Cable seeks reassurance Government won’t claw back overpaid public pensions

3.27.00pm GMT Mon 15th Dec 2008

On the final day of debate on the Queen’s Speech, Vince Cable exposes a public pensions blunder, and Lib Dems criticise the government programme for not doing anything to help people struggling in the tough economic situation

Parliamentary consideration of the Queen's Speech concluded with the debate focusing on the economy. Liberal Democrat Shadow Chancellor Vince Cable used his speech to make public the latest government administrative disaster, revealing that the Government had been overpaying pensions to many former public sector workers:

"I was rung up 10 days ago by a journalist from Radio Ulster about a story that she had picked up regarding a company called Xafinity Paymaster, which pays out public sector pensions to former members of the armed services and the National Health Service, among others. She understood that this company had been paying out excessive public pensions, probably to hundreds of thousands of public sector pensioners, and that this error had just been discovered, and that the company was about to start retrieving the money from the pensioners."

Vince said he had been asked by the Government to wait several days before raising the issue, which he had now done. He asked the Chancellor, Alistair Darling, to give some reassurances about how the Government would be tackling the issue:

"I hope that none of us will face the possibility that large numbers of ex-servicemen will suddenly be faced with bailiffs turning up and asking them to repay overpayments, as we have already seen in the appalling instances involving tax credits."

The Chancellor responded to the announcements by confirming no repayments would be required, but future payments would be "adjusted".

The Liberal Democrat Shadow Chancellor went on to give his frank assessment of the "deteriorating" economic situation:

"Quite apart from the difficulties in our own economy, within the past few days the five leading German economic institutes have suggested that the German economy may decline by 5 per cent. next year. We are seeing similar figures from the United States. The fixed-interest market, if it is extrapolated forward, suggests that the markets are already expecting that the period of deflation will last for five years in the US and for three years in the UK. We are talking about something much more serious, much deeper and much longer than any Government forecasts have yet acknowledged. I do not say that with any relish, but simply because we need to face up to the implications of what is involved."

Stressing it was time to focus on solutions, rather than previous policy failures, Vince weighed up the opposition to any further fiscal stimulus:

"What are the arguments against the fear felt by the Germans - and, presumably, the British Conservatives? Their first argument is that there is no point in a fiscal stimulus because people will not spend, but will just save. They will see taxes coming in the future so they will see no point in spending the windfall; they will hoard it and save it, so nothing will happen. There may be an element of truth in that, but it depends on exactly how the measure is applied. One of the reasons why we shall be coming back to discuss the VAT changes on Wednesday - having prayed against the order - is that they are not the best way to provide fiscal stimulus. They create precisely the problem that the Germans have identified, which is why we argue that fiscal stimulus is better done the American way, predominantly through public works. What the Americans call shovel-ready projects are a much better way of getting income into the economy."

In contrast to the Conservative argument that more borrowing would worsen the economic crisis, Vince suggested:

"If Governments do nothing the recession is even deeper, so the public finance position is even worse. Government deficits and debt will be even worse if there is no financial stimulus. That is the core of the argument that all the other members of the developed world - and, it would appear, the Chinese and the Indians too - now accept. It has to be right - and Mr. Steinbruck has to be wrong - that a fiscal stimulus is a necessary part of the solution. I am very disappointed that the Conservatives have not understood that fairly simple basic point."

Whilst agreeing a fiscal stimulus was the right course of action, Vince highlighted the need for more coordinated action in relation to the banking sector:

"The banks are being given completely contradictory objectives. They are being told to lend more. They are being told to lend less by the Financial Services Authority, which wants them to hold more capital...They are being told to repay the Government's loans... If the priority is to lend more, that has to be spelled out explicitly, and it has to override the other objectives. It does not matter whether we achieve that by putting people on boards, or simply by making the objectives very clear. What is completely lacking is any clarity at all about the strategy for the banks. That really has to be sorted out."

The Liberal Democrat Shadow Chancellor concluded his speech by calling for a, "combination of measures: a radical approach to monetary policy, cutting interest rates, fiscal stimulus and radical action to get bank lending working. What is needed is not one of those measures, but all of them."

A Liberal Democrat amendment was put forward at the end of the debate, adding at the end of the motion thanking the Queen for the Speech:

"but humbly regret that the Gracious Speech fails to provide proposals to alleviate the hardship facing hardworking British families by reducing energy bills, boosting growth through investment in social housing, transport and green energy programmes, making banks prioritise lending to British businesses, fundamentally altering the structure of British taxes to make them fairer, closing tax loopholes on the very rich and making significant cuts in income tax for those on ordinary and low incomes."

The amendment was defeated with 66 votes for and 304 against.