Clause 7 - Types of scheme

Public Service Pensions Bill – in a Public Bill Committee at 9:15 am on 13th November 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 9:15 am, 13th November 2012

I beg to move amendment 50, in clause 7, page 4, line 20, at end insert—

‘(3A) A scheme under section 1 which replaces a defined benefit scheme may only be established as a defined benefits scheme.’.

We skip back to clause 7 after having had a little foray further into the Bill to discuss clause 15 and schedule 4. We will now examine the provisions relating to the design and type of the new public service pension schemes. Clause 7 has several subsections, the first of which, rather interestingly, states:

“Scheme regulations may establish a scheme under section 1 as—

(a) a defined benefits scheme,

(b) a defined contributions scheme, or

(c) a scheme of any other description.”

That is a peculiar way of drafting the legislation, because the Government promised to provide public service workers with defined benefit pension schemes in the form of career average pensions. However, the Bill does not seem to honour that particular commitment, providing as it does in subsection (1) that schemes created under the Bill can be defined benefit, defined contribution, or any other scheme that the Minister may see fit. The only restriction on the type of scheme, which is set out later in the legislation, is that it cannot be a final salary scheme. The Government have enshrined that side of the agreement in legislation, which is obviously to the benefit of the Treasury. However, they fail to include the corresponding side of the issue, which was the promise that it made to public service workers.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Does my hon. Friend share my concern about the comments made during the evidence sessions by, in particular, the TUC that the inclusion of such a provision in the Bill leads to worries about undermining confidence in the negotiations and discussions that are taking place with the Government around the Bill?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed, and we have had this debate before. It is important to try to shore up the trust and confidence that public sector employees might have in the Government’s approach, given that there are so many suspicions and the fact that the Government recently unilaterally implemented the 3% change and the change in the valuation arrangements totally without negotiation or consultation. Yet Ministers somehow expect no suspicions or question marks to be placed over the Government’s motives when they draft legislation in such a way and state in the Bill that schemes cannot be final salary, but do not enshrine that such schemes must be defined benefit. That is why we have tabled the obvious amendment 50, which adds a requirement that:

“A scheme under section 1 which replaces a defined benefit scheme may only be established as a defined benefits scheme.”

That should be accepted by Ministers, and it simply seeks to enshrine in legislation the promise that Ministers sought to make.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

One reason why such suspicions exist is that the debate is often still couched in terms of how much better public sector pensions are than private sector pensions, and rather than trying to raise private sector standards, there still seems to be the implication that public sector provision is still too much and it should come down to the level that many in the private sector have been forced into.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed that is the case; it can be seen in some of the amendments tabled to the Bill by Conservative Back Benchers, and there are others who suggested that, somehow, this is a deal that they might wish to unpick. Therefore, if this is the deal—the final settlement—for the next 25 years, at least, please let us enshrine it in the Bill in the way in which it is intended. The lingering suspicion that the Government are about to renege on the promises they made to replace the final salary scheme with a career average scheme is there in the back of people’s minds. That undermines the trust that public service workers have in the Government, and in the pension reforms more broadly.

Photo of Debbie Abrahams Debbie Abrahams Labour, Oldham East and Saddleworth

Is my hon. Friend aware of any impact assessment undertaken on the Bill that reveals the implications for low-paid public sector workers?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

We need to go through those impact assessments. I am not sure that I have seen the impact assessment behind the scheme. Perhaps the Minister will give us an undertaking that he will write to the Committee and copy us in on the Treasury’s impact assessments of the new scheme arrangements? That would be very helpful.

It would be an important step if the Minister would assure us that he will, at least, think about tightening up clause 7 to address, essentially, the point that his colleague, the Chief Secretary to the Treasury made in a statement on 20 June 2011. He said:

Lord Hutton said himself that ‘how people are treated in this process will be as important as the changes to pension schemes themselves’. I wholeheartedly agree with him that establishing a relationship of trust and confidence between the Government and public service workers is critical to the success of these reforms.”

Amen to that. We hope that, therefore, the Minister understands why there might be suspicions about the clause as it is drafted.

