wales is about £26,400, compared with £21,700 in the private sector. Furthermore, do not the Government’s proposals protect those earning less than £15,000 a year?
That argument fails to take several factors into account, such as the 710,000 people who will lose their jobs and the 1% pay freeze that looms before us at a time when inflation is eating into the real value of wages.
Our constituents have gone on strike with the greatest reluctance. They are not the wild-eyed extremists so beloved of those on the Government Benches. Members of the National Association of Head Teachers—scarcely a hotbed of left-wing insurrection—went on strike last week for the first time in 140 years. Anna Brychan, director of the NAHT in Wales, summarised the arguments advanced by many public service workers who felt that they had no choice but to go on strike. I shall paraphrase what she said, because it was very lengthy. She said that the NAHT was not persuaded by the unsustainable and unaffordable argument. The pension changes in 2007-08, according to the figures from the National Audit Office, showed savings of 14%, but no re-evaluation has been made since the previous apparently permanent settlement. May I draw the attention of the House to my early-day motion 2198, which makes that point?
I must press on, as I have rather a lot to say. Time is pressing on, and it is a short debate. Of course, the hon. Gentleman can make his own speech, unless he has to leave the Chamber, but I give way.
So did the hon. Gentleman, before he jumped. I know him very well. He is a very nice man and is trying hard to be a nasty curmudgeon, but he is failing entirely.
It depends on whether they are going up or down.
Returning to the comments made by the NAHT, I refer to the written question tabled by my hon. Friend Jonathan Edwards on
“The latest valuation of the teachers’ pension scheme was published in November 2006. This was the actuarial review of the scheme as at
In other words, there has been no formal published valuation since the 2007 changes were introduced, so how can the Government claim that the scheme is unaffordable?
The NAHT also says that contribution increases are all about plugging the deficit, not about making pensions affordable. Teachers are already doing their bit: they have a pay freeze, and below-inflation pay increases to look forward to. In respect of the higher pension age, they recognise the implications of the population living longer, as we all do. That must be debated, but we need to be sensible. Teaching, the NAHT says, is physically and emotionally demanding, and expecting people to do it at 68 is “an ask too far”. That is also the view of other unions that I have consulted. Shane Price, my local Fire Brigades Union representative, asked me:
“Would you want, or expect, to be carried out, coughing and spluttering from a blazing building by a 68 year old fireman?”
Clearly not. In any event, says the NAHT, the changes will distort the age profile of the profession. There is a need to ensure a throughput of young people, and that will be jeopardised. Younger teachers will be affected most by the proposed pension scheme, and they may opt out altogether, as we have discussed.
The NAHT says that this is an attack on education. It wants to attract the brightest and the best—that is what pupils deserve—and while the salaries are not great given the demands of the job, the professional rewards are enormous. We cannot afford for people to discount those professional rewards because their conditions of service are dramatically reduced. These are serious, responsible points. They are made, it is true, by people who are looking after their own interest, but uppermost in their mind is the future of our children, the future of education and of the teaching profession in general.
I thank the hon. Gentleman for giving way—he has been extremely generous in accepting interventions. Having read the motion, I agree with almost all of it, particularly the part in which he identifies who is responsible for the attack on public sector pension schemes. May I therefore assume that he will continue his criticism of the enemy within—the coalition Government—and not be tempted to criticise anyone else?
The bulk of my speech, as one would expect, is about the Government’s proposals, but the hon. Gentleman will have to wait and see.
Lleu Williams from University and College Union Wales told me:
“We are pleased that MPs will debate public sector pensions a week after tens of thousands of people in Wales took industrial action to show how angry they are…The action last week, alongside the debate on public sector pensions, is testament to the strength of feeling on these issues” in Wales. He continued:
“We hope today’s debate sends a clear message from the people of Wales to Westminster that we will not go quietly into the night over these proposed changes.”
I have heard from the other side that union members did not support the strike—they have deserted the cause, as it were. UCU general secretary, Sally Hunt, confirms that it saw record recruitment levels both before and after the strike. That gives the lie to that one. Finally, the National Union of Teachers welcomes today’s debate and says that rather than creating an unnecessary and damaging divide between the public and private sectors, Ministers would do well to focus their attention on securing fair pensions for all if future Governments are to avoid pensioner poverty on an unaffordable scale, which is the point that I made earlier regarding future dependence on state benefits.
I shall refer briefly to that bunch of hard, crazed revolutionaries, the British Medical Association, which strongly opposes the plans set out by the Government to reform the NHS pension scheme, including increased contributions from doctors; raising the standard pensionable age for staff; and devaluing many pension settlements. It queries whether the NHS pension scheme is in need of reform, given that it underwent a major overhaul only three years ago. It says that the scheme is in very good financial health, and generates a surplus for the Treasury. Indeed, over the seven years from 2009-10 to 2014-15, the NHS pension scheme is expected to provide a surplus of £10.7 billion for the Treasury.
The BMA is engaged with the Governments in Westminster and in the devolved nations on the proposed reforms to pensions, but it has not ruled out balloting members on industrial action over the matter. It is thinking of moving towards action, and its decision will be informed by a ballot at the beginning of the year. That is just a sample of the views and arguments that we have heard—there are plenty more.
One of my constituents, a small business person—such people are often cited by the Government as those who would suffer as a result of the strike—said to me on the day of the strike:
“They”— the Government here in London—
“think that people like me don’t support the strike. They’re wrong. A lot of my business comes from county council workers. How will I keep going if they don’t have the money to spend?”
That shows the interaction and co-dependence of the public and private sectors in areas such as mine.
If that argument is to be sustained, is it not logical that the way to resolve the economic problem is simply to make the public sector as big as possible, and the private sector can then profit?
I am surprised to hear the hon. Gentleman arguing for that. I thought he took the contrary view, but perhaps my sense of irony is underdeveloped.
The Office for Budget Responsibility estimated in March 2011 that 400,000 people in the public sector would lose their jobs. In its response to the autumn statement, that rose by nearly 80% to a disastrous 710,000. One further, crucial reason as to why we in Plaid Cymru and the Scottish National party have called this debate is that public sector jobs are disproportionately important to countries and regions outside London and the south-east. Paying an extra 3% out of their wages is bad for individuals wherever they live, and I have particular sympathy for those in inner-city areas with high costs such as public service workers in central London. Looking across the UK, the 3% imposition and the job losses will have a particularly strong impact on Scotland, Wales and the north of England, especially as the private sector is generally weaker in those areas.
That will be even more the case if the Government follow Labour’s lead in 2008 and introduce regional rates of pay, as my hon. Friends have said. The figures on the size of the public sector are clear, sad and revealing. Briefly, in Scotland the public sector accounts for 28.6% of jobs; in the east the figure is 23.7%; in the north-east it is 29.4%; in the south- east it is 22.8%; in Wales, unfortunately the figure is highest at 31.2%; and in London it is 22%. There is a clear north-south divide. The people we represent will be hit particularly hard, as will our local economies because of the grotesquely distorted, south-east-weighted economic development of the UK and the obsession with the City of London.
This morning I received an e-mail from Mr Mark Rowe, a PCS member from the Devon area. I do not know Mr Rowe; I have never met him, and I do not know what his politics are, but he said this in his e-mail:
“Dear Mr Williams, Thank you for supporting hard working public servants in their struggle over pensions. It is good to know that someone is. We had a huge rally through Torquay on the 30th, hardly a ‘damp squib’”— as it was described by the Government. He added that there had been “much public support” and asked why Labour are not “fighting our corner”. Public sector pensions have not been the subject of a single full Opposition day debate in the House for the past 18 months, despite the fact that Labour has had 36 Opposition day debates since the public sector pension changes were first introduced in 2010.
Order. I will be grateful if the hon. Gentleman returns to the topic of his motion, which is the Government’s plans on pensions.
I will obey your injunction, Madam Deputy Speaker.
As I have said, I have had a great deal of correspondence with the unions, and I have given their point of view, which concurs with ours. We are happy to fight the workers’ corner in this dispute. We are happy to press for a proper pensions settlement, which is why we will press our motion to a Division.
The weather in Scotland today is very stormy, and our thoughts are with those who are having to endure the consequences of that. I do not know whether this debate will be equally stormy.
I do realise that—and that may be the only point on which I agree with the hon. Lady.
I thank Hywel Williams for opening the debate. He spoke for about 20 minutes, and in that time he at least said exactly the same about Scottish National party policy on this issue as was revealed in a two-and-a-half-hour debate in the Scottish Parliament last week, which was precisely nothing. I will return to that subject.
As Sheila Gilmore has already mentioned, no Member would disagree with the following sentiments in the motion:
“That this House recognises and appreciates the valuable work done by public sector workers” and
“believes that they should receive pensions which are affordable, sustainable and fair”.
Indeed, those sentiments form the foundations of our reform of public service pensions. Our objective is to put in place new schemes that are affordable, sustainable and fair both to taxpayers and public service workers. Let us be clear: public service pension reform is needed. The costs have increased by a third in the last 10 years, to £32 billion, and the Office for Budget Responsibility forecasts that, without reform, spending on pensions will rise by almost £7 billion over the next five years.
Understandably, this is a contentious issue, but fairness remains the cornerstone of our approach. We believe that public service workers deserve a good pension in retirement, as a fair reward for a lifetime spent serving the public. We recognise the vital contributions made by teachers, nurses, council employees and civil servants to the well-being of our society now and in the future.
That is why in June 2010 my right hon. Friend the Chancellor commissioned Lord Hutton, a Work and Pensions Secretary in the previous Government, to take an unbiased and clear-headed look at public service pensions and make proposals for reform. His landmark report has set the parameters of the debate, and it has been rightly lauded for its depth and vision.
Lord Hutton set out an overwhelming case for reform. He said that
“the status quo is not tenable”, that
“future costs are inherently uncertain”, and that at present the public
“cannot be sure that schemes will remain sustainable in the future.”
In his interim report, he found that there was a clear justification, based on the past cost increases borne by the taxpayer, to increase contributions in the short term to ensure a fairer distribution of costs between taxpayers and members. We accepted that recommendation, and increases in member contributions will take place, starting next year. However, next year’s increase merely reflects the increase already planned by the previous Government. We remain committed to securing in full the overall savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15 that we announced at the 2010 spending review.
In his final report, Lord Hutton produced a blueprint for a new landscape of public service pensions. It is based on retaining defined-benefit schemes but moving to a fairer career-average basis, and increasing the retirement age in line with the state pension age to protect the taxpayer against future increases in life expectancy.
