Grand Committee
Small Business, Enterprise and Employment Bill
The Deputy Chairman of Committees (Lord Colwyn) (Con)
My Lords, should there be a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 15: Target for streamlined company registration
Lord Mendelsohn
“( ) For the purposes of this section and section 16, a system for streamlined company registration is a system which ensures that company incorporation and tax registration is approved on the same occasion.”
Lord Mendelsohn (Lab)
My Lords, the purpose of Clause 15 is to set a timetable to streamline the process for companies to incorporate and register for corporation tax, VAT and PAYE online without having to provide the same information repeatedly. The aim is for this to be done “by electronic means”, as defined in Section 1168(4) of the Companies Act 2006—that is, to be able to be,
“sent … and received … by means of electronic equipment for the processing … or storage of data, and … entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means”.
Our amendment, somewhat modestly, adds a target that is desirable and deliverable. Our amendment sets the goal of ensuring that this system should be delivered to make it possible not only to enter all the data required for all the tax and registration requirements at the same time but to ensure that approval for company incorporation and tax registration is provided at the same time. We are pleased to support this clause, as it meets the objectives of reducing burdens on business and encouraging the adoption of new technology and the delivery of more public services digitally.
As an element of policy to support small businesses, the proposed measure is useful, although I doubt that it will be transformational. However, I think that the measure is to be commended because of what, in a sense, it stands for: first, that where we can make it better to establish, grow or develop small businesses, the Government should help—the Government can do more to simplify regimes, even efficient ones, and we think that this is a sensible step; secondly, that the Government must do what they can to act in a way that serves all types of businesses. As a big organisation, government struggles both to have the right horizon and to be sufficiently adaptable to meet the needs of small businesses.
This amendment puts a large stake in the ground. I am sure that the Minister could tell us how many officials in her department, prior to the introduction and design of this Bill, dealt with small businesses versus the number who dealt with, say, the automotive industry. I do not wish to diminish support for the automotive industry, but I am sure that the disparity in numbers says something about the extent to which the department is sufficiently able to appreciate the nature of the main drivers of employment and growth in the private sector economy and how to get the right feel for, and approach towards, legislation and regulation.
We share the ambition to make Britain the best place in the world to start and grow a business. When Labour left office in 2010, Britain was ranked by the World Bank as the easiest place in Europe in which to set up a business. In fact, it was ranked the fourth easiest place to do so in the entire world. I say that not to make any partisan point but to stress that we are all committed to progress on support for small businesses. So it just has to be right that, rather than inputting the same data several times to incorporate and register for taxes, a new company should be able to provide the information just once, digitally, to incorporate with Companies House and to register with Her Majesty’s Revenue & Customs for corporation tax, VAT and PAYE.
The Government’s case is that Clause 15 uses a statutory target to demonstrate, in the strongest possible terms, the commitment to improve the current system and to ensure that it is given the highest priority across government to deliver a solution as quickly as is reasonably possible. I am bound to say that, although we support and understand that, it is rather disappointing that this is not just done but needs legislative support.
I would be grateful if the Minister could reassure us by providing some details on the planned delivery of this measure. For example, given that this is a technology project and given the Government’s record on the delivery of IT projects, it would be useful to know which department will lead the project management and delivery of the work. Will there be a joint procurement and management team? What has been the engagement and market testing with the business community? What expertise is being assembled or commissioned to help with its design?
Also, does this commitment only extend to the development of tools for computer-based formats, or is it pioneering and embracing mobile and tablet devices? Could we get some idea of what we can expect from the reporting procedures between now and 2017? What progress should we expect by, say, March 2016, and what steps will businesses see between now and then? I am sure that, as with any similar project, there are already ideas of what the milestones will be. After all, how could the 2017 date itself be established without them?
While I know that the Minister’s colleague in another place was reluctant to be drawn on details, I wonder whether the few months between his comments and our deliberations have allowed more details to be forthcoming. The Minister in another place said:
“I want us to be able to deliver a complicated IT project. Government IT projects are difficult enough to deliver on time without having to hit a description written in Hansard of what we now expect to happen”.—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 23/10/14; col. 231.]
I need hardly remind the Minister of the useful advice of Dr Martin Read, with whom she served in the Government’s Efficiency and Reform Group. Martin Read, an outstanding IT leader and businessman, had previously looked at IT procurement and delivery in government and given some excellent advice, which I hope the Government will follow in the delivery of this project. However, to indicate that they are entering into a project without any sense of desired outcomes, costings, budgets and timings—and especially contracting and project management—would suggest that they did not really heed his advice. It is pretty hard to believe that this is a blank piece of paper and I would be grateful if the Minister would provide us with the courtesy of just some morsels of information.
Finally, in relation to the duty to report, I would be grateful if the Minister would clarify how, when, and hopefully what, it will cover. Crucially, will it cover problems in delivery and will it be possible for it to restate timetables, both positive and, potentially, negative? Interestingly, this measure does not provide enabling powers to facilitate the delivery of the targets and the Government have said that, if they identify the need for such powers, this will be dealt with through another legislative vehicle. I would be grateful if the Minister would set out the Government’s thinking on this and if he would illuminate for us where they might anticipate that such powers may or may not be needed in the future. I beg to move.
Lord Popat (Con)
My Lords, I thank the noble Lord, Lord Mendelsohn, for this very important amendment. I understand his desire to bring speed and avoid duplication of any kind, but I will just go through the reasoning on why this would quite often be difficult. The streamlined company registration is designed to save businesses time, money and effort when registering their details for company incorporation and tax registration. This means that businesses will not need to provide the same information on multiple occasions to incorporate a company with Companies House and to register for VAT, corporation tax and PAYE with HMRC.
Amendment 33B would require company incorporation and tax registration to be approved on the same occasion. There would be some difficulties in doing this, but I am pleased to assure the noble Lord that we would face a whole number of issues in incorporating his amendments. The amendment could be interpreted in two ways: that the incorporation and tax registration are approved at the point when the application is made or that the business would have to wait until the completion of both incorporation and tax registration to receive confirmation.
To deal with the first point, incorporation and tax registration cannot be delivered at the point that the noble Lord, Lord Mendelsohn, mentioned, when the application is made. First, there are processes that need to happen sequentially before all obligations have been met. Incorporation for a company at Companies House is the start of the process before a company can register for corporation tax, PAYE or VAT. Secondly, assurance checks need to be made to prevent fraud. HMRC and Companies House have strong existing processes to counter fraud, which will continue to apply under the new system. HMRC is currently unable to process these assurance checks in real time because they require analysis of intelligence and cross-checks with other HMRC systems. These processes are not automated. However, security aspects will be considered throughout the implementation of this project. HMRC will continue to use expert knowledge and organisational learning to fraud-proof its processes and systems through continuous improvements to system controls and checks.
To deal with the second point, although a single response could be given to customers to inform them of the completion of incorporation and tax registration, this would have to be done at the end, rather than at each stage of the process, which we think would result in a poor customer experience. We believe that keeping customers informed on the progress of their registration and supplying information as it becomes available will enable companies to begin doing business while the process is still in train—for example, by opening a bank account as soon as incorporation is complete. That will also help to generally enhance the customer experience.
The noble Lord, Lord Mendelsohn, mentioned the history of failing to deliver extensive IT programmes and asked how this will be different. The Government have made significant improvements to the way in which IT projects are managed and delivered. This project will be developed using a build, test and deploy approach, which avoids costly errors and the pursuit of inappropriate solutions. That approach is widely used and was successfully used in the development of GOV.UK and new transactional services which have delivered significant improvements for citizens and businesses. That is a major project that is currently taking place.
The other question raised by the noble Lord, Lord Mendelsohn, was what progress would be made by the time of the first report in 2016. It is premature to say exactly how much progress we will have made by the time of the first report to the House. The immediate next step is to begin detailed engagement with a wider range of businesses and stakeholders to refine the delivery options. That will include new businesses and those thinking of starting a business, as well as professional and representative bodies. As a minimum, by 2016 we expect to have developed a working prototype designed and tested with a set of core businesses with a programme of wider engagement which will give us the feedback required to develop the final product. At all times, the focus will remain on ensuring that the end solution will meet users’ needs in the most cost-effective way.
The first thing that people who want to set up their own business from home or from any commercial premises need to do is to register their company. That must be as instant as possible so that they can start trading and open a bank account. They cannot possibly at the same time register for VAT, PAYE and corporation tax. I am talking from my business experience on that—these things take time. The good news is that we are streamlining the process by including information so that future registration for VAT, PAYE and corporation tax becomes much easier. In many ways, it will be faster than it would otherwise be.
I hope that the noble Lord has found my explanation reassuring and, on that basis, I request him to withdraw his amendment.
Lord Mendelsohn
My Lords, I thank the Minister for his reply. It may not have appeared so, but I am somewhat excited about this measure. It is not just the notion of IT programmes which interests and excites me—they do not—but as someone who has declared an interest as an owner, investor and someone who works in small businesses, I may well get to use this system. I am enthusiastic in that regard. It is not my concern about the speed or, in a sense, the relative level of difficulties. I am more than aware of the difficulties that will be faced—especially by HMRC, with its current system. However, what is important to understand about this measure is the opportunities that it provides and the ambition that it demonstrates.
“( ) A person cannot be appointed by a Minister of the Crown under subsection (1) if the person is a current or immediately past board member of the regulator.”
Lord Stevenson of Balmacara (Lab)
My Lords, the Bill creates a duty on the relevant Minister of the Crown to appoint a person for each non-economic regulator. As the person is variously described it is a bit confusing, both in the Bill and in the notes, as to exactly what they will be called. It might be worth having a further discussion about this at some point, but for the purposes of this amendment my eye was drawn to the phrase in the notes “Small Business Appeals Champion”.
An additional point to make here is that it is quite refreshing to read of a Government who are prepared to go hammer and tongs into adding new regulations to an area. I am not one who is necessarily against regulation in principle, as good regulation drives a lot of good things, but this has quite a set of layers of regulation in it. Given that we are also considering the Deregulation Bill, and indeed have been faced with a number of attempts to try to reduce regulation, we ought to be quite clear what we are doing here. Although I make a trivial point about the name, it is also important.
The aim is to ensure that there are clear and effective procedures and processes in place, so that businesses—again, it seems to be defined as “businesses”—can challenge regulatory decisions, should they feel that they have been treated unfairly. I put on record that we support this approach. We are aware of the previous history of this: in the publication Small Business, Great Ambition it was said that businesses were not always confident that there was a clear pathway to challenge decisions by a regulator. It is good that the Government have recognised this and want to come forward with proposals. It is also interesting that, in the evidence for that, it is clear that two issues are in play here. Businesses did not know how to challenge decisions—I imagine that is more at the smaller end of the market—but they also found that it was either too expensive or too time-consuming, or both, which again rings true to anybody with experience in this area.
In the consultation issued by the Government prior to the preparation of the Bill, Small Business Appeals Champion and Non-Economic Regulators—it perhaps gave away its content in its title—the Government explained that,
“given the range of different statutory arrangements … the Government will need to give individual consideration to the application of the policy to each regulator before the policy is implemented”.
That is a large amount of work given the number of regulators that have been revealed as a result of our work on the Deregulation Bill, for which a parallel but different set of regulations is of course being imposed. Can the Minister update us on how they are doing on this? It will be quite an extensive trawl through a number of regulators that were set up over the years. It is important that we have some sense of how we are getting on and whether any lessons can be learnt from that experience.
Cutting to the chase, a small business appeals champion—or whatever name we agree on—will be appointed to every non-economic regulator. These will be quite important people, particularly for small businesses, because they will be concerned about, and seek redress, when regulators introduce new regulations that might be against the best interests of their businesses. I worry that the Bill is not very sharp about the regulatory powers and responsibilities. Will they be sufficient? Will they be adequate to achieve what they set out to do? Will it be more than just a talking shop?
Individual appointments to the regulator will be by a Minister of the Crown. The Bill states that they will either be statutory office-holders within the regulator or be appointed by the Minister of the Crown in respect of the regulator’s functions—presumably as additional personnel. I am concerned about this. The power of a small business appeals champion will lie in their ability to challenge the regulatory functions that they are appointed to review. Perhaps the Minister will explain this when she responds, but it does not seem to me that a person who is already employed by the regulator is in a very strong position to criticise the regulator’s activities. Could she talk us through this? Are they not meant to be independent? It would be very unusual to have someone in a position of reviewing or providing reports to external bodies about a particular body if they are employed by that body. It might be better if they are board members and maybe they should be appointed in a particular capacity to each board, but the range envisaged in the Bill seems to be too large for this to be appropriate.
To take further examples, what happens if a reviewer has to comment to the Minister on the way that the regulatory duties are discharged by his or her boss? Is there not a problem there? The employee will have a duty of care that might be breached if they are expected to make recommendations in public that will end up being considered in Parliament. Noble Lords begin to see where I am going. This is almost like a whistleblower. Parliament has considered this topic and will return to it later in this Bill, but real concerns have been expressed about how we treat whistleblowers. Their effectiveness is entirely related to whether they can make their comments without being subsequently sorted out by the powers that be in their organisation.
Similar points came up on whether an employee in a regulator would have sufficient knowledge and expertise to do the job envisaged by the Bill. It seems to me that someone who reviews the work of a regulator would need to be at the board level. Although there will be no doubt excellent people further down the chain, I doubt whether they would have the experience or expertise, or be senior enough, to take a view.
There is also an intention in the clause that one reviewer would be appointed to each national, non-economic regulator in some cases but to groups of regulators in others. For instance, some regulators, groups of industries or groups of functions will work in roughly the same area; the suggestion is that one regulator could cover them all. Is there a list of the regulators that would likely be grouped together? If there is not, could we get that in play? That is quite important. For instance, we could consider one regulator for energy, but we could also think that there would need to be different expertise relating to gas or to water, as opposed to some of the other utilities. There is also the asymmetry of expertise and experience that I have already mentioned. For instance, if a reviewer was employed by one regulator but was expected to review and critique a cognate regulator—or even a very different one—one would worry about whether they had the expertise, or whether they would be able to criticise a sister organisation operating in the same field.
I am afraid that I have asked a lot of questions. I should have made clear that this is merely a probing amendment. We support the general approach, but we would be grateful to have a bit more detail so that the Committee could better appraise whether this is a good move. I beg to move.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I thank the noble Lord for his amendment relating to the appointment of small business champions—my snappier, if less accurate, title for them. I agree that sometimes we need to regulate, especially, as in this case, to make regulation better.
The Government have brought forward these clauses because we want to ensure that regulators’ appeals and complaints processes are accessible and fair, and work for business. We want to make sure that, if a business wants to challenge a poor regulatory decision, there is a clear and easy-to-understand process to make a complaint or appeal to that regulator. I agree with many of the noble Lord’s comments.
How are we progressing with identifying regulation? The consultation closed last Friday. It is on the government website. We will make final regulations with our proposals for listing regulators once the Bill is approved. Our proposed list was set out in the consultation. What regulators will be grouped together? We have not decided on that, but we will certainly look at it once the list of regulators is finalised in the light of the comment that the noble Lord made.
Turning to the amendment before us, the Government intend that the small business appeals champion policy should apply to a diverse range of national regulators, with equally diverse circumstances. For example, there are large regulators, some with statutory governance arrangements, complex stakeholder groups and thousands of staff, such as the Health and Safety Executive, the Care Quality Commission and the Environment Agency. However, there are also tiny regulators with few staff, where there is no board and the legal responsibility for regulating lies with the Secretary of State, such as the Employment Agency Standards Inspectorate, the Animals in Science Regulation Unit or the Senior Traffic Commissioner. There is something in between as well, such as the Office for Nuclear Regulation or the Charity Commission. We have designed this policy so that it has the flexibility to work across this varied array. A key part of that flexibility is around appointments.
I agree with the noble Lord that in some cases it may not be appropriate to appoint a board member as a champion. For instance, if the board is involved in the appeals process, it would create a conflict of interest. However, in other cases, it could be a positive advantage to appoint a board member as the champion. A non-executive director might be uniquely well placed to combine an understanding of the needs of regulated businesses and an intimate knowledge of the way the regulator works. There is not an unlimited supply of people of talent and objectivity who are prepared to take on public roles of this kind and familiarity can be a distinct advantage, especially in very technical areas.
The Government do not agree that the appointment should be limited to exclude regulators’ board members. We have deliberately placed responsibility for appointing champions with the relevant Minister, supported by his or her departmental officials, and not with the regulator, to ensure that someone of appropriate independence and stature is chosen. We should trust Ministers to be responsible for ensuring that an appropriate appointment is made, and not constrain them as the amendment proposes. In carrying out the recruitment process, the Minister and the Government will, of course, ensure adherence to any relevant guidelines such as the Code of Practice for Ministerial Appointments to Public Bodies. I hope that the noble Lord will be reassured by what I have said and agree to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I thank the Minister for her very clear exposition. I agree that we should focus on small business champions—I will try to do that, although it gets a bit complicated later on. Who is involved and what sort of bodies are likely to be grouped together are obviously a work in progress and I hope to get information on that as we go forward as it shapes the way in which we respond to this issue. We may wish to return to that at a later stage.
I understand the point the Minister makes about the need to have expertise and a sufficient number of high-calibre people doing this important work. It will help small businesses and, as I said, we support it. However, I think that the conflict-of-interest point has resonance. Her examples do not necessarily reassure me that, simply because the appointment comes from outside and is made by somebody who is not themselves the regulator, that will provide the degree of independence, authority, expertise and single-mindedness of purpose that will be required if this is to be effective. However, for the purposes of this debate in Committee, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
In some sense this group of amendments is the continuation of the earlier debate, but it now focuses on the reports that may come from whatever system is set up for these small business appeals champions—although here they are sometimes called the “Independent Complaints Commissioner”. I am not sure where that fits into it; perhaps there is another whole area of bureaucracy that I have not yet managed to uncover.
The Bill is very helpful in setting out the duties and functions of the review process. The overall objective is to encourage the regulator to improve and to simplify the appeals and complaints processes that businesses should follow if they wish to challenge or appeal a regulatory decision. The requirements are quite onerous: annually, each reviewer—obviously we still do not know how many there will be—has to review the effectiveness of the relevant regulator’s procedures and prepare a report about his or her findings, which may include an assessment about whether those are accessible and fair, as well as recommendations for improvement. Those recommendations can go either to the Minister of the Crown—which might be relevant and appropriate, given that that most of the time that person will be making the appointment, and that would certainly have to be the case, presumably, if legislation was to follow—or they can go to the regulator themselves if it is just a simple matter of a change of procedures. It would be helpful if the Minister could give us a bit more detail on that.
On the narrower question of whether a report has to go to the Minister of the Crown simply because it involves changes in the law, this does not give quite enough depth or sketch in some of the things that will come. The reviewer may not be in a position to give a formal recommendation that there has to be a change in the law—they may say, simply, “This is something which I’ve picked up, which I think is important for small businesses, and I refer it to the Minister for appropriate action”. The appropriate action may well not necessarily be legal; it may be some form of instruction to the regulator, or that some regulatory bodies need to work closer together, or some other things. I am not trying to be difficult—the way it is expressed is just a bit narrow. If the Minister can perhaps find the words to explain that in a more rounded context, that might be helpful as we go forward.
I am moving Amendment 33D, but in this group we also have Amendments 33E, 33F and 33L. The point raised in Amendment 33E, which is minor but important, is the suggestion that the review should also reflect on any discriminatory practices that exist. We are aware—more anecdotally than evidence based, although it is still important—that there are concerns about some issues to do with diversity in other areas, which are in the law and legally applied to individuals, but we are talking about small businesses, for which there may therefore be concerns. This might be a good point to try to think harder about making sure that the way this is framed also includes the question about discrimination and wider issues to do with that area of work.
Amendment 33F suggests that there may be issues where an individual company may feel that the regulations that have been imposed are not only against them but mean that they are being discriminated against. Therefore, again, it would be helpful if consideration was given, perhaps in the regulations, to making a broader pass through this, including recommendations for mitigating steps that might be taken, if an assessment by a reviewer concludes that discrimination has taken place.
On Amendment 33L, Clause 20 places a duty on the independent complaints commissioner or small business champion to produce an annual report on his investigations under the scheme as regards the FSA regulators, which are specifically carved out in one part of the Bill—although, obviously, that is because they already carry out many of the functions that the reviewer in the Bill would carry out. However, for completeness, and to make sure that there is no gap between them, might it not be sensible just to include within the Bill a very clear inclusion paragraph that would make sure that they also have to look at unfair and discriminatory practices under the scheme? I beg to move.
Lord Deben (Con)
My Lords, I rise to warn the Committee—and I hope that the Minister will accept this warning—of the danger of the enactment of good-heartedness for the sake of it. There is a phrase in the amendment that symbolises that. The amendment that we are discussing with the first one contains the expression,
“protecting individuals from unfair treatment and promoting a fair and more equal society”.
I am all in favour of a fair and more equal society, but I cannot think of anything that is more likely to make people feel that all this stuff is yet again a whole collection of persiflage rather than the serious matter we are talking about. This is not about small businesses; it is not what small businesses are about. It is a perfectly reasonable statement but not something that we should be putting into the Bill. I am surprised that it is in the amendment.
That enables me to say what I really wanted to say, which is that I think this is a good and necessary Bill. However, we have to remember that we also have a commitment to reducing red tape and reducing the appearance of red tape. I want to make a point about the appearance of red tape. Very often people think that something is restrictive or difficult because there is an awful lot of it. I have always believed that we ought to have a law saying that we cannot introduce any new laws unless we take away at least the same number of lines from the present laws, so as not to make people feel that they are overwhelmed by what is before them.
This seemed to me to be a reasonable moment, before the Minister rises, to say to the noble Lord opposite that there is a responsibility in setting down amendments so as not to give the impression that we are prepared to load people with a whole lot of things that may be politically correct, nice things to say, or something that might be added to a speech, but which, frankly, make people feel that the Government are constantly after them with all sorts of nebulous thoughts and ideas to which we can all sign up, but which ought to be left to people to decide for themselves as to their purpose. They should not be written down in this way.
Baroness Neville-Rolfe
I thank noble Lords for the amendments and for the opportunity to debate the role of the champion and how it helps business.
We know that small businesses suffer disproportionately from regulatory burdens and find appeals systems, in particular, hard to understand. I thank my noble friend Lord Deben for his intervention, which I could not have put better myself. The point about reducing red tape and the appearance of red tape particularly applies to appeals, when people need to understand where they can go and to have proper processes at a regulator if and when things go wrong. I feel that very strongly.
Looking at the amendments in turn, Amendments 33D and 33E relate to the champion’s assessment of the regulators’ appeal processes and procedures. We certainly do not want the champions to ignore the core role and function of a regulator when making an assessment of the regulator’s complaints and appeals. However, we will make it clear in guidance that the champions should consider this in their assessment of appeals processes. Clearly, those processes need to be shaped by the sort of cases at stake. Cases considered by the Pensions Regulator will be very different from those before the Environment Agency or the Security Industry Authority. There are a number of factors that champions will need to consider in reviewing appeals processes. As well as the protections that the regulator has been established to secure, these will include the types of cases being considered, the profiles of the businesses which are applying and the typical timescale. We aim to identify the relevant considerations in guidance. Putting only one of them in the Bill would give it undue weight. I hope that the noble Lord will accept that, and feel able to withdraw the amendment.
Amendments 33F and 33L relate to reporting—both by the champion and the independent complaints commissioner—on discrimination against a business that has challenged a regulator. Of course, the independent complaints commissioner is the equivalent of the champion for financial services regulation. It has a different name and different framework to fit in with the regulations that establish these bodies and the statutes relating to them, as I think the noble Lord acknowledged.
The Government fully agree that such discrimination is unacceptable. We do not want to deter complaints. However, Amendment 33F requires that the champions should provide an assessment of individual cases and provide redress on those cases if they find that discrimination has occurred. While understanding the objective, we do not want to create a separate route of appeal, which is what the amendment seems to do. It also conflicts with Clause 17(5), which explicitly prevents champions making any recommendation in relation to individual cases. By giving the champion vires over individual cases, Amendment 33F would negate that.
None the less, this whole issue is certainly one to which the champions should be alive. I am happy to commit that our guidance to champions under Clause 19 will require them to consider any examples of discrimination against those who challenge regulators’ decisions, and to make recommendations where they find it. That is an important horizontal issue for them to look at. The Government therefore oppose this amendment, although we support the sentiment behind it.
Amendment 33L makes similar, though less extensive, requirements in respect of the financial regulators’ independent complaints commissioner. The amendment requires an assessment of any unfair and discriminatory practices in the commissioner’s annual report. The clause already requires the report to include information concerning general trends emerging from investigations, which can and should include the issues of unfair and discriminatory behaviour where there has been a complaint. We believe that does enough and do not want to create a new industry of challenge and confusion.
I hope that the noble Lord has been reassured by my response and by what we plan in terms of guidance and will agree to withdraw the amendment.
Lord Stevenson of Balmacara
I thank the Minister for her comments. I am sorry that the noble Lord, Lord Deben, took exception to the content of my remarks. It was clearly a probing amendment in an attempt to dig out some of the issues. I am sure that he is as guilty of that as I am in his previous lives, and I have no worry at all about standing here, and will continue to do it. However, the noble Lord might want to bear in mind the fact that the Minister said that the guidance coming forward will indeed cover all the points that I raised in the amendments—probably better than I would have done. I am certainly confident that the points I made will be picked up and taken forward. In that sense, I am delighted to withdraw the amendment.
Lord Mendelsohn
“( ) An assessment under subsection (4)(a) need only consider small businesses as defined in section 33(2) and micro businesses as defined in subsection (3) of that section.”
Lord Mendelsohn
In moving Amendment 33G, I will also speak to Amendments 33K, 33N, 33S and 33T.
While we are very supportive of this measure, we have an underlying concern about how it is drafted and how it relates to the central driving and important common objective of supporting small businesses. Our contention about the drafting of some of the Bill is that it does not appear to be sufficiently designed to deal with the particular and unique contours of the very many different businesses that comprise the category of small business. Our amendment seeks to try to probe the Government to be more forthcoming about what they are trying to achieve in the clauses. In the current drafting, “business” has a wide definition.
The Bill proposes that a Minister of the Crown can appoint a reviewer in respect of certain regulatory functions. This reviewer must release a report, including an assessment of the extent to which the relevant regulator’s procedures, particularly handling and resolving complaints and appeals made by businesses to the regulator, are accessible and fair to businesses. Does this mean all businesses? As this is the small business Bill, is that not rather inappropriate?
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Mendelsohn, for his explanation of these amendments, which I hope I have understood, as I know that they are largely probing in nature. First, I turn to Amendment 33G, which would have the effect of limiting the champion to consider only appeals and complaints by small and micro-businesses. I suspect this is not his intention. It is true that larger businesses generally find it easier to navigate regulators’ appeals systems. That is why we call this policy the small business appeals champions or the small business champion—because the main benefits will fall on small and micro-businesses.
However, large businesses have problems with appeals, too, and fixing those problems can be beneficial in a broader way: smaller businesses having similar issues or facing similar burdens can benefit. It would be a mistake to exclude the experience of larger business entirely from the work of the champions. One can imagine a champion telling a business, “I’m sorry, but because you’ve got 51 staff, I can’t take any notice of the evidence of your problems within the regulators’ appeals system”. Clearly, that is not what we want. What we want is somebody of good quality who will come in and take a critical look at this important area.
Amendment 33K proposes that the guidance for the small business appeals champion should be laid before Parliament. I can tell the noble Lord that it is actually the Government’s intention to show the guidance to Parliament and I am content to consider his amendment further.
Amendments 33N and 33T seek to replace the term “smaller scale businesses” in the business impact target provisions with a cross-reference to the definitions of small and micro-businesses in Clauses 33 and 34. I understand the logic behind these amendments and recognise that use of a specific cross-reference might at first sight provide for a certain legislative coherence. However, I do not believe that the amendment is necessary for the provisions in this part of the Bill to achieve their intended effect. The Government’s view is that, in the specific context of the content of the annual reports required under the business impact target provisions in Clauses 23 and 24, and the expertise of the independent verification body that will assess estimates of economic impact under the target provisions under Clause 25, the term “smaller scale business” is sufficiently clear.
The context for the use of the term “smaller scale business” here is very different from the purposes of the definitions which have been provided in Clauses 33 and 34. Those later definitions are being created to facilitate exemptions from regulations. To achieve that, the definitions need to be precise and workable at a detailed technical level. In contrast in this clause, we believe that the term “smaller scale businesses” is sufficiently clear for its own purposes.
The Government’s view is that in practice the term “smaller scale business” will be interpreted in accordance with the EU definition, which we discussed last week, and is therefore consistent also with the definitions provided for in Clauses 33 and 34. The EU SME definition is, of course, widely used on an administrative basis in the UK for a variety of purposes, including statistics, grants, and other policy contexts.
Moreover, the use of a broader descriptive term, rather than something more technical, clearly has advantages in terms of enabling a wide range of relevant issues to be included in the report without raising questions as to whether such issues are within the powers provided for in this clause. This ensures that the reporting can operate flexibly. Similar arguments apply in relation to the expertise of the independent verification body, which we will no doubt come on to discuss.
In addition, there are some legal issues with the operation of this amendment. The definitions in Clauses 33 and 34 are not complete and will require secondary regulations to make them function. While the headcount is defined on the face of the Bill, there are important financial definition criteria which have to be established under delegated powers. Such regulations will not be in place by the time that the target clauses are commenced and in operation—a technical point but I thought one worth making.
Amendment 33S would require the independent verification body to have expertise in the assessment of the impacts of regulation on small and medium-sized businesses, but not larger businesses. That is a narrowing of the current requirement set out in subsection (6) of Clause 25, which requires the independent verification body to have relevant expertise in assessing the economic impact of new regulation on all businesses, including smaller ones. The Government consider it vital that the verification body should have the expertise required appropriately to assess the economic impact of regulation across the full range of business. That is clearly particularly important for regulations that concern activities typically undertaken by large businesses—for example, large-scale manufacturing, or businesses with certain types of pension scheme. The findings of our current version of the independent verification body—the RPC—bring a great deal of light to regulatory proposals and often cause us to pause and ask whether something is good or bad regulation. We are trying to bring that good system on to the statute book in a way that attracts top-quality people to this body. We think that the wording in the Bill is right.
I thank the noble Lord for his probing amendments. There are good practical reasons why we have drafted the clauses in the way that we have. I hope that he has found my responses helpful, including my clarification on the amendment relating to Parliament, and will be willing to withdraw his amendment.
Lord Mendelsohn
I thank the Minister and am very grateful for her response. While small businesses will be the disproportionate beneficiaries, and although some of these issues affect companies of different sizes, there is the potential for small businesses to be squeezed out in certain circumstances. I accept that the drafting is elegant, and certainly has a lot more legal validity than our amendments probably have. However, it is important to consider how the measure will operate in practice. I cannot help feeling that we may return to these issues time and time again as the relevant balance is difficult to achieve.
We are very encouraged by the Minister’s response on Amendment 33N. We will certainly take careful note of what she said and consider how the measure will operate. We are very grateful to her for her constructive response but will want to consider whether we are sufficiently reassured that the measure will disproportionately benefit small businesses—the Bill is about disproportionate benefit to small businesses—or whether we have lingering concerns that small businesses will again lose out—not completely, they will be beneficiaries—to other companies. In those circumstances, and given the Minister’s very helpful comments, I beg leave to withdraw the amendment.
Baroness Thornton
“( ) The following regulators are excluded from the provisions outlined in this section—
(a) the Equality and Human Rights Commission;(b) relevant regulators in—(i) the Department of Health;(ii) the Department for Transport;(iii) the Department for Work and Pensions;(iv) the Department for Business, Innovation and Skills;(v) the Department for Culture, Media and Sport;(vi) the Department for Communities and Local Government.”
Baroness Thornton (Lab)
My Lords, it is a great pleasure to be in the Grand Committee today to support my noble friends and to speak to the three amendments in this group.
Amendment 33H would exclude the EHRC and relevant regulators in departments. In the discussions on the Deregulation Bill, we expressed concern about the regulatory provisions in this Bill. Clause 18 sets out the process for specifying regulatory functions and bringing them within the reviewer’s remit. It provides that the Secretary of State may, by making regulations, specify regulatory functions to which the duty set out in Clause 17, “Review of regulators’ complaints and appeals procedures”, applies. Amendment 33J would limit it to regulators that the Deregulation Act requires to have regard to growth. In Clause 21, the Secretary of State has a duty to publish the business impact target. Amendment 33M would ensure that, at the same time, the Secretary of State must publish a list of regulatory bodies that the Deregulation Act requires to have regard to growth.
We are asking the Government to assure us that there has been a legislative read-across. The Minister will be aware that the status of the Equality and Human Rights Commission was discussed in the course of the Deregulation Bill, and we expect to return to that on Report. As noble Lords will know, the EHRC enjoys an “A” status as a national human rights institution. I am dealing with these amendments because I am the shadow equalities spokesperson—I dealt with this issue all the way through the consideration of the Deregulation Bill and hope to continue to do so. We need to be clear that it is not appropriate to apply these regulations to the EHRC. We need to be assured that the Government recognise this and have taken steps to ensure that it does not happen. We sought to put it in the Deregulation Bill. I am sure that the Minister will be completely up to speed with this and that she and her colleagues will have discussed how best to deal with it as regards this Bill.
This is important because “A” status is awarded by the United Nations International Coordinating Committee of National Human Rights Institutions, which reviews the EHRC’s compliance with the United Nations’ Paris principles, which require the EHRC to be an independent body. We think that the Government have decided to exclude the commission from the list of non-economic regulators subject to the growth duty provisions in the Deregulation Bill, but, as I say, I seek further clarity on that. That is important because we have to avoid the reality, or the perception, of interfering with the commission’s ability to perform its regulatory functions independently. If that was jeopardised, it would, in turn, jeopardise its “A” status. As it is our human rights body, having an “A” status is of great importance to the UK’s international standing and reputation. It enables the UK to influence the protection of fundamental rights globally and it gives us a voice at the Human Rights Council. Any downgrading of the commission’s status would have a significant negative impact on the UK’s global influence.
Have the Government decided to exclude the EHRC from the list of regulators covered by Clauses 17 to 19? That question is at the heart of these amendments and that is the clarification we seek. I beg to move.
Viscount Eccles (Con)
My Lords, there is one amendment to Clause 21 in this group. If the Committee will allow me, I will raise a rather general point about Clause 21. This impact report is a very big exercise, which is made quite complicated because it is selective; that is to say, it is supposed to concentrate only on regulations that have been introduced and withdrawn during the period. I am not looking for an answer on the general approach today, but perhaps my noble friend will be kind enough to write to the Committee about this clause.
This business impact target will be very expensive to carry out. I would particularly like to know how many people, over what period of time, will be engaged upon writing this annual report. Quite apart from that, its conclusions will be disputed, which will give rise to a lot more toing and froing. I wonder what will be achieved and what will be done as a result of this report that would not be done on a case-by-case basis anyway. That is to say, circumstances would arise as regards a particular regulation or the withdrawal of it, which would cause people to think that something must be done. Indeed, we have been discussing quite a complicated and comprehensive system for being able to raise such problems and deal with them. Therefore, before the next stage I would be most grateful to understand in more detail than I do what the real benefit is of Clause 21.
Lord Deben
My Lords, having been critical of what I am afraid I referred to as persiflage in an earlier amendment, I draw my noble friend’s attention to the importance of this set of amendments. They are not here, as I understand it, to lay extra burdens on anybody or to make generalised statements about good will and family life. In fact, they are designed very purposely to ask the Government to be very clear about this issue.
I say to my noble friend that it is important for the Government to be very clear about this position, because there are a number of other areas in which the Government have not been clear and where we are now in some difficulty. Of course I would not be out of order were I to speak to the question of caste at any length, but there is no doubt that there are a series of issues where lack of clarity has led people to be concerned as to where the Government stand. I am not concerned about that, because I am quite sure that the Government stand in the right place—you could not expect me to sit on this side of the Room if I did not think that. However, there are those who are not entirely sure, and this would be a good opportunity to give them the assurance that they need, not only for the high-minded view that the noble Baroness, Lady Thornton, put forward and which she is perfectly right to raise, on the standing within the international community, but also for a rather boring local reason. That is that one of the problems of red tape, as I said, is the perception of it, and one of the other problems is the misunderstanding, and not knowing where it is.
I do not like the term “deregulation” much, as it presupposes that the answer in all questions is not to have regulation, while in my view we have to try to look for good regulation. That is what Governments of all parties mean, when they are sensible, whatever they say outside. One of the ways we can have good regulation is, first of all, to have clear regulation—people know where they are. That is why I am so keen on not having too much of it, not because I do not want regulation, but simply because the more you have of it, the less people are clear and the less they know what they should be doing. In this particular case, clarity seems crucially important.
Although this is clearly a probing amendment that is meant to try to make sure that the Government say what they think and, if it is necessary to put that in the Bill or change one of the clauses in such a way as to make that explanation certain, I am sure that the Government will find a way to do that. I wanted to emphasise that this seems to be a totally different kind of discussion from the one that I rather light-heartedly drew attention to earlier on—I apologise to the noble Lord, Lord Stevenson, if he felt that I had been unfair about what he said. However, on this occasion it is important that there should be absolute clarity.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Baroness for her amendments relating to the scope of the champion policy and the links to the growth duty and indeed, for making an appearance in the Committee to talk about the EHRC in particular.
If the noble Baroness will bear with me, I shall take the amendments in turn. Perhaps I should start by commenting on the question from my noble friend Lord Eccles about the purpose of the business impact target. Clause 21, to which he refers, establishes a framework for transparent regulatory reporting. This framework builds on, it is fair to say, the world-leading success of the Government’s one-in, one-out and one-in, two-out approaches to regulatory management, which have saved business a lot of money—£2.2 billion a year.
The Government have significantly improved the regulatory environment for business, but the job is not done. Many businesses in this country, as we have heard in the Committee, believe that complying with regulations is still the single greatest challenge to running their business. There remains an ongoing need for future Governments to ensure that the regulatory system is as streamlined and efficient as possible and, as my noble friend Lord Deben said, really clear.
Clause 21 is designed to achieve that objective. It places a duty on the Secretary of State to publish and lay before Parliament a business impact target within 12 months of the commencement of a new Parliament. The setting of deregulatory targets is already well established. The previous Administration set a reduction target for administrative burdens; this Government have pioneered other systems. Examples demonstrate the value of such an approach and the Bill’s proposals are in a sense a natural progression of the established practice, which is important.
Amendments 33H and 33J would, in different ways, restrict the list of regulators to which the small business appeals champion provisions can apply. The Bill already provides that the list of regulators covered by appeals champions should be set out in regulations. As I have already said, these will be subject to an affirmative resolution. We have already issued a consultation document—I repeat that for the benefit of the noble Baroness, Lady Thornton—and that consultation paper is on the government website. The consultation ended last Friday, but we are happy, of course, to take account of representations received in debates in the House alongside the consultation. We will publish a summary of the consultation and the Government’s response in due course. Our response will become the basis of the regulations that we lay before Parliament and which will bring regulators into scope.