Our amendment is carefully drafted to pre-empt some of the Minister’s comments. We understand that, currently, there may be a small number of defined contribution public service schemes. Our amendment—we hope—does not affect those. The amendment is designed to ensure that, as the Government promised, final salary schemes, which are set to be closed by the Bill, will be replaced only by defined benefit schemes. The amendment merely puts that promise on a statutory footing. The only reason that the Government could have for rejecting the amendment is that they might have their fingers crossed and, at some point, be intent on possibly breaking that promise. Otherwise, I cannot see why they would reject the amendment.

As we have said before, often, Ministers come to this Committee with ring binders filled with beautifully written civil service speeches with big words, emboldened,  at the top saying, “Resist this awful Opposition amendment”, and the poor old Minister has to do his best to make that case. On this amendment, however, I urge him to set aside the advice that his officials might be giving him to keep the Bill beautifully clean and pristine. I urge him to listen to the anxieties that public service workers have expressed about the nature of clause 7 and to take a look at the constructive, helpful way in which we have drafted amendment 50. We want to enshrine the Government’s promise; we are trying to put the Government’s own words in the Bill. We are not going further than that, and I hope he will accept the wisdom of the amendment.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

In some ways, this comes to the crux of the debate on public sector pensions that has been ongoing for some considerable time. At times, it has exploded into bitter debate and industrial action. A lot of progress seems to have been made in painstaking negotiation over the past couple of years, particularly in recent months. As we heard in the evidence sessions, many, although not all, of the trade union and staff groups that were involved in the discussions felt that genuine progress had been made. They felt that issues they had raised had been listened to, and that there had been a willingness to change some of the original proposals and come up with something that they could recommend to their members. The fact that that stage has been reached is significant.

Some groups have outstanding concerns that may have to be addressed, and a further compromise may be required, but once that has happened and we can move forward it is important that people have the confidence that we are reaching a public sector settlement that will last for a considerable time. Hopefully this will not be the case, but it might be necessary to reconsider the scheme in future. Much of our discussion has been about longevity, and we may or may not have reached the limits of the improvements that have been achieved, largely as a result of better general health, better standards of living and better housing, which mean that people now entering retirement can expect to live substantially longer than their parents and certainly their grandparents. If we have not yet reached that barrier—I think it has been stated that many babies born this year can expect routinely to live to 100, and perhaps that will be exceeded—people might, in perhaps 10 or 15 years, raise similar issues and ask again how the scheme could be made affordable and whether it was necessary to look at a different way of providing pensions.

Photo of Debbie Abrahams Debbie Abrahams Labour, Oldham East and Saddleworth 9:30 am, 13th November 2012

As always, my hon. Friend makes a valuable contribution to the debate. Does she agree that trust and confidence are the crux of the matter? The amendment would insert into the Bill a provision that was supposed to have been agreed, to ensure that progress made in the negotiations with public service workers will be held in good stead.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I could not have put it better; that is exactly the point. I was trying to suggest that if it were thought necessary in future to reconsider the scheme, changes should be made through primary legislation. The issue is so important that it should not be possible  for a future Government, of whatever nature, to return to the legislation and say, “Ah, but we can do this, because subsection (1) allows us to change the scheme from a defined benefits scheme to a defined contributions scheme without further primary legislation, so that is what we will do.” That would destroy trust, and it would be regrettable because it is important that any such changes be debated and negotiated openly. We must not allow them to slip through because we did not make the matter clear in the Bill.

The Government have spoken warm words, but I am anxious because many Government Back Benchers do not appear to support them. The fact that the governing party is not of one mind on the matter makes people uneasy. If those warm words are to mean something, the Bill must make it clear that there is no back-door route by which pension schemes, which have already been greatly altered, can be changed to defined contribution schemes. I have serious concerns about defined contribution schemes and how they have worked in the private sector. Anyone who has taken part in one will be well aware of that. We would have to be cautious before going down that route. I would like us to consider why defined contribution schemes often seem to give us very little more than was put in; I certainly got to the point with one of mine where I thought that I should just put the money under the bed, as it would not be worth any less.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

The hon. Member for Nottingham East mentioned the Chief Secretary, and so will I. I thank him and the hon. Member for Edinburgh East for their comments. As the Chief Secretary and I have asserted repeatedly, the Government are fully committed to implementing the defined benefit schemes that have been negotiated. I am confident that the reforms are sustainable and will last a generation. I assure the Committee that the Government have no intention of replacing the defined benefit schemes with different scheme designs.

