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Civil Service Compensation Scheme

Volume 617: debated on Friday 2 December 2016

Motion made, and Question proposed, That this House do now adjourn.—(Chris Heaton-Harris.)

Welcome, Madam Deputy Speaker, to part 2 of the SNP Partick Thistle supporters’ day. Part 1 was led superbly by my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black), who gave a tour de force.

I want to discuss the civil service compensation scheme. May I take this opportunity to refer to my entry in the Register of Members’ Financial Interests and to my position as chair of the Public and Commercial Services Union parliamentary group? I also thank the House staff for their excellent briefing on the issue, which I recommend to all Members.

We are finally getting to discuss this issue in the Chamber. After at least three business questions, a point of order, early-day motion 310, which, as of yesterday, has been signed by 109 Members, including representatives from seven political parties and two independent Members, and many requests for a debate, it is a pleasure finally to represent the voice of those who contribute to our public services and who find themselves, through no fault of their own, losing out financially.

On 22 September, the Government set out their formal response to the consultation on the civil service compensation scheme, including proposals that radically reduce that compensation. The issue will affect thousands of loyal civil servants, whose jobs are now at risk as departmental budgets continue to be cut and hundreds of Government offices are earmarked for closure. Areas affected include Her Majesty’s Revenue and Customs and the Equality and Human Rights Commission, which are experiencing cuts.

There are thousands of civil servants in my constituency, 750 of whom are residents. Is the hon. Gentleman aware of suggestions that civil service managers are encouraging staff to take redundancy on current compensation terms to help with the downsizing of the civil service, or lose out under the new proposals?

The hon. Gentleman is correct to highlight that issue, because that is exactly what is happening. It takes away from our efforts, because we are both opposed to HMRC office closures, but the Government are forcing people to go on older terms rather than the new, drastically reduced terms.

For the benefit of those watching these proceedings, let me provide some background. The civil service compensation scheme is a statutory scheme that provides compensation for loss of office for reasons including compulsory and voluntary redundancy. In July 2009, the then Labour Government set out proposals to reform the scheme in order to control costs and to address elements that may be age-discriminatory. In broad terms, the existing scheme provided severance for those under 50 and early retirement for those aged 50 to 60. The civil service unions opposed the proposed changes on the grounds that they represented a reduction in terms for most members; that they did not adequately compensate those faced with compulsory redundancy; and that they compared unfavourably with other public sector schemes.

In February 2010, the Cabinet Office announced a modified set of proposals on which it had reached agreement with five of the six civil service unions. That agreement limited the maximum payment on compulsory redundancy to three years’ pay, where that led to a payment of no more than £60,000, and to two years’ pay for high earners. Additional protection was provided for those who were closest to retirement. The civil service compensation scheme was amended accordingly. The largest trade union, the Public and Commercial Services Union, opposed the changes and applied for a judicial review. On 11 May, the High Court ruled in favour of PCS and the amendments to the scheme were quashed, with the exception of certain changes designed to address elements that were considered to be age discriminatory.

On 6 July that year, the Conservative-Liberal Democrat coalition Government said that they would legislate to cap payments at 12 months for compulsory redundancy and 15 months for voluntary redundancy. They hoped to negotiate a permanent and sustainable agreement with the civil service unions, at which point the caps would be withdrawn. The trade unions objected to the proposed caps because they were less than those in other public sector schemes, where a limit of two years’ pay was normal.

The current announcement about changes to the civil service compensation scheme comes just five and a half years after the then Minister Francis Maude imposed changes to the civil service compensation scheme in December 2010, promising that those changes were fair, affordable and right for the long term. It is hard to see what has changed so radically since then to justify this fresh attack on civil servants’ terms and conditions.

The changes can be summarised as follows. There is currently one month’s salary per year of service, but after the proposed changes there will be three weeks’ salary per year of service. There is a cap of 21 months’ salary for voluntary redundancy and voluntary exit, but there would be a cap of 18 months’ salary for voluntary redundancy and 15 months’ salary for voluntary exit if the trade unions were not to accept the offer that has been put to them. There is a cap of 12 months’ salary for compulsory redundancy, but the Government propose to change that to nine months’ salary. There is employer-funded access to the early pension option when individuals reached the minimum pension age of 50, but access to that option will now start at age 55.

The Government propose to cut the cash compensation payment, which means that they will reduce the rate at which compensation accrues for each year of service from one month’s salary, as it is currently, to three weeks’ salary. That will affect those with short and medium service, cutting redundancy payments by 25%. The Government also propose reducing the cap on payments, as I have said, which will drastically reduce payments, for some by as much as 30%.

