Public Service Pensions Bill
The next item of business is a statement by John Swinney on the United Kingdom Public Service Pensions Bill—legislative consent motion. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.
14:40
I welcome the opportunity to make a statement on public service pension reform. I begin by putting on record this Government’s commitment to public service pensions that are affordable, sustainable and fair, and our gratitude to those who deliver high-quality public services across Scotland. I know the value that Scotland’s communities place on effective, responsive public services, and I look forward to decisions on all the terms and conditions of Scotland’s public service workers being taken here in Scotland.
However, that is not the current position. The majority of pensions policy remains reserved. The UK Government sets the basic terms for public service pensions in Scotland, and I have been pressing UK ministers to give clarity on the extent to which they plan to allow the Scottish Government to decide the detail of Scottish schemes and on their position on the second year of employee contribution increases. Such clarity is vital to enable us to pursue discussions in good faith in Scotland. That clarity has emerged only recently, and I regret that it has taken such a long time for the UK Government to be clear.
Beyond all else, what has emerged is that the UK Government has conflated the approach to public sector pension reform with its austerity agenda. Her Majesty’s Treasury is intent on raising more than £6 billion of extra revenue from additional pension contributions, £0.5 billion of which is to come from Scotland alone. That is deficit reduction; it does not improve the sustainability of pensions.
We believe that pension reform should be taken forward in partnership with public sector workers rather than being imposed by Treasury direction. We believe that, at a time of wage restraint and financial hardship, it is wrong to ask public employees to pay more for their pensions in this way, but the simple reality is that, once again, the UK Government has threatened punitive financial penalties that would hit public services across Scotland if we break from the constraints that it has imposed.
It is against that background that I can update Parliament on four key aspects of pensions policy: the UK Government’s approach to employee pension contributions in 2013-14 and the Scottish Government’s response; the latest position on long-term pension reform and how it relates to Scottish pension schemes; issues of competence that are raised by the UK Government’s Public Service Pensions Bill; and the next steps here in Scotland.
On employee contributions in the short term, the Scottish Government has repeatedly set out its opposition to the UK Government’s policy of increasing employee contributions at this time and in this way, including during debates in the chamber on 17 and 30 November 2011, so it is with regret that I must relay that the UK Government has confirmed, in a letter to me that is dated 22 October, that it expects increased employee contributions in Scotland from April 2013, for a second year. In that letter, the Chief Secretary to the Treasury confirms:
“In line with our normal funding rules, in the event that the Scottish Executive chooses not to implement the further increases in contributions, the Treasury would make an according adjustment to the Scottish Executive Budget. Similarly, in the event of any time overrun beyond April 2013 the Treasury would have to reduce the Scottish Executive Budget by £8.4m for every month’s delay.”
If we refuse, we face a £100 million reduction for each and every year in which the increases are not applied, which amounts to more than £8 million less for public services each month, on top of the cuts that Westminster has already imposed. I am left with the stark reality that that is too large a burden to impose on communities, and the Scottish Government has no effective choice but to implement the second year of the increases from April 2013.
We will ensure that our approach provides protection to low-paid staff, for example by supporting a Scottish living wage and ensuring that no one who earns less than £15,000 on a full-time-equivalent basis is faced with an increase. I can also confirm that we will not impose increases on the local government pension scheme. That reflects the responsibility that local authorities have for that scheme.
As regards longer-term pensions reform, Parliament knows that in March this year we initiated negotiations on long-term reforms of our main pay-as-you-go schemes. We did so in good faith, based on statements from UK ministers that we could determine the shape of new schemes as long as they were implemented within agreed legislative and financial constraints.
Cabinet secretaries met key employers and trade unions to confirm the need for new schemes to be career average revalued earnings—CARE—schemes, to fit within UK Government cost estimates, and to be ready for April 2015. Those were our only non-negotiables.
No sooner had negotiations begun than we received the first of a series of letters from the UK Government introducing fresh constraints. Over the summer and autumn, I sought clarity about the scope that we had to depart from UK Government scheme designs and to press for a timetable that suited Scotland’s interests. We made stakeholders aware of the uncertainty over how far the UK Government would interfere in our negotiations. Despite the willingness of all partners, detailed negotiations stalled while we waited for the clarity that we all needed.