Photo of Debbie Abrahams Debbie Abrahams Labour, Oldham East and Saddleworth

But is that not the point? The Minister—I do not want to impugn his reputation, or what he is saying—talks about this Government. It is about future Governments, taking into account the points made by my hon. Friends the Members for Nottingham East and for Edinburgh East. If the language in the Bill is not just right, it could be open to misuse.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I thank the hon. Lady for her input. I will explain why I do not think that that is a risk or should be of concern, and will point out the Government’s reassurance to those rightfully concerned. There is no ill intention behind the clause; the flexibility embedded in it could be helpful to scheme members in future. It would be bizarre for the Government to have invested so much resource in developing and legislating for cost cap and valuation methodologies if we intended to do anything other than retain the defined benefit schemes.

Notwithstanding that commitment, it is important to note that as mentioned by the CBI during the oral evidence session on 6 November, the defined benefit or defined contribution nature of a scheme does not inherently make that scheme good or generous. It may be considered in the context of the terms of the scheme and the needs of that particular work force. For example, many civil servants have chosen to be members of a partnership  defined contribution scheme, and such schemes are widely adopted in the private sector too. That shows that some public service workers already have a desire to be part of such schemes, albeit as an alternative rather than as the main form of pension provision for that particular work force.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Will the Minister respond to the point made by Alice Hood during the oral evidence session when she said:

“Seeing the potential for a move to defined contributions schemes there on the face of the Bill is quite concerning, and damaging to member confidence.”

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I understand that, but I also understand from our negotiations with trade unions and others in the schemes that they understand why the Government have included the clause. As long as it is well explained in debates such as this one, along with the reassurances that I am clearly providing, no one should look at the clause and think that it involves any hidden agenda. I hope that Alice Hood will read this debate and gather further reassurance.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I thank the Minister for his comments, although I am not entirely sure that it gives reassurance. It was not only Alice Hood who was concerned but Brian Strutton, who said:

Clause 7 gives the Treasury far too wide-ranging powers to introduce any other type of pension provision, and crucially, without proper parliamentary scrutiny.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 159, Q43.]

He thought that there ought to be an affirmative procedure. More than one person expressed concern during the evidence sessions, which the Minister listened to and was present at.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

The hon. Lady is quite right that I listened and that is why I want to make the clause’s intention absolutely clear. I also want to point out why it is in the public interest and the interests of taxpayers and future Governments to have such flexibility.

While I see no prospect of the Government wanting to move away from the defined benefit schemes that we have worked so hard to implement, it would not be appropriate for this Government to tie the hands of future generations and pension scheme members who might decide that, subject to the protection offered by the enhanced consultation and reporting obligations of clause 20, defined benefit schemes were no longer the most appropriate for public service workers.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

I find it ironic that the Opposition are concerned about the possibility of a move away from defined benefit schemes when, as a consequence of their policy in the 1997 Budget, defined benefit scheme members in the private sector went down from 5.8 million to less than 1 million. If they do not agree that that is a direct consequence of that policy, I refer them to confidential internal advice from Treasury civil servants titled “Paper Four” obtained under the Freedom of Information Act, which states:

“The present shift towards defined contribution schemes might accelerate” as a consequence of the decision to end the tax credit on dividends. I therefore listen with some bemusement when Opposition Members complain about ending defined benefit schemes.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I thank my hon. Friend for that comment, which shows his experience in this area. The information that he has provided is of great use—[ Interruption. ]

Photo of Annette Brooke Annette Brooke Liberal Democrat, Mid Dorset and North Poole

Order. May I remind hon. Members that they are perfectly entitled to seek to intervene rather than calling out across the room?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

You are quite right, Mrs Brooke.

Clause 20 provides a high hurdle against changes to defined benefit pension schemes, which provides very good protection to public servants for a generation. It is not for us to speculate on how the world of work in either the private or the public sector might look in 25 years’ time and what type of remuneration will be needed or wanted at that time. However, I wish to reiterate that a move away from defined benefit schemes in the public service is not the Government’s intention.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Perhaps the Minister’s Liberal Democrat colleagues will say that their participation in this Government is the only reason why the Minister is sticking to the defined benefit scheme. As my hon. Friend the Member for Oldham East and Saddleworth said, however, a future Government—heaven forfend that it be a majority Conservative Government, if you can imagine such a prospect, Mrs Brooke—is clearly intent on ripping up the defined benefit schemes. We heard the hon. Member for Bognor Regis and Littlehampton, who is a former Minister, almost licking his lips at the prospect of moving towards defined contribution schemes across the public sector, so we need more than the words of the coalition Minister. I want to hear from him as a Conservative. Is he committed, as a Conservative, to retaining the defined benefit schemes as agreed in his own negotiations and his own promises?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

