Bank of England and Financial Services Bill [ Lords ] (Fifth sitting)
(8 years, 2 months ago)
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The Chair
For the convenience of the Committee, and with its leave, I propose that we group clauses 26 to 37 and allow remarks on all of them under the clause 26 stand part debate. Is that acceptable to the Committee?
Rob Marris (Wolverhampton South West) (Lab)
I have to say, Chair, that taking all those clauses in one group sounds rather cumbersome. I have a series of packages of comments and questions on the different clauses. I do not mean to cause difficulty, Sir, but taking them all as one group might do so. Might we take some of the pensions provisions together, for example?
The Chair
If the Committee wishes, I am happy to take all the clauses individually. I propose that we take clause 26 on its own, and then perhaps clauses 27 to 37 as a group.
The Economic Secretary to the Treasury (Harriett Baldwin)
I am happy either way, Mr Brady. It might also be worth touching upon Government amendment 7 to clause 38 as I go through the provisions.
The Chair
Thank you, Ms Baldwin. That amendment comes separately in any case. Shall we see how we go?
Clause 26
Enforceability of agreements relating to credit
Question proposed, That the clause stand part of the Bill.
Harriett Baldwin
It is a delight to be back here, again on a sunny Tuesday, to continue our scrutiny of the Bill under your chairmanship, Mr Brady.
The Government have fundamentally reformed consumer credit regulation, transferring responsibility from the Office of Fair Trading to the Financial Conduct Authority with effect from 1 April 2014. Clause 26 supports the effective operation of the FCA’s regime through minor amendments to the Financial Services and Markets Act 2000 in relation to the regulation of consumer credit. It is a technical clause and concerns the application of provisions relating to the enforceability of credit agreements. It makes it clear that when a person acting on behalf of a lender can lawfully undertake the relevant credit-related regulated activity in relation to the agreement, either by administering the agreement in relation to section 26A(4), or by taking steps to procure the payment of debts under it in relation to section 26A(5), they are also able to enforce the agreement.
Rob Marris
It is a pleasure to be here with you again, Mr Brady. I thank the Minister for her explanation—that is great.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
The Chair
We now come to clauses 27 to 37. I suggest that we allow all of them to be commented upon as a group.
Clause 27
Enforceability of credit agreements made through unauthorised persons
Question proposed, That the clause stand part of the Bill.
Harriett Baldwin
For the benefit of the Committee, I will highlight each of the clauses as I go through them, while grouping my speaking notes.
Clause 27 also supports the effective operation of the FCA’s regime by amending section 27 of the 2000 Act, which deals with agreements made through unauthorised persons, to ensure that it has a proportionate effect on consumer credit and consumer hire providers. Section 27(1) of that Act provides that an agreement made by an authorised person carrying on a regulated activity is unenforceable when it is made in consequence of something said or done by a third party in circumstances in which that third party should have had, but did not have, permission. The clause narrows the circumstances in which a credit agreement or consumer hire agreement is unenforceable under this section and ensures that this will only be the case when the provider of credit knows, before the agreement is made, that a third party had some involvement in the making of the agreement or in matters preparatory to it being made.
Clause 28 introduces a power into the 2000 Act for the Treasury to make regulations relating to transformer vehicles. Transformer vehicles—you may be wondering, Mr Brady—are used for risk mitigation purposes in insurance markets, particularly in the insurance and reinsurance industry. The Government plan to use this power to implement a new framework for insurance-linked securities business. Insurance-linked securities are now an important and growing part of the global specialist reinsurance market. The Government are working closely with the London market and the financial regulators to implement a fit-for-purpose regulatory regime for insurance-linked securities business. This will help the UK to maintain its competitive edge as a global reinsurance hub.
Clause 29 extends the definition of pensions guidance within section 333A of the 2000 Act to include the provision of guidance to consumers interested in assigning or surrendering—in other words, selling—rights to payments under an annuity on the secondary market. It also closes an unintended gap in guidance provision, ensuring that individuals whose schemes have transferred into the pension protection fund are able to access Pension Wise guidance—the free and impartial Government- supported guidance service.
In the March 2015 Budget, the Government announced our intention to remove the tax restrictions that deter pensioners from selling their annuities. This reform will enable retirees who were unable to take advantage of the Government’s new pension freedoms to convert their annuity into a lump sum, or another investment product if they choose, giving those who have worked hard and saved for their retirement choice over their financial arrangements.
The Government are committed to implementing the new secondary market in annuities in April 2017. The new market will offer consumers new freedoms but will involve potentially complex choices for them. The Government want to ensure that consumers are empowered and equipped to make the most of their assets. The offer of free, high-quality and impartial guidance through Pension Wise is a key part of providing the consumer with the relevant information to make the necessary decisions. That is why the Government are extending the Pension Wise service to provide guidance to those who will be able to sell their annuities on the secondary market, and to any dependants or beneficiaries with rights to payments under an annuity contract.
Pension Wise was launched in March 2015 to give impartial guidance to individuals with new flexibilities under pension freedoms. It has been a successful service, with high levels of consumer satisfaction, more than 2.2 million visits to the website and more than 50,000 individual appointments. In response to the Government’s consultation on allowing consumers to sell their annuities, there was strong support for expanding Pension Wise, both from consumer groups and from industry.
The expanded service will be similar in nature to the existing Pension Wise service, but it will need to be adapted to ensure that the content and service delivery are appropriate for this new group of consumers. By legislating at this time, the Government are ensuring that there is enough time to implement the expansion of Pension Wise before the secondary market in annuities opens in 2017. At present, Pension Wise can provide guidance only to a member, or the survivor of a member, of a pension scheme. As the pension protection fund is a compensation fund, not a pension scheme, individuals whose schemes have transferred into the pension protection fund are currently unable to obtain guidance from Pension Wise. Pension Wise should be available to all those who wish and are able to take advantage of pension freedom reforms, so it is right that we are taking action now to ensure that all have equal access to the service.
Clause 30 places an obligation on the Financial Conduct Authority to set rules requiring specified firms to check that relevant annuity holders have received appropriate advice before processing the transfer of an annuity. In practice, this will introduce a requirement for individuals to receive financial advice before selling their rights to an annuity income stream, where that annuity is valued higher than a threshold to be set in secondary legislation. The Government are committed to implementing the new secondary market in annuities in April 2017, removing the barriers that prevent people from making their own choices over how they use their retirement savings. However, we recognise that the regular income stream provided by an annuity is a valuable asset and that for the majority of individuals it will be in their best interests to keep their annuity. It is therefore important that annuity holders understand the value of their annuity and are informed about their options.
The Government have consulted on the consumer support measures that should be introduced for the secondary market in annuities. Elsewhere in the Bill, the Pension Wise guidance service is expanded to provide information and guidance for those with a relevant interest in an annuity that can be sold in the secondary market. As a further measure to support consumers, the Government believe that, for those with a higher value annuity, there is a real benefit to having a bespoke recommendation before they make the decision to sell their annuity income. By introducing a requirement to receive financial advice, the Government are ensuring that those consumers receive a recommendation tailored to their individual circumstances and risk appetite.
However, although the Government believe that all individuals would benefit from financial advice, we recognise that the cost of advice for those with small annuities might be disproportionate. That is why, in legislating for this advice requirement, the Government have taken a power to specify in regulations which annuities will be subject to the requirement, for example by introducing a threshold. That would mean that only individuals with higher value annuities will be required to take financial advice. That approach was broadly supported by both industry and consumer groups in the Government’s consultation last year. The Government will determine the threshold, along with other details of the advice requirement for this market, through secondary legislation, which will be consulted on later this year.