The one area where the clauses mention specific regulators is in respect of the financial services regulators. That is because these regulators already have an extensive statutory framework for engaging with business stakeholders and we feel that creating a champion would risk creating confusion and duplication.
On Amendment 33H, if one accepts the general thrust of this policy on the need for someone to make sure that regulators’ appeals processes are business friendly, why would one not want it to apply, for example, to care homes that felt unfairly treated and wanted to challenge rulings by the Care Quality Commission? What about businesses challenging the Insolvency Service?
Moreover, the amendment also proposes to exclude the Equality and Human Rights Commission. I can reassure the noble Baroness that it is already the Government’s position that the EHRC should not be in scope. Consequently, it was not included in the consultation to which I referred or in the list of regulators to be covered. The Government recognise the possibility that applying the growth duty to the EHRC might have inadvertently triggered a review of the “A” status of the EHRC. They have therefore decided not to do so. The Business Secretary has written to the EHRC to confirm this decision. We have no desire to threaten the status of the EHRC, and will take all necessary action to ensure that we do not. I hope that that clarity also reassures my noble friend Lord Deben.
Nevertheless, we do not think it would be appropriate to start excluding certain regulators within the Bill. The Bill, as drafted, rightly leaves this for secondary legislation. This is because regulators may change over time and it is important that there is flexibility to amend the list accordingly.
Lord Deben
My noble friend said earlier on that this would not apply to the financial regulators. Some of us think that this Government have the most amazing ability to think in two different ways: they deregulate on everything else but overregulate in the financial areas. I declare an interest, which is in my entry in the register of interests. I do not quite understand why, if these things are so good for all the other areas, they are no good in the financial service area. My noble friend said that she thought it might be duplicative, but I cannot think of any rights that people have under the present regulations which parallel this. There are small businesses involved—again, I declare my interest—so I do not quite understand her answer to that, although I must thank her very much for her clear answer on the equalities organisation.
Baroness Neville-Rolfe
I thank my noble friend for his intervention because it gives me the opportunity to explain that Clause 20 introduces equivalent provisions for financial services. It is because of the plethora of existing legislation on financial services that we have to do it in a slightly different way in that area. I am sure that we will come on to scrutinise that clause in due course. Even for the financial regulators, I understand that the exclusion is not in the Bill. We are simply trying to achieve exactly the same effect but have had to do it in a different way.
Baroness Thornton
Rereading this, I wonder whether I could ask the Minister a question about Clause 21(4), which says that:
“The Secretary of State must lay each thing published”.
I was responsible for taking a Bill through the House which used “thing” in it. We spent a great deal of time defining what “thing” meant. That was in the medical world and we came to the conclusion that, in that context, “thing” was the word that had to be used. However, I am not sure whether “thing” needs to be used here when we are talking about publications. The Minister may not need to answer what I ask now, but perhaps she would like to think about it.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness for bringing her experience of other areas, with a certain levity, while raising a good point. I will certainly take it away and look into why the drafting was done as it was by parliamentary counsel.
Amendment 33J relates to the duty on regulators to have regard to growth. That duty will of course be created by the Deregulation Bill, which we have also been considering in this House, and which includes similar provisions to this Bill giving the Secretary of State power to make regulations establishing which regulators should be covered by it. Like the small business champions, the growth duty is part of the Government’s better enforcement programme to improve regulatory enforcement. The champion will seek to improve scrutiny and governance on the appeals and complaints processes of a regulator and has no vires over individual regulatory decisions. The growth duty seeks to ensure that regulators have regard to growth when they take regulatory action.
The two policies will apply to many of the same regulators, but there will be a few differences at the margins. I agree that there may be regulators for which the growth duty is not appropriate, but I do not believe that this would automatically mean that a champion would not be of benefit, for all the reasons we have been discussing. For instance, the Pensions Regulator will not be subject to the growth duty because it already has an equivalent duty under its own statute. But we see no reason why it should not have an appeals champion, and have proposed as much in our recent consultation paper.
Baroness Thornton
My Lords, I apologise for intervening, but the noble Baroness will be aware that, if this is done under statutory instruments, there is no power to amend them, which is why it is very important to get things right in Bills.
Baroness Neville-Rolfe
We are serious about the terms of our consultation. I have explained why I think that we are right to do it the way that we are. The list is available, and I will ensure that the noble Baroness has a copy of it, but I think that the material point for her is the undertaking I have already made standing here in Parliament about the EHRC, where I think that we are in agreement.
On Amendment 33M, the business impact target and the growth target are two very different policies. The growth duty applies to regulators and the target to the Government. The target relates to regulatory legislation, whereas the growth duty is about influencing the behaviour of regulators on the ground. Having a report on the coverage of one policy included in a publication about the details of another risks confusion rather than adding to transparency. The growth duty is covered in the Deregulation Bill, and we should not confuse matters by adding it to this Bill as well. We already have full transparency about the list of regulatory bodies to which the growth duty will apply. The Deregulation Bill provides for that list to be prescribed in regulations, which are subject to affirmative resolution. Anyone wanting to understand the coverage can and will look at that list. Duplicating it as part of an unrelated publication does not seem to be the right thing to do.
I have received important advice on the subject of the meaning of “thing” in the Bill. It refers to several different things—thus the use of the phrase—including the business impact target, the interim target, the methodology and the scope of the target. I suppose that that was the best wording that they could come up with for that purpose.
I hope that I have answered the noble Lord’s questions and the wider questions raised by my noble friend Lord Eccles. If I have not, I am sure that we could discuss those points further. We do not believe that the amendments are necessary. I hope that some reassurance will have been taken from my response and that, in the circumstances, the noble Baroness will agree to withdraw the amendment.
Baroness Thornton
I thank the Minister for that comprehensive answer. I thank the noble Lord, Lord Deben, for referring to me as high minded and for his support. I do not take that as any reflection on my noble friends and their efforts in this regard. I am very grateful to the Minister for that reassurance. I know that the noble Baroness, Lady O’Neill, has received her letter and is very grateful for it. It is not that we will stop keeping a weather eye on these issues, but this one looks like it will be okay.
My noble friends will probably be returning to Amendment 33M, because there are issues about having the Deregulation Bill and this Bill, with business impact targets and the growth targets. I think that further clarification will be sought, but that is not my job right now, so I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, to be clear, this is a probing amendment, which could be called the “lowest minded” of my amendments today, because I simply cannot make sense of Clause 22. I will be grateful for any guidance that the Minister can give.
First, Clause 22 defines statutory, regulatory and qualifying regulatory provisions. I am surprised that these need to be defined again in this Bill; in no sense do I accuse the Government of being otiose as regards wanting to repeat legislation, but perhaps the Minister can explain why that is necessary. These seem to be bog-standard—I am sorry; I am sure that that is not a parliamentary term—or very obviously standard phrases that are used commonly within legislative processes and they should not need redefining. If there is a story behind that, I would like to know it. The only point that comes out is that the issues that seem to be defined are that the Secretary of State has discretion to make whatever regulation he or she may wish to at an appropriate time. That seems very close to a Henry VIII power and I would like clarification that that is not the case. I beg to move.
Viscount Eccles
My Lords, what the noble Lord, Lord Stevenson, said reinforces my view that the question of impact has not been carefully thought through. Perhaps the most difficult thing in the previous clause is the question of the methodology. You could have any number of economics professors lined up across the equator and they would all completely disagree about the methodology for an economic impact assessment on this subject. If in addition you have a way of cherry-picking by regulation the regulators that you wish to be included in the impact statement, the thing becomes quite byzantine.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for tabling this probing amendment. To answer his question I will explain the purpose of the clause. The Government have significantly improved the regulatory environment for business, as I have already explained. There has also been some encouraging progress at an EU level. This December’s EU Competitiveness Council conclusions on better regulation were extremely positive, calling for the first time for EU burden reduction targets. Therefore, the issue now goes wider than the UK. Building on those achievements, the Government are legislating to lay the framework for transparent regulatory reporting.
On Amendment 33P, I acknowledge that the framing of the business impact target sets a wide scope for future Administrations to determine for themselves what will count for the purposes of the target; that is, what is a “qualifying regulatory provision”. We consider it prudent to allow sufficient flexibility for future Administrations to determine the precise scope of the target, depending on their priorities and circumstances. We believe that this approach should attract support on all sides, not least at this stage of the Parliament.
Potentially a wide range of regulations could be in scope, meaning that some adjustment may be necessary to avoid perverse outcomes or other adverse impacts. For example, it may not be sensible to include certain measures—such as those related to national security or civil emergencies—within the target, because they could not be anticipated at the start of, say, the five-year parliamentary term. In addition, a future Government may wish to exclude measures that have negligible impacts on business, such as simple consolidations of existing regulations. Including all such measures in the target could be disproportionate and would represent a poor use of taxpayers’ resources without delivering obvious benefits to business.
The fundamental point is that the choices that a future Administration make regarding the scope of a business impact target will be transparent and will be for the Government of the day to defend. It is not appropriate for this Government or for Parliament unduly to restrict that choice. I hope that that is not byzantine but sensible and that on reflection noble Lords will feel that it is a reasonable rationale.
My noble friend raised the important issue of methodology and I agree with him that you can have as many methods as you have economics professors. However, it is an important principle that we need transparency around methodology and, of course, methodology is an important component of the good work that a body such as the RPC does. It is entirely appropriate that the Government of the day are able to look at the methodology options in a transparent way, to make appropriate decisions and to put them before Parliament. I hope that the noble Lord will be willing to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I prefaced what I said by saying that it was a very low-minded question. I hoped that I would get an answer to my concern, which was that I did not understand why we had to regulate in the Bill for stuff that I thought was taken as read more generally. Perhaps that was too detailed or too low a question to be answered on the Floor of the House. Perhaps the Minister might write to me about it. I do not think that it is a major issue.
The major issue is the one raised by the noble Viscount, Lord Eccles, which is increasing my sense of concern—“panic” might be too strong a word—arising from some of the ways in which Clause 21, in particular, is described. It is not just the slightly odd use of the word “things”. This is a complicated set of calculations with a new quango being set up to look at it, with all the other things that go with that. I think that we will come back to it, as I have an amendment later that deals with the way in which this might be amended. At this stage, I will certainly withdraw the amendment, although I think that we will need to come back to some of the points raised.
Lord Stevenson of Balmacara
My Lords, in speaking to Amendment 33Q and the others in the group, I think that this is probably again at the low end of the scale. I am again grasping for some sort of assurance from the Minister about where most of this bites. This set of amendments is about the relationship between the work that is going to be undertaken in relation to business impact activity and voluntary or community bodies. The question also arises: what are business activities? In the good old days, voluntary or community bodies and charities did not do business. That was fairly straightforward. They were there for social and other provisions.
However, as we get to a more complex and richer—and I admit in some ways better—set of arrangements under which the work of the state is delivered, whether through public bodies directly or through those commissioned to do it, then obviously we have a much more complicated set of bodies and organisations involved. As is listed in the Bill, they range from charities through to community interest companies, trade unions, voluntary bodies and various other groups. They are all involved in delivering public value of some kind, but not all of them are going to be classified as business activities. The choice of the definition, which takes a rather theoretical point of view that a body is not undertaking business activity if it is in some way controlled by a public body, seems to me very tight.
The purpose of this group of amendments is to try to flesh this out and to get the Minister in her response to explain why she has approached the matter in this way, to understand the limitations on that and to give us a better understanding of how small businesses can operate within this environment. I am sure that all Members of the Committee and the wider community are aware of charities and others who have taken corporate forms that would make them very similar to small businesses. They may, indeed, be small businesses in terms of the definition. They may not be profit seeking, but that in itself is not now a consideration. They may not be profit distributing, but they may still have activities. While it might be comfortable to think of trade unions as being truly business activities—because they probably are a contribution to the national business activity—it does not necessarily imply that they are easy to understand in the same scope as, say, a small business trying to undertake work regulated in the energy area that is suffering from decisions that are going to cause it difficulty in trying to formulate a business plan to operate its activities and make a profit, which is what it will be there to do. So I am confused. I would be grateful, when the Minister responds to these amendments, if she could set out in a bit more detail where this bites.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Stevenson, for his questions and for allowing us to debate these important provisions. I will start by answering the question about coverage and refer him to Clause 27(2)(b), where he will see that businesses activities are defined as including activities,
“by a voluntary or community body”.
The definition is broad and includes the voluntary sector. I can understand why that is.
Lord Stevenson of Balmacara
That is, of course, true and I have read that. Clause 27(2) specifies that, but Clause 27(3) says that they do not count as business activities if they are controlled by a public body, or are,
“acting on behalf of a public authority in carrying out the activities”.
We are back on a rather circuitous argument.
Baroness Neville-Rolfe
The noble Lord has anticipated me. Voluntary shops presumably would be covered, but I will come on to talk about why there is a carve-out for public services, which is a slightly different point; I think that it is in the noble Lord’s last amendment.
Perhaps I should also, before I answer on individual amendments, talk a little about the verification body. It could of course be the RPC, which already exists, but the Bill allows flexibility for the Government of the day to decide on the precise body that they want, the people who are on that committee and the mechanics of how they are remunerated. At the moment, they get paid a daily rate, which seems fine to me. The Secretary of State will be under a duty to appoint a person, people or a body to perform the verification function. The body or persons must, in the view of the Secretary of State, be independent of UK Ministers and have expertise in economic and cost-benefit appraisal and the impact of regulation on business—including, significantly and importantly, smaller businesses. They will obviously also be subject to the usual public appointments rules.
Returning to the amendments, I think that there is a strong consensus on the importance of minimising regulatory burdens on voluntary and community bodies. Those bodies range from Cancer Research UK at the upper end to local community football clubs or parent-teacher associations. They are affected by many of the regulatory burdens affecting businesses, including reporting requirements. That is why the economic impact of regulations affecting the activity of those bodies is explicitly included in the scope of our target and it is why they are included in other regulatory reform proposals in the Bill. Moreover, as noble Lords will be aware, the Government have made a number of changes that have made it easier to set up and run charities and social enterprises. For example, we have provided greater legal clarity about volunteer liability and supported proposals to make criminal record checks simpler and less onerous.
However, the Government are not convinced of the need for the two amendments tabled today. The vast majority of voluntary and community bodies are small and will therefore already be covered by the existing reporting requirement set out in Clause 23(4). As well as being fewer in number, larger charities can call on greater resources and are able to mitigate the impact of regulatory burdens more easily than smaller charities. The amendment would therefore have the unintended consequence of weakening the focus of the reporting requirement on mitigating disproportionate burdens and undermine its intended impact. It also means that the benefits of the amendment in extending the reporting requirement to community and voluntary bodies in general would be limited.
Amendments 33U and 33N relate to the expertise of the independent verification body. I understand that there is a desire to deliver a clear specification of expertise—that is, regarding small business, community and voluntary bodies, as well as businesses in general. However, the Government’s view is that the clause already provides sufficiently for that outcome. Clause 25(6) requires that the independent verification body must have expertise in assessing the likely impact of regulation on business activities, including activities carried on by smaller-scale businesses or voluntary or community bodies. The Government consider it most important that the verification body has substantive expertise in assessing the economic impact of regulation on voluntary and community bodies, not just on commercial business. That is reflected in the membership of the existing Regulatory Policy Committee. However, securing that outcome does not require a change to the Bill.
Finally, I turn to Amendment 33X and the question asked by the noble Lord, Lord Stevenson, about the carve-out for public sector bodies. The Government’s primary focus in the Bill is reducing regulatory burdens on business and the third sector. Subsection (3) therefore excludes from the definition of qualifying activities those carried out by public sector bodies or that are related specifically to the delivering of a public service. Public sector regulatory burdens are of course important, but they are clearly beyond the scope of a business impact target. Including them within the target system would lose the clarity of focus on business—small business in particular—so essential to the growth agenda.
This carve-out also avoids unintentionally capturing regulations concerning requirements of public sector delivery—for example, schools, prisons and NHS services. We feel that it would be perverse to capture within the target the impacts associated with regulations relating purely to the provision of public services in that way. Doing so would lead to significant changes in reported impacts arising purely from changes in public sector delivery arrangements. For example, where service delivery was transferred from the public to the private sector, or the other way round, the effect would be an increase/decrease in the reported burden on business.
I hope that that explains the rationale for the provisions and why it is important that they are retained. I hope that the noble Lord will have found that reassuring and will be willing to withdraw the amendment.
Lord Stevenson of Balmacara
Not quite. I do not think that it is reassuring. I am getting more and more like the noble Viscount, Lord Eccles, as we go through the day. Is the Minister really saying that every PTA in the country will have to be in scope to this quango? I may be thought bonkers, but this is getting beyond a joke. We are talking about a Government so dedicated to deregulation that they will require my Little Missenden parish council school to get together in a way to ensure that it has proper regulatory functions in place and understands the process of regulatory procedures to the point at which it can appeal and go to see a small business champion, who will, of course, be far too busy dealing with big business problems. I understand, I think, that the regulatory structures need to be reformed a little, but one only has to read pages 26 and 27 to become completely hysterical about what we are saying. We have talked about things already, but the wording here does not strike one as being a wonderfully clear and concise expression of the new regulatory burden.
Baroness Neville-Rolfe
We are building on existing good practice, which I have explained. If small bodies such as the ones that the noble Lord described are affected by a new regulation, it seems right that the impact should be considered in the assessment by the independent body—the sort of compliance assessments that we rely on to look at the impact of regulation. It could, of course, be de minimis. That would be perfectly possible in the circumstances described by the noble Lord, but to exclude them does not seem to be right. This is in relation to the impact target; we are particularly focused on that at the moment.
Lord Stevenson of Balmacara
I appreciate what the Minister is saying, but I do not see a de minimis provision here. Perhaps the noble Baroness can take that away to look at. It is similar to what the noble Viscount, Lord Eccles, was saying. It looks like a many-headed Hydra and I do not think that that is what was meant. I think that it is meant to be a much simpler cut-through to try to find a balance between ensuring that those who are adversely affected by regulatory practice have a mechanism recognising that they are so affected and having a way of resolving it without suddenly putting the aegis of the country on a war-time footing alert that they are going to be attacked by the bureaucrats who will be coming to get them. I extend to make my point.
Baroness Neville-Rolfe
My Lords, given the concern that has been raised and given that, as the noble Lord, Lord Stevenson, says, our intentions are certainly to cut red tape rather than the reverse, I shall be happy to discuss this before Report if that would be helpful.
Viscount Eccles
My Lords, I have found myself in support of the noble Lord, Lord Stevenson, on other occasions. It is quite a new and strange experience to find him in some support of me. My conclusion is that if Clauses 21 to 27 were quietly to disappear, the world would be a better place.
Lord Curry of Kirkharle (CB)
My Lords, I think that my interests in this are understood by most in the Room, in that I chair the Better Regulation Executive. I simply want to help by providing a little clarity here. What we are in fact trying to capture in this regulation—I say “we”, because the Better Regulation Executive has had some input into its drafting—is to ensure that what works very well at the moment is set in place in statute for the future and that the impact of regulations on the business community is understood. While this looks complex on paper as drafted, in practice it is largely what is happening now. It is not creating some bureaucratic monster that is having difficulty interrogating every small community business. However, it is important that the impact of legislation as proposed by departments on small and medium-sized businesses is understood. The expertise within the body is essential to this effect, but the quality of the impact assessment is the role of the statutory body. The business department must carry out the impact assessment and, in doing so, take into account the impact of legislation on SMEs. The independent body must then verify whether the impact assessment has been as robust as it should be.
Lord Stevenson of Balmacara
My Lords, that is helpful and a conversation around some of these issues might be revealing. While what the noble Lord, Lord Curry, has said is probably a statement of where we are, I say to him only that we are forgetting that a new and proper quango has to be established. That is not the current situation. A number of reviews, reports et cetera are also built into the legislation. Again, those may be the status quo, but they are not currently given statutory provision. It is about balancing the additional statutory provision against the benefits that may or may not flow and, in a third dimension, against the extent to which this now appears to apply to people who probably carried on their daily lives without any previous understanding that they were in danger of being taken on by the people from Whitehall, who know best. However, we have said enough on this and I beg leave to withdraw my amendment.
Lord Mendelsohn
Lord Mendelsohn
My Lords, in moving Amendment 33BC, I will speak also to Amendments 33BD and 33 BG. The amendments together would create a total of five definitions in UK law based on the measure of employee headcount. We are trying to introduce the definition of a micro-business, meaning a business with one to nine employees, a small business, meaning a business with 10 to 49 employees, a medium-sized business, meaning a business with 50 to 249 employees, a large business, meaning a business with a headcount of 250 to 1,000, and a super corporate, meaning those with in excess of 1,000 employees.
We very much support the thrust of the clause, and it is excellent to have a proper definition to work with. Our amendment seeks to establish a richer and, in our view, better way to define the different type of businesses. The basic argument for it is pretty compelling. We understand the need to make regulations and legislation as effective an operation as possible. Defining in law what is meant by the terms “small business” and “micro business” will make it possible for future Governments of any colour to exempt enterprises of that nature from new regulatory obligations. In addition, it can help to target particular elements of policy and support to the required businesses.
The definitions are based on the European Commission’s recommendation, which defines micro, small and medium-sized businesses by employees, turnover and balance sheet total—definitions which are already widely in use on an administrative basis. There are arguments to be had about the relative merits of headcount versus turnover and how to blend those numbers. It is widely acknowledged that it will not be straightforward to embrace everything cleanly with those definitions. It ends up as a complex Venn diagram landscape of connected definitions.
Nevertheless, there is a great attraction to making it as simple but sophisticated as possible. We believe that this five-group classification achieves that. It is of course accepted that the definitions are always imperfect, and that turnover is a factor in the size of a business. Nevertheless, there are good reasons to take a broader view than the Bill currently does.
The great merit of the Bill is its defined and single purpose: to focus on small businesses. Our challenge is that it does not go far enough, but we accept—to paraphrase—that a journey of a thousand miles starts with a single step. We believe that we should not stop to congratulate ourselves on starting the journey but remain focused on the future.
Here, we have a chance to do something with our amendment. Other places which have for a long time had very focused small business policy and even agencies are today looking at how they use definitions better to deal with the problems that we are debating now. The Bill represents a chance for us to address matters of the future.
Governments and policymakers in general have always had difficulty in improving the efficiency of markets in which small businesses operate. It is easy to use measures to deal with monopolies, oligopolies and so on, but in the markets in which small businesses operate it is very different. The Government’s role in relation to small businesses is naturally to consider how to establish political and economic stability, how government spending can trigger markets, setting interest rates in different places, forms of regulation, but also—and decisively—the role of market catalyst. Among the measures and levers that the Government have, it is important to recognise the diverse needs, aspirations and potential of businesses.
Small businesses are a key source of jobs in any economy. There are those start-ups which will have the ambition to become global players and will recruit in great numbers, but most small companies are small and will stay that way. Tax credits for hiring new workers are of great importance to a company on the threshold of a decision on whether to increase by one more employee or a small number. For aggressive start-ups with great confidence and belief in the future, the high-growth culture will make them more concerned about visas, immigration and the condition of education.
It is not just about growth. There are also great distinctions between companies relating to their ages and their relative requirements based on how long they have been in business and the challenges that they have had. Providing policy incentives, encouragement and exhortation can be done better if the type of business can be defined better. That is even now a strong debate in places such as the United States, with the Small Business Administration, and in other places where they have had long-standing agencies to target small businesses. Today, they are looking at further definitions to ensure that their measures can be as targeted and effective as possible.
In our view, this welcome area of the Bill would be strongly enhanced by richer and fuller definition. Even if the relevant measures are not introduced at this stage, there is no doubt that such definitions would help us to design much better policy in the future. In this context, I would be grateful if the Minister could reassure us that the Government have considered the Bill’s drafting not just in terms of 2015 but with regard to the future, and can assure us that the policy measures can be appropriately constructed to target different subsections of the small business community. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for taking us back to the question of definitions in the Bill, which we have already discussed, and for setting out in a wide-ranging speech some of the logic behind his position. I shall read that with great interest when I have a little bit more time to reflect. I would like to go through the amendments that the noble Lord has tabled, which I think are to some extent probing in nature, and explain why we have done things the way that we have.
First, I turn to Amendments 33BC and 33BD. The Government are establishing definitions which will be broadly consistent with the European Commission’s, as I have said before. These definitions are widely used in the UK, and so by following the approach taken by the Commission, we will keep life simple for businesses. We are establishing statutory definitions of small and micro-businesses for a specific purpose, which is to help mitigate disproportionate burdens on smaller businesses, including community and voluntary bodies, by facilitating exemptions or other more proportionate treatment in new secondary legislation. We need to define small and micro-businesses clearly in order to exempt them from regulations where appropriate.
This policy intention explains why these definitions are different from those we have heard in previous provisions of this Bill. These definitions need to be precise enough for businesses to know whether they are covered by certain regulations or not. The rationale for the definitions is clear. It costs a small business 10 times more per employee, on average, to comply with regulations than it costs a large business—that is an interesting statistic to add to the noble Lord’s list. In contrast, medium-sized and larger businesses do not suffer from the same level of disproportionate burdens. For instance, those businesses are more likely to have access to specialist regulatory expertise. It would surely, therefore, be unfair to exempt larger businesses from certain regulations without also exempting smaller businesses. There is, therefore, no need to include larger businesses in these definitions.
The Government are committed to reducing regulatory burdens on all businesses, including medium-sized and large businesses, but the specific purpose of these proposals is to mitigate the disproportionate burdens that are most acute. I hope that the Committee can agree that, based on our policy intention, extending the definitions to include medium-sized and larger businesses is not required, and, indeed, could undermine the strong focus on mitigating burdens where they are most severe.
Turning to the detail of the definitions, I welcome the noble Lord’s support for the use of headcount. However, as he said, financial criteria can be an important adjunct to staff headcount in order to reflect the true scale of a business, and therefore the extent to which it suffers from burdens. If a business has the resources of larger businesses, those resources will mean that it is unlikely to suffer from the same disproportionate burdens, even if its headcount is relatively low. For example, such a business would be able to buy in specialist expertise to assist with compliance. For these reasons, in my view it would not be right for them to be treated as a small or micro-business for the purposes of this definition.
As regards Amendment 33BG, which I regard as probing as the noble Lord did not explore it, this Government believe that it is appropriate for the small and micro-business regulations to be subject to the negative procedure. The regulations will make detailed, highly technical provisions, which may require periodic minor changes. For example, the financial thresholds could need to be updated in line with EU definitions. I welcome the fact that the Delegated Powers and Regulatory Reform Committee accepted the Government’s judgment on this issue. I know that the House has great confidence in the views of that committee.
I am grateful for the debate on these provisions, and for the support that we have heard for the Government’s intentions in relation to small and micro-businesses. I hope that the noble Lord will withdraw his amendment.
Lord Cope of Berkeley (Con)
My Lords, I want to reinforce some of what my noble friend the Minister has just said with regard to these definitions and whether they should include any financial criteria as well as the headcount. It is very important that they do, and I was disappointed to see that this amendment left out the financial provisions. If the Committee looked through the list of businesses that we were looking at the other day, while considering the amendment of my noble friend Lord Flight, your Lordships would see that some very large businesses with huge turnovers—or, for that matter, huge balance sheet totals—nevertheless have very few people working for them. They have very few employees and are not small businesses by any normal criteria. It is important to include financial criteria within these definitions.
Lord Mendelsohn
I thank the Minister for her reply. The noble Lord, Lord Cope, made an important point about the size of businesses and the financial criteria when evaluating the different areas to look at. One has to take note of the huge imbalance that there is in the volume of businesses with very small numbers of employees and characteristics. You could distort that by the introduction of certain financial measures but, as I said, it is not that we believe that there is an absence of financial figures. If you are looking at where you can target policy, that is so but we want to illustrate a point within this—that there is a common interest in the promotion of small businesses and in trying to create measures to do that.
Considering the deregulatory issues about burdens and other sorts of things is one side of it—my noble friend Lord Stevenson outlined some of our concerns in relation to them—but this Bill is not just about removing burdens of regulation. It has to be about being able to promote small businesses, and people who are engaged in the activity of developing them, by easing their burdens and making their commercial activities much stronger and more successful. In that context, when we talk about regulatory burdens, every single poll of small businesses here, in keeping with those in other places, will demonstrate strongly that those issues are dwarfed in significance for them by the problems of payments—access to credit, cash flow and other sorts of things.
Within that context, we are also looking at the challenges which small businesses have in relation to competing in markets dominated by larger companies. On the issues that they have about access to markets, turnover thresholds and employment and other sorts of things, we are keen to think about how you can use these measures to try to design policy, support and other sorts of levers for the future. With a sense that the Minister will reflect carefully on that side of the coin, I beg leave to withdraw our amendment.
Lord Mendelsohn
“( ) Those who represent businesses with 10 to 49 employees and are purchasing goods or services for use within their commercial activities will be considered consumers with all the rights acquired by the Consumer Rights Act 2015”
Lord Mendelsohn
My Lords, in moving Amendment 33BE I will also speak to Amendment 33BF. For veteran observers of BIS matters, this debate will be quite familiar. These issues were raised during the course of the Consumer Rights Bill and the Government’s approach steered us towards considering this matter under the rubric of this Bill. This debate cuts to the heart of the level of commitment behind creating a framework that truly supports the backbone of our private sector in this country, and whether government are really willing to appreciate and tackle the market dynamics that favour bigger businesses over smaller businesses, as other countries have done successfully in stimulating small business. Indeed, small businesses are already treated as consumers in many parts of the European Union and many of the regulatory areas in our own country.
I will briefly set out the context and drivers behind the amendments. The argument is pretty straightforward. Small businesses, especially micro-businesses, have very little bargaining power because they are not making large-scale purchases. These companies do not have any more time or specialist knowledge than individual consumers. They do not have specialist procurement functions, procedures or external support, or even in-house accounting and legal expertise. We believe in extending protections to micro-businesses in the sale of goods and services.
My noble friend Lady Hayter meticulously spelled out these issues when she said that,
“we might expect a small hairdresser to know what they are doing when they are purchasing shampoo or hair-dryers, but they are not in any stronger position than any other individual consumer when they are getting a window cleaner in or buying a type of floor cleaner or purchasing electricity. Similarly, a small café that happens to offer wi-fi to its customers may be as vulnerable as the rest of us to poor service or being fobbed off by a wi-fi supplier. Similarly, small landlords may let out perhaps only one or two properties but some of those landlords will be classed as business and will not be able to enforce their rights when they are dealing with utility suppliers, or indeed the Post Office or anyone else, that they may deal with as a business”.—[Official Report, 13/10/14; col. GC 2.]
The Government have had some historical objections to such measures. First, they argued that small and micro-businesses are already protected under the Sale of Goods Act and the Supply of Goods and Services Act. That is why they directed us to this Bill, as opposed to the Consumer Rights Bill. That was reasonable and I agree with the point that these protections exist and are essential. However, they are not enough. The core problem for small businesses is that, in general, the level of protection afforded to business customers is significantly lower, reflecting a view that businesses ought to be in a position to look after themselves. A culture of caveat emptor, or buyer beware, is typically considered sufficient protection for business customers, other than in extreme circumstances. Moreover, very small-scale businesses are excluded from a range of commercial opportunities and proportionately penalised and treated as cash cows by a range of suppliers.
Secondly, the Government objected that it is an unnecessary and unusual intervention, but the truth is that it already exists. A number of regulators already treat micro-businesses as consumers. The Legal Services Ombudsman and the Financial Ombudsman Service both treat micro-businesses as consumers for their complaint handling. Ofcom extends consumer protection to micro-businesses and requires providers to apply an alternative dispute resolution scheme for dealing with unresolved complaints from domestic and small business customers. The Communications Act 2003 specifies that small businesses should be classified with domestic customers, as long as they do not employ more than 10 people or trade in the telecom sector. The Federation of Small Businesses has reminded us that small businesses also count as consumers in breaches of competition law; the FSB can act as a super-complainant in such cases. Small businesses will also be covered under Clause 80 as regards redress under competition law, where the opt-out provisions will cover small businesses; the Federation of Small Businesses can be party to that. What we are asking is therefore not that unusual. In fact, it is usual for this provision to be made to ensure the proper functioning of markets.
Thirdly, an objection has been made that business does not support it—even that the Federation of Small Businesses does not support it. This is both true and untrue. It is true that some big businesses do not want it. The Government have previously quoted consultations from the CBI. I can only say that, in my experience, some are good and some are bad: some react positively to deliver as if small businesses were protected as consumers, and others—this is really the main part of my experience—use the difference to provide inferior and costly service to the smallest commercial entities.
What is true is that the Federation of Small Businesses wants this measure. I know that this has been a matter of contention before, so I checked before speaking today. I think that last time there was a misreading of a report whose purpose was to inform the federation’s recommendations as being the recommendations themselves. When it comes to negotiating business contracts, the Federation of Small Businesses has identified four areas that add up to real detriment for those businesses. It talks about a “lack of expertise” in purchasing policy, high opportunity costs of time spent making purchasing decisions, low benefits, and little bargaining power. The Federation of Small Businesses firmly supports this recommendation.
Finally, the argument is made that there is no evidence that the measure helps, and that it could be bad in terms of how small businesses are treated by big businesses. I am bound to say that, while I am fairly new at this, it has not gone unnoticed that this has not seemed to stop government before. Indeed, I would even go so far as to say that some of the consultations on the Bill may well confirm the thrust of this argument, and the way in which the evidence is gathered can be quite narrow and sometimes give the appearance that our final evidential base is unlikely not to have unintended consequences as a result.
In my view, the argument about whether the Government can measure the impact of treating small or micro-businesses as consumers seems to be a minor objection. It is very easy to model an answer and I am sure that the department’s officials have grasped that or have used the time between this and the previous debate to get this right. I hear the argument about changing the legal framework for 4.7 million businesses without a full and complete understanding of the impact, but that is a rather false construct. I strongly reject the argument that we should avoid doing this because larger businesses will act with retributive force, or that they should be allowed to maintain a power imbalance because they do not like meeting proper business standards. I think that we also had that debate within the context of payments and access to finance. I also reject the argument that there is any meaningful and real business opposition. Would they suggest it? No. Do they really have any meaningful objections? I believe that they do not.
I hope that the Minister will be the bearer of some good news on this. There were some very encouraging statements in the other place and by Ministers on these matters. In fact, the Government’s response to the report by the Federation of Small Businesses into the consumer issues facing smaller firms and sole traders was also encouraging. I hope that the Minister has come here today with some additional measures strengthening the rights of these businesses, or even perhaps with the remarkable news that she will support our amendments. If my optimism is to be dashed, I hope that the Minister could place on the record—given all that has gone before—a reasonable exposition of the work the department has done to review the evidence in this area and create an evidence base, and say whether the Government categorically rule out amending the law in the future. If they do not do so, why not support the power to ensure that this can be done quickly and efficiently now?
If there is still a chink of light, given that this distinction is already made in statute law, regulator policy and other EU jurisdictions, would the Government be amenable to discussing how the Bill could clarify what is already a clear fragmentation in law and a mixed message to small businesses? I beg to move.
Lord Deben
My Lords, I ask my noble friend to take very seriously the issues which are raised here. I look at it in a rather different way from the noble Lord, Lord Mendelsohn—that is, from the point of view of a small business itself. As my declaration of interest shows, I chair a number of small businesses. I have been recategorising them while reading through the amendments, so I also chair a medium-sized business. On the basis of this discussion, I am hoping that it will become a large business. I look forward to that. I do quite a bit of mentoring of people starting businesses. It is very hard for them to start a business. However, we know that innovation comes more from small businesses than anywhere else and that the bigger a business becomes, the less innovation there is. It is a crucial part of improving employment and the economy. We have to recognise that.
How do people start small businesses? Very often, they do not start it as a small business but as a person or customer. You begin something and realise that you have a kind of business, and then you try to make it into a business. It is a much more haphazard operation than those who have never started a business sometimes think. I hope that the civil servants present will not mind my saying it but one of the problems with all this is that nobody who writes this stuff has ever run a business or understands how a business is run. Having done the job as a Minister, I recognise that I was pretty unusual because I came from the business community. Most Ministers had not done that. We have here a Minister who is very well equipped, because she has played a major part in what can only be called a megabusiness, in the circumstances.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for his amendments on treating businesses as consumers. Like my noble friend Lord Deben, I have worked in small business—in fact I ran a small garden centre business, and represented 6 million small businesses in Brussels for some time. No one is more determined to try to think about the effect of legislation on small businesses and how to get that right and incentivise innovation, which my noble friend Lord Deben referred to. However, we should not entirely condemn our great companies, which deal in everything from electronics to aerospace and food. They do innovate, and many of them lead very substantial export efforts around the world. Like my noble friend Lord Deben, however, I worry about the free enterprise culture. In fact, I have been trying to get one of my four sons to create a small business, so far without success.
As a Back-Bencher last year, I learnt a lot about the difficulties of dealing with utility providers. That informed us on the Consumer Rights Bill, which we debated in this Room for many weeks—and I am delighted that the noble Baroness, Lady Hayter, has joined us after so many constructive discussions on that Bill.
I agree that we must support small and micro-businesses and put in place the conditions for them to prosper. That is why the Bill is so important and why this Government are doing all that they can to support these businesses. None the less, I remain concerned about the scope of the amendments. They are wide-ranging and not consulted on. Small business might be keen on them until they discover the unintended consequences for their own businesses. That may be wrong, but we just do not know. For example, the small printer gets more reassurance when he buys his ink, but he suddenly has to give full refunds to his small-business and micro-business customers for 30 days because of a fault that might previously have been subject to a more agreeable negotiation—if he had cash flow problems, for example.
We also need to remind ourselves that businesses, including small and micro-businesses, are not unprotected at the moment, as the noble Lord, Lord Mendelsohn, said. Provisions under the Sale of Goods Act and the Supply of Goods and Services Act apply to them now and will continue to apply. Under the unfair terms legislation, a business may limit its liability to another business if that is reasonable in the circumstances when they make an agreement. The existing regime gives appropriate protection, which is important, while allowing businesses to enter into flexible transactions, a point that I shall return to.
Small and micro-businesses make up 99% of all businesses in the UK—a total of 5.2 million businesses. Of those, 5 million are micro-businesses, which in aggregate employ 8.3 million people and have a turnover of £655 billion. That is an extraordinary and very good thing, but it means that a lot of businesses—a lot of value added—would suddenly face a change in operating rules under either of these amendments, even if those amendments are well meant. It also means that there is an incredible range of small businesses across all sectors of the economy, many being very specialist in their sectors and skilled negotiators in transactions. They are able to judge exactly what their interests are.
