§ 7.58 p.m.
§ Lord Chesham
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee. —(Lord Chesham.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Nicol) in the Chair.]
§ Clauses 1 to 3 agreed to.
§ Clause 4 [Pension supplements]:
Lord Redesdale moved the amendment:
Page 2, line 23, at end insert —
("( ) Notwithstanding any other provision of this Act or of any Order in Council made under it, it shall be the duty of the Secretary of State to ensure that no Hong Kong overseas public servant in receipt of a pension shall, if paid his pension in pounds sterling, suffer a loss of more than 20 per cent. in the real value of the amount payable as a result of any adverse fluctuation in the rate of exchange of the Hong Kong dollar against the pound sterling relative to the exchange values prevalent on the date of retirement of the Hong Kong public servant concerned.").
§ The noble Lord said: This is a very simple amendment and I am sure that the idea behind it will secure the agreement of the Government if not the actual substance of the amendment. The amendment will affect a limited number of people. It will affect a maximum of 700 people for a finite period, which is the time during which they will claim their pensions. The problem that I flagged up at Second Reading, and the reason for moving this amendment, was the concern among Hong Kong pensioners that their pensions in future might not be of the same worth as they now believe them to be. That is because of the figures which the Government used to work out the rate of exchange for the Hong Kong pension. I am talking about the divisor of 21 Hong Kong dollars to the pound. That was the divisor given in 1992, when the real exchange rate was 14.6 Hong Kong dollars to the pound. Many Hong Kong pensioners feel a degree of uncertainty. Obviously, with Hong Kong passing into Chinese rule there is a fear —it may not happen —that the value of the Hong Kong dollar may fall.
§ The purpose of the amendment is therefore to ensure that Hong Kong pensioners are protected. I cannot believe that the Government would not want that to be the case. The amendment is really a fall-back position so that pensioners will be no more than 20 per cent. worse off if the value of the Hong Kong dollar falls by more than that. On Second Reading, the noble Lord, Lord Chesham, said that that would not be the case, although he could not give examples. However, I should like him to explain the case of the Zimbabwean pensioners, who were protected but who, because of the fall in the Zimbabwean dollar, are now far worse off than they would have been. To give an example, a pension which would have been worth £10,000 per year in 1979 is worth about £500 at today's exchange rate.472
§ The amendment is simple. I realise that the Government may not accept it, but I hope that they will say that they will look again at the issue rather than simply dismiss it. After a lifetime of service, Hong Kong pensioners should have the security of knowing that their pensions will not fall too far below their value today. That is the nub of the issue.
§ Another point is that, if the Hong Kong dollar fell significantly, the pensioners who would be the worst off would be those who earn the least at present, not those who earn very large sums of money. Therefore, the amendment would affect most the less well off. If those who earn the least during their working lives are then going to be hit the hardest when they are pensioners, we need to give some thought to providing them with a pension safety net. I beg to move.
§ 8 p.m.
§ Lord Blaker
In view of the fact that the noble Lord, Lord Redesdale, has moved his amendment, I do not intend to move my Motion. I agree with the noble Lord in believing that the Government's scheme for a divisor of 21 is not satisfactory. I support the noble Lord in the objectives of his amendment, as I understand them, but if, as I suspect, my noble friend is likely to say that the amendment is defective on technical grounds, I nevertheless hope that he will give the objectives of the amendment his sympathetic consideration.
On Second Reading, the point was made that Parliament has a particularly heavy responsibility to make sure that the pension safeguard scheme is fair because of the unusually large part that Hong Kong's civil servants have played in Hong Kong's successful development. This is because Hong Kong has never had a ministerial system. Those civil servants have also played a large part in ensuring that Hong Kong has never been a burden on the United Kingdom's aid budget. That point should be relevant to Her Majesty's Treasury.
In discussing the Government's scheme and the one I wish to put forward, I am afraid that I must be technical. In calculating the point at which the safeguard scheme begins to operate, as the noble Lord said, the Government propose to use an exchange rate of 21 Hong Kong dollars to the pound and a base date of 1st January 1992. That differs from the practice in almost every other colony where sovereignty has been transferred from the United Kingdom since the war, where the actual exchange rate at or near the date of transfer of sovereignty has been chosen. As the noble Lord said, the exchange rate on 1st January 1992 was 14.6 Hong Kong dollars to the pound, a rate which would be much more favourable to the pensioners than that which the Government propose.
