Examination of Witnesses (Questions 240-257)
RT HON
JOHN HUTTON
MP AND MR
CHRISTOPHER EVANS
28 JUNE 2006
Q240 Chairman: Why is that?
Mr Hutton: Because we feel that
employers who are still solvent have ongoing responsibilities
to their scheme members.
Q241 Chairman: I have constituents
who have lost a vast chunk of their pension with a solvent employer,
they have got no chance of having this made up, whatever you say
about their employer, their employer is struggling, near to collapse.
Mr Hutton: While they continue
to be solvent we think the principal responsibility continues
to reside with the employer. A number of Members of the House
have made representations to us about this particular issue and
I think James Purnell, the Minister of State, is meeting a group
of Members soon to discuss this particular issue and see if there
is anything we can do to help in these cases. If there is, Chairman,
we will try and find a way to unblock the difficulties here. They
are quite difficult to find a way forward while the employers
continue to be solvent.
Q242 Chairman: You are not ruling
out finding a way to help those people with solvent employers?
Mr Hutton: I am not absolutely
ruling it out but I am also very conscious, particularly in the
context of this inquiry and the background to it, not to raise
any false expectations either. We are continuing to have discussions
with Members of this House who have brought this to our attention
and I hope there is a way forward on this. We do not rule it out
but we have not currently been able to find a satisfactory way
of resolving this problem, and I am advised that it is going to
be difficult to find such a way.
Q243 Chairman: Might the same apply
to the buy back issue, the guaranteed minimum pension issue where
people become worse off in terms of losing their SERPS benefits
because of what happened?
Mr Hutton: Deemed buy back is
an attempt to try and make sure people do not have that experience,
that it is possible to re-acquire what would otherwise have been
forgone rights in the additional pension or SERPS. If there is
a collapse of an occupational DB scheme it is designed to try
and provide some restorative justice for people in this situation.
The National Insurance Contributions Office has actually produced
the advice material/leaflets on this and that has gone out. The
truth is very few people have applied and received deemed buy
back. I think it is as low as about 80 since it was introduced
in 1997. It is very complicated territory to explore and people
need to take proper professional advice about whether they should
apply for deemed buy back or not. Deemed buy back, Chairman, was
an attempt to try and provide a further pillar in the support
mechanisms for people in this situation, it was certainly not
an attempt to undermine.
Q244 Chairman: No, I do not want
to explore this now because it is too late but we have been exploring
the difficulties with that too so I hope what you have said about
solvent employers might extend to consideration about the difficulties
in that area as well.
Mr Hutton: We will look at any
serious proposal that people have for trying to find a way to
unblock this problem.
Q245 Kelvin Hopkins: I just want
to turn very briefly to the core of that problem and that is really
about maladministration and the Ombudsman's report. It strikes
me, and one has to look at the motives for this, that the advice
given by Government at the time, which we are disagreeing about,
seemed to be pursuing a policy objective rather than the real
interests of the people concerned. This is a motive, and you may
disagree, but it seemed to me at the time that the Government
was desperate, as was the previous government, to reduce the role
of the state in the provision of pensions. It wanted therefore
to ensure that whatever private bit of pension provision could
be shored up was shored up. Yet at the same time the storm clouds
were gathering over occupational pensions, and if they went down
the Government would have a big job to pick up and deal with people's
pensions for the future, going in the opposite direction to the
ideologically driven view with which the Government came into
office. In that sense the Government was putting out advice which
was more in the style of an advertising executive in that the
advice was for the benefit of the Government and its political
objectives, and not necessarily for the people who were members
of failing occupation schemes. It may be unfair but it strikes
me that this advice was much more about pursuing the Government's
long-term policy objectives than supporting the interests of the
pension fund members themselves. Had they started to withdraw
in large numbers or had many chosen not to join schemes at all,
the Government's long-term privatising objectives would have been
defeated. They would have had to reinvent a bigger role for the
state in the provision of pensions. Is that fair?
Mr Hutton: No, I do not think
that is fair and I do not think that is accurate and I do not
think that lies at the heart of the Ombudsman's report itself.
I do not think that features in her analysis of the problem or
the predicament that eventually we ended up in. With great respect,
Kelvin, I think it is a highly political analysis of the situation.