Clause 31 is technical in nature and allows appointed representatives of authorised financial advisers to advise on the conversion and transfer of safeguarded benefits. Safeguarded benefits are the special valuable features of certain pensions, such as defined-benefit pensions, and pensions with guaranteed annuity rates, which are defined for the purposes of the advice safeguard established in sections 48 and 51 of the Pension Schemes Act 2015. The changes to sections 48 and 51 amend the definition of authorised independent adviser to include appointed representatives. As a result, they will be able to give appropriate independent advice in order to satisfy the advice safeguard. The clause also makes changes to the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001, to the same end. Subsection 3 of the clause extends the change to Northern Ireland.
Around two thirds of financial advisers are appointed representatives who have a specific contract to provide services on behalf of their principal, who will be an authorised financial adviser regulated by the FCA. That measure puts the eligibility of appointed representatives to advise on these transactions beyond doubt. The clause extends eligibility to advise on these transactions only to the appointed representatives of financial advisers. What it will not do is reduce consumer protections or weaken the accountability of financial advisers or their appointed representatives. Where an appointed representative advises on these transactions, the directly authorised firm, as the principal, takes full responsibility for the quality of the advice and compliance with FCA rules. The pension freedoms that came into effect in April have given people real freedom and choice in how they access and spend their income at retirement. This change will help to ensure that they operate as intended for customers with safeguarded benefits.
Clause 32 refers to the duty of the Bank of England to provide information to the Treasury. As hon. Members will know, the financial crisis of 2008-09 exposed significant failures in the old tripartite system of regulation. Since then, the Government have implemented, and continue to implement, major reforms to address those problems of the past and make the financial sector safer and more stable. These include a number of measures designed to ensure that bank failure can be managed in a way that protects the wider economy and financial sector, without relying on taxpayer bail-outs.
Under the old tripartite regime of regulation, there was no single institution with responsibility, authority or powers to oversee the financial system as a whole. The Banking Act 2009 addressed that by putting the Bank of England firmly in the driving seat for managing a financial crisis, and the Financial Services Act 2012 overhauled the regulatory architecture in the UK, including making provision for collaboration between the Treasury and the Bank of England in relation to crisis management. Clause 32 builds on those important reforms while, crucially, leaving unchanged the clearly defined roles of the Treasury and the Bank, as established in the 2009 and 2012 Acts.
The clause also seeks to ensure that the correct arrangements are in place for the Bank and the Treasury to fulfil their respective roles as effectively as possible. It does that by providing the Treasury with two new powers to receive information from the Bank, as part of understanding the public funds risk associated with firm failure. First, it creates a duty on the Bank to provide the Treasury with the resolution plans and certain supporting information for firms that the Bank considers it may need to resolve using the stabilisation powers in the 2009 Act. That will ensure that the Treasury can understand well in advance of a crisis scenario the public funds risk associated with a firm failing. Secondly, it gives the Treasury the power to obtain any extra information from the Bank that it considers material to the Bank’s assessment of that risk.
The clause relates solely to information sharing and co-ordination between the Bank and the Treasury, as part of their fulfilling their respective roles. It serves to formalise the productive working arrangements that have developed between the two bodies since the 2012 Act, and it ensures that the framework for co-ordination reflects developments in best practice, both domestically and internationally.
Clause 33 corrects an error in the National Savings Regulations 2015. The regulations revoked a number of statutory instruments with effect from 6 April 2015 and the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 was included by mistake. The 2001 Order was used to make most of the consequential amendments and repeals that were required to give effect to the 2000 Act. It amended a range of primary and secondary legislation, including the Companies Acts, the Bank of England Act 1998, the Building Societies Act 1986, pensions legislation and other legislation relating to financial services. Some of the amendments made by the 2001 Order have been superseded by subsequent legislative developments, such as the consolidation of the various Companies Acts in the Companies Act 2006, but in many cases the amendments are still necessary and the repeal of the instrument making them has left the law in a state of considerable uncertainty. The clause removes that uncertainty by providing that the revocation shall be treated as not having been made, restoring the law to what it was before the accidental revocation of the 2001 Order.
Clause 34 makes changes to the legislative framework governing the issuance of Scottish and Northern Ireland bank notes. It gives the Treasury power to make regulations authorising a bank in the same group as an existing issuer to issue bank notes in place of that issuer. That will increase banks’ flexibility to restructure their operations, while preserving the long-standing tradition of certain banks in Scotland and Northern Ireland issuing their own notes. This is a particular issue at the current time, as some banking groups will be adjusting their group structure in order to ring-fence their retail banking operations.
Clause 35 enables the Treasury to make amendments consequential to the Bill, and any statutory instruments made under it, to other primary and secondary legislation. For example, the power is likely to be used to amend references to the PRA in other legislation where necessary to reflect the fact that the authority is no longer a separate legal entity from the Bank. The power can be used only in certain circumstances. The Treasury can make regulations under the power only if it is necessary to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation that is made before the Bill is passed, or in the same parliamentary Session.
Rob Marris
I congratulate the Minister on that fluent marathon. I fear that I shall less fluent, but in my defence I do not have quite the same resources behind me as the Minister, and of course I may not have her skill. I warn her that I shall be asking some questions. I hope that her officials will be able to help her and the Committee with the answers.
Clause 27(2), which inserts new section 27(1ZA) in the Financial Services and Markets Act 2000, appears to be a “see no evil, hear no evil” provision. I hope the Minister can reassure me. It says,
“this section does not apply to a regulated credit agreement or a regulated consumer hire agreement unless the provider knows before the agreement is made that the third party had some involvement in the making of the agreement or matters preparatory to its making.”
What has bedevilled legislators, regulators and those providing advice, whether in finance, the law or accountancy, is knowing when to inquire whether there is something else in the picture, to put it rather vaguely—for example, in conveyancing, whether those acting for the vendor of a house need to inquire whether there is someone besides the vendor living in the house, who would potentially have rights under the Law of Property (Amendment) Act 1926. I confess that it is 25 years since I did conveyancing, so that Act may have changed, but that is the general flavour—it is about when, as a professional, one has to make inquiries. New subsection (1ZA) is a great get-out for an adviser or a company entering into a regulated credit agreement, enabling them to say, “Well, I didn’t know.” On occasion, that is not good enough. One ought to inquire.
This is an example of my ignorance, I freely confess, but while I understand that the Financial Services Consumer Panel has said that these amendments are entirely technical—that was mentioned in the Lords by my noble Friend Lord Davies—it does not seem to me to be entirely technical and I cannot quite see why clause 27 is in the Bill. Will the Minister explain?
Clause 28 is headed “Transformer vehicles”. It reminds me of those kids’ toys—are they still around? The Minister is smiling in her usual sunny way, so I think they are still around; they were a little after my time, I have to say. I understand from the debate in the Lords that the Delegated Powers and Regulatory Reform Committee was consulted on the aspect of these changes dealing with hybrid instruments. New section 284A(6)(c) of the 2000 Act will
“authorise the FCA or the PRA to require the Council of Lloyd’s to exercise functions on its behalf (including functions conferred otherwise than by the regulations)”.
Under new subsection (11):
“If a statutory instrument containing regulations under this section would, apart from this subsection, be treated as a hybrid instrument for the purposes of the Standing Orders of either House of Parliament, it is to proceed in that House as if it were not a hybrid instrument.”
As I understand it, the hybrid instrument procedure is there to protect certain private interests. It appears that new section 284A will bypass that procedure—it is very clear, very up front—but that raises a question in my mind about whether, for convenience, the Government are proposing an end-run around protections for private instruments.
That is the least of my worries about clause 28, though. Transformer vehicles, as I understand it, are used for packaging or bundling. Section 284A(2)(b) refers to
“fully funding A’s exposure to that risk by issuing investments where the repayment rights of the investors are subordinated to A’s obligations to B in respect of the risk.”