Presumably the Minister is talking about UK public sector pension schemes, whereas the motion seems to be specifically about devolved pension schemes. Does he agree that if there is a solution, it will be that the separatists in Edinburgh just say, “We won’t apply any changes”? Does he also agree that their excuse of continually saying, “The big bad boy in London did it” and then running away is wearing thin?
On that point, I can agree with the hon. Gentleman. The Scottish Government have considerable flexibility to make their own choices, but they have chosen not to do so.
Will the Minister confirm that the Chief Secretary specifically said that if the Scottish Government do not accept these changes, he will fine them £8 million per month, which amounts to £100 million a year and half a billion pounds over the spending period? How are the Scottish Government supposed, effectively, to pay for this twice, and thereby pay £1 billion?
What I can make clear to the House is that as a result of last week’s autumn statement the Scottish Government will receive approximately £69 million extra in resource departmental expenditure limit funds, that as a result of the Budget they received an extra £112 million, and that between the Budget and the autumn statement they received an extra £90 million, which they had not budgeted for.
However, will the Minister please explain what difference that makes, as we are still going to lose half a billion pounds over this spending period? There is still going to be a massive cut if the Scottish Government do not follow what this Government are imposing upon them.
The difference it makes is that the SNP will have the option to back up its words with deeds, but instead it fails to do so. Its argument is entirely based on blaming the Westminster Government. It has funds available to make these choices, yet it prefers to deceive public service workers in Scotland by suggesting that everything is entirely at the behest of the Westminster Government.
I know the hon. Gentleman does not want Scotland to remain in the United Kingdom—that is his policy—but he and his Government have the ability to make this choice, as Jim McGovern set out, yet they have chosen not to do so.
I will not presume that the hon. Lady was complimenting the Government, but she is correct in that all four of the suggestions the Scottish Government made to the Hutton inquiry would certainly leave Scottish public sector workers no better off than under the UK Government proposals, and a number of those suggestions would leave them distinctly worse off.
As an Under-Secretary, the Minister surely recognises the difference between a Government agency and a Government spokesperson.
I recognise the full ambit of the First Minister’s many responsibilities and I do not believe that such a submission would have been made without consultation with the Scottish Government.
I think we are getting to the crux of some of the issues. I would never agree with what the coalition Government are doing to public sector pensions in Scotland, but the Scottish National party did put in a report to the Hutton review that was far more draconian than what the Government are proposing. The SNP may be trying to say to the House that this was done by an agency, but why did the Scottish Government not contribute a proposal to the review?
The hon. Gentleman makes a valid point. It reinforces what all of us who are aware of day-to-day Scottish politics know, which is that the SNP Government in Scotland speak with one word but their deeds are quite different.
I return to what I was discussing before the interventions. The Government accepted Lord Hutton’s recommendations in full and can reassure the House that the reformed public—
I know that the hon. Lady was not in the House at the time, but the 3% figure is broadly equivalent to the sum that her Government had identified in the pre-Budget report in 2009.
I will give way in a moment, but I want to make some progress.
The Government continue to engage actively with the trade unions to agree what the new pension schemes will look like. Discussions began in February and the Government remain fully committed to meaningful engagement. Scheme-level discussions are continuing with the trade unions, with meetings yesterday, today and tomorrow, which deals with a question asked by the hon. Member for Arfon. Significant progress has been achieved and the trade unions have welcomed many of the commitments that we made at the start of this process, including the one that public sector schemes will remain defined-benefit schemes, with a guaranteed amount provided in retirement. That, of course, was one of the options not put forward by the Scottish Public Pensions Agency.
The unions also welcomed the commitment that all accrued rights will be protected. Everything that public servants have earned until the point of change they will keep, and it will be paid out in the terms expected, at the retirement age expected. Final salary means just that: that someone’s accrued rights will be based on their final salary, not at the point of change but whenever their career ends or they choose to leave the scheme. No public service worker need worry about the entitlements they have already built up.
As the hon. Lady knows, the Treasury underwrites the scheme. The Treasury requires to be paid out whatever is required to be paid out in relation to the scheme. The scheme does not operate on a basis of contributions and pay-outs, because the Treasury is underwriting the scheme so that everybody is paid in full as is their entitlement.
May I just make a little progress and then give way again? I think I have been generous with my time.
Our reforms are not retrospective, nor do they seek to correct the past failure of the Labour party; they are driven by the need for fair, affordable and sustainable pensions in the future. We have reached agreement with the unions on the importance of transparency, equality impacts, participation rates and opt-outs, scheme governance and high-level principles to inform consultations on scheme-level pensions.
I will give way in a moment.
We have set out our proposals. When we make our reforms, the taxpayer needs to be properly protected from the future risks arising from increases in life expectancy by the link between the scheme normal pension age and the state pension age. On
The offer is generous. Most staff on low and middle incomes will retire on a pension that is as good as what they expect today, and for many it will be better. Lord Hutton has said that it is difficult “to imagine” a more generous offer. The offer includes generous transitional arrangements for those closest to retirement; those closest to retirement should not have to face any change at all. This approach mirrors the steps taken in relation to increases in the state pension age, and it is fair that the same applies here. Anyone 10 years or less from retirement age on
Some time ago, the Minister referred to a meeting held yesterday, but will he clarify who was involved? Was a Minister involved in the discussions?
My right hon. Friend the Minister for the Cabinet Office and Paymaster General and my right hon. Friend the Chief Secretary to the Treasury have made it clear that the meetings are ongoing on a regular basis in respect of the specific schemes. I am sure that I will be able to give the hon. Gentleman the information he requires.
Our objective remains to agree reforms of the main schemes—those for teachers, health and the NHS, the civil service and firefighters—by the end of the year, and my right hon. Friend the Chief Secretary will update the House in due course. The Government’s preferred scheme would produce better pensions for those on low and middle incomes who have devoted a lifetime to public service. At the same time, public service pensions will remain considerably better than those available in the private sector, as my hon. Friends have suggested. A primary school teacher earning £32,000 per year could receive a pension of £20,000 under our proposals. To earn the equivalent pension in the private sector, an employee would have to pay more than one third of their salary.
Several of my constituents who work in the private sector have told me that they totally agree that public sector workers should get sustainable, affordable and fair pensions, but they are concerned that for them to have a similar pension they would have to increase their contributions by a factor of three or four. They do not think that that is fair in the current circumstances.
My hon. Friend makes a good point and I empathise with it as the MP for a constituency that has some of the lowest private sector wages in the UK.
Only 10% of private sector workers have access to the type of scheme that I was describing, which is at a guaranteed level and is inflation proofed, while only one third of private sector employees currently get any contributions from their employers.
I come back to the issue of the divide-and-rule strategy of playing the public sector off against the private sector. Is the Minister aware that the average pension of a retiring teacher is £9,000 per annum, and that the figures for NHS workers, for civil servants and for members of the armed forces are £7,000 per annum, £6,000 per annum and £7,500 per annum respectively? Do those figures seem unfair to him?
It is a question not of playing the public sector off against the private sector but of setting out a fair scheme for public sector workers, and that is what this Government are seeking to do.
The report mentions two reports, one by the National Audit Office and the other by the Public Accounts Committee, which do not provide us with sustainable and lasting models for the future. Pensions, as they stand, are not affordable. As Lord Hutton says,
“the status quo is not tenable.”
The Office for Budget Responsibility’s latest forecast demonstrates that long-term costs have continued to increase since March, so reform is now essential because the costs of public service pensions have risen dramatically over the past few decades. The fact is that we are all living longer; the average 60-year-old is living 10 years longer than was the case in the 1970s.
I thank my hon. Friend for the points he is making. Does he agree that unless these reforms go ahead public sector workers will not be able to rely on anything, because there might not be any money to pay them anything? That is why it is so important that these reforms go ahead.
I absolutely agree. The speech from the hon. Member for Arfon seemed to me, particularly on Wales, to be very much an argument for the status quo.
We already know that public sector pensions are, on average, less than £5,600 a year, so if they are going to be even lower what will people live on—state benefits?
There is no suggestion that those on the lowest pay will receive lower state pensions. The Labour party has been very keen to engage in such scaremongering, but the Government’s proposals specifically protect those on the lowest earnings of below £15,000.
Before I finish, I want to turn to some of the specifics about Scotland.
I hope that when the Minister comes to explain the protection for low-paid workers he will be able to clarify something about which many people in trade unions have been asking. Will part-time workers’ earnings and the increase in their contributions be calculated on the basis of full-time equivalent wages?
They will be based on full-time equivalent wages. That point is clear. The difference on pensions between this Government and the Scottish Government is that we are clear on the points that people might not want to hear rather than pretending to people that they can have everything when that is not sustainable.
The contributions of a woman who works part-time in a professional job—for example, as a nurse or a teacher—but takes home less than £15,000 a year will be increased not at the lower rate but at the higher rate of a full-time equivalent.
Indeed. The hon. Gentleman makes a very good point and I am about to come on to some of the issues about the Scottish Government. The point that has been underlined several times in this debate is that there are many issues on which the Scottish Government could make a decision but have chosen not to do so.
We have set out that the budgets of the devolved Administrations, who have these powers, would not be adjusted accordingly if they chose not to implement the reforms, because they have received higher settlements that reflect the proposed changes. If the devolved Administrations do not implement our public sector pensions reforms, Barnett consequentials will be reduced.
The Treasury wrote to tell the Scottish Government they had to apply the 3.2% increase in contributions or make up the shortfall and presented them with a choice. They could have chosen not to apply the increased contributions and make up the difference to the Treasury, but they followed a now familiar pattern: they failed to take any sort of decision and blamed Westminster at every turn. Their manufactured outrage is a smokescreen designed to cover the fact that they have no answers for the people of Scotland on how they would fund public sector pensions, never mind the wider state pension. We have asked them often enough—
The Minister is talking absolute nonsense. Will he not accept that if the Scottish Government did that, they would lose £1 billion from a budget that is already being cut by making the payment then losing money through a clawback from the Treasury?
I have already set out all the additional money that the Scottish Government have received since the budget settlement last year from which they could have made these choices. Sometimes, choices are difficult, but the Scottish Government prefer to pretend to people that they are on their side while not being willing to take difficult decisions.
You are talking about choices that the SNP Scottish Government will make and one of the big choices they made was to cut capital spending far faster and far further than your own Government.
Order. The hon. Gentleman is referring to the Minister and should refer to him as the Minister or “he”. “You” means the occupant of the Chair, and this is nothing to do with me, fortunately.
