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Chris Leslie: What a splendid idea. If that were the Minister’s purpose, I agree that there would be no reason not to specify it in the Bill. That would normally happen in the case of incidental, supplementary or consequential issues but, of course, many people suspect that that is not what is involved.

I also want to talk about the employer cost cap, which can unilaterally result in staff benefits decreasing or their contributions increasing. What is particularly pernicious is the fact that the Bill exempts such changes from even the meagre protections for consultation with staff under clause 20. That clause deals with the consultations and discussions that should be held with staff, but it explicitly excludes the arrangements for the employer cost cap. Clause 11 provides for the cost cap to be determined entirely by the Treasury with no requirement for parliamentary scrutiny, which means that the Treasury can set the cap at an unreasonable level, or use it to reduce pension benefits unchecked, thereby further undermining the security of schemes for retirement provision.

Other hon. Members raised issues under the assumption that the Government’s commitment to a new defined benefit scheme was enshrined in the Bill. It turns out that the Bill does not, in fact, honour such provision. In fact, clause 7 says that a scheme that may be created is “a defined benefits scheme”, “a defined contributions scheme” or a scheme “of any other description.” The only restriction is that a scheme cannot be a final salary scheme. In other words, the Government are enshrining in the Bill the side of the agreement that benefits the Treasury, but they have left out the corresponding promises that they made to public sector workers.

My right hon. Friend the Member for Wentworth and Dearne talked about the fair deal, as it was known, for public service workers who might be outsourced to a private provider. Following the transfer of employment, they should be entitled to accrue pension benefits that are broadly comparable to those that they would have accrued if they had remained in the public sector scheme. The Government’s promise does not extend beyond the civil service, however. We shall press for a commitment for the benefit of other public sector workers, as there is an anomaly in the Bill that such a commitment is provided only to employees of central Government and not to other public service workers.

I have further anxieties about the Bill. It will tie pension arrangements to the state pension age, but of course that can be changed, with no protection for those approaching retirement. The pegging of the Bill to the state pension age erodes security and certainty about the age at which members of various schemes might receive their pensions. In 2011, the Government gave only eight years’ notice of the state pension age changes, which caused great concern at the time. While we accept that actuarial changes to reflect demographics might need to be made from time to time, the Bill ought to prevent any changes from being made to the normal or deferred pension age for those with 10 or fewer years to go before they are due to retire. It is incredibly important to help people to plan ahead with their pension provision, and the Government should be able to offer a concession to ensure that such planning is possible.

Once upon a time, the Government talked about the Hutton report as something to welcome and take forward, but they have ignored Lord Hutton’s recommendation

29 Oct 2012 : Column 124

that the link between the state pension age and the age at which members of public service schemes receive their pensions should be regularly and independently reviewed. I am told that the Government agreed in negotiations that such reviews would take place, but that is not enshrined in the Bill. I will be more than happy to give way to the Chief Secretary so that he can clarify whether he is going to make a concession by providing for such a review in the Bill—




If he does not wish to clarify that, it will be for us to press that point by tabling amendments in Committee. I know that Ministers will keep an open mind on many of these points.

There are serious problems with questions of governance. Lord Hutton made a number of important recommendations about scheme governance, such as on the implementation of the pension policy group to consider major changes to scheme rules, on the inclusion of nominated members and independent members of pension boards, on ensuring that pension boards are responsible for the oversight of financial management, and on the commissioning of a review into how standards of administration in public service pension schemes can be improved. Such governance measures would improve the efficiency of schemes’ administration and would follow some of the best practice for scheme governance in the private sector, but the Government have not enshrined many of these recommendations in the Bill. Those omissions are important, so I hope that Ministers will look at them.

My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) talked about the importance of local government pension schemes—they are indeed schemes apart. We welcome the fact that the LGPS is funded, but as I said in an intervention, if Ministers are closing the LGPS in 2014, albeit opening new ones going forward, they must explain what will happen to the obligations under section 75 rules relating to the crystallisation of some of those debts? Hon. Members may not realise that academies and third sector organisations such as charities are part of the local government pension scheme. Forcing them to crystallise some of those deficit arrangements at the point at which the existing schemes end and the 2014 schemes begin could be financially crippling and cause major crises. The Bill also centralises a great deal of control and makes a great many anti-localist changes. Changes to the local government pension scheme will transfer power from local authorities to Ministers.

The Bill is enabling, but it is only part of a story and it needs significant amendment. We will not oppose its Second Reading, but I hope that the Economic Secretary will genuinely engage himself in the Committee stage, will keep an open mind, and will work with us on improving protections for public service workers as well as the taxpayer.

9.45 pm

The Economic Secretary to the Treasury (Sajid Javid): I thank Members for the lively debate that we have had this evening. In the short time that I have spent as Economic Secretary, I have been helping the Government to try to get three Bills through Parliament, this being the third. In each case, the Opposition have backed off from calling a Division. I am becoming a little concerned: I hope that that does not become a pattern of behaviour.

29 Oct 2012 : Column 125

The Bill represents a milestone in the history of public service pension provision, and I am not surprised that some Members feel strongly about it. Legislation that affects the pension rights of more than 6 million public servants is worthy of serious consideration and scrutiny.