In lay terms—I stress: lay terms—it is reinsurance; it is laying off the risk. Bookies do it all the time, akin to what sometimes goes on in the City. However, the bundling or packaging of debts, which I understand is what the transformer vehicles enable to be done, was precisely one of the major drivers of the meltdown of the US sub-prime market in 2007-08. To quote my friend and helpful adviser, Professor Alastair Hudson, “The investors then got the return generated by the mortgages. They then brought credit default swaps to provide insurance against the mortgage borrowers failing to make their repayments, or they bought credit default swaps to bet that those borrowers would fail to make those payments.” Ain’t capitalism great? You can have it both ways. In horse-racing, it is an each-way bet, but with an each-way bet in capitalism it is the punter who always seems to lose and the financial company that just about always seems to gain.
Those special-purpose vehicles were created, as I understand it, to bundle up and package sub-prime mortgages—SPVs were not just used for that, but it is perhaps the most notorious example—so that they were off the banks’ books and on somebody else’s books. Then, when things go wrong—as they did—the rest of us pick up the tab. That is the moral hazard. Transformer vehicles and proposed new subsection 284A of the 2000 Act appear to facilitate and encourage that kind of behaviour.
I hope that the Minister will be able to reassure me. It is possible that I have misunderstood what the new section will do and what transformer vehicles do, and that my fear about the risks involved is unfounded. I am not necessarily expecting her to do that now. I hope that she will catch your eye, Mr Brady, and reply to these points after my own marathon, which I have to tell the Committee has only just started.
The third thing that this clause highlights, and I use this as an example for the Government, is the complexity and overlapping nature of our legislation, which makes it difficult for anyone to understand. For example, new section 284A is a mere insertion. Later in our consideration of the Bill, we have all kinds of insertions: new clause 1 deals with a new section 333T; new clause 7 deals with a new section 137FBB; and, from memory, we have somewhere else the insertion of new paragraph (3GA) in a regulation. No wonder people cannot understand our financial regulations and legislation, when Tolley’s now runs to—what?—1,500 pages and we have amendment after amendment on top of scores of previous amendments. Will the Minister say whether the Government have any plans to simplify and/or consolidate the 2000 Act? It is getting incredibly complicated and further complication increases the chances of non-compliance, whether inadvertent or deliberate, because people can use the defence, “I didn’t understand what was in there.”
Turning to the pensions matters, I will take clauses 29 to 31 together. On pensions guidance, I hope that the Minister can say how far down the chain of advice to individuals the Government propose to go. Labour Members want an advice service that helps people to make informed decisions. There is a role for the state in either doing or facilitating that, and we are pleased that the Government recognise that, but we now have protection being built into the Bill for those who are considering selling on their existing annuity in a secondary market. That is set out in clause 29, which would amend section 333A of the 2000 Act. Subsection (2)(b) would insert a reference to
“guidance given for the purpose of helping an individual who has a relevant interest in relation to a relevant annuity to make decisions in connection with transferring or otherwise dealing with the right to payments under that annuity.”
As I understand it, that is principally to do with secondary markets for annuities. Paragraph 152 of the explanatory notes sets out that this would help by giving advice to annuity holders who are
“considering selling the income from their annuities to a third party on the secondary market”.
Today, the Minister mentioned beneficiaries of annuities, which is slightly different from annuitants selling on their annuity or contemplating doing so. How far do the Government propose to go with this? Will the beneficiaries of beneficiaries be able to access Pension Wise? Will the prospective beneficiaries of beneficiaries be able to do so? Will the prospective beneficiaries of annuitants be able to contact Pension Wise? There is a question about how far this coverage goes. When an annuitant sells their annuity on a secondary market and puts the proceeds into another instrument to provide for their pension in place of the original annuity, will Pension Wise, either before or after such a sale, advise the annuitant on that other vehicle into which the annuitant proposes to place, or is considering placing, the fruits of their sale on the secondary market?
I turn now to the report produced by the Work and Pensions Committee. I appreciate that the matter comes under the Department for Work and Pensions rather than the Treasury but, if the Committee will bear with me, I hope I can clarify that it is very germane to what we are discussing. That report was published on 19 October 2015 as House of Commons paper 371, entitled “Pension freedom guidance and advice”. The Government’s response to this report was published on 17 December. Good Government responses tend to go through the report line by line. This response by the Government to the Select Committee report is pretty comprehensive, and it goes through each recommendation suggested by the Committee.
The Financial Secretary gave evidence to the Work and Pensions Committee when it was working on that report, and she indicated that certain performance figures would be put on the Government website—in fact, she may have said that they had already been put on the website. I see her nodding. I have to say that if they are on the site, they are very well hidden. I looked at the Pension Wise website today and I could not find that kind of back-up statistic—not individual statistics, but figures such as the 2.2 million users to which, I think, the Minister referred earlier. Nor could I find the figures on the performance website—I did a search on both “Pension Wise” and “work and pensions”. I hope that the Minister is able to say what has happened to those performance figures.
George Kerevan (East Lothian) (SNP)
I just want to make some remarks about clause 28, on transformer vehicles, which is one of the most important elements of the Bill, even though it is somewhat technical.
I commend the Minister on her rapid and very clear presentation of the clauses, but she said something about clause 28 that caused me to worry, and I would like to press her on it. She seemed to imply that the clause is being introduced to ensure that the regulation of transformer vehicles will maintain, and in fact increase, the City’s competitive edge. I worry that we are enacting regulatory provisions that could be used to facilitate transformer vehicles, which are rather toxic.
Transformer vehicles have been around for a while—since the start of the millennium—but they began to grow rapidly in the reinsurance market in the past decade. The danger is that they are under-capitalised. The existing reinsurance market is well capitalised, and the risks are well catered for. The existing major insurers traditionally do not reinsure all of their risk. They keep some of it and capitalise for it, which is good, and pass on the bulk, but not all, to separate or wholesale reinsurers, which are heavily capitalised in case anything goes wrong. The companies use actuarial tables to make profit and invest, but if anything goes wrong—if there is a systemic crisis in the market—they are capitalised in both the insurance and the reinsurance parts of the market to cover that risk.
The point about transformer vehicles is that in the past decade we have moved away from a capitalised reinsurance market to one in which the risks are hedged by selling credit default swaps. If used sensibly, that is not a problem, because if an individual insurance policy runs into trouble a credit default swap can be called in. But as we saw with the mortgage-backed securities at the end of the first decade of the millennium, if there is a systemic crisis and the entire mortgage market goes, the credit default swaps cannot be up because everybody loses money. The worry is that if our reinsurance model is based wholly on hedging, individual transformer vehicles can pay up, but if there is a general crisis—if there is a massive weather crisis or a nuclear power station, such as Hinkley Point C, blows up—the credit default market will not be able to repay everybody. That is why we need to regulate it.
If we are introducing these regulations to put in place an easier approach to hedging, rather than a properly capitalised reinsurance market, and to ensure that the hedging is here rather than New York, we are creating a problem. The Minister could become famous. If she ensures that the regulations that are introduced by the Treasury, the PRA and the FCA are used to make the market work sensibly, we will avoid a crisis. But if we introduce regulations that move the market further towards hedging and away from proper capitalisation, her name will be on the crisis when it occurs.
I want to clarify what these regulations are for. Are they for ensuring discipline in the market and the capitalisation of reinsurance, or are they a way of evading capitalisation? That is where the problem would begin.
