Public Service Pensions Bill
We come to the second of our two sessions with the cabinet secretary, which relates to our consideration of the Public Service Pensions Bill legislative consent memorandum. Accompanying the cabinet secretary are Stuart Foubister—I hope that I have said that correctly—from the Scottish Government and Chad Dawtry from the Scottish Public Pensions Agency. I invite the cabinet secretary to make an opening statement that explains the LCM.
Thank you, convener. I welcome the opportunity to discuss with the committee the legislative consent memorandum that concerns certain components of the UK Government’s Public Service Pensions Bill.
As the committee will be aware, I made a statement to Parliament on public service pension reform on 28 November, in which I set out the Scottish Government’s position on the UK Government’s approach to these wide-ranging reforms. I also ensured that the Parliament was aware of the Chief Secretary to the Treasury’s request that the Scottish Government should support a legislative consent motion relating to certain provisions in the draft bill that encroached on devolved matters; our consideration of that request and our decision not to give it support; and the opportunity that existed to consider the matter by discussing the legislative consent memorandum that is before the committee.
I will make a number of points on the legislative consent memorandum. The UK Government asked the Scottish Government to support a legislative consent motion that would, in effect, allow Westminster to take decisions on devolved pension schemes for six non-departmental public bodies and a small number of holders of devolved judicial roles. The Scottish Government believes that the Scottish Parliament, not the Westminster Parliament, should decide on the terms of pensions for public service workers in Scotland. Consequently, I was not willing to lodge the legislative consent motion that the Chief Secretary to the Treasury proposed.
There has been some debate about the scope of potential legislative consent. The Scottish Government does not believe that the UK Government is required to seek the support of the Scottish Parliament for primary legislation to make changes to public service pensions in Scotland beyond those that are covered in the memorandum that we are considering. As all the main pension schemes—those for local government, national health service workers, teachers, police officers, firefighters and civil servants—are only executively devolved to Scottish ministers or are entirely reserved, Westminster continues to set the main terms for those schemes.
In his request that we support the LCM, the chief secretary gave an undertaking that the provisions in question would be removed from the bill if the Scottish Government did not support the LCM. When I wrote to the chief secretary on 28 November 2012, I indicated that I would not agree to his request. I am pleased to confirm that the UK Government has already begun the process of making the necessary amendments to the bill to remove those provisions.
The Scottish Government remains opposed to the way in which the UK Government has conducted the pension reforms in general. Its directive approach on employee contribution increases has left us no alternative other than to introduce them in Scotland, and its piecemeal approach to policy development has lacked transparency and has resulted in a continued lack of certainty over its policy intentions.
As far as devolved pension arrangements are concerned, I have already indicated to Parliament that the Scottish Government will continue to take an inclusive, evidence-based approach to any further reform. That means using independent advice to assess the financial health of the schemes in question and the benefits that they provide. If change is necessary, it will be made in conjunction with the organisations themselves and with the support of legislation, if that is required.
The Scottish Government has set out its views in the legislative consent memorandum, which I am happy to discuss with the committee.
Thank you very much, cabinet secretary. I do not have any questions for you, as you answered the questions that I was going to ask in your opening remarks. I invite questions from colleagues.
I want to ask just one question. The financial implications section of the committee’s paper on the LCM states that the financial impact of not meeting the stipulated date “would be limited”, because of the small number of people involved. Can you give us any indication—even an estimate—of the kind of figures that we are talking about?
The total number of people involved in the schemes is 1,750, which is 0.3 per cent of the total membership of Scottish schemes. The financial implications are therefore of a minimal level.
Are we talking tens of thousands or hundreds of thousands of pounds?
I do not want to give a figure at this stage, but the numbers are very small. As I indicated, we will undertake an assessment of the financial health of the relevant schemes and formulate a view as to whether any reform is required in due course and determine any actions that are required to ensure the fiscal sustainability of the schemes.
I have a quick question about the process by which we have arrived here. The Scottish Government’s legislative consent memorandum states:
“There was minimal formal engagement by the UK Government prior to the introduction of the Bill.”
Can you quantify how that compares to the normal experience of consultation where the UK Government is seeking this Parliament’s legislative consent?
The UK Government advised me on 4 September 2012 that a legislative consent memorandum would be required for the bill. That was seven working days prior to the bill’s introduction in the House of Commons on 13 September 2012. That is completely and utterly at odds with the normal course of events, which would involve significant consultation. As Mr Hepburn will appreciate, a bill of the complexity of the Public Service Pensions Bill requires tremendous preparation, scrutiny and dialogue on a whole host of different questions, so we would normally be very much involved in the process very early on. However, those were the circumstances in this case.
I agree with your decision not to have a motion on the bill. More generally, is there a clear dividing line between what is executively devolved and what is reserved under primary legislation? Many of us received emails suggesting that there was perhaps some doubt about what that dividing line is.
Let me try to give the committee some clarity on that point. Essentially, schedule 5 to the Scotland Act 1998, at section F3, defines pension schemes as a reserved matter. As I said, that includes the local government, NHS, teachers, police and fire schemes. Ultimately, therefore, the United Kingdom Government has the ability to introduce primary legislation to change any of those schemes.
For example—I have had meetings with various trade unions to explain this position—the local government pension scheme, which is a final salary scheme, is perfectly financially sustainable at the present moment, but the United Kingdom Government legislation will say that final salary schemes must end. Essentially, primary legislation can be used to specify the character of individual schemes, and it can also be used to set out particular constraints. For example, a requirement to ensure that all schemes have the normal pension age and the state pension age as one and the same thing can be specified in primary legislation.
Various elements of the schemes are executively devolved. However, under the bill, Treasury consent will be required for any so-called “cost-sensitive” issues. That says to me that there will be a great deal more scrutiny by the Treasury of the components of pension schemes than has been the case in the past.
Is that why there is provision on the level of contributions? Will the Treasury invoke that to penalise you if you allow smaller contributions?
Contributions are slightly different. The increases in contribution rates in the short term are not about pension schemes but simply about contributions to the public purse—they do not make the pension schemes any stronger but simply make a contribution to deficit reduction. They also create a platform for deciding the size of the cost envelope that is available to support pension schemes, which ultimately determines the future scale and scope of individual pension schemes and the degree of flexibility that we can have in the process.
So the issue of contributions is not covered by the legislation as such. The Treasury would invoke that simply for public expenditure control.
That is correct.
As there are no further questions, I thank the cabinet secretary for his evidence this morning both on our inquiry into demographic change and on the LCM. I will allow the cabinet secretary and his officials to leave before we discuss the LCM further.
Colleagues, the committee will now consider the evidence given by the cabinet secretary on the LCM. The committee has to report to Parliament on the LCM. Are there any issues that members wish to raise in our report? Are members content for our report simply to refer to the Official Report of this evidence session?
Members indicated agreement.
Are members content with the terms of the legislative consent memorandum and are they content to report accordingly?
Members indicated agreement.
We now move into private session, as was agreed at the beginning of the meeting. I will allow the public and the official report staff to leave before we move on to item 5.
11:01
Meeting continued in private until 11:03.