No.6 Convent Place, Gibraltar                Tel: 70071     Fax: 74524

Press Release

GOVERNMENT OF GIBRALTAR

Memorandum

1. The full history and issues of the so-called "Pensions issue". (pages 1-8)

2. The Community Care Trust (& Household Cost Allowance). (pages 9-11)

3. The nature and extent of consultation between HMG and GOG
relating to Community Care Trust and its operation, and relating
to the pensions issue. (pages 12-17)

July 2002.

(prepared by Ernest Montado, Chief Secretary of the Gibraltar Government).

SECTION 1 : THE SO-CALLED "PENSIONS ISSUE"

Gibraltar's historical state pension scheme

1. Gibraltar has had a statutory, contributory, old age pension scheme since 1955. It was (and still is) based on the payment of pensions upon reaching pensionable age, in an amount based on the number of contributions made (in the form of Social Insurance Contributions) during working life. It is wholly non-discriminatory as to nationality, residence or other factors (except that pensionable age remains lower for women than for men).

2. In 1969 the Franco Regime in Spain unilaterally closed the Gibraltar border as part of an economic blockade that would last until 1985. 4500 Spanish (commuting) workers were thus "locked out" of Gibraltar (and their places of work) overnight. There were some 10,000 other Spaniards who had contributed at some stage between 1955 and 1969 but were no longer contributing when the border closed. At that time, weekly contributions to the pension fund, via social insurance contributions, amounted to 7p per worker per week. Contributions made by former Spanish workers therefore ceased in 1969 when their employment in Gibraltar ended as a result of the closure of the frontier by Spain.

3. At that time there were already some Spanish pensioners. Some of the Spanish ex-workers who had been locked out reached pensionable age during the 13 year period that the border remained shut. Spaniards could not visit Gibraltar, and, as there were no other links, the Gibraltar Government had no physical means of administering the pensions scheme in their favour. Payments could not be made. Individual personal circumstances could not be scrutinised or checked. Claimants could not be interviewed.

4. Up to 1969 Spanish workers had contributed a total of £0.75m to the Gibraltar pensions fund. The Gibraltar Government at that time offered to transfer this fund (the "Spanish sub-fund") to the Spanish Government [and to the British Government] to administer in favour of the Spanish ex-Gibraltar workers so that it could be merged with the Spanish pensions fund to which they would thenceforth presumably be contributing. This offer was refused.

Post - 1969

5. Post 1969 Gibraltar contribution rates and benefit levels continued to increase as is normal with such schemes. Spanish pensioners were making no contributions. By 1985 weekly contribution rates had reached £5.90, (compared to the £0.07 per week in 1969) and pension benefits had reached £40.60 per week (single person) or £60.90 (married couple) compared to £1.50 (Single) or £2.40 (Married Couple) per week in 1969. In 1971, 1978 and 1980, offers were made to the Spanish Government to transfer the "Spanish sub-fund" to the Spanish Social Security Fund but these were again refused.

1985

6. During the early 1980s, the then British Government began bilateral negotiations with Spain for Spain to re-open the Gibraltar border in order to clear the way for Spanish accession to the EC (1 January 1986).

7. EC Social Security Regulations prohibited (and still prohibit) discrimination in social security benefits, (eg pensions) on the grounds of nationality or residence. Such discrimination is not prohibited in social assistance schemes.

The essence of the "Pensions Issue"

8. Upon Spanish accession to the EC, Spanish ex-workers in Gibraltar, (who had left in 1969, without reaching pensionable age, and had made no contributions to the pension fund since) would become immediately and automatically entitled to receive a pension from the Gibraltar scheme at the same rate as the Gibraltar resident pensioners (who had been contributing increased contributions in the meantime) were then receiving.

9. By way of typical example, a Spanish worker with a full contribution record between 1955-1969 would have made total life long contributions to the fund of around £35, but (by virtue of the EC Social Security Regulations) would become entitled to an uprated pension (in 1986) of £41.90 per week (single person) or £62.80 per week (married couple). In other words, a Spanish ex-worker would receive more in one week, than he (or she) had contributed to the fund during his/her entire working life in Gibraltar, even though they had made no contributions to the scheme between 1969 and 1986 (and beyond).

