Parliamentary Pensions (Amendment) Regulations 2002

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Mr. David Marshall (Glasgow, Shettleston): I entered the House in 1979, and the hon. Gentleman referred to the 9 per cent. Is it not true that that 9 per cent. was based on a notional salary that we never received, because the recommended pay increase was not implemented? We were paying 9 per cent. on a notional increase that we never received.

Mr. Butterfill: The hon. Gentleman is right. The Government of the day, which was led by the now Baroness Thatcher, decided that they would not implement the pay review body's report, which recommended that Members' salaries should increase to £27,000. Baroness Thatcher allowed them go up from £13,000 to £15,000, so there were many effects that the hon. Gentleman remembers accurately.

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The point is that for at least the past 12 years, the Treasury as employer has been taking massive contributions holidays. Every year in that period, it has paid in less than half the recommended employer's contribution, so the fund is much less well funded than it would have been if successive Governments—I am not making a party political point—had not made smaller contributions. In many years they relied on the fact that Members were making full contributions in order to reduce their contributions to less than Members were paying into the scheme. That was the reasoning behind last year's decision to share the benefit more equally between employer and employees.

Times have changed dramatically since the House decided that it was right for the House fund to be fully funded by the Treasury. The Government Actuary estimated the cost to be under 6 per cent., on the basis that it would be retrospective, not prospective as is now proposed. As the hon. Member for Northavon will see from its letter, the review body estimates that the cost of making the change retrospective would be 11 per cent. Its estimate has doubled in the past year, which is a reflection of the collapse of stock market values and thus the value of the cash in the fund. That is why hon. Members accepted that progress cannot be made by making the change retrospective, given the current level of the fund, or through full Treasury funding.

Mr. Webb: Last summer, when the hon. Gentleman suggested that the taxpayer should meet all these improvements, did he understand them to be retrospective?

Mr. Butterfill: The figure of 6 per cent. was to cover a retrospection. That would have been more than covered by the holiday that the Treasury had been taking, which amounted to 11 per cent. of salary. The saving that successive Governments had made would have covered even the whole of it, which remains the case. In the past two years, the Treasury has paid 11 per cent. less of salary than it should as an employer. In the current year, it is paying 10.5 per cent. less.

Mr. Gardiner: I am very grateful to my hon. Friend; as a fellow trustee, I believe that I can call him that. Does he agree that the decision being taken today about the increase in the accrual rate is probably being taken at the worst possible time for the MPs who are fully funding it? Because of the change in the stock market over the past year, they will be paying it in perpetuity at the maximum rate that one could have anticipated if one had followed the Government Actuary's advice a year ago.

Mr. Butterfill: The hon. Gentleman makes a good point. The Government Actuary's valuations are a snapshot in time; they can be made only on current stock market valuations of the fund. If the valuation was 5.1 per cent. today, it would probably have been about 2.6 per cent. at valuation a little more than a year ago. The increase in Members' contributions of 3 per cent. would more than cover the cost that the Government Actuary estimated last year. However, it

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needs to be increased because of the snapshot. One hopes that the stock market will recover, and that the 3 per cent. increase will prove to be more than adequate to cover the cost. As the hon. Member for Brent, North says, we must take that risk, because the valuation is being done at a time when the stock market is extraordinarily low. Nevertheless, that is a reasonable thing to do. I suggest to the hon. Member for Northavon that the cost of 2.1 per cent would be covered five times over by the saving that the Government made last year, given that they have not paid their full contribution for at least 12 years and that their current contribution is 10.5 per cent. less than it should be. However, it is unlikely that the Treasury, and hence the taxpayer, will suddenly stump up the full cost when it has not done so for so long. It is likely that the Treasury will insist on ongoing contributions holidays, so that the only people who will pay more as a result will be Members. Given that confident assumption, I believe that it is fair to say that there will be no cost to the taxpayer.

If there were costs, they would be short-term and recouped, as the hon. Member for Brent, North has accepted. As I said, however, costs are most unlikely.

