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Written Statements

Tuesday 28 October 2014

Treasury

Fair and Effective Markets Review

The Chancellor of the Exchequer (Mr George Osborne): On 12 June 2014, the Government announced a joint review by HM Treasury, the Bank of England, and the Financial Conduct Authority (FCA) into the way wholesale financial markets operate.

Wholesale fixed income, currency and commodity (FICC) markets underpin major financial transactions in the global economy. These markets also play a vital role in determining the costs of borrowing for households, business and government, exchange rates, and commodity prices that affect the real economy in Britain. In recent years we have seen abuse and misconduct in FICC markets, and allegations continue to circulate. The Government are determined to take action to help restore trust and integrity and to ensure that the highest standards are expected of those who operate in these FICC markets. It is important that this is done in a way that preserves the UK’s position as the global financial centre for many of these markets, with all the jobs and investment that brings.

Action has already been taken both domestically and in the EU to respond to recent market abuses by regulators, legislators and market participants. In the EU, key changes to the regulatory structure have been agreed under MiFID II and the market abuse regulation. Domestically, as well as enforcement action taken by the Financial Conduct Authority (FCA), the Government have taken steps to ensure that robust measures can be taken to tackle abuse and raise standards. This includes legislation to introduce a new criminal offence imposed on people who manipulate the LIBOR benchmark, and legislating to implement recommendations from the Parliamentary Commission on Banking Standards. The Government have also launched a consultation on extending the new legislation put in place to regulate LIBOR to cover further benchmarks in these markets, including benchmarks in the markets for gold, silver, crude oil and foreign exchange.

These are important steps, but the Government are committed to go further in ensuring that markets are fair and effective for the British economy. The Government welcome the progress that has already been made by the Fair and Effective Markets Review. The consultation document “How fair and effective are the fixed income, foreign exchange and commodities markets?” published on 27 October is comprehensive, balanced and rigorous and asks the right questions on what needs to change to address recent misconduct and reinforce fairness and effectiveness in these markets. The consultation document is available on the gov.uk website: https://www.gov.uk/government/news/fair-and-effective-markets-review-announced-by-chancellor-of-the-exchequer

The Government look forward to the review’s final recommendations in June 2015.

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Public Sector Exit Payments (Recovery)

The Chief Secretary to the Treasury (Danny Alexander): We are today publishing the Government response to the consultation about provisions in the Small Business, Enterprise and Employment Bill which will enable the recovery of exit payments when high earners return to the same part of the public sector within 12 months of leaving.

These provisions will ensure that the taxpayer is not paying out large sums in redundancies only to incur the cost of re-employing the same person in a similar role elsewhere. This will underpin consistency and fairness across the whole of the public sector.

This measure follows a number of recent high profile cases where individuals have received large exit payments and quickly returned to public sector roles. The Health Select Committee found that among 19,000 NHS redundancies, 17% had been rehired, and most within a year. An Audit Commission report in 2010 found that of 37 chief executives who left by mutual agreement over a two-year period from January 2007, six had been employed in another council within 12 months. In such circumstances, the justification of financial support to bridge the gap to new employment is undermined and this represents poor value for money.

The consultation ran from 25 June to 17 September 2014 and received responses from 27 organisations ranging from health care bodies, local government bodies, trade unions and professional bodies. Engagements with Departments continued throughout this period, and representations were received from their arm’s-length bodies.

Respondents broadly agree that exit payments are primarily for a loss of employment, agreeing that it was reasonable to consider a recovery provision but advised caution over complexity. We have carefully considered all responses in deciding how to move forward with the legislation, recognising the diverse range of views which reflects different work force arrangements across the public sector. As a result of this, the Government have decided to continue with the main elements of this policy:

Require high earning public sector employees or office holders to repay a broad definition of exit payments should they return to the public sector within 12 months on a pro rata basis.

Apply these measures to employees moving between the same part—or sub sector—of the public sector, with the exact definition of these sub-sectors to be determined and consulted upon at a later stage.

Define higher earners as any individual earning above £100,000.

Make changes that represent a baseline legal requirement. Where employers’ existing or proposed policies go further these measures will support rather than replace them.

Following the responses we received, the Government have made the following changes to our original proposal:

Payments in lieu of notice will not be recovered, as these are not payments for a loss of employment.

Those payments that have a potential, if not actual, monetary value will not be recovered because the difficulty of attributing a value would add an administration complexity and the likely cost of doing so could not be justified.

A decision has also been taken not to include a lower earnings threshold for a taper because of cost and complexity.