Harriett Baldwin
I will try to keep my response in order, Mr Brady, but forgive me if I occasionally slip out of order. The hon. Member for Wolverhampton South West started by asking about clause 27, which he described as “see no evil”. I want to reassure him that the change addresses an issue that arises as a result of the transfer of the regulation of consumer credit from the Office of Fair Trading to the Financial Conduct Authority and the consequent application of the Financial Services and Markets Act 2000 to the consumer credit market. The issue addressed by the clause, whether relating to a chain or third party, arises particularly in the context of consumer credit and the activity of credit broking.
We are confident that the change to section 27 of the Financial Services and Markets Act addresses the issue with regard to consumer credit, ensuring that the section is more proportionate on consumer credit firms, without unduly affecting the protections available to consumers in the market. That is in line with our broader policy intent for the consumer credit market, where the reforms that the Government have made balance the need to provide strong consumer protections with ensuring that the burdens placed on a diverse market that includes thousands of small businesses is proportionate. I reassure the hon. Member for Wolverhampton South West that firms remain under a regulatory duty, imposed by the FCA, to take reasonable steps to satisfy themselves that the firms that they deal with are authorised, where that is appropriate. The clause strikes the right balance between protecting consumers and placing a proportionate burden on firms that are lending to consumers.
We share with the hon. Gentleman an aspiration to simplify some of the legislation. I very much welcome his words of support for my dream goal in this post, which is to simplify and reduce some of the complexity not only of this regulation but of the FCA’s own rulebook, which has become quite a significant barrier to entry to sensible organisations that may want to move into, for example, the debt advice space. I welcome his support for any progress I am able to make to simplify some of that.
Clause 27 simply narrows the circumstances in which a credit agreement or a consumer hire agreement is unenforceable. I think that the hon. Gentleman will welcome that. Both he and the hon. Member for East Lothian mentioned transformer vehicles, which are not those fun toys that appeal to consumers but something completely different that, I assure Members, are not for the consumer market. Only sophisticated or institutional investors will be permitted to invest in insurance-linked vehicles.
From a policy perspective, it is important that London have the ability to establish insurance special purpose vehicles. London is the largest insurance market in Europe and is a centre for specialist insurance activity. Whether we like it or not, all Members face risks in their lives—indeed, all businesses face a range of risks. Insurance is a way to bring that risk down to a manageable level. London should be able to compete and innovate in new forms of risk mitigation. If London is able to offer a full range of innovative solutions, insurance entities will continue to come to London to meet their risk mitigation needs. I heartily hope that all Committee members support that.
Insurance-linked securities use a range of specialist skills and services to arrange the deals, including underwriting, risk modelling, brokerage, legal and capital market expertise. Nevertheless, Members are right to express concerns about the transparency and manageability of the risks, as well as about the importance of their being arranged by regulated entities, so it is important that I set out that insurance-linked securities business will be prudently regulated in the UK.
All special purpose vehicles will require Prudential Regulation Authority authorisation. All the wording in terms of the contracts must be clear and robust, and importantly risks cannot be bundled together in the way that the hon. Member for East Lothian feared. We require all special purpose vehicles to be fully funded to cover the full extent of the risk they take on, so we are not talking about the kind of very leveraged structures that he rightly said were so instrumental in the last financial crash.
I have said that only sophisticated or institutional investors will be permitted to invest in the vehicles. Of course, if they are arranged prudently—when someone is able to manage their risks prudently—those transactions will contribute to financial stability. They increase the capacity of the reinsurance markets. They provide investments that are not correlated with the economic cycle, and therefore they provide investors with good diversification characteristics. I hope that I have reassured hon. Members of the importance of clarifying the rules on transformer vehicles, but I sense that the hon. Gentleman has a further question on the issue.
Rob Marris
I am somewhat reassured by what the Minister has said. However, I would caution her about her remarks about innovation and the attractiveness of London, because I sat—either in this room or Committee Room 10—on the Finance Bill Committee when her predecessor, Ed Balls, was saying the same thing in 2006 and saying, “We are grateful that London is now the financial capital of the world, over New York, because we don’t have the millstone of Sarbanes-Oxley.” Look where that ended. Therefore, yes to innovation, and yes to London being the major financial centre in Europe, if not the world, but I urge the Government to be careful that we do not go round the same crazy merry-go-round that my Government let us go round in the past.
Harriett Baldwin
The hon. Gentleman and I agree on the importance of making sure that we try to strike the right balance. We must ensure that the UK retains the ability to innovate. I am sure that none of us would want to see that ability being reduced, but it should do that within the boundaries of sensible and prudent regulation, so that we do not commit the alternative policy error, which would be to throw up our hands in horror at the kinds of innovations that have happened and so harm consumers by not allowing that kind of innovation. It would harm jobs in the UK if such innovation were not allowed to happen here. I welcome hiss questions—he is absolutely right to ask them—but I hope that I have convinced him that, in this instance, we have got the balance right and that these are simply useful instruments that will be well regulated and certainly available only to sophisticated institutional investors.
Although there are no Government proposals to consolidate the Financial Services and Markets Act at the moment, consolidated versions—for the ease of reference of members of the Committee and members of the public who are following our discussions with such avid interest—are available on commercial databases, such as LEXIS, and the Government statute law database—legislation.gov.uk—is working to make up-to-date Acts of Parliament available free of charge on a consolidated basis to everybody.
I will move on to the questions that were asked about Pension Wise and pension guidance, and the important steps that we are taking to bring pension freedoms to those who are no longer required to buy an annuity but to extend them to people who have bought an annuity and who may decide in retrospect that it was not the right thing for them. We are promoting a secondary market in those pension freedoms.
To be clear, regarding the rules on beneficiaries—I am thinking of a situation where a spouse remains a beneficiary and there is a remaining annuity after the death of the primary annuitant—there might need to be the ability to provide Pension Wise guidance and other support to people in that circumstance. The exact characteristics of who is entitled to use the service will be set out in regulation in due course, as will the definition of a “relevant interest” and what a relevant annuity is.
Rob Marris
I am grateful. The statistics might be available on the website, but although I am an averagely competent user of websites I could not find them. They are therefore not readily available.
Harriett Baldwin
We have made huge strides with the gov.uk website, which is a lot clearer and simpler than it used to be, but let me be the first to agree with the hon. Gentleman that such things can always be made clearer. I have put on the record the most recent example of management information available, which is that 2.2 million people have clicked on the website, with more than 50,000 people having some sort of face-to-face interaction. Also, in the summer Budget last year we extended the ability of people from 50 onwards to use the face-to-face service.
Harriett Baldwin
The website is well used. The feedback on face-to-face interactions has also been positive.
John Mann (Bassetlaw) (Lab)
Is not the clause a huge wasted opportunity? I can confidently predict that this will be the next major mis-selling scandal, which in five to 10 years’ time will come to haunt us for failing properly to enact effective legislation. People will have thrown away their pensions, mis-sold to them by the industry for short-term gain. The advice, people have told me, is that they are liable to die so they had better get the money quickly in order to spend it before it disappears. That is the kind of mis-selling that is going on. The clause is a huge missed opportunity, is it not?
Harriett Baldwin
I sense that the hon. Gentleman does not welcome the freedoms that the Government are proud to have given British retirees. We no longer require them—this was the case for so long—to purchase an obligatory product that might not be right for them at the time. Indeed, the evidence suggests that two thirds of people were not shopping around to get the right price, so I accept that awareness and education are an important part of the reforms. I cannot agree with him that the reforms have not made a huge step forward in trusting people who have worked hard all their lives, saving their money, and they now have more freedom to do what they want with it.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
I have some sympathy with the comments of the hon. Member for Bassetlaw. May I press the Minister on the numbers she quoted? She said that 2.2 million people have accessed the website, leading to in excess of 50,000 to follow through with more detailed face-to-face guidance. If my arithmetic is correct, that is a conversion rate of only 2%. That is a matter of concern to a lot of people. The type of advice being made available at a detailed level means that we are not adequately helping the numbers of people seeking to use the freedoms. There is concern that many people are cashing in early for different reasons with a lack of understanding of the long-term implications.
