New
Clause
7
Compliance
with recommendations of the Parliamentary
Ombudsman
‘The Secretary of
State shall, within three months of this Act coming into force, report
to both Houses of Parliament on how he proposes to comply fully with
the recommendations contained in the Parliamentary Ombudsman’s
6th Report of Session 2005-06, “Trusting in the pensions
promise: government bodies and the security of final salary
occupational pensions”
(HC984).’.—[Mr.
Waterson.]
Brought
up, and read the First
time.
6.30
pm
Mr.
Waterson:
I beg to move, That the clause be read a Second
time.
The new clause is
on another big issue, which has been a running sore for some time and a
major distraction from the Government’s attempts to restore
confidence in the pensions system. It would require the Secretary of
State, within three months of the Bill coming into force, to bring
forward proposals to comply fully with the recommendations in the
ombudsman’s sixth report of 2005-06, “Trusting in the
pensions promise: government bodies and the security of final salary
occupational pensions”.
One might think it a bit odd
that it has been necessary to table such a new clause. After all, the
office of the parliamentary ombudsman has existed since the 1960s. It
was introduced by a Labour Government, in the shape of Dick Crossman,
and it has had cross-party support ever since. It is seen as an
important, independent safeguard for the rights of individuals when the
Executive bring about maladministration. In her report in March 2006,
the ombudsman could not have been clearer. She found that the
Government were guilty of maladministration to pension scheme members
who lost their money when their schemes collapsed or were closed by
their employers. She said that official information about security of
final salary occupational schemes
“was sometimes inaccurate, often
incomplete, largely inconsistent and therefore potentially
misleading”.
However, what
did the Government do? First, they rubbished those findings, and then
they rejected them in total, mainly by claiming that the cost of
providing financial redress, as indicated by the ombudsman, would be
too great.
The Prime
Minister came up with a figure of £15 billion—he
has repeated it more than once since then—and said that that was
unaffordable. Since then,
the Government have been in denial about the whole matter. The Prime
Minister said
that “although of course
we must and do treat seriously the ombudsman's findings, we are being
asked as a consequence of them to give, on behalf of general taxpayers
£15 billion-worth of commitment. We simply cannot do
that.”—[Official Report, 15 March 2006;
Vol. 443, c. 1450.]
The first major issue—I
shall come to financial redress in more detail—is that it is not
the job of Ministers and certainly not the job of the Prime Minister,
to decide whether there has been maladministration. That has been
found, and the message to Ministers is to get over it. The ombudsman
made her decision and the whole point of creating the Parliamentary
Commissioner for Administration in 1967 was that such decisions were
taken away from the Executive. Challenging the findings of the referee,
which is effectively what the Government have done, is simply
unacceptable and a constitutional outrage, leaving aside the continuing
and abiding unfairness to those who have lost
out.
Andrew
Selous:
Has my hon. Friend noted that a majority of
Members of Parliament have signed a collection of early-day motions
asking the Government to accept the ombudsman’s
findings?
Mr.
Waterson:
I think my hon. Friend is right, and that is
another worry. Hon. Members on both sides of the House who may have no
direct expertise or interest in the pensions issue are appalled that
the Government have seen fit simply to rubbish and reject the
ombudsman’s findings. There have even been dark briefings from
unknown sources in the Government about the future of the Parliamentary
Commissioner for Administration. That in itself is an
outrage.
The Government
have misrepresented the real cost in net present value terms of
providing financial redress. A more reliable calculation produces
figures between £2.9 billion and £3.7 billion. A figure
between £13 billion and £17 billion, which
coincidentally happens to be bang on the money as far as the Prime
Minister’s figure is concerned, represents a cash
figure.
Mr.
Adrian Bailey (West Bromwich, West) (Lab/Co-op): Returning
to the hon. Gentleman’s previous argument, which I followed
closely, like all hon. Members my casework has included a number of
applications to ombudsman on a range of public service issues. The
consistent theme in decisions is that there must be a
link—causality—between maladministration and an injustice
to an individual. It is odd that the ombudsman’s report and the
words that the hon. Gentleman quoted said that the Government’s
leaflets were potentially misleading. That does not make the
link.
Going back even
further, many people who would qualify for compensation under the
ombudsman’s ruling took out their schemes before any Government
leaflets were published. I do not see how any link can be made between
their injustice and Government action. Will the hon. Gentleman comment
on
that?
Mr.
Waterson:
That is the hon. Gentleman’s point of
view, and I am sure that it is honestly and genuinely held. However,
with all due respect, it is irrelevant.