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Special severance payments will be subject to the recovery provisions because they include elements that are paid in respect of loss of employment such as payments made for efficiency reasons, as well as elements that could be attributable to employer fault. Waivers from repayment could be used where these agreements relate to elements of employer fault, such as out of court settlement of an employee’s claims against an employer.

The Bank of England and public broadcasters will be excluded from the scope of this policy, recognising their unique independent status. These organisations are to operate their own proposals which adhere to the spirit of the policy, and the BBC and Channel 4 have already put in place more stringent proposals.

In relation to the Office for National Statistics and some regulators, they will operate as independent individual sub-sectors responsible for their own waiver regimes. This is consistent with independence in the production and release of official statistics, and for some regulators a statutory basis for independence from central Government.

As far as the waiver regime is concerned, there will be no option to waive recovery of payments made to Ministers and their special advisers, and parliamentary post holders.

Further details of the changes to the policy are in the Government’s response to the consultation which has been published on the gov.uk site.

The Government have decided to proceed with legislating for framework powers enabling the recovery of public sector exit payments, and will draft regulations giving effect to the policy taking account of these changes.

Communities and Local Government

Firefighters’ Pension Schemes

The Parliamentary Under-Secretary of State for Communities and Local Government (Penny Mordaunt): People are now living longer, with the average 60-year-old living 10 years longer now than they did in the 1970s. As a result, the cost of public service pensions has increased in real terms by around a third over the last 10 years and is now £32 billion a year. The average firefighter retiring at age 50 today is expected to live and draw a pension for 37 years in retirement after a career of 30 years. Lord Hutton, in his independent report, found that the firefighters’ pension scheme 1992 is the most expensive public service scheme and it is forecast to have a cash flow deficit of nearly £600 million by 2018-19. Taxpayers cannot be expected to meet all of these costs.

From December 2011, a number of proposals for reform were discussed between the Department, employers and the firefighter representative bodies. Over a year after the Government published their preferred scheme design in May 2012, the Fire Brigades Union balloted its members for strike action. Since that period there have been further talks to try to resolve the dispute, and three consultations covering the pension regulations. We have listened to the responses made to these consultations and refined the scheme design to address points made by firefighters.

Today, the Government have laid regulations setting out the terms of the reformed firefighters’ pension scheme before Parliament and these will incorporate the changes that we have agreed to the scheme design.

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Laying the regulations now gives fire and rescue authorities time to implement the changes before they come into effect in April 2015.

We are also consulting on an amendment to the fire and rescue national framework for England to ensure that no firefighter aged 55 or over will face a risk of being left without a job or a good pension. Our proposals underpin the fitness and capability processes that exist within individual fire and rescue authorities and complement the work being undertaken by a fitness group chaired by the chief fire and rescue adviser, Peter Holland. This group will provide an important opportunity for employers, employees and Government to consider the issues around fitness in more depth, and suggest practical action to address them. These steps will benefit all firefighters, not least women firefighters, and those who will work beyond 55 if they so wish. As the impact of working beyond 55 years of age will only start to take effect in 2022, there is time to ensure appropriate procedures are in place to reassure and support both the younger and older worker. This process, linked with generous ill health arrangements and the opportunity for redeployment, should ensure that firefighters can continue to receive one of the best pension packages of any worker.

A third of all firefighters are already members of the new firefighters’ pension scheme 2006, which has a normal pension age of 60. The 2015 scheme maintains a normal pension age of 60 as recommended by Lord Hutton and incorporated into the Public Service Pensions Act 2013. Firefighters are the only work force that will not see an increase in their open scheme’s normal pension age as part of the reforms.

As a result of our consultation and representations received, we have made a number of changes to the scheme originally proposed. We have extended the enhanced early retirement arrangements so that they now apply from age 55, meaning that, as a member of the 2015 scheme, a firefighter retiring from age 55 will keep a significantly higher proportion of their pension than if they were in the 2006 scheme.

Members of the firefighters’ pension scheme 2015 will also earn more pension for each year that they are a member of the 2015 scheme than if they were in the 2006 scheme. The reformed 2015 scheme further improves on the existing firefighters’ pension schemes by removing the cap on the amount of pension that can be earned, providing pension enhancements when taken after normal pension age, and giving members greater flexibility by allowing partial retirement. The 2015 scheme also introduces a career average pension arrangement, which is a fairer pension scheme for lower paid members who tend to have flatter career progression.

We have also put in place very generous protections, which see a greater proportion of firefighters protected from the reforms than any other large public service pension scheme. A member of the firefighters’ pension scheme 1992, who on 1 April 2012 was aged 45 or over, will see no change in their benefits or retirement age. Firefighters aged 41 or over at that date will receive tapered protection, meaning that they will continue in their existing scheme for a longer period of time. As a result, less than a quarter of firefighters will see a change to their normal pension age in April 2015, and no firefighter will have to work beyond their current normal pension age until 2022.