Harriett Baldwin
Again, I could not agree more that we need to take a long, hard look at the provision of advice in this country. As the hon. Gentleman is aware, the financial advice market review was launched last summer and the consultation closed at the end of December. A large range of people have been supportive of the aspirations set out in the review to make advice more widely available and more affordable for all our constituents. It is an ongoing piece of work, and he should wait for more exciting announcements—[Interruption.] He and I share excitement about many things, including the leptokurtic distributions that came up the last time we were on a Committee together. Clause 27 is narrowly focused on extending the Pension Wise service to those who are going to be accessing the additional freedoms that will come into force next April in relation to the secondary market in annuities.
People have rightly asked me about scams, and I want to put it on the record that there is absolutely no complacency about the potential for scams. However, the numbers thus far do not support the case that there has been an increase. Some people have a constant desire to take advantage of people, particularly the vulnerable elderly, in many ways. Nobody should ever accept a telephone call about pensions from anybody unless they have a pre-booked appointment for such a discussion. The single most important thing that we can do to alert people to the horrendous activities of people who prey on the elderly is to get that message out in our constituencies. The over-65s are the victims of some 80% of all attempts at financial crime. They are less familiar with the technology and more vulnerable when someone sounds plausible on the telephone. If any Member wants to work with me to spread the message more widely in their constituencies, I will be wholeheartedly in favour.
Harriett Baldwin
I will give way in a moment, but I first want to mention the National Crime Agency’s Project Bloom, a taskforce that includes the regulators, anti-fraud groups, Action Fraud and police forces. The FCA also runs ScamSmart and the Pensions Regulator has its Scorpion campaign, both of which give advice to businesses and consumers in writing about how to protect against scams. Action Fraud is the UK’s national reporting centre for fraud and internet crime. I am keen to work with hon. Members to see how we can get information disseminated widely in our areas.
John Mann
I thank the Minister for the offer to help her get the word out. We may be occupied with other things over the next four months, but, even beyond then, is it not Parliament’s role to legislate for regulation? Anyone who is a conduit to information or puts out information should be effectively regulated. Instead of hoping that the word will somehow get out, the Minister should be introducing legislative changes in regulation to improve the system. A gentleman came to see me and said that he had less than a year to live and wanted to get hold of his pension. He came back a year later, having survived through the NHS, and was doubtless reassured that he did not need to fritter his pension away, hoping to spend it on trips around the world because he was about to die. We do not need to get the word out; we need regulation. Will the Minister come back with additional proposals?
Harriett Baldwin
Clearly, it is regrettable that although we often pass regulations in this House—this is a very regulated area—people still choose to prey on the vulnerable, particularly older people, and do things that are illegal and completely against the regulations. We ought to combine regulation with informing people about the regulations and when they should have their antennae twigged to the fact that something might not be a good idea.
The hon. Member for Wolverhampton South West raised a range of important points about auto-enrolment, the reports in The Times today and master trusts. I can let him into a little secret on that: the Government will bring in legislation on master trusts and on the points he raised as soon as practically possible. We had considered bringing it in as part of this piece of legislation, but we felt that since the Bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that. That was my judgment, and I hope that he will support me on that. However, we aspire to find very soon the first appropriate vehicle that could be scrutinised by both Chambers to bring in the regulations relating to master trusts and auto-enrolment.
Rob Marris
I thank the Minister very much for that swift response to my plea. It is perhaps one of my first successes, and now she has indeed set my pulse racing.
Harriett Baldwin
No comment, Mr Brady, on that. I am making sure that I cover all the points that were raised by members of the Committee. I am shocked—deeply shocked—that the hon. Member for Wolverhampton South West is not aware that the Royal Mint is in Cardiff and that it continues to produce all our coins. Indeed, Wales plays a very important role in the issuance of our currency. It does not play a role at the moment in the production of bank notes. Obviously, that lapsed when the last issuing bank in Wales was taken over by either HSBC or Lloyds—I cannot remember which—and got subsumed into that bank, and the bank lost this ability at that point.
To answer the hon. Gentleman’s other questions about clause 31 and the reason for subsection (7), this provision is included in order to confirm that the amendments to the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001—a very catchy title—can be subject to further amendment by the Treasury if it comes to revise those regulations. That is to say that the fact that this secondary legislation is amended in the Bill does not narrow the scope of the Treasury’s powers in the Financial Services and Markets Act. I hope that that is as clear as day for the hon. Gentleman. I would also like to clarify that the amendments set out in clause 31 are intended to remove any doubt on this question by making it clear that financial advisers who are appointed representatives of authorised firms are eligible to advise on the conversion or transfer of safeguarded benefits.
The hon. Gentleman also asked some extensive questions about what the definition of a bank in insolvency should be. The wider fact is that here we are establishing a gateway for the transfer of what might be extremely sensitive material—non-public information about the financial health of a particular bank—into the Treasury to ensure that the Treasury can fulfil its important public role of understanding where or when there might be a risk to public funds. That is what we are trying to establish here. It is right to probe the word “insolvency”, because what we are really talking about is a bank in trouble. “In trouble” is a rather difficult phrase to define in legislation, but I think we both know it when we see it.
I was also asked whether the Treasury can request information in advance of a bank failing. The answer to that is clearly yes. The only condition would be that the Treasury considers the information to be material to the Bank’s assessment of the likelihood of a bank, building society, credit union or investment firm failing. This assessment would be done in advance. It influences the resolution plan that the Bank adopts in preparation for a possible failure of the institution in future.
I think that I have now touched on all the points that were raised about this section. I hope that I have satisfied hon. Members of the wisdom of these clauses and that they will join me in supporting their inclusion in the Bill.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
The Chair
I propose that, with the leave of the Committee, we take clauses 28 to 37 stand part as a single opportunity.
Clauses 28 to 37 ordered to stand part of the Bill.
Clause 38
Short title
Harriett Baldwin
I beg to move amendment 7, on page 33, line 25, leave out subsection (2).
The amendment removes the privilege amendment set out in subsection (2). As hon. Members will be aware, this provision is inserted into any Bills that start in the other place and have implications for taxes or public funds. This recognises that it is the right of this House to control any charges on the people and on public funds. By providing that nothing in the Bill imposes such a charge, subsection (2) ensured that the House of Lords did not infringe the financial privilege of this House. However, that is no longer necessary when the Bill passes to this House, so the usual practice is for the provision to be removed by amendment in Committee in this House—I love this job; I learn something new every day. I commend the amendment to the Committee.
John Mann
What a palaver, when we have Governments bringing in Bills via a group of entirely appointed peers—or, in 92 cases, birth-designated peers—and then having to amend the legislation precisely because it has been brought in by a group of unelected people. Parliament should initiate all legislation through the House of Commons. All Governments, whatever their colour or persuasion, and whatever crisis they may be in at any time, should use the House of Commons, the elected Chamber, when bringing forward legislation.
There is only one other place in the world where this happens, and that is China. All other countries that have second Chambers, or part-appointed second Chambers, do not allow legislation to be formulated through them. Even the states of the former Soviet Union, now disintegrated into 16 countries, which have, and love to have, this patronage power that we retain, do not allow their second Chambers to initiate legislation. So this country—and now this Government—and China are the only two places where that happens.
It seems absurd that in the place where democracy is centred, which is dear to all our hearts at the current time, and therefore very important—and this is getting to the fore of the public’s attention—Governments are initiating legislation through the House of Lords. I suggest that they should not do so. The absurdity of having to amend legislation because they have done so would then no longer be needed. Let us therefore hope that this is the last time that such an absurd position is reached in Parliament.
