It is an honour to serve under your chairmanship, Mr Streeter, given the importance of the topic before us.
I have to say at the outset that I am not an expert on the subject, but there are plenty of people who are, both here in Westminster Hall and watching proceedings on television. I shall attempt to set out the case against the proposed changes to pensions and benefits on behalf of the bravest of the brave—this country’s armed forces personnel.
I shall put my personal interest into context. I am not one of those courageous parliamentarians who have served our country in the armed forces, but my brother was in the Army for 12 years or so, and I learned a lot from him about what it was like to be in the services. I also have friends in the regulars and the Territorials, and they are never slow to tell of their exploits. However, I have some first-hand experience.
In early 1983, a few short months after the cessation of hostilities with Argentina, I worked in the Falkland Islands as bricklayer repairing the Port Stanley infrastructure that was damaged during the conflict. While there, I lived cheek by jowl with military personnel from all our forces. During my seven-month stint there, I gained a certain understanding of the conditions that they had lived through day by day, and of the sacrifices that they had made on our behalf. I am therefore delighted to have secured this timely debate.
The changes that the Government are set to push through will shortly take effect. However, there is still time for Ministers to rethink, and for fairness and common sense to prevail. As we speak, nearly 10,000 soldiers are risking life and limb in Afghanistan; and tens of thousands more are engaged in service and heavy combat training elsewhere. They have no direct voice, and they are too busy protecting our country’s interests, so we must speak for them here.
Let me make clear what today’s debate is about. Under their cuts agenda, the Government intend to link public sector pensions and benefits to the consumer prices index rather than the retail prices index. Because CPI is an historically lower measure, pensions will increase by less year on year. Crucially, the change is intended to be permanent. It will apply across the board, with no exceptions. Essentially, it amounts to a cynical plan to reduce pensions indefinitely. That is bad news for all public sector employees and the source of ongoing challenge and debate, but it is particularly bad news for our armed forces. I shall explain why that is so, suggest why society has a moral obligation to make a separate case for armed forces pensions and explain how the impact of the planned changes might be at least mitigated, if not avoided entirely.
I start by pointing out that this is not a marginal matter, because it has major ramifications for many. The armed forces pensions community totals 1 million serving and formerly serving personnel—a huge number of lives—and I remind the Chamber that the quality of those lives is at stake. When discussing money matters, it is sometimes easy to lose sight of the fact that although we are talking about pounds and pence, we are also talking about real lives.
I think particularly of my constituent Craig Lunberg, who in the course of serving his country admirably was blinded by insurgents in Afghanistan. Craig is an inspiration to others; he is not bitter about the injuries that he received, and is philosophical about his life. However, Craig and his family need and deserve all the financial support that they can get. It is not charity; it is their due. We owe it to Craig and all the others who serve and who have served to look after them, remembering that their sacrifices were for us.
The number crunching has been done, and there is no disputing the impact that the planned changes will have on military personnel and their dependants, which will be immediate and profound. Widely published projections show that if the change goes ahead, recipients will feel the pinch from the get-go. In the coming financial year, military pensions will go up by 3.1%, rather than 4.6%. Severely injured discharged soldiers, who will not work again, will lose £120 of pension next year. Compensation for specified minor injuries will be £110 lower, and a widow with children will be £94 worse off.
Such amounts may seem trifling to independently wealthy Ministers—mere short change—but those reductions will be felt by those struggling to survive on state handouts. Only when we extrapolate the reductions, compounded over longer periods, do we see the full gravity of the changes. The long-term forecasts put paid to any suggestion that we are talking buttons. Military personnel are set to lose hundreds of thousands of pounds in benefits and pensions over their lifetimes. A double amputee corporal, disabled at the age of 28, will have lost £587,000 by the age of 70. A 40-year-old squadron leader will be £319,000 worse off by the age of 85. A 34-year-old widow of a staff sergeant will miss up to £750,000 during her lifetime.
I ask the House to note the ages cited in those examples. They are significant. For reasons that I shall deal with later, military personnel become reliant on pensions and benefits far earlier than others. We cannot get away from the fact that they are set to be disproportionately and adversely hit.
This is an important debate; indeed, we debated the armed forces in the House last week. We understand that the country has economic problems, but we should remember that we have a covenant on pensions or whatever and that our troops are laying their lives on the line for their country. It is soul destroying, whenever we debate their finances, to hear that their morale is suffering. Does the hon. Gentleman agree that we need to strike a balance? We understand that the economy is important, but our armed forces are laying their lives on the line and we need to balance the two.
The hon. Gentleman is right. I shall pick up some specific matters a little later, but the main thrust is that there is undoubtedly a moral case to answer. The maths is one thing, but a principle is at stake.
