HL Deb 07 December 1995 vol 567 cc1085-90

5.40 p.m.

Lord Henley rose to move, That the draft order laid before the House on 15th November be approved [1st Report from the Joint Committee].

The noble Lord said: My Lords, the draft order will allow my right honourable friend the Secretary of State to authorise a private sector company to administer the teachers' superannuation scheme in England and Wales. The Teachers Pensions Agency administers the scheme at present. It provides a good service to members of the scheme. It has also achieved its key efficiency targets. Administering the scheme, however, is expensive. The TPA's running costs last year were over £15 million. We owe it to the taxpayer to see if we can make savings over and above those that the TPA itself plans to make.

My honourable friend the Parliamentary Under-Secretary of State, Mr. Robin Squire, therefore announced on 1st November that the Government were inviting six private sector companies to tender for a contract to administer the scheme. All six companies judge that they could administer the scheme for less money than it would cost the TPA and to at least as high a standard. Inviting them to submit tenders will allow them to show whether they could indeed do so. We shall let a contract to administer the scheme only if we are satisfied that it would deliver better value for money.

I should like to assure your Lordships of three points. First, there is no question of privatising teachers' pensions. Any contract would be only for the administration of the scheme.

Secondly, letting a contract would not affect the size or safety of teachers' pensions in any way. The scheme does not have a real pension fund. Pension contributions go straight to the Exchequer, and the Exchequer guarantees the payments to which members of the scheme are entitled. Those payments cannot therefore be at risk. Since the contractor would not be managing a pension fund, he could not make a profit from it. We would instead pay the contractor an agreed fee for administering the scheme.

Thirdly, any contract would require a standard of service and performance that was at least as high as that which the TPA would provide. We would ensure that any contractor met that standard. All six companies would intend to do so.

The Government have two goals; first, to ensure that teachers and retired teachers continue to receive a rapid and efficient service of pensions administration, and, secondly, to achieve, if possible, further savings for the taxpayer. Our current work is designed to achieve those goals. I beg to move.

Moved, That the draft order laid before the House on 15th November be approved [1st Report from the Joint Committee].—(Lord Henley.)

Lord Morris of Castle Morris

My Lords, the House will be grateful to the Minister for the characteristic clarity with which he introduced the order and the issues which lie behind it. It is an enabling order; it is therefore especially important that we should be quite clear about what it will entitle, and enable, the Secretary of State to do.

The Minister will have read, marked, learnt and inwardly digested, to his equal profit and pleasure, the 23 columns of Hansard in which this order was debated in another place. And so it will come as no surprise to him to learn that we on these Benches are not entirely happy with the order. We wish the proposal had never been made and believe that no good will come of it. However, the order was voted upon in another place and it is the convention of your Lordships' House not to dispute such a decision.

We are unhappy with the order for a number of reasons. I shall mention just three. First, the debate in another place exposed the enormous power that any Minister may arrogate to himself under the Deregulation and Contracting Out Act 1994, since it would allow total freedom to vary a scheme which has some 1.25 million participants and running costs of the order of £15 million per annum. The Minister may do that without primary legislation and with remarkably little debate.

Secondly, the order has not been the subject of a comprehensive review. The scheme is presently administered by the TPA and was formerly run by the predecessor of the DFEE. In the only consultation which the Government undertook the claims of neither the TPA nor the DFEE to administer the scheme were considered. The only option was how the scheme could best be privatised or—a hideous word which has now crept into our language—"contractorised". Somebody in America said recently that there is no noun that cannot be "verbed".

A fair and just review would have examined all possibilities and not prejudged the vital issue. As I understand it, the original consultation involved 131 organisations and 128 of those refused to endorse the proposal. Only three positive endorsements were recorded. But the Government ignored that result and went ahead in spite of it with the privatisation option, dismissing those who were consulted on the grounds that, their objections to contractorisation are not well founded". Thirdly, we oppose the order because the proposal will undoubtedly lead to job losses among the TPA staff in Darlington. There can surely be no other way in which significant savings could be made, since everyone seems to agree that the TPA provides an excellent service to members of the scheme, has achieved or exceeded all its key efficiency targets and runs the proverbial "very tight ship".

