On 16 January 2008, in publishing the Senior Salaries Review Body (SSRB) report “Review of Parliamentary Pay, Pensions and Allowances 2007” (Cm 7270), I announced in a written ministerial statement (Col. 32WS) that the Government would “examine options that find objective criteria for determining the appropriate comparator used for MPs’ pay awards within a framework that does not require MPs to vote in future years, and accordingly have asked Sir John Baker, CBE—the retiring chair of SSRB—to conduct a review and make proposals on options for consideration”.

On 23 January 2008, I set out in a written ministerial statement (column 56WS) the terms of reference of the Sir John Baker review, which were as follows:

Review of the mechanism for determining the pay and pensions for Members of Parliament

to examine options and make recommendations for a mechanism for independently determining the pay and pensions of Members of Parliament which does not involve MPs voting on their own pay; the appropriate comparator; and the frequency with which reviews of the use of the comparator take place;

to ensure that the independent mechanism takes account of the Government’s policy on public sector pay and its target for inflation; and

to have regard to the need for any independent mechanism to maintain the support and trust of the public and Members of Parliament.

The review should seek to:

examine comparable international mechanisms and the resulting experience;

address the constitutional framework alongside legal and legislative considerations;

consider the range of evidence that should be considered by the recommended independent mechanism in determining an appropriate comparator;

consider the membership and remit of any independent body that may be part of the pay setting process;

give due consideration to consistency with other public service wage setting mechanisms and wage settlements across the public service; and

outline a recommended timetable for transition to any new system.

On 24 January 2008, in the debate on the Senior Salaries Review Body report (Cm 7270), the House of Commons:

endorsed the proposal that Sir John Baker should be invited to make recommendations on both the comparator and mechanism for setting MPs’ pay;

agreed that the system for determining the salaries of Members of Parliament should be reviewed, in particular with a view to removing the need for final decisions on salaries to be subject to approval by the House of Commons; and

agreed that particular recommendations on allowances in the SSRB report “be referred to the Members Estimate Committee for further consideration following consultation with the Advisory Panel on Members Allowances”.

I am today publishing the report from Sir John Baker CBE on “Review of Parliamentary Pay and Pensions” (Cm 7146). It makes recommendations about the current pay of MPs and the mechanisms for future uprating. Copies are available in the Vote Office. I am grateful to Sir John Baker for his work.

To support the publication of this report, the Government are also publishing their memorandum (Cm 7418) which was sent to Sir John to form part of his review on 20 May 2008.

The Government have considered Sir John’s report and will table motions in advance of the debate on 3 July which will enable the House to vote on resolutions to express and implement their views.

The Government accept Sir John’s recommendation that the SSRB should remain the independent body which conducts reviews of MPs’ pay, that these reviews should occur once in each Parliament and that the outcome of these reviews should be implemented without the need for further debates or votes in the House.

The debate comes at a time when it is vital for economic stability that there is a disciplined, responsible approach to pay in both the private and the public sector to hold down inflationary pressures. It is important that senior figures in the public and private sector lead by example in taking a disciplined and restrained approach to pay.

The Government do not accept Sir John’s recommendation that MPs’ salaries should be increased by £650 a year for the next three years. MPs should set the example at a time of public sector pay restraint. The Government will also not be supporting a link between MPs’ salaries and the three-month average public sector average earnings index. Instead, the Government propose, in line with an alternative proposal provided by Sir John Baker, that MPs should receive the median average of the settlements of a wide basket of public sector workforces.

The motions tabled will offer the House the opportunity to vote to support either the Government’s proposal or the options put forward by Sir John.

In addition, the SSRB report also recognised that “if it becomes likely that, unless action is taken, the Exchequer contribution to the cost of accrual of benefits for MPs in service in the parliamentary contributory pension fund—excluding payments to amortise the accumulated deficit identified in the 2005 valuation of the Fund—would rise above 20 per cent. of payroll, that there should be a major review of the fund”(recommendation 9).

The Government Actuary’s Department has now advised that it anticipates that the cost of accruing benefits would indeed rise above 20 per cent. of payroll. This has effectively triggered the need for the major review recommended by the SSRB, and I will therefore be asking the SSRB to undertake such a review, supported by a panel of people with relevant expertise.

Given that the review will need to consider, amongst other things, the findings of the Government Actuary’s valuation of the PCPF which is to be completed in March 2009, the SSRB would not be expected to report before Spring next year.