The main problem is that the Government obstinately refuse to distinguish between military and civilian employees—indeed, they make a virtue of it. In November, a Ministry of Defence spokesman said:
“It is not possible to treat the armed forces differently from other public servants”.
That glib explanation was both pompous and dismissive. It is very convenient for the Government to fall back on their default position of, “We’re all in this together,” to imply that they are being firm but fair in treating all public sector workers equally. I remind colleagues that the coalition Government have been quick to criticise one-size-fits-all measures, when it suits. Their rationale on military pensions is as fallacious as it is dangerous, because military service is unique.
In the recent debate, to which the hon. Member for Upper Bann (David Simpson) has referred, my right hon. Friend the Member for East Renfrewshire (Mr Murphy) listed some of the ways in which a career in the armed forces is different from any other. They are worth repeating, because they demonstrate the utter absurdity of suggesting that soldiers, airmen and marines should be regarded and treated the same as other public servants:
“Service personnel, as many of us know, can be required to work unlimited hours in excessively dangerous conditions with no prospect of overtime or a bonus; they can be imprisoned for failing to show up; living conditions can, understandably, be very tough;”—
I have experienced that myself—
“they are often separated from family and loved ones for many months at a time; they can be compelled to return even after they have retired; they forgo several political freedoms and contractual rights that others rightly enjoy; and…they are at risk of being killed or horribly maimed as a direct result and an unavoidable consequence of their service. Often their pension is the only serious, tangible financial compensation available to them”.—[Official Report, 10 January 2011; Vol. 521, c. 61.]
It is ironic that in the very next room, the Chief of the Defence Staff is briefing MPs on this very subject. Does the hon. Gentleman believe that his concerns will manifest themselves in a reduction in the ability of the armed forces to recruit in what could be some pretty testing times coming up?
I will answer that question personally rather than as a representative of my party. As I have said, I am not an expert on this issue. However, having spoken to some senior officers in my local Army garrison only last month, I believe that it will have a detrimental impact on recruitment and retention in the armed forces. It is also about the morale of our troops, and I will touch on that subject a little later.
I congratulate the hon. Gentleman on securing this very important debate and I declare my interest as a service pensioner. He underscores the importance of pensions and is right to do so. Will he note that pensions were perhaps the first manifestation of the military covenant since the Romans granted a pension to people settled in Britain after about 20 years’ service, so they have a very long history?
I will touch on the Government’s position on the military covenant and what was said in the House a few weeks ago a little later in my contribution.
Military employees accept that many of their personal life choices will be determined, and often restricted, by duty to the military. Premature death and injury are occupational hazards and have lifelong and life-changing consequences that impact on entire families. Typically, armed forces employees have shorter careers; they retire at an average age of 40, which is much earlier than their civilian counterparts. For obvious reasons, many military widows and widowers are younger than the non-military average and thus more likely to be left to raise children alone. Injured or disabled retirees are frequently unable to work on civvy street following their discharge. For veterans, the quality of post-service support—medical, remedial and professional—remains patchy to say the least. Show me any other civilian public servant subject to this particular package of terms and conditions, and I will buy into the Government’s logic.
There is another way in which armed forces pensions and benefits differ from other public sector pensions. Yes, they are occupational pensions, but, as the Forces Pension Society has pointed out, they are also essentially a form of compensation for the unavoidable early cessation of a career. It is important, therefore, to consider why people join the armed forces. Individual motivations vary, but they include a yearning for travel and adventure, a desire for a structured career, an eagerness to acquire skills in a particular field and a desire simply to serve our country. None the less, let us not forget that a disproportionate number of young military personnel—men in particular—come from disadvantaged backgrounds. As we know, significant numbers are drawn from the care system. Let us not pretend that they are in it for the money. High-ranking staff may eventually find themselves comfortably off, but the vast majority of military personnel merely eke out a bog-standard living. For that, they sacrifice a great deal, particularly in the way of family life. For that, they risk permanent injury or death in the course of their duties. The theory is that as a nation, we acknowledge and value that, and that we guarantee that forces’ employees and their families will be looked after in return. In that respect, joining the armed forces is an act of faith. To change the terms and conditions of service—to move the goal posts—is to undermine that faith.
All the evidence suggests that serving troops already feel betrayed, disillusioned and frustrated. In a Sunday newspaper a few weeks ago, a British soldier serving in Afghanistan said:
“The British Army has no voice at grass-roots level. We have no union. There will be no strikes. No riots. Certainly no fire extinguishers thrown off buildings. We are just an easy target”.