We feel it necessary to try to clarify some of the issues which did not emerge clearly when the order was debated elsewhere. The Minister will be aware that it was a time-limited debate and that his honourable friend had only seven minutes in which to try to answer the host of questions he had been asked—and he had a few interruptions in the course of that. Perhaps I may therefore ask seven questions, all of which were raised in the other place and which his honourable friend did not have time to answer, even though he will by now no doubt have written to those who asked them. I gave the Minister notice of the questions because I feel it is necessary to have the Government's position on the order on the record and clearly stated for the avoidance of confusion.

Why were KPMG asked to advise on only one option for the future of the scheme? Given its terms of reference it seems to have been precluded from advising that the administration would be best left exactly as it is, or from considering any other possibility. Does not that fact, together with the Government's almost contemptuous dismissal of the clear result of its consultation exercise, suggest that the whole thing was cut and dried, decided in advance and ideologically controlled?

Secondly, why is the proposal being made at this particular moment? Was there not a Next Steps feasibility study in 1990 which created the agency, which has given complete satisfaction to everyone concerned? What has happened since 1990 to make it so urgent that the administration of the scheme be privatised?.

Thirdly, in the debate in the other place the Minister was unable to define what was meant by "core administration" in respect of the staff employed by the TPA at Darlington. He said that, logic suggests to me that a significant proportion, if not the entirety of the operations, would be based in Darlington".—[Official Report, Commons, 27/11/95; col. 1005] It is widely believed that all six firms which have been invited to bid have said that they will retain their core administration in that town, but, my Lords, what else would they be expected to say, especially at this stage in a bidding process? Can the Minister give a closer definition of what is meant by a "core administration" and offer some better assurance of job security to the dedicated and successful staff of the TPA?

Next, the consultants, in their report, suggest that in a five to seven-year period something of the order of 20 per cent. savings could be made in the administration of the scheme. But, as I read the report, there is no evidence whatever to support such a claim. The TPA expects to cut its own costs by 7.5 per cent. for each year for the next three years, and we would like to know how this compares with the putative 20 per cent. estimated by KPMG.

Then, few people reading the Official Report of the debate in another place will understand the significance of the Hoskyns project which was apparently introduced to provide new information technology into the TPA. I certainly did not understand it. Hoskyns, whoever they are, apparently sub-contracted to an organisation known as UPSI. But UPSI went "downsi" and the scheme was a failure. Can the Minister tell us how another private sector company would be able to make similar provision which will not similarly collapse?

I would also be grateful if the Minister could explain where ultimate responsibility for the administration of the scheme lies. In so far as I understand the proposals, the tendering companies will know that, in the event of their failure, somebody else—and I suppose it will be the Government and the taxpayer—will find the money. If he will excuse the cliché, "If a private company's scheme fails, who picks up the tab?".

Finally, the question was asked in another place whether the Minister is prepared to publish the comments made by the six tendering companies, which will allow others to judge the effect of those comments upon any consequent contract. This seems to us a good idea and a "necessary transparency", as they say, and, so far as I know, no such assurance has been given.

I am grateful to noble Lords for their patience and forbearance while I have examined the minutiae of what is a complex and controversial proposal, on the ideology of which Government and Opposition are clearly and inescapably divided. But with a population which will be increasingly made up of pensioners, the matter is not one we can take lightly. Pensions are an extremely sensitive issue. And the memory of Mr. Robert Maxwell, though not fragrant, is still green.

Lord Henley

My Lords, I hope that I can deal with a number of the points the noble Lord raised, though whether I can satisfy him on all remains to be seen. I certainly suspect that I cannot satisfy him on the basic principle and on the power, about which he is unhappy, that we are taking on, because quite simply there are ideological differences between us. The noble Lord and his party do not like the private sector. I have no qualms whatsoever, and if I think that the scheme can be better administered by the private sector and at a saving to the taxpayer that is certainly the route I should like to pursue.

The noble Lord said that there was only one option for us—privatisation or contractorisation, or whatever. That is not the case. We shall look very carefully at all the six bids. I can give the noble Lord an assurance that if none of those six bids is satisfactory in the various ways that we wish them to be satisfactory we shall maintain the status quo. I can also assure him that we shall not accept any bid unless there are really genuine savings. As my honourable friend in another place put it—or perhaps not in another place but somewhere else—we are not just doing this for sixpence.