The hon. Gentleman is getting a bit carried away. The Chief Secretary to the Treasury could not have made the Government’s commitment any clearer. I could not have made it any clearer. This is a settlement for a generation. We believe in defined benefit schemes, which are at the heart of the reforms. We want to ensure that those who work hard in the public sector have access to a generous defined benefit scheme. That is the legislation’s intention. The hon. Gentleman knows that, and I ask him to withdraw his amendment.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It is typical of the impression that we sometimes get of the Government’s Janus-headed approach that they seek to look both ways on the issue. With one utterance the Minister says there is every intention to stick with a defined benefit scheme—perhaps he had his coalition hat on for that—but then, as a Conservative, he says it would not be appropriate to tie the hands of future Governments.

That is not a 25-year commitment; that might be only a couple of months’ commitment, the way things are going for relationships in this tattered Administration. Let us hope that their internal dysfunctions bring them down as soon as possible.

Mr Gibb rose—

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 9:45 am, 13th November 2012

Speaking of bringing them down, I give way to the hon. Gentleman.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

I believe the hon. Gentleman’s earlier intervention was out of order. Lord Hutton made it clear in his final report that the public could not be certain of the sustainability of defined contribution schemes unless reform happened. The Government, led by Conservative Ministers in various Departments, are committed to defined contribution schemes. The point I made in my earlier intervention is that it is ironic that the Labour Opposition are trying to defend defined contribution schemes when it was they who led to the decline of defined benefit schemes in the private sector, which has put pressure on those schemes in the state sector.

However, this Government, whether Conservative or Liberal Democrat Ministers, are committed to maintaining the public sector pension schemes as defined contribution schemes as a standard that the private sector now needs to meet. Before Labour came to power in 1997 it was the other way round. The hon. Gentleman’s party is responsible for the state of pensions at the moment.

Hon. Members:

Hear, hear.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The hon. Gentleman’s comments are supported by “Hear, hear” from the hon. Members around him. However, during that intervention, on four occasions he incorrectly said that the Government are committed to defending defined contribution schemes. I think that on those four occasions he meant defined benefit schemes. We will put that oft-repeated error to one side.

The hon. Gentleman must surely see some suspicion on the employee side when faced with a supposed deal, signed up to by the Liberal Democrat Chief Secretary to the Treasury, that these will be defined benefit schemes. There is a realistic suspicion that the commitment to replacing those existing defined benefit schemes with new ones might have a jolly big question mark over it. That is not least because the Minister has sought to enshrine only one side of the agreement in statute. He is not against putting certain things in the Bill; they must not be final salary schemes. However, there is no symmetrical corresponding commitment the other way in the Bill.

Photo of Andrea Leadsom Andrea Leadsom Conservative, South Northamptonshire

Does the hon. Gentleman accept that his Government destroyed one of the best private sector pension arrangements in Europe, by abolishing advanced corporation tax relief on pension funds and thereby removing more than £100 billion within a few short years out of private sector pensions? Does he further accept that as a result of that there is now an extraordinary  difference in the terms that public sector retirees are able to enjoy over those in the private sector? While this Government have no desire to have a race to the bottom, does the hon. Gentleman accept his Government’s responsibility for that unfairness?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Does the hon. Lady not understand that while I would be more than happy to debate private sector pension schemes, we are not able to do so under this Bill? By her comments she seeks to give the impression that defined benefit schemes under the agreement signed up to by this Government are not wholehearted and firm. She is almost indicating that defined benefit schemes are too generous and not the right thing to do, when all we are seeking is to enshrine in the Bill the very negotiation and agreement that her own Government have made. That is the anxiety that we have.