In addition to changes to compensation payments, the Government propose restricting employer-funded access to early pension. That option is currently given to staff in voluntary redundancy situations who have reached minimum retirement age, which is 50 in the classic and premium schemes and 55 in the nuvos and alpha schemes. Staff are offered a compensation payment based on their salary and length of service, or they are offered the option to take their pension, with the employer buying out any actuarial reduction resulting from drawing the pension early. Cabinet Office statistics show that the average value of compensation for the 50 to 54 age group will fall dramatically, by more than 50%, under the new proposals. That demonstrates the profound impact that the reform could have.

Early access to pension has been a popular alternative to the cash lump sum compensation payment for those with long service who are nearing retirement, because it provides a level of security. That is important, because it has been shown that those aged over 50 often find it harder to get a new job, and that if they do, it may be for fewer hours and/or lower pay. We are all concerned, therefore, that restricting that option will create hardship and distress. In some cases, it will result in people relying on benefit payments.

Does my hon. Friend agree that civil servants in admin and assistance jobs—the ones who are on the front line doing the UK Government’s dirty work—are already paying a high price for Government austerity, having seen pressures rise while headcount has fallen by 37% since 2010?

My hon. Friend makes an excellent point. It is clear that the civil service is reducing. Her Majesty’s Revenue and Customs, for example, is now half the size it was 10 years ago, which is important to note when it is dealing with tax avoidance and all those other issues.

In the light of what the hon. Gentleman has said, is this policy not just another kick in the teeth to loyal civil service staff? Over the past few years, they have had substantial pay restraint, huge job cuts and a tax on pensions, on top of the previous changes to the compensation scheme, which he mentioned a few moments ago.

I agree with the hon. Gentleman. He is being moderate when he says that the policy is a kick in the teeth. It certainly is, and we need to remember that these civil servants deliver precious public services every day, and they deserve to be treated better.

Does my hon. Friend share my concern about the recent numbers published by the Cabinet Office in answer to my written question? The numbers seem to suggest that a disproportionate number of the civil servants who have been made redundant describe themselves as persons with disabilities.

I agree with my hon. Friend, and I will address the equality impact assessment. It is worth noting that, in the Enterprise Act 2016, the Government changed the cap to £95,000 a year and, in doing so, referred to people as “public sector fat cats,” despite the evidence that civil servants with 30-odd years’ service who earn less than £27,000 a year will be caught by the cap. Low-paid civil servants are not public sector fat cats.

The combined effect of all the proposed changes will be to reduce radically compensation for loyal civil servants. With cuts to the civil service compensation scheme in 2010, the recent changes to pensions, massive staff reductions and years of pay restraint, staff are left wondering what will be next.

The Government produced an equality impact assessment only once the consultation had concluded and they had produced their final response. That runs counter to the public sector equality duty, which states that such impact assessments should start in the early stages of a review and should form part of the active decision-making process.

Once it materialised, the equality impact assessment highlighted that there is a particular impact on older workers, who face both direct and indirect discrimination in the proposals. Raising the minimum age for the early access to pension option will have a direct and significant impact on those in the 50 to 54 age bracket. Meanwhile, lowering the caps on maximum compensation payments will indirectly affect older workers because they are much more likely to have long service.

Throughout, the Government have frustrated negotiations with trade unions and undermined the consultation process. The Government have shown little regard for the impact of the reforms, as illustrated by the fact that the equality impact assessment was provided only once the consultation had concluded, despite repeated requests from trade unions and Members of Parliament. Affected groups were therefore unable fully to understand the impact that the proposals would have on them in time to feed it in to the consultation. The data provided for consultation purposes did not cost individual proposals; instead, comparisons were made between the current civil service compensation scheme and the proposed future civil service compensation scheme, which suggests that the final package of reforms was a fait accompli.

Without information on how different proposals would affect different groups of workers, it was extremely difficult to conduct meaningful consultation. The Government have taken a similar obstructive approach to negotiations. In June, months before the formal response to the consultation, the Government issued a letter to trade unions outlining a set of reforms and demanding that the unions sign up to them before negotiations could continue. Those outrageous preconditions made a sham out of the negotiations. With little of significance to address and an absence of any equality impact assessment or analysis of the consultation responses, and refusing to be bullied into accepting the preconditions, trade unions representing the majority of civil servants—PCS, Unite and the Prison Officers Association—were excluded from the talks.

After months of silence, on 22 September 2016, the Government issued a formal response to the consultation, which set out drastic cuts. Alongside this came the long overdue equality impact assessment. Despite over 3,000 responses to the consultation, 95% of which disagreed with the Government’s fundamental premise about the need for reform, the Government set out a package of reforms that were little changed from their original position. The little movement made since the initial proposals has been used as leverage to blackmail trade unions into accepting detrimental changes to their members’ terms and conditions, as I outlined earlier.