Mr.
Bailey:
No, it is
not.
Mr.
Waterson:
I am pleased to put the hon. Gentleman in this
august company, but that view is as irrelevant as the view of the
Minister, the Secretary of State and the Prime Minister. All those
views, of right hon. and hon. Members in all parts of the House, are
beside the point. That is why we have a parliamentary ombudsman, who is
given the role to step outside the ambit of the Executive and take a
view, and like it or not she has found maladministration and
casualty.
The hon.
Gentleman tempts me to go into the findings of the ombudsman’s
report, “Trusting in the pensions promise”, in more
detail than I had intended. She found a series of instances of
maladministration. She talked about leaflets, ministerial press notices
and various ministerial statements in the House. In particular, she
refers on page 150 of her report to
“three discretionary or policy
decisions taken by public bodies in relation to the
MFR”—
the minimum
funding requirement that was set up under the 1995 legislation. She
referred, first, to
“the
decision to change the MFR basis in June 1998 by amending the equity
market value
adjustment”,
secondly
to
“the decision...in
March 2001, not to make new disclosure to scheme members (as it was
claimed had been recommended by the actuarial profession) of the risks
to their pensions and to explain the degree of security afforded by
being funded to the MFR
level”,
and thirdly
to
“the decision in March
2002 to change the MFR basis by making a further change to the equity
market value
adjustment.”
If
I remember her right, the ombudsman found that there had been clear
maladministration in two out of the three cases. She said in
terms:
“I
consider that anyone reading or hearing the Ministerial statements
about the MFR and the purpose behind this statutory mechanism would
have reasonably believed that a scheme funded to the MFR level would
have enough assets to pay the pensions already in payment and to
provide a cash transfer value of the accrued pension rights of
non-pensioners, regardless of what happened to the
employer.”
I have already
quoted the passage about misleading statements, but she
continued:
“Furthermore,
during the operation of the MFR, official statements about the security
provided by a scheme...continued to be vague, incomplete or
misleading.”
Andrew
Selous:
Although my hon. Friend and I both want a more
generous settlement to the problem, is it not the case that, were the
Government to accept the ombudsman’s findings, they would not be
financially bound to pay in £2 billion or £3 billion, or
any other amount? That point should be made to the Government as well,
should it
not?
Mr.
Waterson:
I am grateful to the hon. Friend. I do not think
that the ombudsman is unduly prescriptive about how the calculation
should be approached, which is rightly a matter for the Government. I
do not want to quote the report in any more considerable detail, but it
is worth pointing out that the three major instances that I have
related all happened on this Government’s watch, and that in two
cases there was significant weakening of the security provided under
the MFR. In any event, the ombudsman has found clear maladministration.
To repeat the quotation that I used in the previous debate, she
said:
“I am
quite clear that the FAS will not constitute an adequate and
appropriate remedy for the injustice claimed by those who have
complained to
me”
James
Purnell:
Does the hon. Gentleman recognise that all that
was being done in those adjustments was carrying out what we were
required to do under the Pensions Act 1995, which was to reset the MFR
to the level at which it had been originally set? We had to follow
actuarial advice when we did that. The MFR is what was replaced in the
Pensions Act 2004 by going to a scheme-specific requirement. All that
was being done in those instances was operating the MFR as it was put
forward in the 1995
Act.
Mr.
Waterson:
If the Minister is saying that Ministers had no
option or choice, I do not accept that for a moment. In one of those
instances, as the ombudsman makes plain in her report, Ministers took a
decision that flew in the face of the advice that they had received
from the actuarial
profession.
James
Purnell:
I shall correct this if my memory is wrong, but I
do not think that that is right. We consulted on it and the response
was that it was worth making those changes only if the MFR was going to
be there for the long term. However, the Government were already
planning to replace it with a different regime. The hon. Gentleman
needs to be slightly careful about what allegation he is making. The
MFR was not weakened, but restored to its original intended
level.
Mr.
Waterson:
We may be getting into semantics. The effect was
to weaken the protection. I am not making a case here; I am simply
trying to reflect what is in the ombudsman’s long and thorough
report. If the Minister wishes to clarify these issues in writing, I am
happy to read what he has to
say.