There is the rub. In recent months, we have seen students protest, public sector workers strike and various interest groups demonstrate and engage in direct action. I suspect, and I say this with no relish, that we will see more and more people take to the streets as the Government’s excessive austerity measures kick in. Military personnel cannot do that. In the absence of civilian workers’ rights, they are particularly vulnerable and impotent in the face of damaging policy changes and cuts. Small wonder that they feel so beleaguered.
In January, Vice-Admiral Sir Michael Moore said:
“I have never seen a government erode the morale of the Armed Forces so quickly”.
What a terrible and shameful indictment. The Tory-led coalition’s attitude towards the military is shaping up to be, at best, ambivalent and, at worst, perverse. Some would argue that blue-blooded conservatism has traditionally been a friend of the military. Sure enough, the Conservative election manifesto pledged to
“ensure that our armed forces, their families and veterans are properly taken care of.”
The commitment appears to have started and stopped with the rhetoric. The Prime Minister is never slow to spot a good PR opportunity and he is slick when it comes to lavishing praise on our troops. For all his new-found hawkish instincts, he and his slash-happy Government stooges seem hellbent on making military service as unattractive and insecure as possible. It is under-resourced, under-equipped and undervalued with little regard to meeting current and future military needs.
The defence budget has been slashed and major projects have been cancelled or abruptly abandoned, frequently at ridiculous cost to the taxpayer. Around 17,000 armed forces posts are to go over the next few years, 11,000 of which will go through redundancy. A range of other issues, including the unequal treatment of military widows, disadvantageous changes to income tax relief on pension contributions and the proposed cuts to educational allowances for armed forces families only compound matters by adding to the cumulative effect. Those changes all seem incredibly short-sighted and it is difficult to see how any of them will do anything other than damage recruitment and recruitment levels, which I have been told are already at crisis point.
It is equally difficult not to suspect that the pensions indexation switch is something more opportunistic and ideologically driven than a mere fiscal measure. There has been no suggestion on the part of the Government that they consider the current pension and benefit arrangements to be overly generous, so that leaves the deficit reduction agenda as the only possible explanation for the cuts. Let us examine that explanation, because the problem with it is that it does not explain or justify the decision to change the index link permanently. That decision will have long-term impacts that will be felt long after the economy has recovered.
By way of an aside, it was mentioned earlier that my colleagues and I are urging the Government to enshrine the military covenant in law, but we must not let that campaign blur our vision or distract from the specific issues that we are discussing today. Let us consider the dry and self-explanatory observation of the Forces Pension Society to the Armed Forces Bill Committee:
“We note the commonly aired reference to the Covenant but we do not see a coherent and comprehensive set of actions which would make the Covenant come alive; it avoids any mention of pensions.”
When all is said and done, the most powerful argument in favour of abandoning this callous indexation plan for the armed forces’ pensions and benefits is basic—it is a moral one. It is about doing the right thing by those who have done the right thing by us. In return for the immense courage, patriotism and self-sacrifice shown by UK armed service personnel and their dependants, we have an obligation to provide them with the highest levels of support and reward, during and after service. If that involves discriminating in their favour, so be it.
As I hope I have illustrated, to renege on the deal made when service personnel signed on the dotted line would be to betray an implicit trust. Those serving will feel let-down and bitter, and who can blame them? And potential recruits will think twice before giving so much for so little in return.
I purposely paint a bleak picture, but as yet none of these changes is a fait accompli. There is still time for the Government to see sense. My own party has a number of ideas about how the deficit reduction dilemma might be resolved without so brutally hurting armed forces’ employees. In our view, the ideal solution is entirely to decouple armed forces pension and benefit schemes from other such schemes in the public sector. However, we recognise that that is not a practicable or realistic option at the current time. The best way forward would be to make the indexation switch a temporary one that could be reversed in 2014-15, or at least once the Budget deficit has been pared down.
Others favour an alternative time limit measure, something along the lines of maintaining the current RPI link for the armed forces personnel or their widowed spouses until they turn 55, when the link would come into line with the rest of the public sector. Such measures, and variations on them, are all quite feasible but none of them is perfect, and they will not please all the people all the time. However, they represent carefully considered compromises, which the grown-up coalition Government profess to be big on, and they would go some way to alleviating the short to medium-term pain.
In addressing the Minister, I urge the Government to consider those measures carefully. I also remind the Government that this is a cross-cutting issue, which requires joined-up thinking. Defence, Treasury and Work and Pensions Ministers must all think again.
I have a final salutary point to make. Thomas Southerne was an Irish dramatist of the 17th century. In 1685, he served in the army of James II, which fought against the Monmouth rebellion. Southerne knew what it was to be a soldier. In later life, he reportedly said:
“Dost thou know the fate of soldiers? They are but ambition’s tools, to cut a way to her unlawful ends. And when they are worn, hacked, hewn with constant service, thrown aside, to rust in peace and rot in hospitals.”