The proposals will destroy civil service morale, which is already at breaking point, and as promises are broken that leaves no assurance that further attacks on terms and conditions are not soon to follow. The proposals will hinder future recruitment exercises as years of pay restraint, coupled with worse terms and conditions, make the civil service a less attractive employer.

I want to mention the process. On 20 October, I, as chair of the PCS parliamentary group, wrote to the Minister for the Cabinet Office and Paymaster General, but I have not had a response. I was told by him, behind the Speaker’s Chair during a Division, that he would meet me and other Members belonging to the PCS parliamentary group—there are 83 Members from both sides of the House in that group—to discuss the issue. However, in a written ministerial statement on 8 November, the Government announced that they were going ahead with the proposals, without bringing these matters to the Floor of the House. Such is the severity of the proposals that I firmly believe the Government should have made a statement in the House, so that all Members could question them on their proposals.

I pay tribute to the thousands of civil servants who will be watching this debate for all the work they do to deliver public services. I look forward to the Minister’s response, and I ask the Government to think again.

I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this debate, and I welcome the opportunity to respond to his concerns. I know that, in his role as chair of the PCS parliamentary group, he takes a close interest, as do I, in matters relating to the civil service. I, too, greatly value and appreciate the work of the civil service. Now more than ever, the work of the civil service is vital to delivering the best service to the public and to allowing us to meet the challenges and opportunities that lie ahead.

To provide the best service for the public, the civil service needs to be ready to meet challenges and opportunities. The Government must therefore ensure that the civil service can recruit and retain the best people, but we must also ensure that there is an efficient and cost-effective compensation scheme in place to support civil servants when exits are needed.

As the hon. Gentleman set out, important steps towards this goal were taken during the last Parliament. My noble Friend Lord Maude, in his then role as Minister for the Cabinet Office, introduced important reforms to modernise redundancy arrangements in the civil service. A revised civil service compensation scheme was launched in December 2010, when my noble Friend Lord Maude set out his hope and intention that it would be a fair settlement for the long term.

In the years since 2010, however, it has become apparent to the Government that the reforms did not fully deliver on their aims. For example, we were concerned that the 2010 compensation scheme provisions for early access to pensions were no longer appropriate. These provisions allowed staff aged as young as 50 to retire and draw all their civil service pension without any reduction for early payment. This was often very expensive for the employer, and it is increasingly out of line with the Government’s wider aim of responding to very welcome increases in longevity by encouraging longer working lives.

More widely, the Government’s view was that, even after the 2010 reforms, the civil service compensation scheme was simply too expensive, when considered against the background of the current economic situation. We of course recognise the need to provide good financial support to bridge the gap into alternative employment or retirement—we of course recognise that—but the Government also have a duty to balance that against the wider financial situation and the interests of the taxpayers who ultimately fund the scheme.

The 2010 compensation scheme terms were becoming increasingly out of line with those the Government believe should be available more broadly across the public sector. For example, we have made it clear that we do not believe it is appropriate to pay six-figure compensation payments within the public sector, and we are legislating to put a stop to that. We are also embarking on reforms to compensation schemes across the main public sector workforces, so it is right that the civil service scheme is consistent with those wider reforms. For all those reasons, it was clear that further reform of the civil service compensation scheme was needed.

With public services under absolute stress and strain—many are at breaking point—what is modern and efficient about cutting wages, numbers and training, and massive negative restructuring, in the light of the chaos in the civil service that is about to unfold with Brexit?

The hon. Gentleman should not underestimate the skills of the civil service. In fact, the challenges and opportunities that lie ahead can and will be adequately dealt with by our excellent civil service, which we value greatly.

Will the Minister confirm that the six-figure cap will affect employees with long service who earn less than £27,000 a year, which is not a high salary? Are the Government considering how to address that?

It is not unreasonable for the Government to take the view that it is not appropriate to pay six-figure—£100,000—compensation payments within the public sector. We are legislating to stop that. As I have said, we must take the economic challenges and climate into consideration.

The Government launched a consultation on our proposals for changes to the civil service scheme in February and set out five principles for reform. I will not rehearse them now—they are on the public record—but it was an open consultation and we invited responses from all those who would be affected by reforms, including trade unions, employers, civil servants and other interested parties. The consultation ran for 12 weeks, but as well as that we held a series of meetings to discuss the proposed reforms with the civil service unions throughout the consultation period. Six such meetings were held during that period, attended by representatives from PCS, Prospect, the FDA, Unite, GMB and the POA. After the consultation closed in May, we gave careful consideration to all the responses we received and to the views expressed by the unions.