Order. I say to the Minister that I am absolutely aware of the use of “you”, but I think that in parliamentary debates we should stick to the convention here, as I am sure he agrees.
I will indeed do that, Madam Deputy Speaker.
The SNP Scottish Government have played fast and loose with Scotland on pensions. Rather than making responsible suggestions, they resort to scare tactics. In this motion, the SNP and Plaid Cymru are frightening people by saying that they will receive less pension. The SNP’s submission to Lord Hutton, as we have heard, offered at best no better and in some cases a much worse deal. The Scottish Public Pensions Agency, an agency of the Scottish Government, headed by the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, made a number of interesting suggestions when it illustrated options for further change. It suggested reducing current employer contribution cap levels with members meeting all costs above that cap. Alongside that, it proposed to reduce the levels of benefits available without necessarily reducing the levels of contributions.
I am listening very carefully to the hon. Gentleman. I suppose it should not come as a surprise to anybody in this House that there are now more giant pandas in Scotland than there are Tory MPs; listening to the Minister, we can see why. Will the Minister concede that there was no submission from the Scottish Government to the Hutton report, but there was a submission from an agency of the Scottish Government?
I do not accept that analysis. The hon. Gentleman might have got a laugh if he had thought that up himself rather than stealing it from the Twittersphere.
The Scottish Government’s proposals were a toxic cocktail topped up by suggestions to introduce later retirement ages, change accrual rates, apply changes to all members, not just new scheme members, and move to a defined contribution scheme, which places the risk of uncertainty over the value of the final pension on the member. All those proposals would mean a worse deal for public service employees than the coalition’s proposals.
I am listening very carefully to the Minister’s comments on the interaction between the Scottish Government and himself. Does he agree that one of the interesting features of the motion is the last part, which appears to concede the point that the Barnett consequentials should be reviewed and that certain types of expenditure should be taken out of them? If that is a principle that the SNP wishes to adopt, we should consider the Barnett formula more generally and the whole settlement and block grant for Scotland.
My hon. Friend makes an interesting point, because that is one issue on which there is an absolute divide between Plaid Cymru and the SNP. Plaid Cymru wants significant change to the Barnett formula and, as I understand it, the SNP does not. That is part of the inherent illogicality that is at the heart of their argument.
I am surprised that we hear nothing these days about independence, which is relevant. Perhaps that is because Plaid Cymru does not promote independence. I look forward to hearing SNP Members set out exactly how an independent Scotland would be able to fund not only existing pensions, but provide enhanced pensions, without consequences for pensioners in Scotland. I am sure that we will hear calls for the break up of the United Kingdom.
I also look forward to hearing from Labour Members. I understand that Labour MSPs chose not to take part in the debate in the Scottish Parliament because they were working in their constituencies that day. I know that the Labour party has not been an effective Opposition in Holyrood, particularly since Margaret Curran left, but not to turn up at all is taking that to an extreme. I look forward to hearing their contributions today.
I apologise to 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.
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?
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.
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?
By 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, with the lack of demand and growth 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?
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?
The hon. Gentleman has once again revealed that the Government simply have a plan for cuts and no plan for growth or jobs. A five-point plan for growth and jobs would cut VAT, reduce national insurance and create jobs, which would help pay down the debt and the deficit.
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.
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.
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.
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.
I will in a second. I just want to make further progress on this point. I will allow the hon. Gentleman in.
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.
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?
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—
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.
Order. A large number of Members wish to take part in this time-restricted debate. I am going to impose a time limit from the next speaker of seven minutes, because I have now been informed of how long the winding-up speeches will take. I cannot take account of how many interventions there will be, however, so the time limit may have to be reviewed downwards in order to get everybody in at a later stage.
I had hoped, when I saw the text of the motion, that there would be some maturity in this debate about public pensions, which have become unaffordable and unsustainable in the long term, but I should have known better. The speech by Mr Bain was disappointingly partisan and failed to address the long-term sustainability problems that we face.
It is a truism that every Member of this House appreciates the valuable work done by our public sector workers, and it is not very helpful for any Opposition Member to try to paint Government Members as anti-public sector. I speak as someone who spent almost the entirety of my career working in the public sector, having worked for the police service, in local government, and as a regulator. Among my hon. Friends, we have NHS doctors, ex-servicemen and ex-teachers, so we have as much interest in supporting our public sector workers as any party in this House. However, we also recognise the need for long-term fiscal responsibility and acknowledge that in delivering to public sector workers pensions that are affordable, sustainable and fair, that fairness has to apply to those workers and to the taxpayer. As currently constituted, our pensions are not affordable in the long term, for the simple reason that we are all living longer.
The motion suggests—Hywel Williams referred to this—that these public sector pension reforms are about deficit reduction. Given the time frame in which the Government are implementing the changes and the intention to implement them on a phased basis, I am satisfied that that criticism does not bear examination. These changes are about fiscal responsibility and about not saddling future generations of taxpayers with huge tax liabilities. This is not a short-term fix; it is about getting an appropriate balance between the contributions of workers and the contribution of the taxpayer.
The motion notes that the changes
“are unfair on public sector workers” because they
“will have to work longer, pay more and receive less in their pension when they retire”.
I have to say to the House that that is the reality for all pension holders. In my last job, I paid into a private pension, and I have just had a look at how much it is worth. In the space of just two months, the value of that pension pot has eroded by some 25%. I suspect that many workers are having to revise their intentions with regard to retirement when they look at how their pension is performing, not least because of the annual raid on pension funds perpetrated by the previous Government.
My hon. Friend’s point about support for public sector workers is absolutely correct. The fundamental question is about fairness. Opposition Members are saying that people on lower earnings in the private sector should work longer hours and pay more tax in order to guarantee the pension being provided to public sector workers, while those lower-earning private sector workers often have no provision at all. It is about fairness, and that means that this Government have to take the tough decisions, however unpopular, to put the situation right.
I totally agree with that comment. I do not recognise any criticism that we are levelling down public sector pensions. We are trying to take this forward in a consensual way.
I welcome the fact that in our proposed reforms we are sticking with defined benefit systems. Many private sector schemes have had to migrate to defined contribution schemes because of the unaffordability of their existing schemes. We recognise that public sector workers are going to have to make a much bigger contribution, but they are doing so to achieve benefits that would be much more expensive if offered to workers in the private sector.
One of the things that might have brought more money in and created some fairness in the pensions system would have been to limit the tax relief on payments into private pensions to the basic rate of tax. Would the hon. Lady agree with that proposal?
I am trying to set out a case for wider structural reform. We have a massive structural challenge across the board in pensions for public sector workers and private sector workers. As regards tax relief for pension contributions, I will not take any lectures from Labour Members given what was done under the previous Government.
It used to be the case that the generous pension provision for public sector workers was a quid pro quo for working in the public sector, as higher salaries were traditionally enjoyed more regularly in the private sector. That is no longer the case. I refer to the comments by my hon. Friend Guto Bebb about average salaries in Wales, which show that public sector workers there often enjoy much higher levels of reward than private sector workers. This will reduce dynamism in the labour market and make us less competitive. Our economy benefits greatly from having people moving from the public sector into the private sector so that we all enjoy their expertise, but when there are such significant levels of differential between salaries, that is not going to happen. If we then add in the benefits that come from the generous pension provision, it becomes impossible for people to move from one job to another.
Let me give an example. In my last job, I worked for the Financial Services Authority, where I had a very senior colleague who had worked for the Bank of England and the FSA for some 28 years. She was offered a very highly paid job with a bank, as one would expect—we all expect bankers to be offered higher salaries than public sector workers. When she worked out the cost implications of moving from her job, with 28 years of a final salary pension, compared with what she would have to be paid by the bank to come anywhere close, she was somewhat crest-fallen to realise that in the longer term she would be taking a pay cut. That illustrates the competitiveness issues raised by how much we have in our pension schemes.
In areas such as Wales and the north of England, where the discrepancy is particularly notable, small businesses and enterprises need people but they are struggling to recruit because of the level of salaries in the public sector. If we are to rebalance the economy, we need to make sure that our dynamic small businesses have equal and fair access to the labour market.
That is absolutely true. It is not very good for growth and competitiveness if we are pricing growing businesses out of the market simply because they cannot afford to recruit staff at sustainable levels.
The motion refers to the reports by the National Audit Office and the Public Accounts Committee. I am a member of the Public Accounts Committee. While it is true that we were pleased that the reforms introduced by the previous Government were moving in the right direction, we were not satisfied that they were sustainable in the long term. The NAO would not be drawn on that specific issue, because it recognised that it was a political decision. The PAC said that the Hutton commission provided the opportunity for the Government to develop a clear strategic direction for public service pensions and that we looked forward to those detailed proposals. The Public Accounts Committee report was therefore much more sympathetic to the Government’s approach than is indicated in the motion.
That said, the Committee did express concerns about pension reform. We expressed concern over its impact on staff morale. It would be helpful if employers and trade unions worked more collaboratively to address that. Sadly, that has not been the case to date. We also expressed the opinion that many employees did not understand the value of their pensions as part of their reward. If the colleague I mentioned earlier, who worked in financial services, did not understand the true value of her pension pot, God help any other public sector worker.
We must ensure that we do not discourage people from saving for retirement. I therefore welcome the Government’s decision to exclude the lower-paid from any increases. Obviously, 15% of salary is a lot—
I thank Plaid Cymru and the Scottish National party for securing this debate and for ensuring that the damaging pension plans continue to be at the top of the political agenda.
As the Minister said, the SNP had choices. In relation to the final part of the motion, the SNP gave away its choices in refusing the opportunity that it had in the Scottish Parliament to vary taxes by 3p. If it had accepted the need to continue with that, it could have used it towards the contributions that are required. There has been a lot of talk and nonsense about that from Members who have now left the Chamber. They know full well that that is the case.
It sounds as though the hon. Gentleman is proposing that we increase taxes in Scotland to pay for pension increases. Is that really what he means?
We live, at this stage, in the United Kingdom. If the SNP is suggesting that Scotland has a different set of circumstances for pensions than England or Wales, there is something wrong with the system. We live in the United Kingdom and SNP Members have to accept that. I have more in common with a joiner in Newcastle than with the director of the Royal Bank of Scotland. That is the way that they should think as well. They had choices and they denied themselves the opportunity to make them.
This matter affects many of my constituents. My constituency has 4% more public sector workers than the United Kingdom average. Some 39,300 of my constituents work in the public sector, about two thirds of whom are women. The pension proposals will affect women more than men, because they are the lower-paid in society.
