Examination of Witnesses (Questions 200-219)
RT HON
JOHN HUTTON
MP AND MR
CHRISTOPHER EVANS
28 JUNE 2006
Q200 Grant Shapps: The picture that
is gathering in my mind here as I listen to all the evidence this
afternoon is a crisis in pensions which has, in part with other
issues to do with people living for longer and what have you,
been created by this Chancellor who makes a single decision which
continues to have ramifications for years to come about abolishing
tax credit for dividend income. That creates a situation of not
only less money directly in the pension funds because they are
having their cash taken out in a different way but also a lack
of liquidity in the stock market which creates a problem where
millions are affected. I would be interested to ask you how many
people you think are affected by this particular pension crisis
that we are talking about. Do you have a number for us?
Mr Hutton: No, and I think again,
with great respect to you, you are making an unsustainable leap
of logic, if I can use that expression in a different context.
If you want to focus on the decision taken then to change the
regulations around how we treated for tax purposes dividends in
this context I think you have got to look at the wider impact
of what has happened in the economy as well. In that period we
have had 2 and a half million more jobs and that is a factor as
well that has to be taken into account. I simply do not accept
your fundamental argument that it was either maladministrative
or in any way contributed to employers going insolvent which is
the root of the problem that we are discussing today, that the
Government made changes to dividend tax credits in 1997 or whenever
it was.
Q201 Grant Shapps: Yes, but my question
was how many people have been affected by this?
Mr Hutton: Are we talking about
in the context of the Parliamentary Commissioner's report or what?
Q202 Grant Shapps: Yes in the context
of exactly what we are discussing.
Mr Hutton: I thought we had agreed
figures. It was about 125,000 people. I thought there was no argument
about that.
Q203 Grant Shapps: I am not sure
that is the case but others might want to return to it. It seems
to me that we have a circular situation here. What happened was
the Ombudsman reports saying that there is maladministration.
We now know that ministers, we are not sure which but certainly
the Chancellor of the Exchequer, were involved in deciding whether
there was maladministration. You did not like what the Ombudsman
said so effectively you just ignored it.
Mr Hutton: I tried to set out
very clearly at the beginning of my remarks how we approached
this issue. We gave full and proper consideration to the report.
We looked at it very carefully in the run-up to publication. My
officials spent a very great deal of time looking at it and we
always want to discharge our responsibilities in these matters
with proper respect for the authority of the Parliamentary Commissioner.
Q204 Grant Shapps: Yes, but you have
not though.
Mr Hutton: In this case we were
not able to accept her findings of maladministration. As I said,
again in the context of some previous examples, some involving
Conservative governments, some involving Labour governments, that
has happened in the past. Now we have done it with very great
regret and we have tried, notwithstanding the fact that we have
not accepted her principal findings to look at extending the financial
assistance that is available for people who are caught up in this
situation. Again, with great respect, Grant, I think that is the
responsible course of action for Government to take. We have not
kicked this into the long grass, that is completely inappropriate.
Q205 Grant Shapps: Sorry to interrupt,
John, you are doing a great job of answering the question that
I have not asked you, now we are leading on to something else.
What I am trying to understand is how it was that you ignored
the Ombudsman. Parliament sets up a system, that system is the
Ombudsman. The Ombudsman decides there is maladministration. That
is the job of the Ombudsman to decide upon it. I think the Chairman
pretty clearly established in the opening remarks that you ignoring
that maladministration was not the same as has happened in other
cases, and you would like to refer back to this Government and
other governments taking decisions on it, and I thought that was
quite clearly demonstrated in the earlier evidence. Then you decide
to ignore the findings. This is just simply kicking Parliament
in the face.