Let me help the
Minister; this is a perfect moment for him to have intervened. At page
169, paragraph 5.213, the ombudsman
says:
“In
October 1998, briefing by officials in DWP’s predecessor
department had recognised that the decision in the 1997 Budget to
abolish the system of tax credits given to pension schemes had
‘shaken’ pension scheme funding. In November 1999, DSS
officials told a Minister that that decision had ‘had the effect
of weakening the MFR test as prescribed at that
time’.”
So the
Minister may wish to reconsider what he said in his
intervention.
I return
to quote that I was about to give, which relates to the intervention of
the hon. Member for West Bromwich, West. The ombudsman went on to
say:
“I consider
that it is evident that this decision had the effect of reducing the
income available to all pension schemes every
year.”
She added that that
decision
“weakened the
protection offered to scheme members by the
MFR.”
I stress
again to the Minister that I am simply trying to summarise, as briefly
as I can, the key findings in the ombudsman’s report. In her
recommendations, she says that
“the Government
should consider whether it should make arrangements for the restoration
of the core pension and non-core benefits promised to all those whom I
have identified above...including if necessary by payment from
public funds, to replace the full amount lost by those
individuals.”
There is
quite a lot of scope there to decide how one calculates the full amount
lost by those individuals as set out in her
recommendations.
James
Purnell:
I shall correct this if I am wrong, but I think
that the point that the ombudsman was making was that the MFR was
weakened by the changes because stock market growth was affected, and
that changes therefore needed to be made. We made those changes. I
think that we implemented the 1998
recommendations.
Mr.
Waterson:
It is perfectly possible, at this stage in our
debates, that the Minister and I are talking at cross-purposes. I
thought that the paragraph that I quoted a moment ago was clear enough
to the extent that it suggested that officials had warned the
Minister’s predecessor and that that advice was not taken.
However, these are important issues and it is important that we are
accurate about them, so I am more than happy to be corrected, just as
the Minister has generously said that he is happy to be, in subsequent
correspondence or, indeed, at the beginning of the next
sitting.
As is well
known, the ombudsman went on to recommend that
“the Government should consider
whether it should provide for the payment of consolatory payments to
those scheme members fully covered by my recommendations - as a
tangible recognition of the outrage, distress, inconvenience and
uncertainty that they have
endured.”
That is not the
strongest recommendation. It says that the Government should consider
doing that, but did they consider it? Not for a moment: they dismissed
the report out of hand. They rubbished it, tried to undermine the
ombudsman, as they have since done, and would have nothing to do with
considering her
recommendations.
In the
next paragraph, the ombudsman says
that
“the Government
should consider whether it should apologise to scheme trustees for the
effects on them of the maladministration I have identified,
particularly for the distress that they have suffered due to the events
relevant to this investigation.”
There is no sign of an apology,
Mr. Taylor. Apologies, as my dear sainted mother used to
say, do not cost anything, but the Government could not bring
themselves even to apologise. The ombudsman went on to make other
related recommendations.
That is the approach taken in
the ombudsman’s report. It is still an impressive report that
has been dismissed out of hand by the Government. What happened next?
Once the five recommendations had been rejected altogether and the cost
of meeting them had been substantially exaggerated, the Select
Committee on Public Administration, to its eternal glory, decided to
take on the matter, too. It carried out its own investigation and
produced a report in due course, with the rather worrying title of
“The Ombudsman in Question: the Ombudsman’s report on
pensions and its constitutional
implications”.
6.45 pm
Let me give
some of the Committee’s choicer comments on the
Government’s conduct. On page 11, paragraph 21
states:
“We have
made our own investigations. We believe the Government is being, at
best, naïve, and, at worst,
misleading.”
The Committee
also states on page
32:
“We share
the Ombudsman’s concern that the Government has been far too
ready to dismiss her findings of maladministration. Our investigations
have shown that these findings were sound. It would be extremely
damaging”—
extremely
damaging—
“if
Government became accustomed simply to reject findings of
maladministration, especially if an investigation by this Committee
proved there was indeed a case to answer. It would raise fundamental
constitutional issues about the position of the Ombudsman and the
relationship between Parliament and the Executive...We trust that
this Report will act as a warning to the
Government.”
Well, not a
bit of it. We had a debate, quite properly, on the Committee’s
report and Ministers continued to take the attitude that they have
taken all along—they are unwilling even to consider following
the recommendations of the ombudsman.
A quotation that is always
particularly poignant on such occasions comes from the then Secretary
of State for Social Security, speaking in a different context, in 2000.