Businesses think about value for money and do not always require the detailed protection that we give to consumers. We give consumers general protections because they almost always face the same information asymmetries when they buy goods and services—that is, the range of goods and services that consumers are likely to purchase is so wide that they are unlikely to have detailed knowledge of them. The same is not true for small businesses. It is in the interest of these businesses to reduce this information asymmetry. The same incentives simply do not apply to consumers. In addition, consumers are less able to assess the cost and implications of their purchase decisions, whereas efficient businesses, by their nature, assess this information and make these decisions more effectively. The Government are of course keen to encourage businesses to become more efficient and to see a healthy and competitive market.
All businesses also need to enjoy the freedom to contract for goods and services on an individual basis. The current legislative framework allows for that already. The amendment would, at a stroke, reduce that freedom for 99% of all businesses—in the case of the second amendment, 96% of all businesses. The default obligations under the Consumer Rights Bill would apply, whether it suited a business or not. This could place a restriction on business negotiations.
Consider risk and reward—a defining concept of enterprising activity. This proposal could have a chilling effect by removing all risk in business transactions. Superficially, that sounds attractive for small one-off purchases, but what about the bulk deals, the order of specialist items or the removal of old stock? How would this encourage suppliers to take risks with cash flow? A supplier faced with the possibility of having to give a full refund to all its small business customers for 30 days, without scope to negotiate reasonably about any liability, would need to be extra cautious about its financing. Is that the right culture?
I of course recognise that the intent behind the amendment is to protect small or micro-businesses where they might not know more than a consumer when buying goods and services unrelated to their core commercial activity—I remember that in Committee we talked about kettles as well as hairdressers. But how do we make the distinction? What is core for one business may not be for another. The Consumer Rights Bill does not have a legal definition of a consumer good or service that we could rely on.
A further point is the difficulty for a seller in deciding the difference between the small or micro-business to whom the Act would apply and larger businesses to which it would not. That would certainly complicate implementation and I am passionate about having a good and simple implementation plan for the Consumer Rights Bill so that sellers abide by the new rules and consumers know where they stand.
Lord Mendelsohn
I thank the noble Lord, Lord Deben, for his powerful speech in Committee. I strongly agree with his central thrust about the operation of markets and what we have to do. There is a clear importance to the vibrancy and general benefit of very strong consumer-driven markets, and where we can get the asymmetries out of markets. That is something to be looked at in the general context of the Bill.
The noble Lord’s speech reminded me of research I read in relation to the Bill from the Brookings Institution, which talks about America, the custodian of great enterprise and small businesses. A piece of research indicated that although there were a number of innovative, high-tech businesses, there was an attrition of the traditional entrepreneurial culture of mom and pop businesses in America, and the measures they were going to have to introduce to try and deal with the problem. It strikes me that the problem we have with parts of the Bill is that, while it is hugely welcome and to the Government’s credit to have put it through and to be saying something specific about small businesses, the scope of ambition is a bit too narrow.
We have a huge challenge to encourage such businesses and this is a great opportunity to do so. Even in circumstances where it may not be possible—the drafting might be problematic, there may be synchronicities in policy, or all sorts of things—it is still important to maintain the sense of ambition, so that we can put into place now strategic anchors or even some of the exhortations or ambitions we have for small businesses in the future.
It is in that context that, while being hugely encouraged by the excellent speech of the noble Lord, Lord Deben, I was a tad disappointed by the Minister’s response. It contained a lot of things that I believe are, bluntly, utterly bogus. I just do not buy the notion that the western economy is going to collapse because micro-businesses are going to be given this protection. I do not buy the impact story. It does not ring true to anyone in business and I cannot believe it was presented. It is just not right. It is not right to believe that we can accept that the chilling impact of these things is going to be the principal reason why businesses are going to suddenly not transact. We know, even from our discussions, that within the context of late payments it does not have the same impact. If the Government accept what we are suggesting on the definition of micro-business and on late payments, we will have sufficient velocity in the markets for the cash flows to be less distorting and more encouraging.
I was also disappointed that there did not seem to be any real change or progress, or much work done, between the Consumer Rights Bill and the current position, even to the point of talking about the context of the FSB’s research on regulators, which concerns some of the other measures we talked about on previous amendments—the consultations related to the Consumer Rights Bill and other things. It did not look at the context of trying to use these measures to encourage and trigger small businesses.
We say very clearly that this is not about big businesses being bad. I do not believe that big businesses are bad; they are very important for this country for all sorts of productive things. However, we have to try to ensure that we push the fundamental context of small businesses: the market dynamics, the enterprise and the entrepreneurialism in which they exist.
On the statistics that the Minister gave us about the number of small businesses and the number of people who they employ, I have to say: do the maths. Most of these people are consumers, who, when they try to buy something for themselves rather than in the context of their businesses, have an easier time or more rights. I do not think that that is sensible.
I must ask the Minister to reconsider, to rethink some of the points made by the noble Lord, Lord Deben, and some other things about what we can do to achieve greater outcomes for small businesses. We also ask her—at least for my benefit—to spend some time scrutinising some of the work that has taken place since the Consumer Rights Bill until now to try to get some sense that we have properly assessed this and done some work as to whether or not they should reject this amendment. On the basis that I know that she will do that, I beg leave to withdraw the amendment.
“( ) In considering what is reasonable for the purposes of subsection (4), the court shall have regard to all relevant factors including but not limited to the following—
(a) the nature and location of the premises;(b) the nature of the business and the extent to which the activities of the business are comparable to activities carried on at home which are not business activities;(c) whether the business requires any structural change to the premises comprised in the tenancy;(d) the number and frequency of visitors likely to come to the premises in connection with the business;(e) the number and frequency of deliveries and collections of goods likely to occur at the premises in connection with the business;(f) the amount of any noise or other environmental impact likely to arise from the business;(g) the likely effect of the business on the parking of vehicles in the vicinity of the premises; and(h) the proportion of the property used for the business.( ) Where a dwelling-house is let under a tenancy to which subsection (2) applies the landlord and tenant may agree in writing under the terms of the tenancy or in any other document signed by them—
(a) that a particular business, or(b) that a particular description of business, if carried on in the premises, shall be a home business for the purposes of this Part of this Act.( ) Any such agreement shall be binding upon the parties.”
Baroness Hayter of Kentish Town (Lab)
My Lords, Amendment 33BH stands in my name and that of my noble friend Lord Stevenson. It deals with the issue of so-called home businesses that take place in rented or leased homes.
At present, landlords who let residential property to tenants who also use their homes for business run the risk of their tenants claiming security of tenure as business tenants under Part II of the Landlord and Tenant Act 1954. To protect themselves from this, landlords usually prohibit any use of the residence for business in the tenancy agreement. However, should the landlord in some way acquiesce to such businesses, the tenant gets security under the 1954 Act, notwithstanding the wording of the agreement. That is why the Government have included Clause 35 in the Bill, which will allow that, where a home business is carried on by a tenant, it should not qualify for security of tenure under the 1954 Act. Landlords could thus accept some working at home by tenants without risking losing control of their property—the tenants having only normal residential security of tenure. Secondly, where a tenant carries on a home business in breach of any prohibition against business use and the landlord gets to know about it—and thus at the moment is seen effectively to acquiesce to it—the Bill as drafted would not give the tenant statutory rights.
The clause seems sensible but my first question is: why is the measure in the Bill? Although we support its intention, we are unaware of any problems, debate or any evidence that led to its inclusion. Helpful though Clause 36 may be, will the Minister outline a little more of the background? We doubt whether it will have much impact, but that is no reason for us to oppose its inclusion. We welcome what it could do but we have questions about the wording, hence the amendment.
The most obvious, indeed crucial question is: what is a home business? The definition in the Bill, which has been described by my noble and learned friends as hopelessly wide, states:
“A home business is a business of a kind which might reasonably be carried on at home”.
I kid you not. That is what the Bill says.
That is fraught with uncertainty. Whether a tenant’s business is one which can reasonably be carried on at home will depend on a great number of variables. Indeed, there is an almost infinite range of businesses which householders carry on at home at present. Probably all of us over the weekend were doing a bit of office work at home. I am excluding civil servants from that; I would hope they had a good weekend off. We have catering, music teachers, tutors, web design, computer programming, craft work, repairing and restoring anything from machinery and vehicles to furniture, books, TVs or musical instruments, hairdressing, jewellery-making, secretarial services, fine art or even Barbara Hepworth’s wonderful sculptures, journalism, charity work, medical, counselling, physical fitness training, accountancy, legal advice, or, to return to the Consumer Rights Bill, dress-making. I know that the Minister understands my particular interest in that.
Whether all of those can reasonably be carried on at home depends on the home. What can be done in the back yard of a remote cottage is rather different from what can reasonably be carried out in a flat on the third floor. So, to assist the courts, and to provide some certainty for landlords and tenants alike, the test of “reasonableness” needs fleshing out. Presumably it must be reasonable from the point of view of the premises—something which is sufficiently close to activities which householders might carry out on their own account, such as sewing, studying, reading, writing, cooking, handicrafts, gardening, DIY, and so on may not seriously impact on the fabric, condition or layout of the premises. Nevertheless, there could be environmental considerations.
Is it reasonable to receive deliveries, customers, clients, patients or students, or to carry out noisy activities when you live in close quarters with your neighbours? Will the business generate an excessive amount of traffic on the roads, creating congestion or parking problems? That will be particularly the case where the Bill will now deny statutory rights to businesses in which the landlord has acquiesced, since there will not be an earlier agreement between the landlord and the tenant over whether what the tenant is doing at home is indeed a home business, given that there is no independent definition of that.
It is for that reason that the first part of our amendment seeks to suggest the factors that the court should take into account—and therefore factors that the landlord and tenant need to be aware of when the court is deciding what can reasonably be described as a home business. The second part would specifically allow a landlord and a tenant to contract out of the Landlord and Tenant Act 1954, probably providing that they notify the court, as has been possible since the 1970s under some other circumstances.
The success of this probably desirable measure will depend on how any definition is received in the real world, and whether there is sufficient clarity or guidelines to enable both parties—the landlord and the tenant—to know where the statutory rights will fall. The amendment attempts to identify a way forward to provide the clarity needed for the measure to have effect that I assume the Government desire. I beg to move.
Baroness Neville-Rolfe
My Lords, I welcome the noble Baroness, Lady Hayter, back to the Dispatch Box on the Bill. I start by answering her question about why we are doing this. Clause 35 will help support the further growth of home businesses by removing the current incentive for landlords to bar tenants operating a business from their home. As we have heard already, there are nearly 5 million small and medium-sized businesses in the UK. Of those, 2.9 million are home businesses. Home businesses are of growing importance to the economy, with an increase of half a million since 2010. The Government want the home business sector to continue to flourish. That is why we are committed to do what we can to overcome obstacles, and Clause 35 is a key part of that work. Landlord and tenant bodies agree that that is a sensible step, so why not use this opportunity to act now to help the enterprise culture and the small businesses that we all agree are so important?
For those who rent their home, things can be particularly complicated. Landlords can be wary of letting them run a home business. Indeed, residential tenancy agreements will often include a prohibition on business use. Section 23 of the Landlord and Tenant Act 1954 provides that where there is a business use for a property, a business tenancy exists. Because business tenancies enjoy greater security of tenure, private residential landlords are keen to avoid them, as they fear that it may be more difficult to get their property back at the end of a lease. That is what Clause 35 will address by amending Part 2 of the 1954 Act.
I add that the opportunities created by the digital world, bringing ever more innovations into the marketplace, make that provision even more important. This change could help to encourage the enterprise culture. I think that it is a sensible move and would assist the graphic examples that the noble Baroness, Lady Hayter, gave, although I think it will take a little longer to get the younger generation sewing again. However, perhaps craft skills are coming through and there is certainly an element there.
I thank the noble Baroness for tabling the amendment, but we are concerned that the effect would be to cause confusion. It would not prohibit the types of business activity listed, but it would create uncertainty as to whether certain types of business carried on in a home would make the home subject to the business tenancy provisions of the Landlord and Tenant Act. As I said, currently, Section 23 provides that where there is a business use for property, a business tenancy exists. Because business tenancies enjoy a greater security of tenure, residential landlords are often keen to avoid them.
Clause 35 is aimed to remove that disincentive on landlords when they are considering allowing a home business from their property. Under our proposal, landlords would continue to have a veto. The landlord continues to have a right to impose conditions—which I think is important, because it can relate to matters such as noise, which can be a big issue—or prohibit a home business outright if that seems appropriate to the property in question. However, we believe that the amendment could have perverse consequences, create bureaucracy, disincentivise landlords from being willing to consider a home business and encourage them to set unnecessary conditions.
Let us take an example. Suppose that a tenant were to ask the landlord for permission to operate a home business. The amendment would encourage the landlord to check whether the proposed business fell foul of the factors listed. The landlord might have to judge what constitutes a reasonable number of clients calling at the property, the impact of deliveries, and so on. In the face of that increased burden, landlords might become risk averse and say no. We also have concerns about providing for a binding agreement between landlord and tenant on whether a particular business or description of business carried on in the business should be a home business. That could have a detrimental impact on business tenants—that is, those in premises where business is the predominant use—if they were to lose the rights secured for them by the Landlord and Tenant Act. The security afforded by business tenancies means that tenants can invest in their businesses, building up good will, buying equipment and stock, without fear that they will have to leave the premises before the end of the tenancy.
Amendment 33BH would allow people to define for themselves, by agreement between the landlord and tenant, what a home business tenancy was. Some landlords might seek to use this to exclude business tenants from having the security of tenure provided by the 1954 Act. There is already provision for the exclusion of security of tenure in business tenancies by agreement, and with tested procedures involving notices and declarations by the parties. I believe it would be undesirable for this clause to provide an alternative route for landlords to avoid security of tenure. The tenancy agreement can state in terms that the tenancy is a home business tenancy, as set out in the clause, and the tenancy agreement is legally binding, provided that the tenancy is a home business tenancy within the meaning of the 1954 Act.
I know that the noble Baroness was probing to some extent, and I hope that she has found my explanation of this background useful. I think that this is a concrete and important change, which I commend to the House.
Baroness Hayter of Kentish Town
My Lords, it was not meant as a probing amendment at all. It was tabled because the very senior advice that I have taken from the top planning chambers in the country says that this is not going to work unless people know what it means; it will end up in court and that is where the definition of a home business will have to be decided. When someone claims, as a residential tenant, “Well, I’m sorry, I’ve been running my business as a speechwriter for the House of Lords at home and am therefore a business, not a home business”, that will have to go to court. The landlord is going to say, “No, it’s a home business because you live there as well”, but the tenant will say, “No, the major thing is that it’s a business”. The advice is absolutely that the courts will need guidance as to what is a home business.
A landlord would be sensible to claim that an enormous business was a home business, just because the person running it also happened to live in the place, because of course that would deny them the right of security as a business. So the landlord will be saying, “This is a home business”, while the person running the business will be saying, “No, this is a normal business and I happen to live here”. I mentioned Barbara Hepworth. Anyone who has been to her house will know that there is a bedroom there, but 80% of the house is her sculpture gallery. Of course, she owned that house. Still, if a house has one room that is a bedsit and nine rooms that are a business, is that a home business?
Baroness Neville-Rolfe
The noble Baroness is rightly concerned about this question ending up in court with lots of legal proceedings, which we all agree is what one wants to avoid in good regulation. To some extent, we have thought about that. We have taken a power in the Bill that allows us to further specify the definition if that proves to be the case, so she is right and I am wrong.
Baroness Hayter of Kentish Town
That is why we thought it should go in the Bill rather than waiting for regulations. I think that we share the desire that this should work, but it will work only if landlords and tenants can have confidence. As I say, just because a person running a business from a rented place happens to live there, I assume it is not the intention that they should therefore lose the security that they get under the 1954 Act. This will also open up to quite big businesses, and I wonder what thought has been given to the planning issues that arise from this. Local government certainly needs to think about how big a business would be before there were planning implications.
The Minister said that there were 2.9 million home businesses; she did not of course say how many of those were in rented accommodation as opposed to owner-occupied. Maybe she would be able to write to me about the figures—or she may be getting them at this moment—for how many of those 2.9 million are in rented accommodation. I worry that this is so vague that it will not give certainty and there will have to be test cases in court. Without some guidance from Parliament about what we had in mind for what is probably a welcome and well intentioned measure, the fear is that there will not be enough certainty. We know that landlords are pretty risk averse, for understandable reasons. There will be so much uncertainty that the measure will not be implemented.
Baroness Neville-Rolfe
I do not have the figure that the noble Baroness would like, so I shall write to her. However, the powers apply only to tenants with a residential tenancy, so there is no risk that someone with an existing business tenancy could lose security. That is an important clarification. It does not affect existing planning requirements either, but I note the point she made. The planning requirements continue to apply. They are complicated, but it does not do anything about planning.
Baroness Hayter of Kentish Town
Existing businesses that will lose the right to secure tenure are those where the landlord has acquiesced because he has known about a business being taken on. Until this Bill becomes an Act, those businesses have security, and they will lose that, not necessarily wrongly, but it is not quite correct that all businesses will retain the rights they have. This is something we may come back to. We will certainly take further advice. People who are very active in this field certainly have concerns, and the Minister may also need to check a little more widely on that. For the moment, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Lord Geddes) (Con)
Before calling Amendment 34, I must advise the Grand Committee that if it is agreed to I will not be able to call Amendments 34A or 34B due to pre-emption.
Amendment 34
Lord Popat
(d) may not be made unless—(i) in the case of regulations made by the Secretary of State, a draft of the statutory instrument containing the regulations has been laid before Parliament and approved by a resolution of each House of Parliament,(ii) in the case of regulations made by the Welsh Ministers, a draft of the statutory instrument containing the regulations has been laid before, and approved by a resolution of, the National Assembly for Wales.”
Lord Popat
My Lords, amendments to Clause 35 will help to clarify the definition of home businesses to be captured by amendments to the Landlord and Tenant Act 1954, subject to the affirmative procedure and, additionally for Wales, a resolution of the National Assembly for Wales.
As my noble friend Lady Neville-Rolfe mentioned, there are around 4.9 million small and medium-sized businesses in the UK. Of those, 2.9 million are home businesses. Home businesses are of growing importance to the economy with an increase of 500,000 home businesses since 2010. There can be obstacles to those wanting to run a business from home, but this Government want the sector to continue to flourish. That is why we are committed to do what we can to remove them.
For those who rent their home, things can be particularly complicated. Many tenants state that landlords can be wary of letting them run a home business. Indeed, residential tenancy agreements will often include a prohibition on business use. One of the reasons landlords do this is that the current legislation encourages them to do so. Section 23 of the Landlord and Tenant Act 1954 provides that where there is a business use of a property a business tenancy exists. Since business tenancies enjoy greater security of tenure, residential landlords are keen to avoid them as they fear it will be more difficult to get their property back at the end of a lease.
It is this area that Clause 35 seeks to address by amending Part 2 of the 1954 Act to exclude home businesses from its provisions. First, we are inserting a new subsection into the 1954 Act. This deals with the instance where a landlord initially includes a prohibition on business use but subsequently agrees to home business use, defined as business of a kind which might reasonably be carried on at home. Secondly, Clause 35 adds a new Section 43ZA to provide that where a dwelling is let as a home and the tenancy allows a home business use from the outset, or does so subject to the consent of the landlord, a business tenancy is not created.
Baroness Neville-Rolfe
“Section 35: supplementary and consequential provision
(1) In section 41 of the Landlord and Tenant Act 1954 (trusts), after subsection (2) insert—
“(3) Where a tenancy is held on trust, section 43ZA(2) has effect as if—
(a) paragraph (b) were omitted, and(b) the condition in paragraph (c)(i) were a condition that the terms of the tenancy require at least one individual who is a trustee or a beneficiary under the trust to occupy the dwelling-house as a home (whether or not as that individual’s only or principal home).”(2) A dwelling-house which is let under a home business tenancy is to be regarded as being “let as a separate dwelling” for the purposes of—
(a) section 1 of the Rent Act 1977 (protected tenancies),(b) section 79 of the Housing Act 1985 (secure tenancies),(c) section 1 of the Housing Act 1988 (assured tenancies), and(d) any other England and Wales enactment relating to protected, secure or assured tenancies.(3) Subsections (1) and (2) do not apply to the tenancies mentioned in section 35(5).
(4) Subsections (2) and (3) do not limit the circumstances in which a dwelling-house which is let under a home business tenancy is to be regarded as “let as a separate dwellling”.
(5) In this section—
“enactment” includes provision made—(a) under an Act, or(b) by or under a Measure or Act of the National Assembly for Wales,“England and Wales enactment” means any enactment so far as it forms part of the law of England and Wales,
“home business tenancy” has the same meaning as in section 43ZA of the Landlord and Tenant Act 1954.”
Lord Cromwell
“Exclusion of home businesses from non-domestic rate liability
Where a residential property is used for one or more home businesses by the owner or by a tenant, that property shall not be or become subject to a non-domestic rate.”
Lord Cromwell (CB)
My Lords, I apologise most sincerely that events conspired so that I was unable to attend earlier discussions of the Bill, but I hope that the Committee will nevertheless allow me to speak to the amendment standing in my name. I raised the matter with the Minister in a meeting with Cross-Bench Peers before Christmas.
I should declare an interest as a trustee of a trust which in a small way lets out residential property. In another part of my life I am involved in working with entrepreneurs, some of whom invest in and let out property. I have also run a small business and an international chamber of commerce for several years. Enough about me.
As others have said, there is much to be welcomed in the Bill. One aspect of that is the removal of the risk to a landlord letting out residential property that a business run from such a property will give rise to a business tenancy under the 1954 Act. I certainly assure the Committee that this is a very real problem for landlords letting out property. In that, I have absolutely no doubt. I share the concerns expressed by the noble Baroness, Lady Hayter, about the definitional aspects but I am sure that many of us have had the experience of trying to write page after page of legal definition and ending up by replacing it with the word “reasonable”. I suspect that tenancy documentation will evolve to cope with this issue.
However, there is a second leg to this issue: the fear which landlords have that allowing a residential home to be used for a business will end up getting them entangled in the rating system, particularly if that business does well, grows and prospers, which presumably we would all welcome. That concern among landlords relates not just to the period when a tenant is in occupation but when they leave; the landlord fears finding themselves with a property that is unlet but subject to business rates. The effect of that is simply to make landlords reluctant to let out property with home businesses, to put clauses in agreements which prevent it and to avoid colluding with tenants who nevertheless try to start up such a business.
I am sure that many of your Lordships will be aware that small businesses can apply for relief from rates. However, almost everyone seems to be in agreement that the rating system is not simple; indeed, it is complex. Perhaps as an indicator of this, I notice that there are a number of businesses which, as a chargeable service, offer to assist small businesses in navigating through the rating system. I would hate to put them out of business but, as an indicator of the complexity that small businesses face, the market speaks for itself.
Moreover, I believe that among landlords there is a perception that it is dangerous to allow someone to run a business, no matter what reliefs there may be available, within their residential premises. The noble Lord, Lord Deben, touched earlier on the point that perception of regulation is every bit as important as its actuality. This amendment seeks to achieve simplicity and clarity by making it clear in straightforward terms that allowing a home business to operate will not bring the property within the rating system. It is my proposal that combining clarification on the tenancy issue and the rating issue would be the two sides of the bridge that get us across this river of landlords’ resistance to letting out residential properties to people who wish to run businesses within them. I beg to move.
Lord Stoneham of Droxford (LD)
My Lords, I was tempted to intervene in the last debate that we had on the amendment of the noble Baroness, Lady Hayter, because this is quite an interesting issue. I am not going to be able to support fully the noble Lord, Lord Cromwell, but I am pleased to come in on this debate. I have often voted for him in parliamentary by-elections because his was a name that I knew. I also thought that the genes were probably more in favour of change and reform than conservation.
Lord Cromwell
I have to disillusion the noble Lord but I am very grateful for his support. I must disabuse him of that—I have no genetic link to others of that famous name. My family is older but my instinct to chop off the heads of the overmighty may have been inherited by mistake.
Lord Stoneham of Droxford
I do not take away from my comments because that is exactly how I was behaving in those elections.
The amendment cannot be supported as it stands, although it has good liberal tendencies. It is a very difficult area, as the noble Baroness, Lady Hayter, said. It is difficult to get a balance here between defining by restriction what we can do and opening it up; the general tenor of the Bill is to try to open up the issue to encourage home businesses. The one thing that this amendment does not make absolutely clear is that the tenant or owner must occupy this property, so any tenant or somebody who owns it would have that overriding right, and the planning law does not accept that. Therefore in that sense the amendment cannot be accepted. This is the issue—whether we define the planning restrictions on home businesses in the legislation; the Minister has already told us about the danger.
With great respect to the noble Baroness, Lady Hayter, as regards some of the definitions she has used, she accused the definition of “home business” of being vague, but the fact that you have to take account of the location of a property does not tell you whether you can allow a home business. That will be a matter of judgment, therefore quite vague, whereas the intention of the legislation is to open this up and to encourage home businesses, obviously within the planning restraints that are currently there: you have to occupy the property, you cannot fundamentally change the home for the business, you cannot have people coming to buy from the premises, and you cannot employ people. We know that there is already great flexibility in where we are and that people do those things, but obviously, if they overstep the mark, there is the danger that if their neighbours think that their community life in their residential area is disturbed, they will object and have the grounds for doing so. Therefore this is an area of great interest. I would be in favour of where we are in the Bill, where we do not define it in the legislation, although we may come back to it through regulations. Clearly we cannot accept the amendment because it does not make it absolutely clear, which it has to, that the premises have to be occupied by the owner or the tenant.
The Earl of Lytton (CB)
My Lords, the noble Lord, Lord Cromwell, raises an interesting point. Before I go any further, I declare an interest as a practising chartered surveyor. Rating is one of the things I get involved with; I am a landlord of holiday and private rented accommodation as well as business accommodation, so I get a bit of everything here.
The chief difficulty is one of fact and degree about when things move from being “residential property” as a term of art to something quantifiably different. The problem is that they are different tests for different purposes. For instance, there may be a test under regulations that come out as a result of the Bill. A different test may be applied by the Valuation Office Agency to determine what is and what is not a business. When I think in terms of holiday lettings, for instance, I am aware that if a residential property is available to let as a holiday unit for more than 120 days in the year, I think, it is deemed to be a business use. I am not suggesting that there is an issue between holiday letting and home businesses in this instance, but that exemplifies the point about the fact and degree transition.
The empty rates issue would be a live one were it to kick in, because the amount levied under empty rates is typically considerably more than the amount that would be levied under a council tax assessment. I have raised this matter before in the House, and used as an example a property of my own, a 1,000 square foot property let as offices to a business tenant under a conventional contracted-out commercial lease. The rating assessment, off the top of my head, was £12,000 rateable value, and something over £5,500 was payable annually by that small business in business rates.
Fifty yards up the road I occupy a large residential property in band H, but I pay nowhere near £5,500 or so in council tax. My bins are emptied for me within that charge, which, of course, is not the case for the business rate payer. The issue comes about because of the way in which business rates are levied. As I have said before, business rates are disproportionate when compared with residential rates given the services provided and the nature of the accommodation in question. Assessments made on property value, services or any other measure you might choose do not support that differential. There is potential to change this situation through a change of definition and results from a non-domestic assessment, bearing in mind the tests that may be used by the Valuation Office Agency, which is charged with optimising the revenue obtained from those rates. This issue needs to be clarified.
Lord Deben
My Lords, we should be very grateful to the noble Lord, Lord Cromwell, for raising this question. It is only part of the question, if I may put it that way, because there is a real issue which the previous speaker was absolutely right to raise. We have to think this through and I am not sure that it has been thought through. What is the nature of a property which was rented originally, or, indeed, owned originally, as a house, and then a business is started within it under the terms of the Bill? I put it like that because it was pretty clear in the past what you had to do: you were running a business, so you had to report it to somebody and somebody told you whether you could or could not run a business in those circumstances. That is, bluntly, more or less what happened.
We also know that a very large number of people run businesses, do not report them to anybody and nobody cares too much. As long as they do not make too much noise or other nuisance, everybody is perfectly happy. However, that is an unacceptable position because some people manage to run a business in those circumstances but others do not and that is not right. We want to encourage people to start a business in these circumstances because it is the natural way to do so. We do not want interfering local authority personnel to arrive and say, “You can’t do that in your garage. You have got to move to our extremely nice and very expensive industrial estate”.
Two tax elements are involved here. I do not think that the noble Lord, Lord Cromwell, mentioned the other one. I am very interested to know what happens about VAT. If a house is said to be a business premises as a result of this measure, there is also the question of whether, if you sell it on, you retain your right to sell on your principal residence, because it could be your principal residence as well as your business. How would that interact with selling a business premises where you have received rent? Then there is another question about how you have structured the business and which part of it is used as a business. The Committee can see immediately that there is a series of complications here. I dare to say to my noble friend that I am not quite sure that people have actually thought this through.
I want to do precisely what the Bill is intended to do, which is to say that you cannot prevent people running a business from their own homes. That is not an acceptable way for either a landlord or local authorities to operate. I know some areas where local authorities have operated absolutely appallingly in what they insisted on. They made it very difficult for people. This is not just in small circumstances. There was a really bad example in my constituency when I was a Member of Parliament in which a local authority said that it was unacceptable for a marquee to be put up in a very large house with a very large amount of ground around it because it was being used as an exemplar of marquees. They could have a marquee if they wanted one for a party—as long as they did not have too many parties—but to have a marquee as an exemplar of marquees, because the business was for marquee renting, was unacceptable without planning permission, which the local authority would not give.
People get themselves into terrible situations. We need to be quite sure where we are going with this particular change. However, I think that the amendment in the name of the noble Lord, Lord Cromwell, is not acceptable for all the reasons that have been given: it is not complete enough and it opens the gates to misuse of the Bill, which none of us wants. We have to ensure that the person lives in the house; that is obvious. This is one of those really difficult situations because it is like the question of the elephant: you can describe what you mean by this, but to write it down in a satisfactory way is quite difficult. Clearly, if a house is largely used for a business and a flat is effectively attached to it then that is different from the house being used as a house in which some of the rooms are used for the business. Some of the rooms may sometimes be used by the business. All those things make it extremely difficult.
I do not want my noble friend to think that the only answer to this is not to do it; that would be a great disappointment and I am sure that she will not think that. We want to do it, but I am not sure that this little bit has been as thought through as it will have to be. The noble Lord, Lord Cromwell, has rightly brought it to our attention and I hope that my noble friend will accept that we need to know more about this before we can be entirely happy with it.
Baroness Neville-Rolfe
My Lords, I welcome the noble Lord, Lord Cromwell, to the Committee and thank him for joining our discussion, and for putting us right on the history of the Cromwell family. More seriously, he has brought his practical experience of enterprise and of the subject. I thank him for his support for the Bill, and I think he supports Clause 35 as well. This has been a good debate. It is excellent when Back-Benchers raise these sorts of concerns with amendments of this kind.
For completeness, I should add the wider action that we have taken on business rates. In the 2014 Autumn Statement, the Chancellor announced further help for business rates, bringing the total support for 2015-16 to £1.4 billion. That included some very significant measures targeted specifically at smaller businesses, such as the doubling of small business rate relief for a further year and the £1,500 discount for smaller shops, pubs and restaurants. We have also, of course, given councils powers to grant discounts entirely as they see fit. When they do so, we automatically meet 50% of the costs. Those powers can be used to support small businesses to encourage growth.
It was also good to have the support of my noble friend Lord Stoneham. As usual, he made perceptive points about the drafting and rightly drew attention to the requirement for owner-occupation.
It is always good to have the noble Earl, Lord Lytton, joining the debate, in view of his knowledge of the subject. I note what he says about empty property rates and the services provided to business rate payers. Of course, the current system on empty property rates was introduced by the last Labour Government. We recognise that the empty property rate can be burdensome, especially at times of economic difficulty, but the need to balance changes to the system owing to fiscal consolidation has meant that we have left things as they are.
I turn to the amendment and the issue at hand. The purpose of the proposal is to exclude home-based businesses from paying business rates altogether. I agree that this is an important issue, and we have to provide sensible and clear rules on home working so that they support growth and businesses know where they stand. However, we believe that the amendment is unnecessary, as we hope that we have indeed already achieved the desired outcome through some sensible and clear rules. We have ensured that, in the majority of circumstances, home-based businesses will not attract business rates—the noble Baroness will be glad to hear that. We provided that clarity through guidance published by the Valuation Office Agency last summer. The guidance clearly sets out the circumstances in which the Government do not expect businesses to pay business rates. That guidance is available on the GOV.UK website.
As a result, in the majority of circumstances home-based businesses will not attract business rates, but there are some exceptions in the interests of fairness. For example, a dentist’s surgery on the ground floor of a domestic house continues to attract business rates. Indeed, that example serves to illustrate why we favoured guidance over legislating on this matter in this Bill. Guidance allows sensible decisions to be made reflecting the circumstances on the ground in each case. Attempting to legislate to cover all situations could, I fear, increase uncertainty over home working and allow some substantial businesses to avoid business rates. I hope that noble Lords agree that is not what we wish to achieve, and that clear guidance is the best approach in this situation.
My noble friend Lord Deben raised questions about tax, so I shall comment on VAT in particular. A home-based business, as I am sure he will know, should remain liable for VAT in the same way as other businesses, subject to the same thresholds.
Lord Deben
I was referring not to that issue, but to the issue of clearing up the connection between business rates and home businesses. Unless we do that, there could be circumstances in which the home became liable to business rates and then it could be seen as a business property. I want to make sure that, if such a business was sold, the owner could maintain the right to sell his own property without VAT—
Lord Deben
Yes, the capital gains tax element becomes very serious in that regard. I know that my noble friend will tell me that, happily, it is all here, but I am just not sure that everybody will understand that. I want to make sure that the guidance makes it clear that people are protected.
Baroness Neville-Rolfe
I understand what my noble friend says. He is talking about untoward effects, which we are not in the business of creating if we can possibly avoid it. The sensible thing would be for me to take away that point on VAT and capital gains tax. I am always rather careful about saying things about capital gains tax, as it is a complex subject. So we will write on that issue and copy the letter to anyone else who is interested in that point.
I finish on another positive point by reminding noble Lords that, in his Autumn Statement, the Chancellor announced that the Government would conduct a review of the future structure of business rates. The review will report before the Budget in 2016, and the Government will publish its terms of reference. I would encourage interested parties, including noble Lords with expertise in this area, to engage with this review, because it is an important opportunity.
I hope that the noble Lord has found my explanation somewhat reassuring and, on this basis, will withdraw his amendment.
Lord Cromwell
I am very grateful to the noble Baroness for her comments and to the range of speakers for the breadth of topics that we appear to have covered somewhat inadvertently this evening.
On occupancy, changing one word in the amendment, from “used” to “occupied”, would deal with that, but I think that the issue runs wider than that. Equally, if the property became classified as business premises, as the noble Lord, Lord Deben, is concerned, if it were excluded from rates, that would merely strengthen the case for it not to be so classified. However, I do not dismiss the suggestion that this is a complex area. Opening up any new area of opportunity will always keep tax lawyers busy trying to find ways to work that to their clients’ advantage.
On the question of perception, I am grateful for the reference to the government website. I have a couple of extracts here, and I notice the language:
“You don’t usually have to pay business rates for home-based businesses … You may need to pay business rates as well as Council Tax”.
One category is entitled, “You’re a small business but don’t qualify for relief”. Flippancy aside, I register that it is a question of perception. For landlords trying to work through that, it is much easier just to say no.
In the hope that that will get further consideration, I am happy to withdraw my amendment.
Baroness Hayter of Kentish Town
My Lords, the amendment is in my name and that of my noble friend Lord Stevenson. I shall speak also to Amendment 35C in this group. Clause 36 empowers the Competition and Markets Authority to make and publish recommendations about the impact of any proposed legislation on competition. That is clearly to be welcomed. The CMA, after all, exists to promote competition in the interests of consumers and therefore, should laws be proposed that could be detrimental to consumers, we should know about it in advance.
Indeed, the Government recognise that regulation, procurement and other activities can affect markets and therefore envisage the CMA playing a key role in challenging the Government where they are creating barriers to competition. However, there is one problem with the clause. That arises from our failure, when the CMA was created, to persuade the Government to establish a CMA consumer panel analogous to those for the Legal Services Board, Ofcom and the Financial Conduct Authority, or some such similar mechanism, to ensure that real insight from consumer advocates and from the consumer perspective was built into the CMA’s judgment on such matters.
It is a matter of regret that we failed in that, given that the CMA’s primary duty under Section 25(3) of the Enterprise and Regulatory Reform Act 2013, which set it up, is to,
“seek to promote competition … for the benefit of consumers”.
It therefore seems essential that the voice of consumers be embedded in the CMA’s view as to whether draft legislation will be to the benefit or detriment of consumers with regard to competition.
Hence, Amendment 35B requires the CMA to undertake its consideration of draft legislation in consultation with consumer advocacy groups. Amendment 35C takes the Government’s new clause one stage further by requiring the CMA to undertake a similar exercise not simply when legislation is proposed but to carry out an annual health check on the state of competition and consumer protection in key markets, including by listening to consumers, consumer advocates and small businesses.
Without consumers at the heart of the Government’s drive to increase competition and tackle the cost of living crisis, any plans or measures are likely to be ineffective. Big business and special interests can always get the ear of Ministers, civil servants and regulators, and big businesses can and do—as we heard earlier from the noble Lord, Lord Deben—take advantage of market weaknesses.
We see this in the failure to pass on reductions in fuel prices and in the banks’ failure to work in clients’ interests. We see it in the bus market, where bus fares have risen by 25%—five times faster than wages. Big bus companies have cut crucial routes that people rely on to maximise their own profits. Indeed, the failure in competition within the bus market costs the taxpayer £305 million a year. We see it in myriad other markets where the consumer is unable to shop around—the monopolies and oligopolies, referred to by the noble Lord, Lord Deben, in the earlier group. Indeed, if ever there was a failing market, it is where energy companies have not passed on reductions in wholesale costs to consumers. We have to have a mechanism for action to force such companies to cut their prices when wholesale costs fall, or where phone calls simply cannot get through to the right person, again as described earlier by the noble Lord, Lord Deben. We have to have a mechanism for an annual review of vital markets to identify those where consumers are being taken for a ride.
For years consumers and their representatives knew that energy price cuts were not being passed on to users, but there seemed to be no mechanism for making the Government take action. Labour wants consumer groups, such as Which? and Citizens Advice, to work with the CMA and sector regulators to draw up an annual competition audit or health check of Britain’s economy, which will lead to a programme of action for regulators and the Government. We need this analysis to identify broken markets, so that Ministers and departments can respond accordingly.
Amendment 35C would ensure that the consumers are at the table when priorities for action are decided. Consumers and their advocates should not have to shout from outside. They should be given a direct say in how to tackle abuses or concentrations of power which undermine competition. Without this amendment, decisions as to whether markets are working in the interests of the public will be taken solely by regulators. These sadly have failed to protect small businesses in the banking sector when the mis-selling of interest rate swaps undermined some 40,000 small businesses. They failed retail clients when banks were selling PPI and endowment mortgages. Regulators have failed to ensure that users got a fair deal from the big six energy firms.
