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Local Overseas Allowance (Germany)

Volume 79: debated on Monday 20 May 1985

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Motion made, and Question proposed, That this House do now adjourn.—[tir. Archie Hamilton.]

10.27 pm

I am glad to have the opportunity to raise the subject of the reduction in local overseas allowance for service men in Germany. I am pleased that the chairman and one of the vice-chairmen of the Conservative Back-Bench defence committee are also present. I welcome them to this short debate.

The House knows that I do not generally seek to intervene in debates on defence matters, although I served my national service in a good regiment and spent some time abroad. We thought ourselves very short of money when we were on active service in Palestine in 1948. But all that was a long time ago.

I am seeking to raise this subject because I believe that the Government may have made a serious mistake in the way in which they have dealt with the overseas allowance for our service men in Germany on this occasion.

I should like to make known to the House the contents of a letter that I have received from a captain serving in Germany. I shall not read out all of it because it would not be fair to him if I were to identify him personally; but I am sure that he is speaking for a large number of our men in Germany. His letter is so well expressed that I do not think that I can do better than to open the debate by reading from it. He wrote on 2 May:
"As a volunteer single soldier, the reduction of Local Overseas Allowance … announced on April 11 (to take effect from August 1) cuts my annual net salary by one month's pay. As a single captain, I therefore stand to lose in excess of £600 per annum. When this reduction takes effect, a single captain will be some DM240 per month worse off now than he was in April 1981; taking into account changes in the rate of exchange between the pound and DM, previous LOA reductions and pay increases.
You will perhaps be aware that few people join the Army to make money, but I cannot think of any firm or organisation that would expect its personnel to endure an 8 per cent. drop in salary. The situation is aggravated by the fact that this comes in addition to increased commitments with reduced manpower which mean a greater work load per capita. This leads to a declining quality of life, principally through an inability to take one's full allowance of leave. Currently, in my Regiment the average amount of leave missed last year was I 1 days per man, and that was during a period of less commitments than this year. Also, the chances for adventure training and sport are reduced dramatically …
Whilst there is the advantage of tax free prices from living abroad there is no question that we incur greater expenses than our comrades who serve in England. A newspaper costs on average three times as much out here … I am entitled to one free return flight home per year, and thus should I wish to see either friends or family more than once a year, I must either pay in excess of £75 for a civil flight, or drive back at a cost of £60 on average. Telephone calls are also expensive since one is making international calls each time one rings home …
It is perhaps worth exploding the myth that actions such as cutting allowances save money. Even though many soldiers were leaving before this announcement was made, due to the declining quality of life over here. I would suggest to you that the numbers leaving will increase further. This will lead to gaps in the middle management level of Corporal and Captain, as in the mid 1970s, with the best men leaving. Thus the vast cost of training these men is not balanced by an adequate return in terms of length of service and we have to incur the expense of training up more new recruits, with a lower grade middle management. I do not think that much of the £17,000.000 saved from LOA will be left for spending on other things.
I would therefore be grateful if you could make the strongest representations on behalf of both myself, and all others serving in BOAR, to the Government in an attempt to solve some of these problems … All of the money spent on new equipment will he entirely wasted if there are only second grade soldiers to man it. We need some action now if we are to avoid a crisis worse than existed in the mid 1970s; high unemployment is no deterrent to soldiers who wish to vote with their feet, since they usually posses qualifications which are much in demand in civilian life. I hope that you will feel able to take some action to remedy this situation, and I look forward to hearing from you."
I replied to the captain, but I also made some inquiries. It does not seem that that is an unbalanced or unreasonable expression of the views of our men serving in Germany. If that is true it is a serious matter, and deserves the attention of the House of Commons.

The whole House is indebted to my hon. Friend for bringing the matter to the attention of the House. Many of us, including my hon. Friend the Member for Wealden (Sir G. Johnson Smith), have had representations and letters similar to the one from which my hon. Friend has just quoted. One of the most disturbing features, to which we hope the Minister will respond, is that in some cases, possibly through no fault of the Ministry, the first intimation that some of our forces had about the matter was through the media, which is a great shame, in addition to the basic facts.

I am grateful to my hon. and learned Friend for mentioning that matter. I do not want to emphasise it too much, because mistakes can happen or there can be leaks, but it adds to the loss of morale and it is vital that we should avoid that.