I have no difficulty with you making it, I just fundamentally
disagree with it. There was no benefit to Government in the way
that you have described from these reforms, quite the opposite,
I think the whole point of these reforms was to try and provide
a proper framework for governance of occupational pension schemes
and that is in the best interest of employees. Let us be absolutely
clear about it, if we can find the proper governance arrangements
here which immensely benefit employees, and I think the Government
has a legitimate interest to that extent in the development of
the policy perspective, the policy perspective has been on how
do we find the best way to enhance people's retirement incomes
and that cannot be done exclusively through the public sector,
through state pensions. It is inconceivable that any government
of any political persuasion could provide a state pension so generous
at the point of retirement that you would not notice the difference
between what you were earning at that point and what you got through
the state pension. That is simply an impossibility as a policy
objective. There has to be a mix in pension policy between encouraging
saving and making sure it pays to save and a proper platform of
a state pension that can operate, yes, in a more generous way,
less means tested, to provide that support for saving. That is
basically what we have come to put forward in the White Paper.
I know there is always a hunt for a conspiracy theory here, you
are very good at it, but I do not think, to be fair, that is the
right analysis of what happened, the sequence of events and why
it happened; I think that is simply not true and not accurate.
Chairman: I am quite keen not to go further
than we need in general pensions policy.
Kelvin Hopkins: Just very briefly, the
evidence of what I have suggested was the Government's refusal
to re-link the basic state pension with earnings and the vast
amount of money given in subsidies to the rich to carry on private
saving. As for occupational pension schemes, the Government could
see that these were a storm cloud on the horizon with which they
would have to deal. Clearly you say government policy was for
the benefit of pension fund members. It clearly was not to their
benefit as the subsequent events have shown. That is where the
maladministration was and that is why I agree with the Ombudsman.
Q246 David Heyes: The Ombudsman has
sat right through this evidence and she is an inscrutable character
and that is appropriate for the job she carries out but I have
spotted a flaw in her inscrutability, which is her eyebrows.
Mr Hutton: Yes, I have noticed
they have been going up and down a lot.
Q247 David Heyes: Yes, I want to
come back to her later and ask her if she perhaps will share some
of the matters with us that have caused her to raise her eyebrows
but I spotted a couple of them as we went along. The first one,
I need to test out the possible inconsistency with the evidence
you gave in answer to the Chairman's questions very early on in
this. I wrote your words down exactly, you were not disputing
her findings of maladministration. Now that was either a slip
of the tongue—
Mr Hutton: I am pretty sure, David,
I did not say that.
Q248 David Heyes: The record will
show that you did but it was a mistake.
Mr Hutton: We very strongly contest
the Parliamentary Commissioner's findings of maladministration.
I do not dispute the fact that she made any finding of maladministration,
how could I dispute that?
Q249 David Heyes: Let me pursue that
point a little further. You also said that an allegation had been
made that the Government has been maladministrative and I think
we need to set the record straight on that. It is not an allegation,
it is a finding, is it not? The Ombudsman says it is maladministration,
it is maladministration.
Mr Hutton: There was an allegation
of maladministration and then there was a finding of maladministration,
yes, of course.
Q250 David Heyes: You also said,
and this is the last time I am going to quote you back to yourself,
that your job was to look seriously at the recommendations the
Ombudsman made. I would like to know a little more about how you
went about that, the extent to which the DWP maybe sought to engage
in a dialogue.
Mr Hutton: A dialogue with me?
Q251 David Heyes: Between your Department
and the Ombudsman.
Mr Hutton: Yes, there was a very
extensive dialogue and most of the correspondence is replicated
in the Parliamentary Commissioner's report herself where she does
record verbatim the principal objections the permanent secretary
made to her report. I think it is all in the report. Again, if
my recollection is correct, we received—I am sure the Commissioner
will correct me if I am wrong—her first draft report before
Christmas, I think on 21 December, and officials and myself looked
at that over a period of weeks before the Permanent Secretary
responded at the end of January setting out our view of her findings.
I think the Parliamentary Commissioner is certainly very well
aware then of the view of officials in the Department and there
was extensive and very full correspondence between her and Leigh
Lewis, the Permanent Secretary in the DWP, which of course I saw
and was content with before that correspondence went to the Ombudsman.
That is my proper role, I have oversight clearly of the work of
the Department and, of course, it would be quite wrong for me
to pretend that somehow this was all done by officials without
me knowing it, absolutely not. I looked very carefully at what
officials were saying to me. I looked very carefully at the draft
report and it was the view of the Department by the end of January
that we could not accept her findings on maladministration. I
think there was a further report sent to us and I think we sent
a very long letter to the Ombudsman again towards the end of February,
setting out again a further set of reasons and articulating more
fully the argument in the first letter. Again, I think all of
that is fully set out in the report, so when people say to us,
"You rushed to judgment", we did not. We took a very
long and careful look at what the Ombudsman was minded to say
in her report and took a view within the Department about how
we would react to it. We never sought to hide that. It is not
hidden in the Commissioner's report either.