As Christmas approaches, could the hon. Gentleman find it in his heart to congratulate the Government on taking more than 1 million low-paid workers out of tax altogether, many of whom are exactly the women he describes?
I do not accept that at all. This Government have put up VAT, which is affecting all the low-paid people across the country more than it is the likes of the hon. Gentleman. He should not delude himself that the situation is different.
My mind has been taken away from this subject over the past week, because young Jack Samuel Donohoe, my second grandchild, was brought into this world at five past 12 on Monday. Jack, his mother Pauline and his father Craig are all doing very well. I mention that only because when my first grandchild was born about three weeks ago, I mentioned it in a debate and I felt that it was only right to mention the second.
Order. I am sure that the hon. Gentleman will use that point to talk about how long we are all living and return to the motion.
I am grateful to you, Madam Deputy Speaker, for that guidance. I am sure that that is what I was about to say. In about 70 years, my grandchildren will collect their first pension. I want it to be a decent pension, regardless of whether they are in the public sector or the private sector.
At the age of 22, I first became involved in pensions as a trustee of the pension scheme at the Ailsa shipyard where I worked. I have always had an interest in pensions as a result. Many people do not have a clue about pensions. I have always accepted that a pension is deferred income. My pension is part of my income, and pensions are the income of every person who contributes. It is income that this Government are taking from individuals. I know that and other hon. Members should know it.
I find the hon. Gentleman’s arguments very interesting. If pension contributions are deferred income, is not the disparity between pay in the public sector and the private sector in Wales even more scandalous?
The hon. Gentleman obviously does not understand what I have just said. It is clear that most people do not understand that pension contributions by an employer are deferred income. They are part of a person’s income and should be treated as such regardless of whether they are in the private or public sector. That should be known to everybody.
The increase in contributions that was announced in the spending review will not be used to pay for pensions. My understanding is that that £2.8 billion is specifically to be used to reduce the deficit—that is in the Red Book. Perhaps the Minister would like to establish in his winding-up speech whether that is right. I also understand that the proposal was a political choice by the Government rather than being made out of necessity. They have scrapped Labour’s tax on bankers’ bonuses, which was to raise more than £3 billion in revenue, and replaced it with a tax on public sector workers’ incomes.
Those changes are being made against a backdrop of a two-year pay freeze for public sector workers, which of course was announced on the eve of last week’s strike. That was a very provocative statement intended, I suggest, to fan the flames of dissent among public sector workers. The changes also come at a time when inflation is running at about 5%. That in itself has reduced the value of public sector pay by almost 10% in real terms, which is not sustainable in the current climate. We all understand that we have difficult choices to make, and we all understand the state of the economy, but pensions should be considered for the long term. It is patent that that is not happening.
No, I am just about to sum up, so I will not give way again.
I finally wish to touch on the effects that the changes will have on our armed forces, a section of the community for whom I have great respect. It goes without saying that this punitive reduction will have a damaging impact on the morale of those who are prepared to make the ultimate sacrifice for our country. We must not punish our young men and women in the forces because one man cannot see the practical implication of his economic policies.
First, may I say that I might not be here for the wind-ups, because I have to catch a train to Brussels for Welsh Affairs Committee work? I hope that I will be able to be here, but if not, I present my apologies in advance.
This is an important debate, and I am grateful for the opportunity to contribute. One of the disappointments so far has been the fact that many Opposition Members have implied that coalition Members, whether they are Liberals or Conservatives, despise the public sector in some way. That is simply not the case, and I refute the suggestion completely. As a coalition Member, I find such comments offensive. I depend on state schools for the education of my children, I am the son of teachers and I am married to a public sector worker, so I find such comments completely unfair. Opposition Members should consider the matter carefully before making them.
We are aware of the importance of the public sector, so much so that we are proposing changes that Lord Hutton, the Labour peer who produced the report on the matter, said were possibly not affordable.
That is an interesting question, and I am not sure. My father certainly ended up voting Conservative, but I cannot comment on my mother, because I think that how somebody votes at the ballot box is their choice entirely.
We are quite often accused of attacking the public sector or introducing unfair policies, yet the coalition Government are trying to deal on a long-term basis with issues that the previous Labour Government did not deal with. When we talk about fairness, which is important in this debate, I wonder where the comments of Labour Members were on the raid on private sector pensions. Where were their comments in defence of people with poor rates of pension provision who were saving with their own money—working people saving for their retirement? Where was the Labour party when it came to defending those people when the previous Labour Government raided pensions to the tune of £5 billion a year? That was a scandal. It was not fair, but we heard nothing from Labour Members.
Even worse, the raid on private pensions was made with the justification of helping young people back into work. In 2010, the rate of unemployment among young people was higher than in 1997. The raid was unjustified, not effective and unfair.
The hon. Gentleman’s 2010 figure is not wrong—[ Interruption .] Excuse me! It is true to say, however, that the money that was put into reducing youth unemployment worked and that youth unemployment was brought down from the very high level that was inherited in 1997—[Interruption.] No. Only the recession caused youth unemployment to rise.
I find the argument that my point was “not wrong” but that somehow the raid was justified to be bizarre to say the least. However, I would challenge the hon. Lady: if she thinks the raid on private sector pensions was justified because the policy miraculously worked—even though youth unemployment went up—I invite her to say that we should reduce public sector contributions because that would help in relation to youth unemployment.
The Select Committee on Children, Schools and Families held an inquiry into young people not in education, employment or training. It showed that before the economic crisis, the number of unemployed young people was on a level plane with the number when the previous Government took office. That shows that in all those years of economic growth, young people were left behind by the Labour Government before the spike after the financial crisis. What Sheila Gilmore said was absolutely false.
I thank my hon. Friend for the clarity of his point.
The proposal is a reasonable one. We are aiming to protect those on lower pay. Some in my constituency of Aberconwy will be astounded by the figure given by Mr Bain—he stated that only 16% of public sector workers earn less than £15,000. The average wage in my constituency is £23,000 and the average private sector wage in Wales is £21,000, so there will be a question as to whether the proposal is unfair.
That reminds me of the comments made on the CPI to RPI change. The change was illustrated with the example of a nurse or dinner lady who earns £8,000 a year. I recently did a call-in programme on Radio
Cymru. A headmaster from the constituency of Hywel Williams, as it happens, called in and stated that the change from RPI to CPI was extremely unfair because it would cost him £200,000. The average private sector pension pot is £30,000. Hon. Members can imagine that the response of the general public when they heard that comment was pretty strong. The changes that the Government are trying to make are changes for the long-term, to try to ensure that we have a system that works.
It is imperative that hon. Members mention some of the e-mails that they have received from the trade union movement. I received one this morning from the Public and Commercial Services Union stating that the claim that the coalition is trying to protect the lower paid is not sustainable. The PCS directs us to a comment by Cathy Newman, who says that it is “fanciful” for the coalition Government to try to claim that they are protecting the lower paid. I am disappointed with that comment, but then the PCS does not bother to remind us of other comments that Cathy Newman has made. She also says:
“Having said that though, public sector pensions, even after these reforms, will still be the envy of many a worker in private enterprise.”
That is the key point in Wales. We are looking at how we can ensure that the people who benefit from extremely good pensions contribute a fair amount towards them. For example, will increasing a teacher’s pension contribution from 6% to 9% have an impact on their take-home pay? Yes, it will—I would be the first to acknowledge that—but it is important to state that to end up with a pension similar to what will be available to a teacher as a result of the changes, somebody working in the private sector would have to contribute 35% or 38% of their take-home pay.
No, I will not take another intervention.
That disparity will still exist because the coalition Government value public sector workers. That is not to say that we do not value people who work in the private sector, but we acknowledge the importance of the public sector, we want to protect it and we want to bring in changes that are sustainable, fair to taxpayers and fair to the public sector. I ask any Opposition Member to tell me what is unfair about asking a teacher to contribute 9% of salary for a pension that a comparable worker in the private sector would have to contribute 35% to achieve. I ask any Opposition Member to stand up and tell me why that is fair. I see nothing.
Finally, I will turn to the Welsh context—
I want to get a few points in about Wales to finish.
In this debate, Plaid Cymru Members have said that they are standing up for their electorate and their workers. I applaud them for that. Of course people need to stand up for those who elect them to this place, but it is also important to point out that the constituency of the parliamentary leader of Plaid Cymru has the highest rate of self-employed people in the United Kingdom. What has Plaid said about supporting the pension provision of those individuals?
I accept that Wales has a high percentage of people working in the public sector, but in many constituencies the majority of people are striving to earn a living in the private sector. When we have a limited amount of money, the Government have a responsibility to all taxpayers to ensure that we have a system of pension provision that is fair to all. It is simply not sustainable to expect the three quarters of the people in Wales who work in the private sector or are self-employed—many of whom live in the constituencies of Plaid Cymru Members—to pay through their taxes for the pensions of those who will retire on better pensions.
These changes will ensure that the public sector is protected, but they will share the burden in a slightly fairer way than at the moment, and I applaud the coalition for bringing forward a long-term change with courage and commitment.
I congratulate the SNP and Plaid Cymru on their choice of debate today. I take part in this debate with a heavy heart, and with genuine anger and frustration at the way in which public sector workers, who have done such invaluable work in our communities, have been treated by this Government. Some of what I have to say is constructive reinforcement of points already made, rather than unnecessary duplication. These raw sentiments reflect the views of hundreds of public sector workers in my constituency.
One of the hallmarks of a civilised society is the way we treat our citizens—people who have contributed immensely to society throughout their working lives. Indeed, for years there was a genuine trust and confidence in the public sector that, in return for often smaller salaries—although sometimes not—compared to the private sector, they would receive a fair, if generally modest, pension on retirement, and those pensions had been negotiated in good faith. That trust has well and truly evaporated. However, that erosion in trust has not occurred because of the Hutton report, which recognised again the need to review pension contributions as people live longer, but because of the cavalier way this Government have proceeded, on a unilateral basis, to disguise the real purpose of the precipitate 3% increase for public sector workers. To put it bluntly, public sector workers feel that they are sacrificial lambs.
The immediate increase has nothing directly to do with the present affordability, fairness and sustainability of public sector pensions, but everything to do with a cynical attack on ordinary working people at a time of pay freezes, increased VAT, higher fuel costs and a dramatic increase in living costs. The real reason for this smash and grab raid on the public sector was blatantly to contribute to the deficit reduction plan, as highlighted by Hywel Williams.