The reason given by the Government for choosing a divisor of 21 is that Hong Kong Civil Service salaries and pensions are in general above the levels of those in the United Kingdom. Regarding the reason why the date of 1st January 1992 was chosen as the base date, as the Minister of State, Mr. Hanley, wrote to me in a recent letter which I shall not quote extensively, the Treasury needs the time to do its sums —although why it should 473 need five-and-a-half years I am not clear —and the Treasury would not be prepared to accept increases in pensions and salaries in Hong Kong after 1st January 1992. I do not find those reasons convincing, because if those factors are relevant in the case of Hong Kong, how was it that they were not relevant for the Treasury in the case of all the other colonies which have come to independence in the past 50 years?
I believe that a divisor of 21 is unfair because the methodology for arriving at a divisor of 21 is wrong. The methodology has been to divide the Hong Kong salary of a particular grade by the salary of the equivalent United Kingdom grade, and to multiply the resulting figure, which is called the "differential", by the number of Hong Kong civil servants in that grade. One then adds up all the resulting figures and divides them by the number of Hong Kong civil servants affected. That gives the figure of 21.
However, that figure of 21 conceals a divisor of 11.11 at one extreme of the civil service range for one grade and of 28.5 at the other extreme for another grade. My noble friend may say, as Mr. Hanley said, that any system of averaging is bound to leave some people doing better than others. That is true, but one does not have to have a system of averaging and, even if one has such a system, one should surely choose one which does not hurt the less well off. The Government's scheme does hurt the less well off, as the noble Lord, Lord Redesdale, pointed out.
Let me give an example of what the Government's scheme does. It uses United Kingdom Civil Service Grade 7 as a parallel for 289 Hong Kong public servants ranging in salary from 500,000 Hong Kong dollars a year to 800,000 Hong Kong dollars a year. The Government argue that there has to be a system of broad groupings of this kind because there are not always direct equivalents in the United Kingdom Civil Service. That also is true, but that is because the Hong Kong Civil Service includes many jobs which, while in the public sector in Hong Kong and the United Kingdom, are not in the United Kingdom Civil Service. I refer, for example, to marine jobs and to work connected with civil aviation, local government and medicine, as well as to the judiciary and prison officers.
However, no reasonable person would argue that, because Her Majesty's Government have failed to look into those other parts of the public service in the United Kingdom for more appropriate analogues, the bunching that I have mentioned of Hong Kong grades as analogues for United Kingdom Civil Service Grade 7 is a fair solution. No one who knows Hong Kong's cost-conscious Government would believe that it would pay salaries ranging from 500,000 Hong Kong dollars a year to 800,000 Hong Kong dollars a year for jobs of the same value.
If Hong Kong civil servants are over-paid relative to United Kingdom civil servants, one would expect the United Kingdom Government's scheme to favour, if anyone, the less well-paid Hong Kong civil servants —generally speaking that means those with a low differential compared with their UK counterparts. In fact, the scheme does the opposite: it means that those 474 with a low differential will be subsidising those with a high differential who are in general the highest paid. The scheme is kinder to the officer with a differential of 28.5 than one with a differential of 11.11.
The scheme would be described by a statistician, I am told, as absolutely biased. The fact that it favours some grades at the expense of others is not accidental—it is built into the system. OSPA cites one case as an example, where, under the government scheme, a Hong Kong pensioner whose pension would be protected on a salary base of £8,422 per year is compared with a so-called UK equivalent whose pension would be calculated on a salary base of £15,920—89 per cent. higher. That, OSPA tells me, is one case among many.
The fact that the Government scheme is regressive may help to explain why OSPA is opposed to it while serving officers in HMOCS have accepted it. The latter tend to have higher salary bases than the former, OSPA representing, as it does, those who have already retired. The Minister of State says that the government scheme would protect on average over 80 per cent. of the original purchasing power of pensions of existing pensioners, but if, as the Government also say, some will be protected at 100 per cent., that implies that some will be protected at 60 per cent.