He said:
“The
giving of wrong information by a Department is inexcusable. There is a
clear responsibility to ensure that the information that Departments
provide is accurate and complete. In this case, it was not...As a
matter of principle, we believe that when someone loses out because
they were given the wrong information by a Department, they are
entitled to redress.”—[Official Report, 15 March
2000; Vol. 346, c. 307-308.]
Where are we now with that
unhappy band of people, already facing penury, who have been unable to
persuade the Government to accept the findings of the parliamentary
ombudsman? We have heard that they are going to the High Court tomorrow
for the beginning of a court case, where the Government apparently have
every intention of recovering their pound of flesh in recoverable costs
should those people happen to lose. Only the other day, we had the
European Court of Justice case brought by former employees of Allied
Steel and Wire—I am pleased to say that that case was funded by
at least one major trade union—
James
Purnell:
Just to be clear, the point is that the
Department does not waive its costs in advance. If we established a
practice of doing that, it would apply to most people who ever sue the
Department. Principles are established for public interest cases
according to the Corner House principles, and it is common ground that
the case does not meet those principles. We will of course consider the
issue of costs at the end of the proceedings, which is our normal
practice in all sorts of similar cases.
Mr.
Waterson:
I am aware that there are precedents on the
issue of public interest cases and the recoverability of costs,
although I would have thought that if ever there was a case with a
clear public interest it would be this one. I do not want to read too
much into it for the sake of the people on whose behalf I am
essentially speaking, but I hope that what the Minister said will leave
the door slightly ajar on the vexed issue of
costs.
Andrew
Selous:
Does my hon. Friend agree with me that it
is worth putting on the record, for those who may not understand these
things, that there is a majority of Labour Members on the Public
Administration Committee, albeit without a Labour
Whip?
Mr.
Waterson:
That is clearly where they went wrong. I am
grateful to my hon. Friend for that intervention. In fairness, this is
not just a Conservative-Labour issue in the House; many Labour Members
are at least queasy—I put it no higher than that—about
the Government’s attitude to the ombudsman’s report.
Tomorrow it might not be pensions; it might be one of their
constituents and another issue of maladministration or another
Government Department refusing to accept the findings of the ombudsman.
That is the
worry.
Let
us take the debate away from pensions for a second. When all other
avenues have failed, it is the right and duty of every right hon. and
hon. Member to refer cases on behalf of their constituents to the
ombudsman and to rely on her independence and the persuasiveness of her
findings. The ombudsman has few, if any, real powers, but if the
Government are going to get into the habit of dismissing her findings
out of hand, what sort of injustices could go on not being dealt with
by the system that has been in place for 40 years?
I was talking about the European
Court of Justice case brought by former employees of Allied Steel and
Wire. As a former litigator, I am not unused to the syndrome of both
sides claiming victory, which certainly happened in that case.
Mr. Derek Simpson, general secretary of the Amicus union,
claimed that the ruling was a victory. He
said:
“This
judgment vindicates our decision to take this case all the way to the
ECJ.”
I understand that
the case will now be referred back to the High Court. The Government
suggested that it was a victory for the Government, but that is beside
the point. Why should groups of people who are already suffering
hardship be forced to trail over to the European Court of Justice or up
the road to the High Court in London to try to get what, according to
the ombudsman, is their due in any
event?
I want to return
to a central point that was at issue in the last debate: confidence in
the pensions system. If the Government are going to behave so shabbily
they will have only themselves to blame if the system of personal
accounts in this and the next Bill does not succeed. There are a lot of
angry people out there who have suffered very badly as a result of the
maladministration. What should the Government
do?
Ms
Angela C. Smith (Sheffield, Hillsborough) (Lab): Is not
the real anger of people out there who have lost their pensions
directed against the employers who put them in the position of losing
their occupational pensions in the first
place?
Mr.
Waterson:
I do not agree with that as a blanket statement
from the hon. Lady. There are cases in which employers have been rash,
to put it no higher, in the way they have conducted themselves, but
some of the senior management of companies such as Turner and
Newell—I met people from that company the other day—are
in exactly the same boat as other employees.
In fact, they are in a worse boat because they will
be unduly penalised even though they may come under the PPF because of
the cap on compensation. The hon. Lady is partly right; my experience
is that one has to look at the matter on a case-by-case basis. I do not
totally disagree with her.
What should the Government be
doing? As I said on 7 December when we debated the issue, they should
stop mucking about and begin by accepting that there has been
maladministration, instead of second-guessing the ombudsman. That is
clear.
Secondly, they
should apologise. As I said then, if it helps them to steel themselves
to do that, we as Conservatives will accept our modest share of the
blame arising from our stewardship from 1996 to 1997, as set out in the
ombudsman’s
report.