Photo of Andrea Leadsom Andrea Leadsom Conservative, South Northamptonshire

The hon. Gentleman completely misrepresents me. As I made clear, the Government have no desire for a race to the bottom. My point was to ask him a question: does he accept that his party’s Government were responsible for the unfairness that we are entirely determined to end? Does he accept their responsibility for destroying the private sector pensions that used to be the envy of the world?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Absolutely not, but as I have said, we cannot debate the state of private sector pensions under a Public Service Pensions Bill. Does the hon. Lady not accept that, by raising the prospect that, somehow, defined benefit schemes are eroded and unsustainable, all she is doing is fuelling the suspicion that, as we see in clause 7—debating which is in order—this transitory, ad hoc and temporary Government, and the Conservatives in particular, are not committed to the deal to which they signed up?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Whatever the reasons for the decline of defined contribution schemes in the private sector, I recently had meetings in my city with both Scottish Widows and Standard Life in which I asked them a specific question, and they both said that, in their view, there are a wide range of reasons for the decline of defined contribution schemes, rather than simply because of a legislative change. In what sense, as has been suggested, does that put pressure on the public sector to change its schemes? During the period in which defined contribution schemes were being introduced in the private sector, we saw soaring wage inequality and hugely increased profits among those companies. Many people wonder whether it is quite so necessary to race to the bottom of the private sector.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed.

That is the point of the debate—the amendment would ensure that, if the Government were to get rid of a defined benefit scheme, they would replace it with another defined benefit scheme. Those are not our words, but the Government’s own commitment. I think the Minister said something to the effect that it would be bizarre to do otherwise and that there is no prospect  of that scenario happening. Yet every intervention from Government Members suggests, “Defined benefit schemes are risky and unsustainable. That is why we have to keep our fingers crossed and keep open the option of getting rid of them and moving to defined contribution schemes.” We have addressed existing defined contribution schemes moving towards—

Photo of Andrea Leadsom Andrea Leadsom Conservative, South Northamptonshire

On a point of order, Mrs Brooke. Is the hon. Gentleman allowed to make blatantly untrue assertions about what Government Members think and say?

Photo of Annette Brooke Annette Brooke Liberal Democrat, Mid Dorset and North Poole

That is not a point of order, but it might be a well made observation.

I call Chris Leslie, who will focus on the amendment.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am shocked by the unnecessary point of order raised by the hon. Member for South Northamptonshire. You are right to dismiss her in the way that you did, Mrs Brooke.

All we are trying to do is to keep the Government to their word, which is an important job for the Opposition. If Government Members think that is by the bye, and that we should trust them absolutely when they say that there is no problem whatever in the Bill’s drafting, they need to listen to the evidence we heard in our oral evidence sessions.

The Bill enshrines certain aspects of the protections for the employer side by stating, “Thou shall not have final salary schemes.” That is fine as far as it goes, but the symmetrical promise to stick with a career average defined benefit scheme does not appear in the Bill. It is not unreasonable for us to ask why that has not been included, nor is it unreasonable for members of schemes who have experienced unilateral impositions, rather than negotiated changes—pension schemes are, after all, deferred wages—to ask that. We are talking about the terms and conditions of hundreds of thousands of hard-working public service workers across the country. I am not going to apologise for attempting to insert the Government’s own guarantees into the Bill. There is no good reason for Ministers to reject the amendment, which we have not drafted in a way that would drive a coach and horses through clause 7. We have been careful to ensure that it would allow existing defined contribution schemes to be replaced by new defined contribution schemes; the amendment focuses on the commitment to new career average defined benefit schemes. I am in despair at the fact that the Government cannot find a way to make that commitment.

Perhaps the Minister gave the game away when he said that it was not appropriate to tie the hands of future Governments. People will leave this debate thinking that a future Conservative Government might want to get rid of the new defined benefit schemes. That is the logic of what we have heard from Members on the Government Benches. Instead of standing up and arguing in favour of the deal that was reached in the last period of negotiations, and reached after careful consideration of the Hutton report, instead we have seen them in every intervention

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Perhaps this intervention will be a break from the tradition of Government Members seeking to say that defined benefit schemes are somehow for the birds, when the schemes should be enshrined in this legislation. I give way.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

Can I make it clear that throughout the whole of the negotiations the purpose has been to put defined benefit pension schemes on a sustainable, long-term basis? That was the whole essence of the Hutton report and of Government policy. The plan was, and remains, that these provisions should last for at least 25 years. That is the plan: it is what has been promised and what will be delivered by a Conservative Government of the future.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Those were in part the words I wanted to hear from the Minister—but did not—about a future Conservative Administration, should there ever be such a thing. In that case, the hon. Member for Bognor Regis and Littlehampton will be supporting the amendment, because all we are trying to do is put that issue beyond doubt. Nothing he just said would cut across his support for the amendment, if we have a Division, as that is all we are trying to achieve. Government Members sometimes look at these proceedings with such suspicion, through their blue-tinted spectacles, thinking, “We must never touch an Opposition amendment; they are always trying to trick us and pull the wool over our eyes, those evil Labour people.” That is how they might want to characterise us, but that is incorrect; we are simply trying to enshrine on the face of the Bill the Government’s own words, as uttered by the hon. Gentleman.