I think that we should bear in mind the economic backdrop to these reforms. During its last year in government, the Labour party burdened the UK with the largest budget deficit since the second world war and the largest in the developed world. It amounted to £159 billion. Labour was borrowing £5,000 a second, which means that it would have borrowed about £90 million between the moment we started today’s debate and now. [Interruption.] The hon. Member for Leeds West (Rachel Reeves) asks how much we are borrowing. That gives me a good opportunity to remind everyone that we have cut the deficit by a quarter. That is what has brought the country economic credibility, and that is what has kept interest rates low and given us the time in which to make serious long-term adjustments to public spending costs.

Sheila Gilmore: Will the Minister give way?

Sajid Javid: I will in a moment.

Because of their long-term nature, pension reforms will not save money quickly, but they make an essential long-term contribution to the health of public finances. We have heard that today from a number of Conservative Members, including my hon. Friends the Members for Bognor Regis and Littlehampton (Mr Gibb), for Bromley and Chislehurst (Robert Neill), for Monmouth (David T. C. Davies), and for Thurrock (Jackie Doyle-Price). As the Chief Secretary has said, it has been forecast that the Bill will save UK taxpayers £65 billion over the next 50 years.

Richard Fuller: My hon. Friend talks of savings for the taxpayer. Will he admit that this was a golden opportunity for us to convert public sector pensions from a “tax as you go” model to a fully funded scheme, saving future taxpayers billions and bringing true fiscal prudence to the way in which public sector pensions are set? Why has my hon. Friend missed that golden opportunity to go further and save future taxpayers more money?

Sajid Javid: My hon. Friend raised the same issue in his speech. I think it fair to say that that would have involved an excessive fiscal cost, and would have been much more complex than the approach that we have taken. I hope my hon. Friend accepts that.

In preparing this policy, we have been careful to follow the recommendations set out by the former Labour pensions Minister Lord Hutton in his independent report. We have heard much about trade unions today. The head of the TUC, Brendan Barber, whom I met recently to discuss our reforms, has described the report as a “serious piece of work”. He has taken a very constructive approach to the problems that the Government are trying to address.

While we are on the subject of trade unions—

Sheila Gilmore: Will the Minister give way?

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Sajid Javid: I will give way to the hon. Lady in a moment. If I remember correctly, she said in her speech that she was taken aback by the support for the public sector that she observed among Conservative Members. Well, she had better get used to it. My father was a bus driver. He was a proud trade union member, and he was the first person from whom I learned about the importance of our trade unions, and I will never forget that. That is why, in putting this important piece of legislation together, we have been working with trade unions to win their support, and I am pleased we have got it.

I think the hon. Member for Hayes and Harlington (John McDonnell) said that not a single trade union supported our approach. A majority of trade unions have accepted the deal. Unions representing approximately two thirds of members have accepted our proposed schemes.

John McDonnell: The Minister must listen to debates. What I said was that not a single trade union supports this Bill in its current form.

Sajid Javid: As I said, unions representing two thirds of union members have accepted our proposed schemes, and the vast majority of unions have taken a very constructive view.

Sheila Gilmore rose

Sajid Javid: I give way to the hon. Lady.

Sheila Gilmore: I thank the Minister for giving way. I want to take him back to what he said previously. As usual, he chose to frame his comments in the context of the deficit. His Government came to power saying that they would eradicate the deficit within the term of this Parliament. Now, after two and a half years, he says that we should be grateful that he has reduced it by a quarter. His economic policies are not working.

Sajid Javid: I was expecting a lot more than that from the hon. Lady. I am proud that this Government have already cut the deficit her Government left behind by a quarter. That is a significant achievement. The shadow Chief Secretary, the hon. Member for Leeds West, said she was unable to commit to keeping the CPI change we have introduced to public sector pensions beyond the term of this Parliament. According to the Office for Budget Responsibility, that would leave a black hole in the public finances of up to £250 billion in current GDP terms over the next 50 years. I look forward to hearing how the Opposition plan to fill that black hole.

John Healey: The Minister spoke warmly about his father and trade unions. Which trade unions support this Bill as it currently stands? Can he name even one?

Sajid Javid: Since we received the first interim report from Lord Hutton, we have been in negotiations with trade union representatives from almost all the major trade unions. I am pleased to say that most of them have taken a very constructive approach. As I said, trade unions that represent two thirds of trade union members have accepted the schemes we have put forward.

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These reforms are not easy, but they are the right thing to do for the long term because they are in everybody’s interests. We must stop the cost of these pensions spiralling out of control. I shall now turn to some of the issues raised today.

Several Members, including the hon. Members for Banff and Buchan (Dr Whiteford) and for Blaydon (Mr Anderson), mentioned the link between the normal pension age and the state pension age. The reality is that we are all living longer and enjoying healthier lives in retirement. The average 60-year-old is now expected to live 10 years longer than in the 1970s. Pension ages of 60 and 65 were set in times when people spent only a few years in retirement, but that is no longer the case. Some fortunate people spend more years drawing their pension than earning their salary. If everyone is living longer, it is only fair that people work a bit longer, too; otherwise we will be asking those in the private sector to work longer and pay more so that those in the public sector can retire earlier having paid less. We cannot ask those people to pay twice over—once for their own pensions and once for those of public servants.