10. The liability was jointly calculated by UK and Gibraltar at around £200 million (at 1985 rates). The total content of the Gibraltar pension fund was £13 million. It was common ground that Gibraltar could not afford this liability.

The Gibraltar Government Alerts HMG

11. The Gibraltar Government alerted HMG as far back as 1976 to the massive pensions liability which would arise on Spain's eventual entry into the EC. Attached at Annex 1 is a letter dated 23 September 1976 from the Director of Labour and Social Security in Gibraltar to the Deputy Governor which was the first official warning of the massive liability which was foreseen. A copy of this letter was sent by me on 21 March 1997 to the Director of the National Audit Office at his request - (see Annex 2). Also attached at Annex 3 is a letter from the Deputy Governor to the FCO dated 23 November 1979 (copied to the Director of Labour and Social Security) which presented the Gibraltar Government's position at the time. The Gibraltar Government of the day repeatedly warned HMG that Gibraltar would never be able to afford this; that in the light of the events which had happened, Gibraltar should not be expected to pay it; and repeatedly pleaded with the British Government to ensure that special provision was made as part of the negotiations for Spanish accession into the EC to protect the Gibraltar pension scheme from this impending and unaffordable liability.

So what happened?

12. It was not until 1983 that HMG, having failed to reach an agreement bilaterally with Spain over the pensions issue, approached the EC Commission offering two alternatives as a solution i.e. either (1) Spain should assume payments of pensions to former Spanish workers on payment by the Gibraltar Government of the contributions (plus accrued interest) made by former Spanish workers; or (2) the EC should agree to a derogation from having to pay re-valued pensions to the Spanish ex-workers and agree to the payment instead of pension rates at pre-1986 levels together with any annual increase in pensions payable in Gibraltar. In its submission to the EC Commission, HMG enclosed a paper from the then UK Department of Health and Social Security which stated, inter alia: -

" It is important to recognise that this problem is not the fault of the Gibraltarian authorities who have had to plan the financing of the Gibraltar Social Security Scheme, taking account of the withdrawal from the Scheme in 1969 of more than half the insured persons, coupled with the need to take on hundreds more from another country (Morocco). This is an unprecedented situation between a current Member of the EC and an applicant country and is the root cause of the predicament."

The Commission rejected the request and stated that if Gibraltar could not afford the required pension payments, the Community would expect the UK to meet the cost.

13. Following a bilateral Brussels Ministerial meeting held in Madrid on 6th December 1985, the Foreign Secretary announced that former Spanish workers would be paid pensions at the same rate as pensioners resident in Gibraltar as from 1st January 1986. This decision was taken without consulting the then Chief Minister of Gibraltar, who reacted publicly by making it clear that the Gibraltar Government could not accept the liability other than to pay the accumulated fund of contributions (plus accrued interest) which belonged to the Spanish pensioners concerned (estimated at £4.5m in 1986).

14. The British Government agreed all this in bilateral negotiations with Spain in 1985, against all the warnings and pleas from the Gibraltar Government and without consulting the Gibraltar Government.

1985 - 1988

15. In December 1985 the British Government agreed to fund in full the payment of pensions to pre-1969 Spanish ex-workers in Gibraltar for a three year period, and did so. For its part, the Gibraltar Government paid out to the UK Government the £4.5m in the Spanish sub-fund of the Gibraltar Pension Fund.

1988 -1993

16. In 1988, following discussions between HMG and the Gibraltar Government, HMG agreed to continue to meet the full cost of Spanish pensions for a further period of 5 years. BUT THE BRITISH GOVERNMENT IMPOSED TWO CONDITIONS:-

(1) That at the end of the 5 year period (i.e. in 1993) the Gibraltar Pension Fund was to be dissolved and the capital shared out between entitled persons; and

(2) THAT PENSIONS TO ALL PENSIONERS (Spanish and Gibraltar) BE FROZEN AT 1988 RATES, at which rate they had been paid since 1988 and were still being paid! The Spanish Government was informed of these arrangements at the time and raised no objections.