A combination of the UK Public Service Pensions Bill—which will shortly finish its House of Commons committee stage—and letters from, and a recent discussion with, the Chief Secretary to the Treasury have at last provided some clarity. They have made it clear that current schemes must be closed by April 2015 and new schemes put in their place, although there are protections for people who are within 10 years of retirement. It is also clear that normal pension ages must equal the state pension age, or 60 for police officers and firefighters.
Scottish legislation cannot alter those constraints unless the UK Government’s pensions bill is amended before it becomes law. The chief secretary previously said:
“if the Scottish Government choose to proceed differently they will have to bear the cost.”—[Official Report, House of Commons, 20 December 2011; Vol 537, c 1216.]
He has now confirmed that the Scottish Government has even less flexibility than that on how to design those schemes in Scotland. Notwithstanding those constraints, I reaffirm the Government’s commitment to engage in meaningful negotiations with our negotiating partners in order to utilise all remaining flexibility to deliver schemes that are appropriate to the interests of people in Scotland. Such flexibility must be affordable and sustainable within the context of the limitations of existing public finances.
I will now deal with issues of legislative competence. For a small number of public bodies and individual office-holders, it is this Parliament—not Westminster—that sets the terms for the pension schemes. When the UK Government drafted its Public Service Pensions Bill, it sought to take back our ability to decide on those schemes.
Given this Government’s opposition to the way in which the UK Government is conducting long-term pension reform, the lack of flexibility and the lack of certainty being offered, we cannot willingly put those remaining pension schemes under UK Government control. Where we can act differently, we will take the opportunity to do so. Six small schemes are affected. We will assess their financial health and, if change is necessary, it will be done by this Parliament in line with our values. The Scottish Government is not prepared to cede those powers to Westminster. That is why I have lodged a legislative consent memorandum setting out the Scottish Government’s refusal to bring forward any such motion.
I should emphasise that the UK bill does not contain any other provisions—over pensions for local government, the national health service, teachers or police and fire staff—that would trigger the Sewel convention. We do not believe that the UK Government has the moral authority to dictate on public service pension schemes in Scotland, but it does have the legal authority to do so.
Finally, I confirm the next steps that the Scottish Government will take. I said earlier that negotiations had stalled while all parties waited for the UK Government to give clarity on what could and could not be agreed. The time that it has taken to get that clarity—set alongside the UK Government’s lack of willingness to listen to our calls for a realistic timetable—means that the implementation timetable has become an even greater issue. We will continue to press that point.
We have barely 28 months to conclude negotiations, prepare the necessary legislation and ensure that employers and scheme administrators can prepare their systems and processes before the April 2015 deadline set by the UK Government for the implementation of new schemes. Therefore, I am setting out the Scottish Government’s expectation that negotiating partners should use the clarity that I have provided today to reach conclusions on the terms of new pension schemes as swiftly as possible. We must recognise that we must give the many thousands of people who are affected by those reforms certainty, too, by finalising the terms of reformed schemes in Scotland.
If the Parliament had the powers of a normal, independent country, the Scottish Government would have taken a different approach, but we do not currently have those powers. It is, of course, theoretically possible that the coalition will have a change of heart. If that happens and it results in an opportunity to revisit issues that we previously signalled that we were willing to consider, we will do so. However, we must act on the certainty that is available to us now—that the UK Government will constrain scheme designs in Scotland, and we can exercise only limited flexibility—and press on to deliver the best deal that we can for the people of Scotland.
The cabinet secretary will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions, after which we will have to move on to the next item of business.
I thank the minister for the advance copy of his statement.
As members will know, Labour members have strong concerns about the changes to public sector pensions that the Conservative Government has introduced, to the extent that, almost a year ago to the day, we took the unprecedented decision to stay away from Holyrood to make common cause with tens of thousands of people throughout Scotland on the day of action. I recall that the Scottish National Party Government criticised us for doing so.