I am sure that everyone will agree that the part about “unlawful ends” is open to debate, but some modern military adventures spring to mind on hearing that quote. Southerne’s bitter closing observations make uncomfortable reading. Do we want to entertain the notion that, 300 years on and at the dawn of the 21st century, we hold our armed forces in no better esteem?
I congratulate my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) on securing this important debate. As he mentioned, we have had a number of opportunities recently to debate these issues, including armed forces pensions and the military covenant. It is very important that we continue to debate them, because we have not yet received a satisfactory response from the Government Front-Bench team. Today we have a different Minister before us. Thus far, I have discussed these issues with the Under-Secretary of State for Defence, the right hon. Member for South Leicestershire (Mr Robathan), who is the Minister with responsibility for veterans. I am hopeful that we might hear something from the Minister who is here today that pleases us.
My hon. Friend the Member for Liverpool, Walton has already mentioned a quote from the Forces Pension Society, but it is one that merits repeating. The chairman of the society, Sir Michael Moore, recently said:
“I have never seen a Government erode the morale of the armed forces so quickly.”
That is quite a strong statement and the reasons for it stem from the wide-ranging promises made by the coalition partners to our service personnel, ahead of last year’s election and since coming into office. Their record of delivery has spectacularly failed to live up to their rhetoric.
In opposition, the Conservatives declared that the military covenant was “shattered” and they promised to rebuild it. Both the Conservatives and the Liberal Democrats made clear pledges to our armed forces, such as improving service housing, setting minimum standards for family welfare and maximising rest and recuperation leave. In government, they have so far offered very little to address those issues. Indeed, it is worse than that, because the measures that we are seeing now will roll back the military covenant. Accommodation has been identified as an area in which to make savings; tours of duty will be reviewed and there has been no guarantee that they will not be lengthened; and the Government have confirmed that armed forces personnel will be cut by 11,000.
The Prime Minister could not have made a clearer pledge than the one that he made to sailors on the aircraft carrier HMS Ark Royal just last summer:
“Whether it’s the schools you send your children to, whether it’s the healthcare that you expect, whether it’s the fact there should be a decent military ward for anyone who gets injured...I want all these things refreshed and renewed and written down in a new military covenant that’s written into the law of the land.”
However, nine months later, the Government have failed to enshrine a military covenant in law, or at the very least propose doing so in the Armed Forces Bill, which is making its way through Parliament. Instead, they have already changed their policy, as outlined to all MPs in a recent letter from the Royal British Legion.
As far as the armed forces are concerned, the Government’s time in office has been marked by broken promises and empty rhetoric. However, it is more serious than that. The actions of the Government are undermining the unwritten contract between the nation and our services in honour of the brave work that they do. In the process, as Sir Michael Moore said, the Government
“erode the morale of the armed forces”.
There is no better example of that than the impact of the Government’s planned pensions changes on the armed forces. As my hon. Friend the Member for Liverpool, Walton has outlined, the Government’s plans permanently to link public sector pension rises to CPI rather than to the usually higher measure of RPI will disproportionately affect members of the armed forces. I know that the Minister with responsibility for veterans does not accept that because he told me so in the Committee that considered the Armed Forces Bill, and I do not know whether the Minister for the Armed Forces will take a different approach today.
The hon. Lady puts forward an interesting case. Will she therefore commit any incoming Labour Government in 2015 to the measure that she appears to be articulating, namely, that the change will be temporary and, if so, how will that feature in the budget she intends to set? The armed forces will not be alone; others will say that they should be dealt with in a similar way.
I think that the hon. Gentleman is aware that we proposed a much fairer, time-limited approach, and that would be a better way forward.
If the Minister will not listen to me, perhaps he will heed the concerns of the Forces Pension Society, which delivered a letter to No. 10 in December to explain to the Prime Minister the disproportionate impact of the pension changes on the armed forces. Many members of the armed forces leave the military by the time they are 40, or earlier perhaps, if they are injured, so their pensions start to pay out much earlier compared to those of other public sector workers, and the changes will result in their losing hundreds of thousands of pounds over their lifetimes. As my hon. Friend the Member for Liverpool, Walton said, we are not talking about small amounts of money—these are very significant amounts. For example, a corporal who lost both legs in a bomb blast—a horrific and serious injury—would miss out on about £500,000 in pension and benefit-related payment, a figure that is very difficult to justify. War widows, who disproportionately rely on their pension schemes, will also lose out enormously. According to figures from the Forces Pension Society, a 34-year-old wife of a staff sergeant killed in Afghanistan would be almost £750,000 worse off. Again, that is very difficult to get one’s head around, and to justify.