Thirdly, the
Government should stop floating ridiculously inflated figures like
£15 billion as the cost of tackling the issue. Again, echoing
the last debate, they should start doing some serious work to calculate
how they can best use the available assets and other resources to help
those people. We dealt with purchasing bulk annuities. The Minister was
good enough to give us the number of schemes, but it would also be
worth knowing the actual amounts available from those that have not
finished winding up. Perhaps he will write to me if the figure is not
readily available. It would be
relevant.
There is the
purchasing of bulk annuities, the pooling of assets remaining in any of
the failed funds, giving proper credit for benefit payments
saved—we often lose sight of that—and of any income from
tax. Deemed buyback might not help everybody, but for some people it
could be a major
solution.
We should
have the aspiration of giving those people something like compensation
at about the level available under the PPF, if at all possible. We
talked about unclaimed assets—I shall not go over that ground
again. The Government should stop sticking their head in the sand, and
start using the resources that are available to them—not to
Opposition parties—to start coming up with a sensible solution
to the problem.
I
return to the central issue. No, there are two central issues.
Actually, there are three. I am sorry, I am beginning to sound like
Monty Python. The first, of course, is fairness—I would have
thought that that went without saying—and I have tried to deal
with that. There is the constitutional issue, which will not go away,
whatever we decide about pensions and this specific issue. Finally,
there is the issue that is fundamental to this and any future
legislation: confidence. How can we rebuild confidence in the pensions
system as a whole? It is no good telling people, “Of course,
that is the old system, but this is the new system of personal
accounts.” The man in the saloon bar is not interested in any of
that. All that he will see again and again, including tomorrow, is a
lot of disgruntled people on the television who have lost their
pensions, and a Government who apparently are impervious to doing
anything about
it.
Mr.
Laws:
We have debated this issue on several other
occasions. The hon. Gentleman set out the case for the prosecution, as
it were, extremely effectively, so I shall not deal with the issues
that he aired in his contribution.
There is a sense of anger and
injustice that the ombudsman’s report has been ignored. That was
behind the cross-party consensus in the Public Administration Committee
report that the hon. Gentleman discussed. He did not mention the
early-day motion that came out of that report. It has now been signed
by more than 250 Members of Parliament, including 119 Members from the
Government Benches. And, within the past week, there has been a ruling
from the European Court of
Justice.
7
pm
I support the
points made by the hon. Member for Eastbourne. In addition, I wish to
make just two appeals to the Minister. The first is the one that I made
to the Secretary of State yesterday about what will happen if the
judicial review in the next couple of months goes against the
Government. May we have a clear undertaking that if the judicial review
concludes that the Government have acted unlawfully in ignoring the
ombudsman’s findings, the Government will finally accept that
they have lost the argument and that it is time to come forward with a
proper compensation package? Will the Minister assure us that we will
not then go even further through the processes of appeal, in which the
Government simply try to delay and find every opportunity to avoid
paying the compensation that most believe is
justified?
Secondly, I
should like to return to the issue raised by the hon. Member for
Eastbourne about legal costs. I understand all the stuff about
precedents, but we are talking about an extraordinary case. There has
been an incredibly strong report from the ombudsman, making
recommendations that compensation should be paid and that there has
been maladministration. There has also been the recent case at the
European Court of Justice. There is clearly a strong case to answer.
Who are the people pursuing it? They have lost their pensions and will
fear bankruptcy if they end up having to pay the Government’s
costs as well. On top of all their other problems, they run the risk of
losing their properties. In some cases, they have even at times
considered whether to continue to pursue the case because of their fear
that the Government will come back to them for their costs
afterwards.
Surely in
circumstances as exceptional as those, in which there is such a strong
and legitimate case to challenge the issue in the courts, it is
genuinely grossly unreasonable, unfair and bullying of the Government
to continue to hold out the possibility that they might pursue their
own costs against those individuals. If the only thing that we get out
of the Minister today and the demonstration tomorrow is an indication
that the Government will withdraw that threat, that would be welcome
indeed.
James
Purnell:
I made the position on that last point clear in
my intervention on the hon. Member for Eastbourne. There are well
established legal precedents and if we created a new precedent, it
could well apply to a very large proportion of the cases taken out
against my Department and others. I said clearly that we would consider
the position at the end of the case, and that is exactly what we do in
lots of similar cases in
which people have similar issues about the means available to them. Our
point has always been that we will act in accordance with the
precedents that apply across the
Government.