Q252 David Heyes: The Ombudsman will
no doubt give us her view on the quality of that dialogue and
interchange. It seems to me from the information we have got before
us that a lot of energy on the part of the DWP went into rebuttal
and finding ways of rejecting the Ombudsman's recommendations.
To what extent was there an attempt to find a way through this,
to find some common ground, to find a solution to deal with the
issue? Basically, what the Ombudsman was saying was that the finding
was the Government was partially responsible and there may be
a partial solution in the Government's hands. Was that ground
explored at all?
Mr Hutton: We did look at all
of this, of course. If we could have found a sensible way forward,
we certainly would have reached for it. I think it does come back
very fundamentally to the principal findings that the Parliamentary
Commissioner made about maladministration. We looked very carefully
at that and again at the material, the leaflets, we looked at
everything. For the reasons that I think have been well publicised,
we set out in the letters from the Permanent Secretary, in our
report to the House and in the statements that I made on 16 March
and so on, that we were not able to accept the findings of maladministration.
I think consequences flew from that and developed from that, quite
clearly they did. As I said earlier, David, we made that decision
with extreme reluctance and I think the record of the Department
for Work and Pensions, which I referred to earlier, is one against
which I do not think the accusation can be made, that we just
sit there waiting for the Ombudsman's report to come in and just
reject them, we do not. This is the only time it has ever happened.
We have accepted findings from the Ombudsman before which have
come with a significantly bigger price tag than the one attached
here, so that was not the issue. I want to be absolutely clear
about that. This was a finding that we could not support because
of our own view of the events and looking back at how we had behaved
and how we had tried to discharge our responsibilities. That has
put us into a very difficult position. Believe me, it is not a
position I would have preferred to have been in. I do not feel
I can discharge my responsibilities either, David, to the House,
as a Secretary of State, and as I made my view clear about these
matters as well and I have done that, the Government has done
that. But again, without running the risk of rehearsing all of
the material we have gone through today, we have tried very hard
through the very significant additional investment that has gone
into the Financial Assistance Scheme to find a way of making sure
that those who have suffered the most receive a measure of financial
assistance.
David Heyes: I have a couple more questions
that I would like to put, Chairman, but it seems to me this is
an appropriate point to ask the Commissioner if she wants to take
up the opportunity to comment on what has just been said.
Q253 Chairman: I was going to do
that. I was going to ask in particular about the suggestion that
the Government seems to have made that she has suggested that
somehow the Government took the entire responsibility for what
happened and, therefore, it should pick up the entire bill from
public funds. I think the Ombudsman believes quite strongly that
is a misrepresentation of what she has said. I think you may like
to say something on that, Ann?
Ms Abraham: Indeed. Could I make
some general comments and I will certainly deal with that. I would
just like to say a couple of things about precedent and respect,
if I may. It has been suggested that somehow the Barlow Clowes
case is a precedent here. I really find it very difficult to understand
how that could be the case because although in the Barlow Clowes
case it is true that the Government did not accept the Ombudsman's
findings, they did remedy the injustice to the Barlow Clowes investors.
Therefore, the entire population of those complainants in that
case were included in the remedy and to suggest somehow that the
Financial Assistance Scheme is the remedy, for me creates a real
difficulty in saying somehow that is a precedent. If there are
40,000 people who get some help, there are 85,000 people who do
not get some help, and, therefore, I find that difficult to see
how that makes a precedent. I have reflected on whether I should
say this, but I think I should. It is about this phrase "respect
for the office" and, of course, I take at face value what
is said about respect for the office, but it is very hard to feel
there is respect for the office when the Government's report says
that the report says things it does not say and that is repeated
and has been repeated in the House yesterday and today. When the
Government talked in response to my report on the day and subsequently
again yesterday about "leaps of logic", which seem to
me not be the language of respect, I think that gets in the way
of dialogue, so I will say that and put that to one side. I hope
the Committee will come back to the constitutional issues which
have been discussed today because I do think they are important.
I do think they are important because although this may be a one-off,
as has been described, it does encourage the others, and when
I say "the others" I mean departments and other parts
of government. It does go to the heart of public and parliamentary
confidence in the office and that, it seems to me, is very serious.
