WEDNESDAY 13 MARCH 2002

__________

Members present:

Mr Bruce George, in the Chair
Mr James Cran
Mr David Crausby
Mr Mike Hancock
Mr Gerald Howarth
Mr Kevan Jones
Jim Knight
Patrick Mercer
Syd Rapson
Mr Frank Roy
Rachel Squire

__________

Memorandum submitted by The Ministry of Defence

Examination of Witnesses

RT HON ADAM INGRAM, a Member of the House (Minister of State for the Armed Forces), MR BARRY MILLER, Director General, Service Personnel Policy, Ministry of Defence, examined.

Chairman

  1. Minister, thank you very much for coming. I understand you would like to make a statement as a preliminary.
  2. (Mr Ingram) Yes, Chairman. With me I have Barry Miller, who is the Director General of the Service Personnel Policy section. I am grateful for the opportunity to make just a brief statement on this, as I think it is important to set out some of the directions from where we come on this. I really do welcome the opportunity to give evidence to the Committee today on the Armed Forces pensions and compensation arrangements, because I genuinely feel this will help the process. I want to cover, in broad terms, the why and the what. The Armed Forces Pension Scheme review, as the Committee will know, was born of Sir Michael Bett's Review of the Armed Forces Manpower, Career and Remuneration Structures. It was started in late 1998, after other related aspects of the Bett Review, such as career structures, had been resolved. Like other employers, the scheme for us is part of our manning strategy and the review was set up to create a more up-to-date scheme to support recruitment, retention and the motivation of new entrants well into this new century. Above all else let me make clear, it will, as the present scheme does, recognise both the special commitment given by Service men and women and the need to act as a good employer in terms of benefits for retirement and ill-health. It seemed sensible to look at the compensation area at the same time. The current arrangements are complex, confusing and inconsistent with wider current thinking on compensation. For instance, at the moment, there are compensation arrangements associated with both the Armed Forces Pension Scheme and the War Pension Scheme. Because of this, we propose to replace these two schemes with modern, fair and simpler arrangements, focused more effectively on those who are most severely disabled. We have entered into a genuinely open, and far-reaching consultation process. I believe it is an authentic seeking of views, and this session with you today is part of that approach. We are still listening, developing and open to input. Clearly, a framework has been developed against which alternative views can be set. I believe there are few who contest that the current pension and compensation schemes are generous - as indeed they are. The aim of the reviews is to make sure that the money we have available is focused as effectively as possible for Service personnel, consistent with our overall objective of being a responsible employer. Through our memorandum we have already explained to the Committee that cost-neutrality was not originally and necessarily one of the ground rules for the pension review, although cost-effectiveness and affordability were specified. However, we could only justify more money if we could prove that the pensions area caused us real problems in recruitment and retention. Objectively we cannot do that. There are particular small groups of Service personnel for whom pensions are an issue, and we can best deal with these specifically and we will do so. Of course, the ex-Service community seeks to maximise the benefits available - that is well understood - and we value their ideas, but we believe we cannot "cherry-pick" all the best bits from all other schemes and try and make a new whole. It is not a sensible or productive way of handling an issue as complex as this. I am sure I do not need to elaborate on the growing trend in the private sector to move away from final salary schemes. But we remain committed to the final salary approach with no diminution in the overall level of employer contribution. That said, there is a need to examine the best distribution of those contributions to maximise benefits across the board and to remove any glaring inequities within the existing scheme. I want to stress that whatever precise shape the new scheme takes, it will be aimed at new entrants. Serving members will not have to transfer to it, but we hope that many will see the advantage in doing so. It will be their choice, and to help them make them an informed decision we will provide all the information required and in a form that is understandable. This communication challenge is no less important for the proposed new compensation arrangements. All attributable injuries and ill-health occurring after introduction of the new scheme will be covered by it. Conditions that arose before the review will continue to be assessed under the old arrangements. Finally, we do not underestimate veterans' concerns or their apprehension and we will continue to address both as best we can. In conclusion, Chairman, I believe that the timing and constitution of the reviews is logical; I believe that we cannot justify spending more on a new pension scheme; I believe that the new compensation scheme is focused on future needs and should be simpler and more effective in delivery terms; I believe that the present schemes rank high in the public and private sector and that the new scheme will at least match that standard. Let me end where I started: we have entered this process in an open and transparent way. I believe the Committee's Inquiry and conclusions will help me in framing the new pensions and compensations arrangements which will add to the overall package of pay and conditions available to the men and women of our Armed Forces.

  3. Thank you very much. Minister, the reviews of both pensions and compensation arrangements - certainly pensions - have a long history. The Bett Inquiry was published in 1995. You are not responsible for a response in 1995, but even when the process began under this Government with the SDR it has been subject to delays. The latest information is that you do not now expect firm proposals to be put to the Cabinet until "the autumn". Is that right? If it is, why as late as "the autumn"? What has caused the delay?
  4. (Mr Ingram) Let me say that in one sense it can be viewed as a delay but I would hope that the Committee takes on board the way in which I have tried to explain the overall strategy on which we approach this. We are trying to be open and transparent, trying to listen, assimilate and take on board all the different views which are out there, which necessitates an in-depth examination (over the period of course we have now taken on board the issue relating to unentitled partners, unmarried partners, which is another area we are now looking at), yet within that time-frame the staff themselves have been engaged in dealing with other issues which have come up unexpectedly in relation to some legacy matters. Those are some of the aspects associated with this. If I was looking at this, as a Minister, thinking there was an undue delay and there was great pressure out there for early implementation and that it was important to the department then, of itself, that would force the pace, but we have also got then to put what we are seeking to do into the context of when will it be implemented. As we build up our new IT systems, the likelihood is it will be not before 2004 and well into 2005 before we begin to see the play-out of this, because we have got to take the legacy systems which are currently in place, marry them into the new IT systems and then implement this. It would be a disaster, I would suggest, if we rushed into this, given the complexity of the issues that we are dealing with. That is just some of the flavour as to why there is the longer time-scale. It had been intended that there would be a report in May of this year but that is now likely to be slightly pushed towards the autumn, and that is now our working time-scale.

  5. You say that a number of "major areas" of the proposals are being re-examined. In retrospect, were the proposals sufficiently thought-through and developed before the consultation documents were published a year ago?
  6. (Mr Ingram) I would say the answer to that is yes. That then becomes a debatable point, I suppose. My view would be that we have tried to identify as best we could all the areas and the framework within which we were seeking to develop the new structure. Of itself, that then generates the inputs from the concerned organisation and bodies who are out there. If we had answered all the questions then I think, probably, it would have been the first time in pension history that any government department would have got a pension strategy correct from day one; this is a very complex area, no matter which department is dealing with it. It is important that we do get that discourse with the wider community. My view on this would be that the broad reach of what we sought to do identified the issues we were seeking answers on, and was broadly correct - and stimulated and anticipated debate.

  7. Have you pre-empted the process by saying "We cannot justify spending more on a new pension scheme"?
  8. (Mr Ingram) Not pre-empted - and again you appreciate this pre-dates my involvement - but having looked at it myself I would come to the same conclusion, that if this was a pressing issue, because it was a manning tool, if this was an issue that we believed to be ranking high in terms of recruitment and retention strategies, then a bid would have had to have been made to say "We now need to do something more substantial within the existing scheme and any proposed new scheme". That would have been the imperative in all that. However, that is not what we are finding in terms of our assessment of the market-place - to use that terminology. Therefore, it is a case of we believe it is a very substantial scheme as it stands, we are using the same global sum of money and moving it around to try and make it better focused, as I said, in delivering it in certain key areas where we believe there are significant shortfalls - in areas like dependants' benefits and so on. I do not think it is a pre-emption at all. If we had entered this with a blank cheque then that is not the way in which I would suggest policy should be developed on this or any other area, because it is "Where is the top line in that"? We believe this is a substantial scheme with a substantial sum of public money going into it, it is not one of the high-ranking issues - although it is a manning tool - in terms of retention and recruitment strategies, and we believe that the money is better targeted for those types of issues in specific areas.

    Chairman: I am sure my colleagues will wish to come back to this.

    Mr Jones

  9. Just on that, the problem I have with the entire review is that you have just referred to it being used as a manning tool for the Armed Forces, but can I just quote back to you what you said earlier: "Although cost-effectiveness and affordability were specified ... we could only justify more money if we could prove that the pension area caused us real problems in recruitment and retention." Is it a manning tool or is it not?
  10. (Mr Ingram) It is part of the overall manning strategy, along with all the other pay and condition issues with which it is associated. It is not the key issue. If there was a debate out there that was saying "This is the one, key issue which said that we would join the Armed Forces, or this would ensure that we will stay in some of those key sector areas", then that sets the alarms going and we say "Okay, now there is a real issue out there that has to be addressed by using this mechanism". If you use the analogy, say, with air crew retention, there is a clear analogy where there is an identifiable problem and money is then put it to seek a resolution to that particular problem. Only time will tell whether it solves that or not. That is the way in which we would tackle the manning issue - if it was highlighted as a key issue of concern to the department in terms of its overall recruitment and retention strategy. That is why I say what I say, and I think it can be tested against the analysis which we have done on this.

    Chairman

  11. Thank you. I cannot offer any advice on IT but the record of government in general in implementing its IT strategy is a pretty miserable one, from reading newspapers on this. Can you give us some assurance that we are not going to find, in 2004-05, that whoever contracted to do the work cannot deliver on time? So two questions: can you give, as far as you can, an assurance that the programme is on target? Secondly, are you certain that 2004-05 is the date at which it is operational because it has elongated the process even further?
  12. (Mr Ingram) I would just say do not believe everything you read in the newspapers about the Ministry of Defence, but I think I would take some of your prejudice - if that is the right word - about the legacy and about the way in which some systems have not been well-implemented, not just ----

  13. Across government in general.
  14. (Mr Ingram) Yes. It is a long time since I worked in the IT industry, but it seems to me that the scale of what is done in government is so huge, so complex that there is always a possibility of weaknesses creeping into complex systems. I think we have decades of bad history in this. It is for that reason, when I was looking at this overarching IT strategy, in terms of the personnel schemes, that I have become personally involved in this and I am asking those very same questions: that we should seek as best we can to ensure there is no repetition of any failings of the past. There is no certainty in life, but there is a lot of effort being put into this. On the time-frame, it is more likely to be in 2005 before we can begin to move forward on this. Barry may want to come in and explain it in greater detail, but with all the legacy systems in the three services, you are trying to marry all of that up and look for every glitch that can appear that does not bring about the implosion of your new system. We will also be running the old legacy system alongside the new pension system. This is a big area of activity. If there is slippage in it I can only say that there would be slippage for a good reason; that is, we have identified problems that need to be resolved. We are pushing on to get this implemented, because it is not just in the pension sectors, of course, it is across a range of other aspects of personnel delivery that we need to get new IT systems in place.

  15. Minister, could you drop us a note on the process? Have you offered the contract? If you could just give us some information.
  16. (Mr Ingram) I think we can, but Barry may want to comment further on that.

