Select Committee on Public Administration Minutes of Evidence


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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