There can be only two possible reasons for the changes. The Government might think that armed forces pensions are too generous, but I have not heard them saying that, so I can assume only that it must be about deficit reduction, which is indeed the argument that has been put forward. I am afraid, however, that that argument does not add up either because the impact of the change from RPI to CPI uprating will be felt long after the Government’s intention to pay down the deficit is achieved.
I agree with my hon. Friend that his constituent should not have to pay for the bankers’ excesses. I am not sure whether the Minister believes that, and perhaps he will address the point.
Although the figures demonstrate that the impact of the changes will be felt long after the deficit has been paid down—thus far paying down the deficit seems to be the only argument for change—the Government are determined to reduce the support given to forces members and their dependants every year from now on, even when the economy has returned to growth, as they predict it will. The hon. Member for Upper Bann (David Simpson) made the point very well that it is important to balance the needs of our economy with the unique debt that we owe our armed forces.
People will find it very hard to understand why men and women serving in Afghanistan now will receive poorer pensions, and why war widows will have their entitlements hit, year on year. Service personnel in Afghanistan were told, last November I think, by the Secretary of State that they would not be made redundant, but they have now been told that they have been included in the pool of people being considered. That is a very worrying U-turn by the Government. Our armed forces do very dangerous and difficult work in conflict zones all over the globe, and it places great strain on loved ones when their husbands and wives, mothers and fathers, and sons and daughters spend many months at a time away from home. Dependants, the majority of whom are women, often make huge sacrifices to support those on the front line, and we owe them just as big a debt of gratitude as we do those in combat, particularly today, on international women’s day. The most important thing that we can do to go some way to repaying that debt is to ensure that service personnel and their families are looked after during and after their time in the forces, especially if their service is cut short because of injury or death.
Our military men and women deserve the best treatment for the work they do. They are not demanding special treatment on pensions; they just want to be treated fairly. By making pension changes that will hit members of the armed forces this hard, and for the rest of their lives, the Government are clearly not treating them fairly. Ministers must look again at the policy, and if they believe that it is part of their deficit reduction plan they should consider a time-limited measure during the period of deficit reduction and spending restraint. That would be a much fairer approach. There cannot be a logical reason why the bravest British soldiers fighting in Afghanistan should see their pensions reduced for the rest of their lives, and why war widows, who have had the person most special to them taken away, should have the support on which they so depend taken away.
The hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart) asked whether the changes will lead to a recruitment problem. Service families have recently told me that the changes are leading to their seriously considering leaving the armed forces. I am also told that people in the armed forces are talking about their exit strategy—not our exit strategy from Afghanistan, but their own personal exit strategy from the armed forces—because of the severity of the changes.
As my hon. Friend the Member for Liverpool, Walton has noted, a Ministry of Defence spokesperson, when challenged in November on the unique nature of military service, said:
“It is not possible to treat the armed forces differently from other pubic servants.”
I am happy to remind that spokesperson of the unique nature of military service. My hon. Friend has covered some of these points, but they are so important that I will make them again, and I hope that that spokesperson listens. Service personnel are required to work unlimited hours in dangerous conditions, with no prospect of overtime, and can be imprisoned for failing to show up. Their living conditions can be very tough, and they are often separated from family and loved ones for many months at a time. They can be compelled to return, even after retiring. They forgo several political freedoms and contractual rights that other people rightly enjoy, and they are at risk of being killed or horribly maimed as a direct result and an unavoidable consequence of their service. Their pension is a serious and tangible financial compensation for those things, and the Government must bear that in mind.
The Government must be held to greater account for their approach to the armed forces, particularly on pensions. They have reversed their promise to write the military covenant into legislation, when recognising the covenant and enshrining it in law is more important than ever. Instead of writing the covenant into law, it is proposed that the Secretary of State will report annually to Parliament on the effect that membership of the armed forces has on service people, with specific reference only to health care, education and housing. Of course, those issues are vital to service personnel, their families and veterans, but there are many other issues that affect their daily lives, particularly since the election of the Government.
With the Armed Forces Bill Committee, I visited a garrison a couple of weeks ago and met several soldiers and their families. The concerns they raised were about cuts to allowances, cuts to pensions and the difficulties faced by service family members seeking employment. We have seen no movement from the Government on the issue of honouring their pledge to enshrine the military covenant in law. The Minister said on Radio 4 in February that they were defining the covenant in law. He might wish to take the opportunity to correct his remarks. Even his own team has not said that it will be defined in law—it continues to insist that it will be enshrined in law. In fact, neither is true. However, if the Government will not honour their pledge, at the very least, they must broaden the scope of the annual report on the covenant. We have proposed, through a series of amendments in Committee, that the terms of the covenant report should be expanded to include issues such as mental health care, employment and training and, crucially, pensions and benefits. It would be bizarre if the Secretary of State was required to come to Parliament and produce a report that did not reflect his or her direct responsibilities.