Perhaps I may also assure the noble Lord on redundancies. There may be redundancies. It is quite right that if someone can administer such a scheme with fewer people, they should so do. It would be wrong to maintain people in employment when there was no job for them to do. However, I can assure the noble Lord that we believe that they will be protected by the TUPE regulations. But that is a matter for any successor company to take advice on itself. Our understanding is that that would be the case.

Perhaps I may briefly answer a number of the noble Lord's questions. I am grateful to him for giving me some idea of those questions in advance. I assure the noble Lord that, as he put it, my honourable friend Mr. Squire has already written to various of the noble Lord's honourable friends answering most of the points that he was unable to answer in the time available. If the noble Lord would like me to put that letter in the Library, I shall be more than happy so to do. I detect assent from the noble Lord.

The noble Lord asked why we commissioned KPMG to advise on only one option for the future administration of the scheme. I assure the noble Lord that the purpose of the report was to establish whether letting the contract to the private sector was feasible and whether it offered scope for greater efficiency. When we announced the period of consultation on the future of the TPA, we made clear that we were looking to secure further efficiency improvements but that we had not yet decided how best to do so and that letting a contract to administer the scheme was only one of the options available. We considered various options before deciding to invite expressions of interest for a contract. As I made clear to the noble Lord, if none of the offers coming forward from those six organisations is suitable, we shall maintain the status quo.

The noble Lord asked in effect why we were inviting tenders now when we decided in 1990 against letting contracts. Both in 1990 and now our key concern has been the same—to find the most efficient way of ensuring that teachers and retired teachers receive high quality pension service. Setting up the initial operation of the Teachers Pensions Agency has shown that letting a contract is indeed feasible. The KPMG report concluded that letting a contract offered a prospect of substantial improvements in efficiency and effectiveness. All six companies have declared that they would intend to seek a fee for administering the scheme that was lower than the expected cost of keeping the administration of it in the public sector. I believe we owe it to the taxpayer to find out whether such additional savings are available. That is why we invited tenders, and that is why we shall let a contract only if it will offer better value for money than keeping the administration of the scheme in the public sector.

The noble Lord asked what we meant by "core administration". All six companies that we have invited to tender intended to keep the core administration of the scheme in Darlington. By "core administration" we mean the functions the TPA currently carries out in Darlington to administer that scheme efficiently. That is what they have all offered to do. I hope that will provide the kind of assurance to those working for the TPA currently in Darlington that the noble Lord is seeking.

The noble Lord also asked about the Hoskyns contract. That is a contract between the Government and its contractor for new IT systems for the TPA. It is subject to litigation. Therefore I am afraid that it would he inappropriate for me to comment further at present. I am sure the noble Lord will accept that.

The noble Lord then asked who, as he put it, would pick up the tab if the contractor failed. I have to say that we certainly do not expect that to arise. We are satisfied on the basis of the evidence so far that all six companies are thoroughly reputable organisations. They all have access to substantial financial resources, and the relations between their staff and management are sound. We shall not let a contract unless we are satisfied that the company in question would administer the scheme, as I have stressed on more than one occasion, to the standard required. However, the Secretary of State will remain responsible for the scheme.

In the very unlikely event that the contractor failed, the Government would ensure proper and effective administration of the scheme just as we would if the Teachers Pensions Agency failed for any reason whatever. There is a risk of mistakes or failures in both the public and the private sectors. Risk can never be totally avoided. Our task is to avoid and minimise that risk so far as possible. We shall certainly make sure that appropriate arrangements are in place to do that, and we shall ensure that there are commensurate arrangements following the letting of the contract.

Finally, the noble Lord asked whether we would publish the comments of companies on the draft statement of service requirements. We shall not because they would be commercially confidential. But we shall take account of the comments we receive from all the bodies that we have consulted before finalising the statement, and any contractor would have to deliver a standard of service performance at least as high as that which the TPA would achieve. Draft statements provide for such a standard and so will the final version of the statement, which we shall make available to the interested parties. There is simply no question of allowing companies, or anyone else for that matter, to water down the requirement of the statement and certainly none has sought so to do.

I hope that what I have said deals with all the questions which the noble Lord put to me and that he will accept it as the answer. I accept that there is an ideological difference between us, but that, in time, as the party opposite moves further and further towards us, it will recognise the benefits of the private sector. If only it would, it would be a great step forward. With those assurances and that explanation, I hope that the noble Lord will accept this order.

On Question, Motion agreed to.