In all of those cases, consumers and their representatives were well aware of the serious problems with markets not working competitively, but they were denied a proper hearing. So our approach is to embed the consumer interest into decision-making, so that decisions about priorities for improving competition are taken in the public interest, in the interest of consumers and in the interests of small businesses, and with policymakers having to confront problems rather than leaving them to drag on. The proposed annual competition health check, led jointly by consumers and the competition authorities, would ensure that regulators and politicians act where markets are not working in the public interest. Crucially, it will include consumer organisations and small business representatives, rather than just being done by the CMA. I beg to move.
Lord Deben
I did not intend to speak on this but the noble Baroness has referred to me so often. I had better explain to her that I think that this is nonsense. It is nonsense from beginning to end because it misunderstands how business works and what the Government should do. The last thing we want is the establishment of a collection of people who professionalise the representation of consumers. Any of us who have ever had to deal with the double standards which some of them put forward about their own businesses and the way that they are never quite sure whether they are representing the consumer or some business operation which they have, which is part of the way in which they support themselves, recognise that this is not sensible. What is sensible is to have a proper organisation whose job is to ensure proper competition.
The Government ought to be concerned about having proper competition. I would be strongly opposed to the idea that the only people concerned with proper competition are the consumers. Government and the competition authorities should both be committed to ensuring competition. Decent companies, of course, can be very much in favour of competition until they see that there is an advantage if they are monopolistic. I do not blame them for that: it seems to me perfectly simple that everybody would like to have a nice, comfortable life in which they do not have to compete with anyone else. You therefore need a balance in society where you constantly refresh the market; you constantly make the market work. However, the idea that you do that by way of consumer representatives misses the point; we have to make government do it. That is what the Government are there for; it is not what Which? is there for. Which? is there precisely to be outside the system and to shout. Government is supposed to run the system so that there is proper competition. I do not want government to be excused from that.
Therefore, I do not agree with these amendments. I hope that the Minister will recommit the Government to ensuring proper competition. They should ensure, too, that the Competition Commission has the powers, the resources and the intent to achieve the best level of competition possible. We should also begin to have a bit more of the philosophical background to this, which is essential if we are to win the battle. If we cannot have competition as we ought to have it, frankly, the argument for the free society is difficult to maintain. If that is important, let us make it the purpose of government and the Competition Commission, and not say that it has to be run on a sort of old-fashioned, tripartite basis, which is to allow the Government to get off the hook. They should be on that hook firmly for promoting competition.
Lord Whitty (Lab)
My Lords, I apologise to the Committee for having joined your Lordships so late that you seemed to have made good progress without my help and I shall try to focus on this amendment. I do so partly because I was going mildly to support my noble friend but also because the noble Lord, Lord Deben, has provoked me to say how much I disagree with what he has just said, including going into the wider philosophical and ideological areas right at the end, because a free society requires representation of people’s views as well as mechanisms, legislation and regulations and so on.
At various stages, the Government have recognised that consumer organisations of one sort or another are important in ensuring that competition is delivered. I am very happy to see that this clause gives the CMA the ability to comment on draft legislation, which is absolutely right, but, in doing so, it has to pay attention to its prime objective, which is not to create competition full stop but to create competition in the interests of consumers. Since in various contexts successive Governments have recognised that there needs to be some focus on that consumer input, it is important that we have some requirement on the CMA at least to consult such organisations when it is making an assessment of future legislation.
For example, many of us, including the noble Lord, Lord Deben, sat through lengthy proceedings on the previous Energy Bill, which sets up a whole new system of energy regulation and government interventions, with state and consumer subsidy of various bits of the energy system. It does not look entirely like a free market; I think that the noble Lord, Lord Lawson, at one point referred to it as Gosplan. It is not quite that, but it is a whole range of things to ensure delivery and availability of energy ultimately in the interests of the consumer, but it will change the nature of our whole energy system.
Lord Deben
There is a fundamental difference between saying that the CMA should consult with a range of bodies, which is what the noble Lord says, and the way in which the noble Baroness presented it, which suggested that it was a kind of duo or tripartite, or some sort of system where they do all this together as part of the same thing. There is a difference between saying that the CMA has a responsibility, which it carries out by, of course, taking into account the views of all these people, and saying, on the other hand, that it is a kind of function where they are part of the actual operation. Doing that second—and that is the point I was trying to make—removes the fundamental responsibility of both Government and the CMA to do this job properly.
Lord Whitty
My Lords, we have limited time as we are in Committee so I will only take a moment. It is certainly true that, at the end of the day, this report will be the CMA’s report and all it says is “in consultation” with these bodies. My noble friend and I both argued that the internal proceedings of the CMA should reflect a different structure of relationship with consumer bodies. That is now past. However, we are now saying—as I understand my noble friend’s amendment—that the CMA has a responsibility for producing this report, but it should do so clearly and explicitly and in the Bill, in consultation with the bodies that represent consumers and which the Government have recognised as so doing.
Baroness Wheatcroft
My Lords, I apologise for not being here at the beginning of proceedings, but I have to intervene on this. Consumer groups are extremely effective in making their views known. They lobby us very effectively and they certainly lobby the CMA. While it is right that the CMA should listen to them, I do not think that there needs to be any formalisation of that relationship when it is looking at legislation. On the second issue, the idea of an annual report on the state of competition in the economy, I agree with the noble Lord, Lord Whitty, that this would be a massive undertaking for the CMA to have to complete every year. In fact, it is very hard to see how it would be able to undertake its main role if it had to produce that report on an annual basis. It also seems to me that because consumer groups now have the right to bring a super-complaint, there is a degree of duplication anyhow in the amendment. If consumer groups feel very strongly, they can make their super-complaint. Therefore, I take issue with the amendment.
Baroness Neville-Rolfe
My Lords, Clause 36 is important and I thank the noble Baroness for providing us with an opportunity to debate it. In our various dealings on other legislation, we have agreed on the importance of competition to consumers and the role that consumers play in making competition a reality. The Government are very keen on competition and I am not going to try at this late hour to engage in the philosophical debate between my noble friend Lord Deben and the noble Lord, Lord Whitty, both of whom have great experience of regulation, regulators and competition. Indeed, I learned from the noble Lord, Lord Whitty, during the passage of the Water Bill, when I was on the Back Benches. I am clear, however, that the Government want to ensure that the powers are in place to effect proper competition. I hope this clause will be a significant contribution to that, empowering the CMA formally for the first time to make recommendations on legislation.
Amendment 35B relates to consulting consumer groups. The CMA is the independent, expert competition body. It is the body best placed to assess the likely impacts on competition of legislative proposals. In considering proposals from Government, it will take into account their impact on consumers. This is a key value and it is enshrined in the CMA’s primary duty as set out in the Enterprise and Regulatory Reform Act 2013. This states that,
“the CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Consumer advocacy groups have a valuable and vital role to play in scrutinising proposals brought to Parliament. That will continue and they can make their views on proposals known as and when they see fit. As the noble Baroness, Lady Wheatcroft, rightly said, they often do that in many different ways. The CMA works closely with consumer advocacy groups, including Which? and the Citizens Advice service. CAB is also an active member of the Consumer Protection Partnership, although, sadly, Which? chose not to join it. The CPP brings together publicly funded enforcement, advocacy and advice organisations to share, compare and interpret intelligence to identify trends in the causes of consumer detriment. Regular scheduled meetings of this group and its sub-group are held throughout the year, and it plays an important role.
The CMA’s main responsibility is to ensure that competition and markets work well for consumers. That is one of the main reasons we value competition: it leads to better deals for consumers by encouraging innovation, new products, new ways of doing things and more competitive prices. In its annual plan for 2014 the CMA made a commitment to put consumers at the heart of everything it does. It is embedding this approach in its thinking and processes across the organisation, as well as establishing a programme to reach out to consumers and to a wide range of consumer organisations. An example of the success of that approach is the low income consumers project, where the CMA engaged actively with the CPP and other organisations that have a role in protecting consumers to review how problem debt affects consumers’ decisions and choices regarding the goods and services they purchase. There is also a practical timing point in response to this amendment. Requiring the CMA to consult others before making use of its new power would inevitably delay the timeliness of its recommendations, which might in turn diminish its influence and impact on new legislation.
Amendment 35C relates to an annual competition health check in collaboration with consumer advocacy groups and representatives of small business. Well functioning markets work for consumers, business and the economy, and for small business. The aim of the CMA is to make markets function in that way and to promote competition. In understanding markets and establishing priorities, it is of course important that the CMA takes into account the views of interested parties, including consumer advocacy groups and small business. However, effective mechanisms are already in place to achieve that. The intelligence gathered by the CMA through its engagement helps to inform its annual business plan. On 26 November it published its draft annual plan for consultation, and its strategic assessment was published the following day. The draft version of that plan sets out plans and priorities for the coming year. The consultation gave interested parties, including small business, the opportunity to provide views and comments on the proposed priorities. The consultation period closes on 23 January and a final version of the plan will be published in March.
The CMA has limited resources, and it is important that it is focused in the most effective way. New and effective mechanisms are already in place to enable it to gather intelligence, including vital consumer intelligence. The introduction of a new duty to produce an annual competition health check would divert resources away from tackling problems in markets that have already been identified, which at present, of course, include banking and energy. In view of the comments that the noble Baroness made, I am sure that she welcomes that. The CMA inquiry is a very important moment for the energy market. The independent and authoritative analysis that the CMA will bring will start rebuilding trust. The investigation is looking at many very important issues: barriers to entry, the impact of vertical integration, market power in generation, and weak incentives for companies to compete in retail markets, including of course any lack of consumer engagement.
To conclude, therefore, we are doing enough, and the provisions in the Bill should be welcome, although I suspect that we may not agree this evening. I am very grateful for the support of my noble friends Lord Deben and Lady Wheatcroft, and other noble Lords, on this important amendment. In the circumstances, I hope that the noble Baroness will agree to withdraw her amendment.
Baroness Hayter of Kentish Town
I thank the Minister but her suspicions, as ever, are completely accurate. We do not agree.
We are getting close to the time to finish, but I have two things to say. The problem with the CMA or for any of us who are legislators, in government, or whatever, is that the impact of malfunctioning markets falls most heavily on consumers. They are the ones who get ripped off when markets do not work. Not to have embedded in discussions in both identifying those problems and in looking at solutions the very people who feel the whack of it seems to be a mistake in legitimacy terms.
Baroness Neville-Rolfe
I agree that consumers are absolutely central to this. I have said it on many occasions, but I believe that we have a reinvigorated CMA. The processes for engagement with everybody, including small businesses and consumer groups, which are the subject of the second amendment, are very strong. It would be a mistake, as others have said, to put yet more requirements and red tape into this area because I fear that that would have an adverse effect on the ability of the CMA to tackle and use its competition powers to look at these very important markets in the way in which it is looking at energy.
Baroness Hayter of Kentish Town
The Minister might well say that. However, the Which? manifesto—I gather there is a general election in the offing—is that the CMA and all sector regulators should carry out routine, cross-examining analysis on the state of consumer competition. That may sound familiar to those who have been reading the amendment. The Minister may be very confident that consumer representatives feel that everything is tickety-boo—sorry, Hansard—but that is not how the consumer organisations themselves see it, and they have called for this. That is an important element. They still feel that they are shouting from the outside.
I take very much the comments made by the noble Baroness, Lady Wheatcroft, on what the problem is, as someone who has both run a lobbying organisation and an embedded consumer body within a regulator. The difference in the impact that one could make is enormous. Shouting from the outside one tends to do late. Indeed, I think the Minister gave it away when she said that consultation could delay something. The suggestion I hear from that is that we will have our report and then we will consult on it. That is not what we are trying to do.
Baroness Neville-Rolfe
There are systems within the CMA set-up, including the CPP, which allows it to consult on things. Who knows what the exact facts are, but that is how the system is designed. It is to try and give pre-eminence to competition which is done in a way that is envied by other member states I visit. They are very concerned both about competition and consumers.
Baroness Hayter of Kentish Town
The Minister thinks that we are not very far away. She is saying “Do it in consultation” and I am saying that, too. I tabled an amendment about consultation and the noble Baroness is saying that we are doing it in consultation but does not want this amendment because she does not want to do it in consultation. That is not quite an accurate portrayal of what we are saying but it sounds as if we are closer than maybe the Minister wants to admit. Having a review of how something will affect the competition and asking the CMA that is meant to do this only for consumers and not do it in consultation would be strange. Therefore, adding the words,
“in consultation with consumer advocacy groups”,
seems easy. That was the first amendment.
On the second amendment, the idea is to make sure that all the time somebody is asking, “Are there failures in the market?”. The difference between us is that it sounds as if everything is going well, yet our experience is that consumers are not always getting a good deal from parts of the market. The system that is set up is not good enough. We have been in government. My noble friend was actually in No. 10 but he obviously was not doing enough at the time. My other noble friend was a Minister, so it clearly goes back a long way. The idea is that we should have a driving mechanism, which is what the second amendment is about. The first amendment is important and one to which we should return. The idea of excluding those who are most affected by the lack of competition cannot be right, but for the moment I beg leave to withdraw the amendment.
House of Lords
Introduction: Baroness Wolf of Dulwich
Roads: Young Drivers
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Jordan
To ask Her Majesty’s Government whether they have any plans to produce a Green Paper to address the incidence of vehicle accidents involving young drivers.
The Minister of State, Department for Transport (Baroness Kramer) (LD)
My Lords, Britain has some of the safest roads in the world. However, young drivers are disproportionately involved in collisions. There is a difficult balance to strike between promoting young drivers’ safety and their freedom to access work and education. We will not rule out further measures, but at present we are focusing our efforts on technological solutions. We recently commissioned research into how telematics can reduce accident rates among young drivers and the findings will help to shape future road safety policy.
Lord Jordan (Lab)
I thank the Minister for that reply. Young drivers account for about 20% of all road deaths, yet they represent only 7% of all fully licensed drivers and have less mileage than older drivers. Measures have been tried for many years, and all have failed. It is now time for this issue to be grasped. I believe the time has come for an all-party commitment, before the next election, to a Green Paper on young drivers that is prepared to see more radical solutions than we have seen so far. This will not only harness those who want to support this but will certainly give some relief to all the parents in Britain who are terrified of the statistics I have quoted. Is the Minister prepared to be part of an all-party commitment to a new Green Paper?
Baroness Kramer
My Lords, the Government are not ruling out any programme that safeguards young drivers, but at the moment we are focusing our efforts on technological solutions, such as the telematics I described. We think they offer great potential and will help to get the right balance between safety and the freedom to use a car, which is so important to many young people.
Baroness Gardner of Parkes (Con)
Will the Minister consider looking at the Australian system, which is very much tougher on young drivers? Until a certain period has passed, you have to have a nil alcohol level, but the real secret is enforcement. Will she look at that policy?
Baroness Kramer
Obviously it is important to look around the world, and we do. I agree that enforcement is important, and that is one of the very important areas for telematics, which provide a running judgment on the way in which a car is being driven at any moment.
Lord Wills (Lab)
My Lords, the Minister will be aware that of the serious accidents caused by young drivers, the great proportion of those accidents, and fatalities, are caused by young men drivers, not by young women drivers. This is as much a cultural problem as anything else. What are the Government doing specifically to tackle that aspect of the problem?
Baroness Kramer
We have extensive programmes on issues around drink driving, and I am sure your Lordships are aware of those campaigns. We have a very good safety record in this country, frankly, but we can never be complacent about that. As I say, the focus of the work is now on what we can do with telematics, which now enable us to tackle this problem in a much more targeted way. Research is under way so that we will be able to do that effectively.
Lord Bradshaw (LD)
My Lords, I concentrated on road safety for many years when I was a member of the Thames Valley Police Authority. The injuries which young men suffer—often at night, usually driving too fast, usually driving in wet conditions—are horrendous, and they are horrendously expensive. I wonder whether, instead of a Green Paper, the Minister would consider some legislation to make things like provisional licences a reality rather than something which people refer to every few years and then forget about.
Baroness Kramer
My Lords, it is crucial that we use research and research-based evidence to design effective programmes. As noble Lords will know, there are many different examples around the world, but under its current system, which we are obviously seeking to improve, the UK actually scores very well on international measures.
Lord Howarth of Newport (Lab)
My Lords, will the noble Baroness be kind enough to explain, for the benefit of elderly drivers who may not know, what telematics are?
Baroness Kramer
My Lords, that, I am sure, his Lordship does know. It is basically a gizmo—if I may use such language—that is in the car, which constantly communicates the driving performance to the insurance company, so erratic driving and speeding are picked up on a live basis.
Earl Attlee (Con)
My Lords, is it therefore correct that the Government have wimped out on introducing graduated licences, and why do we allow motor manufacturers to build motor cars that can far exceed the prevailing speed limit?
Baroness Kramer
My Lords, as I say, we have not ruled anything out, but we think telematics are a useful direction to pursue because they let us target problem driving, so that many other youngsters who are driving well still have the scope to reach various education and social events. As for the question of general speed limits in cars, I have never addressed that, but I will try to find the noble Lord an answer and write to him.
Lord Davies of Oldham (Lab)
My Lords, is this the only Government who perceive a Green Paper as green grass into which they can kick difficult areas? In March last year the Minister made a commitment to produce this Green Paper. Subsequently it was quite clear that we would not see it before Christmas. We know the nature of the grass leading up to the next general election. This Government have no intention at all of tackling this significant road safety issue, and they stand condemned on that fact.
Baroness Kramer
My Lords, the review of telematics will be a two-phase study, and we should see the first phase in April. That will lay out what further work needs to be done. At the moment we do not have the evidence base or the research that we need to make sure that we are coming up with the most appropriate solution.
Baroness Walmsley (LD)
My Lords, could I ask for a little more clarification about telematics? Does this mean that this gizmo has to be put in the car of every young driver for a period after they pass their test? Could my noble friend the Minister explain a little further?
Baroness Kramer
At the moment, Members of your Lordships' House may themselves have driving insurance that has telematics attached. Anyone going on to one of the websites and looking at various insurance premiums will see that discounts are available for most companies if there is an agreement to use the telematics system. It is still obviously fairly early on in its life. That is why we need to have research, because we want to understand whether there is a good relationship between this ongoing monitoring of what is happening in the car and the actual accidents about which we are all concerned.
Lord Dubs (Lab)
The Minister has not mentioned young motorcyclists. Are they not the group that is particularly in danger of accidents?
Baroness Kramer
The noble Lord is right that young motorcyclists are also disproportionately engaged in accidents. I am frankly not clear on the insurance and telematics potential for motorcycles, and I will have to write to him on that.
Battle of Waterloo: 200th Anniversary
Lord Forsyth of Drumlean
To ask Her Majesty’s Government what plans they have to mark the 200th anniversary of the Battle of Waterloo.
Lord Gardiner of Kimble (Con)
My Lords, the Government are working with Waterloo 200, a charitable trust, to commemorate the 200th anniversary of the battle. Many activities are planned across the United Kingdom and in Belgium. The Government announced, in June 2013, £1 million of funding to ensure that the famous farmhouse at Hougoumont is restored by 18 June. Activities to commemorate this anniversary and others have benefited from heritage lottery funding.
Lord Forsyth of Drumlean (Con)
My Lords, I am grateful to my noble friend, and delighted to hear that. However, in commemorating a famous victory over Napoleon by the Iron Duke and his European allies, does my noble friend agree that we must never forget the sacrifices made by the peoples of these islands over the past 200 years in defence of peace, prosperity, democracy and freedom in Europe? In this week of all weeks, we must stand together as a United Kingdom with our allies in defending this precious legacy.
Lord Gardiner of Kimble
My Lords, I entirely agree with the sentiments that my noble friend expresses. Indeed, Waterloo secured peace in Europe for nearly 50 years. Men and women from all parts of the United Kingdom have made the ultimate sacrifice in the cause of freedom over the past 200 years. We rightly commemorate them; we are as united now as we have been before in the cause of freedom and tolerance.
Lord Anderson of Swansea (Lab)
My Lords, for Blücher should we not read Merkel, and recognise that one suitable way of commemorating this is to recognise that we have a national interest in keeping in close touch with our German allies and partners?
Lord Gardiner of Kimble
My Lords, it is undoubtedly the case that we should be in touch and work with all our partners on current affairs, but it is of interest in relation to Waterloo that a number of Länder are commemorating the Battle of Waterloo. The noble Lord mentioned Germany. Hanover, Brunswick, Berlin, Hamburg and Wiesbaden are all commemorating the battle.
Earl Cathcart (Con)
My Lords, I am fortunate to have in my family archives some original maps of the battlefield used by various members of my family who fought at Waterloo. One was aide-de-camp to Wellington and another had three horses shot from under him during the battle. Happily, both survived and went on to become generals like their father, grandfather and great-grandfather. So, naturally I welcome the Government’s donation to help the restoration of Hougoumont. However, can I ask about the overall cost of that project and the overall funding? Presumably, individuals have donated. Have any other countries made donations? Presumably not the French.
Lord Gardiner of Kimble
My Lords, as well as the United Kingdom Government’s funding, the Government of Wallonia—part of Belgium—have contributed €900,000; there are also Belgian sponsors and UK sponsors of €1 million and £2 million respectively. The Hougoumont site is hugely important, as is known: it was the battle within the battle.
Baroness McIntosh of Hudnall (Lab)
My Lords, this House has within its walls a remarkable commemoration of the Battle of Waterloo in the shape of the Daniel Maclise fresco in the Royal Gallery. It commemorates not only the triumph of Waterloo but also its great tragedy. Will the Minister give the House an up-to-date account of where we are with the restoration of that fresco and its partner?
Lord Gardiner of Kimble
My Lords, I spoke to the curator this morning, rightly anticipating this question. This is a very intricate and complex matter and the University of Cologne is considering all the points that come out of its research. After that careful consideration —because obviously we do not want to do anything at all that could further damage the paintings—this will come before the Works of Art Committee. The options before it will then be considered, and then all of us will hear more.
Baroness Bonham-Carter of Yarnbury (LD)
My Lords, picking up on the artistic aspect, does the Minister agree that one of the most effective commemorations of the First World War was “Blood Swept Lands”—the ceramic poppies at the Tower of London? That was a very strong and evocative example of the power of artistic endeavour in bringing people together. I agree with my noble friend Lord Forsyth that Waterloo 200 should similarly emphasise not the triumph but the tragedy of conflict—tragedy that we experienced so starkly last week.
Lord Gardiner of Kimble
My Lords, I think that that is why we have all, rightly, used the word “commemoration” and never “celebration”; it precisely encapsulates what we all feel about the sacrifice of these dreadful battles. However, we are grateful that we prevailed.
Lord West of Spithead (Lab)
My Lords, I understand that, as part of these celebrations, one of the events will be a re-creation of the dispatch from Brussels to London. It is a very good educational tool. HMS “Peruvian”, which took the dispatch from Ostend, was becalmed off Ostend and the captain and four sailors then rowed 18 miles to Broadstairs. Does the Minister not think that if we are going to re-create that, we need to start training some captains in the Royal Navy now to achieve it?
Lord Gardiner of Kimble
My Lords, the dispatch and delivery of this great news, and the peace that unfolded in Europe, were hugely important; and, indeed —as the noble Lord will confirm—the Battle of Trafalgar ensured that there was peace at sea for a very long time.
Lord Spicer (Con)
My Lords, on the morning of the Battle of Waterloo the Duke wrote: “I have no time to write a short letter so I will write a long one”. He was probably referring to a divorce case in which he was unfortunately one of the cited parties. Is it not the case that, had the journalistic practices that prevail today applied in that time, he might never have been supreme commander and we might have lost?
Lord Gardiner of Kimble
My Lords, we can all be extremely grateful for the Duke of Wellington’s courage and bravery.
Alcohol: Addiction
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Avebury
To ask Her Majesty’s Government what are Public Health England’s plans for combatting alcohol addiction.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, Public Health England recognises that the harmful use of alcohol is a major health risk. The harm from alcohol is preventable; alcohol is one of seven key priorities that PHE is focusing on. It is implementing a programme to support national and local government, the NHS and partners to implement evidence-based policies and interventions. Included in this work is the reduction of alcohol addiction.
Lord Avebury (LD)
Considering that three years ago, there were 1.1 million alcohol addicts in England and that abuse of alcohol was costing the nation £21 billion—and probably much more than that today—how can the Minister reconcile the fact that we spend only one-tenth as much on treating alcohol addiction as we do on patients suffering from drug addiction? Why is it taking until 2016 to update the guidance on access to mutual aid fellowships such as Alcoholics Anonymous, when the ACMD has shown that there are effective ways of combatting the addiction?
Earl Howe
My Lords, my noble friend was kind enough to give me advance warning of those questions. I have to say to him that we do not recognise the figures he quotes; nor do we think that the comparison he makes is like for like. In 2007, an estimated 1.6 million people had some degree of alcohol dependence, including those with a slight dependence. Of those, some 250,000 were believed to be moderately or severely dependent. The specialist treatment centre system continues to work well for many people. Many of the trends in terms of treatment are positive. As regards supportive relationships, I fully agree with what he said; they are a vital element in helping individuals build their own recovery. In October 2013, Public Health England produced a strategic action plan for supporting the treatment sector to strengthen its links with mutual aid organisations to ensure that everyone in treatment can benefit from that support.
Lord Hunt of Kings Heath (Lab)
My Lords, how many meetings have been held between Ministers and representatives of the alcohol industry since the last election? Why are the Government delaying the publication of the Chief Medical Officer’s review of safe drinking levels until after the election? Are the two connected?
Earl Howe
No, my Lords, they are not. The Government have regular dialogue with the industry, but the industry does not formulate policy and never will do. There has been a delay on the new guidelines; the consultation on them had been planned for December last year but will not now happen until shortly after the general election. That is simply due to problems with Public Health England commissioning expert advice on guideline methodologies, which took longer than intended. The academic body that PHE wanted to do the work decided that it did not have the capacity to do so. A tender exercise was therefore necessary and the work is being carried out by a team from Sheffield University.
Baroness Howarth of Breckland (CB)
My Lords, the Minister is well aware of the effect of alcohol on unborn children. What are the Government doing for young mothers who are either addicted to drink or unaware of the difficulties that alcohol creates for their children in terms of education both through the health service and the education system?
Earl Howe
My Lords, the Royal College of GPs has a special focus at the moment on giving advice to GPs. We are also dramatically increasing the number of health visitors, who are, of course, highly instrumental in influencing the behaviours of mothers-to-be and young mothers.
Lord McColl of Dulwich (Con)
My Lords, does the Minister accept that although alcohol was until recently the commonest cause of liver disease, the commonest cause is now the obesity epidemic, which is killing millions of people? Some 13 million people in this country are suffering from obesity—far more than are suffering from alcohol problems.
Earl Howe
My noble friend is absolutely right. More than 90% of liver disease is due to three main, preventable and treatable risk factors—alcohol, hepatitis B and C, and obesity. Alcohol accounts for 37% of liver disease deaths, but obesity is indeed a major factor in this.
Lord Brooke of Alverthorpe (Lab)
Will the Minister explain to the House why, when his Government came to power, they tore up the draft strategy on liver disease that had been prepared by the previous Government? What are they going to do to put one in place and, given the complaints we have heard, make sure that the growth in the number of deaths is reversed?
Earl Howe
My Lords, Public Health England has a programme of work to ensure that all the bases are covered. It is producing a report for government that will be published later this year. Over the next 18 months, there will be a longer programme of work on such things as a framework for liver disease, setting out the evidence base for the introduction of a minimum unit price for alcohol and using alcohol as the trail-blazer for a new whole-system approach that establishes what works and is clear on the return on investment, to enable government to take action based on evidence.
Baroness Hollins (CB)
My Lords, the Board of Science at the BMA, which I chair, believes that the availability of cheap alcohol, such as white cider, is one of the main causes of the rise in addiction. We believe that the sale of cheap alcohol needs to be tackled through the introduction of a minimum unit price and that prevention really is better—and cheaper—than cure. What does the Minister think about that?
Earl Howe
Minimum unit pricing remains under consideration while additional evidence becomes available. We are not taking it forward at the moment. We need to give careful consideration to any possible unintended consequences of minimum unit pricing, such as the potential impact on the cost of living, the economic impact of the policy and increases in illicit alcohol sales. It is, and has only ever been, part of the Government’s alcohol strategy—although, as I mentioned a moment ago, Public Health England will be assembling the evidence base for the introduction of a minimum unit price for alcohol to advise the next Government.
Lord Garel-Jones (Con)
Does the Minister agree with me that alcohol is properly defined as a habit-forming, hallucinatory drug, and is it not about time that Governments began to treat the use and abuse of this particular drug with the same seriousness as they do the abuse of other drugs?
Earl Howe
My noble friend makes a very good point. Alcohol in moderation is something that we can all enjoy, but people who binge drink or drink drive cause problems for accident and emergency departments. They are the people we have to bear down upon. I believe that we do now have effective systems of regulation and enforcement, which are proving their worth.
Village Life
Lord Roberts of Llandudno
To ask Her Majesty’s Government what steps they are taking to safeguard village life.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, this Government are safeguarding village life. We have already given community rights to give power to communities, enabling them to shape their place and protect their local assets. We have also delivered over 7,500 affordable homes in the smallest rural communities. The £20 million community branch fund is supporting Post Office community branches, enabling them to further enhance their sustainability and viability, and the Rural Development Programme for England has invested over £400 million to grow the rural economy.
Lord Roberts of Llandudno (LD)
I thank the Minister for that reply, but I am sure he will agree that villages of, say, 1,000 or fewer residents are not just to be suburbs of larger towns, but places where people can live and earn their living. Can the Minister tell me what plans the Government have to encourage the liveliness and buoyancy of villages? Could we ask every community and parish council to draw up a plan so that they know what their present status is, what their problems are, and what their proposals are for the future?
Lord Ahmad of Wimbledon
I agree with my noble friend; he makes a very good point about the importance of village life. As I have already alluded to, the Government are investing a great deal in this respect. Let me draw the attention of the House to the Rural Community Buildings Loan Fund that the Government are supporting, which is a £700,000 Defra fund that is managed by ACRE and encourages communities to raise funds. Of course, the Government have also pushed and worked with the Post Office to ensure that post offices are retained at a local level and we are working alongside banks to ensure that communities in the most remote parts can access financial services. Indeed, I believe that RBS has just started a mobile scheme that goes out to about 90 rural towns that are hard to reach, which is quite innovative and certainly is supported by the Government.
Lord Clark of Windermere (Lab)
Is the Minister aware that in many villages in national parks the fact that more than 50% of the houses are now used as holiday lets means, for example, that GP practices are having to close in places like Coniston and Hawkshead in the Lake District because there are insufficient permanent residents? What plans does the Minister have to consider the proposals from local authorities that they should have some say on the designation of holiday lets?
Lord Ahmad of Wimbledon
The Government have already outlined their commitment to the localism agenda. I have talked previously from the Dispatch Box about local enterprise partnerships. These are prevalent not just in towns but in villages and within the rural economy. Currently five pilot rural growth networks have been established in Warwickshire, the north-east, Swindon in Wiltshire, the heart of the south-west and Cumbria. These are all working with the local authorities and local lets to encourage local growth. The noble Lord’s point about holiday lets is well made. However, we are working with local authorities to ensure the vibrancy of local economies and local housing.
The Lord Bishop of Rochester
My Lords, reference has been made at various points to housing. The Minister will be well aware of the importance for the sustainability and vitality of rural communities of a good mix of housing, housing tenure and so forth. Does he agree that community land trusts are a valuable and perhaps essential way of ensuring a continuing and permanent supply of affordable housing in rural communities? If so, what commitment have the Government made to increasing the number of such trusts?
Lord Ahmad of Wimbledon
The right reverend Prelate makes a valid point. We work with local authorities to ensure that we identify trusts which can take forward development of the local economy. The community right to build was part of our localism agenda and we are encouraging that. However, I fully acknowledge that there is a lack of affordable housing in villages, which has a knock-on effect on sustainability. We are currently looking to deliver more than 73,000 affordable homes that have been provided for in rural local authorities in England since April 2010.
Lord Deben (Con)
When my noble friend talks to local authorities, will he talk to them seriously about their partiality in these matters? Many of them will deal only with what they call larger villages—central villages that are convenient for them—rather than with small villages. I, for example, am told that I do live not in a village but in a scattered settlement. It has always been a village but it is now a scattered settlement. The reason is that the local authority does not want to treat us as it treats others because that would be inconvenient for its bureaucracy. Will the Minister please have a word about this partiality?
Lord Ahmad of Wimbledon
I of course recognise my noble friend’s concern, including his reference to a scattered development. I will certainly look into that. In Arun in the county of Sussex the country’s first three community right to build orders were successfully passed in Ferring, Arun district, in December last year.
Lord McKenzie of Luton (Lab)
My Lords, the Minister has acknowledged the lack of affordable homes in rural areas. In particular, is there not a lack of smaller homes? In these circumstances, does not the bedroom tax have an especially pernicious effect on rural areas, and is not the only solution to get rid of this wretched tax?
Lord Ahmad of Wimbledon
The important point is how many homes are being built. I am sure the noble Lord recognises that we currently have a record number of housing starts and, indeed, housing builds, and that is what we need to encourage. I have already alluded to some of the initiatives that we are taking. I believe my noble friend Lord Freud has previously highlighted that, where difficulties with the bedroom tax are identified, the Government have made available funds to help people in that situation.
Health and Social Care (Safety and Quality) Bill
Self-build and Custom Housebuilding Bill
Recall of MPs Bill
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Wallace of Saltaire
That it be an instruction to the Committee of the Whole House to which the Recall of MPs Bill has been committed that they consider the Bill in the following order:
Clauses 1 to 6, Schedule 1, Clauses 7 to 10, Schedule 2, Clauses 11 to 16, Schedules 3 to 5, Clauses 17 to 20, Schedule 6, Clauses 21 to 25.
Pension Schemes Bill
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
Lord Newby (LD)
My Lords, the Government intend that all those who stand to benefit directly from the new pensions flexibilities provided by the Taxation of Pensions Act 2014 should have access to pensions guidance, which will help to empower them to make informed decisions about their pension savings.
The amendments to Clause 47 and Schedule 3 are technical amendments to ensure that this is the case. The amendments in this group adjust the definition of pensions guidance in new Sections 333A and 137FB of the Financial Services and Markets Act 2000, to extend pensions guidance to survivors of members who have benefits to which the flexibilities will apply, rather than just to members of pension schemes. This is needed because in some circumstances pension schemes may provide benefits to survivors of members of the scheme other than insurance-based products or cash lump sums—that is, flexible benefits—without their becoming members of the scheme. I beg to move.
Lord McAvoy (Lab)
My Lords, a large number of government amendments have been tabled for today’s business. The impression given is of last-minute thoughts responding to last-minute contributions and suggestions. If the Government had been doing their groundwork properly, they would not have had to respond to such issues by moving the amendments.
I thank the Minister for doing his best to explain the amendment. I think he has said that these are minor and technical amendments, but can he confirm that that is so and that they do not substantively change the effect of the Bill? Quite frankly, we know what the Government are saying in these amendments. I do not think there has been time to study them very well, so we will reflect on what the Minister has said and consider it very carefully ahead of Report.
Lord Newby
My Lords, I can absolutely confirm that these are minor and technical amendments.
Lord Bradley
“Guidance guarantee: annual review
The Secretary of State must each year produce a report on the effectiveness of the guidance under Schedule 3, and that guidance must include—(a) the number of people who have taken up the guidance;(b) the number of people eligible to take up the guidance who did not do so;(c) the effectiveness of the guidance in preventing instances of consumer detriment through the purchasing of inappropriate products.”
Lord Bradley (Lab)
My Lords, I beg to move Amendment 30. At the start of our deliberations, it is worth reminding the Committee that at Second Reading we took two pension Bills together: the Pension Schemes Bill and the then Taxation of Pensions Bill. We did so because it was recognised that the two Bills were interrelated and that the issues to be scrutinised and debated were inextricably linked between them. While there was no debate in this House on the Taxation of Pensions Bill, as it was a money Bill, it would be impossible not to refer to these interrelationships in our deliberations today on such matters as pension guarantee, guidance guarantee, product development and the financial and economic consequences of the Bills.
Furthermore, we will continue the theme that we developed on day 1 in Committee: since so much of the Pension Schemes Bill relies on regulation—to date such regulations have not seen the light of day—we will continue to press the Government for far more information on the regulations, to try to make as much sense as possible of how the proposals in the Bill, and the Bills, will be implemented.
Similarly, we have highlighted the speed at which this legislation is being brought to the statute book, which further hinders scrutiny not only inside Parliament but by key stakeholders. These include those who will be responsible for delivering the crucial guidance guarantee—particularly Citizens Advice and the Pensions Advisory Service—and the pensions industry and its representative bodies, who will need to respond to the effects of the policy changes, some of which come into force in barely three months’ time.
As we have made clear throughout our deliberations, the overriding objective is broadly to support the freedoms and flexibilities in the Bill and to ensure that the public have all the information they need and the guidance they seek to ensure their interests are protected, and that they receive the best outcomes for their retirement without the fear of the scandal, for example, of mis-selling, which the public encountered some years ago.
One example of what I am alluding to emerged only today with the revelation from the Government that only 45% of new pensioners will be entitled to the full new flat-rate state pension in the first five years of the system. That is 2 million people who will not get the full amount. Certainty of the amount of the new pension will be critical in the decisions people may make about how they plan their retirement income or draw down cash immediately after April. I know that the Minister will want to clarify the situation when he responds.
It is in that spirit that I move Amendment 30. At the heart of the amendment is our wish to ensure that the Bill works in the way that it is intended, and that the guidance will be both taken up and prove effective in helping people to choose the right products to fund their retirement or to make the right decisions about lump sums or other retirement income. We believe that guidance is needed but we are concerned that this House has, to date, been provided with too little information about what guidance will be offered. Additionally, will the quality of this guidance ensure that people make the right decisions for themselves and their families, now and in their later years?
I welcome the fact that more information about the guidance has been produced today and I thank the Minister for providing the Committee with it. In particular, we now have the title of the service, ‘Pension Wise’, and the branding, “Your Money. Your Choice”. However, I stress that at this point we are talking about guidance and not advice. We have made this point on a number of occasions during our deliberations and it is important to keep in mind the distinction between guidance and advice on which people rely.
I know it is intended that the guidance should be comprehensive—that has been elaborated on today in the announcement from the Treasury—which, to some extent, is reassuring. The assumption is part-based on the discussions in the Public Bill Committee in the House of Commons, especially the interchange between the Minister for Pensions, Steve Webb, and the shadow Minister, Gregg McClymont. The Minister said in the other place:
“Guidance will discuss the pros and cons of different financial products and services”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 283.]