The coalition has so far rejected that proposal but I urge it again—particularly in the light of the letter from Chris Simpkins, director general of the Royal British Legion, to the Under-Secretary of State for Defence, the right hon. Member for South Leicestershire—to ensure that Parliament has the opportunity to scrutinise closely the current and future Governments’ approach to the much wider range of issues facing our service personnel.
The chair of the RAF Families Federation told the Armed Forces Bill Committee recently:
“At the moment, there is a real feeling within the armed forces that they are being battered from all sides.”
It is easy to understand that view when one considers the Government’s pension changes, their plans to make thousands of service personnel redundant and the litany of broken promises that simply do not match the rhetoric that we heard before the election. We can add to that the Government’s decision to scrap major reforms to the system of inquests on military deaths, which has been described as a betrayal by forces families.
Today’s debate is an opportunity to highlight the unfair impact that the Government's pension changes will have on our brave servicemen and women, and again to call on Ministers to rethink their approach. I look forward to hearing the Minister’s response. It is also another opportunity to hold the Government to account for their general approach to our armed forces. In their nine months in office they have failed to live up to their pre-election rhetoric, and their actions—including the impact of the changes to pensions—have seriously damaged the sacred bond of trust between the nation and the armed forces who bravely defend our freedoms.
I commend the hon. Member for Liverpool, Walton (Steve Rotheram) on initiating this debate on the effect on the armed forces of Government changes to pensions and benefits, and I acknowledge that the subject is profoundly important to many people.
Our armed forces are deployed to most demanding areas of conflict and we have a duty, not only as a Government but as a nation, to support and look after them, to care for the injured and the bereaved. That is common ground for all hon. Members. As the House knows, the priority for the Government is to bring the national finances under control by reducing the deficit, which inevitably means reducing public expenditure. That means that we have to take difficult and sometimes very unpalatable decisions in all areas of spending, including defence. Because of the priority we place on security, the defence budget is making a more modest contribution to deficit reduction relative to almost all other Departments.
However, in the comprehensive spending review and the strategic defence and security review, we have still had to take difficult decisions that have repercussions for some members of the armed forces and their families. I repeat that many of those decisions have been unpalatable. Nobody in the coalition came into politics to make cuts to the armed forces or to eliminate capabilities in our military power, but that is what we have had to do.
I am coming to that. We have to acknowledge three things. First, the scale of the deficit is so enormous that £1 in every £4 of public expenditure is being borrowed, and the interest alone on the debt this year is greater than the entire defence budget, including the proportion being paid by the Treasury for operations in Afghanistan. That is how immense the overall deficit black hole is. That is compounded in the area of defence by the situation we inherited, where the defence budget was lagging behind the defence forward programme over the 10-year planning period by £38 billion. That is the gap between the programme that we inherited and the existing budget, set at a flat real basis, for the 10-year planning period. That is over and on top of the general deficit picture that we inherited. There is the general picture and the specific defence picture.
The third element, which I do not think was acknowledged adequately by the hon. Member for Liverpool, Walton, is that before there ever was an economic downturn, before the banking crisis hit, before the deficit became part of the political currency, there was already a problem with public service pensions, which the previous Government had acknowledged and was beginning to address, and which was going to require pretty drastic action sooner or later, irrespective of the nation’s finances plunging as they did. Before any of that started, there was already a serious problem with the affordability of public service pensions. We have to acknowledge all three factors as the backcloth to the decisions that have subsequently been taken.
Certainly not. We would have liked to have seen more defence spending. We would still like to see that now. The fact is that defence figures, for obvious security reasons, are not exposed to the same degree of parliamentary scrutiny as those of other Departments, and with the long lead time of many defence items, commitments stretch further into the future than they do in many other Departments. Although we were aware from Bernard Gray’s report on procurement that there were some pretty serious financial difficulties inside the Ministry of Defence, it was not until we got in and saw the full scale of it that we realised how drastic the defence budget’s problems were.
I have listened carefully to the Minister, and I understand the argument that we had in the main Chamber about deficit reduction. It is not possible to throw the old line that we are deficit deniers—I am stating publicly that I understand the rationale—because if that were the case, a proposal that was time-bound until the deficit was pared down would have got some support across the Chamber. However, that is not what is being proposed. As I mentioned, it is necessary to take cognisance of the fact that, because our forces personnel and their widows draw pensions at a much earlier age, the proposed changes are compounding the problem. It is not comparing apples with apples; it is not even comparing Cox’s with Cox’s. A completely different set of comparators must be used, because armed forces pensions are drawn at such an early age.