17. In 1993, the Gibraltar Government complied with the condition imposed by the UK Government, and dissolved the fund and ceased to make statutory pension payments to all pensioners. The Spanish pensioners lodged a complaint to the EU Commission asking for the restoration of their pensions (the termination of which had been demanded by the British Government). From that date the Andalucian Regional Government in Spain made so-called "advance payments" to Spanish pensioners, and the Gibraltar Government made similar payments to pensioners resident in Gibraltar.

1996

18. By early 1996, the EU Commission was about to refer the UK to the ECJ regarding the complaints raised by Spanish pensioners. In March 1996, HMG agreed to meet the full cost of the liability to Spanish pensioners, again at EU enhanced rates, WITHOUT TIME LIMIT, BUT AGAIN ON CONDITION that pension rates for Spanish pensioners AND Gibraltar resident pensioners remained permanently frozen at 1988 rates. The Spanish Government was informed of these arrangements and raised no objections.

1996/97

19. Following the UK Government's agreement in 1996 to pay the liability towards pre-1969 Spanish pensioners the Gibraltar pensions legislation was restored to the statute book and the fund reinstated. This was done by means of new legislation that was drafted by a draftsman seconded from HMG. HMG specifically approved the new legislation. The UK Government then paid all arrears of pensions to pre-1969 Spanish ex workers for the period 1993 to 1996 (at 1988 rates) and continues to pay current pension liabilities to them (at 1988 rates). The Gibraltar fund makes payments to all others (i.e. all resident workers from 1955 and all Spanish workers from 1985, the date on which new Spanish workers returned to Gibraltar once the border was fully re-opened.)

2001/2002

20. In February 2001 the Gibraltar Government was informed by HMG that the Spanish Government had made official representations requesting revalorisation of pensions payable to Spanish pensioners. The Gibraltar Government reiterated that pensions paid to Spanish pensioners (and to Gibraltar resident pensioners) had remained frozen solely because that had been imposed as a condition by HMG when it agreed, in 1996, to fund the liability. GOG added that the Spanish request was not unexpected given that it was unrealistic to expect any pensioner to have his pension frozen for ever. It also reminded HMG that Spanish pensioners had, in the meantime, enjoyed other non-contributory benefits in Spain.

21. On 12 July 2001 the EU Commission wrote to HMG explaining that they had received complaints from Spanish pensioners that their pensions had been frozen since 1990. The Commission asked for a detailed explanation of the rules on regular increases in pensions in Gibraltar. The complaint before the Commission was therefore concerned with the freeze on pensions and not about the existence, or otherwise, of Community Care Trust or the payment by the Trust of Household Cost Allowances. HMG unilaterally took the view that in its response to the EU Commission it was necessary to explain that pensioners in Gibraltar received financial assistance in the form of the Household Cost Allowance. The Gibraltar Government recorded its strong objection to this gratuitous, unbalanced reference to the HCA and expressed its concern that HMG was not addressing the question from the Commission as to why pensions were alleged to have remained frozen since 1990. It stressed that the UK's proposed reply represented a mishandling of the issues involved and had the effect of steering the Commission away from the question (why pensions had been frozen) and diverting it to the existence of HCA. This obviously suited HMG (given its liability to pay Spanish pensions) but completely failed to place the issues in the historical, factual context.

22. As a result, in its second letter, dated 15 November 2001 the EU Commission only sought information on the provision of financial assistance to pensioners resident in Gibraltar in the form of HCA and the Elderly Persons Allowance (which is a non-statutory pension entitlement to persons not in receipt of a Social Insurance old age pension). HMG wrote to the Gibraltar Government seeking details of HCA (and the Elderly Persons Allowance) explaining that "the focus of Commission interest is now HCA and EPA". The Gibraltar Government responded that the only point at issue was HMG's decision to continue to freeze the level of pensions payable to Spanish pensioners (and Gibraltar resident pensioners as a consequential condition). The Gibraltar Government pointed out - as it had done repeatedly at meetings and in correspondence since the Spanish Government made its representations on revalorisation of pensions - that the whole matter could be resolved by HMG agreeing to revalue pensions payable to Spanish pensioners on the basis of cost of living increases and that this would cost HMG £150K p.a. at current inflation levels. The Gibraltar Government would do likewise in respect of Gibraltar resident pensioners. This proposed solution has not been responded to by HMG.