OSPA believes that the right course would be to take a conversion rate of 14.6 to the pound. But if the Government are not prepared to do that, OSPA would favour a different system of averaging. That is known as median averaging. In that system, all the items to be averaged would be arranged in order of size, and the middle one is taken as the median. That would suggest a divisor closer to 18 rather than 21. That would have the advantages, first, that the extreme differentials at each end of the scale would not affect the median average; secondly, the bias against the lower paid would be reduced; and, thirdly, that scheme balances the calculations by disregarding the size of both the Hong Kong and UK pensioner populations.
These are complicated matters, and not easy to explain in debate. I am sorry to have spoken at some length, but I believe that a divisor of 18 has merit and deserves more study. I therefore urge my noble friend that the Government look again at this whole question.
§ 8.15 p.m.
§ Lord Wilson of Tillyorn
There is some difficulty in dealing with the Committee stage of the Bill. It is that what is written on the face of the Bill is all right; indeed, a great deal of it is admirable, and the sooner it is brought into operation the better. The problem lies with what the Bill allows to happen later; that is, in the Orders in Council, or one particular Order in Council. Through the courtesy of the Government in putting the details potentially for one of those Orders in Council for sterling safeguards, we know what is intended.
The amendment goes to the heart of the problem; that is, trying to devise a scheme which is seen by those concerned as being fair. For that reason, I am content, like the noble Lord, Lord Blaker, not to press the amendment that is in my name also.
475 The crux of the issue is surely that we need a scheme which deals correctly with the fears of those people who have been or are members of Her Majesty's Overseas Civil Service in Hong Kong who have provided excellent, exemplary service during their careers, and who, as they set out on those careers had certain expectations. As members of HMOCS they could, after all, see what happened in other dependent territories when those territories went to independence. When they looked at their own future they thought that it must be highly likely that there would be changes in 1997, but they had reasonable expectations that something similar would be done for them.
The difficulty is that, if one pursues what appears to be the present intention of using the divisor of 21 Hong Kong dollars to £1 sterling, one finishes up, as the noble Lords, Lord Redesdale and Lord Blaker, have said, with a system that is not seen by those concerned as being fair. Much of that looks very abstract, so perhaps I may give one actual example. It is what would happen to an individual who was a senior police officer in Hong Kong and who I happen to know gave extremely good service during his career. He now rates a pension which would be the equivalent of £23,000 a year —a respectable, reasonable pension. If however it reached a stage when the guarantee was triggered, what he would finish up with would be a pension of just over £10,000 a year, which is very different indeed.
Of course there are a great many different individual cases that could be brought forward, but I want merely to make the point that many will be disadvantaged, and to echo what the noble Lord, Lord Blaker, said: that those most disadvantaged are those on the lower end of the scale —those about whom we should be most concerned.
There are of course other ways of calculating differentials. The noble Lord, Lord Blaker, has gone into admirable detail of one way of doing that —of producing a median instead of an average, and finishing up with the figure of 18 Hong Kong dollars to the pound sterling. I am sure that those concerned will argue primarily for the divisor of just over 14 Hong Kong dollars to the pound, which looks reasonable in an historical context, but I feel sure too that, if the Government were inclined to move to an alternative divisor —say, 18:1 —that would get rid of a large part of the concern felt by those involved. I would point out in relation to what the noble Lord, Lord Blaker, said, that it is not just those who are already retired who are concerned; it is those who are still in service. Those still in service have as a prime concern the desire that the arrangements for compensation should be put in place, but they are concerned also about the future of their own pensions.
It may be that the Minister can tell us in more detail about the arrangements for supplementary provision for overseas service —the so-called SPOS —and give us examples of how that will be brought in over a period of time to deal with part of this problem. However, we still return to the issue of producing a solution which is seen by those concerned as fair and equitable.
476 Perhaps I may say on behalf of my noble friend Lord MacLehose of Beoch that he is sorry that he is unable to be here. He has had an operation for glaucoma, and he is unable to come here from Scotland. He asked me to say, first, that he was sorry' not to be here; and, secondly, that he is supportive of the efforts to improve the conditions for members of HMOCS, and is concerned especially that those involved should not feel at the end of the day that they have been disadvantaged or discriminated against.