Amendment 7 agreed to.
Clause 38, as amended, ordered to stand part of the Bill.
The Chair
We now come to new clauses, some of which have already been debated in our proceedings, but new clause 1 has not.
New Clause 1
Illegal money lending
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After Part 20A insert—
“Part 20B
Illegal Money Lending
333S Financial assistance for action against illegal money lending
(1) The Treasury may make grants or loans, or give any other form of financial assistance, to any person for the purpose of taking action against illegal money lending.
(2) Taking action against illegal money lending includes—
(a) investigating illegal money lending and offences connected with illegal money lending;
(b) prosecuting, or taking other enforcement action in respect of, illegal money lending and offences connected with illegal money lending;
(c) providing education, information and advice about illegal money lending, and providing support to victims of illegal money lending;
(d) undertaking or commissioning research into the effectiveness of activities of the kind described in paragraphs (a) to (c);
(e) providing advice, assistance and support (including financial support) to, and oversight of, persons engaged in activities of the kind described in paragraphs (a) to (c).
(3) A grant, loan or other form of financial assistance under subsection (1) may be made or given on such terms as the Treasury consider appropriate.
(4) ‘Illegal money lending’ means carrying on a regulated activity within Article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (regulated credit agreements) in circumstances which constitute an authorisation offence.
333T Funding of action against illegal money lending
(1) The Treasury must, from time to time, notify the FCA of the amount of the Treasury’s illegal money lending costs.
(2) The FCA must make rules requiring authorised persons, or any specified class of authorised person, to pay to the FCA specified amounts, or amounts calculated in a specified way, with a view to recovering the amount notified under subsection (1).
(3) The amounts to be paid under the rules may include a component to recover the expenses of the FCA in collecting the payments (‘collection costs’).
(4) Before the FCA publishes a draft of the rules it must consult the Treasury.
(5) The rules may be made only with the consent of the Treasury.
(6) The Treasury may notify the FCA of matters that they will take into account when deciding whether or not to give consent for the purposes of subsection (5).
(7) The FCA must have regard to any matters notified under subsection (6) before publishing a draft of rules to be made under this section.
(8) The FCA must pay to the Treasury the amounts that it receives under rules made under this section apart from amounts in respect of its collection costs (which it may keep).
(9) The Treasury must pay into the Consolidated Fund the amounts received by them under subsection (8).
(10) In this section the ‘Treasury’s illegal money lending costs’ means the expenses incurred, or expected to be incurred, by the Treasury—
(a) in connection with providing grants, loans, or other financial assistance to any person (under section 333S or otherwise) for the purpose of taking action against illegal money lending;
(b) in undertaking or commissioning research relating to taking action against illegal money lending.
(11) The Treasury may by regulations amend the definition of the ‘Treasury’s illegal money lending costs’.
(12) In this section ‘illegal money lending’ and ‘taking action against illegal money lending’ have the same meaning as in section 333S.”
(3) In section 138F (notification of rules), for “or 333R” substitute “, 333R or 333T”.
(4) In section 138I (consultation by FCA)—
(a) in subsection (6), after paragraph (cb) insert—
“(cc) section 333T;”;
(b) in subsection (10)(a), for “or 333R” substitute “, 333R or 333T”.
(5) In section 429(2) (regulations subject to affirmative procedure), for “or 333R”
substitute “, 333R or 333T”.
(6) In paragraph 23 of Schedule 1ZA (FCA fees rules)—
(a) in sub-paragraph (1) for “and 333R” substitute “, 333R and 333T”;
(b) in sub-paragraph (2ZA)(b) for “section 333R” substitute “sections 333R and 333T”.—(Harriett Baldwin.)
This new clause gives the Treasury power to make grants and loans, and provide other financial assistance, for the purpose of taking action against illegal money lending. It provides for certain Treasury costs relating to illegal money lending to be recovered from authorised persons by a new levy, administered by the FCA.
Brought up, and read the First time.
Harriett Baldwin
I beg to move, That the clause be read a Second time.
The new clause gives the Treasury a power to provide financial assistance to bodies for the purpose of taking action against illegal money lending. It also gives the Financial Conduct Authority an obligation to raise a levy, which will apply to consumer credit firms, in order to fund that assistance. Illegal moneylenders prey on some of the most vulnerable people in society. The new clause will ensure that the perimeter of the consumer credit market continues to be enforced effectively, and that vulnerable consumers remain protected from loan sharks.
The Government have fundamentally reformed consumer credit regulation, transferring the responsibility from the Office of Fair Trading to the Financial Conduct Authority, and we have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. The FCA regime is already having a substantial positive impact, which is helping to deliver the Government’s vision for an effective and sustainable consumer credit market that meets consumer needs. However, the FCA is not best placed to investigate and enforce certain types of illegal money lending such as the type practised by loan sharks.
Loan sharks are currently investigated and prosecuted by the England and Wales illegal money lending teams and the Scottish Illegal Money Lending Unit. Those teams are made up of local trading standards officers who accordingly have broader powers than the FCA to prosecute the particular criminality that loan sharks are involved with, and relevant expertise in educating vulnerable consumers. They are also able to draw on geographically dispersed community intelligence officers who are crucial in identifying localised illegal lenders. The teams work alongside the FCA in policing the regulatory perimeter specifically to target loan sharks and to provide support and advice to the victims of illegal moneylenders. They also help educate local communities about the dangers of borrowing money from loan sharks.
The teams have been identified as the most efficient and effective way of combating loan sharks and they have a proven track record. The England and Wales teams have secured hundreds of prosecutions for illegal money lending and related activity and have written off £55 million-worth of illegal debt, helping nearly 24,000 people in the process.
Funding will be provided by the Treasury via a levy on consumer credit firms, which will be collected by the FCA. The Government believe that all participants in the consumer credit market benefit from the teams’ work and the credibility that comes from keeping illegal moneylenders out of the market. The current cost of the enforcement regime is about £4.7 million a year, so the cost to individual firms in the £200 billion consumer credit market is anticipated to be small. The FCA will consult on how the levy will be collected in its annual fees consultation.
The Government want a safe and fair regulatory framework for consumer credit that protects consumers from harm. As part of that, it is important that the market’s boundary is adequately policed. The illegal money lending teams provide crucial support to the FCA’s work in effective enforcement in the regulatory perimeter, which boosts confidence in the market. The new clause will ensure that funding for the enforcement of rules against illegal money lending is given a sustainable framework for the future and that the illegal money lending teams will continue to receive the funding they need to do their work. I hope that all hon. Members will support this move
John Mann
This is a most excellent new clause, which I hope my hon. Friend the Member for Leeds East and I will be able to use against those who may be doing illegal money lending in sports in the Leeds area. It prompts an interesting question, because the powers on claims handlers—the other side of consumer protection—are not vested in the Treasury. We would not expect them to be. They are vested in the Ministry of Justice, but here we see a power grab by the Treasury. We have the Chancellor versus the Justice Secretary, with the two battling for power. I appreciate that that may cause some concern and divided loyalty. It is essential, in supporting this new clause, that I give my wholehearted support to the Chancellor in his power grab. The Treasury, not the Ministry of Justice, is the best place for powers such as this to be vested in.
Should the Bill become law, I hope that the Minister will go back to the Treasury team and look at other powers that have been grabbed by the Ministry of Justice under previous Governments and used appallingly badly in protecting the people, from my experience—the coalminers’ compensation claim scandal being the prime, but certainly not the only, example. Let us have the Treasury take on those who fleece our constituents out of money, with the full might of the Chancellor, strongly supported by his party’s Back Benches—he is even more strongly supported on some matters these days by the Labour Benches. On this occasion, he has my entire endorsement in his battle against the Justice Secretary.