    (Mr Miller) Chairman, we are talking about what we know as the Joint Personnel Administration Project. The aim is to replace the rather more than 200 legacy systems in the field with a single system using off-the-shelf software. The project is at a relatively early stage as yet. We have only just down-selected the particular software that we intend to use and it will come to main gate in just under 12 months. It is a bit difficult to be too positive abut time-scales until we have completed the main gate process. However, at the moment, we are on time and we are reasonably optimistic.

  17. Perhaps we should put it on our "at-risk" list of procurement projects. Last question from me at this stage, Minister: the Civil Service is currently coming to the end of a similar exercise in moving from their existing pension scheme to a new one. How far is the MoD taking account of the practical lessons learned from this exercise?
  18. (Mr Ingram) I would hope they are taking lessons across the reach in terms of this. Do you mean specifically in terms of benefits, or is it the implementation strategy?

  19. The benefits process and the implementation strategy.
  20. (Mr Ingram) Barry may want to deal with that because he is dealing with the actual in-depth detail of these matters.

    (Mr Miller) We have been keeping a close eye on the Civil Service proposals and, indeed, on other work that is going on in the public service on pension schemes. In particular, we are watching very closely the way in which the Cabinet Office does its communications in connection with the new Civil Service scheme because that is an area where we think we have got quite a lot to learn.

    Chairman: Thank you.

    Mr Cran

  21. Minister, you said in your opening statement, and I quote the words: "I believe there are few who contest that the current pension and compensation schemes are generous - as indeed they are". That may well indeed be your view, but the fact of the matter is there are those who contest that statement, and they would contest it very strongly indeed - just to mention one, the Forces Pension Society. I wonder if you could justify to the Committee that statement, which is, as I say, heavily contested?
  22. (Mr Ingram) I did say there would be few who would contest it, and that I means that I recognise that some would contest it.

  23. That Society represents a lot of people.
  24. (Mr Ingram) Then you are into, I suppose, a quality against quantity argument as to the direction from which it comes. Also, later in the statement, I refer to the concerns and the apprehension of the ex-Service community. We clearly recognise all this and some of the issues - and we may explore them today - which have been raised with us are taken on board to examine "Is there a way of dealing with the concerns which have been raised?" It would need an actuary, I suppose, to be able to argue convincingly whether and where this particular scheme sits in any right order. Because we are not comparing, in many ways, like with like, it is very hard to take our scheme - existing and proposed - and set it against the wider trend within both the public and private sector, because people retire earlier and there are other matters relating to dependants' benefits and so on, which we have tried to correct. I think it can be tested, but it is only an opinion. It is for that reason that I have asked if there is a way in which this can be examined on an independent basis to make sure that that particular statement stands true examination. I do not have that audit at the present time. Whether we can get that or not will remain to be seen, but if that becomes available then I would make the commitment that we would so advise the Committee on this, because I am fairly sure, in terms of the overall breadth and depth of the existing scheme, that it does rank high. You can take individual elements and say that it is not as good as another public sector scheme, or, indeed, a private sector scheme, but that is why I also say in the statement that it is wrong to cherry-pick and take a very good idea from one scheme and try to implant it into another complex scheme. By taking one concept or one benefit, it then has to be set against what it means elsewhere and against, also, the fact that no new money is going into this particular pot. So, to repeat the point, although I think it is an opinion I think it can be tested, and perhaps one testament to it would be the Pay Review Body's own assessment of this, where they say there is a 7 per cent benefit compared to the comparators they would draw upon. Now, the question of independent audit, I think, could be important in proving that - or not, as the case may be.

  25. I would just like to make my view known that where, in your statement, you said about it being a generous scheme, that is merely an opinion, and you yourself have agreed that it is unsupported by actuarial or other advice.
  26. (Mr Ingram) No, there is a good basis for saying this, but to take it on an element-by-element basis, as others do, and say "It is not as good in this area as another scheme" is not the way of looking at the totality of a pension entitlement.

  27. All of this I entirely understand; I used to work in the occupational pension sector and I know well the perils of comparing unlike with unlike. I merely say that the study that you referred to would have been better done before the statement was made.
  28. (Mr Ingram) That is an opinion, I would suggest.

  29. I have an opinion, but you have an opinion as well, which is unsupported by actuarial or other advice.
  30. (Mr Miller) If I may, please? It is not the case that it is unsupported by actuarial examination. The Armed Forces Pay Review Body do involve actuaries in reaching the conclusions they did, and their clear conclusion is that in terms of the benefit to members the Armed Forces scheme is between 6 and 7 per cent better than the comparators.

  31. So, in fact, if we move that along from what the Minister said, there is some expert advice. If that exists we would like to see it to support what the Minister said.
  32. (Mr Miller) I will need to talk to the Pay Review Body, because they are an independent Pay Review Body.

    Mr Cran: But you will come back to us on this.

    Chairman: We have that information already.

    Mr Cran

  33. There are some who would say that this is not a very generous scheme at all, because although it costs 22 per cent of pensionable pay, there is a 7 per cent abatement, so that means the cost to the employer is 15 per cent. Some would say - whether that includes me or not is another matter - that that is very parsimonious indeed by comparison with, let us say, the Fire Service: cost to the employer 23.75 per cent; Police, 21 per cent; Civil Service 16.5 per cent with a members contribution of 1.5 per cent. Where is the generosity here?
  34. (Mr Ingram) You say you already have that information in terms of the comparator study in all of this. We are not saying that it is the best in every element. I do not think many pension schemes could say that. Indeed, probably those schemes which would make that assertion are probably those schemes in the private sector that are now being examined as being too expensive. Mr Cran, you are only too well aware of what is happening in the private sector; the way in which industry is resiling from this particular cost-element. Remember, it is put within a context of being part of a manning tool as well, and remember also what I said, that if it was a critical issue in terms of that strategy, then we would have to revisit it in a different way. It is because of those aspects that we believe that it is a generous scheme - which may be debatable.

  35. It is indeed.
  36. (Mr Ingram) It is always going to be debatable and we will never satisfy everyone to the nth degree. Indeed, our own MPs pension scheme - which many would say was exceptionally generous - has been voted on by the House to make it even more generous. Things can always improve. It is the role that is played by that pension scheme. We believe it is generous at the present time, we believe that it is well-received within the Services; we believe that what we are seeking to do enhances the overall delivery in some of the key areas, which will assist in dealing with some of the pitfalls or weaknesses which exist within the present scheme and which are being referred to as matters that need addressing as well as the matters which we have addressed ourselves in all of that. I believe I am not going to convince you on the overall merits of the scheme.

  37. My mind is completely open on the subject. I am a piece of blotting paper waiting for you to write on it. Chairman, I have two other small questions. My experience leads me to believe that every pension scheme has got a collection of schemes by which it compares itself - it, by definition, has to, for all sorts of reasons. What are your comparator schemes? Are they merely the public sector schemes, or do you take a wider view? Do you take no view at all?
  38. (Mr Miller) We have looked wider but our principal comparators are undoubtedly the public service schemes.

  39. I think I am correct in saying that you have indeed compared yourselves with the private sector, but the details of that have not been published. Am I correct?
  40. (Mr Miller) We clearly are aware of the levels of benefits which are common in the private sector. In that sense, that has been taken into account in the early stages of the work, but, no, we have not offered it in detail.

  41. Therefore, my final question is: if you do compare yourselves with other pension schemes in the public sector and the private sector, that seems to me to be an on-going thing that you do. Can you not let the Committee have a sight of the information you gathered as a result of that process and the conclusions you have drawn from it?
  42. (Mr Miller) We could let the Committee have sight of any information that we have available. As you say, it is an on-going process and we are very conscious that the private sector, in particular, is changing quite radically at the moment - and not for the better.

  43. Indeed it is. I, for one, would like to see that analysis.
  44. (Mr Miller) I will need to offer you a paper on that.

    Mr Cran: Thank you.

    Mr Jones

  45. Minister, part of the unique nature of the scheme is the abatement system, which I think currently stands at 7 per cent - or the actuary sets it nearer 6 per cent. How confident are you of the reliability of the scheme, certainly in terms of the abatement figure in the last 20 years, which has actually reduced? Has this made the benefits less competitive compared to the private sector or civilian schemes? The second point is, this issue of abatement does mean - and the Armed Forces Pension Society raised this quite clearly - that it is not clear exactly what people are contributing from their pay. Have you considered introducing a system based on overt contributions from the Armed Forces to a scheme rather than the abatement system which we have at the moment?
  46. (Mr Miller) In general, the Pay Review Body's assessment has indeed changed over the last few years, coming down from a full 7 per cent to 6 per cent, although they are still abating pay by 7 per cent. That is their judgment, we have no say in that. That is very largely because the level of benefits in the comparator schemes have improved over that period. Clearly, there must now be a question mark over that. We did look at the possibility - and this really touches both on contributions and funding - of going for a funded scheme or a contributory scheme, and came to the conclusion that the benefits to the individual pensioner were not such as would justify the very considerable additional administrative complications that would go along with that approach. Fundamentally, it is the view we took in relation to the funded schemes, where the main reason for funds, of course, is protection against bankruptcy, and government bankruptcy seems a somewhat unlikely eventuality to protect against. Contributions, if you do not have a funded scheme, have a certain element of artificiality about them, and if the whole process is unnecessary and administratively complex, as it would be, we took the view it would be better avoided.

  47. Could you not have a scheme which would actually have a contribution element, or a fund, that was actually guaranteed by government?
  48. (Mr Miller) We could indeed, but why do we need it? Funds exist in the private sector's pension industry because of the risk that the company will go bankrupt.

  49. One of the contentions of the Armed Forces Pension Society is the transparent nature of people knowing what they actually pay. You talk about administration, but under the proposals you are actually running two schemes, one for new entrants and one for existing people. So is there not going to be an administrative cost in that, in terms of running two schemes side-by-side?
  50. (Mr Miller) There would be anyway, and if we had gone for a funded, contributory scheme that would be an additional complication to the new scheme. The fact that the Pay Review Body make that adjustment in their assessment is well-known. I would not, for one moment, pretend that every soldier carries it in the forefront of his consciousness every day, but the information is readily available.

  51. Would you not agree that if there was an actual contribution - for example, most people who contribute to a pension scheme actually see each month on their payslip how much they are contributing - you would know what the value is? Under this scheme, as it is worked at the moment, it is very much unclear what the contribution is in terms of what people are paying into the scheme.
  52. (Mr Miller) It would be more apparent if there was a contribution, yes.