After the closure of the consultation, the Government did not stop our efforts to achieve agreement on a set of reforms. We invited all unions that had responded to the consultation to a series of further meetings. In order to give the best chance of reaching agreement, the participation of unions in the further meetings was made conditional on their acceptance that a proposed basic structure would form the starting basis of a reformed negotiated set of arrangements that could lead to a final agreement.

I am pleased to say that five employee representative bodies—Prospect, the FDA, Unison, GMB and the Defence Police Federation—agreed to take part in further meetings at that time and on that basis. The Government held a total of 13 further meetings with those bodies between June and September to discuss the detail of the proposed reforms. Those highly constructive meetings played a big part in shaping our thinking and the final offer we made to unions. However, I should make it clear that we do not in any way accept that the PCS or any other union was barred from those discussions, as has been claimed. The decision not to participate was made solely by the unions concerned and not by the Government.

Following the conclusion of the discussions with the unions that chose to participate, the Government made a formal offer of revised compensation schemes. The offer reflected the constructive discussions between June and September. As such, we proposed a number of improvements on the package of reforms set out in the consultation, including taking more account of longer service, which is only right and fair; increased protection for the lower-paid, which is also appropriate; greater flexibility for those over the minimum pension age; and improvements to the terms for inefficiency compensation. The consultation and discussions therefore worked.

Will the Minister refresh the House’s memory? I did not say that the trade unions were barred from those talks; I said that they had to sign up to preconditions before them. Does he agree?

The arrangements for the talks were satisfactory to eight trade union organisations; they were not satisfactory to the PCS, but that is a matter for it. However, the offer reflected the points that I have made and those improvements. Nevertheless, the offer was made on equal terms to all civil service unions—all of them—including those that had not taken part in the talks.

All unions were then also given the same amount of time to consider the Government’s offer and to ballot their members. I am pleased to say that eight unions were able to make a formal response to the Government by the requested date of 31 October and I am also pleased to say that all eight of those unions responded to say that they accepted the Government’s offer. As such, my right hon. Friend the Minister for the Cabinet Office considered that the Government’s offer had been accepted by a sufficient number of trade union organisations to constitute an agreement.

A revised civil service compensation scheme, consistent with the terms of the Government’s offer, was therefore laid before the House on 8 November and took effect from 9 November. However, I regret to say that, unlike other unions, the PCS and the POA did not feel able to ballot their members and respond to the Government within the requested timeframe.

I understand that it can take time for unions to make such arrangements. However, the PCS gave no indication that more time would be required at the time the offer was made. Indeed, the issue was not raised at all until more than half the time intended for union consideration had elapsed, and even then a formal request for an extension to the deadline was not received by the Government until some time after that. By that point, the Government did not consider any extension to the deadline to be either practical or fair on the other unions, which had made strenuous efforts to respond in time.

Since then, I understand that the PCS has balloted its members with a recommendation to reject the Government’s proposals, and that they have done so. While the Government will of course take note of the result of that ballot, that does not change the fact that the Government’s offer of revised compensation scheme terms was accepted by the large majority of unions consulted, or that the new scheme has now taken effect.

I am very conscious of the time; if I may, I will just carry on a bit more and then give way.

To summarise all that I have said so far, the Government are very clear that the reforms to the civil service compensation scheme were carried out in an open and consultative fashion. The process benefited greatly, as such processes do, from the constructive approach of the unions that chose to participate fully, and the benefits can be seen in the improved terms I have referred to, which were able to be adopted as a result. So, while it is regrettable that not every union sought to participate in a constructive manner, that is a matter for them and it will not discourage the Government from our belief that it is right to seek to reach negotiated agreements in such matters, wherever that is possible.

I thank the Minister for giving way and I will be brief. He has mentioned individual trade unions, which is fine, but I would be curious to know what percentage of civil servants those unions represent. If he could write to me on that, I would be obliged.

I am always very happy to write to the hon. Gentleman.

Turning quickly to the reforms themselves, I fully accept, as I have said, that any change of this sort can be difficult for those affected and as a result will often be unwelcome. However, I am clear that the revised terms of the 2016 civil service compensation scheme represent a good deal for civil servants. The new scheme strikes the right balance in achieving the savings that are required while reflecting the nature of the civil service workforce and the benefits of reaching a negotiated agreement. Also, the new scheme will continue to meet its main objective, which is to provide a good level of support to help to bridge the gap into new employment or until retirement, where that is necessary, when exits are unfortunately required.

Because of all of that, the Government believe that these are sustainable reforms and therefore I will close by echoing the words of my right hon. Friend the Minister for the Cabinet Office in his written ministerial statement of 8 November, in which he described the reformed compensation scheme as providing

“a firm foundation for the management of the Civil Service and its people for a generation”.

Question put and agreed to.

House adjourned.