I therefore think it is important that we test the will of the Committee. This is a key moment for the Bill.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Division number 3 Decision Time — Clause 7 - Types of scheme

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

This clause is concerned with the most fundamental design elements of the new schemes. The Government have been clear that the new schemes being created under the Bill should not be final salary schemes. As Lord Hutton set out in his final report, a final salary design is not appropriate for future public service schemes. In particular, final salary schemes unfairly benefit high flyers, who can receive up to twice as much in pension payments per £100 of contributions.

The Government have announced that they intend to put schemes in place which are of a career average revalued earnings, or CARE, design. That design will minimise the impact on lower earners, while rebalancing risk between the taxpayer and scheme members. The Institute for Fiscal Studies pointed out last week the

“really quite significant distributional changes” brought about by the reform, which are very positive for lower earners.

As both I and the Chief Secretary have repeatedly asserted, the Government are fully committed to implementing the schemes that have been negotiated. The Government have spent a large amount of time and effort on the CARE schemes and they intend to deliver them. It would not be appropriate, however, for this or any Government to use primary legislation to tie the hands of future generations. To that end, clause 7 allows for other pension scheme designs if, and only if, future public authorities and pension scheme members decide that, subject to the high hurdle of protection offered by clause 20, CARE schemes are no longer the most appropriate pension design for public service workers. That might seem unlikely, but more than 7,000 civil servants have chosen of their own accord to use the civil service partnership scheme, which is a defined contribution scheme. It is impossible for the Government to predict what public servants will expect from their pension arrangements in more than 25 years’ time.

Photo of Debbie Abrahams Debbie Abrahams Labour, Oldham East and Saddleworth 10:00 am, 13th November 2012

It seems, unfortunately, that the Minister is trying to sell the case for DC. As in the debate on amendment 50, the Government are trying to make the case for DC rather than stating, as they have done previously, that they support DB schemes.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

If that is what the hon. Lady thinks, she has misunderstood. The Government have made a very strong case for DB schemes, and that is clearly the intention of the schemes that are relevant to the Bill. It would not be appropriate to discuss amendment 50 again, but I hope that what I have had to say has provided some reassurance.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I have a specific question about clause 7. Subsection (5) states:

“Treasury regulations under this section are subject to the negative Commons procedure.”

In other words, we do not get the chance to debate such regulations; they simply go through on the nod. If the Minister’s commitment to replacing old defined benefits schemes with new defined benefits schemes is genuine, he might give a commitment—we might return to the matter on Report—that if he replaced a defined benefit scheme with a different type of scheme, he would do so under the affirmative resolution procedure. That would be one way of improving the protections so that defined benefits schemes are not replaced with non-defined benefits schemes. Will the Minister consider that suggestion?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

What I and my right hon. Friend the Chief Secretary have said on numerous occasions about the Government’s commitment to the matter should  count for something. All schemes covered by subsection (5) will be DB schemes. I mentioned earlier that clause 20 makes it harder to move away from CARE schemes, because it requires consultation with a view to reaching an agreement and it requires a report to be laid before Parliament. Those are high hurdles, which is as it should be. Most importantly, the Government’s commitment to providing a settlement for a generation with those types of schemes is absolutely clear.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

A lot of this comes down to the notion that we cannot put protections in the Bill because that would bind the hands of future generations. Nothing would prevent a future Government from introducing primary legislation to amend provisions if circumstances allow, except for the fact that such legislation would be made under the public spotlight. The public would notice if a change was made to the agreement that was reached in 2012 to move from one defined benefits scheme to another defined benefits scheme. Primary legislation is one way to ensure that public service workers have some protections. The notion that protections cannot be included in the Bill must be taken with a pinch of salt.

