Superannuation Bill

My Lords, the Bill is an important step in implementing the coalition programme for government, which set out a commitment to, "““reform the Civil Service Compensation Scheme to bring it into line with practice in the private sector””." The Government’s intention is to put in place a scheme, following consultation with the Civil Service unions, that is affordable and that not only is fair to civil servants but can be justified to taxpayers at a time of severe economic hardship. Noble Lords will be aware that this follows closely what the previous Government had intended to do, so I hope that there will be a certain measure of support from the Benches opposite. Indeed, in March 2009, the then Prime Minister, Gordon Brown, announced an intention to reform the existing arrangements in order to control costs and to improve departmental accountability. He said: "““The Government therefore intend fundamentally to reform the severance and early retirement terms for all civil servants in order to control costs. The current arrangements have been in place since 1987 and are inflexible and expensive. The new terms require departments to reduce costs and will improve accountability and value for money for the taxpayer, saving up to £500 million over the next three years””.—[Official Report, Commons, 31/3/09; col. 60WS.]" It may help your Lordships if I set out some of the background to compensation schemes in the Civil Service which we are now hoping to reform. The first legislation to cover the possibility of payment of compensation to civil servants on the loss of office was created under the Superannuation Act 1859. This Act did not create a right to compensation but it did create a framework under which such payments could be made. The Superannuation Act 1965 consolidated the previous superannuation Acts. It included a provision for the early payment of pensions to those aged 50 or more who had been asked to take early retirement in the interests of efficiency. The 1965 Act repeated the provision of a much earlier Superannuation Act—the first one, of 1834—under which authority to pay pensions to civil servants was granted for the first time. It also spelt out that civil servants had no legal entitlement to the benefits. The 1965 Act was supplemented by an administrative code, which set out the payments that a civil servant could expect but also made it clear that there was no legal entitlement to such payments. Alongside the Fulton committee review of the position of civil servants, the Joint Superannuation Committee of the National Whitley Council was set up in 1968 to review the provisions of the 1965 Act. It reported in February 1972 that improvements were needed for the superannuation scheme, "““to restore to the Civil Service the position it had traditionally held as one of the leaders in pension practice””." This view was reflected in the Superannuation Act 1972, which granted civil servants rights to their pensions. I think that it is worth noting here that, unlike a pension, which all civil servants hope to enjoy in their retirement, the provisions for compensation were intended for use only in exceptional and very specific circumstances and that the vast majority of civil servants neither wanted nor expected to benefit from them. The compensation scheme was amended in 1987 to its current form, which has lasted for over 20 years. However, by 2008 it had become increasingly clear that this scheme would no longer be sustainable when compared with equivalent schemes in the private sector. Indeed, public sector schemes had then become more generous than those in the private sector. Reform became even more urgent when it became clear that cuts in public expenditure were bound to lead to an increase in public sector job losses. Accordingly, with all-party support, in the summer of 2008 Ministers of the previous Government embarked on lengthy negotiations to reform the compensation scheme. The previous Government’s negotiations led to a new scheme, which was still generous compared with schemes in the private sector and most of the rest of the public sector. That new scheme was finally agreed after 18 months of discussions with five of the six main Civil Service unions in February 2010. Ministers then took the view that, notwithstanding the failure to achieve agreement with one of the unions—the Public and Commercial Services Union, or PCS—the scheme should be reformed. Accordingly, the previous Government laid the necessary order to give effect to the reformed scheme as from April 2010. The PCS, without the support of the other five unions, sought a judicial review. It succeeded in obtaining an order to quash the February scheme on the basis that the previous Government had failed to get the agreement of all six of the Civil Service unions. This was because the Superannuation Act 1972 requires not only consultation but the agreement of the unions concerned to any reduction in benefits where those benefits are calculated by reference to service already rendered. Therefore, the PCS had in effect exercised a veto on the previous Government’s reforms. That position cannot continue, which is why, in Clause 1 of the Bill, we are introducing provisions to remove the requirement in Section 2(3) of the Superannuation Act 1972 to obtain the consent of Civil Service trade unions to any changes that would lead to a reduction in benefits offered under the Civil Service Compensation Scheme. We cannot operate in a position where a single union can block any change, however reasonable that change may be. However, this does not mean that we will not consult fully with the unions, as we are continuing to do day by day at present. As was offered in another place by my right honourable friend the Minister for the Cabinet Office, I can give a commitment today to look at how we might amend Clause 1 of the Bill in Committee so as to write into the Bill a requirement for meaningful consultation with the unions. The coalition Government’s view, which was accepted on all sides in the Commons when this Bill was under consideration there and which was the view of the previous Labour Government, is that the current compensation scheme is unaffordable and unsustainable. It allows for payments of up to three times annual salary or, for older workers, enhancements to pension and lump sum payments costing more than five times salary. For some, those payments can total as much as six years and eight months’ salary. This compares to a maximum for statutory redundancy of 30 weeks’ pay with a weekly cap of £380. Noble Lords will have seen a number of stories in the press