MUNICIPAL BUS COMPANIES: PENSION ARRANGEMENTS (Hansard, 24 July 1985)

§ Lord Trefgarne

The text of the letter is as follows:

"Dear John,

"At the very end of the debate last Thursday evening on the Lords Committee Stage of the Transport Bill you moved two amendments—numbers 211AA and 211CA—about municipal bus undertakings and their future as public transport companies. You concentrated in your speech on the pensions aspects of your amendment, and you expressed great disappointment with my reply. Having now had a chance to read Hansard I can see more clearly that I did not answer the points you made, and I thought I ought to write to you now to try and explain more fully the Government's position. I appreciate, of course, that you may well nonetheless want to pursue the matter at Report; but it did seem only right to at least set out our proposals more plainly than I managed to do on Thursday night.

"The first point to make is that the Government does intend, as you indicated in your speech, to make it possible for the District Councils to arrange for staff transferred to the new public transport companies to stay in the Local Government Superannuation Scheme (LGSS) where they are at present. This could be done under present arrangements by the companies' negotiating an 'admission agreement' with the relevant administering authority—the County Council, as you pointed out—for the LGSS. But the Association of District Councils represented to us that such admission agreements might not be possible to achieve in many cases, and the intention therefore is to amend the Local Government Superannuation Regulations so that District Councils will be able to deem that their employees who transfer to a public transport company remain employees of the council for the purposes of the LGSS.

"The District Councils will not be required to exercise this deeming option; but they may do so if they wish, doubtless after negotiations with the management of the new company and the representatives of the staff involved. If no such arrangements are made for the staff to stay in the LGSS, then the 1359WA transferred employees would join whatever pension arrangements the company set up for new employees. But in that case the transferred staff will be entitled, if they wish, to have a preserved benefit in the LGSS representing the pension entitlement they have accrued up to the time of transfer to the company; they will not have to transfer their entitlement out of the LGSS, where they accrued it, to a new pension scheme, if they do not wish to.

"This outline of our proposals leads of course to the all-important question of costs, which you raised in your speech. There are, as you pointed out, various elements to be considered. First, in respect of service before transfer to the company, there is the basic pension; but that will have been secured by contributions paid while the employee is working to the pension fund, where assets will have been built up to provide his pension.

"Secondly there are pensions increase payments which are made to retired staff to update their pensions in line with prices. These payments are already being made to retired employees of the bus undertaking; and new ones will be made in future when staff who have transferred to the new company retire, if they stay in the LGSS, or keep a preserved benefit in it. The District Council will be free to decide whether or not they should pass on the obligations for the payment of pensions increase, as a matter of contract, to the public transport company. On the one hand, it can be argued that the assets which produce the revenue for these payments are being transferred to the company, so that the payments should go too; on the other hand, the District Council may think it more appropriate, having considered the financial position of the company, to retain the payments itself. The Government does not itself intend to require that one course or another should be followed; local circumstances and opinions will differ and we think that District Councils should be free to make their own decisions, with the management of the public transport company.

"The costs I have spoken of above are those which arise from service with the municipal undertaking before its translation into a public transport company. For the future there will be the pensions costs for transferred staff which arise from their service with the company; if staff stay in the LGSS these will consist of the basic pension contribution made while the employees are working, and then the pensions increase payments after they have retired. The Government had envisaged that all these costs should be met by the company; however, in the light of representations from the Association of District Councils we have undertaken to consider, without commitment, whether the Councils might be left free to decide for themselves whether they, rather than the companies, should meet these pensions increase costs. A decision on this point has not yet been reached.

I hope that what I have said so far will show the the Government is trying to adopt a flexible approach and is taking proper account of the arguments that have been put to us by the local authority associations. However, it has yet further 1360WA been argued—and you yourself put this case on Thursday night—that pensions costs, or at least the costs of pensions increase, should be met by central Government rather than by the District Council or their public transport company. It has also been argued that any cost arising from a transitional reorganisation such as redundancy compensation, should also be met by the Government. However I fear that these are not arguments that the Government feels able to accept. As far as the cost of pensions increase are concerned it needs to be remembered that the District Council is not being wholly deprived of the bus undertaking's assets, which may have been providing the revenue for pensions costs hitherto; the assets will remain in the Council's ownership, but in the form of a company, from which the Council can receive dividends, or with which the Council can contract for the payment of pensions costs, as I have suggested above.

Furthermore, and this is a point that I did seek to make on Thursday evening, the Government believe that the policies embodied in the Transport Bill will not, taken as a whole, mean extra spending by local authorities to maintain services, and that pensions costs, (which will not after all actually be more than they would otherwise have been) and any transitional extra costs such as redundancy payments (which may or may not arise) should be seen as part of the larger whole, and set against the benefits that will arise from greater efficiency inspired by competition, including competition for subsidy. These of course are fundamental issues and not ones which can briefly be set out in a letter such as this; I am in any event sure that you will be well aware of the Government's position. I would only say here that our view of these matters is the reason why we feel unable to agree to the payments to local authorities for which your amendment called.

I would add two further points. The first is that in your speech you referred to the National Freight Corporation as a relevant precedent. However I fear I do not entirely follow your argument. It is true that the Government did devote much of the proceeds of sale of NFC to topping up the Corporation's pension fund; but that was in the context of a privatisation, and the pension fund had a substantial deficiency. Similarly, the Government has continued to make payments to the NFC pension funds in respect of historic deficiencies which had arisen before privatisation, and where the Government felt obliged to honour a formal guarantee which the nationalised employer had given many years previously but had not been able to fulfill. However none of these circumstances apply in the case of the establishment of the public transport companies to be wholly owned by District Councils, and I fear I cannot see that the NFC case represents a precedent.

Secondly, you suggested that the grant-related expenditure assessments for District Councils should be increased to take account of the pensions implications of the Bill. You will gather from what I have said in para 8 above that the Government does not believe that there will be increases in the total of local authority expenditure as a result of the proposals in the Transport Bill. We do however 1361WA accept that there might be some change in the pattern of expenditure as between individual authorities. If this should occur, and it is too early to make any firm predictions, then I can say that the department would be ready to review the grant-related expenditure distribution formula. This is something which we have already said to the Association of District Councils, and I hope that you will find it of some reassurance.

I recognise of course that on this issue of pensions there remain differences between us, and I do not want to minimise them; but I hope that this letter 1362WA has at least served to explain more clearly than I was able to do last Thursday the Government's thinking on these matters. I am sorry about the misunderstanding on that occasion; and if there is any further explanation or comment that you would like from me in correspondence I would be very glad to do what I can to help.

Yours,

David,

Lord Trefgarne."