Many of the changes, particularly the steep rise in contributions, have been introduced by George Osborne outwith the Public Service Pensions Bill. We oppose them and, both here and at Westminster, Labour has argued strongly that there should be no erosion or diminishing of the Scottish Parliament’s powers to shape or modify Scottish public pension schemes through the introduction of the bill. That said, I am disappointed but not surprised that the finance minister makes much of who has the power to make these decisions and simply states that the Scottish Government has no choice but to match the Tory contribution changes. The Scottish Government has a choice. It may be a difficult choice and it may be a very expensive choice, but the Scottish Government has a choice nonetheless. [Interruption.]
Order.
I note the reaction from back benchers who constantly argue for power for the Scottish Parliament but who sometimes fail to live up to the responsibility that goes with that power.
Mr Macintosh, I need a question.
The minister cites the Treasury reduction of £8.4 million each month if the Scottish Government fails to implement the contribution increase. Has the Scottish Government explored any variation short of the full increase, including doing so within the cost ceiling, and did it discuss the choices with public sector unions and other partners? In particular, as the Scottish Government goes out for consultation and negotiation on the changes, can the minister clarify that he still has the flexibility to make arrangements for and to make a contribution to those who wish to retire earlier than at the state pensionable age, for example?
I respectfully point out to Mr Macintosh that, if members of Parliament thought that it was appropriate to take action to stay away from Parliament, it would have been more appropriate for them to stay away from Westminster, where the decision came from, than to stay away from the Scottish Parliament. I freely confirm that I came to Parliament and thought that it was appropriate to do so on that occasion and on every other occasion.
The simple issue that we have to face is that, without the increase in employee contributions, there would be a reduction of £102 million in the Scottish Government’s departmental expenditure limit budget in 2013-14. Other choices could be made, of course. Essentially, the choice could be made to take that money from general public expenditure and offset the contribution increases, but in my statement I volunteered the fact that I consider that to be too great a sum to be removed from general public expenditure, given the other pressures that we face.
On flexibility, the Government will pursue meaningful negotiations with the trade unions on enabling individuals to retire early. It has been made absolutely clear to me that we cannot design a scheme that does not establish a fixed link between the normal pension age and the state pension age. I wished to have that flexibility to utilise it in scheme design and negotiations with employees. If I were to summarise what the big issue is that I have tried to get clarity on, it has been that one. I now have that clarity and, for that reason, I came to Parliament to make my statement today.
I, too, thank the cabinet secretary for an advance copy of the statement. I endorse the view that pensions should be affordable, fair and sustainable. I respectfully point out that no one earning less than £15,000 a year will be faced with an increase because that protection has already been put in place by the UK Government.
The Scottish Government will not impose increases on the local government scheme, but that is surely only right, given that the scheme had a surplus of £266 million last year, according to an Audit Scotland report, and the surplus is likely to be higher this year. The local government scheme is tiered by salary band and employee contributions are, generally speaking, higher than those in other major public sector pension schemes.
While Mr Finnie—I mean Mr Swinney; Mr Finnie is in the back row—complains about responsibilities that he does not have, what will he do with the responsibilities that he does have? I have a letter from the Chief Secretary to the Treasury, dated 29 October 2012, which states that, with the Public Service Pensions Bill,
“Scottish Ministers have significant flexibility in the design of their pension schemes ... Freedom to choose the rate at which pensions are built up each year, revaluation rates, and arrangements for those choosing to retire earlier or later than the normal pension age.”
Ken Macintosh referred to that latter point.
Ms Scanlon, you must finish now.
The letter also states that the Scottish Government can choose
“how much of their budget is devoted to public service pensions”.
Will the cabinet secretary respond on the responsibilities that he does have and say what he will do in Scotland to make pensions affordable?
I thought that Mary Scanlon took an interesting approach by highlighting the strength of the local government pension scheme, given that the Public Service Pensions Bill that is going through the United Kingdom Parliament will require the termination of that scheme because it is a final salary scheme. I found it rather unusual that Mary Scanlon lauded the scheme so highly, given that the bill that her colleagues in the House of Commons are taking through will require the scheme to be concluded and a replacement scheme to be put in its place, which will be a career average scheme or a scheme of equivalent character.