23. The continued and perpetual freezing of old aged pensions at 1988 rates was entirely unrealistic and unsustainable. In 1988, the ODA-Led Joint Study Group (comprising UK and Gibraltar Government officials) which examined the issue concluded, inter alia, in their Report (para 5.3.7.) as follows:

"5.3.7. The other more drastic action which is considered is to fix pensions at their current level (ie fixed in nominal terms). This is illustrated in Annex Tables 5.7 and 5.8 at 1988 earnings and prices. A summary is attached at Table 5.4. Because the effect on pension rates of 5% pa reduction in real terms is so drastic, such a policy could only be sustained for a limited period and it is therefore not meaningful to examine the impact over the whole period on total expenditure and the net deficit of the SIF. Thus the Gibraltar single pension would reduce by 1991 to the real level of the 1988 UK pension, by 1994 it would have reduced to the same proportion of average earnings as in the UK (ie 22% rather than 30%) and by 1998 it would be about 60% of the 1988 real value. By 2026, if the policy continued, it would be approximately 15% of its 1988 level."

SECTION 2 : THE COMMUNITY CARE TRUST/HOUSEHOLD COST ALLOWANCE

24. It was, and remains, wholly unrealistic for HMG to have expected Gibraltar pensioners (of any and all nationalities) to live, until death, on old age pensions frozen at 1988 rates!

25. Accordingly, in 1989, there was established in Gibraltar by a group of private individuals a private charitable trust (Community Care Trust) with the object of performing a range of charitable functions for elderly persons in Gibraltar. Amongst its objects, the Trust pays a financial sum to persons of pensionable age in Gibraltar to assist them in meeting household costs (i.e. electricity, water and other utility and household costs which are particularly high in Gibraltar given the diseconomies of scale which apply here.)

26. These payments are made by the Trust in equal amounts to all persons of pensionable age resident in Gibraltar regardless of nationality. The payments are made regardless of whether the recipient is entitled to a state old aged pension or not, or the extent of any such entitlement. This has, in effect, provided income support to Gibraltar resident persons of pensionable age. Although these payments are from a private source, the Community Care Trust, that trust received donations from the Gibraltar Government Social Assistance Fund amounting to £60,000,000 (prior to 1996) and £5 million subsequent to 1996. Such donations are not exclusive to Community Care Trust. The Gibraltar Government has provided grants to the John Mackintosh Homes (another private charitable trust) which runs residential homes for the elderly amounting to around £9m since the 1980s, and to the Dr Giraldi Trust (a private charitable trust which looks after the residential and other needs of the disabled) and to the New Hope Trust (a private charitable trust which runs the drug rehabilitation programme and other help for persons suffering addictions).

27. The Community Care Trust has been making these HCA gift payments openly since 1989. The British Government has been fully aware of their existence from the outset.

28. In February 1996, the British Government began to urge the Gibraltar Government to reform HCA because it considered that the scheme might breach EU rules prohibiting discrimination in social security benefits, given that the HCA was not being paid to Spanish pensioners who were not resident in Gibraltar. The British Government view is that HCA may be a social security (and not a social assistance) measure because it is based on age and not on need.

29. The British Government has often offered "technical assistance" to help in the reform of HCA. All these offers have been taken up. There have been numerous meetings and written exchanges at technical level, and also at political level. BUT THE BOTTOM LINE HAS ALWAYS BEEN THE BRITISH GOVERNMENT'S INSISTENCE THAT HCA must be made means-tested (rather than universal) and that it has to be means-tested at a threshold which would result in a significant number of current and future recipients having payments drastically reduced or cut off altogether. All this is set out in Section 3 of this Memorandum detailing the extent to which HMG has been aware of the existence of Community Care Trust and its consultations with the Gibraltar Government.