Rob Marris
What a pleasure it is to follow my hon. Friend. It is an historic moment when he is fully backing the Chancellor of the Exchequer.
My hon. Friend talks about power grabs, but I must say that I do not think it is just the Ministry of Justice involved in this area; it is the Department for Communities and Local Government and the Department for Business, Innovation and Skills as well, with which this overlaps. The fact that this is a cross-cutting area is perhaps another reason why it would be logical for the Treasury to have these powers.
Labour Members welcome the stability of funding. I am grateful to John Ludlow, who works in the office of my hon. Friend the Member for Makerfield (Yvonne Fovargue), for giving me some background information, of which I was not fully aware, on the lack of stable funding for the inelegantly named illegal money lending teams. There is one such team based just down the road from me in Birmingham. They work in England and Wales and have a relationship with trading standards, as has been mentioned—hence my reference to the DCLG. I understand that since 2004, when the teams were established, more than 26,000 victims of illegal money lending have been helped, with £62 million of illegal debt written off and 300 loan sharks prosecuted.
I say indirectly to the Ministry of Justice and to the Chancellor of the Exchequer that some of this stuff is rather simpler than is made out, in terms of the relationship with trading standards. Under section 21 of the Theft Act 1968, blackmail is a common-law criminal offence when someone makes “unwarranted demand” for money “with menaces”. The Minister quite properly referred to illegal moneylenders as loan sharks; that is the vernacular, which we all understand. As a description, “loan shark” highlights rather better what almost always goes on: behind illegal money lending is a pattern of people saying, “If you don’t pay up, you’ll suffer a physical injury.” Those are the menaces.
The 1968 Act is an elegantly worded piece of legislation. Section 16 of that Act, which is sadly now gone, is on obtaining pecuniary advantage by deception. Section 1 of the Act, which still obtains, has a wonderful definition of theft. It was a great piece of legislation in terms of its wording. New clause 1 is not quite so elegant. It refers in proposed new section 333T(1) to
“the amount of the Treasury’s illegal money lending costs.”
That is a bit inelegant, because what it means is the amount of the Treasury’s anti-illegal money lending costs. The Treasury has costs associated with illegal money lending, but I hope it does not have any illegal money lending costs. The new clause is inelegantly worded but, to be fair, we know what it means and we have had a helpful explanation from the Minister.
Harriett Baldwin
Mr Brady, you were here when the hon. Member for Bassetlaw agreed with something that I said. I am sure you will go home and remark on that historic moment in your diary tonight. He is absolutely right in his support for this approach to putting the funding for these important teams on a more sustainable footing. I do not want to be in the least bit confrontational on this historic occasion, but I will gently correct him.
The funding for the teams that tackle illegal money lending has previously come, because it is a trading enforcement matter, through BIS, so they were paid for out of general taxation through the BIS budget. We took the view, as we went through the different alternatives in terms of the comprehensive spending review for the autumn statement, that that meant the funding for a very important activity was constantly being questioned. One year it was funded from the Treasury reserve as well. So the levy is a way of putting the funding for this important activity on a sustainable footing in a way that will be spread judiciously across the wide range of different consumer credit firms. The hon. Gentleman argues that it does not seem fair, given that they are regulated, for them to have to pay the costs of enforcement against illegal moneylenders, but all regulated firms benefit from the fact that they are within the regulated perimeter, and that the perimeter itself is robustly enforced.
We do not anticipate that there will be anything other than widespread acclaim, as we have heard this morning in Committee, for putting these incredibly important and valuable teams out of that perennial uncertainty that they have had in terms of funding and into a more sustained and clear source of funding. I commend the new clause.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 7
Early exit pension charges
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After section 137FBA (as inserted by section 30) insert—
“137FBB FCA general rules: early exit pension charges
(1) The FCA must make general rules prohibiting authorised persons from—
(a) imposing specified early exit charges on members of relevant pension schemes, and
(b) including in relevant pension schemes provision for the imposition of specified early exit charges on members of such schemes.
(2) The rules must be made with a view to securing, so far as is reasonably possible, an appropriate degree of protection for members of relevant pension schemes against early exit charges being a deterrent on taking, converting or transferring benefits under the schemes.
(3) The rules may specify early exit charges by reference to charges of a specified class or description, or by reference to charges which exceed a specified amount.
(4) The rules made by virtue of subsection (1)(a) must prohibit the imposition of the charges after those rules come into force, whether the relevant pension scheme was established before or after those rules (or this section) came into force.
(5) In relation to a charge which is imposed, or provision for the imposition of a charge which is included in a pension scheme, in contravention of the rules, the rules may (amongst other things)—
(a) provide for the obligation to pay the charge to be unenforceable or unenforceable to a specified extent;
(b) provide for the recovery of amounts paid in respect of the charge;
(c) provide for the payment of compensation for any losses incurred as a result of paying amounts in respect of the charge.
(6) Subject to subsection (8) an early exit charge, in relation to a member of a pension scheme, is a charge which—
(a) is imposed under the scheme when a member who has reached normal minimum pension age takes the action mentioned in subsection (7), but
(b) is only imposed, or only imposed to that extent, if the member takes that action before the member’s expected retirement date.
(7) The action is the member taking benefits under the scheme, converting benefits under the scheme into different benefits or transferring benefits under the scheme to another pension scheme.
(8) The Treasury may by regulations specify matters that are not to be treated as early exit charges for the purposes of this section.
(9) For the purposes of this section—
‘charge’, in relation to a member of a pension scheme, includes a reduction in the value of the member’s benefits under the scheme;
‘expected retirement date’, in relation to a member of a pension scheme, means the date determined by, or in accordance with, the scheme as the date on which the member’s benefits under the scheme are expected to be taken;
‘normal minimum pension age’ has the same meaning as in section 279(1) of the Finance Act 2004;
‘relevant pension scheme’ has the same meaning as in section 137FB;
and a reference to benefits includes all or any part of those benefits.”
(3) In section 138E(3) (contravention of rules which may make transaction void or unenforceable)—
(a) omit the “or” at the end of paragraph (a);
(b) at the end of paragraph (b) insert “or
(c) rules made by the FCA under section 137FBB.”.—(Harriett Baldwin.)
This new Clause requires the Financial Conduct Authority to make rules prohibiting specified charges from being imposed on members of pension schemes who take, convert or transfer pension benefits after they have reached normal minimum pension age but before their expected retirement date.
Brought up, and read the First time.
Harriett Baldwin
I beg to move, That the clause be read a Second time.
Government new clause 7 places a duty on the Financial Conduct Authority to limit early exit charges, which act as a deterrent to people accessing their pensions early under the new pension freedoms, thus fulfilling a commitment that the Chancellor of the Exchequer made recently.
The Government introduced the pension freedoms in April 2015 because we believe that people who have worked hard and saved their entire life should be free to spend their retirement savings as they want. At that time, the Government wanted to ensure that everyone who was eligible could access their pension flexibly under the new freedoms, and they therefore strengthened the statutory right of members in defined contribution schemes so that people could, in all cases, transfer their pension savings from one scheme to another.
Following the introduction of the freedoms, it became increasingly clear that other barriers, including early exit charges and long transfer times, were preventing some people from using them. Evidence gathered for the Government by the FCA has shown a small but nevertheless significant cohort in contract-based schemes for whom early exit charges pose a barrier to their use of the freedoms. Some 670,000 people in FCA-regulated schemes face an exit charge, and for 66,000 of them—one in 10—the charge would exceed 10% of the value of their pension pot. In some cases, the charges could be high enough to make it uneconomical for an individual to access their pension flexibly, while in others the presence of an early exit charge could act to discourage individuals from accessing their pension, when that might be the best thing to do in their circumstances. It is therefore clear that the Government’s objective of ensuring that everyone who is eligible is able to access their pension savings flexibly is not being met, and that action is needed to ensure that all consumers are able to make use of the freedoms.