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Where firefighters are transferring to the 2015 scheme, they can be reassured that the pension they have built up in their existing schemes will be fully protected, and they can still choose to retire at the age they currently expect—which could be from age 50. Pension earned in the 1992 scheme will be enhanced further to recognise loss of access to double accrual, and all benefits earned in existing schemes will be calculated on the member’s final salary on retirement. 1992 scheme members will also see a reduction in their employee contributions of two percentage points in 2015-16. After tax, this puts £460 back in their pockets in that financial year.

Members will continue to benefit from ill health and survivor benefits, providing important cover for the member and their family should the worst happen. The Department has also agreed to reduce the cost for authorities that choose to retire a firefighter over the age of 55 with an unreduced pension, providing them with greater flexibility to manage their work forces.

Importantly the reforms are fairer for taxpayers. They put the schemes onto a sustainable footing by removing the final salary risks associated with the old schemes, and by introducing a cost cap to limit future taxpayers’ exposure on the costs of the scheme.

The Government recognise the importance of reassuring firefighters about changes to their pension in the future. We have given a 25-year guarantee that no changes to scheme design, benefits or contribution rates will be necessary, other than within the reform framework. On 10 October 2014, we issued a consultation on setting up a national scheme advisory board and local pension boards, following Lord Hutton’s recommendations on better scheme governance. We have proposed that local pension boards will include serving firefighters who will, for the first time, have a direct involvement in looking after their pensions.

Alongside the pension regulations, the Department is also responding to the “Normal Pension Age for Firefighters” review prepared by Dr Williams who made three recommendations to deal with the design of the pension scheme and a further seven recommendations on supporting firefighters who remain operationally fit until age 60. We have accepted two of the three recommendations on the pension scheme design, and the 2015 scheme reflects this. However, the Department could not accept the recommendation to reduce the pension of firefighters who are permanently unable to undertake the role of a firefighter.

The remaining recommendations concern fitness standards, assessments, training and data collection, all of which will be considered by the fitness group to be chaired by the chief fire and rescue adviser. Finally, the Department is content to commission subsequent reviews to further consider the impact of a normal pension age of 60 on firefighters.

We have arrived at this final scheme after extensive consultation and consideration. It is a sustainable and fair pension package, which takes into account the unique role of firefighters. Copies of the associated documents will be placed in the Library of the House and they are also available on my Department’s website.

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Defence

Pensions (Contingent Liabilities)

The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne): I am pleased to inform the House that I am today laying a departmental minute to advise that the Ministry of Defence has received approval from Her Majesty’s Treasury (HMT) to recognise a new class of contingent liability associated with the provision of pensions to staff compulsorily transferred from the public sector under new fair deal arrangements.

As part of the naval base operating centre transformation programme, and after a competitive procurement process, approval was given to outsource provision of reception centre services at Her Majesty’s naval base Devonport to Babcock International Group. The contract was awarded on 1 September 2014 and will lead to the transfer of 20 assigned civilian posts under the Transfer of Undertakings (Protection of Employment) legislation on 1 December 2014.

This transfer of undertaking will be implemented under new fair deal arrangements, which will generate future contingent liabilities for pension costs. HMT approval was granted on 8 August 2014 and I am advising Parliament of the approval of contingent liability for pension costs associated with such transfers under new fair deal arrangements.

Justice

Convention on the Protection of Human Rights and Fundamental Freedoms

The Minister of State, Ministry of Justice (Simon Hughes): In accordance with the Constitutional Reform and Governance Act 2010 and as part of the United Kingdom of Great Britain and Northern Ireland’s ratification process, the Government are laying before Parliament the text of Protocol 15 to the Convention for the Protection of Human Rights and Fundamental Freedoms, commonly known as the European convention on human rights, under Command Paper No. 8951 with an explanatory memorandum which explains the effects of the protocol, ministerial responsibility for its implementation, and financial implications resulting from ratification.

The key objective of the United Kingdom’s chairmanship of the Committee of Ministers of the Council of Europe was to secure agreement to further reforms to the European Court of Human Rights. That objective was achieved. The resulting Brighton declaration on the future of the Court, agreed on 20 April 2012, was a comprehensive package of reforms to tackle the excessive backlog of cases pending before the Court, and made clear that the primary responsibility for guaranteeing human rights rests with national Governments, Parliaments and courts. Together, these reforms help to ensure that the Court focuses on allegations of serious violations or major points of interpretation of the convention. Refocusing the role of the Court should reduce its backlog and thus deliver swifter justice for the fewer cases before it.