Photo of Graham Evans Graham Evans Conservative, Weaver Vale

The hon. Gentleman said that the general public would look at the Bill. What about the 13 million private sector workers who do not have a pension? They will look at these discussions and read what the hon. Gentleman says about defined benefits. They would love to have defined benefits schemes in the private sector, as my hon. Friend the Minister ably pointed out. The general public need to realise that public sector pensions are still the very best on the market.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I look forward to the Government bringing forward a private sector pensions Bill. I am really keen that they do that because there are ways in which we think private sector pension schemes could be improved. But I do not think there is anything in the Queen’s Speech on that. Perhaps the Minister would like to intervene to confirm that the Government have proposals to improve private sector schemes. Yet again, we are left with this sword of Damocles: public sector workers should keep their eyes peeled and glance over their shoulders every now and again, because these defined benefit schemes might not be quite so enshrined as was suggested in the agreement for the coming period. Government Members do not seem to grasp the point we are making in saying that we have to put in the Bill the protections that were agreed in the negotiations. That is all we are saying.

I intervened on the Minister earlier to say that if existing defined benefit schemes are to be replaced by schemes that are not defined benefit, at least that should be by the affirmative resolution procedure so that Ministers cannot do it unnoticed by the back door. We did not even get that rather scant commitment from the Minister. We have tried to get it on a number of occasions. First, we tried to make that change in the Bill through amendment 50. We lost that Division, but we may want to come back to the matter on Report. There might be other ways of doing it, such as ensuring that there is an affirmative procedure. Some protections need to be put in place. Some sort of safeguards are needed, even those  related to scrutiny, to ensure that we can at least debate the possibility that the Government will renege on the agreement. That is the lingering suspicion that people will have.

The hon. Member for Bognor Regis and Littlehampton said that a future Conservative Government would be committed to defined benefit schemes under the agreement for a period of 25 years, but I did not hear that from the Minister. I would be happy to give way to him if that is a firm and clear commitment of a Conservative Minister. We have heard that from Liberal Democrats—the Chief Secretary and others—but we have not heard it from Conservatives in the Committee. That is why we are suspicious about clause 7.

There are aspects of the clause that we agree with. It is right to move away from final salary arrangements to career average revalued earnings schemes. We also accept that there are certain existing defined contribution schemes within the public sector. As the Minister said, 7,000 civil servants and others have gone into them already. However, I cannot get away from the fact that the clause seems inadequate and does not reflect the commitments that were made in the agreement. We need to put down a marker that it is deficient and should not stand part of the Bill.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

It is particularly important to remember that we are looking at the public sector here. The constant references to relativity are making people anxious. Many people currently employed in the public sector who are in these schemes cannot help but hear the matter being considered in this way, and the suggestion that because defined benefit schemes have almost, but not quite, been eliminated in the private sector, it per se puts pressure on public sector pensions. I am not clear what that is about. Surely we should look at the financial viability of the public sector schemes, as Hutton has, to see how affordable they are now and in the future in their own right. Indeed, there should be aspiration, and it is deeply disappointing that we have got to a stage where public sector pensions are so different from private sector pensions.

Many years ago, I started some research about women in pensions—I confess I did not finish it—whereby I looked at various companies’ pension provisions in my own city of Edinburgh. Many—even quite small companies, such as printing firms—offered defined benefit schemes, and some offered final salary schemes to their workers. We have to look at the many and variable reasons why that has declined. We must consider some of the reasons given, but also look at ways in which we can improve the situation.

I do not know the details of the 7,000 public sector workers who have opted in to a defined contribution scheme, but I know that, in the past, some public sector employees were encouraged, or thought it was a good idea, to take up additional voluntary contributions to add to their provision. One such group was nurses who were encouraged to do that with Equitable Life, and we know where that took them. I do not know if this is a top-up or a stand-alone scheme, but we have to ask, now and in future, whether those schemes, as now negotiated, are affordable. If things substantially change in the future, even then we may not want to change the scheme because, presumably, the alternative  route would be to continue to raise the retirement age. Alternatively, if we had more growth in the economy, we could, indeed, afford many of these schemes.

I hope that we will talk purely about whether we can afford the public pension schemes, and not constantly measure against the private sector because things have become so poor in the private sector, pensions-wise. We could argue for a long time about why it is that, even in times when companies were successful and making large profits, they still saw fit to end many of their employee pension schemes.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 9, Noes 6.

Division number 4 Decision Time — Clause 7 - Types of scheme

Aye: 9 MPs

No: 6 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 7 ordered to stand part of the Bill.