He quoted the Financial Conduct Authority, saying that,
“guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement options”.
The FCA also thinks guidance should include information on tax matters. This is clearly an important consideration. The Minister responsible in the other place went on to say that a guidance session has to be person-specific and that he was consulting for opinions, attitudes and expectations on what is needed in good guidance.
I realise that the Treasury is taking this matter forward and leads on this. Again, I further welcome the information that has been provided in the guidance guarantee today. We have to ensure that we can digest the contents of that information that I received at lunchtime today, so that we can further consider the matters within it. That may lead to further consideration of the detail on Report.
It is reassuring to know that the Minister envisages guidance sessions to be comprehensive, but it raises the question of how much it will cost and how those costs will be met. The National Association of Pension Funds estimates the cost of advice for people seeking an annuity under the current system to be £681 million—I mean £681 per session. It does not go quite as far as millions; we might get to that at some later stage. That is hardly a simple assessment but it is not such a comprehensive session, in many ways, as the far-reaching guidance envisaged by Steve Webb, the Minister, and the Financial Conduct Authority.
At £681 per session, it will cost £480 million to provide those 600,000 people retiring in 2015-16 with guidance. But how many people will, in practice, seek guidance? It is safe to assume that some will not choose to take it up, perhaps because their pension pot is too small—maybe less than £10,000, although it could be argued that this group is the very one that will need the best advice. Others will pay an independent financial adviser. The Legal & General group helpfully undertook a trial of free advice to some 9,000 people. It reports that only 2.5% took up the offer. This would cost £154,000 at £681 per session. The Chartered Insurance Institute estimates a 90% take-up. This would cost £368 million. Which do the Government think most likely to be correct? Have the Government risk-assessed this? If so, can this information be available to the Committee? I note that the Treasury has today estimated a cost of the service at £35 million for 2015-16. I would therefore be grateful if the Minister would tell the Committee how this amount has been calculated.
The Minister also told the Public Bill Committee, on 4 November in the other place, that guidance providers will not be subject to FCA regulation. Instead, the FCA must put in place standards that designated providers must work within. Designated providers must be chosen and approved by the Treasury and the list will be available to the public. The FCA will have a duty to monitor compliance and the Treasury will take responsibility for ensuring that the FCA framework is sound enough. Is that sufficient? Monitoring may be comprehensive but fall short of regulation. Perhaps the Minister can assure us on how this compliance will work. As the Minister may imagine, at the heart of my concern is a strong desire to avoid another mis-selling scandal, which would put the guarantee for savers at risk, with savers therefore failing to get the retirement income they need and deserve.
The current designated partners, the Pensions Advisory Service and Citizens Advice, are very credible providers of advice and guidance generally. I am sure that Citizens Advice will ensure that all 380 independent bureaux, which will deliver that advice, have all the necessary public liability insurance in place to protect them from claims arising from the guidance tipping into advice and then being acted on. But is it right not to regulate this market? Will others seek to enter the market with far less credible track records than these two esteemed bodies? For example, will people selling products be able to offer guidance via the designated lists in the future? Furthermore, could the Minister explain what redress people will have in practice? With 600,000 people entitled to free advice, it is inconceivable that something will not go wrong. The fact that it is guidance, not advice, could prove to be an inadequate veil to hide behind. The Minister in the other place seemed to think that few people would seek redress. However, I remain concerned, and the implications could be huge.
Lord Freeman (Con)
My Lords, I find myself in sympathy with the spirit of the amendment but, I am afraid to say, the detail is somewhat defective. The spirit must be right because the more information that can be available and collected accurately, the better, so that the schemes in the Bill can be improved or amended in due course.
I draw the attention of my noble friend the Minister to the comments of the chartered institute and Royal London; first, on eligibility; secondly, on take-up; and, thirdly, on effectiveness. It is not really possible within a short period of time—that is, on an annual basis—to measure accurately the results of this legislation under those three categories. I look forward to what the Minister has to say, whether in response to this amendment or in due course on Report. I very much associate myself—and, I know, some of my colleagues—with the spirit of the amendment but I think the devil is in the detail.
Lord Newby
My Lords, I am grateful to the noble Lord, Lord Bradley, for the way in which he moved the amendment, and for setting out some of the broader issues that are covered by a number of groups. I hope the Committee will forgive me if I, too, take my introductory remarks slightly wider than the amendment itself, because I think they are both relevant to this amendment and spill across a number of groups.
First, I draw noble Lords’ attention to the publication today, which the noble Lord, Lord Bradley, referred to, of an update from the Treasury on the implementation of the pensions guidance service. It announced that the brand for the service will be Pension Wise, with the tagline, “Your money, your choice”. This branding will be used by all delivery partners and is designed to be easily recognisable. The HM Government logo will be used to support the Pension Wise brand where appropriate, to underline the credibility of the service. In answer to one of the points made by the noble Lord, Lord Bradley, potential scammers and fraudsters should be aware that the Bill introduces a new criminal offence which means that anyone passing themselves off as Pension Wise could face prosecution. I can reassure the noble Lord at this point about the way in which the guidance providers will themselves be regulated, and on the basis for the compliance.
The standards for designated guidance providers are in fact a Financial Conduct Authority instrument, so it is a legal document which it is exercising, I am sure the noble Lord will be pleased to know, under Section 333H, Standards for Giving of Pensions Guidance by Designated Guidance Providers, of the Financial Services and Markets Act 2000. It is therefore very much a statutory underpinning of all the guidance which guidance providers will have to follow. This is a detailed document to which I will refer later. Also from today, following the publication of the document, individuals have the opportunity to register their interest in early access to the service as part of the piloting activities. The publication also sets out details of how consumers can access and use the guidance, with further information on the progress and costs of implementation. I am sure that noble Lords will find this information useful.
I can assure the House that the Government are committed, in looking at the specific amendment, to a full programme of monitoring and evaluation which will look at the uptake of the guidance as well as how it is achieving its objective of informing consumer decision-making at the point of retirement. I share the noble Lord’s focus on ensuring that we maximise take-up of the guidance, and that is why the Treasury is legislating, through this Bill, to place a duty on the FCA to require pension providers to signpost people to the guidance as they approach retirement.
Last year, the FCA consulted on its proposals for delivering against this duty, and in November published a very detailed policy statement with its near final rules. Following Royal Assent, these rules will require pension providers not only to signpost individuals to the guidance service in wake-up packs issued four to six months ahead of an individual’s nominated retirement date, but to recommend to their customers that they seek guidance or advice whenever a consumer wishes to access their pension fund. That is one of the reasons the Government are announcing the Pension Wise brand now, so that the industry can get ready for these new requirements and start bringing the service to their customers’ attention as soon as possible.
I will clarify a statement I made to the House at Second Reading in response, I think, to the noble Lord, Lord McKenzie, on the issue of requirements in the round and progress towards the standardisation of the pension statements that providers will send to their customers approaching retirement. While it is not yet a formal requirement, the Government are clear that progress must be made by industry more quickly. The FCA has clarified in its near final rules that will underpin the guidance service that information about a customer’s pension pot must include, at a minimum, the current value of the pension pot, along with information on guarantees and other relevant special features. Building on this, the Treasury is working with the industry to standardise how the key information is presented. We have made it absolutely clear that the Government consider this to be a key priority. A wide range of respondents to our consultation last year on the pension freedoms made a convincing case that it is necessary to help consumers understand and engage with decisions on what to do with their pension savings. The Government welcome the recent commitment from industry trade bodies to support the development of standardised materials by the Treasury and to encourage their members to use them in communications with their customers as soon as possible.
The Government welcome the FCA’s commitment to consider making such standardisation a mandatory requirement in the wide review of its rules that will take place in the first half of this year. If the trials show that such standardisation helps consumers, I imagine that will be a very strong case for the regulator to require it. We must recognise, however, that not all individuals will seek to take up the guidance offer. It is their choice to do so. They may have other sources of help and advice, such as an independent financial adviser or advice services provided by their employer. We must ensure that consumers know that the guidance service is available and how it can help them, and encourage consumers to use the guidance as far as possible. We must, however, respect the fact that there will be consumers who will be content and equipped, for a variety of reasons, to make decisions without taking guidance. The FCA has introduced a number of safeguards to ensure that consumers are encouraged to seek guidance or, if they do not, are provided with the necessary information to support decision-making.
In summary, it is made clear that firms should not do anything to dissuade customers from getting the guidance. It has reaffirmed the expectation that firms will encourage consumers to shop around on the open market. It has introduced a new requirement that when communicating with customers about accessing their pension funds, firms are required to ask whether they have taken guidance or relevant financial advice and, if not, to encourage them to do so. It has introduced a new requirement on firms to recommend that consumers should seek guidance or advice rather than simply signposting to it. It has also confirmed that firms will be required to give a description of the tax implications of the option selected by a consumer.
Lord McKenzie of Luton (Lab)
My Lords, can the Minister help me on two points which arise from the Pension Wise document we got just this morning? Page 7, which recites progress to date, says that,
“until the service reaches maturity, overall responsibility for service design and implementation will remain within the Treasury”.
Will the Minister expand on that and say at what stage he believes the service will reach maturity?
Page 17 says:
“Telephone and face to face guidance sessions will initially be designed as a single session per consumer, though this will be kept under review”.
Will the Minister say something more about the components of that review? What will be taken into account in determining whether that single session for consumers is adequate?
Lord Newby
It is difficult to give a precise answer to the noble Lord’s first question, about maturity. The Treasury is, for good or ill, going to keep its mitts on this process until we are very satisfied that it is working well and is seen to be in a stable and successful state.
As for the single session, noble Lords will be aware that people will be able to access the service either online, on the phone or in person. The hope is that by giving people all the financial information that they require, by encouraging them, in the case of pension providers, and by explaining to people, before they turn up to their session, the kind of information that we are looking for, it will be possible to give adequate guidance in one session. We accept that that will not be enough for some people; they will have forgotten something or a thought will occur to them once they have left. We hope that of those cases, which we hope will be a small minority, a majority will be able to get an adequate response to a specific query by going to the website.
We accept, however, that for some people that will not be the case, and that in a minority of cases some people will need to go back, either to make a subsequent phone call or to have a subsequent meeting. However, we are working very hard to minimise that necessity—because, obviously, getting things right first time will be in everyone’s interest.
Lord German (LD)
My Lords, perhaps I could follow the point that my noble friend and the noble Lord opposite have just raised in respect of the same document. Box 2.A on FCA standards requires the people delivering the service to have a range of skills, which are numbered i to viii. I shall refer to a report last week in a newspaper that prints on pink paper, in which it was trying to seek from Citizens Advice and the Pensions Advisory Service the qualities of the people that they would employ. The report in the Financial Times that I am quoting from says:
“Citizens Advice said details of where the”,
agents and case workers,
“would be deployed throughout its … bureaux … were still being finalised. However, it conceded that consumers could be required to make a further appointment if their questions could not be answered during their … guidance sessions”.
That raises two separate issues: one is the quality and skills of the people who are delivering the guidance service, and the other is whether Citizens Advice is on side with the idea of delivering it in one go. The comment seems to suggest that its people may not have answers to the questions that are being raised by those people seeking guidance in their first interview. I wonder whether the range of flexibility on the two is at all appropriate.
Lord Newby
My Lords, we are keen to make sure that by the time people have been through the guidance process, they are able to make the best decisions for themselves. As I say, we hope that that will be possible in the vast bulk of cases first time around.
I think that what will happen in giving guidance in this area, as happens elsewhere, is that there will be a number of very special cases, but the vast bulk of people will have the same issues as others. The CAB, which after all has to give advice on the whole benefits system, which if anything is even more complicated than the pensions system, has a proven track record of developing the skills of people, and is very good at this—while this is, of course, what the Pensions Advisory Service does.
So we are confident that there are going to be well qualified people. We are building flexibility into the system—partly by having three ways of accessing it and partly, as I say, by, in exceptional circumstances or in a minority of circumstances, allowing people to go back—and we hope we are going to make sure that at the end of the day people will all have the degree of guidance that they need, relevant to their needs, to enable them to make well informed decisions.
Lord Bradley
I thank the Minister for his comprehensive reply, particularly when he said that the Treasury would be keeping its mitts all over the service. I assume that that was meant to be reassuring.
I note that he said that he thought the BBC had got the story wrong today about flat-rate pensions, and I listened with great care to his explanation, which we will need to reflect on very carefully. It is vital that people are clear about what their pension income will be when they are making plans about their whole-pot retirement income. I hope that when I read his response, it will be clear that that information will be available to people well in advance of them taking advice from the CAB, the Pensions Advisory Service or whatever source they may choose, so that they can rely on the figures provided to them by the Pension Service.
Lord Bradley
“Pensions flexibility: impact on government revenues
(1) The Chancellor of the Exchequer shall, within a period of 2 years from 6 April 2015, publish and lay before both Houses of Parliament a review of the impact of pension flexibility on government revenue, with particular reference to opportunities for tax and national insurance contributions avoidance.
(2) The information published under subsection (1) should include an assessment of the impact on—
(a) the use of salary sacrifice arrangements;(b) income tax receipts; and(c) national insurance contributions.”
Lord Bradley
My Lords, the two amendments in this group are intended to ensure that the effects of the pension flexibilities on the public finances and savers are adequately monitored by the Government. Their purpose is to ensure the publication and proper analysis of the information and that it is placed in the public domain to ensure transparency.
I shall speak first to Amendment 30B, which requires the Treasury to produce a review of the effects of the pension flexibilities 18 months after they are introduced. This reflects the question we need to consider around the guidance guarantee and wider issues of pensions flexibility. We support the introduction of pension freedoms and flexibilities, but we want to ensure that they are done in the right way and that consumers are adequately protected. However, the pace at which the reforms are being brought forward leaves open considerable concern about the effects of the rollout. On Report in the other place, the Minister said:
“The Bill was originally much shorter and obtaining the approval of, originally, the Government to bring it forward took place before the Budget … as we are in the final Session of a Parliament, everything has been on an accelerated timetable”.—[Official Report, Commons, 25/11/14; col. 804.]
The pace at which the wider pension flexibilities provided for in this Bill and in the Taxation of Pensions Act are being brought forward have also led to concerns among a number of other interested parties about whether the Government have fully bottomed out the policy and whether the rollout will go exactly as they are planning. A recent report in the Financial Times said that a lack of detail about the reforms has left the industry concerned that they were at risk of failure. The chairman of the National Association of Pension Funds said:
“There are 4.2 million savers over the age of 55 who from next April will have the right to ‘choose’ how they take their retirement savings”.
He also said that,
“this lack of detail—this lack of clarity—is severely limiting our opportunity to get things right for our members … and it’s increasing the risk of failure”.
I point this out by way of background to show that, come April, there will still be a lot of work to do in reviewing the effects of the changes. The details of this amendment enable the Government to do just that. Conveniently, they will be along the lines of the test that we have already set out for these reforms: they should be fair; there should be decent products for low and middle-income savers; and the reforms should not result in extra pressures on the public finances.
The ongoing position of annuities is one such matter that needs to be considered. For some people, annuities will remain an attractive product because of the security they provide. The Treasury have recognised that this is the case. Therefore, if the market for annuities were to suffer some major change, and perhaps products that were good value in the first place were no longer then available, that would be something for this House to consider carefully. This is why the amendment requires a review to consider that matter.
Noble Lords will also be able to see that a review would be required to conduct an analysis of the cumulative effect on the revenues of the Treasury. Our other amendment on this point is focussed on the potential effects of salary sacrifice arrangements. It is also important to consider the possible costs in what the state may end up having to provide. I am not aware of any Treasury analysis of this. The Minister may well want to correct me on this and I am happy for him to do so.
Further, we still do not know how this will interact with changes to social care. In its written evidence to the Committee on the Taxation of Pensions Bill, the Association of British Insurers expressed concern that,
“a continued focus on early access at the age of 55 means that there may be barely enough in the pension pots of some savers to cover their near-term retirement income needs, let alone enough left to stretch to care costs in older age”.
We have also seen a recent report in which it is anticipated that pension withdrawals of this nature are set to rise by £6 billion above what the Government currently estimate. The charity Age UK warned last week that significant numbers of people could run out of cash in later life by withdrawing funds under the new plans unless tougher safeguards are in place.
We do not believe that the Government have conducted sufficient analysis of the potential impact on the social care landscape. We also believe that there has been a disproportionate focus on the new freedom to access pensions early, and to take money out, which was not previously possible, as I have just alluded to. That is why we are calling on the Government to publish a review setting out the distributional impact by income decile of the reforms in the Bill. It is also unclear what effect having access to flexi-access pensions will have on means-testing for social care. I am not sure that the Government have the answer to this yet, but I would be grateful if the Minister could tell us what effect an amount of money that exceeds the means test level in a flexi-access draw-down account would have on the individual’s liability. As I have already pointed out, that money may be expected to last until death, as an annuity would have, but it may be accessible in a way that capital sitting in a bank is. Will that meet the means-test criteria or not?
Just a few months from the changes coming into effect, there are clearly still a number of unanswered questions. That is why our amendment also covers a proper behavioural analysis of consumers in the light of the new freedoms and flexibility. At this point, may I also ask the Minister a question about access to funds? Is the report in the Sunday Times correct that the Minister in the other place is considering whether someone who has already taken an annuity may be able to buy themselves out of that so that they can be included in the new flexibilities and freedoms?
The other amendment in this group requires the Secretary of State to produce a report on the revenue impact of the changes contained in the Bill and the Taxation of Pensions Act. Taken together, there is the potential for the Government to lose a great deal of revenue. As a result, we want to probe the impact that this is likely to have on the figures that the Government have presented in the Budget and in subsequent reanalysis. The main issue at the core of this is so-called salary sacrifice, a potential tax effect first highlighted by John Greenwood in the Telegraph, whereby someone over 55 pays a large part of their salary into their pension pot to avoid paying national insurance and income tax. The Budget freedoms would then make it possible for them to flexibly access their money through their pension fund, saving them and their employer a potentially large amount of national insurance. Some 25% of what they access will be tax-free and the rest will be charged at their marginal rate of income tax. This does not appear to have been the Government’s intention, and steps have been taken to try to prevent this. An annual contribution allowance of £10,000 a year for anyone who is accessing pension benefit restricts the possible tax leakage but does not prevent it. The reduced £10,000 limit is activated only after the pension has been flexibly accessed for the first time. As explained by the Association of Accounting Technicians:
“In the first year, before the £40,000 allowance is lost, individuals over the age of 55 will still have the scope to save … NI on the full £40,000, provided they have the necessary earnings, less their existing pension contributions. Where an individual flushes (passes) an extra £30,000 through pension rather than drawing salary they will achieve a saving of £3,600 in employee NI, more than £1,500 in income tax and, also, £4,140 in employer NI (13.8%) in the first year. A total loss to the public purse of £9,240. The ‘Freedom and choice in pensions’ rules mean this money can be withdrawn immediately if an individual is over 55. This fact means that there will not be clear distinction between salary and pension for this age group”.
Questions remain for the Minister to answer over, first, whether that possibility was adequately taken into account before the change was announced and, secondly, whether the revisions made since then are sufficient. For instance, the Government’s revised figures that take into account the changes made since the Budget forecast a loss of £35 million in the first year, and then £25 million for years after that. However, if we are to assume that the annual allowance reduces the potential for tax leakage, why do the revisions forecast a loss? The only conclusion I can draw is that the initial figures did not take into account the potential for salary sacrifice. Can the Minister confirm that this is the case?
It may be the Government’s intention to introduce a more stringent allowance, in which case the £10,000 annual allowance was in fact a relaxation of the rules. However, that would appear to conflict with the Government’s statement that salary sacrifice was not intended to be part of the reforms. If the intent was an annual allowance of zero once the pension has been accessed, what analysis did the Government conduct that persuaded them to change it to £10,000, and can they provide it to Members of this House before Report? It is therefore an issue that needs to be kept under active review, and the Government should report to Parliament on the effect of this matter.
As I have said, the purpose of our two amendments is to create clarity and transparency. As my honourable friend Cathy Jamieson said in the other House:
“It is fair and sensible for us to ask that the new clause is included in the Bill because it would ensure that the Government did not simply monitor quietly in the background, waiting for something to go wrong, but proactively looked at all these areas and then brought further information to Parliament so that we could consider how best to do things in the future and remedy any unintended consequences or loopholes”.—[Official Report, Commons, Taxation of Pensions Bill Committee, 20/11/14; col. 123.]
That is the purpose behind our review, and I hope that the Government will accept the amendment. I beg to move.
Lord Hutton of Furness (Lab)
My Lords, there has been a great deal of rhetoric surrounding this Bill. Some of the claims for the Bill may be far-fetched, but in one respect they probably are not. Many people have claimed that the reforms in the Bill constitute the biggest shake-up of our pension system for 100 years. If that is true, it is incumbent on the Government to have a clear plan—rather as my noble friend has indicated—for keeping Parliament abreast of the impact of those changes and reporting appropriately on it. None of us knows at the beginning of the extraordinary journey on which we are embarking what will happen and what will be the consequences of giving pension savers these significant new freedoms and flexibilities. It is quite likely that these are responsible people. They have been saving in workplace schemes, in some cases, for decades. Perhaps they are not going to blow their pension pots in a reckless spending spree at the end of their working lives. I tend to agree with that, but we simply do not know. Whereas giving choices is a great policy and one that I can support, it competes with another policy that has similar standing: that is, we must ensure that people approach and enter retirement with enough income to meet their lifestyle requirements.
As has been said by many others in the course of this debate and in another place, these two policies are, to some extent, competing with each other through the Bill. My noble friend’s amendment is really seeking to do one important thing, which is to ensure that there is a proper appreciation of the risks inherent in this approach to the new legislation and a willingness to keep Parliament informed of them. If we get this wrong, not only are we going to impoverish future generations of retirees, but there is, as we know, some risk that the costs of that will fall back on to the shoulders of taxpayers. Either of those two outcomes would be a terrible result of these new freedoms and flexibilities which, in principle, I strongly support.
I hope that the Minister will be able to respond positively to my noble friend’s amendment. I suspect he will say that there is something wrong with the drafting of the amendment. We have all been there before and we know how this process unfolds. If he is not prepared to accept the amendment I hope that he will at least give the House some indication of what reporting the Government are planning to embark on so that future legislators will be able to look back at the detail of this legislation and conclude at some point whether it is working or not. If it is not working, we will have to change it. If it is working, we will all celebrate one of the great reforms of the Government. However, it is clear at the moment that there is no indication, either in the Bill or elsewhere, of what plans Ministers have to keep Parliament abreast of the impact of these changes, given their significance and importance. It is necessary that we hear from the Minister today what the Government’s plans might be.
Lord McKenzie of Luton
I will speak in favour of my noble friend’s amendment and address two points. The first is the point my noble friend raised about tax leakage and the risks of salary sacrifice arrangements. I draw the Minister’s attention to Clause 54, which looks at the issue of independent advice and provides, not unreasonably, that that will not be a taxable benefit. However, it precludes it from that exemption if it is the subject of a relevant salary sacrifice arrangement, which is defined in the Bill. Rather than rely on a reduction in the annual allowance as, seemingly, the protection against salary sacrifice arrangements and tax leakage, why not simply adopt the same formulation that is adopted in Clause 54 by precluding salary sacrifice arrangements being available on appropriate definitions?
My second point is to try to get a better handle on the Government’s assessment of behavioural change in the early years as a result of these flexibilities. We can do no better than to focus on the tax projections in the Red Book for March 2014 and the Green Book for the Autumn Statement because those must have been underpinned by some detailed calculations. I am not sure that we have seen that detail to date. I hope that the Minister will follow up in writing if he is not able to deal with all the detail today. How many cases of individuals taking lump sums or other drawdown arrangements rather than annuities are included in those estimates? That must have been the basis on which they were adduced. What is the additional aggregate taxable income expected each year until 2020? How many individuals are estimated to pay tax at higher rates as a result than they would under normal annuitisation? We probed this matter on Report in the Commons but did not get a reply. It would be helpful to have that detail as it would give us an understanding of the Government’s assessment of behavioural change and the number of people who will take more of their pension pots under these flexibilities than would if the annuity arrangements only had been available.
Lord Newby
My Lords, the two amendments in this group would require the Government to publish two reviews of the impact of pensions flexibility. I start by completely agreeing with the noble Lord, Lord Hutton, that these changes are welcome freedoms and flexibilities but, like all freedoms, they bring some risks that I hope, in a variety of ways, we shall be effective at mitigating.
Noble Lords will not be desperately surprised to hear that I do not believe that these amendments are necessary. First, when considering new Clause 1 and the parts of new Clause 2 which relate to Exchequer revenues, it is important to note that in the Autumn Statement the Government published estimates of the Exchequer impact of the policy as a whole. These costings, which were certified by the independent Office for Budget Responsibility, cover all the changes made to the policy since the Budget as a result of consultation. The total impact of these decisions was set out in table 2.1 of the Autumn Statement document.
To ensure that the Government were being sufficiently transparent, the Financial Secretary to the Treasury wrote to members of the former Taxation of Pensions Bill Committee setting out these costings. I will now outline them for the benefit of the Committee. Further detail on how these costs were calculated is set out in the policy costings document published alongside the Autumn Statement. However, in the letter sent by the Financial Secretary to the Treasury to the members of the former Taxation of Pensions Bill Committee, it was also explained that the costings published as part of the Autumn Statement were based on the same central assumptions that underpinned the costings published at the Budget. Since the Budget, the Government have explored in more detail two aspects of the policy that affect this costing, which takes us to a point made by the noble Lord, Lord Bradley, about the increased cost of salary sacrifice and the increased cost of welfare as a result of the reforms. The Government have produced costings for these, which have been scrutinised by the OBR. In line with standard practice, these are accounted for as changes to the forecast and are not therefore outlined in table 2.1 of the Autumn Statement document.
Given the concern that noble Lords have expressed, it may be helpful if I detail what those figures are. The revisions to the forecast to account for salary sacrifice, which take account of further discussions and considerations since the Budget, are £35 million in 2015-16, £30 million in 2016-17, and £25 million in each of the following three years. When the forecast was revised to account for the increased cost of welfare, the figures rose from £15 million in 2016-17 to £25 million in 2018-19 and 2019-20. The Government have therefore already published the information that these two new clauses are seeking on the Exchequer impacts of various aspects of flexibility, all of which have been certified by the independent OBR. The Government are committed to keeping the policy under review through the monitoring of information collected on tax returns and tax records. Additionally, HMRC regularly publishes data on tax receipts, which will reflect any impacts on the Exchequer. Any such impacts will be reflected in forecasts at future fiscal events and the Government of course keep tax policy under continuous review. Therefore, there is no need, in the Government’s view, for further reviews of the Exchequer impacts of the policy as the Government have already committed to keep these under review through the usual processes.
Lord Bradley
I am grateful to the Minister and thank him for his explanation of the figures. I want to be absolutely clear that my example of a person who transfers his salary into his pension pot and saves national insurance in the way that I have described has been fully taken into account in these figures.
Lord Newby
My Lords, I believe absolutely that they have. If I am wrong in that, obviously I will write to the noble Lord; but that is the purpose of having initially produced the figures on salary sacrifice and subsequently revised them.
I turn to the other elements of the amendments. Amendment 30B also seeks to require that the Government review the distributional impact of pensions flexibility, no less than 18 months after the Bill takes effect. As set out during debate of the Taxation of Pensions Act, pensions flexibility does not have a direct consequential impact on household incomes. Distributional effects will be driven by the choices that individuals make about how and when to take their pensions. In addition, household income is not necessarily a reliable measure of pension wealth, particularly in the years immediately prior to retirement. It is possible that the impacts of this policy could be misrepresented if we were to review them only against the distribution of household income.
Additionally, Amendment 30B would require the Government to publish behavioural analysis. The costing of tax policies often involves an assessment of the behavioural impact of the measure and, in some cases, the capacity for additional tax planning and avoidance behaviour. These assumptions and methodologies are, of course, certified by the independent OBR. However, as a matter of policy, the Treasury considers that making these detailed behavioural assumptions public can have the potential to affect the behaviour they relate to, and as such can be potentially detrimental to policy-making. The policy costing note published alongside the Autumn Statement explains how the costings have been calculated. This is in line with the principles outlined in the government document Tax Policy Making: A New Approach, which was published alongside the June Budget in 2010.
Amendment 30B would also require the Government to review any impact that pensions flexibility might have on the volume of annuity purchases. Data on the sales of annuities will continue to be available through other channels, such as the data published by trade bodies such as the ABI and publications by individual firms. Therefore we do not think that there is going to be any lack of this information being publicly available, so there is no need for a requirement in the Bill to achieve that.
Baroness Hollis of Heigham (Lab)
My Lords, is the Minister saying that the information will be available to departments but that the Government do not wish to publish it because of the behavioural implications it may have, or is he saying that it is too soon to gather that information and therefore they will not actually do so? The problem with the second position is that this change is such that it is almost impossible to change policy direction once it is embedded because of the nature of the policy changes, which to my mind are extravagantly at risk. As a result, the Minister is denying Parliament the opportunity to make the modifications before that degree of risk is permanently embedded in public policy.
Lord Newby
My Lords, I was saying that the Government have made an assessment of behavioural changes and they have produced figures which take those changes into account. Therefore, there has been a full assessment of the behavioural changes as best as can be done in advance of the change coming into effect. As I said, it is Treasury policy not to publish those assumptions but that work has been done. In terms of the cost to the Exchequer of this policy change, the figures were published at the time of the Budget and were subsequently revised, as I set out, at the time of the Autumn Statement.
Lord Hutton of Furness
My Lords, presumably that information will be subject to freedom of information requests.
Lord Newby
That, my Lords, is an extremely interesting question to which I do not know the answer.
Baroness Hollis of Heigham
In that case, my Lords, the Minister is saying that we are being given the assumptions that go into the forecasts but we are not going to be given the information to see whether those forecasts are accurate.
Lord Newby
I am saying that in a whole raft of areas, no doubt under successive Governments, the Treasury has made behavioural assumptions. When I used to work in Customs and Excise, that was certainly the case when asking what would happen if the duty on whisky was put up. A whole raft of behavioural assumptions is made in policy-making and I do not think that it has been the policy to make those behavioural assumptions public. What obviously has been, and will remain, policy is to set out the impact of those behavioural changes. The noble Baroness shakes her head. Perhaps when she was a Minister behavioural assumptions were made available. My understanding is that that has not been the policy but I will go back to the Treasury and check.
Lord McKenzie of Luton
I wonder whether the Minister can help me. It seems to me that there is potentially a difference with behavioural change which is incidental to the fundamental policy issue. However, here we are talking about a system where the change and the data underlying the tax issues are absolutely fundamental—it is what the whole policy change is about. Just to be clear on that, the Budget Red Book for 2014 refers to extra tax in 2015-16 of £320 million, £600 million the year after, £910 million the year after that and £1.2 billion the year after that. I think we understand that work has been done on those figures and that the Office for Budget Responsibility has accepted them as realistic. However, as I understand it, the Government are not going to tell us the basis on which those figures have been derived. They are not going to give us the opportunity to make any judgment as to whether, ultimately, we support the policy.
Lord Newby
My Lords, I was simply saying that my understanding is that it is a long-standing convention regarding the behavioural assumptions that go into producing those figures. The only other thing I would say is that today we have seen another, very different, estimate of the costs. There is a very considerable degree of uncertainty about the figures at the moment but the Government made their best estimate at the time of the Budget and they amended it in the light of further consideration at the time of the Autumn Statement. They will obviously keep the situation under review as we see what people do rather than speculate about how the policy will work.
The noble Lord, Lord Bradley, asked about the effects of the new policy and flexible access on eligibility for means-tested benefits—in particular, social care. The policy aim is to ensure that the decisions people make in choosing between taking their pension as income and keeping more of their pension as capital and drawing it out periodically do not significantly impact on how they are assessed for social care support and how their means are assessed for social security purposes. New statutory guidance and regulations under the Care Act were published on 23 October. They include details on the changing rules for care and support.
In respect of social security, we announced a change in the rule for people above pension credit qualifying age who claim means-tested benefits. The notional income amount applied to pension pots which have not been used to purchase an annuity will be reduced from 150% to 100% of the income from an equivalent annuity, or to the actual income taken if that is higher, in line with the rules for care and support.
The noble Lord, Lord Bradley, asked about unwinding annuities already bought. This is not government policy. It was a suggestion of my colleague Steve Webb, the Pensions Minister, in the context of future Liberal Democrat party policy. It was not a statement of government policy.
I am sure that there are other specific issues raised by noble Lords in this debate to which I have not given a full answer. I will read it again.
Lord McKenzie of Luton
I promise not to delay the Committee any longer. However, I would just refer to the point about why the Government have not taken the opportunity to specifically deny the benefit of the flexibilities when there are salary sacrifice arrangements. They have done it in another small part of the Bill, so it is technically achievable. Why have they eschewed that—to allow at least some element of salary sacrifice arrangements to have the tax benefits that they are designed to?
Lord Newby
My Lords, one thing I have not responded adequately to—and I am not sure whether what I am going to say will adequately answer the noble Lord’s point, but I will write to him if I do not—is about salary sacrifice and the question about the £10,000 allowance, which the noble Lord, Lord Bradley, and others, referred to.
The £10,000 allowance is, we think, a sensible middle way to allow the majority of people the flexibility to withdraw or contribute to their pension as they choose from age 55, while also ensuring that individuals do not use the new flexibility to avoid paying tax on their current earnings. However, there are clearly circumstances in which it will be in an individual’s best interests to gain access to part of the pension pot early—at 55 or 56—while by the time they are 60 their circumstances have changed and they can then start contributing again to a pension. We did not want to deny that entirely. Equally, as noble Lords have said, we did not want individuals recycling money out of pension pots just in order to avoid tax. It is therefore a pragmatic compromise figure which we think strikes the right balance.
Lord Bradley
I again thank the Minister for his detailed response. In relation to buying out annuities, the Minister is right—the article in the Sunday Times did state that Steve Webb was a Liberal Democrat. However, it also stated that he was the Pensions Minister. I am sure that this is part of the tensions of coalition as we head towards the general election.
I am grateful for the support for this amendment from the noble Lords, Lord Hutton and Lord McKenzie, both of whom are experts in this field and bring great value to our deliberations. I am grateful to the Minister for clarifying some of the points regarding social care, although again I suspect that there may be further devil in the detail that we may debate further this afternoon.
The Minister’s response made the most compelling case for why we need the review brought back to Parliament with all the information gathered in a coherent and digestible way. In his response to our amendment he identified various sources of information in various departments, and it would take great expertise to beaver away and gather all that information into a form that enables enlightened and informed debate, not only in this House but in Parliament generally, and—in terms of transparency—for the public to understand fully the implications of these amendments.
We need to look carefully at the way in which information is gathered, disseminated and presented to Parliament. This amendment was a very good start for the revolution that is likely to take place in pension provision and how freedoms and flexibilities are used by the public. For today, however, I beg leave to withdraw the amendment.
Nigeria
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Foreign and Commonwealth Office (Baroness Anelay of St Johns) (Con)
My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my right honourable friend Hugo Swire to an Urgent Question in another place on Nigeria. The Statement is as follows:
“The Boko Haram terrorist group continues to wreak havoc across north-east Nigeria. Many colleagues will have seen the press reports over the last week highlighting their latest sickening attacks. Hundreds of people are believed to have been killed in the town of Baga in Borno state last week as Boko Haram continued their bloody insurgency campaign. Suicide bombings in urban areas are also a common feature of Boko Haram’s tactics. This weekend we saw another heinous example in the Yobe state town of Potiskum.
These attacks are just the latest example of the insurgents’ reign of terror. We believe that last year more than 4,000 people were killed by the group in north-east Nigeria. The United Nations estimates that more than 1.5 million people have been displaced by terrorist activities and at least 3 million have been affected by the insurgency.
The abductions of the Chibok schoolgirls on 14 April last year shocked the world and highlighted the mindless cruelty of Boko Haram. The group deliberately targets the weak and vulnerable, causing suffering in communities of different faiths and ethnicities. It is almost certainly the case that attacks by Boko Haram have killed more Muslims than Christians.
2015 is an important year for Nigeria’s future. Presidential and state elections will take place in February. It is crucial that these are free, fair and credible and that all Nigerians are able to exercise their vote without fear and intimidation. As Minister for the Commonwealth, I responded to the right honourable Member for Kirkcaldy and Cowdenbeath, the former Prime Minister, on behalf of the Government in the last debate in this House on this subject. I am grateful to the honourable Member for Brent Central for asking this timely Question. It will allow Members from across the House to give this important issue the attention it deserves”.
My Lords, that concludes the Statement.
Baroness Morgan of Ely (Lab)
My Lords, despite the shocking events in Paris last week it is essential that the world does not lose sight of the terrorist attacks happening elsewhere in the world, most notably in Nigeria. We were horrified by reports that up to 2,000 people were killed in northern Nigeria last week following a series of deadly and brutal attacks carried out by Boko Haram extremists. Terrorism is unacceptable wherever it takes place.
As the Minister has highlighted, this follows months of violence across northern Nigeria, with killings, mass abductions and attacks against innocent civilians. These attacks and this brutality have been condemned around the world. While many people have rightly praised the moving solidarity across Europe in recent days, there can be no doubt about the need for solidarity across continents in the wake of these appalling attacks. The world must not simply stand back and tolerate Boko Haram’s brutal campaign of violence.
I emphasise that here in the UK there is cross-party support for Britain to continue to provide support, alongside our allies, to the Nigerian authorities in their efforts to tackle Boko Haram. I ask the Minister to update the House on the level of that support and to confirm whether there have been any additional requests for British advice and expertise from the Nigerian Government. Is the Minister confident, in the light of the violence, that fair presidential and state elections can take place in February? Can they be fair?
The Minister referred to the appalling kidnappings in Chibok which brought much needed global attention to the security situation in northern Nigeria and the vulnerability of civilians—in particular women and girls—at the hands of Boko Haram extremists. Let us not forget the meaning of Boko Haram: “Western education is forbidden”. The recent testimonies collected by Human Rights Watch from victims who were able to escape show the appalling extent of the violent and brutal conditions in the Boko Haram camps where women and girls are still being held. Can the Minister provide the House with an assessment of the current plight of the girls who have been kidnapped by Boko Haram, and what discussions her department has held with the Nigerian authorities on working to secure their release?
Stabilising Nigeria is essential as its population is expected to surpass that of the United States by 2050. According to UN projections, it could be the world’s third most populous nation by the end of this century, and Boko Haram risks becoming a regional threat to peace and stability. Can the Minister update the House on what discussions the Foreign and Commonwealth Office is initiating with regional and international partners to co-ordinate international action on this issue?
Baroness Anelay of St Johns
My Lords, I am grateful to hear the noble Baroness repeat the support of the Opposition on this matter for resolving what is a horrific situation where we have an insurgency that does not differentiate between good and evil; beheading people seems to be of no account, regardless of who they are. We have read horrific descriptions of what has been happening over the past week. I know that the noble Baroness gave a particular figure. I would say that the figure for those who have been butchered over the past week is not actually confirmed, but clearly there have been significant massacres across northern Nigeria. The area affected, of course, is about the size of Belgium—it is a vast area.
