House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Eleventh Report

The pensions 'scam'

41. Our Report of last year set out in some detail the history of Gibraltar's contributory pension scheme and of its system of household cost allowances, and discussed the question of liability to pay benefits to Spanish citizens who worked in Gibraltar prior to Spain's unilateral closure of the border in 1969.[47] In that Report, we also deplored Peter Hain's description of Gibraltar's Community Care scheme as a "scam."[48]

42. We concluded last year that

… it is manifestly unjust for Gibraltar to be legally liable to pay uprated pensions to Spanish pensioners who had been prevented from making pension contributions for years by their own Government. We further conclude that it is unfortunate that the issue of this liability was not satisfactorily resolved before Spanish accession to the European Community.[49]

43. The FCO replied that

As the report later recognises,[50] it is in fact HMG which pays pensions to Spanish pensioners who were prevented from working in Gibraltar by the 1969 border closure. The liability to pay those pensioners is a matter of EC law which requires Member States to pay state pensions, including any uprating, to pensioners living in another Member State at the same rate as would be paid if the pensioner lived in the paying State.[51]

44. The FCO's reply failed to make the distinction between liability under EC law to pay the pensions, which according to both the European Commission and the Foreign Secretary[52] (but not the Government of Gibraltar[53]) rests with the Government of Gibraltar, and the fact of life that it is the United Kingdom exchequer which has assumed the liability and which makes the payments, because they amount to £80 million each year, a sum greater than what a small territory such as Gibraltar can afford. In a further development, in January this year the European Commission stated that it had found no evidence of pensions discrimination on the grounds of a worker's nationality,[54] although we note recent reports that the Spanish Government is "exploring legal avenues" with the European Commission.[55]

45. The position is even less clear with respect to the Community Care scheme. Last year, we concluded that

… the legality of Community Care payments has yet to be established under European law. We recommend that a resolution of this issue be sought as soon as possible, without the British Government taking a view on the merits of the case which might prejudice its outcome.[56]

46. The Government's response was

… The British Government made clear to the then Chief Minister in 1988 that any new arrangements which the Government of Gibraltar might introduce for payments to the elderly must be non-discriminatory and means-tested. When the British Government discovered the detail of the HCA in 1996, they advised the Government of Gibraltar to reform it, and the present Government has maintained this pressure. The Government of Gibraltar has failed to do so. We agree that a resolution of this issue is needed. As long as it continues unresolved, the potential cost to Gibraltar taxpayers is high and rising.[57]

47. "Reform" in this context means change which would reduce payments to Gibraltar's pensioners. The Government of Gibraltar has stated that it is not prepared to countenance this.[58] There has, however, been what the FCO has called a "significant development". On 21 January, the European Commission stated that the Household Costs Allowance paid under the Community Care scheme were outside the scope of social insurance, and were therefore outside the scope of EC provisions.[59] Although the Commission's inquiries are continuing, this does hold out the prospect of an end to the affair.

48. In our previous Report, we went on to conclude that

… The current pensions situation, with or without Community Care, is highly unsatisfactory. The British and Gibraltar Governments should be co-operating to try to find a workable long-term solution to the issue, rather than wrangling about who is to blame and who should pay for the current situation, for which neither of them is to blame, and for which, in an ideal world, neither of them should have to pay.[60]

49. The Government had this to say in reply:

It is a timeless verity that there will always be individuals or interests who may object to particular aspects of particular laws. That does not reduce the obligation on responsible administrations to observe the law unless and until it is changed. It is not the case, as stated in paragraph 87, that the Government of Gibraltar is paying pensions to Spaniards; HMG is carrying that liability. And HMG has been seeking to cooperate with the Government of Gibraltar since 1996 to remove the threat of legal challenge. But the Government of Gibraltar has not acted and has not taken up our offers of technical assistance. The contingent liability continues to rise. Progress is needed because otherwise the initial burden will fall on UK taxpayers, which is not acceptable to the Government.[61]

The Chief Minister's retort to this was that "This is not correct… It is not appropriate for HMG to equate the failure to reach agreement with a failure to take up offers of assistance."[62]

50. So, the Government of Gibraltar will not agree to any resolution of the Community Care issue which results in lower payments for Gibraltar residents; and the British Government has not accepted any of the proposals made by the Government of Gibraltar which "would not result in anyone being worse off."[63] Notwithstanding the signs of limited progress at the European Commission, this remains a highly unsatisfactory state of affairs, yet one which it cannot be beyond the capacity of the two governments to resolve. In our view this blame game—which has been played by both sides—is a zero sum game, and it has gone on for long enough. We recommend that the British and Gibraltar Governments renew their efforts to find a solution to the pensions issue and that the FCO in its Response to this Report set out in detail how it proposes to resolve this matter.

47 Eleventh Report from the Foreign Affairs Committee, Session 2001-02, Gibraltar, HC 973, paras 58-87 Back

48 Ibid., para 84. Back

49 Ibid., para 64 Back

50 Ibid., para 66 Back

51 Cm 5714 Back

52 HC Deb, 16 April 2002, cols 452-3 Back

53 Ev 10 Back

54 Ev 3 Back

55 Gibraltar Chronicle, 8 July 2003 Back

56 Eleventh Report from the Foreign Affairs Committee, Session 2001-02, Gibraltar, HC 973, para 76 Back

57 Cm 5714 Back

58 Ev 11 Back