Superannuation Bill

My Lords, it is a pleasure to follow the noble Lord, Lord McKenzie. It was good to hear the support of the Benches opposite for what the Government are trying to achieve in the Bill. Last week my right honourable friend the Chancellor of the Exchequer set out the outcome of his spending review. The message could not have been more stark: 13 years of Labour government have left the economy of this country on its knees. Our Government are now taking some painful but necessary steps in order to restrain public expenditure. We will be able to begin the long road back to a healthy economy once the budget deficit is eliminated, and that requires the tough action set out by the Chancellor. Even then we will not get back to the economic health that existed when we left government in 1997, and no one should be in any doubt that the expenditure cuts are in any way optional. The decisions that follow from the need to cut public expenditure may seem harsh to those in the public sector, but private sector businesses face these kinds of decisions all the time. Businesses constantly have to adapt their costs to meet market imperatives, whether caused by recessions or changing markets, and they often have to resort to redundancy programmes. What the public sector is now confronting is not an unusual phenomenon. The Office for Budget Responsibility estimated in June that nearly half a million jobs would be lost in the public sector. According to the Office for National Statistics, public sector employment was just short of 6.1 million earlier this year. That means that the loss of jobs in the public sector will be around 8 per cent. Reductions of this scale may well feel huge in the public sector—and there will be areas where the percentages will be larger than the average—but private sector efficiency programmes have had to handle much worse than this. It should not be a big surprise to the public sector that there will be reductions in jobs. In the past 13 years, a disproportionate share of employment growth in the UK has been in the public sector. A report earlier this year from Manchester University’s Centre for Research on Socio-Cultural Change estimated that in the 10 years after 1997, 57 per cent of the jobs which were created were either in the public sector or were funded by the state. The public sector picture has been one of a relentless rise in employment. I mentioned that the current figure is around 6.1 million. When the previous Government came into power, the figure was 5.2 million directly classified to the public sector. Even if we exclude the nationalised banks from the current figures, the rise in public sector employment under the previous Government was 13 per cent. That rise in direct and indirect public sector employment was not sustainable on a long-term basis when it was created. Indeed, the Manchester University report to which I referred described it as an unsustainable and undisclosed business model for the UK. The courageous way in which our Government are dealing with the economy will ensure that the UK’s business model will start to revert to one which has more staying power for the future. When reducing jobs in the public sector, I am sure that the Government will look first to the scope for natural wastage to play a part. As I understand it, retirement and other natural wastage runs at a rate of around 8 per cent each year in the public sector, which is not far adrift from the total reductions required as a consequence of the spending review. But of course life is never that simple; natural wastage rarely does the full job, and some tougher action by way of redundancy will inevitably be required. That brings me to the Bill, the aims of which I completely support. The plain fact is that the current redundancy scheme operating for the Civil Service is too generous by a country mile. It allows some individuals, as we have heard from the Minister, to take more than six years’ pay when they leave. That means that if the Government wish to remove jobs by way of redundancy, the net cost savings achieved might be deferred until the seventh year after the redundancy. That is a personnel policy for the madhouse. Those of us with a private sector background are simply astounded that a scheme which entails a six-plus year payback continues to exist. In the private sector, redundancy terms range from the extremely modest statutory scheme to voluntary schemes which involve higher payouts. Oral evidence given to the Public Bill Committee in another place showed that caps of two years’ pay would be the maximum in the private sector, with most companies currently reducing that maximum to nearer one year. By any comparison, the current Civil Service scheme is out of line. Some have argued that generous pension and redundancy terms are part of an overall bargain which goes alongside pay, which is lower in the public than in the private sector. However, that argument has been largely turned on its head by an explosion in public sector pay. Again, the evidence given to the Public Bill Committee in another place showed that public sector pay was now higher than in the private sector at levels up to about £40,000 or £50,000 per annum, and that covers the vast majority of the Civil Service. The Government face the economic imperative of eliminating the deficit, and the Civil Service cannot be exempt from the cuts to public expenditure which have to be made. But it is obvious that with the current redundancy terms, the Government will not realise enough by way of early benefits from Civil Service redundancy and may therefore have to make deeper cuts elsewhere in order to meet the unaffordably high transitional costs of Civil Service redundancy if the current scheme is maintained. To be fair to the previous Government, they tried to revise the current scheme and, as we have heard, to bring in a new scheme earlier this year. Some aspects of that we still thought were too generous, but the direction of travel was right. As the Minister has explained, that deal was struck down as a result of action by the PCS union. The Government have no choice but to bring this Bill before Parliament. I am glad that the noble Lord, Lord McKenzie, acknowledged that, had his party been in power, it would have felt it necessary to bring a Bill of some kind before Parliament. I completely support Clause 1, which has the effect of removing the need for consent to a compensation scheme. This would bring the Civil Service scheme into line with arrangements in the private sector, where redundancy terms are commonly discussed with workforce representatives, including unions, but where it is rare that an employer is absolutely required to achieve agreement. This, too, was clear from evidence given to the Public Bill Committee in another place. Furthermore, the evidence showed that it is not regarded as good practice in the private sector to hard-wire redundancy terms into employment contracts, which is the effect of the Superannuation Act 1972. Clause 1 represents an essential modernisation of employment terms in the Civil Service. I should stress that I completely support the need for consultation and for it to be substantive and not a mere formality. I therefore welcome the Minister’s assurance that such a requirement will be placed clearly in the Bill by way of amendment in Committee. Like the noble Lord, Lord McKenzie, I am less certain about Clauses 2 and 3. In fact, I do not understand why they are in the Bill. Clause 2 introduces caps and Clause 3 contains complicated sunrise and sunset provisions. Why are these clauses necessary given that Clause 1 removes the necessity for consent? It seems to me that these clauses amount to no more than negotiation by statute. If I am correct, that is not a good use of legislative time. The Government have said quite clearly that they are negotiating with the unions involved on the basis of a scheme which is far more generous than the limits set out in Clause 2. What is the purpose of Clauses 2 and 3 other than to act as a gun to point at the head of the unions? The noble Lord, Lord McKenzie, and I may be missing something here. If so, I hope that the Minister can explain it. I can understand why individuals in the Civil Service see it as unfair that the current redundancy scheme is to be taken away just at the point when redundancies, both voluntary and compulsory, seem to be much more likely. But there is another aspect to fairness—for the taxpayers of this country. Why is it fair that someone in the private sector on average earnings of £25,000 a year should pay tax to fund Civil Service redundancy terms which are beyond that taxpayer’s wildest dreams? Why is it fair that our chances of restoring the health of our economy by reducing the deficit are seriously hampered by outdated and overgenerous redundancy terms?