    Mr Howarth

  53. Can we come back to this business of cost neutrality and explore that a little bit further. Last year's Review document stated that it is Government policy that improvements in public service pensions should generally be paid for either by savings elsewhere in the scheme, or by scheme members through contributions, clearly implying that you were bound by that policy. You have reminded us this morning that in your own memorandum to us you explained that "cost neutrality was not originally and necessarily one of the ground rules for the pension review". So we clearly have a conflict here; that initially you were telling us that any improvements had to be paid for either by increased contributions or by savings elsewhere, implying, clearly, cost neutrality, and you now, in your memorandum, tell us that actually cost neutrality was not a ground rule. Then you concluded in this same statement that you made this morning that "We cannot justify spending more on a new pension scheme". It does seem to me that the department is all over the shop.
  54. (Mr Ingram) I do not think the department is all over the shop, I think the department is very clear in its approach on this. What I said - and it is in the memorandum as well - was that the cost neutrality aspect was not an original driver in all of this.

  55. Even though you said that any improved benefits had to be paid for by savings elsewhere, or by increased contributions?
  56. (Mr Ingram) Yes. That is the way in which it has now been developed because what we are doing is reshuffling the pack, so to speak; to take some elements and modify them to pay for enhancements and improvements elsewhere. I tried to explain in my earlier comments about what the driver in this would have been; that if this had been a major, key issue - before my time but it may well have been revisited in the time in which I have been doing this job - then the arguments would have had to have been advanced to say "We now need more money to do something because the scheme, in terms of the overall assessment and our own internal assessment, is far short of what we believe is necessary. It is a drag on that recruitment and retention strategy." The reality is, though, that if that argument is advanced and money is then given to the defence vote for that purpose, it is then not being given to something else. There is not an open book from the Treasury in all of this. We would have then had to have set our demand against other priorities. However, that is not the way in which it has been approached. That could well have been the way in which that would have been approached because the cost of pensions - by the very nature of the numbers we are dealing with - is likely to be heavy. In those ways it could have become an issue. The other aspect they could have looked at could have been on the contribution side and, going back to the earlier approach, to say "Is this another way in which enhancements can be made in all this?" That would have been quite a significant departure from the current approach, but it would have been a way of dealing with some of those issues.

  57. I think the public, and certainly the Armed Forces, would be appalled if they felt that the Treasury was saying to defence ministers "You can have this amount of money, you can either spend it to defend our country to pursue our military interests and our political interests around the world - in which case we rely upon the men and women of our Armed Forces to lay down their lives for their country, potentially - or you can have more money to improve their pension scheme".
  58. (Mr Ingram) I did not use that emotive analogy. That is your interpretation.

  59. That is what you have told us, in effect, is it not?
  60. (Mr Ingram) That may be how you interpret that. What I am saying is that in any set of relationships, if money is being made available, if we are making a bid against the centre across the broad reach of the Armed Forces, then we have to justify our case. By your argument, there should simply be an open pot from which the Armed Forces can draw. That does happen in terms of times of emergency or in times or crisis - not a wholly open book, everything has to be justified in terms of extra expenditure, and there has been quite exceptionally extra expenditure because of events in Afghanistan. So the Treasury (ie, the Government) shows a willingness to deal with the immediacy of those particular problems, but it must be part of the overall assessment of what we are doing, in terms of whether it is pay or whether it is pensions, and that then becomes a cost which we are saying is something that has to be justified against all the other demands across the broad reach of Government. If people are appalled by that (and I assume you may well be appalled by that) I would ask them to look at the real world and not at the world of rhetoric.

  61. Minister, I assure you I am trying to help you. I am not trying to do you down, I am trying to help you with the Treasury. It does seem to me that you have got a case to make to the Treasury and we want to help you make that case. The stark way in which I put it seemed to be reasonable. If you are saying that this has got to be cost neutral in order to ensure that there will be resources for the hardware, let me take you back to what your predecessor said in 1998. He said: "We need to ensure that the Armed Forces scheme is in line with the best modern practice". In other words, this was not a cost-neutral approach, this was an approach to say "Look, the Armed Forces pension scheme needs to be reviewed and we need to review it in the light of the comparators." Some points have been put to you already indicating that there are unfavourable comparators - although Mr Miller cites unspecific examples which show this is a more favourable scheme than others. Let me put this to you: if you take one of the most important things, death-in-service benefits, at the moment the spouse of a Serviceman killed in action would get up to two times their salary. The spouse of a Serviceman killed in training would get one to one-and-a-half times. It is proposed that that should increase to three times, which obviously we welcome. However, the wife of a policeman killed on duty would get five times their salary, and in the private sector four times salary is normal. If it is your desire to produce a pension scheme which is going to be comparable with best modern practice, I have given you one example - and a dramatic example - of where this scheme is inadequate by comparison with other key areas.
  62. (Mr Ingram) Both the schemes you refer to are contributory schemes, and I cannot remember the figure off the top of my head ----

  63. These guys contribute, Minister. Do not say they do not contribute, they contribute by abatement.
  64. (Mr Ingram) I do not know whether, Mr Howarth, you are developing your own policy as part of this. I understand you are ----

  65. I am here as a Member of this Committee, Minister.
  66. (Mr Ingram) I am interested to know whether it is a spending commitment which has been made to you because you set out your arguments at length trying to justify ----

  67. I am asking you questions, Minister.
  68. (Mr Ingram) There are also arguments contained within it and premises upon which it is based.

  69. I am trying to help you.
  70. (Mr Ingram) If you are trying to help me against the Treasury, we are always grateful to receive that type of assistance. The more we can lift the argument about the importance of the Armed Forces overall, and I know that is an issue you share with us, then the better it is for all the people who serve in those circumstances which we ask them to serve on behalf of the country. However, in terms of that approach which is taken, of looking at two schemes where, in the case of the police scheme, 11 per cent is the contribution towards that, yes, if we change the basis of it then you can have uplift in a whole lot of key areas. Please recognise, however, what I am saying here in terms of how we assess this: that we believe this to be a generous scheme (that may be contested); we believe that it meets a whole lot of needs within the Armed Forces community; we are rearranging it in certain areas to deal with some of those specific issues, and there will be an uplift as a consequence of the changes if that is what is then implemented. So we are beginning to address all of that. However, to cherry-pick and say "There is one element, now lift it there; there is another element, now lift it there", means there must be a cost-element to it and that must be met from somewhere.

    Mr Howarth: The point we are making is that you said in your memorandum that cost neutrality was not the starting point. What you are now saying is cost neutrality has to be a point. Let us not pursue that, because genuinely I recognise the role of the Treasury in this and I do feel that the public has got to know that if ministers are on-side in the department that is responsible and the Treasury holds the purse-strings, the nation has to decide on the priorities. One final point, Minister: when you refer to the police, as Mr Cran has just pointed out to you, the cost to the employer of benefits as a percentage of pension payable to the police is 21 per cent; the Armed Forces is 15 per cent. So they are less of a burden on the employer than the police, yet if a police officer is killed in the line of duty his spouse gets five times his pay, whereas the spouse of a serviceman or women killed in action, it is proposed, will get three times.

    Chairman: And the Army is not threatening to strike.

    Rachel Squire

  71. Continuing with the issue of cost neutrality, you will be well aware, Minister, that the Forces Pension Society does consider that taking cost neutrality as the basis for the review means that the proposals do no more than rearrange the existing resources, and that yes there will be winners but there will also be losers in the new system. It also seems to us, from the table of costs provided to the Committee by the Ministry of Defence, that retirement benefits are being cut to pay for improvements in survivor and ill-health retirement benefits. Would you agree that that is the case? If so, why does the MoD consider that reductions in retirement benefits are either appropriate or necessary?
  72. (Mr Ingram) What we have done is identified some of those key areas that have been raised (and dependants' benefits is a prime example) and looked at the inequities that exist between officers and other ranks and to try and find ways of smoothing that - to try and find some sort of standard methodology contained within that. It is right to say that in making some winners there then has to be reductions elsewhere - that is the very nature of the way in which the sum of money is being re-allocated - to meet those areas of what we believe to be issues that need to be addressed - widowers' and widows' benefits, and dependants' benefits and other areas - and smoothing out of the relationship in terms of other ranks and officers. So it is addressing some of those inequities that we are seeking to do, and the inevitability of the logic of this is there will be losers within all of that. I do not know whether the argument will then be "Everyone should be a winner out of all of this" and I can understand some who may argue that, but we have to live within a real world in all of this. The way in which we are approaching it - and I repeat the point - is that we believe that we have a generous scheme, we believe it is substantially funded and what we are now seeking to do is to take that funding and better allocate it. That is the philosophy which has been applied and will be applied in all of this. To do it in a different way means we are then into issues of funding. Where does the funding come from? Contribution or by some other input? Our view is that we cannot justify that other approach because it is not (and this may, hopefully, convince Mr Howarth) the key issue that we believe other issues are within the services which we seek to deliver. That becomes the priority of government and the strategy of government. There is nothing inconsistent with that approach across governments.

    (Mr Miller) I wonder if I might just enlarge on this business of reducing retirement benefits. What we have done is slightly defer the Immediate Pension point for the early retirers and reduced the accrual rate in the early stages of the Service, which means someone who retired early will receive, relatively speaking, lower retirement benefits than he would have done. That has paid for both improved benefits to widows, dependants and so forth, but also an improvement in the pension at the full career point, because of course the move to final salary rather than the notional salary, which we base the current scheme on, will result in an improvement for a significant number of servicemen who are serving on the higher pay range.

  73. Just picking up on that and moving on to the issue of the Immediate Pension, you are saying there will be some benefits on the higher pay scales. Yet the Minister was saying that one of the purposes of this whole review has been to try and reduce, shall we say, the gap between what officers are able to gain in terms of Immediate Pension and what those below those ranks are able to gain. There seems to be a bit of an inconsistency.
  74. (Mr Miller) No. Both groups will in future be on a common basis for the immediate payment, rather than the current situation which means that another rank has to serve for longer for immediate payment than does an officer. They will all have to serve for the same time. As I say, there is some slight delay in the immediate payment point. The other point I was making is that for some of those who retire early there would, indeed, be a reduction in benefits because the accrual rate has been reduced. The current scheme provides for accelerated accrual in the early years and then a much slower rate of accrual for the balance of the Service. We have moved to a common rate right across the Service and the net effect is that there will be some losers amongst those who retire early; amongst those who serve to full career there will be some who gain, and we have been able to fund the improvement in benefits for widows and dependants and so forth.

  75. Can I ask you this: would you say that the purpose of the immediate pension, or one of the prime purposes, is retention? I would say that, in my contact with Armed Services personnel, particularly the Navy, whenever I have asked petty officers and others how long they have been in the Service and so on, they will say, you know, "13 years", "15 years", and then they will almost immediately say, "I am going to stay for another 7 years", or whatever they need in order to qualify for the pension. This is an issue that is constantly mentioned when you ask people about their Service. What do you see as the purpose of the immediate pension? Is it that key issue of retention?
  76. (Mr Ingram) We would see it very clearly as a manning tool. There is absolutely no question at all about that, and it can assist in encouraging people to remain in Service, because they get to that point where they then get the benefit. There is nothing I would suggest unusual in this approach: all employers, public and private, would probably view their pension policies and schemes as part of their overall remuneration package. If they do not do that then it is an unusual philosophy they would adopt. So it is about attraction and about trying to keep people in place, and we are no different in that particular sense. The immediate pension approach is an integral part of that overall remuneration package, and it has benefits in terms of encouraging the retention aspect to it. It is interesting that some have been arguing a different approach on this but no one is saying that we should abandon that strategy of the immediate pension.