headlining what enormous sums the highest paid might receive if taking redundancy and estimates of the very significant costs to the Exchequer of redundancies to higher-paid officials under the current scheme. The level of payments would be excessive even if we were not facing such a difficult financial situation. To maintain the current scheme would simply be unfair and unacceptable to the vast majority of ordinary taxpayers. It is also unfair to lower-paid civil servants. The effect of the current scheme is that it is prohibitively expensive to make redundant civil servants who are highly paid and long serving. The result, therefore, is that when money has to be saved through reducing headcount, the burden tends to fall disproportionately on the lower paid, more of whom will lose their jobs than is necessary or desirable. That is why Clause 2 of the Bill introduces limits on the benefits that can be provided under the Civil Service Compensation Scheme. Clause 2(2) imposes a cap of 12 months’ salary in cases of compulsory severance and 15 months’ salary in cases of voluntary severance. My right honourable friend made it clear, during debates in another place, that these caps, as set out, are a blunt instrument. He is right, because the caps at Clause 2 are not intended to be the last word. It still remains the coalition Government’s intention to reform the scheme by negotiated agreement rather than by relying on an imposed cap. However, the caps are necessary so that we do not fall into the trap that faced the previous Government of trying to negotiate a reformed scheme that cannot be implemented within the foreseeable future. The most generous terms currently available are for those aged 50 who have a significant number of years of service and who are compulsorily retired early. A large part of this cost is the enhancement to their pension. Under the Bill, rather than receiving an enhancement to their pension, such staff will now receive a cash lump sum equivalent to the appropriate cap. I emphasise that the Bill will affect only those staff who are issued with their notice or agree a departure date after the legislation comes into effect and while the caps are operating, so any civil servant who has already been issued with a redundancy notice, or receives one before the Bill passes into law, is not affected by the restrictions introduced by this Bill. Clause 2 also provides definitions to clarify who is covered by the compulsory cap and who is covered by the cap on voluntary departures. Clause 3 provides for the effects of the Bill to be time limited. We have no desire to see this legislation continue any longer than is absolutely necessary. Inclusion of a sunset provision prevents the legislation from continuing ever onwards. Instead, if we wish to renew it, the Government would be obliged to return to it. Alongside the provision for prolonging the effects of Clause 2, there is also an option to bring forward its termination date. Our firm intention is to resolve this issue by discussion rather than legislation and, provided that that is possible, we will then make the order that repeals what will be Section 2 of the Act. We are close to getting a negotiated agreement. My right honourable friend the Minister for the Cabinet Office announced on 7 October that the Government had concluded negotiations with five of the Civil Service unions on a new Civil Service Compensation Scheme. The new scheme would offer significant extra protection for lower-paid staff and for those with long service who are close to retirement. As part of the Government’s commitment to fairness, it would also limit the maximum payments to the highest earners. Key measures of that proposed new scheme include, first, a standard tariff, where each year of service provides one month’s salary in the event of redundancy. The tariff would be capped at 12 months for compulsory redundancy and 21 months for voluntary redundancy. The other key measures are, secondly, that all civil servants who are made redundant—voluntarily or compulsorily—would be entitled to a three-month notice period; thirdly, that there would be significant protection for lower-paid civil servants, so that any civil servant earning less than £23,000 who is made redundant would be deemed to earn that amount—that is to say, £23,000—when their redundancy payment was calculated; fourthly, that payments to the higher paid would be limited, so that staff earning more than six times the private sector median average earnings—currently just short of £150,000—would have their salary capped at this figure for the purpose of calculating their redundancy payment; and, finally, that staff who have reached minimum pension age may be able to opt for early payment of pension when they leave, in return for surrendering the appropriate amount of any redundancy payment. This offer is a good one and we seriously hope that it will still be possible to secure the agreement of the sixth Civil Service union, the PCS. However, should this not be so, the Bill will mean that the Government and the country will not be subject to an indefinite veto over the reform of this scheme. I can confirm to the House that a delegated powers memorandum on the Bill has been submitted to the Delegated Powers and Regulatory Reform Committee. Also, my right honourable friend the Minister for the Cabinet Office has written to the Joint Committee on Human Rights about the reasons why we believe that this Bill is in line with the United Kingdom’s human rights obligations. I look forward to reading any comments that these committees may have to make on the Bill. Finally, and to avoid any doubt, I want to underline that this is not in any way an attack on the principles that govern the British Civil Service. The Government believe in the continuation of the British system of a permanent and non-political Civil Service, with its values of integrity, honesty and impartiality and with open recruitment and advancement on merit. These values are as much to be cherished and nurtured today as ever. I shall now listen with great interest to the points that noble Lords have to make both on the Bill and on the practical implementation of the scheme. The Government are convinced that reform of the Civil Service Compensation Scheme is in the national interest and the interests of the British economy and I earnestly hope that a successful negotiation will render the provisions in Clause 2 unnecessary. That is the coalition Government’s aim and I will do all that I can to help to deliver it by guiding this Bill through your Lordships’ House. I commend the Bill to the House.