Superannuation Bill

My Lords, to the outside world it may look as though the changes proposed to the Civil Service Compensation Scheme are part and parcel of the coalition’s spending cuts. In fact, this issue has been under discussion for at least seven or eight years—long before spending cuts were mooted. Early in Labour’s second term, when I was Cabinet Secretary, the compensation scheme was identified as an issue to be addressed. This was driven by three considerations. First, at around this time thinking on the issue of ageing was changing. The Strategy Unit had produced a seminal report drawing attention to the changing demographics. In particular, it criticised the early retirement culture in a world in which longevity was increasing rapidly. Incentivising people barely past the age of 50 to retire rather than seek other employment may have been convenient for employers, but for the economy as a whole it made no sense. It was this change in thinking that led eventually to the increase in pension age that is now proposed and the lifting of the compulsory retirement age in the Civil Service. The Civil Service Compensation Scheme is therefore a piece of unfinished business in this wider agenda. Secondly, the arrangements for Civil Service compensation which date from 1972 were, for some categories of leavers, out of line with the rest of the public sector, massively out of line with the private sector, and bore no relation at all to the statutory scheme. There was therefore a growing sense of unfairness because taxpayers were funding a scheme for civil servants that was vastly more generous than anything they had access to. Thirdly, too much of the compensation took the form of enhancement and earlier payment of pensions. Since these pensions came notionally from a non-existent fund, the costs were lost in the mists of the public accounts. Had the money come from a funded scheme, the drain on the fund would, I believe, have been identified much earlier and addressed. The Government—both the previous one and this one—are right to tackle this issue. I support the Bill, albeit as a regrettable necessity made necessary by the failure to achieve a negotiated settlement. I also endorse the tactics used—that is, negotiate if possible, legislate if necessary. I hope, however, that the eventual outcome will be a negotiated settlement whose terms are close to those agreed recently with most of the Civil Service unions. That scheme is simple. It is also fair in a number of ways. It is fair between different parts of the public sector, fair between taxpayers and civil servants, and fair between the different grades of the Civil Service through the provision of the underpinning and the cap on reckonable salary levels. It reduces the extent to which pension provision is used to subsidise early retirement. It provides a premium and encouragement for voluntary rather than compulsory redundancies—rather than the other way around. It also removes the incentive to lay off lower-paid rather than higher-paid people. There is a hard lesson here for the PCS and its approach of total resistance. If it had agreed to the terms put forward last February by the Labour Government, the coalition would have been put on the spot. Would it have allowed a negotiated agreement to stand, or would it have overturned it? Francis Maude hinted in another place that the coalition may well have let that agreement stand, since the gain then to be made would have been smaller and the resentment caused by overturning it would have been even greater. I urge the PCS to rethink its position. What is on offer in the October package is already worse than what was suggested in the February package. The PCS can go for broke and challenge the legislation. However, if it fails—and the legal advice in the various briefing notes that we have received indicates that it may well—it could end up with worse terms even than are available now, let alone last February, not just for the PCS but for the other unions in the Civil Service council. Since the underpinning means that the majority of PCS members are getting an uplift, that would be inexcusable. Finally, there is a lesson here for the debate about public sector pensions which will follow the final report of the noble and learned Lord, Lord Hutton. The PCS could make the same mistake by trying to hang on to every aspect of the status quo and refusing to negotiate constructively, but ending up with a worse deal.