I have listened carefully to the hon. Gentleman’s argument and he seems to be saying that he supports the proposals in the Hutton report, but does not support what the Government have done. Which aspects of what the Government are doing are not in the Hutton report?
The Government pre-empted Hutton and were precipitate in taking forward the action with the 3% increase.
Not only have public sector workers been penalised, but the wealthier owners in our society, particularly the bankers, have not been challenged in the same way. As taxpayers, we have bailed out the bankers, so some of the richest people in our society continue to be rewarded, and it was some of them who created this financial crisis. Patently, we are not all in this together.
As a cover for their actions, the Government continue to peddle a number of myths, which, if Members will pardon the pun, I will try to scotch. First, it is said that public sector pensions are gold-plated. As we have heard, there are varying figures for this, but they vary between £3,000 to £5,000.
Secondly, it is said that the public sector unions were spoiling for confrontation. Nothing could be further from the truth.
The hon. Gentleman is making a powerful point, and many of us have sympathy for those on small and medium incomes, but there are people on large incomes who also receive very large pensions. People pay taxation to provide those high pensions and that is a matter of concern.
I do not want to be drawn to the lowest common denominator. We have already heard the issues surrounding tax relief in the private sector.
Industrial action is a last resort and a signal of anger and frustration among our constituents. Most of my constituents had never taken industrial action in their life and hope not to do so again.
The third myth was that the immediate 3% increase was recommended by Hutton; it was not. The fourth is that the intensive and serious negotiations between senior Ministers and senior trade union officials had continued right up until the 11th hour; they had not. Senior leaders last met on
All mainstream political parties fully recognise that there needs to be a comprehensive review of public sector pensions to ensure fairness, sustainability and affordability. At no time did we pretend that challenging decisions would not have to be made about contributions, entitlement and retirement age. Reform was to be strategic and phased and it would inevitably involve difficult decisions as people are living longer. It is now incumbent on the Government to engage as a matter of urgency in serious and meaningful negotiations at the most senior level and as immediately as possible with trade unions to agree an acceptable settlement.
Fundamentally, we need to draw up a long-term plan for decent pensions in the public sector, to continue to engage high-quality recruits, to retain the many committed public servants who do a tremendous job on our behalf and to award fairly those who reach their pension age. I therefore urge the Government to go home and think again, rescind these unfair short-term changes and to bring to the table a fair, affordable and sustainable plan for long-term pension reform.
Although it is always a pleasure to follow Lindsay Roy, I must confess some disappointment that I have not yet heard from a member of the Scottish National party. In my short contribution to this debate, I should like to focus on what I think is the Scottish nationalists’ real motive behind the motion and the debate on public sector pension reform—their ambition for the Scottish Parliament to have full control over public sector pensions as part of its drive towards fiscal autonomy and full separation. Let me draw the House’s attention to the words last week of the First Minister, Alex Salmond:
“The way to stop this Parliament and Government being hamstrung by the policies of the UK Government is to give us the financial independence that we require in order to do that.”
That is clearly his aim. [Interruption.] And from a sedentary position, Scottish nationalist Members endorse it. That aim is at the heart of the motion.
Notwithstanding the local variation within the devolved Administrations over the administration of pension funds, to which my right hon. Friend the Minister referred, it would be a hugely retrograde step to move away from a unified United Kingdom public sector pension scheme.
There is no unified public sector pension scheme, but there is a police pension scheme, a firefighter pension scheme, a Scottish teachers’ scheme, a local government scheme and an NHS superannuation scheme. They are all different; there is no unified scheme. The hon. Gentleman is simply wrong.
If the hon. Gentleman forgives me, I was using shorthand. I am well aware that there are different schemes for different professions within the public sector, but in a UK context they are broadly similar between Scotland and England.
Paragraph 5.26 of the Hutton report reads:
“There has been scope for some variations in terms to meet local circumstances, but the resulting pension schemes have essentially been the same as those established by the UK Government. That has, for example, helped to prevent pension terms becoming an obstacle to transfers of staff and skills within a sector of the public service. It seems reasonable to continue with this approach.”
Paragraph 5.27 reads:
“The key design features should be part of a UK-wide policy framework that extends to Scotland, Wales and Northern Ireland, with limited adaptations of other features to meet local circumstances.”
I agree with that but it would be hugely disruptive to try to break apart what has been a unified system up until now.
How does the hon. Gentleman square that with the Minister’s accusation about the Scottish Government not making changes to the pension scheme?
Most public sector pension schemes—with the exception, I think, of the local government one—are pay-as-you-go schemes. There is not a separate fund, a pot of money or assets that are invested and then pay out. The current pensions are paid for from current receipts and underwritten more widely by the Government, with the expectation that tomorrow’s pensions will be paid for largely by tomorrow’s contributions. With fiscal autonomy or full separation, however, how would all that be disaggregated? It would lead to an enormous muddle over who was liable to pay for what and over who would be liable for the shortfall in future pension payments accrued under the current system? Were we to move down that road, I would wish to train as an actuary, because a lot of them would make a lot of money from disentangling everything. [Interruption.] Indeed, they earn a good amount of money as it is. But they would earn even more.
The hon. Gentleman cannot argue that these are in-year contributions and then make the case that there is a pension pot requiring actuarial rules. There is either a pot of money that is paid for and needs to be disaggregated, or there is not, but he has just said that there is not one because it is paid for in-year. Which is it?
Absolutely. It is just a smoke screen.
It would create an enormous muddle if we had to pull apart the pension contributions, and we have heard absolutely nothing from the Scottish nationalists about how they would do that.
There is a pot of responsibility. There might not be a pension pot, but there is a pot of responsibility, and it is that responsibility for future pensions that the SNP would have to bear.
The hon. Gentleman makes a good point.
As well as the nightmare of disaggregating the fund, a range of dynamics would be set in train that would be difficult to forecast. I remember when the Scottish Executive set a pay increase for teachers that was more generous than that given to teachers in England—I think it was back in 2001. That resulted in a significant transfer of teachers wanting to work in Scottish schools because of the more beneficial terms. If we move from a unified pension scheme, we will set in train in those difficulties in accounting for who is responsible for paying what.
If the hon. Lady will forgive me, I will not give way. I have been quite generous, and I want to bring my remarks to a conclusion shortly to allow as many other Members as possible to take part.
The other thing about which we have heard nothing from the Scottish nationalists is how they would pay for a more generous pension scheme in Scotland—if, as I assume, that is their intention. In the confines of a short speech, I shall not go into the whys and wherefores of the cost of separation from the United Kingdom; my point is that we should consider pension reforms in the context of the United Kingdom. There are passionate views on both sides about what that future should be, and I completely respect the views that many hold in arguing for a sustainable pension for the future, which is what we all want.
Mr Donohoe is not in his place now, but earlier he referred to his new grandson. I recall following him in a debate a few weeks ago in which he announced to the House the safe arrival of, I think, Rosie, his new granddaughter. It is those children—those being born now—for whom we should be looking to ensure we can afford a decent pension, whether in the private or public sector, when they reach retirement. I hope that we can come to a decent consensus and conclusion on pensions, but it is not helped when the Scottish nationalists raise a smokescreen and attempt to turn this into a constitutional point, in order to achieve their aim of separating Scotland from the rest of the United Kingdom. Breaking up that system would be a nightmare.
Order. Before we proceed with the debate, I need to change the time limit again, because there are still more speakers left than time will allow for. I am reducing the limit to five minutes per contribution. Again, I cannot calculate the consequences of interventions. The time limit has gone from seven to five minutes because things are taking longer; therefore, it may be necessary to change it again, although I hope not. Members can either take less than five minutes or choose not to take any interventions. It is up to them.
Thank you, Madam Deputy Speaker. I shall try to take less than five minutes, which is predicated on my taking no interventions.
I welcome this afternoon’s debate, although I am somewhat surprised that the Scottish National party, whose Members have not given a speech yet, has chosen the topic of public pensions, given the very thin ice on which they find themselves with this issue. While 300,000 public sector workers and over 70% of the people of Scotland backed last week’s day of action, the SNP sided with the Tories and Lib Dems, and refused fully to support pensions justice. Not for the first time, the SNP’s warm words do not match up to its actions. Many are now asking: what is the difference between the SNP Administration in Holyrood and the coalition Government here? The SNP implements Tory cuts in public sector pensions, pay, jobs and public projects. Indeed, last week’s revelations about the submission to the Hutton inquiry from the Scottish Government’s Scottish Public Pensions Agency showed that the SNP is prepared to suggest even deeper cuts to pensions than those proposed by the Tory-led coalition. Perhaps the SNP Members here today can explain why their party in Scotland is doing the Tories’ dirty work for them.
Like, I am sure, those of numerous other Members, many of my constituents have contacted me to condemn the Government’s actions on public sector pensions. They have already had forced on them a change in the pension calculation from RPI to CPI, which Hutton says represents a 15% cut in pensions benefits.
What I am not supporting is this coalition Government’s position on public sector pensions, and I am certainly not supporting the SNP and Scottish Government input into the issue. When they had the opportunity, they went to the Scottish Public Pensions Agency and argued for a position that was even more draconian than that of the Tories and Lib Dems.
Many people face plans to increase contributions by an average of 3.2%, but, as we heard from several hon. Members, not a penny of the money raised will go into pension schemes. The constituents who contacted me are hard-working, public sector employees carrying out vital jobs. They have kept our public services going and have already made a major contribution to tackling the deficit. They have endured a pay freeze for two years and face an increase of only 1% when the freeze ends—in effect, another pay cut. They are not only angry about the Government’s proposals to make them pay more and work longer for less pension but are incensed at the insensitive and misleading way in which Ministers have dealt with this issue. Above all, they are fed up with hearing about “gold-plated public service pensions” and other misinformation about this complex issue.
The Hutton report clearly rejected the idea that public pensions are “gold-plated”. Figures from the National Association of Pension Funds show that the median salary-linked public sector pension currently paid out is worth £5,600 a year, compared with £5,860 in the private sector. Of course, there are many medium and low-paid workers in the private sector who have little or no pension provision, which is a serious problem, but that is not a reason for public service pensions to be attacked by this Government. The artificial divide that the Government have sought to foster, pitting public against private, is failing those at the heart of the debate—the millions of people who need a good pension on which to retire.