  77. No - well I have not heard anyone but I think another issue that has come up in terms of encouraging people to stay is the use of bonuses, certainly in looking at the Services and the need, for instance, to try and keep experienced highly trained pilots and encourage them to stay longer in the RAF. There has obviously been use of that sort of long Service period being a financial attraction. It appears from your memorandum that no detailed work has yet been done on the possibilities of using bonuses, and one therefore has to ask why not, when this review has been going on for three years?
  78. (Mr Ingram) What I have tried to do is give the flavour that it is not the critical issue, as it can be elsewhere, in terms of the golden handcuffs or however they are going to be described. We have recently enhanced the air crew retention measures because we have recognised that to be a device by which hopefully we can encourage key personnel - and it is not just pilots but others within that structure - who have particular skills and attributes that we want to retain. Because we have been able to justify it on the basis that there is a problem there and it is a very real problem that has to be addressed and a response is then given to that. In terms of bonuses, if it became the same flavour elsewhere, then the way in which we would have to analyse it is exactly the same. Is it important? Is it a measure which we can now put in place that will get that potential return? We will have critical areas. In one sense all of that is constantly being considered but at the present time not actively considered. It is a concept out there which can be lifted off the shelf at any point if we have a critical area, and then looked at as a possible solution. The danger I would suggest in all of that is we would end up with a plethora of a whole range of different schemes and remuneration packages, and that is not necessarily the best way of tackling the scale of the problem that we then have to address in all of this. I do not know whether that answers your question? It is not written out as a concept, and it is something which we constantly have to give consideration to - whether this is a mechanism which would deliver in a critical area - but the critical area has to be there before we apply it.

    (Mr Miller) I wonder if I might, Minister, say this: although we did not attempt any detailed costings of possible bonuses, we did confront the basic parameters which are, of course, that a bonus in these circumstances would be taxable and therefore, by definition, has to be substantially higher than the gratuity paid to the Serviceman when he retires - never mind something to allow for the fact that he would have an income stream as well. So we are looking at bonuses which would, of necessity, be substantially higher than the gratuity that is paid. The reason for not going into detailed costing is that there seems little point in detailed costing when any assessment of the likely effect of the bonus would be, at best, broadbrush and, arguably, highly judgmental, because one has no scientific way of assessing what effect the figure of X as a bonus would have in terms of the retention or the tendency of people to leave. So it was really faced with this basic problem of accommodating the taxability of bonuses that made us think that we were unlikely to be able to produce an acceptable solution to replace the immediate pension

  79. I have just one other small question which is whether the abatement system is fair, given that only a minority of personnel leave the Services each year and qualify for an early immediate pension, and yet everybody pays for that to happen?
  80. (Mr Ingram) My answer, shortly, would be yes. If we thought differently then we would be tackling it in a different way. Barry may be able to give a more detailed answer in terms of the valuations made and the attitudinal surveys and the focus group approach on all of this.

    (Mr Miller) Frankly, it is a feature of any pension scheme - some people benefit more from elements of a pension scheme than others. What one is doing, whether it is a contribution or an abatement, which it tends to be with a flat rate across the board, is paying for the average. The fact is, just taking the basics, somebody who dies within, say, five years of retirement does far less well out of his pension scheme than someone who survives for twenty or twenty-five years

    Rachel Squire: A point well made.

    Syd Rapson

  81. Looking at the individual Services, there appear to be different and relative levels of fitness, et cetera, and I was wondering about the retention incentives. Are they different for each Service? Should there be a different approach to fit personnel needs or their requirements rather than a one size fitting all? Are all the Services the same, or should there be some consideration of different approaches?
  82. (Mr Miller) I am not quite sure, Mr Rapson, what you are after. The fact is yes, there are different fitness standards in the three Services. The three Services also differ, of necessity, in terms of the point at which they may well find it necessary to dispense with the Services of some individuals. Clearly, for example, the infantry requires a much higher level of fitness than, for example, the Royal Electrical and Mechanical Engineers, as they were. That would be adjusted and I am taking examples deliberately within one Service. They will have a different approach to these things. What we have done is attempt to construct a pension scheme that will cope with the extremes of the likely requirements of the Services.

  83. So one size fits all is about average, you think? I was just thinking that there might be a greater incentive needed to encourage certain elements of the forces to stay in and take the package rather than at the moment, where if you see it as a means of retaining people as a benefit some Services look at it differently? Whether they want to stay in longer or leave earlier, they are fed up? Do you think there is a bland average for everyone that fits all?
  84. (Mr Miller) No, I do not for one moment think there is a bland average for everyone. I think the pension scheme inevitably charts a mean path between the alternatives. We then tend to rely on other manning devices to do the fine tuning and, as I say, this is not an issue between the Services: it can be an issue within a given Service.

  85. Has there been any discussion with the Treasury about the bonus payments and how they fit into overall pay policies, and whether we should raise or lower them? Any discussion at all?
  86. (Mr Miller) We have made no proposals to the Treasury on bonuses. As I said earlier, having realised that bonuses would be taxable and therefore substantially greater than the gratuity, we did not feel there was much mileage in that particular way forward.

  87. Talking about the information, we are worried about how Service personnel found out the information and what arrangements you have made for them to understand that complexities of the schemes. What arrangements will the MoD put in place to ensure the Armed Forces personnel have sufficient information about the new pension scheme? For example, will they receive individual projections on future pension entitlements under both the existing and proposed schemes to enable them to decide which is best for them? Part of my earlier role as a shop steward was to interpret regulations and tell my people what it was all about, and I did not understand it. Without shop stewards in the Armed Forces, how will the MoD as a good employer make sure they understand complexities and are not persuaded to go the wrong way?
  88. (Mr Ingram) I think this is an important issue and we do recognise that a lot of the material is not best placed and probably a bit out of date. Clearly, if and when the new scheme comes into place, we have a responsibility on us as a Department to try and make this as clear and informative as it possibly can be without it being over complex, because even very experienced people trying to assess some of this find it difficult and there are occasions when there is a requirement to go to an independent financial adviser. If, say, the choice was to move from the existing scheme to the new one for an existing member of the Armed Forces, that has to be the individual's judgment, so there is an onus upon us to make sure that they are fully up to speed with every aspect of this - the complexity as well as the simplicity of it, as best as that can be explained. We recognise at the end of the day, if it is a transitional judgment that has to be made, it is a matter for the individual and best advice would be given but it cannot be independent advice. We cannot then say, "It is best for you to do this". That has to be taken on the basis of all the information that we so provide. We are putting a lot of effort and energy into looking at how this can be done and how we communicate that, both in written material and on the internet and other ways we can spin out or play out all that information. Anyone who tries to understand the pension scheme knows how difficult it is, and all we can say is we will do our best to take the very best practice in the explanation of all of this.

  89. There is one part of it, inverse computation, which I find extremely difficult to understand --
  90. (Mr Ingram) How long have you got?

  91. If there is a very good explanation given to personnel to understand it, would you send me a copy?
  92. (Mr Ingram) Yes.

    (Mr Miller) Just to answer that specifically, we do envisage that we will give individual projections of what they would get in these schemes.

    Chairman

  93. Perhaps the letter you write to lieutenant colonels could be sent, explaining to them why they are going to be 2,500 down on their pension and 8,000 less on their lump sum, and then the special letter to sergeants telling them they are not going to be winners in this game. It would be interesting to know why you chose lieutenant colonels and sergeants to be amongst the losers. It is great for the winners but not so hot for the losers.
  94. (Mr Ingram) You are taking these from the examples. They, of course, are features of the particular combination of time served and so forth in the examples that were given. It is not necessarily the case that all lieutenant colonels or all sergeants have lost out.

  95. Eighteen years, I think?
  96. (Mr Ingram) In that particular case, yes.

  97. So you isolate the lieutenant colonels for eighteen years and tell them how they are going to be worse off.
  98. (Mr Ingram) The point I was making earlier is that we have said that it is recognised that those who retire early will not do as well under the new scheme as under the old, and that is one of the things they will have to take into account when they make the judgment as to whether or not they want to transfer to the new scheme.

    Mr Roy

  99. Minister, why can most private sector schemes and the Civil Service scheme offer the option of commuting part of the pension to a lump sum rather than having an automatic lump sum, yet in the Review the MoD says that this would be too complex to administer? It is not too complex for everyone else, so does this not reflect very badly on the MoD?
  100. (Mr Miller) It is more complex and I think this is one of the issues that we certainly need to give some more thought to before we draw up our final proposals. The fact is, though, that all our experience of commutation is that it is very few individuals who do not take the option of a tax free lump sum. The question really is one of how many benefits according to the complexity, but, as I say, one notes what the principal Civil Service scheme has done and it is an area we would need to think about.

  101. But why is it more complex than the comparator Civil Service scheme?
  102. (Mr Miller) I would not say that it is any more complex for us than for the comparator.

  103. But they can do it and -- ?
  104. We have not said we cannot do it. We have said it would be more complex and, therefore, we sought to avoid it because very few people do not take the option, but I think we would certainly want to look at this as one of the features. It is one of the things that has emerged from the consultation and it is definitely a point that we would consider.
  105. (Mr Ingram) Remembering the comment I made, we are still in an input mode at the moment. We have not concluded our assessment of all of this, and that is why I said in my opening statement that the input from this Committee, coming at the time, will assist us in that. It does not mean to say that every recommendation will be automatically accepted before we know what the recommendation is, but the quality of the assessment out there helps us to come to conclusions in some of those areas. It is not signed off on all of these aspects and, therefore, if the case is well made and there is a sustainable argument, then it has to be given a positive consideration.

    Mr Crausby

  106. On unmarried partners, you wrote to the Chairman in November to say that you would also need to look again at the position on entitled partners. What costing have you done on the financing of pension benefits for unmarried partners?
  107. (Mr Ingram) Barry will deal with this but there is a general issue here that this is another example of where, as we have been through this process, we have begun to look at this because it has taken on an increased debatable point as to what should happen. These are very big issues right across the whole of the public sector, and some departments I understand are now beginning to tackle it. We have a particular issue in depth here that we have to look at. It is then how is that going to be costed, how is that going to be funded as well at the end of the day, and there is work still required on this to establish fully where we will end up in terms of what is identified as being the type of partner, what the qualifying criteria would be, and how that is to be met. If it is to be met within the existing scheme, then it means that the benefits that have been paid to new members may have to be modified accordingly. So we have to look at this in that particular way and we have not yet done a total summation of all of that.