The Bill provides for two Orders in Council. One of them, on compensation and arrangements to help people to find alternative employment, needs to be brought in very soon. It is entirely admirable and desirable. I trust and hope that it will be brought in very soon. The second Order in Council on safeguarding the sterling value of pensions is, so far as I can see, not a matter of any urgency. Therefore, there is time for the Government to consider carefully what would be right. I support the intention behind the amendment moved by the noble Lord, Lord Redesdale. I hope that the Minister will be able to tell the Committee that the Government will look at these issues and take time to reach a solution which is seen by those concerned to be fair and correct.
§ Baroness Blackstone
I have some sympathy with the intention behind the amendment, particularly in view of the fact that all three noble Lords who have spoken in support of it are particularly concerned about those Hong Kong Civil Service pensioners who have been on the lowest pensions and the lowest salaries. However, I regret that on these Benches we cannot support the amendment. As the noble Lord, Lord Wilson of Tillyorn, has just admitted, it is all rather abstract. One of the reasons for that is that it is exceedingly unlikely that there will be a catastrophic fall in the value of the Hong Kong dollar of the kind which is envisaged by the amendment.
I understand that for Hong Kong Civil Service pensioners to lose out on average, the Hong Kong dollar would have to fall to one-third or even less than one-third of its present value. With great respect, I do not believe that we can compare Hong Kong with Zimbabwe in these matters. At least I very much hope that the comparison is inappropriate. Therefore, we are talking about a hypothetical situation which is very unlikely to materialise. I hope that we can express rather greater confidence in the future of Hong Kong than this amendment implies.
I do not wish to go into detail as regards the amendment or why it does not seem to me to be appropriate. I shall leave that to the Minister. But perhaps I may assume that the Government will agree to consider the situation again if, due to some unforeseen circumstance, a circumstance which we must all hope and pray will never arise, there is a calamitous collapse of the Hong Kong dollar. As Clause 4 stands, it provides the flexibility to do that. Assuming that the Government are prepared to use that flexibility in this respect —and I believe that the Government have already indicated in another place that they would do so —there seems to me no need to alter this Bill on the basis of a totally hypothetical and, indeed, exceedingly unlikely change in the situation.
477 Moreover, the Bill is a compromise which was reached after five years of discussion and negotiation between the Association of Overseas Civil Servants in Hong Kong and the Government. Representatives of that association there believe that the Bill will provide reasonable security for civil servants in Hong Kong. They wish the legislation to be passed as proposed, as I understand it. Members of OSPA apparently think rather differently, but I do not believe that they have been directly involved in the negotiations.
I am not usually able to support the Government on matters of this kind but on this occasion I believe they have got it about right and their proposals are fair and reasonable.
§ Lord Chesham
As has already been said, this amendment is technically flawed. Hong Kong pensions are not paid in pounds sterling. They are and will continue to be paid in Hong Kong dollars. Also, the amendment makes no mention of dependants.
Putting aside those points, I am still uncertain what the noble Lord proposes. Is it his intention that the British Government should provide assistance to Hong Kong pensioners when the Hong Kong dollar/sterling exchange rate falls to 20 per cent. below the exchange rate at the date of the pensioner's retirement —in other words, if the pensioner had retired when the exchange rate was 10 Hong Kong dollars to the pound —or provide assistance if the rate fell to 12? Is the noble Lord suggesting that the scheme should protect 80 per cent. of the original sterling purchasing power of the pension? It is not clear from the amendment what is his intention. We believe that both of those solutions are flawed.
It may be useful, without repeating the points that I made on Second Reading, to make a few key observations about our proposed pension safeguard scheme. Hong Kong officers are not in the same position as their predecessors in other territories. Their pensions are not paid on the basis of a fixed rate of exchange with sterling and they receive on average pensions which are considerably higher than their UK counterparts and predecessors.
The British taxpayer will fund any liability under this scheme. The Government would be accused of irresponsibility if they did not seek to balance the interests of HMOCS and those of British taxpayers.
We are talking about a new benefit here. At the moment Hong Kong pensioners do not receive any protection of the sterling value of their pensions, and we are not asking HMOCS pensioners, many of whom are very well off, to give up any rise in their pensions as a result of an increase in the value of the Hong Kong dollar. Our proposal is essentially a free insurance scheme.
Our proposed scheme would ensure that over 75 per cent. of Hong Kong HMOCS pensioners would still be better off than their predecessors and their UK counterparts if there were a severe decline in the value of the Hong Kong dollar. As the noble Baroness, Lady Blackstone, said, the chances of the Hong Kong dollar falling substantially in value in the foreseeable future 478 are remote. That does not mean that we should not be prudent but it should give confidence to Hong Kong pensioners.