The noble Baroness asked several questions in particular about the activity of the UK. She asked several questions, so perhaps I can be fairly brief in answering each one. We have continued to give our commitment to United Kingdom aid. We work through the UN Central Emergency Response Fund and the European Commission’s Humanitarian Aid and Civil Protection department. DfID has provided £1 million to support the Red Cross to provide humanitarian assistance in the north-east of Nigeria—the particular area to which the noble Baroness referred. In addition, we are working through existing education programmes to ensure that schools are safer in the eight other areas of northern Nigeria. The noble Baroness asked what we are doing in particular for children and rightly reminded us of what Boko Haram originally meant. It has gone a long way from that. This is a group of people who want power and they will kill anybody in their way—regardless of who they are.
Since 2011, 60% of DfID’s budget has been spent in the north of Nigeria, and a major focus of that work has been with regard to women and girls. Particularly, we have worked on education projects throughout the area. I am happy to talk to the noble Baroness about the detail of that later, but I am conscious of the nature of an Urgent Question. She rightly asked, of course, about the Chibok girls and the situation there. I again remind the House that as a Government we are concerned with more than those Chibok girls, serious as it was that they were seized. We have heard stories of seizures and kidnappings across the period since then as well—of boys as well as girls. We have continued our talks with the Nigerian authorities in order to be of as much help as we can, particularly in the provision of surveillance assets and intelligence expertise.
The noble Baroness asked about the position with regard to elections. Clearly, a security situation where people feel afraid to go out and vote is the last one you want when something as important as a presidential election is approaching. We are doing all we can to work with the Nigerian army to provide technical assistance, expertise and training. We are also working through DfID as hard as we can to provide some hope and expectation that there may be some way of elections going ahead that are free and fair, and open to all.
Lord Hussain (LD)
My Lords, the activities of Boko Haram are barbaric and brutal, as we know. Would the Minister not agree with me that it is just as brutal as the Taliban, which attacked children in Pakistan in recent weeks? More than 140 children were killed by the Taliban, and its activities are, no doubt, just as bad as those of al-Qaeda and Daesh in different parts of the world. Would the Minister tell the House what Her Majesty’s Government are doing to help Pakistan to protect its schoolchildren from such brutal attacks by the Taliban in future?
Baroness Anelay of St Johns
My Lords, it is the custom that, in answering a Question, we are confined to the particular country under consideration. I can say to my noble friend that, of course, terrorism is wrong per se. He will know our absolute commitment to ensuring that it is rooted out in whichever country it may be.
Lord Harries of Pentregarth (CB)
Boko Haram has been creating havoc in north-eastern Nigeria for years now, yet Nigeria is a hugely wealthy country with a large army. Can the Minister shed any light as to why the Government in Nigeria seem so helpless in dealing with this situation? In an earlier reply, she mentioned the help the British Government were giving in terms of aid and intelligence. Could she say a little more about what help we might be able to give the Nigerian Government in terms of military strategy, so that they can deal with this much more forcibly than they are at the moment?
Baroness Anelay of St Johns
I entirely agree with the noble and right reverend Lord’s assessment of the situation. The economy of Nigeria is the largest in Africa currently, and if it were not so beset by corruption and by difficulties in administration—if I can put it that way—Nigeria would have a thriving economy. It clearly does not. It spends 20% of its budget on security, yet the security forces have great difficulty in facing and containing Boko Haram. We have ensured that there is technical assistance and advice; indeed, we have ongoing projects with the army to ensure that it can build up resilience over the coming years to try to defeat Boko Haram and that, having done that, Nigeria has an army capable of preventing a recurrence.
Lord Tebbit (Con)
Would my noble friend not agree that what we are seeing is largely a continuation of the civil wars of the early 1980s in Nigeria, when the Hausas, who are mainly Muslim, were in conflict with the mainly Christian and pagan Igbos and Rivers people? This is now exacerbated both by the corruption of the Nigerian Government and the new spirit of the vicious Islamic group Boko Haram. Is there any help which we can sensibly offer to Nigeria, other than military help, to help its incompetent army defeat Boko Haram? Are we in any position to offer military help?
Baroness Anelay of St Johns
My Lords, we have made it clear that we are not going to become militarily involved in Nigeria with our own troops, but we have done everything reasonable to provide advice and assistance to the army there. We have ongoing projects to provide it with expertise and training. My noble friend referred in particular to the history of the area. However, Boko Haram is something new, not just in the utter viciousness with which it behaves but in the way that it is Muslim against Muslim—not Sunni against Shia but members of the same group against each other. These people have no thought about what one’s religion is. If you are in their way and they want your land, they will kill you.
Pension Schemes Bill
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
““survivor” has the meaning given by section 74 of the Pension Schemes Act 2014.”
Baroness Greengross
“( ) The Treasury must publish an annual report on outcomes being experienced by people with flexible benefits.”
Baroness Greengross (CB)
My Lords, I will take all the amendments in my name together. At Second Reading, I welcomed the overall intention of the Bill, which includes the creation of a new type of pension scheme—a collective benefits scheme. Potentially, such schemes could provide individuals with a greater degree of certainty over the level of pension benefit they might receive. As they enter retirement, it could help them make better choices and informed decisions, but the accompanying new freedoms and choices for people also hold many greater risks. To understand these risks, people have to be very much better informed. If they are unable to manage their money effectively over what in this day and age can be a 40-year retirement, and if they are poorly advised or sold poor-value products, the impact on pensioner poverty more widely could be significant.
We have a narrow window of opportunity to ensure that these reforms work as intended because currently many people at the point of retirement still have the security of defined benefit pensions. Even so, the Pensions Policy Institute, of which I am privileged to be the president, has highlighted that 41% of people who are now aged between 50 and the state pension age—2.3 million people—have no DB savings and so are heavily reliant on DC savings to support their retirement.
On day one of Committee, the noble Lord, Lord Bradley, proposed a new clause on decumulation aimed at protecting savers who default into an annuity with the same savings provider. This was by providing safeguards for people who do not take advantage of the new flexibilities because, for them, an annuity remains the best product. It guarantees them a set income for the rest of their life. In his response to the noble Lord, Lord Bradley, the Minister reminded us that the recent FCA thematic review of annuities and the findings from its market study concluded that competition in the annuity market does not work effectively and consumers are not getting the most out of their hard-earned savings. These reports provided further evidence for the need for a route map through the annuity process for consumers, and the amendment moved by the noble Lord, Lord Bradley, would have established an independent annuity brokerage service to resolve this by providing scheme members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the cost. His amendment was withdrawn but perhaps we need to discuss this further because some sort of alternative navigation support across this fault line between guidance and advice must be necessary. Plainly, this is in the remit of the FCA, but the FCA itself has made it very clear that the supervision of guidance does not lie with it but with the Treasury, so there is something of a stalemate there.
Lord Best (CB)
My Lords, my name is down in support of these amendments from the noble Baroness, Lady Greengross. I declare an unremunerated role as a member of the Equity Release Council’s advisory board, and I speak particularly as chair of the All-Party Parliamentary Group on Housing and Care for Older People. I shall concentrate on the interrelationship of advice about pensions and advice about the use of capital assets to fund one’s retirement.
I strongly support the case made by the noble Baroness that the advice provided by Citizens Advice and the Pensions Advisory Service, under the guidance guarantee introduced by the Bill, should ensure that an individual’s assets, particularly their housing wealth, are taken into account properly. The resources in an individual’s pension pot—their defined contribution pension savings—account on average for around £20,000, which represents only some 4% of their total wealth, compared with over £270,000, 55% of their wealth, which is held in the equity of their home after deducting any outstanding mortgages. Four per cent of wealth in their pension savings and 55% in their property—talk about the elephant in the room. It seems essential that in these important advice sessions attention is drawn, where relevant, to the individual’s wealth bound up in their property, which of course can be turned into cash, either by downsizing to a cheaper home or through an equity release product.
When thinking about buying annuities or choosing other investments, it is extremely important to consider holistically one’s wealth as a whole. The DWP Minister in the other place Steve Webb has agreed that advisers, under the proposed arrangements as spelt out in the near-final version of his department’s rules for giving guidance, should ask whether the consumer is an owner-occupier or a tenant and should ask, perhaps a bit vaguely, about personal circumstances. However, the rules for this interview do not include any explicit reference to housing wealth.
Amendment 35 would make clear that the guaranteed guidance from Citizens Advice and the Pensions Advisory Service should include prompting individuals to look carefully at their housing assets. Without the guidance pre-empting the professional advice of an independent financial adviser, this should be the moment when the interplay of housing and pensions gets aired. Those fulfilling the guidance guarantee should help consumers ask the right questions of an independent financial adviser.
The All-Party Parliamentary Group on Housing and Care for Older People, supported by the think tank Demos, published a report at the end of last year on affordable downsizing. It called for new measures to assist those in their extended middle age who want to move from family housing to a tailor-made apartment or bungalow. Such moves, as well as preventing and pre-empting problems in later life, have very positive financial effects with savings in fuel bills, maintenance costs, garden upkeep and the rest. We also noted the complexities involved in the financial aspects of trading down or equity release. We called for a “help to move” package comprising access to equity loans for movers, as for young people through the Help to Buy scheme, plus concessions on stamp duty, which were partly answered by the Government’s reforms of that tax, and, very importantly, guaranteed guidance on the financial arrangements, piggybacking on the pensions guidance featured in this Bill. These amendments would use the guidance guarantee that covers people’s defined pension contributions to draw attention to bigger questions relating to other assets, particularly housing wealth. They would make the guidance sessions much more meaningful in a country where 14 times more of our wealth in older age is tied up in our properties than in our pension savings. I support the amendments.
Lord German (LD)
My Lords, I rise to support the remarks of the noble Lord, Lord Best. In doing so, I declare my interest as an unremunerated member of the advisory committee for the Equity Release Council. I am, I hope, still in extended middle age, which is a new term that I fully endorse.
Housing wealth, along with other assets, means that the guidance is crucial given the disparity between the amount that people tend to have in a DC pot and their housing wealth, which on average is more than 10 times as much. That is a considerable amount of money or resource which people will need to take into account. The FCA standards, which were helpfully published this morning by the Treasury, state that:
“In terms of content, the standards require that the guidance session must … request information about the consumer’s financial and personal circumstances that is relevant to their retirement options”.
That requires the adviser who is going to take people through the guidance session to ask them for information about their housing wealth, but it is not explicit in the standards, and while we know that they are nearly finalised, there is time for the Treasury to make them more transparent about what is required. Because of the relationship between the two amounts of money, the instruction ought to be clarified, perhaps not in the document but in the training so that it is always an issue which people take on board. Will the Minister indicate whether the sentence in the FCA standards set out in the document produced this morning by the Treasury implies that housing wealth, savings and investments will be taken into account? Will he consider making it more explicit in the information that is provided to the consumer and to those providing the guidance?
Baroness Hollis of Heigham
My Lords, I would like to ask the Minister a question which is triggered by the important issues raised by the noble Baroness, Lady Greengross, and the noble Lord, Lord Best. However, I want to look at it from the other way round, which is the situation of someone who is 55, is on housing benefit, and has £20,000 locked away in a small pension pot. At the moment, if you have capital of more than £16,000 and you are pre-retirement, that is an absolute block to any further income-related benefits. Different rules apply when you come to retirement. The assumption throughout is that you can access your pension only at the point of retirement, when different rules apply. What will happen now? Can the Minister help us on this? The rules are that if you have capital that you could get at if you applied for it, you are treated as having that capital. While it was tucked away in a pension and not accessible until you reached 60 or 65, you could not have access to it and so it did not affect your entitlement. But in future you will be able to access your capital in such a way that, under the Housing Benefit Regulations 2006, Regulation 49(2), because you can access your capital, you are treated as though you have that capital, which would therefore automatically cut you off at £16,000—you have £20,000 in your pot —from any access to housing benefit. Can the Minister clarify how this will work in the future?
Lord Newby
My Lords, I am grateful to the noble Baroness, Lady Greengross, for giving me the chance via the debate on these amendments to address a number of important issues in respect of the guidance service. I turn first to Amendment 34. This seeks to require an annual report on consumer outcomes. As I said in the earlier debate, in terms of the overall policy of greater flexibility, the Government are committed to keeping the policy under continual review, including through the monitoring of information collected on tax returns and tax records. This was confirmed in the debates in the other place late last year on the Taxation of Pensions Bill, which it then was.
How the market evolves to respond to consumer needs is where the regulators come in, in particular the Financial Conduct Authority. As I mentioned earlier in addressing the amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, the FCA has a strategic objective to ensure that the markets function well and a specific operational objective to ensure that consumers of financial services are appropriately protected. The FCA has recently published the provisional findings of its Retirement Income Market Study. In this report, the FCA committed to monitor the retirement income market, and if consumers appear not to be getting the support or products they need or if competition is failing to drive good value, it will make whatever intervention is appropriate. The noble Baroness will, I hope, be reassured by the specific commitment of the FCA to monitor consumer outcomes,
“we will monitor the market to track developments to assess whether these risks arise and if so, the impact on consumer outcomes”.
I am also grateful for the related amendment from the noble Baroness which seeks to expand the new duty of the FCA to protect consumers using guidance through its role in setting and monitoring standards for the provision of pensions guidance by designated guidance providers. The noble Baroness raised again the question asked earlier about the supervision of guidance and the respective roles of the FCA and the Treasury. To be clear, the FCA has the responsibility for supervising designated guidance providers’ compliance with the standards which it has set. While the Treasury itself is not a designated guidance provider, it has committed in the update published today that it will fully comply with the FCA standards as far as that is appropriate, because the Treasury is responsible for the online channel.
More generally in respect of the FCA and its powers, the noble Baroness will know, I am sure, that the Financial Services Act 2012 gave the FCA wide-ranging product intervention powers. For the first time it is equipped to ensure that new retirement income products are designed and sold in a way that does not cause detriment to consumers. As for assessing the consumer outcomes resulting from the guidance service specifically, with which Clause 3 is concerned, I can assure the noble Baroness, as I have already the noble Lords, Lord McAvoy and Lord Bradley, that the Government are committed to a full programme of monitoring and evaluation of the guidance service, which will encompass the delivery partners’ provision to ensure that the service is operating effectively and successfully in supporting people in their retirement decision-making.
Baroness Hollis of Heigham
The point is that housing benefit is the one benefit that continues in its current form both before and after retirement. Nearly all other benefits change at the point of retirement. Therefore, the issue does not arise. For example, there is no assumption that there is a capital cut-off if you are on pension credit, merely an assumed tariff income. What you are doing now is introducing some of the potential privileges associated with protecting pensions to a pre-pension age. If you do that, that is fine, but if you do not, it means that housing benefit will be wiped out for someone who has capital that they can access, even if they choose not to do so. As the current rules stand, they would have to be treated as if they had accessed that capital, and then housing benefit would be wiped out for someone at the age of 55 in the way it would not be wiped out if that person was 65.
Lord Newby
My understanding is that that is not the intention, but I shall write to the noble Baroness to clarify that point.
Baroness Greengross
My Lords, I thank the Minister for his very comprehensive reply. I also thank the noble Lords, Lord Best and Lord German, and the noble Baroness, Lady Hollis, who joined in the discussion.
I thought that the Minister’s response was very helpful and inclusive of most of the issues I have raised. He took on board the idea of a prompt, or several prompts, and I think that the wider issues of including other sources of wealth and income were taken. There may be other issues that I have forgotten, but there is time to look at those. I thank the Minister very sincerely for trying to meet all the requirements that I mentioned and for clarifying the role of the FCA and the Treasury, talking about a full programme of monitoring, and looking at the relevant issues that need to be considered in more depth and the rules about guidance that are going to go back to the FCA. The Minister has addressed most of the issues that I raised and I will look between now and the next stage to see whether there are any others that he forgot. In the mean time, I beg leave to withdraw the amendment.
Lord Bradley
“( ) must be sufficient to ensure that the body is capable of carrying out its functions under section 333C(1).”
Lord Bradley
My Lords, I will be brief because we covered a significant amount of the areas to which this amendment relates earlier in our deliberations. I would like to probe the Government just a little further on the arrangements with the citizens advice bureaux. Specifically, I am seeking assurance that the CABs are capable of delivering the guidance, that they have sufficient start-up costs and that they will be properly funded to deliver face-to-face guidance through the proposed levy. I do not make any apology for repeating arguments that we have already made earlier in our deliberations, because, again, all we are trying to do with this amendment is to give a belt-and-braces assurance to the public that the guidance guarantee for face-to-face interviews will be delivered.
Let me say at the outset that I am not questioning the CABs and the wonderful work that they do, but pensions advice and guidance is not currently one of the services that they routinely provide. CABs work with 2.1 million people a year and they offer advice in England through 338 independent centres. Impressive though that number is, next year we know that around 600,000 additional people will reach retirement age and may seek—and under this Bill be entitled to— guidance. This high number carries on for a number of years because of the post-war baby boom. This is some scaling-up for the CABs and they will need to achieve this in order to deliver the high-quality guidance.
Relevant to this guidance, CABs offer financial and debt advice; over the past 10 years or so, they have been developing interesting financial capability programmes. It is good work and this experience might be particularly relevant to people who are being encouraged to draw down their pension pots at 55—for example, to settle debt. Pension advice to people retiring with pots of £20,000 to £30,000 probably takes the CABs into new areas and a largely new client base. We should remember that the enactment date is less than three months away and we have not had any sight of the regulations, while the FCA is developing a standard framework within which guidance will be offered—some of which we have had further information about today. There is still more information to come: information that, again, the CABs will rely on. Clearly, it is not the intention to set up CABs or any other provider to fail. If CABs are to deliver a service from April 2015, they perhaps should have had their guidance and information framework well in place before now. CABs produce high-quality information that underpins their advice work, and they know how long it takes to develop such information. Although the issue is not caught by my amendment, the Minister could perhaps assure the House that high-quality guidance will be delivered to 300,000 people whom we anticipate will retire and need guidance before September 2015.
The CABs’ excellent work is a lifeline for some of the poorest people in our society, often the most vulnerable people at vulnerable times in their lives, such as during divorce or separation. This is why—and despite often swingeing cuts—local authorities continue to fund local bureaux, albeit now often at a lower level of service. I am worried that the time of local bureaux will be diverted from their core work, and their service users will have nowhere else to go, particularly—to compound the problem—because legal aid is now hardly available for this group of people. Frankly, local authorities should not, in future, find themselves in a position where they will be picking up the tab for a poorly funded pensions advice service delivered through the citizens advice bureaux. The Minister has given us some assurances on this point, but I seek that further assurance again today. Can we also be assured that the core grant that citizens advice bureaux currently have for their services will not be deflected at all by the money available for this specific service—that there is no overlap between the services in terms of funding streams?
Finally, we know that CABs will be funded by the Treasury for the first two years, and after that through a levy on the industry. Again, I seek an assurance that, with this levy, it will not be necessary for CABs to move money between their funding streams to support their current wide range of services in order to deliver the essential pensions guidance that is coming forward. We know that these are complex matters for people who will be seeking CABs’ advice. We want to ensure the highest quality of that service, but we also want to make sure that the other range of activities that are essential in local communities are not undermined by the emphasis on the new service. I beg to move.
Lord Newby
My Lords, the noble Lord, Lord Bradley, sought a number of assurances about the funding of the guidance and the knock-on effects that this will have on CABs. The Treasury is committed to the provision of high-quality guidance from the start. It has the power in line 12 of page 65, in proposed new Section 333B:
“The Treasury must take such steps as they consider appropriate to ensure that people have access to pensions guidance”.
Given that when we say “pensions guidance” we mean high-quality pensions guidance, that means that there is a legal requirement on the Treasury to will the means as well as the ends.
In terms of the scale of the challenge ahead, we estimate that approximately 300 guidance providers are going to be required, including the CABs, the telephone appointments and the website, and we are actively recruiting them. The funding that the CABs are getting is the subject of continuous discussions between the Treasury and the CABs. I gather that, for the moment at least, the CABs feel that that they are getting the resources they need to do the job that they have been asked to do without any deflection of their core grant and without there being any requirement to fund this from other sources of income that they receive. That is very much the Treasury’s intention behind the whole approach to the scheme.
There has been start-up funding, which the CABs and the other guidance providers have been receiving. The £20 million development fund was announced in the Budget, of which a £10 million advance was approved by Parliament last July to cover preparatory work, most of which is taking the form of grants to the delivery partners. As I said earlier this afternoon, we estimate that there will be a cost of £35 million in the next financial year, and the Treasury is committed to increasing the amount that is made available if the demand for the service warrants it. I hope that, with those assurances, the noble Lord will feel able to withdraw his amendment.
Lord Bradley
I am grateful to the Minister for his response. I certainly would have liked to be a fly on the wall in the negotiations between the CABs and the Treasury to see where they were both coming from as their starting point, let alone where they ended up. I am grateful for the assurances that the Minister has given regarding other funding streams for the CABs and the funding for this service. Clearly, none of us wants to get into a situation where the CABs have to prop up the service by use of their invaluable volunteers, who do excellent work within citizens advice bureaux but obviously would not have the expertise, knowledge or training to undertake this work. It is therefore crucial that the activities are separated in that way. However, with those assurances from the Minister, I beg leave to withdraw the amendment.
Lord Bradley
“( ) The FCA must secure an appropriate degree of protection for consumers whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards to actively inform consumers of key risks and benefits.”
Lord Bradley
My Lords, this amendment is on the specific issue of second line of defence. We have had some debate on this matter, including the excellent contribution from the noble Baroness, Lady Greengross, on her amendments. However, this amendment places a specific requirement on pension providers to make an active intervention to ensure that they help savers when accessing their DC pension pots to ensure that they get the advice or guidance they need, check that the products are appropriate for them, and have taken into account the tax implications, their partners, lifespan and other matters relevant to planning for their retirement. As we have heard, this has been called the second line of defence.
The need for it has been identified by the Financial Conduct Authority, which released two long-awaited reports—its thematic review of annuity sales practices and Retirement Income Market Study: Interim Report. The reports show continued failure in defined contribution pension providers’ treatment of existing customers, even after three separate investigations between 2006 and 2014. It is time for the FCA to take action before the “freedom and choice” reforms go live in April this year. The findings of the reports make unhappy reading. Perhaps my noble friends will not be surprised by this because we have been there before. It is worth summarising the key findings, which make the case for our amendment.
The thematic review updates the analysis in the FCA’s February 2014 report. Its key findings are, first, that, 60% of retirees,
“were not switching providers when they bought an annuity, despite the fact that around 80% of these consumers could get a higher income on the open market”.
Secondly, an estimated 91% of people with medical conditions could get a higher income on the open market through an enhanced annuity. Thirdly,
“firms’ sales practices are contributing to consumers not shopping around and switching … and missing out on a potentially higher income in retirement as a result”.
Lastly, the study found non-adherence by pension providers to the ABI code of practice. The FCA concludes that its findings clearly highlight that firms need to make improvements in relation to how consumers are informed about shopping around for enhanced annuities.
The key findings of the interim Retirement Income Market Study are that,
“competition in the retirement income market is not working well for consumers … many consumers are missing out on a higher income by not shopping around for an annuity, and some do not purchase the best annuity for their circumstances”.
The FCA economic analysis shows that,
“for people with average-sized pension pots, the right annuity purchased on the open market offers good value for money relative to alternative drawdown strategies”.
It also found that:
“Consumers’ tendency to buy from their existing pension provider weakens”,
competition. The FCA’s consumer research confirms that,
“pension savers display well-known biases, such as a tendency to under-estimate longevity, inflation and investment risk”,
which make them vulnerable to being sold products that do not best meet their best interests. This research also finds that the choices that savers make are highly sensitive to “framing”, and how options are presented will affect decisions they make. The introduction of greater choice and potentially more complex products will,
“reduce consumers’ confidence and appetite to shop around”,
and thus weaken the competitive pressure on providers to offer good value in this market.
What should be the remedies and next steps? The FCA is continuing to monitor the market and is expected to publish a final market study report in the first quarter of this year. It is also seeking views on five proposals it hopes to take forward in 2015. These are to: first, require providers to show how their quotes compare relative to other providers on the open market, including quote comparison; secondly, develop plain-English pensions guidance services and tools to support consumers’ decision-making; and thirdly, develop an alternative to the current pre-retirement “wake-up” packs sent by pension providers to their customers in the run-up to their stated retirement date. They are,
“too long, difficult to navigate and full of jargon”.
Next, the FCA proposes in the longer term, to develop a “Pensions Dashboard” to,
“enable consumers to view all of their lifetime … savings … (including the state pension entitlement) in one place”.
Finally, the FCA proposes to,
“continue to monitor the market as it evolves using a combination of consumer research, market data and”,
ongoing regulatory supervision. This will need to monitor for the likelihood of “pensions liberation” and other scams targeting consumers at retirement.
We have in this Chamber on too many occasions examined how the FCA and other bodies are attempting to drag this financial sector kicking and screaming to act in the best interests of its savers rather than those of their shareholders. The two FCA reports are a further damning indictment of the industry. The FCA proposals, in my view and that of my noble friend Lord McAvoy, help to support the amendment but in themselves are not enough.
In Committee in the Commons, expert witnesses including Dr Ros Altmann, consumer advocates from Age UK and the Financial Services Consumer Panel, and ABI representatives all called for the FCA to introduce a second line of defence, as did other reputable bodies such as Just Retirement. We are persuaded that this is the right course of action. Our amendment will require pension providers to actively ask savers seeking to access their pension savings whether they have considered the most important risks. This could typically include whether their decisions will mean they increase their income tax, outlive assets or run out of money, miss out on guaranteed annuity rates from the existing company, provide benefits for a spouse or other persons on death, miss out on additional income resulting from medical conditions or lifestyle factors, protect savings and income from inflation, purchase an uncompetitive product, or pay an exit charge that could be avoided. All these are crucial matters that need to be properly regulated, and they are part of the amendment for our second line of defence. The FCA could incorporate this through the introduction of a conduct regulation or by issuing FCA conduct guidance for providers to specify their responsibility for actively raising the risks that I have just outlined.
If we do not take this opportunity to act on the evidence contained in these two FCA reports and require changes to be made, we will further undermine consumer confidence in the pensions financial sector and the principles upon which this series of pension reforms are based will be undermined. We will not encourage people to save for their old age; we will not achieve fairness across generations; and it will lead to increased cost to the taxpayer. For all these reasons I commend this amendment to the House.
Baroness Drake (Lab)
My Lords, this amendment sets out a duty on the Financial Conduct Authority to protect savers accessing their pension savings during the actual decision-making and purchasing process, as distinct from a duty to protect savers receiving guidance from designated guidance providers. In particular, the amendment sets out that the FCA should require pension providers to take active, not just passive, steps to check that people are made aware of the factors that will impact their decision.
I will begin by highlighting the problem that drives this amendment. Steve Webb, the Pensions Minister, commented at the end of the Public Bill Committee sessions:
“To be clear, if we thought everything was fine in the world of retirement income choices the FCA would not be doing a thematic review of annuity sales practices or a retirement income market study … those studies are being undertaken because we are aware that there have been problems in this market. We are prepared to introduce further measures, if that is what the studies suggest”.—[Official Report, Commons, Pensions Schemes Bill Committee, 4/11/14; col. 309.]
I believe that that is exactly what those two studies suggest. Since the Bill arrived in this House the FCA has in fact delivered its two reports: the thematic review of annuity sales practices and the interim report on the retirement income market study. Perhaps I may capture the essence of what it reported.
The review found that annuity sales practices were contributing to consumers not shopping around, buying the wrong type of annuity or missing out on a potentially higher income. The consumers’ tendency to buy from their existing pension provider weakens competition. The FCA identified the non-adherence by providers to the ABI’s own retirement choices code. In fact, the ABI urged the FCA to replace its code with regulation because it recognises that with the new freedoms more needs to be done.
As to the FCA retirement income market study, that was initially focused on how to get competition working more effectively for consumers; but following the Budget the emphasis was shifted towards looking at how market conditions might evolve from the advent of the reforms in April 2015. Its interim report suggests that consumers will be poorly placed to drive effective competition; that the retirement income market is not working well; and that the introduction of greater choice and potentially more complex products will reduce consumer confidence and weaken the competitive pressures on providers to offer good value.
Even after repeated analysis of these issues by the Treasury, the FSA, the FCA and others over a period of six years, and just three months away from the introduction of major reforms to the UK pensions framework in April 2015, too many consumers are still being failed by their providers. As my noble friend commented, the FCA research confirmed the well known biases that savers reveal that make them so vulnerable to being sold products that do not best meet their needs, and that the choices consumers make are strongly influenced by how options are presented to them. Martin Wheatley, the FCA CEO, said in a recent interview—published just this weekend—that the timescale to deliver the new freedoms and design suitable products was challenging; providers have been struggling to complete proper due diligence testing on their products.
Turning to the savers, the new freedoms bring with them an even greater onus on individuals to make an active decision about what to do with their pension pot. It is very important, therefore, that consumers are well placed to make decisions that are in their interests. We know the challenges to achieving this: provider behaviour; product design and complexity; savers’ behavioural biases; and financial capability. The noble Baroness, Lady Greengross, is president of the International Longevity Centre, whose new report on making the system fit for purpose reveals the extent of the limited knowledge of savers about relevant products and services, despite the new freedoms being just three months away.
The guidance guarantee is a key policy measure for helping people to navigate the complex retirement options arena from April 2015. I know that there are people working very hard to make its delivery a success. I certainly want it to be successful, as it will provide a very important service to savers. In support of that guaranteed guidance the FCA has confirmed that it will expect providers to check whether a customer has used the guidance service and encourage them to do so if not. It has also recommended that the pensions guidance service incorporates tools to support consumer decision-making. This provides a first line of defence against consumer detriment. The provision of guidance is extremely important, but what the customer does with the guidance also matters. The success of guidance can be achieved only by the whole industry working together. Some people will choose not to take the guidance even if encouraged by their provider.
The Government are very dependent on market behaviour to ensure the success of the new freedoms. Beyond guidance, the saver has to move into the process of making a decision and selecting or purchasing a retirement income route. It is what happens at that stage—the exchange between the consumer and the provider—that is causing so much anxiety.
This amendment is directed at that exchange between the provider and the consumer and puts a duty on the FCA to secure an appropriate degree of protection for the consumer at that stage. That is what is popularly referred to as the second line of defence, to mitigate the risk that savers make detrimental and irreversible choices. After the pension provider has asked the customer whether they have accessed guidance, it should be required to make active interventions, not just the current passive and paper-based disclosures. The FCA reports show that these are clearly failing savers, particularly where they buy a product from their existing provider through inertia, rather than making an active choice. The FCA should require pension providers to take active steps to make people aware of factors passively referred to in the literature and key facts documentation, by asking key questions of the consumer to highlight such matters as the potential impact of health, income tax, dependants, longevity, investment risk and income needs through retirement. That will highlight factors whose impact can lead to poor choices if overlooked.
The FCA analysis, as my noble friend said, revealed that the take-up of enhanced annuities because of health factors by those who remained with their existing pension provider was just 5%, while for those who shopped around the take-up was 50%. That is strong evidence that consumers need an active prompt to consider factors that have a bearing on their incomes in retirement. It is all the more important because decisions on pension savings can be irreversible. This Bill and the Taxation of Pensions Act create unprecedented options for retirees, so the passive approach is no longer sufficient.
The FCA is expected to publish its final market study report in early 2015. It is consulting on certain proposals, as my noble friend detailed, and it will continue to monitor the market. However, this is a reactive approach, waiting to see what problems emerge, and the amendment is underpinned by the belief that prevention is preferable to later cure. With around 400,000 consumers expected to access the new pension freedoms in 2015, yet another review may be required without the additional protections proposed in the amendment, to discover why thousands of pension savers did not make good decisions or get good value for money.
The amendment would introduce a general duty on the FCA and allow protections in time for April 2015, but it would not prevent the Government setting such other further requirements as they considered appropriate in the light of how the retirement market evolved. As the noble Baroness, Lady Greengross, stated when moving her amendment, consumer advocates, industry groups, providers and members of the Work and Pensions Committee have all expressed concerns that, without a second line of defence, mis-selling and poor decisions remain a key risk.
Lord McKenzie of Luton (Lab)
My Lords, I support the amendment and have added my name to it. As we have heard, it is about placing a duty on the FCA to set regulations for pension providers to deliver adequate protection for consumers—the second line of defence. However, having heard the contributions of my noble friends Lord Bradley and Lady Drake, I find myself with nothing further to say. I could go through some partial repetition but I think that, in the circumstances, I will desist.
Lord Newby
My Lords, I thank all noble Lords who have spoken on this amendment, and perhaps particularly the noble Lord, Lord McKenzie of Luton.
The amendment relates to the FCA’s duty to secure an appropriate degree of protection for consumers making a decision about their retirement income, with or without guidance. It is important to recognise that, as noble Lords have said and as was mentioned in a previous debate today, not all individuals will seek to take up the guidance offer, and that is their choice. I agree with noble Lords that, whether a consumer has taken guidance or not, they should be assured of their protection in the financial services market and be furnished with the right information to make an informed choice. I completely accept the point made by noble Lords —and as demonstrated in the FCA’s market studies—that in the past this has often not been the case.
First, the FCA is a relatively new body with new powers. I assure noble Lords that it has a duty to ensure that the retirement income market is working for consumers. That is captured under its statutory objectives, including its objective to secure an appropriate degree of protection for consumers in this market, which already extends across retail financial services markets. The FCA has specifically committed to closely monitor how the retirement income market develops and to take action where appropriate. It has broad powers to take action if there is evidence of mis-selling of products that are clearly inappropriate for consumers. It also has product intervention powers, which allow it to ban features of products or require products to be sold with certain protections or restrictions in place.
It is also important that consumers have the right fundamental information that they need to inform their choices, whether they take guidance or not. For those who choose not to take up the offer of guidance—the amendment is about people who choose not to take up the guidance; the issues raised here will be covered in the guidance sessions—the FCA’s rules, which it recently consulted on, in respect of these pension changes will require firms to provide a description of the possible tax implications when people apply to access their pension fund. The FCA has also made it clear that firms can question a customer’s decision where they feel it is inconsistent with their circumstances without fear of overstepping the boundary into regulated advice.
As noble Lords have pointed out, the FCA has committed to reviewing all its rules in the first half of this year. I assure noble Lords that it is considering what additional consumer protections should be put in place to support people making choices about their pension savings and the implications of those different choices. This is not simply a reactive approach; the FCA is doing this in the light of the work that it has already done and in the light of its extensive understanding of the market.
This debate highlighted an important issue of FCA protection. I hope that I have been able to assure noble Lords that not only does the FCA already have a duty to secure an appropriate degree of protection for consumers, regardless of whether they have used the Pension Wise service, but it has the appropriate powers to fulfil this duty without this amendment. Its attention is suitably focused on the development and treatment of consumers in the retirement income market. I hope that the noble Lord will therefore see fit to withdraw his amendment.
Lord Bradley
First, I thank my noble friends Lady Drake and Lord McKenzie for their excellent contributions, which are welcomed on both sides of the Committee. There is a strong feeling that it is very important that the second line of defence, as put forward in our amendment, is part of the Bill.
While I am grateful to the Minister for his comments, I feel that there is a degree of complacency in his response. We obviously recognise that the FCA is a new body and that its work is unfolding. However, there is a rather greater degree of urgency about the matters that we have placed before the Committee in the light of the fact that these new provisions for freedom and flexibility come into force in just a few weeks’ time. We do not want to be in the position where there is not complete confidence in the market and where all the relevant matters have not been taken into account with guidance and, through our amendment, a second line of defence to give absolute certainty to the public that the market which they will be moving into is operating in their best interests.
We need to reflect very carefully on what the Minister has said and on the fact that the public seek those assurances and want that second line of defence in legislation to underpin that confidence. For now, I beg leave to withdraw the amendment, although we may well return to this matter at a later stage.
““subsisting rights” has the meaning given by section 74 of the Pension Schemes Act 2014;“survivor” has the meaning given by section 74 of the Pension Schemes Act 2014.”
Lord Bradley
Lord Bradley
In moving this amendment to Clause 48, I will soon be moving back to government Amendments 45 and—
The Deputy Chairman of Committees (Baroness Fookes) (Con)
Perhaps I may interpolate. The groupings list is slightly in the wrong order. I have been following the correct order as it appears in the Marshalled List.
Lord Bradley
I am grateful for that clarification as, I am sure, is the whole Committee. In moving Amendment 44A I shall speak also to Amendments 47 and 48.
At this Committee stage, we have tabled amendments on all the recommendations of the Delegated Powers Committee. The Government will either accept the recommendations of that committee or put on record why they do not believe that the delegated power in question requires the affirmative procedure. That is what our amendments in this group do. The Delegated Powers Committee recommended that the power in Clause 48(3) be subject to the affirmative procedure as the power contained in it is, to quote from the report, “very significant”, not only in the context of Clause 48 but for the purpose of Chapter 2 of Part 4 as a whole. That is a very fair summary. The power enables the Secretary of State to provide for exceptions from the need to seek independent advice, which is central to ensuring that someone in a defined benefits scheme, for instance, is adequately informed of the risks and rewards of transferring out in order to access their pensions.
The power in Clause 48(7) is equally fundamental, giving as it does the Secretary of State the power to define what counts as “appropriate independent advice”. Our amendment is designed to probe exactly what would be meant by “appropriate independent advice”. Will the scheme trustees or managers be required to assess the appropriateness of the advice received—that in the circumstances of the particular scheme member the recommendation is the right one and transferring out will not harm their chances of having a good requirement income? The alternative is that the scheme trustees or managers will have to check that the advice received by the scheme member comes from someone appropriate who is regulated by the FCA. Our amendment gives the Government the chance to clarify that point. The difference in responsibility and cost is obviously significant.
I acknowledge that the Minister has already been kind enough to write to me, for which I am grateful, and the Government’s response to the Delegated Powers Committee has made it clear that the definition of “appropriate independent advice” will be through a regulation that is subject to the affirmative procedure, although as a consequence not directly part of the primary legislation in this Bill. None the less, it would be very helpful if the Minister could put on record the likely content of the regulation and give as many details as he is able to about it so that it addresses the issues I have raised in the amendments.
Can the Minister also give the Committee an update on the likely timing of that regulation? The response to the Delegated Powers Committee on 6 January says that it is likely to be “in the new year”. Given that it also says that it has to be in place by April, we are safe to assume that the new year does not mean January 2016. However, it would be helpful if the Minister could say when that regulation is likely to be laid so that there can be proper scrutiny of it. I beg to move.
