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7.9 pm
Mr. Tony Colman (Putney): Thank you, Mr. Deputy Speaker, for calling me to speak in the debate. I declare an interest as a councillor for the London borough of Merton and chair of the United Kingdom Standing Committee on Local Government Pensions. I am also chair of the Local Authority Mutual Investment Trust, director of Church Charities and Local Authorities and chair of Greater London Enterprise Development Capital.
The United Kingdom Steering Committee on Local Government Pensions represents the 99 pension funds in local government. Between them they invest assets of some £60 billion under the local government pension scheme. We have 1.6 million current and deferred pensioners and 1.25 million contributing members. Our funds constitute 10 per cent. by value of all UK pension funds.
Local government pensions are unique within the public sector in being funded rather than pay-as-you-go. We also represent teachers, the fire brigade and the police, but, of course, the previous Conservative Government had not grasped the nettle in ensuring that those schemes are funded, so council tax payers, through various levies, have to pay ever increasing costs for the police and fire brigade. I hope that the Under-Secretary of State for Social Security, my hon. Friend the Member for Southampton, Itchen (Mr. Denham), will take account of that in his pensions review.
I particularly wished to speak in the debate because the right hon. Member for Wells (Mr. Heathcoat-Amory), in the Budget debate on Monday, and the Leader of the Opposition, in Prime Minister's questions today, quoted from a letter that I sent, before the Budget, to the Chancellor. It was dated 26 June and was acknowledged by the Treasury on 30 June. It concerned the then potential abolition of tax credits to pension funds. It said that that
The hon. Member for Mole Valley gave the local government pension scheme a clean bill of health and supported its continuance. The fact that Opposition Members could not find any holes in it shows that it is an extremely good scheme. Thousands of people who are waiting to come back into those schemes were missold pensions. I assure the hon. Member for Ryedale (Mr. Greenway) that there is no hold-up in the information being made available from the pension funds that I chair.
Local government pension funds have returned extremely good, high returns. I particularly commend their ethical and environmental investment. I hope that other hon. Members who speak in the debate will pick up on that point, as it is important.
I should comment on local government pension funding, which is already below 100 per cent. Hon. Members may ask "Why?" In 1990, I regret to say that the previous Government encouraged funding for local government pensions to drop from 100 per cent. to 75 per cent. to massage the poll tax bills. The reduction overall, as a result of that change, was some 6 per cent. The Lamont reduction in tax credits increased that figure further.
The hon. Member for Beckenham (Mr. Merchant) outlined the possible impact on the funds for Bromley, but each fund varies. Some are funded at 105 per cent.; the lowest, I believe, is funded at about 75 per cent. It depends, perhaps, on the prudence of the decisions of the officers and members of each of those authorities and whether they felt that they had to support the Thatcher Government.
It may be helpful to the House if I explain the valuation of the Essex fund, which was conducted in 1995. The Essex fund is extremely well run by Keith Neale, the borough treasurer. I particularly picked this example because the Chief Secretary, in his reply to the debate on Monday, accurately pointed out that the 3 per cent. mentioned in my letter paled into insignificance compared with the 5 per cent. that results from ill health and early retirement.
Much of the reduction took place because of the reorganisation of local government, which was encouraged and pushed through by Conservative Members. There are further reductions to the 100 per cent. funding level. Some 1 per cent. comes from salaries, which are ahead of inflation. A further 1 per cent. comes, I am glad to say, as a result of pensioners living longer. The funding level of the Essex fund, which was 97 per cent. in 1992, dropped to 84 per cent. in 1995. I say this in terms of it being an extremely well run fund. Thus the 3 per cent. that I mentioned in my letter needs to be taken in the context of the 13 per cent. drop between 1992 and 1995.
Having written my letter, I received advice that the chair of the Chartered Institute of Public Finance and Accountancy pension panel, Peter Scholes, who is chief executive of the London Pension Funds Authority, takes the view that the removal of the tax credits would add some 1 to 2 per cent. to costs, which is significantly lower than the figure in my letter. He has commented in public about what he felt was a very overrated knee-jerk reaction from the media.
I very much support the proposition made by the Chief Secretary earlier in the debate, that we need to look at the valuation of funds. The valuation needs to change.
The largest local authority fund--if I can call it that--is American, the Californian local authority fund, which is very much looking for growth from good management. I thank my hon. Friend the Member for Pontefract and Castleford (Yvette Cooper), who, in an excellent speech, pointed out the difference between the American and British system. We have, perhaps, seen an inflation of the cost of the loss of tax credits by many actuaries. They need to rethink the basis on which they would look at actuarial valuation in the future.
The Chief Secretary quoted from certain newspapers.I shall quote Anthony Hilton from last Friday's Evening Standard, who said:
Mr. Colman:
It is for every fund manager to take his or her decisions. I personally believe that the package presented in the Budget offers real hope and opportunity for businesses in this country to develop and expand. I would certainly not wish to see any of the local authority pension funds disinvest in the equity market. Perhaps Opposition Members will give different advice, but that is certainly the advice that I would strongly give.
I echo the information that my right hon. Friend the Prime Minister gave at Question Time, that the next actuarial review is not due until April 1998. The recommendations from that will not come forward until late 1998. The impact--if there is any impact--on local authority budgets will be from 1999 to 2000 onwards.I assure the House that the impact will not be seen immediately in terms of council tax bills or an effect on services. The strength of the funds may mean that local authorities will not need additional revenue support grant. That is possible, given the mood of the country and, as my hon. Friend the Member for Pontefract and Castleford said, a strong rally in the stock market, notwithstanding the past two days of speculation about potential changes in the interest rate.
I have received a letter, however, from the Minister for Local Government and Housing, which plainly states that when the actuarial figures are given following revaluation or the fresh look in 1998 and if it is found that there is a problem, the Government will take such factors into account in determining local authority provision for 1999-2000 and subsequent years. It is a matter of taking a view of the situation at the relevant time.
Mr. Merchant:
I have listened to the hon. Gentleman's many comments with great interest. I believe that it will be easily demonstrated that local authorities are out of pocket as a result of advance corporation tax changes. Will he join me in pressing Ministers to ensure that the authorities receive full compensation for the costs of the tax change?
Mr. Colman:
As I said, under the previous Government there was a 7 per cent. reduction in funding without a penny coming to local authorities. I made it
"would add at least 3 per cent.--or £300 million--to employers' pension costs and compensation would be needed, otherwise there would be further cuts in local services unless there was an increase in the revenue support grant."
I hope that the following comments will be helpful to the House. No local government pension beneficiary is affected in any sense by the proposals in the Budget, which I support. It is important to remind hon. Members that the local government pension scheme is extremely well managed and is very much a model for theprivate sector. The hon. Member for Mole Valley(Sir P. Beresford) previously represented Croydon, Central. I wonder why he moved. Perhaps the excellent speech from my hon. Friend the new Member for Croydon, Central (Mr. Davies) was a clue.
"If the actuaries valued funds on the basis of their total return, and therefore took account of the capital appreciation in funds, a quite different picture of pension fund solvency would emerge."
Mr. Butterfill:
Surely the hon. Gentleman appreciates that the action that the Government are now taking will drive more and more pension funds out of investments and equities, so the capital appreciation that he desires is much less likely to happen.
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