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I think that we must set our pay. I do not know whether the right level is this level or one considerably higher, but when we settle the uprating mechanism we need to settle the base from which that mechanism will operate. I believe that Members of Parliament should have a series of choices on what the level should be, and I am happy to go along with whatever the majority decide, but I think that we must settle it, because if we do not settle the base I shall not be happy about settling the mechanism. I do not think that it should start from the present level, but if that is the view of the majority of my colleagues when we have a vote I will obviously go along with it.
Would this increase cost a lot of money? I do not think that it should cost the taxpayer anything at all. I would do two things in order to pay for it. First, I would abolish the ludicrous communications allowance that was introduced about a year ago, for which there is absolutely no justification. It is £10,000 per Member, which would probably handle a significant increase. Secondly, there are far too many of us. I handle a constituency of 85,000, and the boundary commission is reducing that to 65,000 by creating an extra seat in Warwickshire. It is completely and totally unnecessary. The House could function perfectly well with 100 fewer Members, which would allow us to be paid a great deal more and to have additional staffing allowances if that became necessary.
Mr. Maples: The hon. Gentleman should pay more attention to my speeches. I had a ten-minute Bill on this subject in which I laid out exactly how that should be done. I proposed that the boundary commissions should reduce the number over a period of time: they should do so in stages every five years instead of every 15, and reduce the number by a certain amount on each occasion. I do not have my eye on the hon. Gentlemans seatand certainly not on my own.
Sir Nicholas Winterton: My hon. Friend has introduced another element into the debate. I believe in being closely in touch with my constituents; that is a policy that I have had for all the 36-plus years I have been a Member of this House. Would not my hon. Friends proposal to reduce the number of Members introduce a democratic deficit, where the close relationship between a Member and his or her constituency would be eroded?
Mr. Maples: I do not think so, but this is not the occasion to debate that. I have instituted debates on the matter in the past, and I might try to do so again in futureand, if so, I would be happy to engage with my hon. Friend. Suffice it to say that I have 85,000 constituents and I do not think they have any difficulty in maintaining links with me.
Mr. Maples: I was simply offering a way of introducing a productivity gain to finance the pay increase, which is something we demand of other people. Abolishing the communications allowance would go a long way towards addressing the problem.
Let me conclude by reiterating my two main points. First, we need an uprating mechanism that does not involve annual, or even biannual, decisions, but that just happens automatically. The one I suggest is the average increase in public sector earnings during the previous year. Governments would have to agree to take their hands off, because although they might gain something for a year or two, they would lose it further into the future. Secondly, we have to set a base salary from which to operate, and I do not believe that the current salary is the right one, as there is a lot of catching up to do. We should set a salary that we think is right by looking at the pay of what we consider to be equivalent public sector posts. That should be done on a free vote of the House of Commons, with a range of salaries to choose from. I have given the salaries of some posts, and I think Members will be surprised to find that 7,000 local council officers are paid more than us and that the chairmen of immigration tribunals are paid almost £100,000 a year.
Mr. Andrew Dismore (Hendon) (Lab): I do not want to say a great deal about the salary issue. I will support the Governments expression of opinion, but I was very taken by the remarks of my right hon. Friend the Member for Warley (Mr. Spellar) and the right hon. Member for Penrith and The Border (David Maclean). It is difficult to find a comparator for us, because we have a unique job. No other job in the world is like it, in terms of the hours we work or the demands on us. To say that we are in charge of our own work load is to misunderstand completely our situation.
I make the point about us being unique because it is one of the reasons why we have problems with the Senior Salaries Review Bodys examination of our allowances and pay. It is also why I agree with the right hon. Member for Penrith and The Border that the Members Estimate Committee should address this matter. The only people who truly understand our job are other MPs. For other MPs to look at some of the difficulties involved would be a good way forward. I also urge the House to look at the amendment in the name of the hon. Member for Cities of London and Westminster (Mr. Field) on the London supplement.
I want to focus on London issues. As chair of the London Labour MPs, I put a detailed submission to the SSRB on our behalf. It addressed allowances primarily, but the supplement is also an important issue. According to Library figures of a couple of years ago, the differential between the rates of pay in London and the rest of the country is more than 22 per cent. It is worth noting that the differential in London weighting premiums was also higher.