The urgent issue that I think is before us is about what can be
done to get these people's pensions back. The central recommendation
of my report was that because the Government was not a bystander
here, that it had some responsibility—not all the responsibility,
some responsibility—to organise a remedy, and I have been
heartened in many ways by what I have heard this afternoon about
the acceptance of the Government having some responsibility and
recognising the hardship for these people. All I want to say is
it is maladministration, get over it and let us get on to engagement
with the real issues here. I have talked to the Committee about
a pattern of behaviour and I have seen it in other cases and we
have seen it with the MoD and Debt of Honour. We had correspondence
with DWP, we did not have dialogue. All of those letters that
I wrote said, "If it would be helpful to meet to discuss
this, I would be happy to do so", but I did not get anything
other than letters back. I will just read a bit about what I said
in the report about maladministration: "The maladministration
I have identified was a significant and contributory factor in
the creation of financial losses suffered by individuals along
with other systemic issues". Somehow to suggest that I said
it was the sole responsibility of Government or that the taxpayer
should pick up the tab was not what I said. What I was trying
to ask the Government to do was consider what it could do to help
these people who had lost their pensions. I did not say, "Write
a blank cheque", but to organise a remedy. This is a general
point, and I think it goes to the heart really of the relationship
between my office and Government, and certainly what I have seen
in recent months, the response is defensive, legalistic and it
uses words like "liability". I do not use words like
"liability". I do not talk about "causal links".
It is unimaginative and does nothing to help these people. I suppose,
as has been said, I was looking, maybe naively, for Government
to put its brightest and best people on to thinking about how
can we organise a remedy that will do whatever Government and
Parliament thinks is appropriate to provide redress for the people
who suffered these injustices. I said they should do that by whichever
means is most appropriate including, if necessary, payment from
public funds. I suppose I had in mind there that these schemes
have got their own assets, they are not devoid of funds, so there
is money there. I had in mind thinking about changing the law
on purchasing annuities, which is possibly not the best use of
those funds. I did wonder whether the financial services industry
might be prepared to come in and at least think about the rescue
package and making a contribution. I thought there might be unclaimed
assets and I thought about the role that might be played in enforcement
action on wind-up and I thought about taxpayers' money, but I
did not say, "Write a blank cheque". I did not expect
the Government to get out its chequebook, but I also did not expect
the Government to refuse to even think about what could be done.
I did not expect it to put all its energy into defending its position.
I suppose, fundamentally, what I am looking for in this report,
and in everything I do, is a response which is not about defensiveness
and denial, it is about constructive engagement and putting things
right to whatever extent Parliament thinks is appropriate, not
into defending what has gone wrong.
Mr Hutton: Would you like me to
respond?
Chairman: I was going to say on the basis
of that, how about a new start? How about constructive engagement
from here on in? Before you reply, Gordon has another suggestion
to add.
Q254 Mr Prentice: This may help.
My suggestion may help. You have told us you reject maladministration
and it is not about affordability. What did you say, £2.3
billion at net present value. We know that every year the Government
spends £20,000 million, that is £20 billion, on tax
relief for pensions and over half of that, over £10 billion,
goes to top-rate taxpayers. Is there not a way, on the back of
what the Ombudsman has just said, to go away and have another
think about what the Government might be able to do to help those
people who have lost everything because the money is there and
it just needs to be divvied up differently?
Mr Hutton: I do not determine
the taxation policy in relation to pensions, that is a matter
for the Chancellor of the Exchequer. I know he looks very carefully
at all these issues on a regular basis, Budgets and Budget times.
It is for him to make any announcement he might want to make.
I am certainly not in a position today to express a view about
taxation policy in that regard. Those are judgments for Gordon
to make. We have always had, I think, a good, positive relationship
with the Parliamentary Commissioner. That is borne out by the
engagement we have had in the past and our willingness to accept
the reports of the Parliamentary Commissioner. This is a unique
event and I think it would be quite wrong to assume this is part
of a series or train or, in any sense, a harbinger for the future,
it is not. I tried to set out as fairly and as fully as I could,
Chairman, the reasons why we were not able to accept her findings,
but in relation to this issue of compensation, we are not trying
to be legalistic in that sense at all. I think it is important—the
Parliamentary Commissioner has said she does not talk about causal
links—there has got to be a causal link, there has got to
be some connection between the maladministration and the loss.
