My Lords, I am content to join in commending my noble friend Lord Whitty and other noble Lords for bringing and developing this argument. They will forgive me if I do not join in the nostalgia for 1966. The removal of contracting out from April 2016 has significant implications for all occupational pension schemes. I shall make my speech short, given the time. It is bad enough to be between somebody and their dinner; it is impossible to be between somebody and Christmas.
It is clear just how significant are the figures quoted by the noble Lord, Lord German. I did not immediately recognise them, but they are in the same ball park as the figure, which I understand to be the Government’s figure, which suggest in excess of £5 billion a year going to the Treasury in extra NI contributions from 2016 when the new state pension scheme begins. Because of the scale of public service pension schemes, the lion’s share of that increase will come from them. It is far from clear, in the complexity of the Bill, how the increased NI contributions in the public sector can be met. Not surprisingly, those who have responsibility for these schemes—bearing in mind that they have just, in many cases, entered into agreements to reform them—are seriously concerned about the impact these changes will have on local authorities, health services, fire and rescue services and policing.
I note that in Committee in the Commons, Oliver Colvile correctly also put the Armed Forces Pension Scheme in the frame in the context of public service pension schemes. If that is correct, if the Minister is minded to accept Amendment 42, the definition of public service pension scheme will include the Armed Forces, which will answer more clearly the question asked by the noble Lord, Lord German, about what is a public service pension scheme. Rightly, Oliver Colvile was concerned that the defence budget should be spent on defending our country and should not be directed back to the Treasury. If it encourages the Minister to engage with this issue in a positive way, I promise not to tell noble and gallant Members of your Lordships’ House that this issue may impinge on that aspect of public policy. If he considers that, I will keep it quiet in the mean time until we see whether we can make some progress on this issue.
The Local Government Association has been in touch with all of us and has advised us that it supports my noble friend Lord Whitty’s amendments, which
defer the end of contracting out for public service pension schemes until the tax year beginning 2018, and require the Government to credit public service pension schemes with amounts equivalent to the money lost through the end of contracting out.
It is understandable why it supports them, because, in the absence of an alternative from the Government, the choices they face are extremely unpalatable. They include loss of services or increased council tax, for example, or, as we are advised, the certainty that low-paid workers will leave the schemes or that settlements, including the settlement of the public service pension scheme, would have to be renegotiated. I am also told by those who know that it will mean the renegotiation of a lot of contracts in relation to privatised services, because assumptions were made about commitments in relation to pensions in the TUPE environment that no longer stand true.
It is not unreasonable in those circumstances to ask the Government how they will resolve the additional expenses and how they expect those who run public service schemes to deal with the increased cost and, for that matter, how they expect the individuals affected to deal with the increased costs. Will the Minister address the advice that we have been given and the concerns of those who run these schemes? Does he accept that there will be a perverse incentive unless this is resolved and that low-paid workers may decide to opt out of their public sector pension schemes? Does he accept that there is genuine worry that this will undermine agreements to reform that have already been reached? Does he accept that there is genuine concern that this will impact on existing contracts for provision of services by the private sector?