My main concern is the lack of reflection in the IEP of any London element. It is self-evident that office rates in London and some other big cities are far higher
than elsewhere in the country. I got the Library to do an analysis of that, which I submitted to the SSRB. The differential between London and other parts of the countries can be four times as much. Consequently, London MPs generally end up with poorer quality or much smaller premises than MPs in the rest of the country. Alternatively, they end up subsidising the cost out of their own pocket, from elsewhere in the allowances or sometimes out of party funds. A number of MPs have found that they have been unable to maintain their constituency office and have closed it down with a view to moving their staff back to Westminster. Other, newer Members never opened an office in the first place simply because they could not afford the rents.
This is not just a question of the rents, because a lot of the office running costs incurred in the constituency are met on the parliamentary estate. For example, the telephone bill for most constituency offices is substantial, but it is paid for free if the phone calls are made from Westminster. We ought to try to incentivise Members to have a constituency office. I do not want a system whereby those who decide not to have an office are penalised, but the present system has the perverse incentive of pushing people back on to the parliamentary estate, because if one does not spend ones IEP on rent, one can spend it on other things, such as an annual report or more staff. The net result is that those who have a constituency office end up rather worse off.
A system based on a square footage allowance is the way forward, but the SSRBs proposals are far too complicated. It is therefore right that the matter should be referred to the MEC for consideration as to how the system could be operated. It is important that our system reflects office rents separately from the remainder of the IEP expenditure and reflects the fact that rents differ around the country. I hope that the MEC examines the issue in a way that reflects those two important factors.
I am pleased both that the staffing allowance is going to be increased in respect of additional numbers of staff and that an element of London weighting will be involved. It is bizarre that London weighting was effectively abolished last time. That was grossly unfair to our staff who work in London compared with those who work elsewhere in the country. The net result was that staff ended up being paid less than the market ratethat is inevitable even on the new rates that are being proposedor that Members employed fewer staff to meet the higher rate or our staff ended up not being looked after as well as they should have been.
There should be a London allowance to reflect realities in the labour market, but it should be payable to non-London MPs staff who work at the palace as well as to London MPs staff who work both at Westminster and in their constituency. It should also reflect the differentials in work load that some of us face, particularly those of us who represent some of the inner-city constituencies. As a result of the impact of multiple deprivation, such constituencies tend to generate significantly higher levels of complex case load than elsewhere.
I get very cross when people talk about how generous our pension scheme is. It is generous for people who work in the House for their full working
life and who do not come here with prior pension arrangements. I had worked in the private sector for some 20 years prior to coming here, and I had built up a quite substantial pension pot of my own, despite the fact that Equitable Life victimised me somewhat and took a large chunk of it away. I have calculated that the byzantine way in which the retained benefits system works means that if I am able to complete service up to the age of 65, when I retire I will have paid seven eighths of my pension and only one eighth of it will have come by way of an employers contribution. Most pension schemes in the outside world would be far more generous to their employees than that, which is why we need to do something serious about the issue of retained benefits. The arrangements are unfair to those who come here having worked in the outside world and having built up pension arrangements elsewhere. The way in which our pensions are effectively taken off us to subsidise the Houses pension scheme is peculiar.
Stephen Hammond: The hon. Gentleman has been putting the case for London and London MPs. He just said that he supports the Governments case for putting various recommendations to the MEC. Does he therefore support the proposal that recommendation 29, on the London supplement, should also go to the MEC?
Mr. Dismore: The hon. Gentleman took the words right out of my mouth. That was exactly what I was about to say. I hope that the Government will accept amendment (a), which would mean that the London supplement would be considered by the MEC, too. I hope that they will consider the proposal put forward by the right hon. Member for Penrith and The Border and will come forward with alternative mechanisms to reflect the unique nature of our job. I do not think that anything in the outside world can reflect that, as we have seen from all the SSRB studies and other contributory research. Only we understand the way in which we work. If we had two reports to consider simultaneouslyone complied objectively by someone from the outside world and the other compiled by those with experience of the Housethat synthesis might provide the answer for which we have been searching for so long.
I want to place on record my thanks to the Prime Minister for sending me an advance copy of the report, although I received it only a week before everybody else. Because I then had to plough through some extremely complex detail about the recommendations on the pension fund and the Watson Wyatt report, it would have been helpful, and I would have been able to make an even better contribution than I am able to make today, if, as I had requested, I had been sent the embargoed copy of the report some weeks before that. That would have allowed me, the staff in the pensions
unit and the Government Actuary to put together a more considered response than that which I am able to give. In the future, if I can be trusted with an advance copy, that would make it much easier for us all to have a better debate on the subject.