Mr Hutton: No, it is certainly
not doing that. Let me just remind you what I said. I was quoting
from Nicholas Ridley—I think it is probably the first time
I have ever done this in my life—"I want to make it
clear that the Government do not accept the Parliamentary Commissioner's
main findings nor are the Government legally liable." That
was in the context of the Barlow Clowes affair. It is true, of
course, that the Government went on to consider an ex gratia
compensation payment without accepting liability. What I am saying
is very similar, we are not able to accept the Parliamentary Commissioner's
main findings on this occasion, with regret and reluctance, but
we have gone on to look at how much further financial assistance
we can provide for people who are caught in this very, very difficult
situation.
Q206 Grant Shapps: I would accept
that governments usually are not responsible for things which
happen in private marketplaces and the thing which makes this
different is you have not just accepted the wide, broad parameters
within which pensions now operate, you actually effectively raided
those pensions, reduced liquidity, created the problem and then
walked away, even when the Ombudsman tells you it is maladministration,
and say "It is nothing to do with us".
Mr Hutton: No, I just do not accept
that is true or accurate or a proper reflection of what has happened
in these particular cases.
Q207 Chairman: Just on this though,
Grant does open up the question of the wider policy context in
which all this has to be seen, not the narrow argument about maladministration
but the wider context. Leaving aside the dividend tax credit argument—and
of course this history we are looking at spans two parties, two
governments—the Ombudsman said to us when she gave evidence,
"I was not saying that the Government had sole responsibility
here but I cannot see how the Government could say it had no responsibility
here". The reasons for that which she gives are central to
the policy context behind which this issue sits. It was Government
which established the legal framework for regulating pension schemes.
It approved the level at which schemes were funded. It decided
that the MFR should provide only a 50% chance of securing benefits
if their scheme wound up. It set the priority order for payments
on wind-up which removed the discretion from the trustees. It
prescribed what trustees had to tell members. We are talking about
massive Government intervention in the context around which this
issue is discussed. The idea that the Government has no responsibility
in the matter is just not sustainable is it?
Mr Hutton: I am not arguing that
the Government has no responsibility. I am arguing that the Government
discharges its responsibilities properly and fully. We have got
to see in the context of all of this—and this is why there
is a substantial difference here between the Parliamentary Commissioner's
report and what happened in the SERPS case—that there were
other people involved in this tragedy. We have got to take a proper
view and look at all of that as well.
Q208 Chairman: Why did the Government
not say, "Okay, we accept our share of responsibility and
therefore we accept our role in trying to clear it up"?
Mr Hutton: We believe we have
discharged our responsibilities properly and fairly and that is
why, I am afraid, again with regret, we were not able to accept
the Parliamentary Commissioner's findings of maladministration.
We have not just then left the playing field and walked away,
we have put in a very significant amount of taxpayers' money because
that is the only source from which any sort of financial assistance
can come from, I think we need to be absolutely clear about that.
We have put a significant amount of public money in to try and
provide financial support for those people who are caught up in
these terrible situations. So I think, again, with great respect,
Chairman, we have properly discharged our responsibilities as
a Government. You are right, the responsibilities span both Labour
and Conservative governments here and I suppose there will be
some people observing this from the outside who will comment on
the irony, yes, of a Labour minister defending the actions of
a Conservative government. But I can say with truth and honesty,
because that is my responsibility to the House and this Committee,
that I believe those responsibilities then were properly discharged
by Conservative ministers and I believe they continue to be properly
discharged by Labour ministers when there was a transfer of power
in 1997. I also believe very strongly—I do not want to repeat
the arguments again because I have done it several times—that
it is a proper and utterly legitimate response for us to look
to try and prevent acute hardship for those who have suffered
loss. That, we would argue, is a proper moral responsibility for
Government and we, very strongly I would argue, have done more
than any previous government to discharge those responsibilities.
There was no financial assistance scheme in 1997, and it has been
put to me, "Well, we did not need one because pension schemes
did not collapse". Oh, yes, they did, and there was no support,
none, available for scheme members in those circumstances. I would
say we have discharged our responsibilities properly and fairly.
Q209 Mr Prentice: Is this just one
of those things? You know, like some days it rains, some days
the sun shines, the collapse of these occupational pension schemes,
are you telling us it is just one of those things?