I recognise that the decision to cut the allowances follows a statistical exercise. I shall not suggest that it has not been carried out in good faith and as competently as possible; but on examination of how it was done, how the rate of exchange is taken into account and other aspects of the calculation are dealt with to assess the comparative cost of living in Germany and Britain, I cannot escape the feeling that there is a substantial element of discretion in how the figures are decided. I wonder whether there might have been some anxiety in the Ministry of Defence to show willingness to accommodate itself to the Treasury, at any rate in this small way, by making the cut as severe as possible on the basis of the statistical exercise. If that was the thinking behind it, it was very short-sighted.

I have noted the replies that my right hon. Friend the Secretary of State gave the Select Committee on Defence on 8 May and I have seen the brief exchange during Question Time on 30 April; but we have not yet had a satisfactory statement. I hope that my hon. Friend the Minister will be able to reassure the House, or to say that the point has been taken on board and that the Ministry is preparing to make some concession which will compensate for the shock and disappointment that our men undoubtedly feel as a result of this recent announcement.

We are dealing with long-term personnel management. An incident such as this can stick in people's gullets for a long time. We must think about the best use of our human and material resources in Germany and ask whether the saving of £17 million was really worth the inevitable disappointment. Having served in industry for 20 years after leaving the Army, including some time in personnel management, it seems to me that service life is not so different from business in the rest of the state sector or, for that matter, in the private sector of industry. The men must be looked after. If they are not, the machines will not look after themselves. The first consideration is the morale of the men, the management or, in this case, the troops.

How do we value our men? Do we care about their morale? Does it matter if they take their knowledge and skills elsewhere, or is this all a fuss about nothing? In my opinion it is not a fuss about nothing, the men's morale matters and we must not allow them to vote with their feet. Loyalty is a two-way street. Our men must know that we have not forgotten them in Germany and that we are not trying to drive a hard bargain with them. If the traffic in one direction dries up, the reverse traffic—their loyalty to us—will begin to dry up as well. We do not want that result.

I shall not complain and seek to make a serious issue of the fact that the announcement was made in an unfortunate way. It is clear that the Secretary of State has taken that on board and will ensure that the mistake is not repeated. I am worried, however, about the long-term effect if the decision to make a small immediate saving has a disproportionately damaging effect on our defence capability and the long-term cost-effectiveness of our defence expenditure in Germany. We might be making the same mistake that the Labour party made in the 1970s when it did not keep pace with the natural desire of our police force to enjoy a reasonable standard of living and the self-respect that goes with it. We lost many men then that we could ill afford to lose. Moreover it is the best men that find it easiest to go.

The same thing happened with the Armed Forces.

So I believe. The Ministry must be aware of past mistakes and is equal to providing a remedy now. I realise that pay and conditions in the services have been very much improved recently; but a sudden drop is a shock to men of all ranks and must be compensated for in some way.

The officer who wrote to me in the first instance, replied to my letter with what I hope is a constructive suggestion. He said:
"If financial remuneration is not possible, then perhaps the conditions of service could be improved. This could be done by increasing the number of free flights home per soldier per year. Alternatively, soldiers could be given the option of a free ferry ticket together with a motor mileage claim to the port of departure instead of using one of their free flights. Whatever happens, if something is not done shortly, the quantity of soldiers leaving will increase, and there will be a large decrease in the overall quality of the British Army."
My hon. Friend must reassure the House about that problem tonight. I hope that he will not think that I am seeking to make difficulties for him or to stir up trouble among our men in Germany. That would be the last thing that I or any Conservative Member would seek to do. My hon. Friend has a problem, which at present has not been solved. He must address himself to it sincerely and competently.

10.40 pm

I am most grateful to my hon. Friend the Member for Kensington (Sir B. Rhys Williams). As my hon. Friend the Minister knows, I am an officer and a Conservative Back Bench Member, and take a keen interest in these matters through my involvement with the military committee of NATO.

I recognise that the Government have a splendid record in defence matters. That includes both equipment and the terms and conditions of service, which have been substantially improved since they came to office. However, I know from the information that I have received that this matter has caused some anxiety. A straight- forward financial comparison between the cost of living here and in the Federal Republic of Germany is not a true comparison. We are all aware that certain special conditions attach to service in Northern Ireland, which makes it a little more attractive for those who spend any length of time there. I hope that when my hon. Friend replies he will be able to give us some satisfaction on that score.