30. Furthermore, the Gibraltar Government has always made it clear that it has no powers to interfere with the workings of Community Care Trust. Even were the Gibraltar Government minded to do so, it lacks the power to modify the Community Care Trust or to direct the Trustees thereof to modify these payment of allowances to comply with HMG's requirements, or at all. Moreover, the Gibraltar Government is not willing to advise or encourage the Trustees of Community Care Trust to implement the British Government's demands, which are socially retrograde and unfair on Gibraltar's elderly as an alternative to HMG's revalorising its pension payments to Spanish workers (which remain at 1988 rates).

So what is the alternative?

31. The alternative is that the British Government, who are already paying the pensions of pre-1969 Spanish workers should simply agree to increase them. They are still frozen at 1988 rates! The UK Government wants to end the alleged discrimination by depriving Gibraltar pensioners of money that they have been getting for 13 years rather than revalorising payments to Spanish pensioners. This is unrealistic.

What are Spanish Pensioners Asking for?

32. Spanish pensioners are complaining that the British Government has frozen their pensions at 1988 rates. They want them uprated! They are not complaining about Community Care payments to Gibraltar residents. It is not a solution to them that Gibraltar resident pensioners be deprived of Community Care payments. This will not make the claim of Spanish pensioners to a revalorisation of their pensions go away. The issue is not reform of HCA, but rather the uprating of pensions which have been frozen at 1988 rates.

33. Spanish Pensioners are formally represented by an association named ALPEG. The position of ALPEG has consistently been that their claim relates to the state old age pension and is based on their view that, under European Law, all state pensioners are entitled to regular inflation uprating of the state old age pension whereas their state pension remains frozen at 1988 rates. ALPEG has made it clear repeatedly that they are not claiming Community Care payments but simply asking for normal, standard annual increases in pension levels. ALPEG further states that their members are entitled to annual pension increases in the same way as Spanish nationals who, having worked in the UK, and obtained a UK old age pension, return to Spain and are still entitled to annual pension increases from the UK.

SECTION 3 : RECORD OF THE NATURE AND EXTENT OF CONSULTATION AND INFORMATION EXCHANGED BETWEEN HMG AND GOG RELATING TO COMMUNITY CARE TRUST AND ITS OPERATIONS.

34. The following summarises the extent to which the establishment of Community Care in Gibraltar was common public knowledge, the extent to which it was in the knowledge of HMG and the extent of the information exchanged, and consultations held, between HMG and the Gibraltar Government over this matter.

35. From Gibraltar Government records, the first official line of enquiry from HMG dates back to the 16 May 1990 when the Deputy Governor wrote to the Attorney-General enclosing a leaflet which had been issued on 14 December 1989 by Community Care Ltd (a company wholly owned by Community Care Trust which administers HCA and other payments) (see Annex 4). In his minute to the AG, the Deputy Governor explains that he had consulted with the FCO and sought advice as to whether the HCA scheme was compatible with EU obligations. This enquiry was not raised with, nor referred to, the Gibraltar Government but a copy of the minute was given to the Gibraltar Government on the 9 May 1995.

36. On the 27 September 1991, the Assistant to the Deputy Governor wrote to the Administrative Secretary of the Gibraltar Government explaining that he had provided the Southern European Department of the FCO with details of the benefits paid by Community Care Ltd and asked, on behalf of the FCO, for details of how Community Care payments operated. This was replied to on 7 October 1991. It was explained that Gibraltar Community Care was a charitable organisation which made payments to specific groups details of which had already been made available to the Assistant Deputy Governor and that there were no contribution requirements.