To conclude, it is time for the Government to come clean on this issue and drop the myths and misinformation about public service pensions that they have been peddling for months. Public service pensions were reformed by the previous Government and are both affordable and sustainable. The Pensions Policy Institute has estimated that existing pensions reforms have reduced the immediate cost of benefits by 12.5% and should result in savings of around £13 billion on the NHS, teachers’ and civil service schemes, spread over a 50-year period. The question now is whether the Government choose to negotiate a fair and reasonable deal or continue with their ideological drive to undermine public services, demoralise public service workers and destroy their pensions.
I congratulate Graeme Morrice, as it takes a special kind of brass neck to attack the SNP attitude to strikes when his own party leader condemned the strikes and the hon. Gentleman and his colleagues were quite happy to sit here and debate it on the day.
We in the SNP are committed to public sector pensions that are affordable, sustainable and fair, but we believe the coalition Government are wrong in their policy. It is blatantly unfair to increase public sector workers’ contributions to their pensions schemes at this time and in this way. Frankly, it is nothing more than a naked cash grab to reduce the deficit and it does nothing to address the sustainability of pensions over the longer term. It is especially wrong to impose an additional 3p tax on already hard-pressed households that are facing pay freezes—it will get worse over the next two years, as the 1% increase announced by the Chancellor last week is highly unlikely to keep pace with the rate of inflation—significant increases in national insurance contributions, higher VAT , rising inflation and rocketing costs for fuel and energy.
Indeed, it has been calculated that the impact of pay freezes and pay restraint over three years is costing public sector workers 15% of the value of their income, while the change from RPI to CPI, which I am glad my hon. Friends voted against, could worsen benefits by a similar amount. That is a dramatic reduction in living standards both for those working in the public sector and for pensioners.
Throughout this pensions debate, many Government supporters have consistently referred to gold-plated pensions in the public sector and, frankly, given the impression that anyone retiring from the public sector receives a substantial pension. That is utter rubbish: many public sector workers are in low-paid jobs and their pension entitlement is in line with what they earn and pay into the schemes, so the amount they get paid as pensions is correspondingly modest. Most public sector pension payments amount to less than £5,600 a year, and in local government the figure falls to £3,000, while 50% of women pensioners receive less than £4,000 a year, or £80 a week. That is hardly a fortune, especially in comparison with the grotesque amounts paid to the disgraced ex-bankers who caused the economic mess in the first place.
Does the hon. Gentleman not think that there is at least some fairness in a system that puts several thousand pounds more into the pension pot of the lower-paid workers whom he mentioned, who will no longer pay for the largest pensions in the public sector under the new scheme?
But the lower paid are being hit in every other way. They are being hit by higher VAT, the higher fuel price and everything else. Their living standards are falling.
Lord Hutton’s report also firmly rejected the claim that public sector pensions were gold-plated. It seems to me that the answer is not to attack public sector pensions, but to take action to try to help private sector pensioners. Unfortunately, however, previous attempts by Government to persuade people to opt out of state pensions, and the state second pension, into private pensions, and the mis-selling that went on, have undermined confidence in private pensions, especially among those on lower incomes. If the Government really want to do something about pensions, they should think about how they can encourage people in private occupations to save for their pensions.
For many years, we have been debating the future of pensions and how to encourage people to save more, but increasing contributions by such a large amount at a time when family budgets are under so much strain may well reduce the number of people who save for the future. There is a real chance that many will feel unable to make the larger contributions and will fall out of pension schemes, which could be a disaster for both the future of the schemes and the public purse. My hon. Friend Jonathan Edwards cited the results of an FBU survey, which suggested that 27% of people could fall out of their schemes. In his autumn statement, the Chancellor threw petrol on the flames of public sector discontent by casually introducing the idea of regional pay, which, if implemented, would have a serious impact on Scotland, Wales, Northern Ireland and the north of England.
I have a tremendous amount of respect for the hon. Gentleman, but will he tell us what were the SNP’s proposals to the Hutton review, so that we can make an objective assessment of its position in relation to that of the coalition Government?
I was about to deal with the position of the Scottish Government. They have taken positive action to help to protect household budgets by, for example, freezing council tax for the rest of the parliamentary term, increasing the Scottish living wage to £7.20 an hour for all staff for whom they are responsible, and committing themselves to imposing no compulsory redundancies. In contrast to the Westminster Government, the Scottish Government have sought to focus on protecting Scottish household budgets.
The amendment tabled by the Labour party referred to the devolved Administration. In Scotland—
Order. The amendment was not selected. As the hon. Gentleman knows, he cannot refer to an amendment that has not been selected, and I am sure that he is not going to do so.
There are five public sector schemes in Scotland—for NHS workers, teachers, the police, firefighters and local government—all of which are subject to constraints. Formal approval is required from the Treasury for legislative changes to the NHS and teachers’ schemes. It controls the purse strings. Scottish Ministers can determine the design of the police and firefighters’ schemes, although to date they have been negotiated on a UK-wide basis, a position supported by the Labour party. Scottish Ministers can decide on the funded local government scheme as long as the scheme regulations comply with primary legislation.
The Scottish Government sought to protect public sector workers in Scotland from the measures proposed by the UK Government, but the Chief Secretary to the Treasury made it absolutely clear that he would reduce the Scottish budget if they did so. In a letter to the Finance Secretary, John Swinney, on
“If you decide not to take forward these changes, the Treasury will need to make corresponding adjustments to your budget. I would have to reduce the Scottish Government’s budget by £8.4million for every month's delay.”
The Scottish Public Pensions Agency issued a document putting forward options. Its contents were not Scottish Government policy, nor were they SNP policy, and at no time have the SNP and the Scottish Government made such suggestions. The document simply set out options and factual information. It is ludicrous for the two main parties to have a duopoly of despair and to attack the public sector based on the document—the SNP has done much more for public sector workers in Scotland than either of them has done in this Chamber.
It is an honour to follow that rant by Mr Weir. I have great respect for him, and I never thought I would see the day when he would lose it, but there we go.
I had prepared a longer speech than I am able to make under the current time constraint, but I do want to make a few points. Thinking of the two Government parties reminds me that this is Christmas time, and as Scrooge is one of my favourite characters I am waiting for one of them to come up with a few statements such as that we should “reduce the surplus population” or, “Are there no workhouses?” That seems to be their policy on pensions and pensioners.
I thank the hon. Gentleman for the extra minute his intervention gives me.
I found it surprising that the nationalist parties wished to hold a debate on this issue as I could not remember their raising it in the past. In fact, so bad was my memory that I contacted the Commons Library to find out when a nationalist Member had last raised the issue. This was the response:
“Thank you for your enquiry which was passed to me by the Library’s Business and Transport Section. You asked for statements in the House by Scottish National Party and Plaid Cymru MPs on public sector pensions. Unfortunately, there were barely any mentions of public sector pensions so I have included references to pensions in general in case they are useful.”
The House of Commons Library staff could find only four examples of the SNP raising this subject, and those examples were far from “useful”. I felt relieved that I did not give the Library staff too much work to do.
The Library searched back to 2006 and found that the hon. Members for Na h-Eileanan an Iar (Mr MacNeil) and for Moray (Angus Robertson) have not made any references to pensions in the Chamber during that time. When the Library staff asked if I wanted them to search back even further, I was worried they would have to call in an archaeologist. The hon. Member for Arfon (Hywel
Williams) said in his opening speech that some parties’ Members did not raise this topic; I suggest he looks at his own house first.
The hon. Gentleman’s party has had 36 opportunities to raise the issue since the Government made their public pension proposals, so why has it not raised it for debate in the House?
I thank the hon. Gentleman for giving me a further minute, and I will now carry on with my speech.
Guto Bebb has referred to my right hon. Friend Mr Brown removing, when he was Chancellor, the £5 billion tax break to the insurance industry, which was worth more than £100 million at the time. However, the hon. Gentleman and his colleagues always let slip from their minds the actions of their Iron Lady. I have not seen the recent film on Margaret Thatcher, but I am reliably informed by someone who has that, sadly, it misses out how in 1980 she broke the link with final salaries, thereby hurting 10 million pensioners at the time and millions more since, and that that cost a minimum of £15 billion a year. That puts the £5 billion into perspective. I notice that the hon. Gentleman is no longer in his place; I think he left the Chamber about five seconds after finishing his speech. His train must have been leaving early.
Let me return to the question of why this is an important issue to me and my constituents. I have 13,500 pensioner households in my constituency. We have one of the highest concentrations of pensioners in Europe and the highest amount of single women pensioners in the entire country. About 6,500 claim pension credit in my constituency alone, which is consistently ranked seventh out of all parliamentary constituencies, so hon. Members can see why this subject is so important to me.
My home town of Glasgow is a fairly youthful city compared with others in Scotland, however it has a considerable and growing elderly population. We face large and severe pockets of pensioner poverty—my constituency is, sadly, not immune to that. In addition to the 8% of Scottish pensioners who live in absolute poverty, one in 10 over-65s are classed as “materially deprived”. When I was elected for my constituency in 2000, four out of five single pensioner households in Scotland lived on an annual income of £15,000 or less. So hon. Members can understand why I feel that we should not be heading for a race to the bottom on pensions. I want good pensions for those in both the private and public sectors.
I recall a debate in 2002 when the Minister for Universities and Science, Mr Willetts complained about the then Labour Government using misleading tactics. He must share my anger at the current Government’s misleading statistics on public sector pensions, for example, the constant use of enormous figures for overall pensions liability. There is a frequent tactic to cite figures as a proportion of a single year of GDP, ignoring the fact that payments on pensions are spread. To listen to the Government, we would think that these pension schemes are all in a ruinous state, but as of
The reason I am standing up to speak today is that we have to stand up for the pensioners of the future. I believe, as I said in my speech in 2002, that all parties should put aside political points of view and stop their point scoring on pensions to make sure that they represent the people who really count. That offer was refused by those now on the Government Benches. I still make that offer, because I still think that we should all sit down to solve the pension problem as a group, not just as individuals.
Order. I am going to have to change the time limit again if we are to get all the speakers in. I am going to reduce it to four minutes from the next speaker. I make the same point as I have made every time I have reduced the time limit, which is that interventions are not included in that calculation. If extra time is added for interventions, some Members will now not be called in this debate. I hope that is clear.
I strongly welcome the chance to debate this topic. I will focus very much on the Government, rather than on what the SNP Administration in Edinburgh are going to do, because the focus has to be on making sure that we have national schemes that ensure that everybody in this country has a decent pension. The negotiations are happening down here, but the historical reality has been that the Scottish schemes have simply led to a mirroring of whatever has been decided in the national discussions. So people in Scotland are looking closely at what the coalition Government are doing. It is very unfortunate if we try to do anything other than maximise the pressure on this Government at the moment.