10.41 pm

I am grateful to my hon. Friend the Member for Kensington (Sir. B. Rhys Williams) for providing this opportunity to comment on the reductions in local overseas allowance which are taking place in Germany. I am well aware of the anxiety expressed by hon. Members, the press and many ordinary members of the public about those reductions. Obviously, I take note of the comments of my hon. and learned Friend the Member for Colchester, North (Sir A. Buck) and my hon. Friend the Member for Wealden (Sir G. Johnson Smith). The fact that we have about a 400 per cent. increase in attendance on the Back Benches compared with the normal Adjournment debate demonstrates the degree of parliamentary interest in this subject. I should like, therefore, to give the House a full explanation of how the LOA system works and of the reasons for the outcome of the recent LOA review in Germany.

The purpose of the local overseas allowance is to supplement the pay of service men in those areas where their expenditure on items of day-to-day living is necessarily higher than in the United Kingdom. It is a compensatory cost of living allowance and it is therefore free of income tax. It is assessed separately for each overseas theatre. The approach to and methods used in each individual assessment are always the same, irrespective of location, and rates will differ as a reflection of local prices and conditions. They will also vary according to the individual's marital status and rank.

I stress that the allowance is not paid as an inducement to, or reward for, service overseas or long hours worked or, indeed, in respect of the potential dangers inherent in service with the Armed Forces. Those factors are taken into account when assessing the correct level of service pay. Pay levels for the services are established by the independent Armed Forces pay review body. As part of the AFPRB process of assessment; it identifies an extra payment, known as the X factor, which is added to basic pay to compensate service men for such things as their liability to work long hours without extra pay and the potential danger and turbulence involved in their work. The X factor currently amounts to 10 per cent. of pay in the case of service men and 7·5 per cent. for women.

Similarly, LOA is not designed to cover the extra costs of non-essential or luxury items, such as cameras or hi-fi, or to help with the purchase of tax-free capital goods in an overseas location. It is important to realise that LOA is designed to cover the extra costs to people in general—the average service man or woman. We recognise that individual expenditure patterns will differ from the assumptions made about the average man, but for clear practical reasons it cannot be based on individual circumstances. In Germany alone we would be faced with 65,000 separate assessments were we to do otherwise.

It is obviously important to the Armed Forces that any system for compensating service personnel for extra day-to-day living costs, brought about by their service overseas, should be seen to operate, and should in practice operate, fairly, irrespective of the overseas theatre in which they may be stationed. Service personnel in receipt of LOA are based in many countries as far apart as Hong Kong, Australia, the United States and, of course, closer to home, in various western European countries. Inevitably the difference between the cost of living in Britain and in the countries overseas where our Armed Forces are serving will narrow as well as widen. It is inescapable, therefore, that there will sometimes be LOA reductions as well as LOA increases.

I have laid emphasis on explaining the policy and underlying philosophy for the payment of local overseas allowances. I should now like to turn to the operation of the system and to explain in more detail the workings of the process. LOA is regularly reviewed so that it fairly and accurately reflects additional living costs. An LOA review team normally comprises a representative of a service personnel branch, a Treasury and-or Ministry of Defence finance division representative and an independent chairman together with a secretary from the central staffs, whose job it is to arbitrate between the personnel and finance divisions.

Full reviews are undertaken every three years, and each year close to the anniversary of the full review the review team carries out a repricing of the LOA budget, based on the standards assessed at the review. In this way, LOA is kept in touch with overseas price movements, and the problems which would otherwise be caused by significant pay and price variations between the trienniel reviews are reduced. Each review is carried out extremely thoroughly and in the greatest detail, and covers all the major items of expenditure that a service man would incur—food, clothing, drink, cars, sport, recreation, entertainment, holidays and so on. It also provides for any necessary adjustments to service lifestyles from those in the United Kingdom as a result of local conditions.

A new cycle of LOA reviews began in October 1984 based on the latest data collected from a survey of expenditure by service personnel in the United Kingdom. The 1984 survey was restructured to reflect more accurately the overseas position and, for example, established more evidence on service men's expenditure on weekend holidays, ownership of home videos, the scale of home entertainment, hobbies and several other expenditure headings relevant to the calculation of the LOA budget. We also investigated closely the types of goods and services bought and their weighting in the budget. As a result, we changed some products in the notional LOA shopping basket to reflect known shopping patterns more closely.