Mary Scanlon is right that we have some flexibility. We have flexibility over accrual rates and some revaluation bases. I point out to her, however, that there is a requirement for explicit Treasury consent for the Scottish secondary legislation for the teachers and NHS schemes. The idea that I could do what I like on pension schemes, unfettered by Treasury supervision or involvement, is not right.
I will add one final point to what I said in my statement to Parliament. There has been some discussion so far that, beyond the Public Service Pensions Bill, the Treasury may propose a memorandum of understanding for agreement with the Scottish Government about some of the operational practices in relation to pension provision. This point relates particularly to the point that Mr Macintosh made to me a moment ago. I have made it clear to the chief secretary that, if that memorandum of understanding in any way diminishes the existing authority of the Scottish Parliament, I will not sign it on behalf of the Parliament. It should be clearly understood that this Government will have nothing to do with any attempt to undermine the flexibilities that we have by way of a memorandum of understanding. We have to respect the right of the United Kingdom Parliament to legislate on reserved issues, but we will not go along with memorandums of understanding that undermine our authority in this Parliament.
If questions are kept short and answers are succinct, we might get through a number of members, but even at that I doubt whether we will get through everyone who wants to speak.
Notwithstanding Mr Macintosh’s assertion that the cabinet secretary can fight this one with one hand tied behind his back, can he provide further detail on how he will protect the lowest-paid workers earning under £15,000 a year from the increases proposed by the UK Government?
As I made clear in my statement, in the design of the approach that we take on the matter we will expressly ensure that no one who earns the full-time equivalent of £15,000 or less will have to pay an additional contribution. That will be an implicit part of the approach that we take in implementing the measure.
It says in the legislative consent memorandum that, without a legislative consent motion, the UK Government will remove the devolved provisions from the bill. If that happens, will the Scottish Government require to introduce a pensions bill for Scotland, or will it have the scope to retain unchanged the schemes that are in its charge?
I cannot give a definitive answer to the member’s question because, as I said in my statement, the Scottish Government will explore the financial sustainability of the schemes that are entirely devolved to the Scottish Parliament. Currently, only six schemes are devolved; we will consider their financial health and make judgments accordingly. I will advise Parliament of any conclusion of the Government’s analysis in that respect.
The UK Government saying that £102 million will be taken out of the budget if something is done differently is another example of our hands being tied and our pockets being picked.
The cabinet secretary mentioned the delay and confusion that there has been at UK Government level. What impact has that had on his ability to negotiate with unions and other stakeholders during the process?
As has been clear from media commentary from the Educational Institute of Scotland during the past 10 days, it has had a detrimental effect on negotiations. We embarked on negotiations in March in good faith and in a responsible fashion but, having started discussions on one basis, we found that some of the room for manoeuvre was undermined by points of clarification that subsequently emerged in relation to the contents of the Public Service Pensions Bill.
Clearly, that has had a detrimental effect on the negotiations, but I hope that our coming to Parliament and setting out all the points for the benefit of stakeholders and members will enable us to embark on negotiations that can make progress on those questions.
The cabinet secretary rightly said that, at a time of wage restraint, it is wrong to ask public employees to pay increased contributions to their pensions. Does the UK Government require additional contributions particularly from staff, or does it require an increase in pension contributions overall?
The cabinet secretary said that, where the Scottish Government can act differently, it will take the opportunity to do so. I invite him to consider NHS pension employer contributions. The Scottish Government contributes 13.5 per cent, but NHS employers in England and Wales contribute 14 per cent. Does the cabinet secretary agree that taking action on that would help to offset some of the impact on our hard-working NHS staff?
On the first point, the United Kingdom Government has set out a mechanism whereby employee contributions require to increase by 3.2 per cent, phased in at 40 per cent, 40 per cent and 20 per cent over three financial years, commencing in 2012-13. There has been slight variation in relation to the firefighters scheme, but in other respects the Treasury has simply reaffirmed the position, in essence to generate a cash contribution to the Treasury.