When we have debates on this issue, Government Members all too often raise the appalling situation of private sector pensions in this country. We do need to treat that as a priority, because the loss of manufacturing, the rise of low-paid and insecure jobs in the private sector, and the decision by firms to take payment holidays and by employers to fail to invest in private pensions schemes when times are good have led to so many private schemes coming to an end. As we have already heard, however, on average public sector pensions in this country give people only up to about £5,600 a year. The reality is that those people will not be able to live on that kind of income in retirement.
I believe the debate we need to have is about how to set up schemes in both the private and public sector that ensure we are saving sufficiently both individually and collectively to ensure a decent income in retirement. I am therefore concerned that the Government are moving away from the decision on auto-enrolment, which will happen in May 2015 rather than April 2014. The Government’s proposals for public sector pensions mean that people will have to pay more with the 3.2% increase, will have to work longer and will get a worse pension at the end of it.
We have heard a lot about teachers from both the Minister and from Guto Bebb and teachers are a good example. We hear so much about the deficit but this debate is not about that; it is about the long-term arrangements that must be put in place. The Government’s proposals are not about the sustainability of the schemes. We must ensure that both employers in the public sector and individuals are putting enough in. The proposals for teachers mean that compared with the current scheme, which costs 20.5% of pay with the employer paying 14.1% and the individual 6.2%, the employer’s contribution would be reduced to 10.5%. We are seeing that throughout the proposals put on the table by the Government.
The Government are using the economic situation to cut their contribution, as an employer, to public sector pensions while at the same time increasing the contributions of the worker. Many people will opt out of pension schemes if the proposals go ahead. Let us ensure that over the coming weeks we put pressure on the Government so that they seriously consider public sector pensions and make proposals that will lead to pensions that people can live on.
I want to pay tribute to all those public sector workers who work hard, often in gruelling and unglamorous tasks, day in, day out. Some are very highly qualified and have chosen to work in the public sector, passing up opportunities to work more lucratively in the private sector. Traditionally, the pay-off has been job security and pensions. Those who have perhaps not been so lucky as to get many qualifications are often in thankless tasks for which they get very modest pay—cleaners, refuse collectors and so on. They receive low wages and meagre pensions. The average public sector pension of £5,600 and the average for local authority workers of £3,000 are far from the gold-plated myth peddled by the Conservative party and its friends in the media.
Back in 2007-08, there were tough negotiations on public workers’ pension schemes, and I am sure that I was not the only Member who received correspondence, particularly from teachers. The then Labour Government entered into dialogue and negotiation, however, and unions played their part responsibly, accepting the need to make public sector pensions sustainable. Changes were agreed. The deal negotiated with the previous Government in 2007 made costs stable, and the National Audit Office described it in the following way:
“The 2007-08 changes are likely to reduce costs to taxpayers of the pension schemes by £67bn over 50 years, with costs stabilising at around 1% of…GDP or 2% of public expenditure. This” is “a significant achievement”. Before the Government made any changes at all, public sector pensions had both been reformed and made affordable.
I turn now to the division between the private and public sectors, which is a disgraceful way to approach this topic. Frankly, we are all involved in both, whether through family members or people in our communities. John Hannett, the general secretary of the Union of
Shop, Distributive and Allied Workers—a union that operates entirely in the private sector—says that it supports the strikes:
“We support our colleagues in the public sector in their fight for fair and decent pensions and to protect the services which our members rely on.”
We all know that the real scandal is in private sector pensions. Sometimes we are told that the costs or the recession have meant that nine tenths of final salary pension schemes in the private sector, once the most popular arrangement, are now closed. The fact is, however, that the employers have realised that they can get out of their obligations to society and their employees, leaving the taxpayer to pick up the costs of supporting people in retirement.
One of the biggest dangers is that more people will opt out of pension arrangements. There are three main risks associated with that. First, if people earning less than the average are asked to contribute about £80 a month, they will face a terrible choice of either feeding and clothing their children now or paying towards a pension for their retirement. That will leave many short of a pension when they retire.
Secondly, that leaves a huge problem for the state, because of what it will have to pick up. We will be sitting on a ticking time bomb. With private sector pensions going and public sector workers opting out, a huge number of people will be totally reliant on the state in their old age.
Thirdly—a problem for the present day—if people are not contributing now, there will soon be a cash crisis in those pension pots, which is something I do not think has been fully addressed. There will be a present-day shortfall in the money available for paying out to the people who have paid in to their pension schemes. Those are very real problems. Imposing a 3% increase on people in this undemocratic and devastating way is completely unacceptable. It needs a total rethink, and the sooner the better.
I think that we all agree that there is an economic crisis in the UK, but it was caused neither by excessive public spending nor by the “gold-plated” pensions and pay of public sector workers. It was caused by a recession triggered by the banking collapse of 2007. Employees in the public sector have been subject to pay freezes and continuous efficiency savings, and time and again they have risen to the challenge and accepted that they need to play their part in these difficult times. They now find the future quality of their retirement at stake and their much-prized pensions, which are possibly one of the main attractions of a public sector career, will be greatly reduced.
The Government tell us that the average public sector worker will be better off following the change to their pension, but what they quote as average earnings is not what Opposition Members regard as average earnings. Many public sector workers in my constituency of Inverclyde earn nowhere near the average the Government quote and will not be better off with this change in their pension. The Government tell us that we must follow the lead taken on pensions by the private sector, but I believe that that would be a race to the bottom on pension provision.
The private sector visited it pensions long before the world-wide finical crisis hit. It took contribution holidays and savagely stripped employees of decent pensions while excluding new employees from joining final salary schemes. Indeed, I recall my predecessor, the late David Cairns, some time ago naming and shaming a major private sector employer in my constituency over its unacceptable cuts to its pension scheme.
We have just discovered that Labour Members are down to a one-line Whip, which means they will not vote on the motion. Surely they could put aside what they describe as their historic hostility to the SNP and do the right thing by public sector workers by supporting the motion. Why are they not backing it?
I thank the hon. Gentleman and will now carry on.
We want to see not an equality of misery in pensions, but fairness. Public sector pensions are not gold-plated, but I accept that they require collaborative review. Instead, public sector workers are being told that they must work longer, pay more and expect less. Trade union leaders who called the strike action on
We again see the Government promote policies that are hurting but not working, and their plan to guide us out of these difficult times is clearly failing. For Scotland, this is a double whammy, with the SNP Government in Scotland in many ways excelling this Government in the failure league. We need to accept, as the Hutton report did, that public sector pensions are not gold-plated and that many public sector workers, especially women, will retire on an annual salary pension of around £5,600 a year.
Does my hon. Friend agree that many Labour Members are aghast at the SNP’s duplicity? On one hand the SNP is attacking the Opposition, and on the other hand it is putting forward proposals that are draconian, compared with what the Opposition have done. Indeed, it could do otherwise if it wanted.
I agree. Public sector pensions are not gold-plated, and many, especially women, who work in the public sector will retire on an annual pension of some £5,600—a paltry £100 per week. They ask for fairness in their pensions now if they are not to ask for benefits in their retirement.
I just want to make a couple of brief statements, and I apologise for not being present during the opening speeches, but I was actually speaking at a conference on vulnerable workers.
I just ask the Government to let the negotiators negotiate. When the civil service unions attended the scheme’s talks this week, they were told what they can and cannot discuss. They cannot discuss pension age, despite the previous assurances that Ministers have given them. All schemes have to relate to the state pension age, so, even though some schemes may be able to afford a pension age of 65 years old, the Government are refusing to allow them even to negotiate it. The unions are also told that indexation is off the agenda, and that the index has to be CPI, not earnings, as Hutton recommended, or RPI, as currently.
The schemes have to be career-average. The civil service unions are not allowed to discuss contributions, which have to increase by 3.2% so that the average contribution is 5.6%. Costs always have to be within the scheme’s limit, but in addition the only transitional protection that they can discuss is 10 years for those aged 50, plus the three to four years of tapering for those just below that age. Even if the unions find savings, they cannot use them in another way for further protection. They cannot discuss Treasury assumptions about the discount rate, actuarial reductions for early retirement or any normal pension scheme issues. They are told also that they cannot discuss the abatement rules, which enable staff to take their accrued pension and work on. They can discuss the accrual rate, but that is all pre-determined by the other elements not being open for negotiation.
So, what the civil service unions are allowed to discuss in the negotiations is nothing of substance, and in reality we face further industrial action because the Government will not allow negotiations to take place. The Government take an intimidatory attitude by putting things on the agenda and, if they do not get their way, then taking them off.
I echo what other Members have said about the contempt with which negotiators have been treated. I watched the discussion between the Minister for the Cabinet Office and Paymaster General, Mr Maude and Mark Serwotka, the general secretary of the Public and Commercial Services Union, when the Minister accused him of not being at meetings. I now discover that Mark Serwotka was at every meeting that the Minister was at—matched on every occasion. If the Government are not deliberately provoking this dispute, they are walking into further industrial action because of their refusal to allow negotiations to take place.
I have toured around, talking to individual unions, and I have spoken to several union executives this week, but the depth of anger does not come from general secretaries or from executives; it comes from rank-and-file trade unionists, most of whom have never taken industrial action in their lives but all of whom are dedicated to the public service that they seek to provide.
So I just appeal to the Government: start negotiating properly; allow proper discussions to take place; seek to avoid industrial action; stop the abuse—the “damp squib” provocations that the Prime Minister has made; and start telling the truth about what people are going to get, because they are going to work longer, get less and pay more. If we look at the calculations that have been made using the Government’s own calculator, we find that no one will get more unless they work for many more years, and teachers and others do not want to work until they are 68 years old just to get some form of pension income that they can live off.
I urge the Government to get back to the negotiating table and to take their restrictions off the negotiations. They are dealing with people who are dedicated to public service, who are willing to settle and who do not want to seek further industrial action. I warn the Government that if they do not negotiate properly there will inevitably be more disruption and more industrial action—and that the Government will be to blame for it.
I do not intend to repeat the statements about the importance of public sector pensions that have been made so eloquently by many of my colleagues.