The hon. Gentleman is making two different points, and I shall address each in turn. The question of the deficit must be boiled down into the structural deficit and the cyclical deficit. If all the measures that we are taking during this Parliament to eliminate the structural deficit are reversed at some point in the future, the country will simply return to square one. This Government are attempting to address the cyclical deficit through economic growth over a period, but we must eliminate the structural deficit. The structural deficit is not a temporary phenomenon. It existed before the banking crisis. It is perfectly true that the banking crisis blew the lid off it and put the entire global economy into turmoil, but the fact is that the UK was in a serious deficit situation before the banking crisis hit. That is why measures taken now to address the deficit cannot be viewed as temporary. If we start reversing prior decisions when the cycle improves and the cyclical deficit is also eliminated, we will simply return to square one.
The hon. Gentleman’s second point is a fair one. On average, people leave the military and begin drawing pensions from the age of about 40. I am sceptical about some of the figures that he and the hon. Member for West Dunbartonshire (Gemma Doyle) quoted, and I need to examine them in depth to see how on earth they were arrived at, but the general point that the pension is drawn from an earlier age is valid. However, in the vast majority of cases, people who draw a military pension from the age of about 40 do not then live on it exclusively for the rest of their days. My hon. Friend the Member for South West Wiltshire (Dr Murrison) acknowledged that he receives a service pension, but that has not prevented him from going on to do other things. Of course, some will not have further opportunities, but for the vast majority of people who leave the services at about 40, the service pension augments what they can earn in other walks of life for a long period. It is not really comparable with an old age pension in the sense that I think the hon. Gentleman meant.
It is strange that the Minister mentions the difference between the structural and cyclical deficits. If the change is being made to address the structural deficit, that existed a long time before the banking crisis, as he rightly said, but I do not remember any dissident voices from the Tory and Liberal Democrat Benches at the time saying that we should reduce armed forces pensions. Why the change? If it was known well before the banking crisis, why was it not in either party’s manifesto?
The hon. Gentleman makes the point that we are having to take measures now to eliminate the deficit that we would not have taken or needed to take if the deficit had not grown over seven or eight years in the first place. Nobody in Government is saying that the precise measures that we are taking now are those that got the country into deficit, but the fact is that between 2001 and the banking crisis, we ran a budget deficit, some of it during a boom period in which traditional Keynesian economics should have dictated that we run a budget surplus.
The Government are now being forced to take drastic measures to address the structural deficit, not on the logic that these are the specific issues that built up the structural deficit, but because we must deal in the art of the possible. None of us came into politics to cut armed forces numbers or delete military capability, but we are driven to do so now by the scale of the budget deficit. It is simply not fair to say that nobody said anything. Throughout the period, my right hon. Friend the Member for Twickenham (Vince Cable) said that both personal debt and debt in the state’s coffers were mounting to the point of unsustainability and would sooner or later go pop. I do not claim to have been a soothsayer myself, but to say that nobody said it is simply inaccurate and untrue.
I apologise for not being here earlier, Mr Streeter. I was at the Health and Social Care Bill Committee. I noticed in the paper that the Army Families Federation, which represents soldiers and their families,
“said that it had received 2,000 complaints in the past five days about the impact of cuts from people who feel that pensions and pay changes are a sign that the offer they laid down their lives for has been reneged on”.
I understand the Government’s position clearly in relation to the Budget, but in the middle of it all are the families and those serving on the front whose benefits and pensions are being reduced. That is the clear issue for many of us in this Chamber.
[Sandra Osborne in the Chair]
It is a serious issue—I do not deny that for one minute—but I think that what the hon. Gentleman refers to was an online survey run by the Army Families Federation that had 2,000 participants in its first five days. Of course there is a lot of concern and anxiety about the measures; I do not deny that for a minute. It is understandable. Some of the changes that we have had to make to the allowances package, which is what I think the survey was specifically about, are unpopular and will require lifestyle adjustments, but they are a necessary part of the Department’s contribution to the overall Government effort to reduce the deficit and bring the defence budget into some sort of balance.
The strategic defence and security review set out a requirement to reduce expenditure on service and civil service allowances, amounting to £300 million a year. Allowances are designed to support service personnel in particular circumstances, not to supplement income. It is entirely right that the package of allowances is reviewed from time to time to ensure that it fits the needs and circumstances of today’s armed forces fairly and affordably. There is no getting away from the fact that the measures will have an impact on individuals; I acknowledge that. However, to minimise the effects, we have concentrated on ensuring where we can that no group is disproportionately affected by changes. We have also sought to mitigate the effects by phasing in some of the changes over two years.