The new cycle of reviews has resulted in some substantial increases in LOA, with exceptions in some cases for single personnel. About 5,000 have benefited from the reviews, for example, in Cyprus, Italy, Sardinia, Gibraltar, Portugal, the United States, Denmark and Belize. However, in the case of Germany, a review in March based on the same criteria used for reviews in those other countries concluded that LOA should be reduced. The review in Germany necessitated the employment of two full LOA teams, which undertook a detailed survey during the whole of March. In addition to the armed forces representatives on the team, observers from the British Army of the Rhine and RAF Germany were attached to the team throughout the entire review process. Prices were taken at many locations—in NAAFI and German shops, hotels, garages, messes, and places of entertainment. Representatives of service personnel stationed in Germany and their wives were also interviewed, and the findings of the review were considered most carefully before the reductions were announced.

Inflation in Germany continues to remain lower than in the United Kingdom, and the cost of most items for day-to-day living is the same or less in Germany. In addition, the benefits of duty-free prices must be taken into account. For example, at the time of the review in Germany, a packet of 20 cigarettes in NAAFI cost 47p; a pint of beer in a corporal's mess cost 40p; and duty-free petrol cost 94p per gallon which, taken in conjunction with other costs and non-payment of road tax, reduces car running costs to about two thirds of those in the United Kingdom. The main factors which result in LOA continuing to be paid in Germany include the loss to the service man on the sale of his car in the United Kingdom, higher car ownership and car mileages in Germany, the need for extra clothing to combat the cold and the costs of running a second bank account.

The local overseas allowance review in Germany not only took into account the most recent information on shopping patterns, but also made improvements in the compensation for losses on car sales in the United Kingdom and on wear and tear on washing machines; in the cost of a second bank account; and in holiday provision for single personnel. Holiday provision is important, because it is acknowledged that it is not easy to visit friends and relatives in the United Kingdom, so it is assumed for LOA purposes that all personnel spend 21 nights with full board in an hotel and have seven nights camping costs. It is the cost of hotel accommodation, baby-sitting costs, home entertainment and extra clothing for the family which create the differences in LOA rates between married and single personnel.

We fully understand that many service men and women have commitments which they cannot quickly reduce, and although it is made clear that LOA is not intended for the purchase of capital goods, the implementation of the recent LOA reductions has been deferred until 1 August. This is two months later than would apply under the normal rules for this allowance. Increases elsewhere in the world have been put into effect at the beginning of the month following the LOA review.

There has been criticism that service men and women in Germany first heard of the LOA reduction from the media. This point was referred to by my hon. and learned Friend the Member for Colchester, North. The difficulty here is that our experience has shown that a reduction in LOA in Germany is publicised by the media almost immediately it is announced to units. Given the number of service men and women away from barracks at any one time, either in transit or on exercises or other duties it is impossible to avoid the situation in which many of them first hear of an LOA reduction through the media. We will, however, give this aspect further consideration.

We all recognise in the Ministry of Defence that life in Germany is demanding, and are very much aware of the extremely high standards that our service men in BAOR and RAF Germany achieve, as I have noted on my visits. However, LOA is intended only to reflect cost of living factors and cannot be kept at a higher level than the extra cost of living in Germany would justify. The very understandable disappointment at the reductions resulting from the recent LOA review in Germany has to be balanced against the warm welcome given to the increases in LOA that the same system has produced elsewhere.

It is of great importance to the armed forces overall to have a system for ensuring that, as far as it is administratively possible, service men and women are compensated, but not over-compensated, for increases to their costs of living when they are serving overseas. I hope that I have been able to explain to the House the reasons for our decision, which must stand.

We are of course concerned about the well-being and morale of our troops stationed in Germany and we recognise the importance of pay and allowances, but it is equally important to uphold morale by ensuring that our troops are properly and fully equipped, and we are proud of our record in this regard.

I freely acknowledge that, human nature being what it is, no one likes to have something reduced or taken away, but those in receipt of local overseas allowances must appreciate that they are concessionary and can be adjusted upwards or downwards and thus that service personnel must plan their financial commitments accordingly.

We are most grateful to the Under-Secretary of State for dealing with the matter so fully. Would he consider it to be appropriate to spell out in a slim Government document the substance of what he has just said for distribution not only among the Armed Forces, by whom I think it will be well received, but also among those hon. Members who try closely to follow these matters? It is not mentioned in the White Paper.

I am grateful to my hon. and learned Friend for his suggestion, which I shall certainly consider with my ministerial colleagues.

I emphasise to the House that the principles behind LOAs have not changed and have remained the same for many years under successive Governments.

Question put and agreed to.

Adjourned accordingly at seven minutes to eleven o' clock.