Baroness Drake
My Lords, I had not intended to speak on this amendment but I should like to support my noble friend in his probing. As a pension trustee, I deal with these requests for transfers for a cash equivalent value from DB to DC schemes. I think I dealt with two this morning. As someone with a fiduciary duty—when I see the scale of what can be transferred—they keep me awake at night. What I had to sign off this morning made me think that I should take the opportunity to reinforce my noble friend’s concern.
I am sure that demand for these transfers is already rising in anticipation of the new freedoms that will flow from April 2015. I am concerned. We have already seen problems such as pensions liberation. We can talk about the FCA and the regulated industry, but what unregulated charlatans and scoundrels are waiting in the wings to encourage people to transfer their funds and access their freedoms? As someone who has been a trustee for about 27 years—dreadful I know—I have seen the personal pensions problem, the cash accounts transfer values and the pension liberation scams. I have watched these things from the perspective of a trustee. I have a real fear that this is a car crash waiting to happen unless it is properly regulated.
Two adjectives go with advice: “independent” and “appropriate”. Independence is easy to define, in a way, because it has a regulatory definition. What is really important is what is appropriate. As a trustee I would want to know what the Government think is the appropriateness of the advice people have received when they make applications to the schemes of which I am a trustee for such a transfer.
I read the response to my noble friend Lord Bradley on the Delegated Powers and Regulatory Reform Committee’s report and my reading of that letter is that the Government are on the case. That would be great, and if they are I want to say positive things and encourage the Minister to deal with this robustly, because it is a car crash waiting to happen. It is not just a matter of the big defined benefit pots. If you are on quite a modest income and are lucky enough to have a DB scheme, then even if your pension is going to be about £4,000 a year that will translate into a really big pot of cash—a pot of cash such as you may not have seen before—leaving you quite vulnerable. I can see from the letter to my noble friend Lord Bradley that the Government are on the case. I urge them to stay on the case.
Lord Newby
My Lords, these amendments give expression to the recommendations of the Delegated Powers and Regulatory Reform Committee concerning Clause 48. Amendments 47 and 48 make the regulations under subsections (3) and (7) subject to the affirmative procedure. Amendment 44A narrows the power taken in Clause 48(7) in such a way that regulations could not be made setting out the nature of appropriate advice but would instead focus on the characteristics of an appropriate person. As the noble Baroness has just pointed out, my colleague Steve Webb, the Minister for Pensions, wrote to the noble Baroness, Lady Thomas, chair of the Delegated Powers and Regulatory Reform Committee, acknowledging the committee’s concerns, providing a commitment to address them as far as we can and explaining why we were unable to accept the committee’s exact recommendations. The letter details alternative ways in which we will be able to address the concerns of the committee and the House. As Amendments 47 and 48 implement the committee’s recommendations, the government response is along similar lines to the letter, which can be found in the Library.
Lord Bradley
I am grateful to the Minister for that detailed and rapid response to the amendments. It will require careful reading to ensure that we fully appreciate all the issues that he has laid out to the Committee. The key element I should be pleased about is that Amendment 44A will be reflected upon by the Government as they devise their own amendments to be brought back on Report, which I understand is currently scheduled to be within a couple of weeks or so. There is some urgency that there is that clarification. However, with that assurance and in the light of being able to look at that within the context of the other matters raised in the amendments, I beg leave to withdraw the amendment.
Lord Newby
Lord Newby
My Lords, at Second Reading my noble friend Lord Bourne explained that there was a need to define flexible benefits due to differences between pensions and tax legislation regarding money purchase benefits. The definition of flexible benefits contains three elements. These are: money purchase benefits; cash balance benefits; and a third category of benefit which is not money purchase or cash balance but is calculated by reference to an amount available for the provision of benefits. The most common form of benefit offered in this category relates to a pension with the option of a guaranteed annuity rate. It is to this third category that the amendments are primarily aimed.
Amendments 46 and 50 ensure that a scheme must check that a member has received appropriate independent advice before paying an uncrystallised funds pension lump sum from arrangements in the third category of flexible benefit, which includes guaranteed annuity rate pensions. Benefits within this third category offer a level of security of income akin to defined benefit arrangements. Guaranteed annuity rates were typically issued in the late 1980s and 1990s, their distinguishing feature being an enticement to customers promising that when they came to take these pensions, if they bought their annuity with the provider with which they had accumulated the pension, they would get an annuity rate specified at the point of purchase.
Due to the decline in annuity rates, the pensions these guaranteed annuity rate arrangements provide by means of annuities are especially generous. Therefore in the Bill they are given the same safeguarded treatment as a defined benefit pension. An individual should, in each case, understand what it is they are giving up before taking advantage of the new flexibilities. The Bill already requires a scheme to check that advice has been received before an individual transfers their rights from such an arrangement, or where a member converts their benefit into a draw-down arrangement.
Amendment 46 extends this protection to the circumstance where a member or survivor takes an uncrystallised funds pension lump sum. Clause 48 does not currently require this because taking such a lump sum does not constitute a transfer or a conversion. I must emphasise that these amendments only require that advice be taken before taking an uncrystallised lump sum in return for safeguarded benefits. It does not require that advice be taken on uncrystallised lump sums in any other circumstances.
Amendment 46 amends Clause 48, providing that this has effect for Great Britain. Amendment 50 amends Clause 51, making parallel provision for Northern Ireland. Amendment 103 defines uncrystallised funds pension lump sum by reference to the Finance Act 2004.
I recognise that these amendments are challenging to explain and understand but the effect is to make a small change that ensures that those with valuable benefits such as guaranteed annuity rates will be properly informed before deciding to give up those benefits. I therefore beg to move.
Lord McAvoy (Lab)
My Lords, I thank the Minister for his explanation of the amendments. “Challenging”is is one of the words that he used. I would like to challenge the thrust of what the Government are saying about these amendments. Although, strictly speaking, he has not used the words “technical amendments”, nevertheless they are in that category. I would like to probe a wee bit further and ask how the amendments came about. What advice was taken, what discussions took place and what organisations were in touch with Ministers to press this change? It could be argued—slightly tendentiously, but it could be argued—that this changes the Bill quite a bit. When did the Government decide to bring out this amendment whereby people with a guaranteed annuity rate pension would have to take advice? It has been a constant theme—not only previously but today in particular—that a number of amendments seem to be afterthoughts or a result of lobbying. It is a good thing in that these are very important issues and people are entitled to try to influence government. However, I would like to probe a wee bit further and ask what process was entered into that ended up with this amendment.
Lord Newby
My Lords, I agree with the noble Lord that the amendments are very technical at one level. However, they are not technical amendments; they are proper substantive amendments. They broaden the scope of the type of pension where people will be required to take advice. I will happily write to him if I can provide him with more details. I think that it simply became apparent to officials during the Bill’s passage that this was a potential—relatively small—market involving a type of pension lump sum that had not been covered in the way that had always been intended for this sort of thing. As we find with most Bills as they go through the House, the Government introduce amendments because they become apparent to officials as they do more work and to parliamentary counsel as it does more work. If there was anything more specific that led to these amendments, I will definitely write to him.
“( ) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”
“( ) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”
Lord Bourne of Aberystwyth (Con)
My Lords, I now turn to a further group of amendments which make minor changes to the clauses dealing with draw-down of pension benefits.
The first set of amendments follows amendments made in Committee in the other place to what is now the Taxation of Pensions Act. The Taxation of Pensions Act will allow for payment of death benefits to nominees and successors of members in relation to money purchase arrangements. The Act makes provision for a nominees’ draw-down pension and a successors’ draw-down pension. These amendments make the changes to this Bill to reflect the introduction of these new types of draw-down pension. They amend Clauses 55 and 56 so that these types of pension are treated in the same way as a dependants’ draw-down pension. They also insert definitions of a nominees’ draw-down pension and a successors’ draw-down pension into Clause 74. Amendments to Clauses 60 and 61 do the same for Northern Ireland. The second set of amendments makes small changes to Clauses 72 to 74, which deal with the definition of terms used in Part 4 of the Bill. As I said, these amendments make minor changes. I hope that noble Lords will agree, and I commend these amendments to the House. I beg to move.
Lord McAvoy
My Lords, I thank the noble Lord for his succinct exposition of the amendments. These are more in line with the phrase “minor and technical”. Nevertheless, I still make the point that there has been a barrage of amendments. We will study these carefully and, if necessary, do something on Report. I just make the point that we will be scrutinising them carefully.
“Sections 55 to 57: consequential amendments
“(1) In section 101AI of the Pension Schemes Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (8)—
(a) in paragraph (a), after sub-paragraph (ix) insert—“(x) section 55 of the Pension Schemes Act 2014;“(xi) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vii) insert—“(viii) section 55(3) of the Pension Schemes Act 2014;“(ix) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”(2) In section 67A of the Pensions Act 1995 (the subsisting rights provisions: interpretation), in subsection (9)—
(a) in paragraph (a), after sub-paragraph (viii) (inserted by section 45of this Act) insert—“(ix) section 55 of the Pension Schemes Act 2014;(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vi) (inserted by section 45 of this Act) insert—“(vii) section 55(3) of the Pension Schemes Act 2014;(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”(3) In section 318 of the Pensions Act 2004 (interpretation), in subsection (3)—
(a) in paragraph (a), after sub-paragraph (viii) (inserted by Schedule 2to this Act) insert—“(ix) section 55 of the Pension Schemes Act 2014;(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vi) (inserted by Schedule 2 to this Act) insert—“(vii) section 55(3) of the Pension Schemes Act 2014;(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.””
Lord Bourne of Aberystwyth
My Lords, this group of amendments makes a number of small consequential amendments, all designed to ensure that the transfer provisions work as intended. The amendments are somewhat technical and I hope your Lordships will bear with me while I set out in a little more detail what they do.
Amendments 54, 63 and 64 are consequential on Clauses 55 to 57, which make provision in relation to drawdown. Clause 55 contains a provision that overrides scheme rules to the extent that there is any conflict. Clauses 56 and 57 also contain provisions allowing regulations made under them to override scheme rules to the extent that there is a conflict. The amendments make provision to insert a reference to Clauses 55 to 57 into the list of relevant legislative provisions for the purposes of the scheme rules definition in Sections 100B and 101AI of the Pension Schemes Act 1993—in relation to transfer—Section 67A of the Pensions Act 1995—in relation to members’ subsisting rights—and for the purposes of the Pensions Act 2004. Amendments 62, 67, 71 and 73 further ensure that the definitions of scheme rules in the 1993 and 2004 Acts also apply for personal pension schemes, taking account of any provisions that override these rules. These provisions are needed to ensure that the new overrides are taken into account in the existing legislation and so that it is clear what is meant by scheme rules where a provision has been overridden. Amendments 58, 63, 64, 77, 82 and 86 make provision for corresponding changes to Northern Ireland legislation.
I now turn to Amendments 59, 70 and 72. These make amendments to Schedule 4 to update existing cross-references to the transfer rights contained in the Judicial Pensions Act 1981, the Judicial Pensions and Retirement Act 1993, the Pensions Act 1995 and the Scottish Parliamentary Pensions Act 2009, so that they point to Chapters 1 and 2 of new Part 4ZA of the Pensions Schemes Act 1993. This will ensure that transfer provisions continue to operate as intended in conjunction with this Bill in relation to these pension schemes. This schedule also introduces identical provisions for Northern Ireland legislation in Amendments 76 and 87.
Amendments 60, 61, 68, 69, 75, 76, 78, 79, 83 and 84 amend Schedule 4 to make a number of minor and consequential changes to various sections of the Pensions Schemes Act 1993 and its Northern Ireland equivalent to ensure that the precise wording of the these sections operates as intended, now that a member’s statutory right to transfer will apply at benefit category level.
Finally in this group, Amendments 65 and 66 make small drafting amendments to new Section 100C of the Pension Schemes Act 1993 to put the meaning of “normal pension age” beyond doubt, with corresponding amendments for the Northern Ireland equivalent through Amendments 80 and 81. The amendments make minor and technical changes to the Bill which are important to ensuring that the legislation operates correctly. I beg to move.
Lord McAvoy
My Lords, I make the point about minor and technical amendments again. We will study them carefully, although with less suspicion than those in other categories. However, I will just say that Amendment 54 takes up a full page on the Marshalled List of amendments. Again, it reinforces the image of things being hurried or missed out when an amendment of that length has to be moved. Having said that, we accept it as a minor and technical amendment.
Lord Bradley
“Drawdown funds: cap on charges
The Secretary of State may make regulations imposing a cap on the charges that may be imposed on members of flexi-access drawdown funds.”
Lord Bradley
My Lords, having listened to the Government’s amendments, I am tempted to say that this one is minor and technical and hope it will slip through on the back of that. However, it is not. On the first day in Committee, our first amendment on decumulation was an attempt to ensure that the Government did not lose focus on ensuring that all pension savers obtain a good deal when they look to turn their pension pot into a retirement income. In that instance, we wanted to protect savers from being defaulted into an annuity without a recommendation from an independent broker.
This amendment asks the Government not to lose sight of progress that has been made in getting a better deal for pension savers, despite the sweeping changes enabling freedom of flexibility in accessing pensions that will come into force this April. The cap that has been introduced on charges for work-based pension schemes of 0.75% a year has no equivalent in draw-down products, but from April a great many more savers—perhaps an estimated 320,000—will be using these products to get a retirement income. They should be protected from unfair charges. I repeat: they should be protected from unfair charges. It is welcome that NEST, the National Employment Savings Trust, has launched a consultation on draw-down products and how to ensure that middle and low-income earners have suitable and good-value products available to them. As the consultation rightly says:
“The solutions we as an industry develop over the next few years could determine the lives of millions of people in old age. We absolutely cannot afford to fail consumers … Leaving their retirements to chance is not an option”.
We have been clear throughout that welcoming the Budget freedoms is predicated on good solutions being available for savers in those income brackets, which we hope will happen. A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it.
What is the evidence that this may happen in the decumulation stage for draw-down products? We already know that charges can be varied and opaque. The report from Which?, The Future of Retirement Income, points out:
“Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%”.
Our amendment would give the Secretary of State the power to address this. The report goes on to point out that the costs are not always clear to the consumer:
“There are also hidden costs, including bid-offer spreads, the cost of sub-funds within the main fund, platform charges etc. Where an actively managed fund is selected, there is a risk that high turnover (churning) would add significantly to the total cost due to the transaction costs involved”.
Remember, this is about a product that is likely to become a great deal more widespread from April. The report therefore recommends that the Government should consider the introduction of a charge cap on the DC decumulation market at the same time as this is made a requirement for auto-enrolment DC schemes.
No one can be quite sure how the market will develop after April, but if the Government do not want to put this in place now, accepting our amendment would give them the power to take action to prevent consumer detriment in a new market in an area that has not always served savers as well as it should. This seems to me to be a sensible step that will protect consumers and ensure that they are not subject to rip-off charges. In that spirit, I hope that the Government will accept this amendment.
Baroness Drake
My Lords, from April 2015, when people reach the age of 55, they will be able to access their defined contribution pension savings as they wish. That will essentially leave them with four choices: full withdrawal of cash, taxed at their marginal rate, less a 25% tax-free lump sum; some kind of income draw-down product, drawing down cash while leaving the remainder invested; taking uncrystallised funds pension lump sums; an annuity purchase; or any combination of the four.
We do not know how the market will evolve in light of the new unprecedented options for pension savers in terms of the retirement products that will be available and what their charges will be. However, we do know that the FCA thinks, first, that the new freedoms could weaken the competitive pressure on providers to offer good value, because people display even more inertia in the face of complexity; and, secondly, that providers have been struggling to complete proper due diligence testing on new products because of the tight timetable. We do not have clarity as to the Government’s thinking on the charges, quality standards and transparency requirements for retirement income products going forward.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Bradley, for moving the amendment and the noble Baroness, Lady Drake, for her contribution.
The Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. The Government’s announcement of a charge cap on default funds in pension schemes used for automatic enrolment—which, subject to the approval of noble Lords, will come into effect in April—amply demonstrates that commitment to act. However, I am pleased to be able to reassure noble Lords that this amendment is not necessary. There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.
Similarly, the Financial Services and Markets Act 2012 gave the Financial Conduct Authority wide-ranging product intervention powers. Under these powers, the Financial Conduct Authority also has the ability to cap charges on draw-down products, including flexi-access draw-down funds where these are offered by insurance companies. These existing powers cover all the institutions which could offer such draw-down arrangements.
I also reassure noble Lords that the Government and regulators are, as has been indicated, monitoring the development of new retirement income products, including the next generation of draw-down products, very closely indeed. In the publication of provisional findings from its retirement income market study, the Financial Conduct Authority has specifically committed to monitor how the retirement income market develops and to take action where appropriate if it sees sources of consumer detriment arising or if competition is not working properly in the market. In addition, again as mentioned earlier, the Financial Conduct Authority has also committed to undertake a full review of its rules in relation to the retirement income market which will commence in the first half of this year.
Therefore, while the Government share the concerns that have been expressed about member-borne charges, we believe that this amendment is not required. I therefore hope that the noble Lord will withdraw this amendment.
Lord Bradley
I thank the Minister for his response and the noble Baroness, Lady Drake, for her very important contribution to this debate. I am pleased that the Government recognise that this is an issue and that the purpose of this amendment is entirely to protect the consumer in this matter. I hear the Government’s assurance that the powers to act already exist. What we all want to ensure is that the Government do actually act if it does turn out to be the case that excessive charges above what would be a reasonable capped level of such charges actually come into existence as new products come on to the market.
If the Government are right that this amendment is not necessary, the test will be that they actually act in the interests of consumers in a timely way to ensure that they do not suffer the rip-offs that they have in the past in other circumstances. With those assurances, I beg leave to withdraw the amendment.
“Sections 60 to 62: consequential amendments
“(1) In section 97AI of the Pension Schemes (Northern Ireland) Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (7)—
(a) in paragraph (a), after sub-paragraph (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”(2) In Article 67A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (the subsisting rights provisions: interpretation), in paragraph (9)—
(a) in sub-paragraph (a), after head (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in sub-paragraph (b), after head (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”(3) In Article 2 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (interpretation), in paragraph (4)—
(a) in sub-paragraph (a), after head (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in sub-paragraph (b), after head (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.””
“Judicial Pensions Act 1981 (c. 20)A1 In Schedule 1A to the Judicial Pensions Act 1981 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.
Judicial Pensions and Retirement Act 1993 (c. 8)B1 In Schedule 2 to the Judicial Pensions and Retirement Act 1993 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.”
“2A In section 24F (transfers out of GMP-converted schemes), in subsection (3), omit “guaranteed”.”
“( ) In subsection (2), in paragraphs (a) and (b), for each “accrued rights” substitute “transferrable rights”.”
“(xi) section 55 of the Pension Schemes Act 2014;(xii) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”
“(ix) section 55(3) of the Pension Schemes Act 2014;(x) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”
“15A In section 101M (effect of transfer on trustees’ duties), for the words from “pension credit benefit” to the end of the section substitute “benefits to which the transfer notice relates”.”
“( ) In that subsection, omit the definition of “pension credit benefit”.”
“27A In section 124 (interpretation of Part 1), in subsection (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part 4 of the Pension Schemes Act 1993 (early leavers)” substitute “Chapter 2 of Part 4ZA of the Pension Schemes Act 1993 (transfers and contribution refunds)”.”
“(1) Section 318 (interpretation) is amended as follows.
“(2) In subsection (2), for “an occupational pension scheme” substitute “a pension scheme”.
(3) ”
“Scottish Parliamentary Pensions Act 2009 (asp 1)37A (1) Schedule 1 to the Scottish Parliamentary Pensions Act 2009 (Scottish Parliamentary Pension Scheme) is amended as follows.
(2) In paragraph 75, in Condition 6, for “section 93A(2)” substitute “section 93A(4)”.
(3) In paragraph 91(2)(g), for “Chapter 4 of Part 4” substitute “Chapter 1 of Part 4ZA”.”
“Judicial Pensions Act 1981 (c. 20)40A In Schedule 1A to the Judicial Pensions Act 1981 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes (Northern Ireland) Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes (Northern Ireland) Act 1993”.
Judicial Pensions and Retirement Act 1993 (c. 8)40B In Schedule 2 to the Judicial Pensions and Retirement Act 1993 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes (Northern Ireland) Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes (Northern Ireland) Act 1993”.”
“42A In section 20F (transfers out of GMP-converted schemes), in subsection (3), omit “guaranteed”.”
“( ) In subsection (2), in paragraphs (a) and (b), for each “accrued rights” substitute “transferrable rights”.”
“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”
“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”
“55A In section 97M (effect of transfer on trustees’ duties), for the words from “pension credit benefit” to the end of the section substitute “benefits to which the transfer notice relates”.”
“( ) In that subsection, omit the definition of “pension credit benefit”.”
“67A In Article 121 (interpretation of Part 2), in paragraph (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part IV of the Pension Schemes Act (early leavers)” substitute “Chapter 2 of Part 4ZA of the Pension Schemes Act (transfers and contribution refunds)”.”
“(1) Article 2 (interpretation) is amended as follows.
“(2) In paragraph (3), for “an occupational pension scheme” substitute “a pension scheme”.
(3) ”
Lord Newby
Lord Newby
My Lords, the purpose of Amendments 87, 88 and 89, which amend Clause 66, is to improve the drafting of technical aspects of this clause, which introduces restrictions on transfers out of unfunded defined benefit public service pension schemes to schemes from which it is possible to acquire a rise or entitlement to flexi-benefits. Amendment 87 ensures that the definition of unfunded public service defined benefit schemes applies where it is needed. Amendment 88 enables the Treasury to make regulations relating to public service pension schemes which can currently be made only by the Secretary of State. Amendment 89 ensures that certain regulations already in force will apply until new regulations are made under certain of the new powers provided for in this clause.
Turning to the amendments in respect of Clause 67, as a reminder, I say that the purpose of this clause is to introduce a new safeguard for funded defined benefit public service pension schemes which gives Ministers a power to designate a scheme or part of a scheme, and in that way require the reduction of cash-equivalent transfer values in respect of transfers from that scheme to another scheme in which the member will be acquiring flexible benefits.
Amendments 90, 91 and 92 clarify the schemes covered in Scotland by the new safeguard for funded defined benefit public service pension schemes, which is introduced in Clause 67. They ensure that only schemes which are public service pension schemes within the meaning of Section 1 of the Pension Schemes Act 1993 fall within the power introduced by this clause.
Amendment 93 improves the drafting of Clause 67. Rather than speaking of “acquiring” flexible benefits, the clause will refer to acquiring a “right or entitlement to” flexible benefits, which is more accurate. Amendments 94, 95 and 96 amend Clause 69 to make provision for Northern Ireland parallel to that made for Great Britain by amendments described above. Similarly, Amendment 97 amends Clause 70 to make provision for Northern Ireland parallel to that made for Great Britain by the amendments described above. I beg to move.
Lord McAvoy
My Lords, I thank the Minister for his exposition. He sold me when he mentioned Scotland, so I think we accept that these amendments are genuinely minor and technical, although, to coin a phrase, we will reserve our position in case we discover something. I hope my noble friend Lord McKenzie of Luton can resist the temptation to jump up and shout, “Me too!”.
“( ) After section 95(5) insert—
“(5A) Except in such circumstances as may be prescribed in regulations made by the Secretary of State or the Treasury, subsection (2A) is to be construed as if paragraph (d) were omitted.””
“( ) Until the coming into force of the first regulations made under a provision of the Pension Schemes Act 1993 specified in the first column of the table, regulations made under the provision of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—
New provision of Act | Existing provision of Act |
|---|---|
Section 95(2A)(a)(iii) | Section 95(2)(a)(ii) |
Section 95(2A)(b)(iii) | Section 95(2)(b)(ii) |
Section 95(2A)(c) | Section 95(2)(c) |
Section 95(2A)(d) | Section 95(2)(d) |
Section 95(5A) | Section 95(5)(a).” |
“( ) After section 91(5) insert—
“(5A) Except in such circumstances as may be prescribed in regulations made by the Department or the Department of Finance and Personnel, subsection (2A) is to be construed as if paragraph (d) were omitted.””
“( ) Until the coming into force of the first regulations made under a provision of the Pension Schemes (Northern Ireland) Act 1993 specified in the first column of the table, regulations made under the provision of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—
New provision of Act | Existing provision of Act |
|---|---|
Section 91(2A)(a)(iii) | Section 91(2)(a)(ii) |
Section 91(2A)(b)(iii) | Section 91(2)(b)(ii) |
Section 91(2A)(c) | Section 91(2)(c) |
Section 91(2A)(d) | Section 91(2)(d) |
Section 91(5A) | Section 91(5)(a).” |
““nominees’ drawdown pension”, in relation to a survivor, has the meaning given by paragraph 27B of Schedule 28 to the Finance Act 2004;”
““successors’ drawdown pension”, in relation to a survivor, has the meaning given by paragraph 27G of Schedule 28 to the Finance Act 2004;”
““uncrystallised funds pension lump sum” has the meaning given by paragraph 4A of Schedule 29 to the Finance Act 2004;”
Lord Balfe
“Pension Protection Fund: compensation cap underpin (service-related)
(1) Schedule 7 to the Pensions Act 2004 (pension compensation provisions) is amended as follows.
(2) In paragraph 26 (compensation cap), after sub-paragraph (9) insert—
“(9A) This paragraph is subject to paragraph 26B.”
(3) After paragraph 26A insert—
“26B (1) The relevant compensation payable to a person must in every case equal the lower of the amounts specified in sub-paragraphs (2) and (3).
(2) The amount specified in this sub-paragraph is the sum of—
(a) 50% of the annual value of the benefits to which he is entitled under the admissible rules; and(b) 2% of that amount for each whole year of the person’s pensionable service, subject to a maximum of 40% of that amount.(3) The amount specified in this sub-paragraph is two times the standard amount.
(4) Expressions used in this paragraph have the same meaning as in paragraphs 26 and 26A.””
Lord Balfe (Con)
My Lords, I welcome the opportunity of being able to speak to this proposed extra clause at the end of the Bill. I will say straightaway that it is motivated by friends in BALPA, the union for pilots, but it also affects a number of other higher-paid workers who are caught by what many of us would regard as an anomaly in pensions legislation.
The aim of the amendment is to ask for a review of the part of the Pensions Act that covers the limitation on funds that can be paid out to people whose pensions go into the Pension Protection Fund. In particular, I refer to pilots who used to work for Monarch Airlines—which has gone into the Pension Protection Fund—many of them with many years of service, but because of the cap that was put on payments out, they are limited as to the amount of pension which they can now draw. That cap was put into place for very good reason: to stop moral hazard; to stop directors who were members of their company pension fund abusing the fund knowing that they could basically transfer their liabilities for their own pensions to the Pension Protection Fund. However, the people who I am speaking about, such as the pilots of Monarch Airlines, are inadvertently caught. They had no say whatever in the way in which the company was run. They were workers for the company; they were higher-paid workers and were paid the sort of wages which you only get in the other House down the corridor—of course, if the House of Commons ever went into the Pension Protection Fund, many MPs’ pensions would be limited as well, but no one would say that they are the directors of a company. They are the MPs of the people and look after many things, but they would be caught.
So the amendment is a measure to deal mainly with higher-paid workers, but workers who have none the less put in. We are very fond in this country of bashing anyone who makes anything that exceeds the higher-rate tax threshold, but there are many people who go to university, who work hard in our economy and who exceed the higher-rate tax threshold—they earn more than £40,000 or sometimes even more than that, and they do earn it. I have never been a subscriber to the view that we have to pay megabucks to everybody, but I have always been a subscriber to the view that a decently trained professional worker who is putting their efforts into the benefit of the country deserves a decent wage. These pilots are highly skilled people and deserve a decent wage, as do people at the Atomic Energy Authority and British Midland Airways who are caught. In this particular instance, of some 67 pilots, around 13 will lose more than half the pension that they have paid for. Part of the weakness in the Pension Protection Fund is that your levy is not based on how many workers are covered; it is based on the liabilities of your fund. If someone earns too much to get the full pension, you are still paying, as I understand it, a levy into the pension fund which is commensurate with the liabilities of the fund, not of the individuals.
I am asking the Minister to look at the PPF cap and how it works. We are proposing two ways of dealing with it: either reviewing the cap on the basis of years of service over 20 years, as the current planned change would do little to help many of those in the pension scheme who are affected by the cap; or reducing the service-related or age-related underpin into the PPF. We are basically looking for a way of relieving those workers. It would be a comparatively cheap operation, largely because many people who earn a lot of money are in the PPF. It is estimated that the measure would cost something in the order of £12 million in all over all the years that the extra pensions would have to be paid, so it is not a huge amount of money.
I am therefore asking the Minister to have a look at this matter. Clearly, the categories of people that I am speaking about are not the decision-makers and they should not be caught by moral hazard. They are well worthy of a review of the contributions that they have made and the way in which the PPF works. I have not made enough speeches in this House to know whether it is conventional to thank my colleagues opposite, the noble Lords, Lord Monks and Lord McKenzie, for their help in meeting the union that I have mentioned. I think that we are talking on a cross-party basis in asking for this matter to be seriously looked at by the Government. I beg to move.
Lord Monks (Lab)
My Lords, I declare an interest as the president of BALPA. I congratulate the noble Lord, Lord Balfe, on the first pro-trade union speech from that side of the Chamber that I have heard since I came into the House—it was a pleasure to hear.
Lord Monks
I am sorry, I did not, but this one made for a nice change and I commend that example to the rest of your Lordships on those Benches and hope to hear more remarks of that kind.
The noble Lord, Lord Balfe, has admirably covered the BALPA case. Monarch Airlines is the current case, and BMI was the previous one. We are beginning to struggle as these airlines in trouble pass their pensions obligations over to the Pension Protection Fund. There are other similarly paid workers in the same category. I hope that the message of this amendment is that though this cap is essential—I understand that very well, as the noble Lord, Lord Balfe, does—in order to stop exploitation of the fund, which after all is contributed to by well run pension schemes around the country, it is very important that we take those obligations seriously.
The cost to the fund is not enormous; it is quite modest. I hope therefore that the Government will consider the idea of a review of the arrangements around the cap and that we can get extra justice for some people who are hard working, who do responsible jobs, who are not fat cats and who deserve rather better than they have had recently from the fund. I am very happy to support the amendment in the name of the noble Lord, Lord Balfe.
Baroness Warwick of Undercliffe
My Lords, I want to make a brief comment on this amendment since I am a non-executive director of the Pension Protection Fund. I declare that interest and hope that I can offer some thoughts that may be helpful to the Committee. The PPF was set up by the Pensions Act 2004 to be a lifeboat for members of defined benefit pension schemes whose sponsoring employer has become insolvent, leaving the scheme in deficit. The PPF saves thousands of members from potential penury who otherwise would have received only a small fraction of the pension promised to them in their employer’s scheme. The benefits it pays to insolvent scheme members are paid for, in large part, by a compulsory levy on other DB schemes with solvent employers, which of course is a cost on the employer.
When the PPF was set up, it was always recognised that there was a fine balance between on the one hand protecting those who had saved and who, through no fault of their own, were now the casualties of their employer’s insolvency, and on the other, not unduly penalising schemes which had made prudent assumptions or decisions, or employers whose businesses remain solvent, providing jobs and funding for their pension schemes. One way in which this was reflected was the benefit cap: the maximum benefits normally paid for someone who is not above the normal retirement age and drawing pension, are 90% of what the pension was worth, subject to a cap.
The cap at age 65 is currently £36,401 per year, which equates to just over £32,500 when the 90% level is applied. The earlier a person retired, the lower the annual cap is set, to compensate for the longer time the person will be receiving payments. So the full expectations of high earners who have built up a number of years in their schemes would not be met. The average annual compensation in payment per member in the PPF is just over £3,500 per annum, so the average PPF member has clearly received less than the amounts which would have been earned by high earners such as those who would be affected by this amendment.
The important point to note is that the PPF board has no role or responsibility in setting the financial limits in the fund. That is the responsibility of Governments. However, back in 2004 there was a general political consensus, which I believe still holds, that there was a need to balance the interests of members against the cost to those who fund the PPF—the levy payers, who ultimately are the employers and members of other pension schemes.
There is obviously a debate to be had about appropriate levels of compensation. I have every sympathy with those who have been made a pension promise that their scheme can no longer afford. However, that is a matter for the Government and I do not want to comment on it, except to say that the PPF board has an obligation to keep the fund’s finances on a sure footing in changing economic conditions. It has a particular responsibility to balance its liabilities within a reasonable framework of constraints so that it does not impose an undue burden on the pension schemes and businesses which pay its levy. The PPF also has to be sustainable over the very long term, and the level of protection given to pension scheme members has to be such as to make that possible. The PPF has faced some significant calls on its resources as a result of big household names going bust. At November 2014, the net deficit of the 6,000 PPF eligible schemes is £221 billion. PPF provides a protective wrap for these liabilities in the event of insolvency. The amount of levy that would need to be raised to cover all members’ benefits in these schemes would be much higher.
To add a final note of caution, requiring solvent employers with DB schemes to pay more levy for higher levels of compensation will not come without problems.
Lord Balfe
Is it true that the PPF currently has a surplus of £2.43 billion, out of which we are asking that this modest payment be made?
Baroness Warwick of Undercliffe
I do not think I should enter into a conversation about that and I do not think it is really relevant to this argument.
Lord McKenzie of Luton
My Lords, I thank the noble Lord, Lord Balfe, for giving us an opportunity to air this issue this evening and for organising a meeting with the Minister. I thank the Minister and his officials for participating in that meeting. No one can be comfortable with the position of employees in this situation, who approach retirement with a likely pension significantly below the expectation which is derived from an employer promise which can no longer be met. This is not diminished by the fact that, while the pension expectations would be well above average levels, they are commensurate with remuneration levels which reflect the skill of pilots and the responsible jobs they undertake. As we have heard, some 67 Monarch pilots will lose, in aggregate, some £900,000 a year in lost pension because of the operation of the PPF cap and other pilots are in a similar position.
We should acknowledge that the Pension Protection Fund introduced by the previous Government, but on a cross-party basis, protects millions of people throughout the UK, as we have heard, who belong to defined benefit pension schemes. According to the Purple Book, which monitors the risk of DB schemes, there are some 6,057 mostly private sector DB schemes covering more than 11 million scheme members with more than £1 trillion of assets. In broad terms, as we have heard, the fund takes over the responsibility of pension obligations in the event of employer insolvency, but it does not seek to replicate, in every respect, the employer promise. There is, in particular, a cap on levels of payment for those below normal retirement age when the scheme enters the PPF. This is a source of the problem we are discussing tonight.
We know that the PPF is a highly professional organisation dealing with a complex market situation with great skill. On recent data, some 745 schemes have been transferred, covering 217,000 members. Compensation paid to date amounts to £1.53 billion, but the average yearly payout is, as we have heard, some £3,500 only. Tens of thousands of people now receive compensation from the fund and hundreds of thousands will in the future, potentially making the difference between retirement in poverty and retirement in a degree of comfort. This may not be the occasion to discuss how the PPF will operate in shared risk schemes, but that is doubtless a matter we will return to at some stage.
The thrust of the amendment in the name of the noble Lord, Lord Balfe, is generally to improve the position of those whose compensation is limited by the cap. The position of those with significant pensionable service with one employer has already been improved under the Pensions Act 2014, but this does not cover pilots, who tend not to have pensionable service substantially in excess of 20 years. Of course, the origin of the cap was to address issues of moral hazard, as we have heard, but also to be some restraint on the overall costs of the arrangements—it is not just a moral hazard issue. It is accepted that the moral hazard is not present in the case of pilots and the amendments would not lead to 100% compensation. However, the amendments would not apply just to Monarch; we simply do not know who might be entering the scheme at some future date and therefore the costs associated with that. As an aside, I ask the Minister: if the levels of compensation were raised, what if anything would that mean for the arrangements entered into with Monarch that allow for continued trading? Would that arrangement have to be recast?
The bottom line is that amending the rules in the way suggested would lead to higher payouts from the PPF. That raises the question, as my noble friend Lady Warwick has made clear, of where the funding is going to come from. The answer, of course, is the levy, which ultimately feeds back to individual schemes and sponsoring employers. Although the amounts related to pilots may be relatively small in the context of the overall PPF scheme, we simply do not know how many more might be affected and what the overall costs would be. As I have just said, there was an attempt in the 2014 Act to ameliorate the effects of the cap for individuals whose pension entitlement was derived mainly from one source for at least 20 years, although this does not particularly help the matter in hand unless there were to be some recasting of the spread in coverage to affect it in a different way. However, presumably this would involve losers as well as gainers.
It seems that any improvement in the lot of the pilots who might find themselves in a similar position, now and in the future, would involve more resources for the PPF. So, while having great sympathy for those whose legitimate pension expectations have been significantly impaired, I do not think we have been presented with a compelling argument to make the specific changes that the amendments suggest. However, the Government may take the opportunity to reflect on and review how the cap is generally affecting entitlements, bearing in mind the need to ensure the sustainability of the PPF in the current, and future, DB environment.
Lord Bourne of Aberystwyth
My Lords, I thank my noble friend Lord Balfe for so eloquently moving this amendment, and other noble Lords who have participated in this debate—the noble Lords, Lord Monks and Lord McKenzie, and the noble Baroness, Lady Warwick. I found the meeting very useful, and I assure the noble Lord, Lord Monks, that, as a former trade union member, I was certainly taking everything very seriously when he put forward the points that he made.
The amendment relates to the position of certain members of pension schemes that have entered the Pension Protection Fund. I am sure that we all have a great deal of sympathy with the situation that these people find themselves in. This amendment, which offers two alternative methods of changing the cap, very helpfully allows me to talk to the Committee briefly about the level of the PPF compensation cap. I understand that my noble friend’s principle is that he would like an increase in that cap to provide higher compensation to those who had accrued a relatively large pension, but who, because they had relatively short service in their scheme, will not be affected by the long-service cap amendments. I will therefore deal initially with that principle rather than concentrating on the actual effect of this amendment.
I start by making a small but perhaps important point: the loss of these pensions is not a consequence of the PPF cap. The fact is that the schemes were underfunded and could not meet the costs of the accrued pensions. Those pensions have already been lost. What we are discussing is the level of compensation that should be paid to the affected people.
The Pension Protection Fund does not replace lost benefits in full. That is not an uncommon approach; for example, deposits in banks are covered up to a limit of £85,000. The PPF pays compensation at the full rate of the pension in payment at the insolvency date to anyone over their normal pension age. Pilots as a group, with their relatively low pension age of 55, benefit from this, as more of them are likely to be over that threshold than if the scheme had a more usual pension age of 60 or 65. It is those below their normal pension age who have their compensation set at broadly 90% of the pension accrued at the insolvency date. Further, it is this group—those below their scheme’s normal pension age—who are affected by the compensation cap.
The current cap produces what many would think was rather a generous entitlement of £32,761 per year at the age of 65. The cap is of course reset for anyone who chooses to take their compensation at an age lower than 65, to reflect the longer period of payment. So a person with an unusual pension age of 55, such as pilots, would have a cap of £26,571 precisely. Noble Lords might also wish to be reminded that the Pensions Act 2014 contains provision for a long-service increase to the cap, which has been referred to during the debate, of 3% for each year of service above 20 years, although I accept this may not be relevant for many pilots because of the lower retirement age.