    (Mr Miller) We have been in the first instance talking to the Government Actuary about the costing of this likely effect. There are discussions still going on. We will need in the process of producing our estimate to get some sort of handle on the number of servicemen who have unmarried partners who would fall within an acceptable definition. We have been giving some thought to acceptable definitions - there are a number of models out there - for example, the Australians - and the aim would be to bring all of this work together in due course to enable us to put a handle on what it would cost. Once we have done that, of course, we are then up against the general policy, and Mr Howarth just now quoted the policy which, of course, applies to the specific issue, not the generality of the pension scheme.

     

    Chairman

  108. It will be done by autumn, I presume?
  109. (Mr Miller) That is our intention, yes.

    Mr Crausby

  110. I suppose the question of the definition of what an unmarried partner is is enormous. Is your consideration about, for instance, same sex partners, or different sex partners, or what type of partners? Have you done any thinking on that issue before you do the costings?
  111. (Mr Miller) We are told by our lawyers that if we accept unmarried partners we cannot differentiate between same sex partnerships and heterosexual partnerships, so clearly we would have to include them. We have been looking at definitions and there are quite a number about. I think from my personal point of view the one that appeals most is the one adopted by the Australian forces, which is a combination of length of time for which a couple are together and some evidence of financial interdependence, but there are clearly quite a number of possibilities one could look at here in order to demonstrate that a partnership is reasonably enduring.

  112. You have already said that the Government proposes to consider changes if the members want such changes and are prepared to meet the full cost of the improvement. We have already talked about winners and losers already and about the question of cost neutrality, but how could you do that in a situation where this is not a funded scheme and there are no contributions to the scheme? How might you look at contributions paid effectively by some people who were not in receipt of the benefits for other people who would be in receipt of the benefits?
  113. (Mr Ingram) In terms of how we assess this, we are doing it through focus groups to try and get the feel for the debate within the Services. I think you have recognised it is not an easy process because it touches on a whole lot of sensitive issues, and therefore we are having to do this in a very structured way. Part of the assessment would obviously be then how is this to be met? Is it met from within the existing total funding package or as a contribution to be made to meet that? Now, we have not concluded any of those lines of inquiry or examination at the present time but, given the timescale to which we are working, we have to do it within the next few months so we can meet the deadline.

  114. Will you consult Service personnel about the issues, and how will you consult Service personnel about the complex issues of whether some people will have to contribute either by way of a benefit or a loss of benefit for the issue of same sex partners, for instance? How will that go down with Service people?
  115. (Mr Miller) We intend to use focus groups which we used as part of the consultation process in the earlier stages of the work, so we would tackle that in this way. It is clearly going to be an issue, and in one sense the final element, the final judgment, will be individuals' decision whether or not to transfer to the new scheme. This would be against the background of us introducing a new scheme, so individuals will be able to choose whether or not they transfer to it.

  116. We are already in the midst of this to some extent with the Anna Homsi case. What have you learned from that? Her unmarried partner was killed in Sierra Leone.
  117. (Mr Miller) What we have learned is, if I may say so, the obvious: that unmarried partners are an increasing problem. The fact is that the existing scheme makes no provision at all for unmarried partners and that was the root of the difficulty in the Anna Homsi case.

  118. It is reported that there is a quarter of a million pound payment been offered to Anna Homsi --
  119. (Mr Miller) So I believe.

  120. -- I am sure you could say without precedent, but there are bound to be implications from this. What would you like to say about those? Is it clearly not the case that, once you settle with one individual, that is bound to set a long-term precedent?
  121. (Mr Ingram) I would not want to deal with the specifics of this in that particular way because an offer has been made to Miss Homsi and she is considering whether to accept that or not so it is in that process of consideration and it would be wrong to examine that in any detail or put values to it. Clearly that particular incident and all that flowed from it stimulates a debate - The debate was here anyway but it became more sharply focused as a consequence. That means we then have to consider what we do as a consequence of all of that, and is why unentitled partners are now becoming part of an overall examination. Of itself it was not the trigger but it stimulated the debate, and this was an issue I would have judged would have had to have been addressed at some stage anyway because of the changing nature within general society. We could not ignore the debate and by addressing it in this way we are dealing with all the sensitivities which surround it and then trying to find a way forward on this. It is not without its complications, and hopefully we can find a way through it which will find acceptance within the wider community.

    Mr Howarth: Very quickly: is this review inspired by the insatiable demands of the European Court of Human Rights? Secondly, if this scheme is to be extended to unmarried people, will the cost of it be borne by those who are married and, if that were to be the case, would then that not simply constitute yet another Government assault on the institution of marriage in our country?

    Chairman: I wish I had not allowed you to ask that!

    Mr Howarth

  122. Those are just two simple questions.
  123. (Mr Ingram) They may be simple to you but I am not a social scientist and I am also conscious of the fact that any change by a major Government Department could be seen as a bit of social engineering and, therefore, can be subject to that type of attack but remembering there is also an attitude out there within society where a change has taken place so we have to be mindful of that as well. If the world was only as black and white as you make it, Mr Howarth, it would be an easier place for ministers, but it is not and we have to deal with realities as well as all the other aspects to it. It is why we say that, by consulting the Armed Forces themselves through focus groups, we get a feel for that debate, and we do not know the extent of the problem; we do not have a measure of the scale of this other than we know it is a reality. I put it to you also that, if it becomes a recruitment and retention issue, then it would be wrong for to us ignore that. If large numbers of young people were saying, "I am not joining the Armed Forces from the communities from which we previously recruited because I do not want to be married; I want to live in a different type of relationship", that would be something I think we would ignore at our peril. So we have at all times to be alert to society's changes and if we can be ahead of it to the betterment of the Armed Forces then that I think is the responsibility that rests on us.

  124. And the answer to my first question?
  125. (Mr Ingram) Is it driven by the European Courts? No.

    Syd Rapson

  126. My question was very similar but along much more sympathetic lines, of course. The award of the claimant was in response to a very popular line taken in the media, and I am not criticising that decision but it was taken, I understand, by the Prime Minister. Was it welcomed, under this cost neutrality review for pensions, when a separate person in the shape of the Prime Minister made a decision to alter the whole financial structure within that cost neutrality band? Did you cheer and say "Well done"?
  127. (Mr Ingram) Do I welcome Prime Ministers' decisions? Every one of them! But it was a much more subtle process than all of that. Clearly, given the prominence that particular case had and the pressure we were on, for a Prime Minister or any minister to ignore it would have been wrong. I am not saying that it was by dictat and that all of a sudden that had to happen. All of these things are debated within the Government, along with the flow of that debate and what it means if we make that decision and what does it read across elsewhere, and I would rather not get into the detail of this individual case because sensitivity of the individual has to be taken into account. I think I had better rest there, because we have not settled with Miss Homsi on this particular point.

    Chairman: We must now move on to compensation.

    Jim Knight

  128. In your earlier exchange on cost neutrality with the Opposition front bench, Gerald used some language which you described as "emotive" in talking about people laying down their lives for the country and so on, but I think in this case Mr Howarth has a point in the special status of the Armed Services. It has been put strongly to us by the Royal British Legion, by the Forces Pension Society and so on that we have to account for that special status. I know when we were in Washington last month we were all impressed at the special status that the Armed Forces and veterans are offered in the USA, and I think we have something to learn from them in terms of the regard that we hold people who are willing potentially to make that sacrifice. Do you agree that this is an important factor? When you are going around trying to explain these new proposals to people and they start to become aware of issues of abatement and terminal grants, where they thought they were going to get a nice handout and they are paying for that through other losses on the pension scheme, do you think that we are paying due regard to the special status, and specifically in compensation are the proposals properly recognising the unique commitment which Service personnel make?
  129. (Mr Ingram) When I used the emotive language, I could share in that type of argument but I think we also have to set against that - and hopefully this is not misinterpreted - the clinical judgment. There have to be hard judgments taken at all times against anything we ask of all the Armed Forces. I would share the views within the Committee about the enormous job they are doing and we could spend a long time playing out the language of this, but we are dealing here with the specifics of how then we deliver in terms of the remuneration package. The same argument could be advanced in terms of pay and conditions and a whole lot of other aspects to it as well, and I think we have as a Government begun to address many of those issues, and I do believe it is one of those processes that will never end because the argument is out there and at the present time, given the focus that is on the Armed Forces, there is a greater awareness of what we ask of them. I do not detect a large demand, however, within the wider community for more to be done. That may be hard to say in one sense but, where the public demand is, there is not a huge demand to do more in this area. We then, from the Department's point of view, have to constantly take that argument forward, constantly remind people of the importance of what we ask of the members of our Armed Forces, and make sure there is a greater public awareness and alertness to this, and we have many strategies by which we approach all of that. You then refer to your experience in the States and we have learned lessons from there, which is why we now have a minister in the shape of Dr Moonie responsible for veterans' affairs. It is a new approach but it is one which we are attending to with vigour, trying to find ways in which we can step up our support - again, across the reach of the veterans' community as well as the existing Service community. Alongside that, there is a way in which we are tackling the needs of the families as well - the way in which we have sought to put in place new welfare packages. All of these things are developing all the time and are part of our overall strategy, of trying to act as the very best employers do against all the other constraints out there. I do not think the Department can be found wanting in terms of our awareness of the issue and the way in which we are beginning to tackle it. We are at the beginning of tackling this; these are issues which have not been addressed at all, probably, and now we are having to address them because of some of the pressure points, and because of the recruitment and retention needs we are having to look at a wide range of strategies to tackle all of this. What I would say about the US and perhaps other countries is that, when we look at the benefits which can be paid to veterans, there is a situation arising where you have to compare it with what else is given in this country with what is not given in those countries - ie, a National Health Service. They have to make huge commitments because they do not have that type of support, a Health Service, there, and that could be replicated across a number of other delivery systems we have within this country. So it is not like-for-like in all of that. It is easy to say, "Well, veterans there get a particular reward", but they do not get rewards elsewhere in the society because of the structure of that particular society. So that is why we have to look at this in a global way. We have to learn lessons at all times; we have to be alert to the enormity of the issue; and I would share with you your view and Mr Howarth's view and others within the Committee about the importance of what we ask of our Armed Forces personnel, and never to lose sight of that.

  130. I accept a lot of what you say and I know, for example, in the massive increase - the $34 billion or whatever it is in the Department of Defence budget -- ?
  131. (Mr Ingram) $48 billion.