The cash does not flow into pension schemes but goes entirely and directly into Treasury resources. The measure does not strengthen the financial health of pension schemes; the money simply goes into deficit reduction. As I said, the application of the approach in Scotland on the 40:40:20 basis will generate £556 million of additional contributions, which will contribute not to pension scheme sustainability but to the Treasury’s coffers.
Jackie Baillie’s point about contributions to the NHS scheme is a point for discussion as part of the negotiations. Of course, the United Kingdom Government will specify defined cost envelopes, over which I will not have control and which will determine much of our room for manoeuvre in that respect.
Will the cabinet secretary provide further detail on the six pension schemes that the Scottish Government intends will not be transferred to UK control? Will he confirm that engagement will take place with the relevant trade unions on those schemes?
The six pension schemes are those for Highlands and Islands Enterprise, Scottish Enterprise, the Scottish Legal Aid Board, Highlands and Islands Airports Ltd, David MacBrayne Ltd and Caledonian Maritime Assets Ltd, which run their own schemes.
As for dialogue with trade unions, I have been at pains in the past few months to ensure full discussion with them. I met a number of trade unions last week to discuss their concerns about some of the issues. As I said, my Cabinet colleagues Mr Russell, Mr Neil and Mr MacAskill have all been involved in discussions with the relevant trade unions. We will continue to have discussions.
I thank the finance secretary for an advance copy of his statement. He complains endlessly that he has no choice, when he knows that he has a choice. He has powers in relation to early retirement, accrual rates, contributions, indexation of past CARE service and much more. The truth is that, when he has been faced with the same decisions as the UK Government, he has taken the same decisions as the UK Government.
Mr Rennie, I need a question.
I am coming to that.
The cabinet secretary complains that 28 months is not long enough—
Mr Rennie, there really is no time.
—to negotiate and implement new pensions, even though he plans to create an independent nation in 16 months.
Mr Rennie, a question, please.
How much precisely does the cabinet secretary plan to invest in Scottish public sector pensions beyond the UK Government’s proposals?
As I said to Jackie Baillie, the United Kingdom Government will specify cost envelopes. As I said in response to Ken Macintosh—I do not think that I could have been clearer—given the pressures on public finances, the Scottish Government has arrived at the judgment that we cannot at this time justify asking for a contribution of £100 million to pension funds from core public expenditure.
The Government will embark on meaningful negotiations with trade unions and stakeholders on the basis of the available flexibility. I accept that a range of flexibilities exists, but I would rather have more flexibilities than are at our disposal. It is beyond any inquiry that we have ended up in the process with fewer flexibilities at our disposal than we started with when we opened the negotiations in March. I profoundly regret that.
I welcome this afternoon’s confirmation from the British Medical Association Scotland that its members will not strike. Will the cabinet secretary confirm that negotiations in the areas of flexibility that he has will continue and that he will do what he can to ensure that the UK Government engages with Scottish unions?
On the Scottish Government’s behalf, I very much welcome the BMA’s announcement that its members will not contemplate strike action as a consequence of its ballot, which will be a source of significant relief to the public. I confirm—as would have been the case whatever the strike ballot’s outcome was—that the Government will embark on strong and meaningful discussions and negotiations with all the relevant stakeholders, to ensure that we create an outcome and a set of pension schemes that are in the interests of the people of Scotland.
The cabinet secretary has powers to offer teachers the same protection as people in local government. Will he do that?
I am not sure what point Mr Findlay is making. I chose not to exercise the power to require the local government pension scheme to increase employee contribution rates. I decided not to take such action last year and I have not taken it this year. However, employee contributions under the teachers scheme are required to increase, or the Scottish Government is required to find resources from its DEL budget to contribute towards the contribution rate increases, which would be a total of £36 million this year. As I have explained to Parliament on a number of occasions, the Government does not have such resources at its disposal.
We must now move to the next item of business, so I apologise to the members whom I could not call. There are of course other parliamentary avenues for questioning ministers.