There has been a great deal of comment about the figure of 21-to-one. Obviously when an average is used some people are better off and others are worse off. Our calculations show that for comparability to be achieved for police grades in 1992 the divider should be set at 19-to-one and at 23-to-one for non-police grades. It is a fair criticism of the scheme that a divider set at 21-to-one offers better protection to non-police grades than it does to police grades. That is something about which we were concerned. Therefore, we suggested to the HMOCS Association that a range of safeguard rates could be set which would mirror better comparability than only one rate based on an average. For example, the pensions of Hong Kong police officers could be protected at 19-to-one and those of non-police officers at 23-to-one. OSPA were also aware of that possibility. However, the HMOCS Association rejected that on the grounds that it would be divisive among its members. OSPA has not asked us to pursue that. That is why the scheme has one safeguard rate rather than a range of rates which would reflect better comparability for different grades.
I turn to various points that were raised. The noble Lord, Lord Redesdale, mentioned Zimbabwe. That has been a largely self-governing colony since the 1920s. The British Government do not accept any special responsibility for Zimbabwe public service pensioners as they do for the Hong Kong HMOCS pensioners. Therefore, there is no protection for Zimbabwe pensioners, who are much worse off as a consequence than would be the case for Hong Kong pensioners. They have no sterling safeguard.
My noble friend Lord Blaker asked why 1992 was chosen as a reference point for Hong Kong while no such point applied to other territories. The key reason is that in the case of other territories a fixed rate of exchange existed against sterling.
He said also that it is not fair to bunch grades. We could have tried to separate the grades, but to have done so would have resulted in many grades in Hong Kong being equated to grades lower than Grade 7. That would not have been to the benefit of Hong Kong pensioners.
We are aware of the case mentioned by the noble Lord, Lord Wilson. I should point out that the pensioner concerned had already received compensation and a commuted pension of some £600,000. That is more than the capitalised pension of his UK counterpart.
The noble Lord also asked about the SPOS regulations. They ensure that, like UK pensions, increases in all HMOCS pensions keep pace with inflation in Britain. As most HMOCS pensions were taken over by the British Government after colonies became independent and are paid in sterling, applying SPOS is a simple matter of uprating an officer's pension from the date of his retirement in line with UK inflation.
However, application of the regulations is more difficult for Hong Kong, as the Hong Kong Government continue to award pension increases, and as exchange rate movements can affect the sterling value of Hong 479 Kong pensions. At present, any SPOS payments for Hong Kong pensions are reduced to take account of the sterling value of any pensions increase awarded by the Hong Kong Government, and also any increase in the total value of the pension due to exchange rate movements.
Hong Kong pensioners have complained that Hong Kong pension increases could be greater than the rate of inflation in Britain, but that the sterling value of their total pension could still decline and they would get no SPOS payments. We propose to amend the regulations to allow Hong Kong pension increases to be used to bring the Hong Kong pension up to its original sterling value. Only the balance left after that has been done would be taken into account to determine the amount of SPOS which should he paid. This amendment would help offset any pension losses arising from minor reductions in the sterling value of the Hong Kong dollar.
I should like to point out that the HMOCS Association is clear that it wants the Bill enacted as drafted. The Government have proposed a generous scheme. I believe that the principle of comparability which underlies it is fair and justified. I cannot accept the proposed amendment.
§ 8.30 p.m.
§ Lord Redesdale
I thank the Minister for his response. It was not my intention to press the amendment; indeed, I neither foresaw a cataclysmic fall in the Hong Kong dollar, nor did I actually believe that the Bill was fundamentally flawed. The purpose of the amendment was really to give Hong Kong pensioners some kind of peace of mind which I had hoped the Minister would be able to provide.
I was surprised when the Minister said that he had to he responsible to the taxpayer because, throughout his speech, he made mention of the fact that the proposed provision would probably never be used in any event. Therefore, even if the Minister accepted the amendment, it would never, in theory, be triggered if the Hong Kong dollar did not fall. However, I believe that some degree of peace of mind has been given. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 4 agreed to.
§ Remaining clauses agreed to.
§ House resumed: Bill reported without amendment; Report received.