Lord Balfe
I thank the Minister for that reply, and I am glad that we have aired this problem. It often seems to me that we as a society are very good at concentrating on fat cats, who are seen as being unworthy, and thin cats, who are seen as being extraordinarily worthy, but we forget all the people in the middle—the people who work extremely hard, often for good salaries, to keep this country going. They do not live in Monaco, and they do not live on benefits either. There is a shortage of support for what I would call “the middle middle class”, which is reflected in both parties. We see here that classic private sector pension schemes are in the PPF and public sector pension schemes are underwritten. No one is going to take my pension away from me. HMG are not going to go bust and go into the PPF. The European Union is not going to go bust and go into the PPF. As Britain will find out if it tries to withdraw, it will get a rather large bill. However, I appreciate what the Minister and my colleagues said, and I beg leave to withdraw the amendment.
Lord Bourne of Aberystwyth
My Lords, Clause 80 provides a power to enable the Secretary of State or the Treasury to make consequential changes needed to any primary or secondary legislation, whenever made. Clause 81 makes provision for the regulation-making powers that have been set out in the Bill and the procedure for exercising those powers.
The amendments to Clauses 80 and 81 are technical and enable the regulation-making powers contained in the two clauses to be extended to the Department for Social Development in Northern Ireland in relation to Northern Ireland legislation. This will allow the Secretary of State for the Department for Social Development in Northern Ireland, who is responsible for social security benefits and pensions in Northern Ireland, to make consequential amendments to provisions in Northern Ireland legislation, where appropriate. In line with the provisions for Great Britain, including Scotland, where the powers are used to amend primary legislation, they are subject to confirmatory procedure, which is equivalent to the affirmative resolution procedure in this House. These changes and other provisions in the Bill allow the Northern Ireland authorities to maintain parity with pensions legislation in Great Britain. Clause 84 sets out when the different parts of the Bill will come into force.
The Government have given a commitment that from April 2015 people will be able to access their pension savings flexibly. These amendments ensure that the regulation-making powers in Part 4 come into force on Royal Assent so that the relevant regulations can come into effect on 6 April 2015 in line with the commitment given. The amendments also ensure that amendments made to include reference to the Bill in the definition of pensions legislation in the Pensions Act 2004 come into force from 6 April 2015. I beg to move.
Lord McAvoy
My Lords, I thank the Minister for his exposition. Somebody must have told him about my Irish grandparents. That is the other side of my Celtic tradition. We accept that these are minor and technical amendments and have no objections to them, with the usual proviso.
“(3) In this section—
“appropriate national authority” means—
(a) in relation to provision which could be made by an Act of the Northern Ireland Assembly without the consent of the Secretary of State (see sections 6 to 8 of the Northern Ireland Act 1998), the Department for Social Development in Northern Ireland, and(b) in relation to any other provision, the Secretary of State or the Treasury;“primary legislation” means—
(a) an Act;(b) Northern Ireland legislation;“subordinate legislation” means—
(a) subordinate legislation as defined by section 21(1) of the Interpretation Act 1978;(b) an instrument made under Northern Ireland legislation.”
“Regulations: Northern Ireland
“(1) A power of the Department for Social Development in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).
(2) Where regulations made by the Department for Social Development in Northern Ireland under section 80 amend, repeal, revoke or otherwise modify a provision of primary legislation (whether alone or with other provision), the regulations—
(a) must be laid before the Northern Ireland Assembly after being made;(b) take effect on such date as may be specified in the regulations but (without prejudice to the validity of anything done under them or to the making of new regulations) cease to have effect on the expiry of a period of 6 months from that date unless at some time before the expiry of that period the regulations are approved by a resolution of the Northern Ireland Assembly.“(3) Any other regulations made by the Department for Social Development in Northern Ireland under this Act are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).
(4) Subsection (3) does not apply to regulations containing provision under section 84(6) only.”
“Regulations: supplementary
(1) A power to make regulations under this Act may be used—
(a) to make different provision for different purposes;(b) in relation to all or only some of the purposes for which it may be used.(2) Regulations under this Act may include incidental, supplementary, consequential, transitional, transitory or saving provision.”
“( ) any other provision of Part 4 so far as is necessary for enabling the exercise on or after the day on which this Act is passed of any power to make provision by regulations;”
“( ) paragraphs 24, 30, 33 and 36 of Schedule 2 (and section 46 so far as relating to those provisions);“( ) Part 4, so far as not already in force.”
Elderly People: Powers of Attorney and Living Wills
(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Bakewell
To ask Her Majesty’s Government what steps they are taking to encourage elderly people, including those with early-stage dementia, to prepare living wills and powers of attorney in anticipation of serious illness or degenerative disease.
Baroness Bakewell (Lab)
My Lords, I am particularly grateful for the chance to debate dementia at this time both because it is timely—the national dementia strategy came to an end last year—and because there seems to be considerable movement on both the medical and the social care fronts in the approach to dementia sufferers and their carers. I know this because last December I wrote and presented a documentary for BBC Radio 4 about the subject called, “Suppose I Lose It”, and I learnt a great deal in preparing that programme.
The dilemma at the heart of the debate as I proposed it is exemplified by the response it got. It was first referred to the Ministry of Justice as being a legal matter —just so; the lasting power of attorney is a legal document—but at my request it was rerouted to the Department of Health as primarily a medical matter. I am grateful for this, and I am particularly delighted that the noble Earl, Lord Howe, will be replying for the Government. However, in the wider world there is a risk that the matter of advanced directives and LPAs might fall between the two stools: the legal and the medical.
Let me address the medical dimension first. There is a brief and to the point leaflet available at my local surgery, entitled Worried About Your Memory? The Alzheimer’s Society report tells us that dementia is the most feared condition among the over-50s. They are both fearful of knowing and ignorant of what might happen. This leaflet refers them to the Alzheimer’s Society, Britain’s leading dementia charity. It goes on:
“The earlier you seek help, the sooner you can get information, advice and support”.
There is a desperate need to know more and do more. Earlier diagnosis is the key that unlocks a whole raft of advice and behaviours that can help delay the progress of dementia and assist people to live well with it.
In my Radio 4 programme, the actress Prunella Scales and her husband, the actor Timothy West, spoke frankly of their 15-year journey with her dementia and how they cope with it. After 15 years, she still beats him at chess. Judging by the public response to the programme, their openness did much to promote a willingness in others to speak out and to talk openly about what dementia means in people’s lives.
The Government clearly recognise the importance of this. However, their plan to reward GP practices with a payment of £55 for each dementia diagnosis was strongly and rightly criticised by both the BMA and patients’ groups. The plan will fade out in March.
The answer must surely lie with patients themselves. A strategy should address all those large numbers of people who have reason to be fearful, to offer them the chance of an assessment at a memory clinic. But—and it is a very important “but”—they will come forward for a diagnosis only if they feel that there is something that can be done; otherwise, they may prefer to live in denial and delay getting help. In response to my programme, many people said, “But I don’t want to know. There’s nothing you can do”. That is not the right message.
What happens when you get a diagnosis of Alzheimer’s? The Alzheimer’s Society quotes a recent poll that found 90% feel unsupported after a diagnosis. The report Living and Dying with Dementia in England also stated that,
“people with dementia are not being appropriately identified for end of life care, and that they have less access to, and receive poorer quality, care than people with other terminal illnesses”.
The Dementia Action Alliance also finds the response far from satisfactory. Its recent Carers’ Call to Action makes constructive suggestions, including pre-diagnosis support from the GP; post-diagnosis education for the patient and their family; a dementia adviser or support worker to provide ongoing face-to-face personalised dementia expertise; a planned map of action for the future; and support to remain active and integrated in the community. Those are just some of the 20 suggestions. In some places, some of this is happening. In Scotland, a named link worker is made available for the first year after diagnosis. In England, the town of Crawley teaches the community’s waiters, teachers, shopkeepers and bus drivers how to recognise and then respond to dementia sufferers amongst them. We need more of these initiatives.
I now turn to the legal aspect of this debate. The encouragement of elderly people, especially those with early dementia, to write an advance directive and sign a lasting power of attorney is most important. The response package to a diagnosis refers obliquely to the need to “plan for the future”. That is left deliberately vague, I think to avoid causing pain, but the pain from not facing up to these legal matters will be the greater the longer they are not addressed. The advice needs to be more clearly and regularly spelt out, and given more emphasis.
The concept of capacity is what matters. The progress of dementia is medically unpredictable both in terms of the symptoms, and the timescale over which those symptoms progress. What matters for capacity is not the length of time since diagnosis, but the insight the person with dementia possesses at the time. Barbara Pointon, who wrote to me in response to the programme, said:
“We were only just in time. Four months later and Malcolm”—
her husband—
“could no longer sign his name”.
That was in 1993, before the Mental Health Act. She went on:
“No one told me about Lasting Powers of Attorney”—
as it was then—
“I just picked it up by chance … but it is an essential document and should be tackled early”.
However, the LPA is a long and difficult document to handle; it is also costly to register. The noble Baroness, Lady Afshar, who apologises for not being able to join the debate, teaches law and said of the LPA:
“I have found the form for giving lasting power of attorney exasperating … I had to make the application 3 times, each time needing signatures from witnesses and attorneys and all corrections have to be made in 15 working days”.
She goes on:
“I cannot see how the average little old lady would be willing to go through all these hoops”.
She is not the only Member of this House to have reported the same complaint to me, so improvements need to be made there.
The need for people with early dementia to sign such documents at the earliest moment is evident. In November last year, an International Longevity Centre report urged policymakers to ensure there are no unnecessary barriers to data sharing between health and social care services and the family, and went on to say that there needs to be,
“a major public relations programme to make more in the population at large”,
aware,
“of the ways in which they can make things easier for themselves and their loved ones by planning ahead”.
Last October, Age Scotland launched just such a national campaign, funded by the Scottish Government, urging people to take out a power of attorney. It remains to be clarified whether an LPA in Scotland will be recognised across the UK. Dementia is something we all fear for ourselves and for those we love. I ask the Minister and the Government to take steps to answer the needs expressed here with the utmost urgency and, indeed, sympathy.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I begin by thanking the noble Baroness, Lady Bakewell, not only for giving us the chance to debate this important matter, but for having introduced the whole subject with such a clear and informative exposition which has laid out very clearly the challenges we face.
In my few moments I do not want to merely repeat much of what she has said. I found her arguments persuasive, and I agree with them in large measure. I want to raise an associated issue which concerns wills, powers of attorney, and the flow of funds to voluntary groups, many of which are providing services to dementia sufferers. Like the noble Baroness I fear there is another issue which may be falling between different governmental stools. Some noble Lords will be aware that I undertook the review of the Charities Act for the Government. A couple of years ago I produced a report about it entitled Trusted and Independent: Giving charity back to charities. There were a number of proposals to try and improve the position of charities, some of which have formed the basis for legislation now before your Lordships’ House, including the Protection of Charities Bill, which is in pre-legislative scrutiny. One issue that was raised was the number of charities. There are over 160,000 registered charities, and probably as many again unregistered charities, so in all a third of a million charities. There were great concerns about duplication. Many members of the public felt that charities were overlapping and that money was being spent on administration and fundraising which could be better deployed in providing the services for which the charities had been established in the first place.
There is room for a debate on that topic, but not tonight. The freedom for people to decide what they do with their voluntary giving seems a pretty important principle. But there is an issue as to why charities do not merge. In my research, this is for one of two reasons. One is amour propre among the trustees, they cannot bear to collaborate and they would rather work on their own than work together. But there is another important technical reason that concerns bequests and wills. This is where we come to the relevance of our debate tonight. As many Lords will know, bequests and wills are a very important source of fund-raising for charities, but they obviously take time to emerge because unfortunately it requires the person who made the bequest to die before the money changes hands. Importantly, where two charities merge, and as a result one disappears, a bequest to the latter may well be null and void unless the wills are drawn appropriately widely.
I will give a quick example. Let us assume that the noble Baroness, Lady Bakewell, and I have both set up separate dementia charities, and after a period of time we agree that we should merge them. We go to the Charity Commission, we get it blessed, and it is all done properly and above board. We also agree that because her charity is larger and more famous than mine, hers should be the surviving charity, and that the Hodgson charity should just disappear. But if the Hodgson charity was hoping for a legacy, it may be that because of the way trust law is drawn, that bequest will be null and void, because there is no longer a Hodgson charity to which the bequest can go, and therefore the bequest must go back into the estate from which it was originally drawn. That seems to me an entirely counterintuitive outcome. The person leaving the money wishes to leave some to the dementia sector, and the merger has been approved by the regulator—so why should the bequest then fall foul of what I would consider a narrow technicality? I understand that that is not my noble friend’s direct responsibility, but I use this opportunity to urge him to remind his colleagues in the Ministry of Justice and the Cabinet Office, as well as the Law Commission, that there is an issue here that is worth tackling. It applies with equal force to powers of attorney, to which the noble Baroness referred. As people live longer, there may be longer periods when they are not compos mentis. The role of family members and advisers holding a power of attorney needs to be similarly properly and widely drawn to avoid the counterintuitive outcomes that I have just described. I am not clear whether the prescribed form of the lasting power of attorney has sufficient flexibility built into it to enable this to happen.
Finally, this issue also applies to standing orders and direct debits. Banks will refuse to redirect such payments to the surviving entity. Instead, they require all direct debits and standing orders to be re-signed. Noble Lords will be perfectly aware that if you tried to get all direct debits and standing orders re-signed, the fall-out rate would be very high indeed, with a very big consequential loss of funding to the charity hoping to receive them.
To conclude, the issue of the implications of dementia is an important and growing topic. My intervention seeks merely to urge the Government to ensure that legal practices are kept up to date with the evolving conditions of our society and, in so doing, maintain the badly needed flow of funding to charitable and voluntary groups, dealing with the very difficult problems of our society, including dementia and other progressive diseases.
Baroness Flather (CB)
My Lords, the noble Baroness, Lady Bakewell, has brought to us a subject that we all need to consider. I cannot see anybody here who is a child anymore, and I think that it is important for us to think about this. I have always felt that in this country—and maybe in other countries as well—people do not want to think about the end of life. They are frightened of dying. It is a very strange thing, because the one thing that we are certain of we are most frightened of, and you would think that that was very strange indeed. I do, because I have never felt frightened of dying. When I was 12 years old, I remember very clearly thinking at bedtime, “What is it that I would have done if I do not wake up tomorrow morning?”. It does not make a lot of sense, but at least I thought about it and it did not worry me. It actually made me think about things that I should try to do.
If you try to talk to people about dying, they are upset. You cannot even use the word “death”. You have to say “passed away” or “not with us any longer”, or use other euphemisms. As human beings, we all have to accept the inevitability of dying. Therefore, like anything else that we arrange in our lives, we should arrange our death. We should plan what we want done when we die, and how it should be done. We should plan around our own personal worries about being ill and sick and having dementia—anything and everything.
The idea of making advanced decisions and having a lasting power of attorney are excellent, but how do you access the wishes of that person? I have looked through all the bits of paper that I have seen, and there is nothing that tells us how it can be done easily and clearly. We very much need to concentrate on the decision of the person who is ill and may be dying, who does not want to be resuscitated time and again. There are cases of people being resuscitated three or four times in a matter of months. That is just not right in the sense of humanity—it is not right for that person. There is no quality of life for that person.
I first read about Dr Gawande in a wonderful article in the New Statesman. That man has his finger on the absolute pulse of what we need to be doing and thinking about. He believes in looking after people, but he also believes in respect for the patient’s views, to the point when he says that the time may come when a patient needs to be able to ask for assisted dying. That man must have a most wonderful understanding of human beings, and the more that we follow what he suggests, the better we will be.
I hope that we can find a way in which to make sure that our advance decisions, such as through the LPA, are there to let everyone know our wishes. We would like to know that whatever we have wished for will be accessed before it is too late. There is talk about a national database, but could we not wear a little bracelet like the Medic Alert bracelets, when we are getting very ill, which would say, “Please look at the database for my wishes”? At least that way people cannot say, “Oh, we did not know that you had wishes”. That is the point—whether anybody knows that you have wishes. I am hoping that my son will have power of attorney for me, but he is a doctor, so it is very simple for me. Not everyone has a son who is a doctor, however, and it is very hard even for family members always to make the right decisions. Therefore, discussion between the parent and the attorney or child is essential.
I hope that something will come out of this discussion and that we will have some way of actually finding out what the person’s wishes are. The noble Baroness, Lady Bakewell, said that it is very difficult to make a power of attorney. She referred to the experience of the noble Baroness, Lady Afshar, who took a very long time to do it. That is ridiculous: if you are trying to do something, and it is so difficult to do, then obviously a lot of people will be put off from doing it. It seems such a good idea that it should not be difficult to do it, and it should be possible to simplify the forms. I hope very much that something will be taken back and we will be assured that we can make decisions while we are capable and that they will be followed.
Lord Joffe (Lab)
My Lords, I enthusiastically support my noble friend’s Question to Her Majesty's Government and concur with everything that she said in her impressive opening speech. The issue of advance decisions is not a minor one and must be addressed. With an ageing population and much suffering towards the end of life, it is of critical importance because every one of us will die one day and we would all wish our last days to pass with a minimum of suffering and with the care and treatment that conforms to our wishes. Advance decisions are the key means of achieving this, as otherwise it may be too late if we have lost the ability to communicate.
I speak with some authority on the issues raised, as I was diagnosed with having signs of early Alzheimer’s disease five years ago. However, I was fortunate in receiving invaluable advice from my NHS GP and consultant. This was that, while current treatments did not slow the underlying disease, there were treatments available that would provide symptomatic benefit in coping with the disease. More importantly, the advice was that I should start to wind down my commitments and plan my future. Following this advice enabled me to eliminate my worries about losing my memory and to plan the rest of my life. I strongly endorse what my noble friend has said about the importance of early diagnosis. It seems to me that a responsible general practitioner should be considering with elderly patients, and taking up with them, the issue of how they want to plan the rest of their lives.
As part of this planning process, advance decisions are the natural way to ensure that their wishes are followed as to how they would like to be treated and cared for when they no longer have the capacity to make such decisions themselves or to communicate. Advance decisions are not only about refusing aggressive medical treatment to prevent intolerable suffering. They can, and should where possible, go beyond that to record the patient’s decisions and wishes—for when they no longer have the capacity or cannot communicate —on their treatment or non-treatment, on who should care for them, on how their costs should be provided and on the extent to which they would hope their families and loved ones would care for them. They may or may not decide to include a request to reject aggressive medical treatment in order to prolong their lives, but the importance of recording their wishes for their end of life is paramount. Unfortunately, the current evidence is that only about 4% of UK citizens have signed advance decisions. This contrasts with the position in the USA, where such decisions are common and are encouraged by positive legislation in most states. Indeed, President Obama in 2009 announced that he and his wife had living wills and encouraged everyone to have one.
In 1998, a document called Five Wishes was prepared with the help of the American Bar Association in the USA. It combined the living will and healthcare power of attorney. The five wishes include the kind of medical treatment the person wants or does not want; the kind of “comfort care” they would like—which embraces pain management and palliative care—and what they would want their loved ones to know, such as forgiveness and final wishes for burial and memorials. According to Wikipedia, more than 18 million copies of this document have been distributed worldwide.
It is encouraging that the Government have expressed their support for addressing the issue of advance directives. However, comforting words and setting up forums are not enough to lead to change in the foreseeable future. What is clearly needed is speedy and energetic government leadership, including appropriate resources, to achieve real change in one of the most important areas in which an ageing population needs support. More particularly, the Government should actively promote to patients the need for an advance decision and for the NHS to ensure that all health providers, including GPs and the hospital and ambulance services, have appropriate procedures for recording and making accessible advance decisions to their staff before patients with life-threatening illnesses or injuries are treated.
Baroness Greengross (CB)
My Lords, it is a privilege to take part in this debate. I declare an interest—apart from my involvement in the International Longevity Centre—as chair, and now co-chair with a Member of the Commons, of the All-Party Parliamentary Group on Dementia, as ambassador for the Alzheimer’s Society and as a “dementia friend”. I congratulate the noble Baroness, Lady Bakewell, on initiating this debate. It is important and has covered a whole lot of areas. I very much agree with her and my noble friend Lady Flather, because one of the issues that the noble Baroness talked about was our unwillingness to face the issue of dying. We forget that dementia is a terminal illness and, if we are going to get things right, we have to be able to talk about dementia as we can now, thankfully, talk about cancer much more easily than we used to be able to.
Although we can talk about dementia a bit more, we do not all realise that there are more than 100 different types of dementia, and some of them are illnesses that enable people to slip in and out of mental capacity and spend a long time being at least partially capable of making decisions and planning their future—in other words, being mentally competent. We all have a certain amount of pride. We want to be sure that we are remembered with some dignity and that some of our dearest wishes will be complied with if we are unable to make sure ourselves that they happen.
It is understandable that everyone is frightened of dementia, because it is now the leading cause of death in women in this country, and the third leading cause of death in men. More than 80% of people in care homes have dementia or significant cognitive problems. It is not a minority issue but it affects so many people. It does not affect just the person with dementia; it affects particularly that person’s carer and sometimes many more people in the family and the immediate friends of that person. Carers do a most amazing job, and I congratulate the Government on having given carers more rights in the Care Act, which is important.
However, one of the most popular areas of advice sought from Carers UK is the Mental Capacity Act. Carers’ thoughts and wishes can be looked at much more easily if a lasting power of attorney has been appointed, because the carer and the person with dementia can rest more easily knowing that the plans for the future will be carried out in accordance with his or her wishes. Many people feel tremendous responsibility that, when they cannot manage their affairs by themselves, their children should not be faced with terrible decisions. They want—I want, and I am sure many noble Lords want—to be sure that there are plans in place so that our wishes can be carried out, and that we do not present our children with dreadful problems and responsibilities. If they have to make decisions, they must try to make sure that they correspond with our wishes.
We are quite accustomed to knowing about this when it comes to money. We know that we can, or have been able to for a long time, make decisions about our money, but very few people know that the lasting power of attorney now includes decision-making possibilities about our health plan. People would be hugely eased if this was better known—if the information was more available. In fact, the lasting power of attorney can deal with our health issues and our welfare issues, as well as our financial issues, and help us to feel relaxed about how our children are going to deal with the future, when we die. They can be carried out, but only if we are all clear about the procedures. It is very important that people do not forget to get things in place in time, as the noble Baroness, Lady Bakewell, made quite clear. The lasting power of attorney can make it very clear who is going to make decisions, which adds to the dignity of the person who has dementia and is going to die at some stage. It is that person’s wishes and advance decisions, not other people’s, which will be taken as read.
It is very important that those caring for people with dementia know that they can get the right advice. I would like to see an Admiral nurse available to every family dealing with dementia. That is not going to happen for a long time, but we need more Admiral nurses and more volunteers for the early stages, so that everybody who is diagnosed—and we need more than 50% of people to be diagnosed—has access to help and advice, either from a volunteer or, later on, from a person who knows enough about the situation to take someone’s hand, whether that is the carer’s or the person’s with dementia, and guide them through this very difficult maze of questions that require answers. If we can do that, we will make life better for people with dementia and those who are affected along with them.
I hope that the Minister will make sure that the Prime Minister’s and the Government’s wonderful achievement in getting a G8 discussion to focus on dementia happens and will be carried forward. It will happen: it will happen with the global envoy; with the national plan, which must be renewed; with the increase in money for research, which must be continued; and with a commitment from everybody in power in this country to make sure that dementia is in the forefront of our thoughts. It is very important and I am sure that the Minister feels the same way.
Baroness Wheeler (Lab)
My Lords, I, too, congratulate my noble friend Lady Bakewell on securing this key debate. Like other noble Lords, I am a huge admirer of her campaigning work on behalf of older people, her mission to get us talking openly and frankly about the ageing process and especially about dementia—drifting into this “unknown world”, as she referred to it in her excellent Suppose I lose it? programme—and her willingness to relate and talk about her own experiences, asking the question that all of us ask ourselves as we get older about whether our memory loss or lapses are just an only-to-be-expected part of the ageing process or represent the early stages of dementia. I really liked her reference in the programme to being as busy and involved as she ever was and to the fact that, despite her fears, if dementia was looming she simply did not have the time to notice it. I hope that that is the case with us all. She is certainly right that staying alert for symptoms and confronting fears early is the best way to grow old.
My noble friend has focused on the urgent need to address end-of-life care for people with dementia and the excellent recommendations set out in the Dementia Action Alliance’s The Carers’ Call to Action. Encouraging the preparation of living wills and LPAs also applies to serious or degenerative illness and long-term conditions where, although the person is stable and may have a good quality of life for many years to come, the unknown can still be expected, such as with stroke or heart disease. Although we all agree on the need to keep hammering home the message about preparation for what is or may be to come, going down the actual route of finding out about and preparing documentation and legal forms before anything happens is something we just do not like to face or we put off.
On dementia, it is important to encourage early stage sufferers to take out advanced directives or statements, or a personal welfare LPA. However, we have to recognise that the growing problem out there relates also to finance and resources issues, with legal disputes over wills made by dementia sufferers rising sharply. In the Newcastle Journal, a recent article reported that a local firm of solicitors estimated that disputes involving cases where wills were contested as having been made by people lacking the appropriate mental capacity had risen by over 50%.
Some of those claims related to wills made by people who did not know that they were suffering from dementia at the time, or they involved people who, because of fear and stigma, did not tell the solicitor about their illness and therefore the solicitor was not able to undertake any process to try to test their mental state or capacity. Where property and assets are involved, we also need to stress the importance of good legal advice to avoid vulnerable people making wills that turn out to be invalid, and of taking out the finance and resources LPA, conferring powers for people to act on their behalf if they become incapable of doing so themselves.
As well as being costly, the process of preparing an LPA is daunting. As you get older, understanding the legal processes and documentation, as well as appointing attorneys and replacement attorneys, become more and more difficult, as your contemporaries and the people you would trust to do this are the same age as you and you fear that they may pop off before you. Children and family members undertake this role but, in the case of single people without family, it can be a real obstacle. Affordability is also a key issue for probably most of the vu1nerable people we are talking about. Many solicitors undertake this work on a fixed-fee basis, but the leader of our local carer support organisation, of which I am a trustee, recently told me that for most of the carers and cared for whom we deal with, being unable to afford the legal costs was a major issue.
Thankfully, however, the advance decision or statement process is straightforward, and I commend the excellent Age UK factsheet covering this. I wish that I had seen it when our family was experiencing the first hours of my partner’s major stroke seven years ago—or, obviously, ideally beforehand. The Alzheimer’s Society’s two-page advance decision form is also excellent. I hope that it is out there in GPs’ surgeries, hospitals and hospices so that professionals can guide patients and their families to it. There was no advice at the hospital or talk with me or our family about these issues from medical, nursing or any other staff when my partner faced a really critical 24 hours in A&E and the ICU. I hope that these processes have now much improved and that the Minister can reassure me that he is confident that that is the case.
The developments in medical science mean that more lives are now saved than ever before, but they also mean that preserving life without any real hope of a full recovery is ever more real. The advance decision and statement process recognises that competent and informed adults who are capable of understanding the implications of their decisions have an established right in common law to refuse medical procedures or treatment.
My noble friend stressed the importance of medical and social care advice and support for patients contemplating living wills and for their carers and families. It is all part of the vital communication process that needs to take place with people facing long-term or terminal illness concerning the reality of their situation and the impact of the treatment options, as well as the need for a meaningful discussion about their end-of-life wishes. The medical and nursing professions have improved considerably at having these conversations with patients, and the hospice movement has led the way on this. However, the experience of patients and carers shows that there is still much to be done to improve medical and nursing skills in this regard, and I hope that the Minister will be able to tell us how training and development issues are supporting this.
I was fortunate to be present at one of last year’s Radio 4 Reith lectures by Atul Gawande, the American physician, well known international lecturer and New York Times columnist, which led me to read his recent book, Being Mortal: Illness, Medicine and What Matters in the End. This deals with end-of-life care and how difficult it is for surgeons and other medical staff to have the “hard conversations” with patients that need to take place.
Although set in the context of the American healthcare system and focusing mainly on people with terminal illness, the case studies are of US Medicare and hospice care, so they have a strong resonance with our experience here. Dr Gawande describes pretty graphically how difficult it is for medics to discuss with patients what he calls the “larger truth” about their condition and the ultimate limits of doctors’ capabilities in treating them, let alone what matters most to patients when they face serious or degenerative illnesses or they near the end of their life. It is a very thought-provoking book and I commend it to noble Lords as it deals with the importance of trying to ensure that patients are not kept alive artificially if suffering from a terminal illness.
In a hospital in Wisconsin, over a number of years a systematic campaign took place to get medical staff and patients to discuss end-of-life wishes. This was developed into a hospital-wide standard procedure with the use of a multiple-choice form, much along the lines of our advance decision process but with a more detailed questionnaire. In time, 85% of patients who died in that hospital had a written advance directive, and doctors virtually always knew of the instructions and followed them. I quote from the book:
“This system meant that people were far more likely to have talked about what they want and what they don’t want before they and their relatives find themselves in the throes of crisis and fear. The discussion, not the list of questions, was what mattered most”.
I conclude by underlining my noble friend’s reference to the national dementia strategy, which urgently needs to be updated, and echo the calls made in her programme by Professor Rowan Harwood for it to address how we actually care for people with dementia and support the carers and care workers that care for them. His work at the Queen’s Medical Centre in Nottingham in adapting Ward B47 to meet the complex needs of patients with dementia seemed to display the understanding about care and treatment that we must aim for in the future. It also resulted in savings in hospital costs, so I look forward to the Minister’s comments on this.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, I am very grateful to the noble Baroness, Lady Bakewell, for bringing this important issue to the House. At a time traditionally associated with making resolutions it feels like a particularly appropriate moment to be considering how we plan for later life together with our families and loved ones. I hope she will agree with me that the contributions from all speakers this evening have combined to make for an excellent debate.
I am sure all noble Lords would agree with the basic premise that all citizens should be cared for and treated in a manner that they themselves would choose, at a time in their life when they may no longer be able to make decisions themselves. The Mental Capacity Act 2005—the MCA—provides the legislative framework for how caregivers should support individuals who may lack the mental capacity to make decisions themselves. The Act and its associated code of practice emphasise the importance of treating each person as an individual and of seeking out their particular wishes and preferences, to ensure that any decision made is in the best interests of that person.
Noble Lords will, I am sure, be aware of the excellent work of the Select Committee of this House which scrutinised the implementation of the MCA last year. Its report, published in March 2014, highlighted that awareness of the Act was poor and that as a result many individuals were not aware of or taking up their legal rights. The Government embraced this finding and set out a programme of work in our response, which was entitled Valuing every voice, respecting every right. The response sets out the great challenge we face—essentially that of bringing about a change in culture whereby individuals are comfortable talking openly with friends and families about their wishes for later life and where wider society treats those who lack capacity with the same respect as those who have capacity.
The noble Baroness asked specifically about lasting powers of attorney—LPAs, to use the abbreviation—and living wills. An LPA allows someone with mental capacity to appoint an attorney to look after their affairs in the event that they lose capacity at some point in the future. As well as the traditional property and finance LPAs, the MCA legislated for health and welfare LPAs, which, I believe, are the focus of the noble Baroness’s question. There are currently more than 1.3 million LPAs registered, and applications are increasing at a rate of 20% year on year. This is good news, but we do not intend to rest on our laurels, especially when we look into the statistics and see that for every three finance and property LPAs registered, only one health and welfare LPA is recorded. The Office of the Public Guardian, which has responsibility in Government for registering LPAs, is using all available opportunities to raise awareness of LPAs through conference events, media engagements and work with multiple partners across finance, legal, health and care settings.
A number of noble Lords voiced concerns that executing an LPA is difficult and complicated. A good example of recent success is the LPA digital tool. This tool allows applicants to enter all the required information step by step on a personal computer and then simply print it out, add the relevant signatures, and send it to the OPG. This online service was the first so-called “government digital exemplar” to pass the Government Digital Service’s stringent new 26-point test. We believe and hope that this user-friendly service will help drive further increases in LPA registrations.
In 2015, the Department of Health and the OPG will continue to work closely to raise awareness of health and welfare LPAs. The department is in the final stages of production of a statement of rights which will inform the public about their rights under the MCA, including their right to make an LPA. In addition, the OPG is looking at how LPAs are used and will look to include use within the NHS as part of this project. This should lead to potential new guidance for the health system on LPAs.
Noble Lords will I am sure be aware that overall policy responsibility for the Mental Capacity Act lies with the Ministry of Justice. This was referred to by the noble Baroness, Lady Bakewell. I can inform the House today that the Ministry of Justice plans to run a campaign to raise public awareness of the options for planning for the future and encourage members of the public to think about what would happen in the event of their death or if they lost their mental capacity and needed someone to make decisions for them.
As for living wills, an issue which was mentioned by a number of noble Lords, the House will be aware that this term has no strict legal meaning but in common usage can be taken to describe an individual’s wishes and views about any future medical treatment or indeed any other care, support or lifestyle preferences. An advance decision to refuse treatment however does have a specific legal meaning under the Mental Capacity Act. End-of-life decisions are intensely personal matters. As individuals, our views on how we would like to be cared for can change over time, even when we still have full mental capacity. The Government’s policy is to seek to ensure that individuals are aware of their rights under the law—to make them aware that they have the choice to make a living will or advance decision to refuse treatment—but fundamentally to allow the individual to decide if they want to exercise this right. Our awareness raising efforts here are tied closely to our work to raise understanding of the wider provisions of the MCA. This work is multi-faceted: professional training, which I will mention again in a moment; revising our national governance structures; and ensuring that the MCA is a key line of inquiry in the Care Quality Commission’s new inspection model for care homes and hospitals.
The noble Baroness, Lady Bakewell, cited various obstacles which she felt can deter people from registering an LPA. One of these was the cost factor, which was also mentioned by the noble Baroness, Lady Wheeler. The OPG appreciates that the cost of making an LPA may be an important factor for those who wish to plan ahead. The cost of an LPA is £110. LPA forms, however, have been designed so that they can be completed without a solicitor. However, if a person chooses to seek advice from a solicitor they will have to pay the solicitor’s fees, which may vary and, of course, are a consideration. Another obstacle cited by the noble Baronesses, Lady Bakewell and Lady Flather, was that of complexity. We need to look at the balance of the arguments here. On the one hand, as I have mentioned, there are more than 1.3 million current instruments registered and LPA applications are increasing at quite a rate. Nevertheless, the OPG recognises that it is important to ensure that the LPA process is as straightforward as possible and acknowledges that some people find the existing LPA forms too complex to complete without legal assistance. It continually reviews its forms to make sure that they are easily understood. The OPG is also rewriting and restructuring its guidance and correspondence on LPAs so that it is clear, consistent and accessible to all.
The noble Baroness, Lady Bakewell, asked whether Scottish powers of attorney were recognised in England and Wales. We are aware of the important question of cross-border recognition of powers of attorney, and are considering how best to address it. We are in frequent communication with our colleagues in the devolved Administrations—for example, in Northern Ireland, where that Administration is consulting on new mental capacity legislation based on our Mental Capacity Act. Clearly, raising awareness of issues surrounding mental capacity is a UK-wide concern. My officials intend to share learning with colleagues in the devolved Administrations as part of our upcoming work programme. I will be happy to write to the noble Baroness with the precise legal response in terms of the validity of Scottish lasting powers of attorney in England.
I agree with the noble Baroness that raising awareness is important. We recognise that awareness among the general public of what an LPA is and the benefits of having one is low. We are working to increase this level of awareness, as I described. Having said that, we would not seek to tell adults that they should have an LPA; ultimately we believe that this is a matter of personal choice. My noble friend Lord Hodgson asked whether someone could use a power of attorney to make decisions about legacies. There are exceptions to the decisions that an attorney may make. I would be happy to write setting out these exceptions in more detail.
I take the point made by the noble Baroness, Lady Flather, that it is important for people to know if someone has an LPA in place. Good practice is always changing, but we should not forget that lasting powers of attorney are registered by the Office of the Public Guardian, which maintains a register. Those who wish to know whether an LPA is in place may apply to the OPG to search the register. The noble Baroness, Lady Greengross, stressed the importance of carers. I absolutely agree that carers do a fantastic job supporting those who lack capacity. I am pleased to say that my department has worked closely with the Standing Commission on Carers—
Baroness Flather
Yes, I will be quick. The Office of the Public Guardian charges a lot of money to give the information.
Earl Howe
I will write to the noble Baroness about that. The Standing Commission on Carers, which represents the needs of carers to the government policy-making process, is a body we are working closely with. It will help us channel our new statement of rights directly to carers, providing them with an understanding of the rights of the person they care for under the law.
The noble Baroness, Lady Wheeler, spoke about the need for professional training. I agree that that is vital. Health and social care professionals need to learn the basics of the MCA through their initial training and to keep updated on this through continuing professional development. Health Education England provides national leadership for planning and developing the whole healthcare workforce. The mandate set for it by the Department of Health specifically states that Health Education England should,
“work with … partners … to improve skills and capability to respond … to the needs of people who may lack capacity as well as maximise the opportunities for people to be involved in decisions about their care”.
The noble Lord, Lord Joffe, indicated that he felt that there was a lack of government leadership in this area. I would defend, in fact, our leadership record. We do not want to shy away in the least from our responsibilities when it comes to supporting better implementation of the Act. The legislation underpinning the MCA has been widely praised. Indeed, only a few months ago, we were visited by a delegation from the Swedish Government, who are looking to learn from our legislation as they draft their own. The problem is not the framework. The problem is a lack of understanding at the local level on the ground. It is the Government’s belief that the primary drivers of better implementation of the MCA are local organisations—hospitals, care homes, local banks and solicitors. That is why we intend to make the new national mental capacity forum, which we are setting up, predominantly outward looking. Its emphasis will be on forging collaborations, but then taking these out into the country and putting actions in place at the local level. I would be happy to write further on that, when I do write, as I shall, after this debate.
I have overshot my time but, in conclusion, I emphasise that planning for a time in later life where we are unable to make our own decisions is something that we are all likely to benefit from and which can ease the burden on our loved ones. Unfortunately, as the noble Baroness, Lady Flather, reminded us, I know many people find this type of conversation uncomfortable—even morbid, perhaps. That is to an extent understandable: no one wants to dwell on the possibility of a serious debilitating disease or, indeed, on death itself.
Ultimately, however, planning for the future can be greatly empowering. It can provide a degree of comfort as we approach a vulnerable period in our lives, it can allow us to determine how we are treated—which itself can improve our well-being and health outcomes—and it can provide comfort to our friends and family. The Government are determined to support our citizens in this regard, and the thoughts and expert advice of noble Lords are, as always, most welcome.