Paymaster (Hansard, 15 July 1996)

§ Mr. Heathcoat-Amory

The report of the prior options review of the Paymaster agency that I announced on 4 December 1995,Official Report, columns 15–16, 372W has now been completed. I have accepted its recommendations and am placing copies of the report in the Library of the House.

Briefly, the report confirms that Paymaster has made itself much more cost-efficient and responsive to customer needs since it achieved agency status on 1 April 1993. It has won a number of market tests for its existing work against private sector rivals, but remains constrained by statute from taking on work for the private sector. If it transferred to the private sector, it would be free to seek new work in both private and public sectors, thereby strengthening its long-term viability.

The review showed that a small part of its banking business is concerned with work that must stay with the Government. The rest, including all its pensions business and IT support, could be contracted out to the private sector. Given that the agency has already proved its competitiveness against private sector rivals, the Government intend to privatise all but any non-divestible elements as a going concern.

The proposal is that both the pensions and the banking business should be offered, jointly or separately, for a trade sale, with the present management, staff, IT support and their building in Crawley. At least the pension business—which constitutes some 85 per cent. of the whole—should be privatised within the current financial year. The preparations for the banking business may be more complex, but every effort will be made to have it ready for privatisation in the same timeframe.

It is expected that the Transfer of Undertakings (Protection of Employment) Regulations 1981 will apply to protect staff in the transfer, which will be achieved with initial contracts for existing work. To prepare itself for operating from the private sector in future, the agency will be allowed to seek new work in the pensions area in the private or public sectors at once.

I believe that this represents a good outcome for the agency's existing customers and its staff, by keeping their expertise intact and granting access to new markets, and for the taxpayer, through reducing the cost of providing these public services. The pension schemes will, of course, continue to be funded, and have their rules set, by sponsoring Government Departments. It is the administrative functions that are to be contracted out. Where necessary, Parliament's approval will be sought under the Deregulation and Contracting Out Act 1994 before the privatisation is effected.