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The Brighton declaration was the result of a hard won—and ongoing—negotiation on the future role of the European Court of Human Rights. It therefore represented a significant step towards realising the goals set out by the Prime Minister in Strasbourg in January 2012, to ensure that the Court does not function as a “Court of fourth instance”. It was not however the end of the reform process: as mandated by the Brighton declaration, work continues at the Council of Europe to consider further reforms in the context of the long-term future of the Court and the convention system.

As part of the package of reforms, the Brighton declaration included agreement in principle to amend the convention in five respects. Protocol 15, the text of which will be laid here today, makes these amendments. Since it was opened for signature on 24 June 2013, Protocol 15 has been ratified by 10 states and signed by 29 others. It will come into force once ratified by all high contracting parties to the convention, and will represent an important part of the implementation of the Brighton declaration.

The Brighton declaration also included agreement in principle to the drafting of Protocol 16 to the convention. This creates an optional system by which the highest national courts can choose to seek advisory opinions on the interpretation of the convention from the European Court of Human Rights. It will come into force once it has been ratified by 10 high contracting parties to the convention, and will apply only to those countries that have ratified it.

Although the Government were pleased that they could help secure agreement on advisory opinions in the Brighton declaration, they have long made clear that they are unconvinced of their value, particularly for addressing the fundamental problems facing the Court and the convention system. The Government will therefore neither sign nor ratify Protocol 16 at this time. They will instead observe how the system operates in practice, having regard particularly to the effect on the work load of the Court, and to how the Court approaches the giving of opinions.

Transport

Infrastructure Bill (Roads Reform Elements)

The Minister of State, Department for Transport (Mr John Hayes): In June 2014, following the introduction of the Infrastructure Bill, which contains legislative proposals on transforming the Highways Agency into a Government-owned strategic highways company, the Government published a suite of documents that set out further details of the key elements that together will form a cohesive and robust governance framework for the new company.

These documents explained how the governance regime for the new company would allow it the autonomy and flexibility to operate, manage and enhance the network on a day-to-day basis and deliver more efficiently, while ensuring it acts transparently, remains accountable to Government, road users and taxpayers, and continues to run the network in the public interest.

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Today, I am publishing a new document, “Transparency for Roads”, setting out the respective roles of the new monitor and watchdog, who will monitor and improve the performance and efficiency of the company and represent the interests of road users. As a result of this, the management of the strategic road network will be more transparent and accountable than it has ever been before.

These roles will be performed by the Office of Rail Regulation and Passenger Focus respectively, the latter of which expects to change its name to Transport Focus to better reflect its intended wider remit. To ensure that its continued role in rail, as well as its proposed expanded role in roads is understood by passengers and road users, Transport Focus will work under two sub-brands “Transport Focus—Passengers” and “Transport Focus—Road Users”.

Following further refinement, I am also publishing updated versions of:

“Transforming our strategic roads—a summary”, an introduction to roads reform that summarises the reasons for change, what this involves, how the new regime will work and the benefits the change will deliver for road users and the nation as a whole—with additional information about roles and responsibilities in the system of governance for the new company, and how this system will ensure the company fulfils important obligations on issues such as safety, the environment and co-operation with others; and

“Strategic Highways Company: draft Licence”, which indicates the manner in which the Secretary of State proposes to issue binding statutory directions and guidance to the new company, setting objectives and conditions around how the company must act—updated to reflect further development work carried out over the summer, particularly with regard to safety and the environment, as well as co-operation, asset management and research, and the processes for setting and varying a road investment strategy.

These take into account proposed Government amendments tabled to the Infrastructure Bill to ensure that, in setting or varying the RIS, the Secretary of State has regard to road user safety and the environment, and that appropriate consultation takes place, and also to strengthen role of the monitor, giving it the ability to carry out independent enforcement activity if the company fails to deliver.

Taken together with the measures in part 1 of the Infrastructure Bill, the proposed governance regime will provide a strong, certain framework for managing our roads. It will strengthen accountability, drive efficiency, increase transparency and create far more certain conditions for investment, enabling the supply chain to gear up for the Government’s ambitious plans for the future. This will support the economy, promote jobs and skills and ultimately transform the quality of our national infrastructure and the quality of service for road users. We look to move to the new model with minimal disruption.

As the Bill remains subject to parliamentary approval, these documents remain subject to change.

A copy of each of these documents will be placed in the Libraries of both Houses and will be made available at: https://www.gov.uk/government/collections/roads-reform

Further information on the Infrastructure Bill is available at:

https://www.gov.uk/government/news/infrastructure-bill