Local Government Pensioners (Scotland) (Hansard, 14 July 1992)

§ Mr. Norman Hogg (Cumbernauld and Kilsyth)

I am grateful for the opportunity to address the House, and I shall seek to be as brief as possible. I am also grateful to the Under-Secretary of State for Scotland for being here to answer the debate.

The purpose of the debate is to ask the Government to ensure that local government pensioners in Scotland receive outstanding sums due to them for the period from April 1987 to March 1989. The underpayment was due to a computer error in calculating the retail prices index, which was reported as 0.1 per cent. too low for most of the period from February 1986 to December 1987. As a result, local government and other public service pensioners received cost of living increases to their pensions which were less than they should have been for the period from April 1987 to March 1989.

The cost of living increase agreed to operate from April 1989 included a factor to adjust for the computer error from that date onwards, but still left outstanding the underpayment for the period from April 1987 to March 1989. The sum involved was more than £7 million.

In England and Wales, local authorities were able to make retrospective compensatory payments at an average rate calculated by the Department of Environment to he £2 per £1,000 of pension. The Secretary of State for the Environment has authority under the Local Government Finance Act 1982 to sanction certain payments by local authorities that they would otherwise be unable legally to make. He said that he would be prepared to do so in this case.

The Secretary of State for Scotland has no similar statutory powers. As a result, while local government pensioners in England and Wales have received some compensation, those in Scotland have not. In the case of some services for which the Government are themselves the paymaster, a lump sum has been given to one or more charities. It is understood that it will be used to assist needy pensioners or their dependants, but not necessarily the people who were deprived of the money due to the computer error. That solution was not acceptable to the employers or the relevant trade unions representing the pensioners in Scotland.

The local government officers' union, NALGO, raised the matter at an early stage with the Convention of Scottish Local Authorities, and I should make it clear that at no time have COSLA or individual local authorities in Scotland shown any reluctance to pay the pensioners what is morally due to them. Their problem is that they have no legal authority to pay.

In September 1990, COSLA formally raised the matter with the Scottish Office superannuation division. The reply on 2 December 1991 held out no prospect of legislation and suggested that local authorities might find some other type of solution, such as donations to charities. It said: The Convention's finance committee may wish to consider whether they could recommend to Scottish local authorities that they should adopt a solution on these lines. It is not surprising that COSLA did not feel able to recommend that local authorities should give to charity moneys that morally belonged to other people.

1115 What I now say is embarrassing, and I apologise to the Minister, the hon. Member for Dumfries (Sir H. Monro). On 27 July 1991 he wrote to the then Secretary of State for Scotland and received a reply from his right hon. Friend on 31 August 1991. But the Secretary of State was no more helpful to his hon. Friend than the Scottish Office had been to COSLA. He acknowledged that in Scotland … the local authorities would also have preferred to make individual payments", but saw no prospect of legislation to enable them to do so.

On 31 October 1991, I tabled an early-day motion, supported by a number of other hon. Members, calling on the Government to find a way of compensating those involved for their error, albeit an unintentional one. That request met with no response, which is why I initiated this debate.

This is a matter of equity. Due to a Government error—nobody suggests that there has been any ill intent—local government pensioners in Scotland have been deprived of sums due to them. Due to a quirk of legislation, pensioners in England and Wales—but not those in Scotland—have been paid. Now, surely, the Government having made an error, it is for the Government to find a way to correct it.

In his letter to the hon. Member for Dumfries to which I referred, the then Secretary of State made what seems an extraordinary statement when he wrote: the matter is one to which the local authorities themselves must seek a solution. Why the local authorities? It was not their computer that made the error in the first place.

We are used to the Government stopping local authorities doing what they should be allowed to do, such as spending the income from council house sales to provide more housing. Here, we seem to be getting encouragement from the Government for local authorities to do what they really have no right to do. If they pay the pensioners, they will, as things stand, be acting outside their powers and therefore laying themselves open to audit penalties.

If, on the other hand, they follow the suggestion of making a donation to charity, they will be disposing of someone else's money without their authority. What right have they to do that, and how would it help the pensioners? No doubt the Minister will inform the House that the payments of which the pensioners have been deprived are very small, and in many cases that is true, because the average former local government officer pensioner in Scotland receives only £2,014 per annum. But I hope the Minister will agree that the amount is not the point. If we do not take £5 or £10 seriously today, we shall be asked to disregard £20 on some other issue tomorrow, and £30 next year if inflation does not come down as promised. In any case, what may seem a small sum to those of us in employment has far greater significance to pensioners on small incomes.

There can be no excuse for depriving people of money that is due to them. It is a strange inversion of justice, logic and even blatant common sense to place the burden of remedying the error on the injured party or on a completely innocent third party instead of the perpetrator. Moreover, there can be no case for treating Scottish local government pensioners differently and less well than those in England and Wales.

I hope that I have made the point clearly to the Minister, and I look forward to his response.

§ The Parliamentary Under-Secretary of State for Scotland (Sir Hector Monro)

I am very grateful to the hon. Member for Cumbernauld and Kilsyth (Mr. Hogg) for raising this question. It may seem somewhat dated, but it has been a source of grievance to local government pensioners and to NALGO for some time. The issues involved are very technical, but none the less real to the pensioners affected. I am grateful to the hon. Member for the opportunity to have them debated, even at this very late stage. I anticipated that he would recall my correspondence of a year ago with the Secretary of State. He was kind enough to read out the gist of the reply that I received. In a way, I am a poacher turned gamekeeper, but he will appreciate that I wanted to see the issue resolved, as he does now.