  132. -- Well, there you go. A substantial part of that is increase in pay and conditions benefits for Armed Forces and their dependants, and a substantial part of that in turn is the Tricare health system, but it is certainly not cost neutral. They are putting more money in, in order to give better benefits for their Armed Services. They are providing leadership in terms of the general public being able to place a value on their Armed Forces and veterans and, without wanting to re-rehearse the arguments you had with Gerald about cost neutrality, I would have a fear perhaps that many of our Armed Forces do not go around thinking every day about their pension entitlement, they do not join up because of it, but when this debate is put to them with the comparators between the existing scheme and the old one they will look more closely at these issues which are very current in public debate about final salary schemes going and all of that, and they may not feel as valued as they do now. They are not thinking so much about it, and that in turn may lead to one or two retention problems in some areas for you and then you may regret the cost neutrality decision you make?
  133. (Mr Ingram) I think we entered this with our eyes open. What I have said all along is that, if the assessment was one of those neuralgic issues, then we would be much more exercised on that particular front. We are exercising other areas - air crew retention, for example. That is a very demonstrable case that has to be addressed and we address it in a specific way. Hopefully, of itself, that will not stimulate everyone saying, "This is now the biggest issue under the sun and I am going to leave the Forces and I am not going to join up because the pension policy is not sufficient" - it will not quite work that way, but if it was the case that we had detected this then our approach, by definition, would have been different, and that has to be part of our consideration. There is no point hiding that or saying that this is done in a different way; that is part of the priority approach which has to be developed within the Department. Insofar as the total value placed upon the Armed Forces is concerned, we are currently in the process of negotiations with the Treasury in terms of our budgets. I cannot even begin to touch upon those subjects today.

    (Mr Miller) We may well have chosen not to increase the amount we spend on the pension scheme but we have in recent years put substantial extra money into, for example, the operation of welfare package, the new pay system, this year's pay settlement, the air crew retention review, deployment allowances and a number of others. So we are spending extra money on people.

  134. Good. To be more specific about compensation, do you consider the possibility of a scheme which distinguishes between injuries sustained during active service and those which occur in everyday occupations, more comparable to civilian work? For example, in other evidence sessions we talked about people incurring injury whilst undergoing sporting activity and being able then to be eligible for compensation. Did you consider a separation that perhaps rewarded people better for genuine active service injuries and separated that off?
  135. (Mr Miller) Frankly, we did not consider it for very long. We found it very difficult really, in all fairness, to discriminate between the individual who is, say, wounded in action, and the storeman whose work is just as essential to maintaining the frontline and who is injured in an accident in his storehouse. We thought on balance it was fairest to treat all Service people on the same basis for accidents or injuries incurred on duty.

  136. So your definition of active service is "on duty" in any form. Does that include going to or from the place of active service? There seems to be another grey area as to what happens if someone incurs and injury in those circumstances?
  137. (Mr Miller) The issue of home to duty travel is clearly a difficult one and we have not reached final conclusions yet.

  138. Will you do so by the autumn?
  139. (Mr Miller) Yes, but if I can make the point, we dictate to servicemen where they live. When we do that it is perhaps not unreasonable that we cover them for injuries incurred in their home to duty travel. That is the sort of consideration we have to bring to this.

    Jim Knight: I would not want, given their special status, to downgrade matters. Thank you.

    Mr Cran

  140. Minister, I am afraid we are back to the concept and principle of cost neutrality again. I think I made it very clear to you when we were discussing the pension scheme arrangements that I thought you were, as an employer, being niggardly. You are going to produce your comparators to show I am wrong, and I am waiting for that. However, whilst I may be wrong about that, I am completely mystified why an employer attaches the words "cost neutrality" to compensation arrangements. I am truly mystified by that and I think it will be deeply misunderstood by your workforce because what it does is gives the impression --
  141. (Mr Ingram) We do not use that terminology in terms of the compensation of individuals.

  142. Well, do, please, tell me why, because I have it in front of me that you do?
  143. (Mr Ingram) From words I have used?

  144. No, just from internal documents that we have here. Are you saying to me there is no cost neutrality in terms of the compensation arrangements?
  145. (Mr Ingram) Well, I can because in one sense it is an unknown quantity, is it not? It is one of those things that will go up and down based upon circumstances, so we will have to work in terms of assumed cost to a Department, so notional funding would be within a Department on that, but if there was a major terrorist incident or other hostilities where there was a significant quantity of injuries attributable to Service, then that has to be met. So there is not a capping on this, at all.

  146. I welcome that but, just so we understand this completely, I have it in front of me that the Review document says that there will be additional costs in the short term as the scheme is introduced but "in the longer term we would expect direct costs of the new scheme to be broadly cost neutral". How do I put your answer against that statement?
  147. (Mr Ingram) That has to be the working assumption. We have to look at the historical cost of meeting compensation claims and then seeing with the new scheme whether this is going to generate additional multipliers. Of course, the issue relates to the individuals who are claiming.

  148. But, Minister, we have to be clear about this. It either has to be cost neutral as an aim or not. If what you are saying is the aim that it should be cost neutral but, in the light of operational circumstances and if the historical data is not correct if you postulate it into the future then cost neutrality goes out of the window, I understand that. Is that what you are saying?
  149. (Mr Miller) The words you were quoting there were a description of the effect of our proposals. We did not, when looking at the Compensation Review, do so against an objective of cost neutrality.

  150. So there is - and, again, we have to get this right - absolutely no ceiling on the resources which would come under the budget of compensation arrangements if circumstances dictated that that should be so?
  151. (Mr Miller) We would not be faced by any budgetary constraint in terms of implementing any scheme, whether it is the scheme we have or, indeed, the scheme we propose, because clearly the issue would be demand-related, and it would depend on the number and type of claims that we get.

  152. But just so we strip away all the ifs and the buts and the maybes and so on, you are making a clear statement there is no upper limit to the budget in these circumstances, given that I have the Review document in front of me here? I just worry about what it says in section 2, where under the words of "affordability" it says, "The arrangements should be cost effective, affordable and also fair to the taxpayer". I understand "fair to the taxpayer" but it has the smack about it of you trying to limit your liability.
  153. (Mr Miller) I said that we did not conduct the Compensation Review with the objective of producing a scheme which was cost neutral in its effect, and we have not. The point is made that we expect additional cost in the early stages. The schemes that it would replace we would expect to pay if the demand was there. If cases were advanced we would not expect to be constrained by our budget, and that would apply to the new scheme equally. If individuals are entitled, they will be paid.

  154. Chairman, I will leave it there but I want to make it clear that we will look at what you have said when we see it in print with great care because this Committee has to be clear that you as a employer are not trying to limit your future liabilities in some way or another.
  155. (Mr Ingram) I think we have given a clear statement on that --

  156. I do not think you have.
  157. (Mr Ingram) That becomes a debatable point. If further information is required in clarification terms, then clearly we will assist the Committee on that.

    Chairman: It would be helpful if you clarified this. I am not having a general debate now.

    Mr Jones

  158. I accept what the Minister says, which is that the cost depends on how many claims you get, but the actual claims you get depend on the rules of the scheme or what system you put in place, so you can affect the cost by limiting on what grounds you claim. For example, travelling from home to work. Would that be covered under the scheme? If it is not then that is out and, therefore, there is no cost. If you put it in, there is a cost, so you have to look very carefully at the rules around this scheme, because there is going to be cost involved.
  159. (Mr Ingram) There must be a cost involved in this. This is something which, as Barry said, is demand-led --

  160. But it is also dependent on what the rules of the actual scheme are.
  161. (Mr Ingram) Yes. The rules of the scheme define what then can be claimable from it, but that will be assessed on the basis of what is sensible and the way in which we are now approaching the new structure of the scheme. Does it sit within that? Is it something which can then be evaluated and, therefore, is there a liability for us within that?

  162. But if you want to limit your costs then the way you do it is by changing the rules.
  163. (Mr Ingram) That is one way of looking at it but it is not the way we are looking at it. I am giving that clear statement. There is no capping because of the demand-led aspect to it, and that is not the approach we are taking to this particular scheme. It is not being driven by that consideration.

    Mr Hancock

  164. The difference surely is that, under the old scheme, the war pensions scheme was administered by the Department of Social Security and it then transferred the responsibility over to the Ministry of Defence. Was the understanding that the Treasury would fund that at the same level within the Ministry of Defence budget, or is it contained within the capping limit that is on your budget as a whole? This is the specific question which covers all of the points that are being made. Under the old scheme, there could be as many claims as you like with an infinite budget and it just went on being paid. If the claims were agreed, it had to be paid, and it was absorbed nationally out of that budget. In your case, is it that all new claims have to be absorbed within the MoD budget, or is there a specific ring-fenced allowance within the Treasury to cover it?
  165. (Mr Miller) The expenditure on war pensions was what was known as annually managed expenditure - in other words, it is demand-related and not capped and it remains so even under the Ministry of Defence. Although the - how can I put it - structural position may change, we do not expect the amounts that we pay to be capped by any budgetary limit under the new scheme.

  166. But would it mean if you had an excessive number of claims to sell, or an increasing number, that would have an adverse effect on the MoD budget as a whole so there is a motive within your system to make it more difficult for people to claim?
  167. (Mr Miller) No, we would not expect that.

    Mr Jones

  168. I think the unique nature of the Armed Forces has already been mentioned, and one unique part of the existing scheme is the fact that personnel are allowed to claim against the MoD in their own time limits after they have left the Service, whichever Service they are in. What is being proposed is that you are going to put a three-year time limit for injuries and, also a one-year time limit once disease is diagnosed that could be linked possibly to service in the Armed Forces. We took evidence from the Royal British Legion who are clearly not very happy about the introduction of those time limits. Is this not an example of where you try to limit the liabilities of the MoD?
  169. (Mr Ingram) Not at all. There is an accepted list as well. If medical science changed or medical knowledge changes then we are obliged to revisit our previous consideration. There are unknowns in all of this. We hope to put in place a coherent, structured system which is hopefully better and more easily understood so that there is then an obligation on people to bring forward their claims and an easier means of evaluation and rights of appeal, and so on, for fair purposes. We believe that is the right approach, it is a cleaner and more efficient system, not driven by a financial consideration.

  170. It is a cheaper system for you, is it not?
  171. (Mr Ingram) There is no certainty in that.

  172. Surely there is, because you have a situation whereby there is going to be a cut off date after three years, whereby people are not able to bring claims. I would imagine that from my knowledge of industrial injuries - where a lot of people failed to put their claims in because they missed the time limits - that is clearly going to happen here and this is a way of limiting the number of claims you are going to get?
  173. (Mr Ingram) That perhaps could happen in certain circumstances.

  174. I say it will happen?
  175. (Mr Ingram) I do not know whether we have historical data on this in terms of the period of claim, I do not know whether that is immediately available, if not we can seek to make it available. We are approaching this on the basis of trying to get a clean, coherent structure and not driven by the philosophy which you are alluding to --

  176. I am not alluding to it, I am saying it.
  177. (Mr Ingram) -- to try and ensure that it is structured in such a way to encourage people to claim within a reasonable time scale. Undoubtedly it is different from what exists at present. We are changing the culture of that approach because we believe it is a better way of doing it, rather than going through the civil burden of proof and rather than having it open-ended in terms of the claim structure at the present time. We believe it is more sensible in terms of best use of all resources and in the way in which we can then, I think, assist our serving personnel to claim their entitlement. That is our philosophy. That is our approach. It is not driven by cost neutrality or saving money out of the system.

