Police Reform Bill [Lords]

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Norman Baker: I beg to move, That the clause be read a Second time.

On Second Reading, one or two hon. Members referred to the pensions issue as the unspoken time bomb. Although that was not much of a metaphor, it conveyed the feeling of many hon. Members. It is a serious issue that affects how much is spent on pensions, and whether a police authority's allocation is fair. The new clause is an attempt to address the issue.

Pensions are essential. Everybody is entitled to a pension on retirement. We must ensure that the payment of pensions does not unnecessarily affect the money available for front-line policing and cause a specific police authority to pay more than it should. That geographical argument applies to Sussex—my part of the world—and doubtless other police authorities. At present, the police authority from which an officer retires must pick up responsibility for his pension. It is possible, and indeed usual, for officers to work in the Metropolitan police area or in greater Manchester but to decide to spend the last years of their employment in a shire force. It is unfair that shire authorities are asked to pay such amounts when officers have not worked there for long. Such authorities pay disproportionately high amounts for pensions because officers choose to move to them before retiring. We must find an equitable way to spread the burden, which is the intention of the new clause.

The estimate for the national expenditure on pensions in 2000–01 was 13.26 per cent. In Sussex, the figure was 15.99 per cent, and those figures are not dissimilar for 2001–02. Consequently, Sussex is paying 2.5 per cent. over the odds due to the way in which the system currently works, while other authorities pay less than their share.

If we examine the overall pensions problem—it is a problem in terms of the expenditure faced by police authorities—the cost of pensions rises dramatically year on year. In 1998–99, the total national cost of pensions was £841 million. In 1999–2000 it was £898 million. The estimate for 2000–01 is £974 million and that rises to £1,056 million in 2001–02. Those increases are way above inflation, yet police authorities must absorb them.

In a written answer to the hon. Member for Vale of York (Miss McIntosh) on 19 March the Minister said:

    ''we are also aware of the need of police authorities and chief officers for a system which brings greater clarity about pensions obligations on individual police forces. The Home Office and Treasury are reviewing the options for a revised system of funding which would bring this about.''—[Official Report, 19 March 2002; Vol. 382, c. 289W.]

It is disappointing that neither the Bill nor any Government amendments address the problem. The Bill could be used to deal with a serious issue that the Minister recognises must be dealt with. The amendment attempts to deal with the issue—by having money paid into the consolidated fund by the authority and then redistributed—and to address the geographical imbalance. In new clause 5, subsection (2)(b) it states:

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    ''ensure funding of pension payments shall be made by each police authority for whom the officer has worked in proportion to the length of service with each respective authority.''

The Minister should agree with the point in principle. If he says that the new clause does not work or that he does not like the wording, we will live with that. However, I hope that he will recognise that we must have some proposals on pensions before long because the expenditure increases are getting out of hand. We also need a system that recognises the present geographical imbalance. I look forward to the Minister's comments.

Mr. Hawkins: I agree with a great deal of what the hon. Member for Lewes said—everyone on the Committee and in the House is aware that the issue is major and that something must be done about it very soon. I will also listen with interest to what the Minister has to say.

Those outside the House often forget that many hon. Members have expertise in particular professional fields arising from what they did before becoming Members of Parliament. Their expertise can often be used when relevant matters are reviewed—it is not only down to experts outside the House. I mention in particular the all-party group on insurance and financial services—of which several pensions experts are members—as well as the all-party group on pensions.

Having been involved with those groups during my 10 years in the House, I am aware that it was as a result of initiatives taken by the all-party group on insurance and financial services that the Pool Re insurance arrangements prevented many major Japanese banks from moving from the City of London to elsewhere in Europe—they were persuaded to stay because of it. Pool Re would not have come into existence without an initiative from that group. That is only one example, and will not prolong the analogue because it would be outside the terms of our debate.

In the same way, the people who came up with that idea, which was tremendously helpful to the UK, should also be consulted on the question of pension provision. I hope that the Minister will ensure that, when the matter is reviewed, in addition to all the outside experts that Governments tend to consult, the all-party group will have its expertise tapped into. The group tends to examine things in a constructive rather than a party political, partisan manner, and is in the best traditions of active all-party groups in the House. I especially mention the expertise of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), who has particular expertise in the area.

Mrs. Annette L. Brooke (Mid-Dorset and North Poole): My police authority is also in the position of being above average—15 per cent. of total expenditure is taken up with pensions. That has accelerated over a five-year period from 10 per cent. to 15 per cent.

I wish to raise the issue of the uncertainty that currently exists. A review is said to be underway, and we have heard that the Government are aware of the

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problem and will do something, but meanwhile, prudent police authorities such as my own feel that they must put money aside to make provision for the escalating expenditure. For example, approximately £1 million this year was set aside into balances. We are the second lowest funded police authority, so that cuts into front-line policing. Something needs to be done sooner rather than later , and it is appropriate to bring that in with this Bill, so that next year's budgets can be set with certainty, and can concentrate on front-line policing, because we want our police authorities to be able to afford not only more police—as the Minister wishes—but, maybe, some CSOs, too.

3.45 pm

Mr. Osborne: I support the comments of my hon. Friends, and of Liberal Democrat Members. Police pensions are also a big problem in Cheshire—as are fire service pensions, but I do not know which Department deals with that these days.

Norman Baker: The Deputy Prime Minister is responsible for the fire service.

Mr. Osborne: That does not fill me with confidence—but we will wait and see what happens.