Let me be clear, however: this Government are not forcing anybody to work for longer. As now, it will remain possible to retire earlier than the normal pension age and draw a reduced pension, subject to any minimum age rules that exist. Of course, any benefits from the current schemes can be assessed in full and reduced at the current pension age for those schemes.

Secondly, I must remind the House that the Government have honoured their commitment to protect the rights of those closest to retirement. The Chief Secretary has made it clear that people who were 10 years or less from their normal pension age on 1 April 2012 will see no change in their pension. The Bill delivers that in clause 16.

Dr Whiteford: I take the Minister back to the point he made a moment ago. Will he concede that most people who give up work early do so not through choice but because their health has collapsed or they have developed long-term debilitating conditions that prevent them from doing their job?

Sajid Javid: The hon. Lady makes a fair point, which is why in many of the schemes, particularly those where that might be a bigger issue, the rules try to take it into account. I hope that she will welcome that.

I do not have much time left and I wish to address some of the specific points that have been made. Some questions were asked about the cost cap embedded in the Bill. That cap is designed as a backstop only, and it will be triggered in unforeseen circumstances that lead to large potential changes in costs. It ensures that cost increases do not go unchecked again, as they did for decades before the introduction of this Bill.

A number of Opposition Members talked of the “cap and share” arrangement put in place by the previous Government as though it meant that no further changes were required to public sector pensions. Let me remind hon. Members of what Lord Hutton said in his report:

“cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer.”

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Had we kept the arrangements introduced by the previous Government, these questions would not have been answered.

A number of hon. Members also talked about opt-outs. As my hon. Friend the Member for Bromley and Chislehurst said, and as my hon. Friend the Member for Gloucester (Richard Graham) explained well, the incidence of opt-outs as a result of the changes to payments that have already been introduced has had no discernible effect on the use of these pension schemes, but the Government will continue to monitor opt-outs and take opt-out data fully into account before making any decisions on individual schemes.

A number of Opposition Members also raised the issue of public sector pay. Again, Lord Hutton’s commission examined that, and said that public sector workers, on average, had higher pay if account was taken of different qualifications, ages and experience levels. That was also borne out in a report by the Institute for Fiscal Studies.

We also heard some questions about the devolved parts of this Bill, with the hon. Member for Banff and Buchan asking a number. I will not have time to go into them all, but she is right to say that for parts of the Bill we will require a legislative consent motion, and we hope that that will be forthcoming. For the small parts of pension legislation where there is some flexibility for Scotland, Scotland has the flexibility to do something differently, but that would involve a change.

Katy Clark: Will the Minister give way?

Sajid Javid: I am afraid I do not have time.

In conclusion, we believe that the changes we have made are generous. They provide a fair settlement and deal with public sector pensions in a manner that is sustainable in the long term. The pensions allowed for under the Bill will continue to be among the best available, providing levels of retirement income that many in the wider economy cannot hope to achieve. There will be tapered protections. Public servants will know how much money they can expect to retire on and will have a greater say in the scheme. I therefore commend the Bill to the House.

Question put, That the Bill be now read a Second time.

The House divided:

Ayes 276, Noes 19.

Division No. 88]


9.59 pm


Afriyie, Adam

Aldous, Peter

Alexander, rh Danny

Amess, Mr David

Andrew, Stuart

Arbuthnot, rh Mr James

Baldry, Sir Tony

Baldwin, Harriett

Barclay, Stephen

Barker, rh Gregory

Barwell, Gavin

Bebb, Guto

Beith, rh Sir Alan

Berry, Jake

Bingham, Andrew

Binley, Mr Brian

Birtwistle, Gordon

Blackman, Bob

Blackwood, Nicola

Boles, Nick

Bone, Mr Peter

Bottomley, Sir Peter

Bradley, Karen

Brake, rh Tom

Bray, Angie

Brazier, Mr Julian

Bridgen, Andrew

Brine, Steve

Brokenshire, James

Browne, Mr Jeremy

Bruce, Fiona

Bruce, rh Sir Malcolm

Buckland, Mr Robert

Burley, Mr Aidan

Burt, Alistair

Burt, Lorely

Byles, Dan

Cable, rh Vince

Cairns, Alun

Campbell, rh Sir Menzies

Carmichael, rh Mr Alistair

Carmichael, Neil

Carswell, Mr Douglas

Cash, Mr William

Chishti, Rehman

Clark, rh Greg

Clarke, rh Mr Kenneth

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Collins, Damian

Cox, Mr Geoffrey

Crabb, Stephen

Crouch, Tracey

Davies, David T. C.


Davies, Glyn

Dinenage, Caroline

Djanogly, Mr Jonathan

Donaldson, rh Mr Jeffrey M.