Mr Hutton: Of course I am not
saying that, and that is why Parliament itself has spent a considerable
amount of time debating how we can strengthen the safeguards and
protections that exist in relation to scheme members.
Q210 Mr Prentice: Okay. I do not
want to use the word maladministration, I want to use the word
negligent. I just wonder which of the actors were negligent, if
they were negligent? Were the trustees negligent? Was the Institute
of Actuaries negligent? Was the Government even a teeny weenie
bit negligent? Was anyone negligent?
Mr Hutton: I can only speak for
Government, it is not my job to attribute negligence, that is
the responsibility of the courts. I think that question will have
to be addressed by other people. The accusation has been made
that the Government was maladminstrative and we have been discussing
the detail of those accusations today and the findings of the
Parliamentary Commissioner's report, and we strongly contest them.
That is a matter of record now and everyone in this Committee
will be aware of that.
Q211 Mr Prentice: People out there,
people watching television and listening to the radio, would find
it simply astonishing, I suggest, that you are unable to say whether
any of the people involved in this were negligent in any way.
Mr Hutton: But it is not my job
so to do, is it? I am not the final arbiter of professional behaviour,
that is for others to decide.
Q212 Mr Prentice: Okay. You said
that only the taxpayer could foot the bill, I am interested in
what other options you explored and why you have rejected them.
You talked about ex gratia payments and the Financial Assistance
Scheme is essentially that but I just wondered if there were any
other options, whether you have got your best people, the brightest
people in the Department to work on this, to go away, look at
the options and come back with solutions?
Mr Hutton: We did look at whether
there were other sources of funding. We could not find any other
sources of funding.
Q213 Mr Prentice: Just the taxpayer.
Mr Hutton: Well, where else?
Q214 Mr Prentice: I am going to tell
you. We had Ros Altmann before us last week. You read the evidence,
you have told us that, and she floated the idea that perhaps some
of the billions locked up in the banks, the so-called orphan funds,
could be used. Now was that an option you considered? Clearly
not.
Mr Hutton: It has been looked
at by Government on previous occasions. My understanding is there
might be several hundred millions, that is the estimate that we
have. I think the Chancellor has been discussing with the banks
the extent to which those unclaimed assets, those unrepatriated,
unclaimed, unknown assets, might be used to support a range of
community initiatives focused on young people and so on. Those
investments, if they are made, will be made by the banks, it is
not public money. We have no plans to expropriate it.
Q215 Mr Prentice: When you were looking
at this, and the Chancellor said, "Well, there may be good
causes there. All this money locked up in the banks, it can be
used for good causes", did you not say, "Hang on a minute,
there are a lot of people out there who have just lost their pensions,
this would be a good way of using these orphan funds"?
Mr Hutton: As I said there have
been discussions about what use could possibly be made of those
funds but we need to be absolutely clear, so there is no misunderstanding,
there would not be anywhere near enough to meet the potential
liabilities here that have been canvassed so I do not regard that
as a serious option, no.
Q216 Mr Prentice: It is just a couple
of hundred million you say.
Mr Hutton: I do not have exact
figures but I understand it is several hundred million, it is
certainly not the billions that will be necessary here.
Q217 Mr Prentice: I wonder, Mr Evans,
do you know what the figure is?
Mr Evans: I have nothing to add
to that. The estimates are necessarily somewhat uncertain but
the best estimates we have are that it is in the order of several
hundred million.
Q218 Mr Prentice: In other words
it is not going to make a big dent in anything, is it, several
hundred million. Goodness me, you are not going to finance many
good causes if it is just a couple of hundred million.
Mr Hutton: The money is not public
money. It is not available for these purposes.
Q219 Mr Prentice: I understand that.
I am labouring the point here. A lot of people out there are crying
into their beer and tea because they have lost everything. You
have told us the only solution comes from the taxpayer and I am
just testing that, that is your position.
Mr Hutton: Yes. 40,000 people
will get some form of financial help and I think it is important
we do not forget that.
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