37. On 5th January 1994 the Principal Auditor submitted to the Governor the first set of Community Care Accounts for 1990 and 1991. This was done in conformance with Sections 61 and 62 of the Public Finance (Control & Audit) Ordinance which allows the Principal Auditor to examine and certify the accounts of any organisation (public or private) which is in receipt of public funds, whereupon he is then required to submit his report to the Governor. The latter is then required to cause such accounts to be laid in the House of Assembly. On the 18th July 1995 the Principal Auditor submitted the 1992 and 1993 Accounts to the Governor. On the 8th January 1997 he submitted the Accounts for 1994 and 1995 to the Governor. On the 2nd July 1999 the Principal Auditor submitted the 1996 Accounts to the Governor.

All of these accounts have been available to the FCO, and have been laid in the House of Assembly (and are accordingly in the public domain).

On the 6th March 2000 the Principal Auditor wrote to the Chief Secretary and explained that, having reviewed the Accounts for 1997, he had decided not to undertake his own audit of the audited 1997 Accounts. He added that he had decided that he would only undertake his own second audit in circumstances where he felt that this was justified and he saw no reason in having to do so.

The Accounts for the years 1997 to 2000 were produced annually by Community Care and copies submitted to the Principal Auditor but he has not considered it necessary to undertake any further second audit. There has therefore been no requirement to submit these Accounts to the Governor for tabling in the House of Assembly.

The Principal Auditor has confirmed that he has no record of having been asked for copies of the Accounts for the years 1997 to 2000 from the Governor's Office. HMG has not, at any subsequent stage requested accounts of Community Care until they were requested by UK officials during their visit to Gibraltar in January 2002 (see para 45).

38. There has been substantial public debate and comment on the existence and operations of Community Care since its creation. In particular, Community Care was referred to in a Court Case which spawned a series of Gibraltar Government Press Releases and press reports intermittently between May 1994 and May 1996. There was also a lengthy public debate in the House of Assembly on the 18th December 1995. The motion before the House declared that Community Care was a private registered charity established in 1989 which provided assistance to senior citizens in Gibraltar. It noted that the Government's Social Assistance Fund had provided grants to Gibraltar Community Care Trust.

39. In February 1996 shortly before HMG announced the agreement to fund Spanish Pensions indefinitely, UK officials sought further detailed information on the workings of Community Care including information as to how Community Care was set up and by whom; how it was constituted; where it received funds from; what entitlements did beneficiaries have; who decided on the level of benefits and allowances; how many persons were entitled to the allowances; their nationality; what was the entitlement criteria; what other benefits were paid out; what were the level of allowances; what was the total yearly expenditure; and, what other payments were made to Gibraltar pensioners from other sources. This enquiry was answered in specific terms on the 19th February 1996. On the 23rd February 1996 further information was provided on the number and category of persons in receipt of allowances from Community Care.

40. On the 29th February 1996 the then Chief Minister wrote to the Governor setting out his Government's position on the nature and operation of Community Care and making it clear that the question of Community Care payments had been in the public domain for many years and had been the subject of argument and comment in two Court Cases since 1993 and in the news media generally. He stressed that Community Care was a registered charity independent of the Government and that Community Care payments, to which there was no statutory entitlement, did not create a liability which fell either on the Gibraltar Government or the UK Government.

41. UK officials remained unconvinced that there was no risk of legal challenge to the Community Care arrangements. A team of UK officials led by the ODA and comprising officials from the DSS and the Government Actuary Department visited Gibraltar in April 1996. They requested that the HCA Scheme should be reformed to address concerns which had been raised about vulnerability to legal challenge. This was followed by further meetings on 17th July 1996, 19th November 1996, 18th December 1996, 21 February 1997, 4th July 1997, 13th October 1997, 25th November 1997, 29 January 1998, 19th March 1998 and 24th June 1998. There were exchanges of detailed correspondence and other contacts between the Gibraltar Government and HMG on 28th June 1996, 1st August 1996, 13th August 1996, 17th September 1996, 20th September 1996, 24th September 1996, 22nd April 1997, 29th April 1997, 18th June 1997, 15th July 1997, 16th July 1997, 15th December 1997, 9th January 1998, 13th February 1998, 17th February 1998, 4th March 1998, 11th March 1998, 12th March 1998, 13th March 1998, 24th July 1998 (twice) and 29th July 1998. There were lengthy and detailed discussion of the workings of Community Care and the provision of all information requested of the working of Community Care.