Dorrell, rh Mr Stephen

Doyle-Price, Jackie

Duddridge, James

Duncan, rh Mr Alan

Duncan Smith, rh Mr Iain

Dunne, Mr Philip

Ellis, Michael

Ellison, Jane

Ellwood, Mr Tobias

Eustice, George

Evans, Graham

Evans, Jonathan

Evennett, Mr David

Fallon, rh Michael

Farron, Tim

Field, Mark

Foster, rh Mr Don

Francois, rh Mr Mark

Freeman, George

Freer, Mike

Fuller, Richard

Garnier, Sir Edward

Garnier, Mark

Gauke, Mr David

George, Andrew

Gibb, Mr Nick

Gilbert, Stephen

Gillan, rh Mrs Cheryl

Glen, John

Goldsmith, Zac

Graham, Richard

Grant, Mrs Helen

Gray, Mr James

Grayling, rh Chris

Green, rh Damian

Greening, rh Justine

Grieve, rh Mr Dominic

Griffiths, Andrew

Gummer, Ben

Gyimah, Mr Sam

Hague, rh Mr William

Halfon, Robert

Hames, Duncan

Hammond, rh Mr Philip

Hancock, Matthew

Hands, Greg

Harper, Mr Mark

Harris, Rebecca

Haselhurst, rh Sir Alan

Hayes, Mr John

Heald, Oliver

Heath, Mr David

Hendry, Charles

Herbert, rh Nick

Hinds, Damian

Hoban, Mr Mark

Hollingbery, George

Hollobone, Mr Philip

Holloway, Mr Adam

Hopkins, Kris

Horwood, Martin

Howell, John

Hughes, rh Simon

Huhne, rh Chris

Huppert, Dr Julian

Hurd, Mr Nick

James, Margot

Javid, Sajid

Jenkin, Mr Bernard

Johnson, Gareth

Jones, Andrew

Jones, rh Mr David

Jones, Mr Marcus

Kawczynski, Daniel

Kelly, Chris

Kirby, Simon

Knight, rh Mr Greg

Kwarteng, Kwasi

Laing, Mrs Eleanor

Lamb, Norman

Lancaster, Mark

Lansley, rh Mr Andrew

Latham, Pauline

Leadsom, Andrea

Lee, Jessica

Lee, Dr Phillip

Leech, Mr John

Lefroy, Jeremy

Leigh, Mr Edward

Leslie, Charlotte

Lewis, Brandon

Lewis, Dr Julian

Liddell-Grainger, Mr Ian

Lidington, rh Mr David

Lloyd, Stephen

Lopresti, Jack

Lord, Jonathan

Loughton, Tim

Lumley, Karen

Macleod, Mary

Maude, rh Mr Francis

Maynard, Paul

McIntosh, Miss Anne

McLoughlin, rh Mr Patrick

McPartland, Stephen

Menzies, Mark

Metcalfe, Stephen

Mills, Nigel

Milton, Anne

Moore, rh Michael

Mordaunt, Penny

Morgan, Nicky

Morris, Anne Marie

Morris, James

Mosley, Stephen

Mowat, David

Mulholland, Greg

Munt, Tessa

Murray, Sheryll

Murrison, Dr Andrew

Neill, Robert

Newmark, Mr Brooks

Norman, Jesse

Nuttall, Mr David

O'Brien, Mr Stephen

Ollerenshaw, Eric

Opperman, Guy

Ottaway, Richard

Paice, rh Sir James

Parish, Neil

Pawsey, Mark

Penning, Mike

Penrose, John

Percy, Andrew

Perry, Claire

Phillips, Stephen

Pickles, rh Mr Eric

Pincher, Christopher

Poulter, Dr Daniel

Prisk, Mr Mark

Pugh, John

Raab, Mr Dominic

Randall, rh Mr John

Reckless, Mark

Redwood, rh Mr John

Rees-Mogg, Jacob

Reevell, Simon

Reid, Mr Alan

Rifkind, rh Sir Malcolm

Robertson, rh Hugh

Robertson, Mr Laurence

Rosindell, Andrew

Rudd, Amber

Ruffley, Mr David

Russell, Sir Bob

Rutley, David

Sanders, Mr Adrian

Sandys, Laura

Scott, Mr Lee

Selous, Andrew

Sharma, Alok

Simmonds, Mark

Simpson, Mr Keith

Skidmore, Chris

Smith, Miss Chloe

Smith, Henry

Smith, Julian

Smith, Sir Robert

Soubry, Anna

Spelman, rh Mrs Caroline

Spencer, Mr Mark

Stephenson, Andrew

Stevenson, John

Stewart, Bob

Stewart, Iain

Streeter, Mr Gary

Stride, Mel

Stunell, rh Andrew

Sturdy, Julian

Swales, Ian

Swayne, rh Mr Desmond

Swinson, Jo

Swire, rh Mr Hugo

Syms, Mr Robert

Teather, Sarah

Thurso, John

Timpson, Mr Edward

Tomlinson, Justin

Tredinnick, David

Truss, Elizabeth

Tyrie, Mr Andrew

Uppal, Paul

Vaizey, Mr Edward

Vara, Mr Shailesh

Vickers, Martin

Walker, Mr Charles

Walker, Mr Robin

Ward, Mr David

Watkinson, Angela

Webb, Steve

Wharton, James

Wheeler, Heather

White, Chris

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Willetts, rh Mr David

Williams, Mr Mark

Williams, Stephen

Williamson, Gavin

Wilson, Mr Rob

Wilson, Sammy

Wollaston, Dr Sarah

Wright, Jeremy

Wright, Simon

Yeo, Mr Tim

Young, rh Sir George

Zahawi, Nadhim

Tellers for the Ayes:

Joseph Johnson


Jenny Willott


Anderson, Mr David

Clark, Katy

Connarty, Michael

Cunningham, Mr Jim

Durkan, Mark

Edwards, Jonathan

Flynn, Paul

Hepburn, Mr Stephen

Hosie, Stewart

Long, Naomi

Lucas, Caroline

MacNeil, Mr Angus Brendan

McDonnell, Dr Alasdair

McDonnell, John

Ritchie, Ms Margaret

Skinner, Mr Dennis

Weir, Mr Mike

Whiteford, Dr Eilidh

Wishart, Pete

Tellers for the Noes:

Jeremy Corbyn


Hywel Williams

Question accordingly agreed to.

29 Oct 2012 : Column 129

29 Oct 2012 : Column 130

Bill read a Second time.

29 Oct 2012 : Column 131

Business without Debate

Public Service Pensions Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Public Service Pensions Bill:


1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 22 November 2012.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Greg Hands.)

Question agreed to.

Public Service Pensions Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Public Service Pensions Bill, it is expedient to authorise—

(1) the payment out of money provided by Parliament of—

(a) any expenditure incurred under or by virtue of the Act by a Minister of the Crown, and

(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided, and

(2) the charging on and payment out of the Consolidated Fund of any pension or other sum payable under or by virtue of the Act to or in respect of the judiciary.—(Greg Hands.)

Question agreed to.

29 Oct 2012 : Column 132

Business of the House


That at the sitting on Wednesday 31 October, notwithstanding the provisions of Standing Order No. 16 (Proceedings under an Act or on European Union documents), the Speaker shall put the Questions necessary to dispose of proceedings on the Motion in the name of Greg Clark relating to Multiannual Financial Framework not later than three hours after their commencement or at 7.00 pm, whichever is the earlier; and such Questions shall include the Questions on any Amendments selected by the Speaker which may then be moved.—(Greg Hands.)


Mr Speaker: With the leave of the House, we will take motions 5, 6, 7, 8 and 9 together.



That Rosie Cooper be discharged from the Administration Committee and Mr Keith Vaz be added.

Communities and Local Government

That George Hollingbery be discharged from the Communities and Local Government Committee and John Stevenson be added.

Culture, Media and Sport

That Damian Collins and Dr Thérèse Coffey be discharged from the Culture, Media and Sport Committee and Angie Bray, Conor Burns and Tracey Crouch be added.


That Dr Daniel Poulter be discharged from the Health Committee and Andrew Percy be added.

Work and Pensions

That Harriett Baldwin, Andrew Bingham, Karen Bradley, Oliver Heald and Brandon Lewis be discharged from the Work and Pensions Committee and Mr Aidan Burley, Jane Ellison, Graham Evans, Nigel Mills and Anne Marie Morris be added.—(Geoffrey-Clifton Brown, on behalf of the Committee of Selection.)

29 Oct 2012 : Column 133

Local Government Finance

Motion made, and Question proposed, That this House do now adjourn.—(Greg Hands.)

10.16 pm

Graham Jones (Hyndburn) (Lab): I wish to raise the issue of 12 district councils that face substantial reductions in the overall funding they receive as a consequence of the proposed reforms to local government finance. The councils affected are Great Yarmouth, Bolsover, Barrow-in-Furness, Hastings, Pendle, Preston, Chesterfield, Copeland, Thanet, Breckland, my own constituency of Hyndburn, and that of my neighbour, the hon. Member for Burnley (Gordon Birtwistle).

I welcome the Minister to his place and congratulate him on his promotion; I hope it is successful. However, its great irony in the context of this debate is that he is now the Minister responsible for making the decision on funding. To add to the irony, his council is the one most affected, with a reduction of £3.167 million—equivalent to a 29.3% reduction in core spending. Another irony is that because my researcher took ill last week, I have had the assistance of a researcher who works for my hon. Friend the Member for Luton South (Gavin Shuker), Lara Norris, who is hoping to be Labour’s prospective parliamentary candidate in the Minister’s seat, Great Yarmouth. I thank her for her out-of-hours commitment.

The nub of the issue is that most of these 12 councils face a reduction in Government support of over 22% despite the Chancellor’s suggestion in the autumn statement of 2010 that no authority will suffer cuts greater than 8.8%. In 2012-13, the transition grant was provided to authorities whose spending power would have decreased by that figure. All 12 authorities are shire districts, and 10 of them are among the most deprived districts in England, according to the English indices of deprivation. Tonight’s debate is intended to make the case that the Government’s proposals on creating a new funding baseline should include the historical amounts that councils have previously received but apparently may now lose.

Local government finance is an area of deep complexity that central Government have struggled with for decades. Numerous weighty tomes have been produced on suggested reforms. This Government and the previous Government have taken steps to try to ensure that the system is fair and flexible, and, most importantly, meets the needs of the vast majority of the citizens of the UK. Over many years, the basis of Government funding to local authorities has been a national needs assessment that attempts to determine how much central funding should go to each local council.