That is absolutely essential and it is widely on the record that
we have a disagreement, sadly, with her about that issue. In relation
to compensation, of course we have looked at the opportunity,
we have gone over this a little bit this afternoon, about whether
there could be alternative funds. The Parliamentary Commissioner
referred to the existing scheme assets; they are heavily deployed
in meeting the liabilities that those schemes have to their existing
members. Many of them would have been used to purchase annuities,
we cannot un-purchase the annuities. The Parliamentary Commissioner
has expressed an opinion about whether annuities are good value
and represent a sensible policy. I think they do. It not just
my view, it is the view of independent professionals as well.
There is always going to be a difference of view about annuities
and I know some of you say one way of distributing the scheme
assets would be to drop the policy in these cases of compulsory
annuitisation. I think there is a real danger with that, the assets
will run out and then liabilities will come back to the taxpayer
in those cases because there will not be enough, clearly, by definition
to keep payment indefinitely. That is obvious, otherwise we would
not be here at all discussing these problems. It is inevitable
in our view, and we looked very carefully at this, that if we
wanted to fully compensate, and the Commissioner asked us to consider
whether we can do that, there was only one source of resource
and that was taxpayers' money. We have decided, again without
rehearsing all the arguments, to take into account her report
in the extension of the remedy that is available in these cases,
the Financial Assistance Scheme. It is not what she asked us to
produce, I understand that, she wanted what she has just described
as a fuller remedy for people who suffered loss. We think that
we have gone as far as we can in the circumstances, given that
we are, I am afraid, in the position where we neither accept the
finding of maladministration or the causality between such an
event, if it happened, and the loss that people sustained. I do
not believe, Chairman, that those are legalistic arguments. I
think they are fundamental arguments and it is with very great
regret that I deploy them today. Let us make this absolutely clear,
this is not anything like the beginning of a new trend or a new
constitutional doctrine that I think I have suddenly inadvertently
stumbled upon, no. I do believe there is precedent before when
ministers have not accepted findings of maladministration. They
have gone on to look at remedies, I accept that, but I do very
strongly argue that in this case we have tried to do the same.
Q255 Chairman: Christine Farnish,
the Chief Executive of the National Association of Pension Funds
was here last week, and she said that of course what had happened
was monstrous, but it was only the Government that could organise
any sort of rescue package for these people. Informed people in
the industry think that a rescue package is available and that
only the Government can do it
Mr Hutton: There is only one source
of compensation here, that is public money. I do not believe there
is any realistic prospect of some other pot of money being found
that will relieve financial obligation on the Government. The
question is to what extent the Government should and must act
to relieve financial hardship. We have made our decision, we have
extended the Financial Assistance Scheme and tried to extend it
in that way. For example, when Andrew Smith announced, I think
it is worth remembering this, the Financial Assistance Scheme
back in May 2004, he invited contributions from industry. None
was forthcoming.
Q256 Chairman: We have to end, but
let me ask you this as we do end. You have said yourself this
is a terrible calamity. It has been catastrophic for tens of thousands
of people who have paid in loyally to their occupational pension
schemes thinking this is the safest form of pension saving. Everything
that they saw and heard gave them to believe that post-Maxwell
things had been sorted out and now they have lost the great chunk
of what they thought they were going to have. What I want to know
just at the end is, from your point of view, is this the end of
the story because all those people are hoping that this is not
the end of the story, they hope that something still can be done?
In some of the other instances where the Government has differed
from the Ombudsman, eventually something has been done and what
I really want to know is from your point of view have you put
a line under it or are we still in some kind of constructive engagement
on this issue?
Mr Hutton: Chairman, it has been
a calamity for those people involved. I am not trying to pretend
otherwise, it would be stupid for me to do so. I also believe
that we have, again, tried to respond to the problems that those
in the most acute need have experienced and faced. For the vast
majority of people it was the right decision to invest in occupational
pensions. We should not lose sight of that fact. This is a very
small minority but an important minority who have lost out very
significantly in some cases. I think overall the right thing to
do was to invest in occupational pension schemes, I think that
is clear. Is this the end of the road in terms of assistance and
financial support? I think I have to be very clear to the Committee
today, I am not coming here holding up a prospect of a further
extension of the Financial Assistance Scheme. That is not on offer
today. Of course it is open for future governments and other ministers
at any time to review those decisions, but we have made a decision
on how much further we think we can go in providing more financial
assistance and we do not believe we can go any further.
Q257 Chairman: Thank you for that.
We shall obviously in turn make a report to the House on what
has happened and it will be for the House to decide whether it
would like to exert some pressure on you. We have had a long session
this afternoon, but I think justified by the events that we are
talking about and we are grateful to you for coming along and
for your time.
Mr Hutton: Thank you.
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