CIVIL SERVICE PAY AND PENSIONS (Hansard, 12 November 1975)

§ Lord ORR-EWING
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The LORD PRIVY SEAL (Lord Shepherd)
My Lords, the Pay Research Unit does not make these assessments. However, the outside pay rates provided by the Pay Research Unit are specifically reduced by the difference in amounts of superannuation contributions paid by outside analogues, and a further reduction is made to take account of differences in superannuation benefits. The national pay agreement between the Official and Staff Sides of the National Whitley Council further provides for the Government Actuary to reassess the difference in benefits following each pay research settlement, in order to establish whether any change should be made in the amount to be deducted in accordance with the agreement. This agreement has, of course, been suspended during the operation of the Government's counter-inflation policy.

§ Lord ORR-EWING
My Lords, I am grateful to the noble Lord for that information. Exact details of the formula are not revealed, I think, and have not been revealed in the reply today. I wonder in a period of open government whether it is not desirable that the formula should be revealed, so that one can study the pros and cons. Does it not seem rather exceptional that civil servants should receive an index-proof pension at this time? Is the noble Lord aware that the Daily Telegraph states that the cost of this at the present rate of inflation is no less than £750 million on public funds? Does he not think that this is an area which should be closely looked at, and that it is a privilege which perhaps even civil servants themselves would not wish to have?

§ Lord SHEPHERD
My Lords, I am grateful for that supplementary question because, if the House will allow me, I will perhaps disillusion some who may think that civil servants are being treated in any abnormal way compared with those outside. Many large and medium-sized companies today have inflation-proof pensions. Some of them are in fact better than those available to the Civil Service. The inflation-proof scheme has been in existence for many years. It is true that before 1971 it was ad hoc. It was the Administration of noble Lords opposite which introduced a two-yearly review in 1971, and in 1972 they made the review for one year.
All Civil Service pay is a complicated matter, but my understanding is that an assessment was made prior to the last pay agreement—that was, in 1974—and there was an approximate lead of Civil Service pensions over the general analogues of about 1.75 per cent. That included a computation for an inflation-proof pension scheme. It is also well to remind noble Lords that, if one is comparing a Civil Service rank with a rank outside, and the outside person makes a contribution of, say, 6 per cent. to his own contributory pension scheme, 6 per cent. is in fact deducted from the Civil Service final rate of pay. So there is a good deal of similarity between Civil Service and outside pay. A fundamental part of this Government's policy, as it was of previous Administrations, is that we should seek to have fair comparisons and that the Government should seek to be, not 1794 necessarily in the lead but a good and fair employer.

§ Lord HARMAR-NICHOLLS
My Lords, is the noble Lord aware that if one cuts through the complications—and sometimes it is not easy to do that—one finds it has been authoritatively calculated that in the present position an inflation-proof non-contributory pension in the commercial field, so far as figures from which to judge are available, is worth £410,000 per person? I should have thought, however one tried to explain it away as to what past Governments have done or the present Government want to do, that that would seem to be generosity run mad.

§ Lord SHEPHERD
My Lords, the noble Lord can make a statement like that but, when there is a scheme which has stood the test of time and one seeks to be a good employer, one does not chop and change according to present circumstances. Clearly, present rates of inflation put pressures upon the scheme, but I would again say to the noble Lord and to this House that the whole basis of Civil Service pay and benefits is fair comparison and they arc linked so far as possible with those in outside industry. There can be no question but that this matter is approached on the most scientific and the best statistical basis possible.

§ Lord CLITHEROE
My Lords, would it not be a good idea if, instead of speaking about "inflation", which we all do—journalists and the media do—we used the expression "debasement of the currency", which it what it is?

§ Lord SHEPHERD
My Lords, the noble Lord may be quite right, but I do not think that that point properly arises on the Question before the House.

§ Lord ORR-EWING
My Lords, will the noble Lord bear in mind that, although there may be some companies which can afford fully to inflation-proof their pensions, these are very rare indeed and the great majority of industrial companies in this country cannot possibly fully inflation-proof the pensions of the people they employ? So it is the exception and not the rule. Furthermore, in view of this discussion, does the noble Lord not think that for a civil servant to receive 98.25 per cent. of his analogue 1795 in outside industry is over-generous, and that the country cannot continue to inflation-proof Civil Service pensions at this very high rate when public expenditure simply has to be cut?

§ Lord SHEPHERD
My Lords, that is a much wider issue. This is a scheme which has been inbeing for a very long time. I hope the noble Lord will appreciate that when one looks at pensions one is not looking at them in terms of their cost or benefit over one year; a pension scheme is an operation for 60 years—40 years of contributions and 20 years of receipts. I will look at the matter again and send figures to the noble Lord. However, the advice that I received this morning was that of the companies which have pension schemes of the kind which we have in mind, at least half include an inflation-proofing component.

§ Lord AYLESTONE
My Lords, may I ask my noble friend a related question? Civil servants receive a non-contributory pension, and probably a very well deserved one, and in addition they receive on retirement a non-taxable gratuity. However, in the private sector and in the case of employees of public hoards, at least a portion of their gratuity is taxable. Is there any justification for this?

§ Lord SHEPHERD
My Lords, I must admit that this is not a point which I have looked into in relation to this Question. Therefore, I could not answer it immediately. I know that in many pension schemes a cash amount is not abnormal, but I will look at the point which my noble friend has made and write to him. I hope the House will take note that the Civil Service provides us with a great service. There have been times when comparison with outside has been less fair, although, as a consequence of the recession, unemployment and many other factors, I suspect that today civil servants appear to be slightly better off than those outside. It is very much a question of the swings and roundabouts.