The grievance felt by the pensioners involved goes back a long way—some five years, in fact. As the hon. Gentleman explained, it derives from an error in the calculation of the retail prices index. Local government pensioners, like other public service pensioners, have their pensions increased annually in line with the RPI. That is a very worthwhile and much valued benefit. It means that those pensioners, unlike many others, have a guarantee that the value of their pensions will be maintained.

The consequence of the RPI error, however, was that those pensioners lost by a small amount. The same applied to state pensioners and other public service pensioners who receive index-linked pensions. For two years—from April 1987 to March 1989—the inflation-proofing element in their pensions was less than it should have been. The shortfall was quite small, but no doubt significant to those affected. It amounted to roughly 0.1 per cent. of the full amount that would have been payable but for the error, and, as I have said, it lasted for two years.

From April 1989, the pensions were restored to their full inflation-proofed values, so in one sense, the matter has been put right. That is a most important point, because it means that the effects of the error are long overtaken and, in many cases, long forgotten.

The amounts involved were therefore not very large and do not recur, and I doubt whether anyone would claim that hardship is involved. But those pensioners who have received nothing by way of compensation nevertheless feel a real sense of grievance. The reason they have not received any compensation cannot, however, be said to be the fault of the Government.

When the error was discovered, the Government felt that whatever practical and reasonable steps were necessary to right the situation should be taken. It did not seem right that the windfall should be to the Exchequer, and thus the public generally. Individual payments were made in respect of the state pensions involved. That was administratively fairly simple to do because the amounts involved were standard, but occupational pensions were a different matter, and in many cases they are additional to state pensions.

In the occupational pension sector, the size of the pension varies from person to person and each pension would have had to have been individually recalculated. The cost to the taxpayer in doing so would have far ourweighed the value to the pensioners involved.

Of course I accept that the pensions of many of the people involved were quite small. Where that was the case, the shortfall during the two years from April 1987 to 1117 March 1989 would also have been small, but would have assumed greater significance. The local government scheme in particular pays many small pensions, partly because it places few restrictions on which employees can join the scheme. It covers a wide range of professions and occupations, from the chief executive down to the lowest paid manual worker. Many move from job to job and typically do not have long periods of pensionable service. That in turn means that the average pension is low in comparison with schemes that cater for a particular profession or career.

The average amount lost by local government pensioners because of the error was of the order of £4 over two years—less than 10p a week.

In other occupational pension schemes, including those for which the Government are directly responsible, such as those covering the civil service and the national health service, there are also many retired members on quite small pensions. Many occupational pension schemes outside the public service do not guarantee inflation proofing at all. Most of the pensioners concerned would also be in receipt of state pensions, where the shortfall has been made good by the Government.

In many cases the state pension would comprise the greater part of people's income. Nevertheless, the Government felt that occupational pensioners for whom they were responsible should not lose out. But they also felt that a better and more cost-effective way of applying the money for their benefit than making individual payments should be found. As the hon. Gentleman said, their solution was to pay the money to charitable organisations supporting retired and needy public servants.

That was the approach taken in respect of retired civil servants, retired teachers, former employees of the health service and others. It was also the approach taken in the case of police pensioners, whose pensions are paid by local authorities,. I have no reason to believe that those pensioners found that approach unacceptable. It may well have channelled the relatively small amounts of money involved to the most needy.

Like police pensions, pensions payable to former local government officials and manual employees under the local government scheme are the responsibility of the local authorities, not the Government. I understand that local authorities in England, and at least one in Scotland, which, coincidentally, happens to be my own in Dumfries and Galloway region, have chosen to make individual payments to all pensioners affected. The hon. Gentleman pointed that out. The Government have not objected to that. It is a matter for the local authorities. In England, the Department of the Environment can formally sanction such payments, but the Scottish Office has no such powers.

I know that the hon. Gentleman thinks that a small, one-clause, three-line Bill would be adequate, and perhaps 1118 it would. If he can convince the business managers that that is so, so be it, but he knows as well as I do that it is difficult to find a slot for legislation, even for something brief and non-controversial.

The hon. Gentleman appears to he looking to the Government to require those local authorities in Scotland that have not made individual payments to do so. But, as I said, my right hon. Friend the Secretary of State has no powers to do so. It is a matter for the local authorities. In any case, the Government do not believe that that solution best meets the problem. They have taken a different route in the case of pensions for which they are responsible, as have local authorities in the case of police pensioners. The Government have therefore shown the way, and I have no reason to believe that local authorities could not follow a similar route if they chose to do so.

The Secretary of State's position has been made very clear in correspondence and explained to the Convention of Scottish Local Authorities. I do not know what recent consideration, if any, local authorities have given to the question. They have shown no inclination of which I am aware to follow the Government's example. If they want to work out schemes on the lines of those that apply to other public service pensioners in Scotland, it is for them to consider doing so, but the Secretary of State has no power to dictate to them what course of action they should pursue.

The local government scheme is a very good pension scheme; it is available to a wide range of people in different professions and occupations; and it is well administered by the local authorities. The Government have, however, ensured through their pension reforms that choice in pension provision is available. Public service employees now have the right to opt out and make their own pension arrangements if they so wish. For employees who choose the local government scheme—perhaps the vast bulk—they can have confidence that the funds are well run, that their benefits are secure, and, of course, that they will not lose their value because of inflation. It is a pity, however, that the source of grievance over the small amounts lost due to the RPI error has not been dealt with. I have great sympathy for the people involved and many of the points made by the hon. Gentleman. I believe, however, that it is to the local authorities themselves that he should look for a solution.

There is no legal obligation on local authorities to make payments—they paid the amounts required of them by the pensions increase orders. They may feel a moral obligation, however, not to use for other purposes money which, but for the error, would have gone to pensioners. If they do, they should look for a solution within existing legislation, as the Government did. I certainly hope that they do.