Public Service Pensions and Judicial Offices Bill [Lords] — House of Commons, 2022-02-22
Topic: Labor
John Martin McDonnell (Labour, Centre-left): I would also come out fairly pragmatically and say that there may be some countries that, according to the Government, were not appropriate to invest in a few years ago but now are. I do not want a little red book to be thrown at me again, but I would just cite the fact that the relationship the Government have had with China has changed over the years and, I hope, is changing again at the moment with regard to the Uyghurs Let me move on to the new clause and amendments in my name. New clause 10 is a simple reflection of new clause 8, tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq), on the pensions trap. I want to echo what I think she said really eloquently in Committee and today about how the dialogue on this issue must continue, because there is an unfairness at the heart of the legislation we are pushing through at the moment. This affects firefighters, police superintendents and so on, who feel aggrieved, and I feel that a bit more dialogue may enable us to find a solution and restore their confidence in the pension scheme itself. That is why I support new clause 8 My new clause 10 is simply more explicit about ensuring that there are consultations with the trade unions and other employee representative bodies, and that we seek to overcome the problem so that we have a non-discriminatory approach that does not fall foul of the law I turn to my amendment 24, which addresses a complex issue. It reminds me of the debate we had on the d’Hondt proportional representation system, as there were only two people who understood it: Mr d’Hondt, who died, and Jack Straw. Let me just go straight to the point on this matter. I am sorry if I go into some detail. The Chief Secretary to the Treasury said in Committee that "it is vital that we establish now, for the avoidance of any doubt, that no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations. Any benefit improvements due will be honoured, but no additional costs will be imposed. I reassure the hon. Lady"— my hon. Friend the Member for Hampstead and Kilburn— "on her important question, that the costs of our remedy genuinely sit with the Exchequer, not scheme members."––[Official Report, Public Service Pensions and Judicial Offices Bill [Lords] Public Bill Committee, 27 January 2022; c. 10.] This is complicated stuff. There is a confusion of two issues here. The Government did make a mistake and were challenged in the courts. I fear that that cost burden will now fall on to members of the pension fund, if it is included in the cost mechanism as an employee cost. That is the issue I turn to two points in that regard. First, there is the cost to the scheme of giving members the option to choose which benefits—old or new—they want to accrue during the remedy period. Some members will choose benefits that are better for them than they would have received before the McCloud and Sargeant judgments. The scheme will clearly have to meet the cost of paying those benefits—fine. We got the assurance from the Minister that the money will flow—we think it is £17 billion; that is the last estimate—and the burden will not fall on to the members themselves, but that is not what we are talking about here. The issue here is what impact the cost of the remedy should have on the cost control mechanism. I remind Members that this is the mechanism for deciding whether members’ benefits should be changed or, alternatively, whether contributions could be changed. There is no doubt that treating the cost of the remedy as an employee cost for the purposes of the cost control mechanism leaves members worse off than they would have been had it been treated as an employer cost. I draw the Chief Secretary’s attention to the helpful report from the House of Commons Library entitled "Public service pensions: the cost control mechanism", which tells us that if we go back to the initial results of the 2012 scheme valuations, which were reported in 2018, the Government said that "the protections in the new cost cap mechanism mean public sector workers [would] get improved pension benefits for employment over the period April 2019 to March 2023." It is those improved benefits that I believe are now at risk if the cost of the remedy is included as an employee cost and not an employer cost What does this mean? The improved benefits were required because members had suffered a reduction in the value of their expected benefits over the period 2012 to 2016 because of lower than expected pay increases and because longevity had not increased by as much as had been expected. In other words, the changes would not make members better off; they would simply maintain the value of the benefit package at the level that had been agreed. I apologise to Members, because this is complicated stuff, but it has to go on the record if we are to get redress on this, either today or in subsequent legal actions Given the requirement under the cost control mechanism, the respective scheme advisory board then set about agreeing the necessary changes in benefits. In other words, because the pay settlements had not been as large as predicted, and because people were not living as long as the predicted life expectancies, the cost burden on the scheme was less, which should have been reflected in benefits given back to members. The scheme advisory board started looking at what those benefits would be, and the Library report gives an example of packages of changes proposed for the civil service scheme, which included "a reduction of member contributions; reform of the current contribution rate structure; and increased death benefits." The other schemes reflected similar sorts of benefits, so members would gain significantly as a result of this unfortunate situation—unfortunate because they never got enough pay settlements and never had the increase in life expectancy. Nevertheless, because those costs never fell on to the scheme, they should have been paid back to members In December 2018, the Court of Appeal ruled that part of the reforms amounted to unlawful discrimination. That was followed by the decision by the then Chief Secretary that the cost control element of the 2016 valuations should be put on hold. In other words, the members were to gain those benefits because of the cost control mechanism, the court decision took place, and the Government then froze the whole process. Eventually, the Government restarted the process and published the Treasury directions in October last year. The problem with the directions is that they treat the cost of remedying the Government’s mistake, as calculated for the purposes of the cost control mechanism, as a member cost, not an employer cost The important point to understand is that there is nothing inevitable about the remedy as a member cost. It has always been accepted that there are certain elements in the calculation involved in the cost control mechanism that are regarded as member costs that will impact on the cost control mechanism itself, but there are also other elements in the calculation that are employer costs and do not impact on the cost control mechanism. For example, the impact of changes in pay increases and mortality are obviously member costs, but changes in the discount rate and price increases are the employer costs. It is strongly argued by the trade unions, completely understandably, that mistakes made by the employer—that is, the Government—are employer costs What has never been discussed is how to treat the cost remedy incurred by the Government’s own error, and that is what needs to be addressed today. It was the Government’s mistake to have age discrimination in the scheme. The Minister in Committee said it was reflected in trade union representations, but as has been said by the Public Accounts Committee and others, the Government are the Government; they should have foreseen that there was the potential for discrimination. It is the Government who introduced the measures. It is the Government who are responsible for the Treasury directions and any legislation. It was a mistake by the Government. It is therefore logical that the cost of the remedy should be treated as an employer cost for the purposes of the cost control mechanism I apologise to hon. Members for the complexity of this, but it is important that we get on the record very explicitly that members of these pension funds should not have to pay in the long term for Government mistakes and should therefore have gained the benefit of either reduced contributions or enhanced benefits, because that is contained in what the Government agreed a number of years ago as the cost control mechanism.