  178. Would you also agree that one of the key issues in industrial injuries cases is the fact that people do not know their rights in terms of the time limits, clearly under this system there are going to be a lot of people who are going to miss the deadline and are not going to have access to any justice at all, are they?
  179. (Mr Ingram) Okay. Mr Chairman, what I can say is, and it is repeating the point, we are still in the receive mode, we have not closed down on this. This is something which we have tried to set out and tried to define. We will certainly take into account the representations which have been made by the British Legion and any representations also made by your Committee. Again, if it stacks up, if it is an issue which has a justifiable point then we will revisit it in a positive way.

  180. I welcome that. Can we have an assurance that costs will not be a reason for not changing this?
  181. (Mr Ingram) The answer is yes to that.

    Mr Hancock

  182. Can I, first of all, apologise for not being here at the start, I was chairing a Bill Committee and I sadly missed the beginning. I would not deliberately have wanted to miss Mr Howarth's contradiction of some of the things you said. I am interested in the whole concept of the statement that the MoD made when they published your original document, that the current War Pension Scheme was both unusual and generous. I would like you, if you would, to elaborate on what allows you to suggest that it is both unusual and generous, because many of the recipients do not believe that?
  183. (Mr Ingram) Are you talking about the compensation scheme here or the pension scheme?

  184. Both. Both the way in which the War Pension Scheme operates and also the on-going situation regarding the pension scheme?
  185. (Mr Ingram) This is on the burden of proof point and the shift in the direction on this. Clearly people will think that the current system is, in one sense, preferable because it is open-ended. What we are saying is to try and bring some structure to it and to put measures of evaluation into this and to try and enhance the payments for attributable injuries and having a lump sum payment being made for pain and suffering and then a guaranteed income stream alongside. That, it seems to me, to be a more desirable approach on this. If the view of the Committee is that we should have no change in this I think we would be losing a lot of enhancements in terms of the restructuring that we are trying to put in place here.

  186. How can you explain the situation that one of the changes will be that you will shift the burden of proof on to the claimant? How on earth can you justify that when you yourselves in the Ministry of Defence in answer to Parliamentary questions and in letters have said that your records are not all they ought to be - that is what you said - particularly in relation to Gulf War vets who are trying to make a claim? You said there were not meticulous records kept and they have now gone astray or they were never kept. If you were really cynical and you were a veteran who had an illness which he is trying to prove if you want to make these changes you simply rule out that whole raft of people from making legitimate claims?
  187. (Mr Ingram) If it is an old claim it is set against the old scheme. The new scheme relates from the point of implementation.

  188. Many of those people might not want to submit a claim until some time after, when the full extent of the illness develops to such an extent they have to make a claim to survive financially. If the burden of proof is placed on them, and you yourself are admitting today that you do not have meticulous medical records of Service personnel in some instances, how on earth can they ever succeed in making a claim when you have shifted all of the burden of proof to them? In some instance you will not even let them have their medical records?
  189. (Mr Ingram) There are assertions in there - I am not a walking encyclopedia of every question ever asked and every answer that has ever been given or all the minutiae of Ministers arrangements within departments. I do not accept some of the assertions contained within there. What I will do, Chairman, is take that on board and if there is an answer required I think the best thing is to do that in writing, to take the allegations and to set it against what we are seeking to do. Something in it tells me that some of the allegations there do not stand the examination.

  190. I can assure you your junior colleague has written to me and to veterans making that very point, that their records are not available, meticulous records were not kept and so the burden of proof is on the person, who cannot bring the best evidence, which is his medical records, that were supposedly held by the MoD. Your colleague sitting beside you seems to be anxious to get in. I am sure a number of vets will be interested to hear what he has to say about that?
  191. (Mr Miller) There are, indeed, problems with medical records. If I can come back to your original question, Mr Hancock, the fact is that under the War Pension Scheme it is effectively the agency which is required to prove that a condition was not attributable to service. What we are proposing is to adopt a much more common burden of proof - which is the one that is used virtually universally elsewhere in the United Kingdom - which is quite simply that the individual should demonstrate that on the balance of probability his condition is attributable. Clearly in a case where medical records are not available that is an issue that would have to be taken into account, just as it is an issue that the courts will take into account if a case ended up there because there was an issue of negligence.

  192. Sadly the MoD take that to mean many that there is no case to answer, that is what they have done up to now, and several of the people sitting behind you would agree.
  193. (Mr Miller) That if I may say so, Mr Hancock, misrepresents our position.

    (Mr Ingram) Statements have been made here about the Department's policy of approach relating to answers which have been given in Parliamentary questions. We all know that sometimes interpretations can be different and I do not for one moment accept that the Department, in the way in which it has been described by Mr Hancock, operates in that way. We are very careful, we are very analytical and we are very thoughtful in the way in which we tackle all of these issues. If we come to different conclusions then, of course, it is based upon our assessment, but it not because we are uncaring or indifferent or we do not recognise the importance of the issue. If the answers have been expected today based upon - I do not know whether Mr Hancock has them - the specific Parliamentary questions then I think it is better if we analyse it and look at the interpretation placed upon it and if further clarification is required to set out the Department's position that would help everyone. I am not accepting those charges against us.

  194. Just for the record then, so that we are clear, Mr Miller has just said, and admitted, that the MoD's medical records for some personnel are not all they should be.
  195. (Mr Miller) Indeed.

  196. We know now there is an admission of that in the MoD and it is on the record here. Is it, therefore, fair to change the burden of proof based on what your colleague has just said?
  197. (Mr Ingram) I am also confirming what has been said, there are gaps in the knowledge base. There is no way in which that can be recovered, that gap, because, for whatever reason, that information is no longer there. There is a danger about this because we are, perhaps, dealing with a specific series of claims that are in at present and then try to make the headlines in the back of all of that, and I think that is unfair.

    Mr Hancock: That is a bit unfair!

    Chairman: Hang on, we have 25 minutes to go. We have had the same question three or four times, the Minister has said he will respond. When that response comes if the Committee wishes to take it up further we will only be too pleased to do so.

    Mr Hancock: I am sure the Minister is glad of your protection, Chairman.

    Chairman: Can we have a new question now, please?

  198. Would you then suggest that it is right that fewer successful claimants will now emerge because of the change you made by shifting the burden of proof on to them?
  199. (Mr Ingram) Yes. I do not think there is any other answer than yes, because of the new approach we are adopting. It has to be an attributable injury rather than any injury. If the view is that just because someone is in the Services end they should automatically get a claim that, I think, is not a proper approach. It has to be attributable to Service. What we are seeking to do within that is to give enhanced benefits targeted on that attributable injury. I would suggest, Mr Hancock, that our approach to this benefits those who are in Service, have an injury and then get the benefit of the lump sum and the guaranteed income stream. This is an enhancement in terms of that approach.

  200. Can you explain to the Committee, and for the record, how the new system will cope with the loss or inaccurate medical records and what are you intending to do from now on to improve the system by making sure that records are properly kept?
  201. (Mr Ingram) I will write in detail on this.

    Chairman: We have had this question four times now, I cannot see much point in proceeding.

    Mr Hancock: You might not, Chairman, but there are a lot of people out there ---

    Chairman: Mr Hancock, when you chair a meeting you run it, when you do not chair a meeting I run it.

    Mr Hancock

  202. Then do not just nitpick the questions, Chairman! Can I go on then to the tariff based system of compensation and ask for your opinion. Do you think the tariff is sufficiently flexible to deal with a whole range of illnesses, particularly where there is an unpredictable time scale over which deterioration may or may not occur?
  203. (Mr Ingram) I have said in response to an earlier question on the time limit eligibility that a case has been made and we will examine the validity and strength of that case. We have not closed down on that aspect at all.

  204. Do you think it would be flexible enough to accept there will be a continuing deterioration which might not be readily apparent at the initial stage when an award is made but the situation deteriorates considerably? The tariff is from one quarter of a million down to 1,000. Somebody might get pitched at 25,000 but subsequently be absolutely ruined for life because of the further deterioration. Is it flexible to pick those points up now?
  205. (Mr Miller) We anticipate we will need to have some review arrangement, we have not yet thought that through in any detail.

    : Mr Jones

  206. Is that not vitally important, surely? My experience in terms of dealing with industrial injury cases is part of the compensation is either for future deterioration or future loss. Is it not vitally important that this system cannot be simplistic, as outlined here, because there are quite clearly cases, for example, let us say, breaking a leg, where there might be complications later on in life that might come out of that, surely that has to be taken into consideration?
  207. (Mr Miller) It is important. We will need to give more thought to how we set up any review arrangements.

  208. Is the best way of doing it in terms of the way the courts do it, in terms of a tariff based system to take into consideration what deterioration could take place later on?
  209. (Mr Miller) It might well be.

    Mr Hancock

  210. The real concern, and I would be grateful if you could clarify the MoD's current view on this, is that somebody who has a physical disability, which forces them, one, to leave the Service and to make a successful claim has their life so disoriented by this that in the end psychiatric problems emerge which might necessitate them making a further claim. That has happened to a lot of people, particularly relating to trauma, et cetera, is the scheme flexible enough now to accept that those people could make a separate claim based on the way in which their life and their health has further deteriorated?
  211. (Mr Miller) Mr Hancock, we need to give more thought to the detail of the new arrangements that we incorporate. Clearly it will be necessary for any arrangements we set up to be flexible enough to cope with the sort of circumstances you have outlined.

  212. You have published an example of the tariff system at the present time. Have you currently, as of today, following the publication of that some while ago, decided that there will have to be some significant changes within that tariff range to take on board the consultation?
  213. (Mr Miller) We have said that the tariff figures that we published are only illustrative. We need to give this more thought.

  214. Can I pick up on one thing? It is linked back to time limits, if you are going to put a time limit of three years for people to bring a claim then you have to have some flexibility, otherwise these are going to be payments that are going to close down any claim whatsoever for future claimants or if people have left. It might be, as Mr Hancock is trying to say, something that materialises a few years later and people are not going to claim under the scheme because they are out of time. You have to take that into consideration as well?
  215. (Mr Miller) That is a factor.

  216. I find it remarkable that you have not even looked at this?
  217. (Mr Miller) It is not that we have not looked at it, we have not worked this through in the detail which will be needed before we finalise the scheme. One of the things that we needed to work on, and one of the areas was, frankly, the views and reactions that we got from consultations were going to be important element. One of the things we wanted to establish was whether our adoption of the tariff approach was or was not acceptable to the interested community.

    (Mr Ingram) Can I repeat to the Committee a phrase I have used a number of times, we are still in receive-mode. We are still receiving points of view on all of this. What I said in my opening statement was that we had to, of necessity, lay down a framework to set out our thought processes. It is not all rounded off. It is not topped and tailed. There are inputs still coming in from outside bodies and, of course, this Committee is only now - and I do not mean that nastily - giving consideration to the conclusions you will reach as a Committee, which then feeds into our final thought processes. At the end of the day that which goes up for approval then has to be set against my Ministerial judgments and decisions alongside the Secretary of State's position. There is still a Ministerial examination which has to take place in all of this, based upon the very detailed work that is done within a department and then any counter view that may be out there, and that becomes part of the process of arriving at the final decision.