One of the disappointing aspects of the police reform process—this Bill, and the pay and rations negotiations with the police—is that pensions, and some of the perverse incentives for police officers that exist in their pensions system, have not been tackled in the past year. When the Home Secretary announced, after the last general election, that he was going to take on the police, and someone speaking on his behalf, at least, raised the issue of Spanish practices, pensions were often discussed.

In my area, as in others, many police officers take medical retirement. In Greater Manchester police, which is next door to my police area, the figure is astonishingly high—or, certainly, it has been. I want the Minister to tell us what is being done to tackle some of the perverse incentives in the pension system. The pensions time bomb, which other hon. Members have mentioned, should be tackled, as should the incentives that encourage people to take medical retirement, if they can find a general practitioner who will sign them off, or simply retire after 30 years, so that, if they joined the police service when they were 18, they retire at 48.

Throughout the Committee's proceedings, we have talked about the need for greater support for the police family, and all the different jobs that are done in the police service, yet many highly trained police officers with great experience retire at 48. I had a conversation with a police officer in my constituency who said that it makes sense to do that, and that there is no point in carrying on. However, there are many jobs that could be done in the police service—and, in my county, semi-retired police officers are used for duties such as checking up on gun and shotgun licences.

I want the Minister to tell us where we have got to in tackling some of the problems with the pension process, as this new clause gives us the opportunity to raise these issues.

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Mr. Denham: We are debating an important issue, but I cannot accept the new clause.

On ill-health retirement, one of the gains from the past year's negotiations with the Police Federation on pay and conditions was an agreement on a new system of dealing with medical issues within the police service, which allows us a consistent approach to the way in which medical issues are dealt with, and appeals applications for early retirement, and so forth, are heard. That should help to bring about greater consistency in dealing with ill-health retirements, compared with the current situation.

One of the dilemmas that the Committee must accept is that the number of ill-health retirements as a proportion of the total number of retirements varies: in some forces it is less than 10 per cent. and in others it is more than 63 per cent. Those with high levels of ill-health retirement will pay a price through the pensions bill, which will not be paid by those with low levels. There would not be much popularity for a system for funding pensions that transferred the costs incurred by forces that have managed ill-health retirement badly to forces that have managed it well. That would be unfair, and a perverse incentive.

Whatever we do in future must not create incentives for poor management or poor human resource practices within forces. We also cannot be expected to undo, in a significant way, past practice. While we look for better ways of carrying that out, it is important not to conjure up the idea that there will be vast extra inflows of money into the system to meet the liabilities. The liabilities must be met within the system. As we said in the White Paper, we can look for a system that gives greater certainty to police authorities, but I do not want to encourage the idea that a huge, new pot of money will suddenly appear from nowhere to meet the challenge.

I may have slightly misunderstood what the hon. Member for Lewes meant by the first part of the new clause. I took it that he was proposing a move towards a funded—or invested—police pension scheme rather than the traditional taxpayer pay-as-you-go system that they currently have. If that were the intention, we would be talking about investing £35 billion of public money in capital for a funded scheme. That would require diverting the money from other current expenditure. Despite what is going on in the world stock market and the performance of funded schemes, however much we look over our shoulders or wish that a funded scheme had been set up in the past, to reverse history and start up such a scheme now would involve enormous expense and huge opportunity cost.

We are looking at ways of bringing greater certainty into the system. We considered the proposal of the hon. Member for Lewes, which would allocate to each police authority the pension liabilities that related to an officer's service during the relevant period. Because the accrual rate increases dramatically in the last decade of an officer's career, someone who moves to a different police force after 20 years of service becomes more expensive pension terms than he was in early in his career. There are similar structures in the fire service and other public sector pension schemes.

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The hon. Gentleman's approach would add an enormous layer of bureaucracy and calculation to the system. There would be a need to track an individual's career possibly across two, three or four police forces, and calculate the pension liabilities that accrued from that period of service. The costs that would fall on the system to track such details would be prohibitive, compared with the gains or sense of fairness that might be achieved.

The hon. Member for Tatton drew attention to a related point about police officers at the end of their 30 years' service. He was right that the present system provides an incentive to retire—in particular, to retire and enter alternative employment, such as the private security industry or wholly unrelated work. The Bill, which I am confident will complete its passage through both Houses, provides a range of civilians with some police powers, especially investigating officers. That will open up an option for a police officer who may have done his full 30 years, but did not want to carry out the full duties of a constable. He could be re-employed by the police service and have the limited police powers of an investigating officer or some other function. I do not want to underplay the extent that that may come into force in the future.

Part of the PNB package—albeit one that is subject to Treasury agreement—was to pilot various ways in which officers could take some of their pension benefits but continue to work for a police force beyond 30 years. That would avoid the perverse incentive that exists at present, which is to take a full pension package and work anywhere but in the police service, because that would be seen as the least financially advantageous option. That is part of the PNB agreement, but it is currently subject to discussion with the Treasury.

I hope that I have responded to most of the issues that have been raised. We acknowledge the pressures on some police authorities. We want to find ways of dealing with them and other pension matters. However, it would not be right to encourage the idea that enormous new flows of money will come into the system from outside.

As for the question from the hon. Member for Surrey Heath, we have no particular plans to consult the all-party group on insurance or financial services, although I was formerly an active member alongside the hon. Member for Bournemouth, West (Mr. Butterfill). However, we would be delighted to receive any proposals that members of all-party groups or their advisors wanted to send us.

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