During the course of these meetings three proposals were submitted by the Gibraltar Government which sought to address the concerns raised by UK officials about the workings of the HCA Scheme. This was done on the basis that if it was agreed that such proposals satisfactorily addressed the concerns raised, these would be submitted to Gibraltar Community Care Trust for their consideration. None of these proposals were accepted by UK officials who did not consider that they resulted in the exclusion of a sufficiently large number of Gibraltar resident pensioners from the HCA Scheme. The concern by UK officials appeared to focus more in ensuring that large numbers of pensioners were excluded than on the nature and merits of a scheme which reformed HCA and introduced an element of means testing.

42. The Gibraltar Government also proposed to HMG in late 1996 that a joint working group should be set up to examine possible ways of addressing the issues which were of concern to HMG. HMG replied on 22nd April 1997 that they did not consider that a formal working group would be appropriate and offered to help the Government of Gibraltar, only on an informal basis, with advice on how to reform the HCA Scheme.

43. The issue of HCA, did not resurface until February 2001 following representations made by the Spanish Government to HMG requesting revalorisation of pensions paid to Spanish pensioners. The Gibraltar Government responded to HMG on the 14th February 2001 making it clear that the Spanish Government's representations were concerned exclusively with the unfreezing of pensions and were not directly related to the operation of the HCA Scheme in Gibraltar. The Gibraltar Government advised that the matter could be resolved were HMG to agree to remove the freeze on pension payments which would cost the UK (who have accepted liability to pay Spanish pensioners and are paying them) around an additional £150K per annum at current inflation rates. Were HMG to agree to do so, the Gibraltar Government would make the same payments to Gibraltar resident pensioners.

44. On 20 February 2001 there was a meeting in London between the Gibraltar Government and officials from the FCO, the Cabinet Office, the DSS, the Government Actuary and DFID where a detailed explanation was once again given about the nature of the problem in its proper historical context and the clear need to address the issue of unfreezing pension payments with each side providing for annual increases to their respective categories of pensioners. These proposals were not accepted by HMG. Further correspondence was exchanged on 23rd August 2001 and 3rd September 2001 where the Government of Gibraltar once again stressed the need to address the issue by agreeing to revalorise pension payments.

45. By July 2001, the matter was over shadowed by the complaints raised before the EU Commission by the Spanish pensioners. There has been extensive exchange of correspondence on this issue between 31st July 2001 and 17th April 2002. A meeting was held with UK officials in Gibraltar on 11th January 2002 where further detailed discussion ensued on the workings of Community Care and the Spanish Pension problem generally. Details on the funding of Community Care were again provided on 28th March 2002 in response to a letter dated 22 January 2002.

Whilst in Gibraltar, UK officials met with the Board of Community Care Trust on 11th January 2002. The Board of Community Care Trust has confirmed that at that meeting the nature, origins and operations of Community Care were fully explained. The Board explained (as the Gibraltar Government had, over the years explained in numerous meetings) that Community Care was established in 1989 to offer protection to senior citizens with particular regard to household costs such as water and electricity which were particularly expensive in Gibraltar given the diseconomies of scale. Initially, there had been fund-raising activities from the public at large and a number of private individuals set up the registered charity, Community Care Trust. The Charity had received a substantial financial contribution from the Gibraltar Government. It paid out Household Cost Allowance, wages to Community Care officers, special allowances to persons over the age of 80, financial support in connection with the operation of Calpe House (which is residential accommodation for persons receiving medical treatment in London) and other benefits to the disabled and very elderly.

According to Community Care Trust, UK officials requested copies of the latest annual Accounts. The Board informed the officials that the Board would consider this request. Subsequently the Board informed Mr Powell of the Convent staff that the Board had agreed to make available the accounts but, according to the Board, the offer was never pursued by him. (see Annex 5).