I am surprised that SNP Members, who among others have called this debate, have apparently not wanted to speak in it, because only one has done so. However, some of the comments they have made by way of interventions need to be addressed. It is not true to say that Labour Members have not raised the subject of public sector pensions in this House. Perhaps SNP Members were not here on
Moreover, in this week’s Opposition day debate on the economy, only one SNP Member was present, for a short time—Mr MacNeil. I will not attempt to pronounce the Gaelic name for his constituency because, as a lowland Scot, Gaelic is not native to me, and I am not going to pretend that it is. That was the extent of their interest in debating the economy and the issues that are so important in underpinning this debate on pensions, because unless we get the economy right, we will be in some difficulty. Today, several SNP Members left the Chamber early, presumably to put out their press releases to say how they had raised this important issue, but in reality they have not.
In the motion, SNP Members condemn the coalition Government for not being prepared to give them the money directly so as to be able to relieve some, but by no means all, public sector workers in Scotland of the contribution increase. They cannot have their cake and eat it within the system. They cannot have the Barnett consequentials when they like them and decide that they do not want them when they do not like them. Yes, it would be different if they achieved independence, although at that point we would have to ask, “How are you going to afford all the things that you say you are going to afford?”
Is the hon. Lady as surprised as I am that we have not heard a single mention of independence from the SNP Benches? As I understood it, that was their solution to all the pension issues in Scotland.
I suspect that in the fantasy world of the debate on independence, as it tends to be, SNP Members would indeed say that that is the answer, but they have to know how they would fund that and about issues to do with tax and making people as well off as possible.
During the SNP Member’s brief appearance in Tuesday’s debate on the economy, he kept talking about the Scandinavian economies. Of course, in the Scandinavian economies there is a very different view of taxation. It is disingenuous of the SNP to want to pose as a low-tax party and tell people that they can have wonderful public services and, at the same time, council tax freezes—which, by the way, are very regressive because they most benefit the people who are best off. The SNP has to decide where it wants to be. It deliberately put such a sentiment in the motion because it wants to be able to say that Labour Members will not support it.
We are in support of public sector workers. We do not think that what the Government are doing is right. We feel, very strongly, that we have to stop what this Government are doing, which is constantly to pit one group of workers against others. They are setting public against private, setting people in work against people who are out of work, and stirring up what I heard described on two occasions on Radio 4 at the weekend as an atmosphere of anger and bitterness. In the discussions on phone-in programmes about what is happening, all the clips were of people shouting at each other, saying, “Why should I, as a private sector worker, pay for your pension?” No commentator said, “Where is that anger being generated from?”, but it is being deliberately stirred up by this Government—
This has been a wide-ranging debate and I think that there is agreement across the House that pension provision in the long term needs to be affordable, sustainable and fair, not just for public sector workers but for all old-age pensioners.
Although we agree on those long-term objectives, the central contention of the debate has been that the short-term measures to reduce the deficit will hit public sector workers but be of no benefit to them. The issue at the heart of the debate is that the proposed 3.2% increase to public sector pension contributions is a straightforward cash grab by the Treasury on public sector workers. It has nothing to do with building long-term sustainability into our pensions system, but is unequivocally a short-term measure to cut the deficit.
Several hon. Members have pointed out that this is not fair and not affordable for a public sector work force who are already feeling the full effects of austerity measures that have gone too far, too fast. Most public sector workers are facing a two-year pay freeze, a 1% pay rise in 2013, increases in VAT and national insurance, and inflation of more than 5%. The cost of their essentials, such as heating, food and fuel, is going through the roof. The pressure on household budgets is intense and is getting worse.
In that context, increasing pension contributions for short-term gain is just the wrong thing to do. It is being done at the wrong time, for the wrong reasons and in the wrong way. It carries the risk that large numbers of people, especially part-time workers, will drop out of schemes altogether because of the immediate financial pressures that they face.
I think, and most Members on both sides of the House agree, that public sector pensions matter. They matter to the one in five people who are directly affected.
They matter to the rest of us who depend on public services and who realise that our public service work force are critical to the delivery of high-quality services. Above all, they matter to all of us who care about the welfare of older people in retirement. All of us want to enjoy a decent level of income. For parts of the country that have a high dependency on the public sector work force, the issue is even more acute.
What I do not understand about the hon. Lady’s logic is that the Scottish National party has said that it wants to have a referendum on independence for Scotland in the next four years. The area on which that would most significantly impact is pensions and pensioners, yet in her contribution and in the contributions of her fellow SNP Members, we have heard nothing about independence or about how pensions would be provided, guaranteed or sustained in an independent Scotland.
I refer the right hon. Gentleman to the Order Paper and the motion that we are debating. It will come as no surprise to anybody in the House that I believe in independence—I am an SNP Member. However, we are talking about public sector pensions and the Government’s proposals. It might be a nice distraction for the Government to talk about other issues which are equally relevant to Scotland’s future.
One of the most disappointing things about this debate has been that the Government have tried to defend their proposals by constantly highlighting the disparity between public and private sector pensions. We owe a debt to Katy Clark for pointing out the detrimental state of private sector pensions. When the Government responded to the interim Hutton report, my understanding was that they accepted its conclusion that pensions should not become a race to the bottom. However, speaker after speaker on the Government Benches has resorted to the argument that because private sector pensions are really poor, public sector pensions should be levelled down. That will not in any way address our pensions challenge. It is not sustainable and it is not fair to anyone in the private or public sector.
We have some of the highest levels of pensioner poverty in Europe. Currently, 30% of pensioner households and a massive 43% of single pensioners, most of whom are women, are in receipt of income-related benefits, whether that is pension credit, housing benefit or council tax benefit. Having large numbers of older people on means-tested benefits is not the way to do things. It is the price that we pay for poor pension provision. It is not an efficient way to support people in retirement.
The other big myth that has been well and truly blown out of the water today is that public sector pensions are gold-plated. Quite simply, they are not. Member after Member has pointed out that most public servants retire on modest incomes. The PCS points out that its average member’s pension is only £4,200 year. That is £80 a week, which is only £4 above the Government’s pensioner poverty figure. If such people’s pensions are reduced or they opt out because of the new conditions and contribution increases, it will simply put the burden back on means-tested benefits to keep people out of abject poverty in their old age.
In local government, in which 67% of the work force are women, the average woman’s pension is only £2,800 a year. Almost half of local government workers are on pensions of less than £3,000, and even in the NHS, in which salaries are much higher because of the professional qualifications involved, three quarters of members are still on pensions of less than £9,000 a year.
The Government have tried to sell us their proposals on the basis that low and middle-income earners will be protected from contribution increases, and may even be better off as a result. That is one of their key claims. However, because of the switch in indexing from RPI to CPI, all public sector workers will lose out in the longer term, and they will all be working longer. That indexing switch has been mentioned in the debate, and I am sorry that more Members did not vote against it when they had the chance back in February. They have a chance to rectify that now, and I hope that they will support us in the Lobby today.
Perhaps the most misleading aspect of the Government’s approach to the contributions increases is that they have said there will be protection for low-paid workers. As the Minister admitted earlier, the contributions of part-time workers will be calculated on the basis of full-time equivalent salaries, which will have massive implications for women, who make up the vast majority of part-time workers. About 32% of the women in our work force work part-time so that they can combine employment with unpaid work in the home or looking after others.
The Government have said that workers on incomes under £15,000 will not pay increased contributions, and that other low earners on up to £21,000 will pay reduced contributions, but when we look at the small print, we see that those thresholds, calculated on the basis of full-time equivalent salaries rather than their actual take-home pay, will mean that even professional people such as nurses and teachers who work part-time will have their pension contributions increased.
But in Scotland, the Scottish Government decide the pension contributions of teachers, health service workers, local government workers, the police and firemen. If the hon. Lady believes in her argument, does that mean that when the SNP implements the contribution increases in Scotland, it will make an exemption for low-paid part-time workers?
I am grateful to the hon. Gentleman for allowing me to point out two things. The first is the Scottish Government’s living wage, which has been raised to £7.20. That will significantly protect the household income of low-paid workers. The second and more substantial is the role of the Scottish Government in the matter. There has been a lot of chat around the Chamber about the room for manoeuvre that the Scottish Government do or do not have. Let me make it clear that the Chief Secretary to the Treasury wrote to the Cabinet Secretary in Scotland, John Swinney, pointing out that the Treasury would cut the budget by £8.4 million a month—that is half a billion pounds over the spending review period—if the Scottish Government did not impose the pension increases.
Not at the moment.
The unions recognise that the Scottish Government have very limited room for manoeuvre. Their choice is very simple: they impose the increases or take the money out of another part of the budget, in other words pay twice. It is clear that even if the Scottish Government were to ignore the requirement and try to find the money from somewhere else, the Government would cut that money from the budget.
Not on that point.
I am grateful to John McDonnell for pointing out the approach that the Government have taken in the negotiations with the trade unions. It seems to me that they have used a similar approach with the Scottish Government, whose choice has been limited. They have been dictated to, and there has not been a basis for a sensible, grown-up negotiation.
Another point made in the debate has been about the Scottish Public Pensions Agency. The key point is that it was not recommendations that were put forward but a series of theoretical options. That was part of the process of the Hutton consultation, and it was quite proper for the Scottish Government to set out a range of theoretical positions. I am sorry that that has dominated the debate so much.
We all recognise the challenges of pension reform, but we want it to be done in a truly equitable way that does not encourage a race to the bottom. We have to acknowledge the progress that has already been made to put public sector pensions on a more sustainable footing and the mechanisms that already exist, but punishing public sector workers through a short-term tax grab will do absolutely nothing to tackle the inadequate pension provision in the private sector. It is nothing but a tax grab, and it is disappointing that the Government have relied so heavily on the arguments that we have heard today. In tough times, all people realise that they have to take a share of the pain, but public sector workers do not want to carry the can.
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 a sustainable footing for the years to come.
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 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 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 works and lives. 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.
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.
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 John McDonnell did—is wrong.
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.
Of course, that is indeed the case, as it was under the proposals that the Labour Government put forward. The fact of the matter is that it will not be the case that 27% will leave pension schemes. In fact, the independent Office—
That is not what I said. I quoted a survey of FBU members which said that 27% may leave that scheme.
I can do no better than refer the hon. Gentleman to the Office for Budget Responsibility, which indicated that 1% would opt out.
There is no doubt that this debate has raised passions, and that is understandable, but the Government’s aim is clear. We will do our best to ensure that public sector workers will continue to have access to pension schemes that are guaranteed, index-linked and inflation-proofed. In the current economic climate, there are many other workers who would be only too grateful to have a similar benefit. Most public sector workers will see no reduction in the pension that they receive, and some indeed will receive larger pension income on retirement than they would otherwise—