Gordon Birtwistle (Burnley) (LD): The hon. Gentleman is making a very strong case on behalf of the 12 district councils. Without the funding, our cuts in Burnley will be 28.7%. This situation arises from a history of make-up money that the previous Administration gave us over a few years and that has now been rolled up and is needed by the authorities. Does the hon. Gentleman agree that the authorities have done everything they can to balance their books and make themselves more efficient, but they would never be able to manage without that money?

29 Oct 2012 : Column 134

Graham Jones: I am grateful to the hon. Gentleman for his comments, which I will address as I go along.

The system deals with more than £20 billion each year and funds more than 400 local councils, police and fire authorities. It is based on a vast array of data capture, statistical calculations, needs assessments, local taxation and an overall limit of the funding available. The Department for Communities and Local Government does its very best to produce a workable and fair system, and by and large the system is able to do that for the majority of councils. I believe that all Members accept that basis for local government financial settlement.

Successive Governments have recognised, however, that this imperfect system does not deliver the money needed at a local level in particular cases, especially those relatively small and few in number district councils that face severe depravation issues. District councils such as mine in Hyndburn and neighbouring councils such as Pendle and the hon. Gentleman’s in Burnley, as well as others further south, such as Great Yarmouth and Hastings on the south coast, are all disadvantaged by the complexities of the current system, which is not able to place the money collected centrally through taxation into local people’s hands in a systematic way.

All Governments have recognised the additional challenges faced by the most economically disadvantaged district councils and have provided specific additional funding to them over many decades in order to correct those deficiencies. This has been done by a series of extra Government grants under a variety of names, most recently by the current Government through the transition grant. This money recognises the additional challenges that these councils face and that the overall national system of sharing funds between all councils is simply not sophisticated enough to deliver what is needed and what is fair to the handful of district councils that face the same challenges as some of the most deprived urban areas in our metropolitan areas.

I do not believe that this is a race to the bottom or a party political issue. My own constituency, Hyndburn, was Conservative-run for 12 years until last year, yet made the empirical case for extra funding repeatedly. Similarly, Great Yarmouth was Conservative-run for 11 years until last year and has been predominantly Conservative since 1973. Pendle has nearly always had a Lib Dem or Conservative-led council. Hastings has had a Labour-run council for only six of the past 40 years and Burnley has been Liberal Democrat-run for 10 of the past 13 years. Pendle, Burnley, Great Yarmouth, Thanet, Breckland and Hastings all have Conservative or Liberal Democrat MPs. Those constituencies are deprived—they range from 11th to 58th out of the 350 or so local authorities—and it is the economic disadvantages that they face that create the depravation.

I know that there is some concern that the previous methodology of providing additional funding through a series of non-mainstream grants year after year to the most deprived areas appears to be a perverse incentive. However, I cannot accept that Liberal Democrat and Conservative councils and councillors have the ambition of creating greater deprivation or that their vision is simply cash handouts from the Treasury. Hyndburn council has an ambition—and this funding will help it to achieve it—to lift Hyndburn out of the 100 most deprived constituencies in the country and to be in a position whereby local circumstances are conducive to

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a better local economy that will result in greater prosperity for the people it represents. An 8.8% cut in funding is a serious enough financial blow to the ability of these authorities to meet their ambitions for their residents without it being escalated unfairly and, I would add, cruelly to a 20% to 30% cut.

The Government now have the opportunity, through the changes they are making to local government finance, to embody the transitional funding that those councils have previously received into their baseline funding. By taking that simple step of adding the previous transitional grant to the baseline funding for the 12 most deprived councils, the Government can permanently ensure that the previous practice of local government funding based on evidence and need remains. Without that simple step, there is a danger that those councils, which deal with some of the most economically challenged areas of the country, will, because of the quirks of the distribution methodology and the inability to achieve precision, have significantly less resources to deal with their challenges.

The overall level of funding needed to help solve the problem is very small, at about £20 million, but it would make a vast difference to what the councils in question can achieve, as it would represent a significant proportion of what they can spend. In the case of my council, Hyndburn, the money that the public face losing through general taxation—for it is their money, their council—is the equivalent of almost 24% of its net budget.

I worry that the sheer scale of cuts facing the councils in question may force them to make obscene decisions. I am sure the Minister will argue that Conservative and Liberal Democrat councils did not waste money when they were running the authorities I have mentioned. There is no fat to cut from them and there are no efficiencies to be made. They have already made efficiencies for several years, and most notably for the past two years. It is worth adding that as district councils they have very small overheads.

The 20% to 30% cuts to the core funding of those councils cannot be made simply through efficiencies. They can be made only through large cuts and the axing of services. In a survey of readers of the Eastern Daily Press, which covers Great Yarmouth, nearly half the 750 residents asked stated that they would want council tax to be increased by the maximum possible should transitional relief be lost. Some 41% wanted to introduce car parking charges, and when it came to cuts the arts and sports came top of the list. I would not be shocked if obscene decisions were made to meet the cuts, such as collecting rubbish every four weeks or selling off parks that do not have a protective covenant.