I
want to try to answer as many points as possible. The hon. Member for
Eastbourne made a point about the minimum funding requirement. The
Pensions Act 1995 set down the minimum funding requirement and
a range of ways in which that would be calculated. When those
assumptions changed, it had to be recalibrated back to its original
intended level. In 1998, the actuarial profession recommended changes
that brought the MFR down to its original level; I think that the hon.
Gentleman was referring to that decision. Those changes were agreed by
the Government in June 1998. The ombudsman found that no
maladministration was involved in the particular decision to which the
hon. Gentleman referred. I hope that that clarifies his
point.
Both Opposition
spokesmen touched on the case at the European Court of Justice. To
recap, the Court gave its ruling on 25 January. We are studying the
judgment carefully and will, of course, abide by our legal obligations
under it. There is a limit to what I can say about the case because it
is returning to the UK High Court so that rulings can be made in the
light of what the ECJ has said.
However, I can make a couple of
points about the judgment. First, the ECJ considered whether UK
legislation in place before the Pensions Act 2004 sufficiently
implemented article 8 of the 1980 European insolvency directive.
Successive Governments had always taken the view that the directive
does not oblige member states to ensure that pension promises are
guaranteed in full when a company becomes insolvent, or require the
taxpayer to underwrite them, and the Court has clearly supported that
view.
On the question
of damages, the Court appears to have given a clear steer that damages
may not be payable, but that is a matter for the High Court to decide
and therefore it would not be appropriate to comment further on that
aspect of the case. It is worth noting that what the European Court of
Justice has said is similar to the point that we have always made on
this matter. The SERPS scheme referred to in a quote from a previous
Secretary of State cited by the hon. Member for Eastbourne is a scheme
run by the Government, who are responsible for its administration and
the information about it. There is a difference between that, where the
Government are clearly responsible, and private schemes, which are
provided by employers and governed by trustees. That is a significant
difference.
We
genuinely recognise the bitter blow that losing a pension is to anyone
in that situation, which is exactly why we have put in place the
financial assistance scheme. The only point that we have made
throughout the process is that we need to strike a balance between the
losses that people have suffered and the amount that the taxpayer
should be expected to pay.
Mr.
Laws:
The Minister would accept that on a financial
assistance scheme there are some individuals who will get no
compensation at all. Following the ECJ judgment, can that be compatible
with European law?
James
Purnell:
There is a limit on what I can say while the case
is going through the court. Of course, we shall look at what the High
Court says and act in the light of it, but the hon. Gentleman will
understand that, given that there is a court case going on relating to
this matter, it is hard for me to comment without straying into legal
territory.
As I tried
to say in my opening remarks, it is worth noting that the Court
reviewed the previous regime and the previous FAS scheme. The Court did
not take a view on the FAS scheme as extended, to £2.3 billion.
I do not think that the hon. Gentleman is a lawyer—I am
certainly not one—and we should not pre-judge what the High
Court
decides.
Andrew
Selous:
On a point of order, Mr. Taylor. I
wonder whether I might draw the Minister’s attention to the
assurance that he gave the Committee, in column 28 of the
Official Report of the Committee’s proceedings on 23
January, that he would ask his officials to prepare a note on potential
costings for new clause 12, which we shall come to on Thursday morning.
I have not yet had that note, and I think it reasonable to expect it by
close of play tomorrow.
The
Chairman:
That is not a point of order, but the hon.
Gentleman has put the point on the record and the Minister may respond
to
it.
James
Purnell:
We are happy to give the hon. Gentleman that
assurance.
Mr.
Laws:
Further to that point of order, Mr.
Taylor. I am grateful to the Minister for his response, and I confirm
that I am not a lawyer, but one does not have to be a lawyer to
understand that if individuals were getting zero compensation, under
the old or new scheme, they cannot possibly be in an environment where
there is pension protection compatible with Community law, as the ECJ
judgment made clear.
James
Purnell:
The Pension Protection Fund does give people that
coverage and the issues of FAS and what happened in the past are
exactly what will be considered by the High Court. The hon. Gentleman
must know that I cannot comment on that in this setting, given that the
matter is going back to the High Court. Neither he nor I are lawyers
and it would, therefore, be inappropriate to discuss it. Even if we
were, it would still not be appropriate.