Far from lining their own pockets, hon. Members have agreed substantially to increase what they pay into the fund. The reason for the proposed change in the accrual rate is the much greater volatility associated with parliamentary life and tenure in this House. The hon. Member for Northavon implied that it was all the result of the 1997 election, which I agree contributed significantly to volatility, but it is not the only one. Statistics over the past 20 years reveal that the average term served by Members has been steadily decreasing to a point where nowadays the average length of service is less than 10 years. Given that the mean age at which MPs enter the House is just over 40 and the mean age at which they leave just over 50, Members have to interrupt established careers to come here and then have to go back to them.

The hon. Member for Northavon sneered at the difficulties that that imposes on Members and said that the general public lose their jobs and have to find other employment. They do, but they have acquired current experience in their particular profession. If they were in business, they would be able to draw on their experience. Whether engineers, chartered surveyors like myself, school teachers or university lecturers, they have to give up their careers to come here and take them up again when they leave. They may have missed out on promotion and have no current experience. They may have acquired valuable experience here, but their employability in their old job is greatly reduced.

I can tell the hon. Member for Northavon that for many years I was chairman of the Members' fund, which is the hardship fund for widows and orphans, sometimes even for hon. Members who fall into difficulties. Some Members who lost their seats in the 1997 election have been unable to find employment. That may be surprising, but it is a fact. Many took a long time and even when they found employment, they had to accept lower levels of remuneration than they achieved before they came into the House.

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One way of dealing with such problems is to reduce the accrual rate, so that higher pensions can be paid earlier. We all agree that the cost should fall on Members themselves to make prudent provision for their own future. In many ways, we should not apologise, but be proud of that. Nothing is wrong with saying to the general public that people in a precarious business should pay more into their pension scheme. If things go wrong, people need the money to sustain themselves in their retirement. We should not have to apologise for that. For all those reasons, I support the regulations.

11.24 am

Mr. Desmond Swayne (New Forest, West): I apologise to you, Mr. Cummings, to the Minister and to the Committee for my late arrival. I secured the Adjournment debate in Westminster Hall before the Committee of Selection nominated me for this Committee. The demand to be in two places at one time would increase if we were foolish enough to vote for the proposals currently before the Modernisation Committee. That, however, is a debate for another time.

When these proposals first came before the House more than a year ago, I voted against them. It was not then apparent that, as my hon. Friend the Member for Bournemouth, West has eloquently argued, Members themselves would pay entirely for the change. My hon. Friend was persuasive, as was the Minister in what I heard of his speech.

However, I have a residual reservation about the timeliness of the regulations. While I understand the persuasive case that has been made in Committee, it is unfortunately not a case that will be easily digested or even heard by many of the people who will respond to the decisions that we take today. I have read some extraordinarily ill-informed pieces in the press. Setting that aside, there will be a perception that, at a time when pensions for most people are suffering, we are taking steps—as my hon. Friend pointed out, quite proper steps—to deal with our problems.

I have a further reservation. Since the career of professional politician has existed, it has put the issue of our judgment into question. I was interested to hear my hon. Friend the Member for Bournemouth, West referring to the Exchequer as our employer, making the employer's contribution. Technically that is correct, but it is anathema to me. I fear that by receiving salaries from the state, we effectively become employees of the state, relying on it for our income and our pensions. Perhaps the Chartists got it wrong when they demanded salaried MPs in the 1840s but as the career of a professional politician has come increasingly to the fore and MPs have fewer outside interests, they depend on those careers and take more care than they might otherwise in exercising their individual judgment against that of party Whips. My fear is that by enhancing our pensions we are enhancing that career structure.

Mr. Gardiner: I have listened carefully to the hon. Gentleman. Does he accept that not a single member of the Government voted on July 5 last year for the

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proposal? The hon. Gentleman talks about careerist politicians—surely we are all conscious that the people who determine whether we have a career are our electorate and that we must therefore pay most attention to them.

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Prepared 23 July 2002