It is not perverse to ensure that the 12 district councils in question have the funds that they need to deliver the economic regeneration required in their areas. Adding to their funding the amounts that were previously allocated to them through the transitional relief grant is necessary and fair. That £20 million should be rolled into their baseline funding on a permanent basis under the new arrangements, to ensure that they do not receive a disproportionate cut above the 8.8% ceiling. Let us remember that some councils received no cut at all, or only a small reduction, in the 2010 autumn statement. The councils in question face the maximum reduction in funding and the loss of transitional relief, and asking

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them to shoulder unfair cuts will have a dramatic impact in areas that remain some of the most challenging in the country.

Mr Dennis Skinner (Bolsover) (Lab): I congratulate my hon. Friend on raising the matter. His argument on behalf of the towns in question is very important. In Bolsover, every single pit was closed within a space of 10 years following the 1984-85 strike, and every single textile mill was closed at the same time. That thrust Bolsover into the few most deprived councils, which is why, like he says, it needs help.

Graham Jones: I am grateful to my hon. Friend. His council faces cuts of £1.93 million, the equivalent of 25.9% of its core funding. In Hyndburn, similarly, devastating economic impacts over the decades have made it hard for the constituency to compete economically. The loss of the cotton industry was the start of that. There now needs to be infrastructure investment in such areas, so that they can compete economically with others.

The figure involved is small—£20 million in the context of an overall budget in excess of £20 billion. Finding the £20 million needed from that £20 billion so that we can continue to have a fair settlement for the 12 district councils in question would require an adjustment of only one hundredth of 1%.

10.29 pm

The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis): I congratulate the hon. Member for Hyndburn (Graham Jones) on securing this debate. He has comprehensively set out the pressures that many of us recognise are facing the 12 local authorities in receipt of the 2012-13 transitional relief, as well as highlighting the potential consequences of removing that funding.

The transition grant was paid in 2011-12 and 2012-13 to local authorities that would otherwise have seen a reduction in revenue spending power of more than 8.8% in either year, based on spending power figures as set out in the provisional 2011-12 settlement. The hon. Gentleman will know from the consultation undertaken last summer, following the local government resource review, that the transition grant was not included in the establishment of the baseline for 2013-14. That is because the grant was only ever intended as a one-off, temporary funding stream. Councils will have realised that from the fact it was referred to as a transition grant.

The hon. Member for Burnley (Gordon Birtwistle) made a strong case for those councils that have done excellent work to reduce their overheads, but that is not the case for all councils. The hon. Member for Hyndburn name-checked and promoted my constituency of Great Yarmouth a number of times in his speech, and I am grateful for that. However, that is a good example of an authority that did a lot of work towards shared services and management structures, right up until this year when the Labour council came in and put an end to that. The council is now trying to find the money that it had pledged not to spend, and it realises that it should have gone ahead with the shared services deal that it stopped, thereby saving itself a huge amount of money. The council now has a transition grant that it has not used for any transitional work. At the moment, it is

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looking at large potential payoffs for chief executives, which it argues is for the purposes of efficiency. That is not the kind of good work to cut back on costs that the hon. Gentleman highlighted and that has taken place in some local authorities.

Graham Jones: I appreciate the Minister giving way given that I took some time for my speech, but this is not a party-political issue. Most of the authorities involved were controlled by the Liberal Democrat or Conservatives over the period in question—as the Minister accepted—and the problem to which he refers in his constituency is perhaps a legacy issue with the chief executive. I would not like to make this a party-political issue. It is much broader and longer than that, and membership of these councils has come from parties on both sides of the Chamber.

Brandon Lewis: The hon. Gentleman makes a fair point, but we must be clear that his party stood in an election this year saying that it would not do shared services. It won that election and got the political mandate to do that, but it cannot now expect the taxpayer to cover that political vanity. It has to find those savings; it was a transition grant. If they were doing the right thing, councils will have used those grants to find savings and prepare themselves for when the grant ends, as it was always intended to do.

I am aware of the concerns about possible financial pressures raised by local authorities such as Hyndburn. A number of responses to the Department’s technical consultation on the business rate retention scheme raised queries relating to the funding of a transition grant. Those queries deserve full consideration, and I am sure the hon. Gentleman will understand it when I say that the Government will consider carefully all the responses that the consultation received before finalising the design of any scheme. I have also received a number of letters directly, and met people and heard direct representations from councils. I am meeting another group of councillors —including from Great Yarmouth—over the next few weeks.

Let me be clear about why we are introducing changes to the funding of local government from next April, as that will clearly have a knock-on effect and have an impact on the situation. Allowing local authorities to keep a share of business rates will deliver a radical reform of local government funding. It will put a strong financial incentive for economic growth at the heart of the local government funding system. Currently, councils that succeed in attracting new businesses bear burdens—for example, a bigger bill for street cleaning in order to look after busier roads. Under the current funding system, councils do not see any direct financial benefit from those successes. That is why we are introducing proposals that will enable local authorities to keep a proportion of locally collected rates to help fund the services that they provide. That will create direct links between rates collected and local authority income, thereby increasing the financial incentive for local authorities to drive economic growth.

Graham Jones: The Minister makes a good point, but it is almost as if he is re-reading a speech about the new homes bonus. There is no housing market in Hyndburn. We need investment in infrastructure, skills and apprenticeships, and, as he said, we need to clean up the

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industrial estates and attract business. Without the funding, we do not have the levers to make that an attractive proposition.