As I say, we shall give careful
consideration to the possible implications of the European
Court’s ruling for the financial assistance scheme and the
Pension Protection Fund, and we will need to take into account the fact
that those matters have not yet been decided by the High Court in this
country. In response to the point about the judicial review, we shall
of course abide by any legal requirements that are put on us by that
case. It would be extraordinary if the Government did not do so. I hope
that that is the assurance that the hon. Gentleman was looking for, and
it is the same as the assurance that the Secretary of State gave him
yesterday.
Mr.
Laws:
I appreciate that the Minister is not a lawyer. Will
he confirm whether the Government have a right of appeal if the
judicial review finds against them, or would they at that point simply
settle and accept the decision of the judicial
review?
James
Purnell:
I think that there are appeal rights, but I
cannot give the hon. Gentleman a hypothetical answer about the outcome
of the case. We will abide by our obligations; that is the most that I
can say to
him.
We
appreciate the hon. Gentleman’s reason for tabling the
amendment. In June last year, we placed before Parliament a detailed
response to the ombudsman’s report. In November, we published
our response to the report of the Public Administration Committee. The
key issue is compliance with the ombudsman’s recommendations,
which I shall
discuss.
As
the hon. Member for Eastbourne said, the ombudsman said that she did
not intend to require the Government to replace all lost pensions, but
that the Government should consider whether to make
arrangements to restore those pensions. That is precisely what we have
done. As we have already reported to Parliament, the Government
carefully considered the ombudsman’s report. Although we did not
accept the findings, we extended the financial assistance scheme by
more than £2 billion.
I think that the hon.
Gentleman’s intention with this amendment is to require the
Government to replace the lost benefits in full. We said in the
previous debate—[
Interruption.
] Well, if
that is not what he intends, I have genuinely misunderstood him and I
am happy to stand corrected.
In the debates to which the hon.
Gentleman referred, we explained in considerable detail why we do not
believe that replacing those pension losses in full is justifiable. I
do not propose to go through those points in detail, but it is worth
going over the principal ones. I think that all members of the
Committee would understand someone feeling frustration and anger at the
provision that they had made having been lost. The taxpayer would be
responsible for replacing the losses only if it were clear that the
Government were responsible for them, however. I do not think that that
is the case; the pension schemes were provided not by the state, but by
employers. The trustees were not appointed by the Government; the
contributions and the benefits of the schemes were not the
Government’s contributions and benefits. It was the
responsibility of the trustees, the employers and their financial
advisers to ensure that the pensions were properly funded. The vast
majority of the schemes concerned did not meet the minimum funding
requirement that was stipulated by the Pensions Act 1995.
The ombudsman
acknowledged that the losses were caused by a number of factors. Of
those, the most immediate in most cases was employer bankruptcy, which
triggered the scheme wind-up. Due to the sustained downturn in world
stock markets, the wind-up occurred at a time when the scheme assets
were less valuable. The hon. Member for South-West Bedfordshire is
shaking his head. Does he wish to
intervene?
Andrew
Selous:
Subject to being in order, Mr. Taylor,
the Minister talks about the decline in world stock markets, but there
is the issue of the effect on stock markets of the Chancellor’s
raid on the dividend tax credit.
The
Chairman:
Order. Will the Minister confine his comments to
the new
clause?
7.15
pm
James
Purnell:
I will follow your ruling, Mr. Taylor.
There were other factors, such as the investment strategies of the
individual schemes, the increase in longevity and the cost of the
annuities. The Committee will recognise that both the ombudsman and the
Public Administration Committee made it clear that they did not think
that the Government had caused the schemes to fail. The issue was
therefore what assistance was justified.
In her report, the ombudsman
appears to have gone beyond her normal approach to replacing losses.
Her normal response was to put a person in the situation in which they
would have been if the alleged maladministration had not occurred. It
is unrealistic to say that all 125,00 people covered by the
ombudsman’s report would have been able to protect each and
every aspect of their promised pension if only leaflets had been
differently worded. The actions available to individuals were limited
and, in some cases, would have exposed them to greater risk. In
practice, the only option available to most members would have been to
take a transfer value of their accrued rights and put that cash into a
personal pension. If the scheme were already in financial difficulties,
that might well have reduced the value of the transfer on offer.
Secondly, transferring to a personal pension would have meant that the
individual had to pay management costs and would probably have lost the
employer’s contribution to his pension. Finally, the fund would
have been exposed to the stock market at a time when there was a
downturn in the stock market.