  218. I accept that.
  219. (Mr Ingram) We have an open approach on this.

    Mr Hancock

  220. My final question relates to the current position, somebody who is out of the Service today but has not made a claim but might decide to make a claim a year from now, maybe relating to Gulf War Service, and the new scheme is implemented, they would be caught out, because they would have left the Service, would they not? Really there is an open invitation to say to all of the Gulf War vets, if you have not launched your claims now you ought to be able to to avoid being caught by the new regulation which will be brought in. Is that true or not?
  221. (Mr Ingram) I will explain it in the way I want to explain it rather than answer if it is true or not. If it relates to a previous period before the commencement of the new scheme then it is the existing scheme which would then apply.

  222. That is fine. If that is on the record then people now exactly where they are.
  223. (Mr Ingram) I have already said that, all claims would be set against the existing scheme.

  224. A claim made after the new scheme has been empowered but relating to service which occurred under the old scheme, would it be covered? Even though they have not made a claim at the start of the new scheme would they be retrospectively covered by the old legislation?
  225. (Mr Ingram) Yes. If it relates to a period prior to the commencement of the new scheme.

    Chairman

  226. The answer is yes.
  227. (Mr Ingram) Yes.

     

    Rachel Squire

  228. Can I turn to a couple of points of view on, perhaps, a rather less complex and contentious area, that is minor injuries, minor injuries that occur amongst serving personnel from which they make a full recovery and from which there is no later complications and they are able to continue their full military careers. The first point of view is, well you have certainly said, Minister, that the prime criteria in the Review is to concentrate resources on the worst effected in the Service, in the Armed Forces. In that case, why are you proposing new lump sum benefits for those who suffer minor injuries and then make a full recovery and are able to serve for the rest of their military career?
  229. (Mr Ingram) Because the lump sum payment is for pain and suffering. If an injury has occurred then the judgment would be made that they have a quantifiable claim and a lump sum is then paid. In the case you have given, where it is a recoverable injury --

  230. A fractured wrist.
  231. (Mr Ingram) -- there is nothing for that because they made a full recovery, they can then carry on their active service career or gainful employment outside once they leave. A lump sum is paid for the pain and suffering due to an attributable injury.

  232. My other question is, I understand that servicemen and women are now able to take out their own personal accident insurance, have you considered whether or not that is a more appropriate way to address such injuries and deal with the pain and suffering as a consequence?
  233. (Mr Miller) Yes, indeed service personnel are able to take out their own insurance. That is not without its difficulties, because the insurance industry does find the extreme conditions of Service life sometimes a little difficult to cope with. We think it is right and proper that we should protect or we should offer the individual some compensation for the pain and suffering he incurs over and above what he may have made arrangements for and paid for privately.

    Rachel Squire: Thank you.

    Mr Howarth

  234. Minister can we look at compensation for loss of earnings. I gather that under your proposals there will be payable a lump sum for pain and suffering which will be determined in the courts on a tariff system but, in addition, Service personnel who are severely disabled will receive a sum to cover potential loss of earnings. This will be calculated as a lump sum but paid in instalments as a guaranteed income stream (GIS). Are there any advantages for the recipient of a lump sum payment paid in this form of a GIS over a War Pension?
  235. (Mr Ingram) You mean instead of paying it as an income stream, paying it as another lump sum?

  236. It seems to me it is an income stream by a different name because it is a lump sum but paid in instalments I have got the formula here which was Appendix 1 to Annex E of your submission to us. It is a lot of hieroglyphics which as I am not a mathematician I do not understand.
  237. (Mr Ingram) I will refer you to a good mathematician but, Barry, you are qualified to deal with that.

    (Mr Miller) I certainly would not meet that particular criterion. We fully accept the arguments that have been advanced by the British Legion that it is undesirable to pay compensation for loss of earnings in severe cases as a lump sum because of the risk that the individual concerned may subsequently become dependent upon the state or on the charity.

  238. Because they cannot manage the lump sum?
  239. (Mr Miller) Because they cannot manage it. That is why we think it is appropriate that the compensation for loss of earnings should be paid as an income stream, in other words should directly replace the pension.

  240. Does this have any advantages over the existing War Pension Scheme which is paid in instalments?
  241. (Mr Miller) From the point of view of the individual it makes little difference. He will get the amount monthly, as it may be, and that is the key issue.

  242. It does look as though there are, as elsewhere, winners and losers. Let me put this to you: what enhancements will Service personnel who are medically discharged with attributable injuries receive under the proposed compensation arrangements compared with the present arrangements?
  243. (Mr Ingram) I would need to offer you a note on that. It is not the sort of thing I can put across the table?

    Mr Howarth: It would be wholly unreasonable of us to try and get you to answer detailed matters like that.

    Chairman: You have got a very good team behind you. Ladies, could you answer the question?

    Mr Howarth

  244. Whilst I am working out some other questions perhaps your noises off can get busy and deal with that.
  245. (Mr Ingram) It is a better way if we reflect on the question and give you a written response. It is a bit unfair to suddenly get a piece of paper thrust into my hand and try and then interpret it. It is better to take the quality of the question and try and get a quality of answer.

  246. I have got two examples here of a winner and a loser. Rather than read it out now, may I write to you and ask you to respond to that?
  247. (Mr Ingram) You are recognising the danger of this. If the wrong answer is given on the basis of misinterpretation then it sets the wrong hare running. It is better we get the question and try and get a precise answer on that basis.

    Mr Cran

  248. Can we move on to the processing of claims. It is an important issue if you happen to be someone who is claiming. The review document says that the aim of the new compensation scheme would be that most cases would be dealt with within a few weeks of submission, yet the Royal British Legion has told the Committee that under the present arrangement it can take anything from six weeks for a simple case to anything up a year for something rather more complicated. You have said in written answers to the Committee that you have not done the detailed work on this. When are you going to do the detailed work? If you could tell us that that would be useful. Secondly, what proportion of the claims under the present system are dealt with within these few weeks? Can you tell us that? Again if you do not have that information it is entirely understood; give it to us in written form afterwards.
  249. (Mr Ingram) On the administration of the scheme we recognise this is an important feature of the acceptability of the scheme in one sense but important also from the Department's point of view to show our duty of care has been properly played out, so there is an onus on us to put in place as effective and as quick a process as we possibly can put in place with all the attendant appeal mechanisms that flow from that. I well understand the concerns that if we put a new scheme in place, it is the same length of time, and it is not as quick and clean as we hope it would be. We have to make a very close examination of this to try and make it as efficient and effective as possible. As we speak --- probably not as we speak because some of the people working on that are sitting behind me so they are not working on it at this precise moment but when they go back to their desks today they may be giving consideration to that. That is not a ministerial direction. I am sure they understand the point I am making on that. In terms of the statistics it is better to have a written response on that.

  250. What causes delays in settling claims at present and what confidence can you give us that the new system will improve upon that which it is replacing?
  251. (Mr Miller) Probably the single largest cause of delay is the need to obtain medical records and consider them individually. The reasons that we think we can improve on existing arrangements are fundamentally because a tariff scheme is clearly easier to administer and quicker to administer than one based on individual assessments. It is essentially a quicker process to decide which particular level of tariff it should be than a report which goes in detail into each condition. The second element that makes us we believe we can do better is because the Department's efficiency experts have been looking at the process and have suggested a number of ways in which improvements can be effected and they will be implemented on the existing schemes.

  252. The MoD memorandum says that "decisions will be taken by non-medical specialists ..." and so on. You know the paragraph. Does that lead me or you or anybody else to conclude that there will be less rigorous investigation of cases? What does "non-medical staff" mean? I know what that means but I want to know what is behind it?
  253. (Mr Miller) It was really just to not leave a misleading impression that decisions were entirely in the hands of the medical profession. The decisions are taken by the individual case officers who have access to medical advice where that is needed. In some cases it would not really be necessary. Quite frankly, if you are dealing with a case of amputation there is no need to employ a doctor. In other cases clearly you would need a medical view as to the nature and implications of the condition.

  254. Just so I can get this right. I have got it in front of me now, the MoD memorandum says under the new scheme "decisions will be taken by non-medical specialists ..." I thought your answer somewhat modified that.
  255. (Mr Miller) No, the decision is taken by the individual case officer who is not medically qualified. They will have access to medical advice where they need it.

    Chairman

  256. We have seven minutes to go and four questions. To speed things along there is a question on the costs of social care that we will forward to you, Minister. There is a further question which I will briefly give and you can briefly answer on civil negligence claims. One of the aims of the Government is proposing new arrangements so that fewer cases would go to court but you have told us since that the consultation document was written without taking account of the civil justice reforms which took place in 1999 and which you now accept have had a significant impact on civil negligence claims. Can you tell us why a document published in 2001 was not able to take into account changes that took place two years earlier?
  257. (Mr Ingram) Barry will deal with this.

    (Mr Miller) Because we are not dealing with negligence cases. The cases that go to court will normally be cases that allege negligence. Obviously there we will reflect the procedures and practice, as indeed we do already in our approach to this. This was not focusing on that area and for that reason the changes in the court process does not really affect what we were proposing.

    Chairman: We have one last question. Kevan Jones?

    Mr Jones

  258. It is around the reasons for this no-fault system. Also, I might add, you have obviously never dealt with many amputations because if you think one amputation is like another and somehow you do not need a medical assessment of what the disability is, you are mistaken. I find it horrifying that you are going to have unqualified people dealing with very complex issues like amputation, for example, because the consequences of those are very different in different situations. It does not bode very well if you think you can have unqualified people dealing with what might be very complex injuries. Is it not a fact that this scheme has been brought in because you have obviously had an increase in terms of civil negligence according to the figures you gave us which from 1997/98 to 2001 have risen by about 64 per cent? Is offering this fixed payment, no-fault scheme as an alternative to stop civil negligence litigation and also is it to stop the rising costs that are facing you and also could it, dare I mention it, even be a way of saving money?
  259. (Mr Miller) The straight answer to your question is no and no. There is no way in which this scheme will stand in the way of individuals who wish to take action against the Government for negligence. That avenue will be open. The reason for adopting no-fault compensation is to provide a system of compensation that does not oblige the individual to pursue us through the courts and all the stresses that that puts on them, which does not mean that they cannot do it if they wish to.

  260. Yes, but do you not also recognise in terms of civil litigation, certainly in my experience of industrial claims, that most of them never go to court anyway?
  261. (Mr Miller) That is perfectly true, yes, but nevertheless we think that no-fault compensation is a sensible approach, again given the particular things we ask of the Services rather than expecting the individual to demonstrate that there was some fault on the part of the Department.

    Chairman

  262. Thank you. I can see now, Minister, why the process has been elongated somewhat. When one is looking at pensions and compensation it certainly raises temperatures and you have to get it right. We look forward to your follow-up memoranda. We will produce our report and no doubt we will meet you again after you produce your report to our report, so this saga will continue over a long period. Thank you very much to you both.

(Mr Ingram) Thank you.