Brandon Lewis: I will come to the new homes bonus, but I would hope that local authorities have been doing what he suggests with the transition grant to do their part for the local community’s economic growth. The incentive in the business rate scheme is there to drive that and to provide greater flexibility and freedom for local authorities to make decisions and manage their budgets efficiently.

As the hon. Gentleman suggested in his speech, for too long, the finance system has encouraged a sense of dependency. Councils have competed with one another in a race to the bottom to present themselves as being more deprived than their neighbours to secure more handouts from central Government. In place of that system, this Government have set out reforms that could deliver a £10 billion boost to the wider economy in the period up to 2020. Councils will have a key role in growing their local economy through the planning system, local transport investment and other levers of which they wish to take advantage. The business rates retention scheme will give councils every possible incentive to create the conditions for local growth.

The new homes bonus, which the hon. Gentleman mentioned, is another way in which local authorities can increase the funding they receive. We have established the bonus as a powerful, simple, transparent and permanent incentive for local communities to increase their aspirations for housing growth. In 2012-13, only the second year of the scheme, we will pay out a total of nearly £432 million to local authorities in England, with an average payment of £1.2 million. The figures will be higher in 2013-14, because they will include the year 3 allocations.

Graham Jones: The Minister makes a powerful argument for some parts of the country, but not for the 12 authorities. Does he agree that it is not in local authorities’ gift to purchase houses? It is a question of whether there is demand in the market. Without the infrastructure and the attraction, and the jobs and skills, there is no housing market. The new homes bonus is therefore perverse in those 12 areas.

Brandon Lewis: The hon. Gentleman tempts me into creating a fictitious market in any given area. The reforms, including the new homes bonus and business rate retention, are part of a package. No one magic wand will fix every problem. The package will encourage local authorities to develop their infrastructure and economy. The business rate retention could bring about economic growth, and therefore there will be demand for building the right houses in the right areas, which will mean that local authorities can benefit from the new homes bonus.

For each new build, conversion, long-term empty home returned to use or new Traveller’s pitch, a council receives a sum equivalent to the national average council tax for that band. For one band D home, the council would receive £1,439 each year for six years, which comes to more than £8,500. There is also a premium each year for every additional affordable home. I therefore strongly encourage local authorities to take

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advantage of the opportunities that the new homes bonus provides, not only to improve the supply of housing, but to help increase their income.

Let me return to the business rates retention scheme. The detail of our proposals will enable local government as a whole to keep 50% of the business rates. Some have said that local authorities should keep all business rates, which is not realistic. We have been clear from the beginning that, within a business rates retention scheme, some business rates income would need to be retained by central Government so that the scheme operates within the existing spending control totals.

A 50:50 split means that, although central Government benefit from a share in growth, they also share any risks with local government. Crucially, we have made it clear that all the money will be returned to the local government sector in the form of grants. We have proposed that the local share of the business rates will be split between lower and upper-tier authorities on an 80:20 basis, with 80% going to the districts. That ensures that the strongest incentive is placed on the tier responsible for the planning decisions that are often the key driver for growth.

Two-tier councils also have a greater degree of protection. All two-tier county councils will be top-up authorities. Top-up amounts will be uprated by the retail prices index, thereby ensuring that counties benefit from more protection and less volatility in their budgets. That will help them to maintain their service levels while providing them with the opportunity to benefit from a proportion of growth in their area. The scheme will also include further protections, in the form of a safety net, for those cases where business rate income falls by a certain amount. This will help to ensure that support is available to local authorities who suffer from significant shocks to their incomes, such as the closure of a major local employer—as has happened in the past, as the hon. Gentleman has said.

We have consulted on the appropriate level at which this support should be available. We have proposed that

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it should kick in at a point between 7.5% and 10%—a range that reflects the need to balance protection, incentive and affordability. The safety net is to be funded by local authorities through a levy on those authorities benefiting from disproportionate growth. The levy arrangements will ensure that adequate levels of funding are available for the safety net, but it will also operate in such a way as to ensure that there is no absolute cap on growth—the more a local authority grows its business rates revenues, the more it will benefit from growth.

Our proposals for business rate retention will provide a real incentive for all local authorities to be proactive in taking decisions that will help to deliver growth and jobs in their areas and to receive a financial reward for those efforts. We recognise, of course, that different areas will have different opportunities, as the hon. Gentleman pointed out, and different challenges. We are confident that these proposals have the right balance of incentive and support.

I hope that my remarks have highlighted the opportunities that our new funding reforms will offer to local authorities through the business rate retention scheme, as well as some of the other opportunities available, such as the new homes bonus. I appreciate that we are also considering the response to this summer’s technical consultation, and we are preparing for the settlement we will put forward in December. Let me be clear that at the moment it is too soon to offer any certainty on decisions about transitional funding. However, as I said at the beginning, I am actively aware of the situation—with my own authority being involved, how could I not be?—and I am actively considering all the views that we have received from across the piece for the need for transitional relief funding for 2013-14. I will be able to inform the House further on that issue should we be able to develop any proposals in December.

Question put and agreed to.

10.41 pm

House adjourned.