The fundamental point remains
the one that my hon. Friend the Member for Sheffield, Hillsborough
made. The schemes were under-funded, and promises had been made to
individuals that were not met by the contribution levels that had been
required by the schemes. Nothing that was said in leaflets changed
that. Indeed, the vast majority of people who are affected joined
before any leaflet was published or, indeed, the 1995 Act came into
effect.
We accept that
we have a responsibility to assist people. That is why we introduced
the FAS. However, we do not think that we should underwrite those
obligations in full. That would effectively be to underwrite the
promises that were previously made by employers but which were not
sufficiently funded. Apart from the issue of principle, it would also
require a significant commitment of taxpayers’ money over a long
time—some £15 billion over 60 years. That is the same
figure as the £2.9 billion to £3.7 billion in net present
value; those are just different ways of presenting the same figure, one
taking into account a discount rate and the other presenting it in cash
terms over a number of years, which is exactly how the Government
account for money at Budget time or in the comprehensive spending
review. We gave both those figures in our response to the
ombudsman.
To give an
idea of how much money that is, it is the same as employing an extra
6,000 teachers, 8,000 nurses or 3,000 doctors over those 60 years; it
is a very significant sum. Even going to the level of PPF
benefits, which the hon. Member for Eastbourne mentioned, would involve
a significant increase in the amount committed. I hope that I have explained why
the Government felt it right to extend the FAS, and why we do not think
that it would be right to underwrite the schemes in full. They were
private schemes provided by employers and governed by trustees. Had we
not published any of those leaflets, people would not have benefited
from the pensions that they were hoping for because the fundamental
problem was that their schemes were not being funded properly to
achieve that. I hope that that gives the Committee the information that
it needs, and I urge the hon. Gentleman to withdraw his
amendment.
Mr.
Waterson:
I do not really wish to go back over all the
points that I made earlier about how the package could be calculated or
paid for, but it is deeply depressing that the Minister is consistently
parroting the Government line that it is all far too difficult, so we
are not even going to go there. It is worth reminding him that new
clause 7 simply requires the Secretary of State to tell us, within
three months of the coming into force of the Act, how he proposes to
comply with the recommendations. That gives him a certain amount of
flexibility, but apparently even that is not acceptable.
I am afraid
that the Minister is again trying to second-guess the ombudsman. It is
not his job to say whether there has been maladministration and to
query the methodology of the ombudsman. That way, disaster lies. If any
of us has a constituent who has had some massive unfairness wreaked
upon him and refers the case to the ombudsman, I wish him luck if he is
up against one of the Departments of the current Government. The
Minister did not really touch on the constitutional issue, so let me
give him a chance to do
that.
James
Purnell:
The hon. Gentleman is right. I do want to return
to that, and to make it clear that this is the first time that my
Department, or any of its predecessors, has ever rejected an
ombudsman’s case. We have made it clear that we have great
respect for her office, and there is no question of it becoming a
habit. They are exceptional circumstances.
Mr.
Waterson:
I presume the reason why the circumstances are
exceptional is because a lot of money is involved. I cannot see any
other justification. Anyway, I do not want to labour the
point.
Again, however,
it is interesting that the Minister accepted that he would have to
comply—no doubt, with no great enthusiasm—with the
findings of the High Court, or of the Court of Appeal or of the House
of Lords in due course, if the case were to go that far. It was very
big of him to do so. The only reason why he provides that assurance,
presumably, is because he has no choice. It is worth reminding the
Committee that when these Houses of Parliament set up the ombudsman in
the first place, it was on the basis that he or she would not have the
powers of a High Court judge. There was in those innocent days of the
1960s a kind of trust that Governments would comply with the
recommendations. Perhaps we need to revisit the issue more
generally.
The issue before us will not go
away, however, nor will the victims. I shall not press the new clause
to a vote, because it will simply be voted down. However, I shall
return to it on Report. The hon. Member for Yeovil reminded us that
there is a substantial number of signatories to the various early-day
motions on the subject, including a large number of Labour Members. I
suspect that on a vote, we may fare better on Report than in Committee,
not only because of the pensions issue, but because of the much broader
constitutional issue. Despite the Minister’s assurance that it
will not
become a habit, the Government’s attitude to the ombudsman is a
worrying trend, which the Public Administration Committee clearly
identified in its report. I beg to ask leave to withdraw
the motion.
Motion
and clause, by leave, withdrawn.
Further consideration
adjourned.—[Mr.
Heppell.]
Adjourned
accordingly at twenty-two minutes past Seven o’clock till
Thursday 8 February at ten minutes past Nine
o’clock.
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