Unfortunately, as I have already said in an intervention, it appears that there are many factual errors in the Watson Wyatt report. Perhaps I should deal with them first, as it is important to put them on the record. In volume 2, on page 76, in paragraph 2.18, the Watson Wyatt report gives its view on how the deficit in the scheme arose. It states that it arose
as a result of a divergence in the experience of the PCPF since the previous valuation (primarily due to lower investment returns than expected) and changes to the assumptions
about future benefits and so on. That is wholly inaccurate and is contradicted by paragraph 2.19 and the graph that accompanies it, which is chart 2.1. The graph shows that successive Governments took contributions holidays between 1989 and 2003. Those holidays were absolutely massive and, in the opinion of the Government Actuary, more than contributed to the current deficit. Indeed, at the time of the Government Actuarys last evaluation, he concluded that had it not been for the contributions holidays, the PCPF would have been £5 million in surplus.
The record needs to be corrected on the reasons why the scheme is in deficit. The Government, on behalf of the taxpayer, have been failing to make their correct and recommended contribution to the scheme. Even chart 2.1, it seems to me, contains an inaccuracy. My recollection from when I came to the House in 1983no doubt you, too, will remember this, Mr. Deputy Speakeris that we then paid 9 per cent. for a one-sixtieth scheme. It might be that the off-blue section of the chart, which is supposed to represent our contributions, is also inaccurate. I have not had the opportunity to check that in detail while I have been speaking. [ Interruption. ] I hear several hon. Members confirm that that is a fact.
Messrs. Watson Wyatt also say, on page 91 of volume 2, that the build-up of benefits above the two-thirds maximum post age 65 contributes significantly to the costs. It appears that no one has told them that in 1989 we abolished Members right to accumulate post-65, apart from those elected before 1 June 1989. The overwhelming majority of hon. Members, therefore, do not have the right to accumulate past 65, and the remaining few who do will be phased out. However, that has not been taken into account in the calculations.
Members can commence receipt of their pension whilst remaining an MP.
That would be great news if it were true, but of course it is wholly untrue. Members cannot draw their pension while remaining an MP, and have never been able to do so. If it were true, the costs of the scheme would be greatly increased, but it is not true.
Indeed, in light of the Pensions Act 2004, we had to make some special arrangements for those Members aged 75 and over, of whom there are a handful. The Act meant that they were required to take their tax-free lump sum at the age of 75 and commence drawing their
pension, as otherwise they would lose their right to a tax-free lump sum. The special arrangement that had to be made for them was that they would be deemed to be drawing their pension from the age of 75, even though they would not actually receive it. However, they were able to take the lump sum, with the rest being held in escrow, so to speak: even though they were not getting the money, they did get increases in line with inflation as though they were getting it, so that the final pension level was correct when they eventually started to draw it. Again, I am afraid that Messrs. Watson Wyatt are labouring under a number of misapprehensions about elements that greatly affect their assessment of the schemes cost.
although members can continue to build up benefits after that age.
although accrual can recommence if the member is older than 65
Sir John Butterfill: I am afraid that I assume that it was the Treasury. I am by no means certain of that but, if it was, one would be entitled to be rather worried about what the Treasury knows about our pension scheme. Again, a number of the basic assumptions on which the calculations are based are erroneous.
Sir John Butterfill: I shall refer to that later, if time permits, but it is important to get the facts on the record. Watson Wyatt apparently bases its calculations on the accrual of one years pension for an MP aged 54 who serves a further two terms, which totals nine years, and who draws a pension at the age of 65. That is by no means a typical length of service for an MP. All those things mean that some of the conclusions are wrong. The report also does not take any account of the effect of retained benefits. As a number of hon. Members have said, retained benefits substantially inhibit the ability of Members to draw money from the pension scheme. My staffin conjunction, I think, with the Government Actuaryestimate that that could overstate the pension cost by between 3 and 5 per cent., which is rather a lot. It has not taken into account Members who reach the maximum benefit limit of two thirds of pay. Again, that could overstate the pension cost by another 1 per cent.
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