Memorandum by Rt Hon John Hutton MP, Secretary
of State for Work and Pensions
INTRODUCTION
1. I am grateful to the Committee for the invitation
to give evidence on the recent report by the Parliamentary Ombudsman,
"Trusting in the Pensions Promise".
2. I would first like to express the Government's
sympathy for the individuals who have lost significant sums of
money due to their schemes winding up underfunded. That is why,
although the Government does not accept liability, we have taken
positive action by introducing the Financial Assistance Scheme,
which was recently extended to cover those within 15 years of
their retirement.
THE GOVERNMENT'S
DETAILED RESPONSE
TO THE
OMBUDSMAN'S
REPORT
3. The formal response to the Ombudsman's report
was sent to the Ombudsman by my Permanent Secretary on 15 March.
However, the Committee will be aware that on Tuesday, 6 June I
laid before Parliament a detailed explanation of the reasons behind
my Department's rejection of the Ombudsman's findings of maladministration
and most of her recommendations.
4. I do not propose to repeat in this memorandum
the points made in that publication. Instead I would like to address
some of the issues raised by the Ombudsman in her evidence on
2 May.
5. I want to say first of all that in no way
do we seek to undermine the authority of the Ombudsman in rejecting
the findings of maladministration in this report, nor does this
action indicate any lack of respect for her position.
6. It is highly unusual, although not unprecedented,
for a Government Department to reject a finding of maladministration
in a report from the Ombudsman. However, this must be seen in
context. This is the first time since the establishment of the
Ombudsman's office in 1967—39 years ago—that my Department,
including its predecessor Departments, has rejected such a finding.
However, this was an exceptional case. Our response represents
a genuine difference of opinion between my Department and the
Ombudsman: the sort of legitimate difference that this Committee
recognised could happen when it considered the then Ombudsman's
report on the Channel Tunnel Rail Link case in 1995, recognising
that the Government is, quite properly, answerable ultimately
to Parliament for its actions.
THE OMBUDSMAN'S
RECOMMENDATIONS
7. We accept fully that the Ombudsman did not
explicitly recommend that the taxpayer should pay for the full
replacement of the lost benefits. She recommended that the Government
should consider making arrangements for these benefits to be replaced.
We did carefully consider her recommendations over almost three
months and only then came to the conclusion that, with one exception
relating to the winding up of pension schemes, it was not in the
wider public interest to accept her recommendations.
8. We have also considered various proposals
that have been put forward as to how the replacement of lost benefits
could be funded. However, the reality is that it would not be
viable to secure significant funds from any source other than
the taxpayer. There simply are no arrangements which we could
realistically make which would not involve the taxpayer footing
the bill. In her report the Ombudsman appears to have recognised
this possibility, as she said that we should use "whichever
means is most appropriate, including if necessary by payment from
public funds." and she acknowledged that "asking the
taxpayer to meet all or part of the cost of [her recommendations]
raises significant public policy questions".
9. We do not believe that the taxpayer can or
should be expected to meet this cost. We are, however, committing
over £2 billion to the Financial Assistance Scheme in the
greatly expanded form which I announced to the House on 22 May.
That is, I believe, a real and tangible demonstration of our sympathy
for those who have lost significant sums of money notwithstanding
that we do not believe that the Government is responsible for
those losses.
23 June 2006
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