Operational allowances have not been affected by any of those changes. The House will be aware that we have doubled the operational allowance, backdated to 6 May last year. We have also changed the policy governing rest and recuperation for service personnel deployed on operations. Personnel deploying for six months will remain eligible for 14 days’ R and R, and personnel who lose out on that, whether as a result of operations or of disruptions to the air bridge, will be guaranteed additional post-operational leave in lieu as compensation. An appropriate set of allowances is a vital part of our support to personnel, and it will remain so. We believe that the changes announced in January by my right hon. Friend the Minister with responsibility for defence personnel, welfare and Veterans, struck the right balance between the need for savings and the need to get the package right.
The emergency Budget in June announced that from this April, the indexation of benefits, tax credits and the state second pension will be based on CPI rather than RPI. The change looks forward to the future. Future increases in the value of deferred pensions—all pensions in payment—will be based on CPI. Public service pensions will continue to be index-linked, which will continue to protect individual pensions against increases in the cost of living. The change is not a reduction of accrued rights, but we accept that, in the long term, CPI tends to increase at a lower rate than RPI. That is not always true—a year ago, RPI was negative and CPI positive—but I think that everybody accepts that, over the long term, CPI increases more slowly.
We have to link pensions to the appropriate target measure. CPI is the target measure used by the Bank of England, the headline measure of inflation in the UK, and the international standard measure. It uses a methodology that takes better account of consumer behaviour in response to price increases. The Government believe that it is the right index to use for uprating additional state pensions, public and private pensions and social security benefits, and that it is a more appropriate measure.
It is in the nature of public sector pension schemes that individual schemes cannot be seen in isolation. Much as I would wish, as the Armed Forces Minister, to see the armed forces pension schemes as utterly individual, the fact of the matter is that other workers in other areas of public service could not and should not be expected to see that. We cannot change one scheme without it at the very least having implications for others, and we cannot treat armed forces pension schemes inconsistently. The armed forces are part of the society they serve. Service pensioners do not live in a different world where prices move in different ways and the economy operates in a different fashion.
No, we cannot forecast that at this stage. The Treasury has taken the decision across the public service, and it remains to be seen exactly what that will realise over time. It has based its policy on actuarial assessments that conclude that, over a longer period, there will be a significant saving to the public purse.
The hon. Gentleman will be aware that Lord Hutton is in the final stages of a structural review of public service pension provision and will publish his findings this week. In his interim report, Lord Hutton noted that the most effective way to make short-term savings was to increase member contributions, but he did not recommend that in the case of the armed forces.
We recognise that there can be anomalies and do what we can to iron them out. It was unfair that, under the 1975 armed forces pension scheme, a service person who held acting rank and exercised the responsibilities of that rank, but who died as a result of service before a certain period had elapsed, did not have that higher rank reflected in his pension. We have, therefore, changed the rules. Every soldier, sailor or airman can be assured that, if they die for reasons related to service while holding acting rank, their dependants will receive payments that reflect that rank.
I have reflected upon the Minister’s answer, and it seems that the Government do not know what the total savings of this policy will be. Surely there is a ballpark figure somewhere that can be used to say that the policy will address some of the structural deficit that he identified earlier.
The hon. Gentleman is right—there are such figures, but they are held by the Treasury and have been determined by the Treasury actuaries. They have not been worked out by each Department for itself. The Treasury’s policy is to address the entire situation of public service pensions, which—I will say it again—were a serious problem in terms of their affordability long before the financial crisis or the downturn occurred. The hon. Gentleman will remember that, during the previous Parliament, the previous Government ran themselves into hot water with some of the public service unions due to the reforms they began to make to public service pensions.
Moving indexation from RPI to CPI is one of the ways that this current Government have identified of reducing the scale of the measures that Lord Hutton will have to recommend in terms of varying either contributions or benefits for public service pensions. I have no idea what Lord Hutton will recommend later this week, but I am certain that, on top of that, some reforms will be proposed that will be unpopular and unpleasant. However, they will be less severe than they would have had to be, because of the Treasury’s switch from RPI to CPI. To answer the hon. Gentleman’s question, I am sure that there are such figures, but they are not held at an individual departmental level. He might want to address his question to the Chancellor.
Let me be clear about the challenges we face and why we are considering the issues under discussion. The fact of the matter is that we inherited a record national debt and a huge black hole in the defence budget. We cannot run away from those harsh realities. Tough decisions have to be made, and we are facing up to that challenge. We accept that some of the changes will be difficult and that support for the armed forces remains very high throughout the country. We ask them to do things to keep us safe, and deny them the right to choose what assignments we set them. We will do all we can to support them, properly equip them, compensate them when they are injured and honour them when they die. We owe them nothing less.