To ensure that the cap benefits current consumers who are eligible to use the freedoms now, the Government will ensure that any cap applies equally to existing arrangements and to those entered into in the future. The Government have not taken the decision to pursue legislation with retrospective effect lightly, and we recognise industry concerns about interference with existing contractual agreements. We have already made it clear that market value reductions should not be subject to the cap on early exit charges. However, in the Government’s view it is unfair that a significant minority of individuals have been deterred from accessing their pensions flexibly because of contractual terms they entered into long before the freedoms were introduced. Indeed, some providers have conceded that industry practices have moved on, and that the introduction of the pension freedoms means that the charges pose a much more significant barrier now than when they were first agreed. Fairness is not determined solely by reference to whether it was acceptable to include a term in a pension contract many decades ago; it should also be assessed in light of the reforms and changes in market practice over time.
In the context of the new pension freedoms, it is unfair that some individuals are being deterred from accessing their pensions flexibly because of terms in contracts from before the pension freedoms were introduced. Those people would not have been in a position to make an informed decision about potential early exit charges when they signed up, and that is why we have introduced the clause, to limit the charges and remove the deterrent.
In giving the FCA, as the relevant regulator, the flexibility to determine the precise level of the cap, we are ensuring that fairness is built into the setting of any cap. The FCA is best placed to determine how best to apply any cap, to ensure that early exit charges are not a deterrent to individuals using the freedoms. The new clause will provide consumers in contract-based pension schemes with genuine protection when exercising the pension freedoms, by ensuring that they are not deterred by early exit charges. Alongside that measure, which will apply to FCA-regulated pension schemes, the Department for Work and Pensions and the Pensions Regulator will work to ensure that any relevant concerns are appropriately addressed for trust-based schemes. We will ensure that all pension scheme members are protected against excessive early exit fees, regardless of the type of pension scheme they are in. I commend the new clause to the Committee.
Rob Marris
I am glad that the Chancellor has come on board fully. The Prime Minister did so yesterday; he came on board with Labour’s manifesto commitments on the European Union—good for him. The 2015 Labour manifesto said:
“We will reform the pensions market so that pension providers put savers first, and protect consumers from retirement rip-offs. We support greater flexibility for those drawing down their pension pots, but there must be proper guidance for people to avoid mis-selling.”
We have already discussed pension guidance and the welcome amendments on Pension Wise.
I have several issues to raise with the Minister. Paragraph 2.16 of the Government’s response to the consultation document on pension transfers and early exit charges referred to “further cost-benefit analysis” from the FCA
“in relation to the appropriate level of any cap.”
Can the Minister tell me—my research has not extended this far—whether the FCA has done that research? I gather from her remarks that it has not yet done so, but I may have misunderstood her. If it has done it, when was it done and published? If it has not, when does she anticipate that it will be done?
Can the Minister say something—again, I may have missed this in her remarks—about what she anticipates the level of the cap will be? She referred to the shocking 10% charges that some people have unfortunately been asked for on requesting a transfer. A press release from a couple of weeks ago referred to speeding up the process and to things being done “quickly and accurately”. I do not see any reference in new clause 7 to the timescale, although there is a reference to the cap, so I hope the Minister can elucidate that.
The bigger issue—again, this may be my reading of new clause 7—is that the Government seem to be conflating two things in the wording of the new clause. The Minister’s remarks did not reassure me about that. The first is the penalty for moving. One of the reasons why I signed up to Equitable Life years ago—what a great deal that was—is that it had what was then called an open-market option, which was unusual in defined purchase schemes at that time. It was attractive because it meant that decades down the road I would have the option of buying an annuity from a provider other than Equitable Life. It was not the only provider to offer such a scheme, but it was unusual; it was in the minority. That was back in the ’80s, when I was a very young man. Some schemes had a ban on moving—that has effectively been statutorily overridden—and others had penalties.
The other thing, which I fear that the Government have conflated with the first in their wording—perhaps the Minister can reassure me about this—is what in the trade used to be called an actuarial reduction. In other words, if the normal retirement age for the pension scheme is 65, as it is in the House of Commons scheme, to which many hon. Members have signed up, but someone takes it at 60—above the statutory age of 55; it used to be 50—in round terms they take a 50% reduction in the annual pension. Keeping it simple, instead of getting £10,000 a year from the age of 65, they get £5,000 a year from the age of 60 because they are getting it for an extra five years. It is not exactly 50%, but as a rule of thumb it is about 5% a year for taking it early, so if someone takes it at 55 they lose 50% of their pension. That is not, to most people’s minds, a penalty. Because people get the dosh for longer, they get a smaller annual amount. We could have a debate about whether 5% a year is mathematically accurate, with life expectancy and so on, but in terms of the principle and the concept that people lose pension because they have started to take it below the normal retirement age there is that actuarial reduction.
John Mann
May I disagree with my Front-Bench colleagues on their analysis? I have exactly the same question, but I am anticipating that this is a listening Chancellor—not least to the very point I made to him in the Treasury Committee three years ago, which he rebuffed in his stylistic way in giving a non-answer. I am seeking to clarify whether he is the listening Chancellor and that this is a bit of a roll, so that I can back him again, because he has listened to me on the issue, which I raised in some detail, including in correspondence and in other questions. At the time I did not get a sufficiently satisfactory response. This could be a significant moment. I am hoping that the Minister will clarify that the power being given to the FCA will be all-encompassing and include all ways of ripping off our pensioners, including the couple from Clayworth in Bassetlaw who first raised the issue with me some three and a half years ago.
Harriett Baldwin
I want to put on record that of course the Chancellor is a listening Chancellor. I am delighted that some of that listening includes listening to the hon. Gentleman, whose views on pasties I remember the Chancellor also listened to at one time. I see why his Whips put him on the Committee—because of his extensive and deep knowledge of so many of these things.
Let us face it, the topic of pensions can cause people’s eyes to glaze over—not of course those of hon. Members in Committee, but potentially those of people avidly reading the record in Hansard—so I want to clarify that the pension freedoms apply to defined contribution schemes. Those regulated by the FCA are covered by the new clause. The hon. Member for Wolverhampton South West asked about actuarial reductions, but schemes such as those that most Members of Parliament are members of are in the defined benefit section of the market. That is presumably why he has not found the language clear enough; the new clause does not apply to defined benefit schemes. In cases where actuarial reductions might be applied unfairly, we think it is important for the FCA to be given flexibility in the new clause.
The hon. Gentleman asked about the level of the cap. It is important to emphasise how well and constructively the industry has been working with the new pension freedoms to enable hundreds of thousands of people to take advantage of the freedoms. It is worth citing how excellent, innovative and adaptive many firms have been with the new freedoms, which came in with a degree of rapidity. However, there were some cases—I cited the example of a 10% cap—where charges were clearly egregious. The FCA will do further work in this area, in terms of its cost-benefit analysis process, but there have been efforts to collect evidence of the scale of the charges. In the vast majority of cases—I think that I am right in saying, off the top of my head, more than 90%—the charges have been under 2%. The industry, by and large, has worked very well with the reforms; I do not want people to get the impression that it has not. However, we think that where there are unreasonable barriers, in terms of charges that we would all regard as outrageous, the FCA is right to have these powers.
There will be cases in which, when someone removes their pension, the provider is right to apply a market value reduction, to readjust the value of the fund properly to reflect the performance of the market. Not all funds mark to market on a daily basis. We would not regard that as an early exit charge. It is right that market value reductions are specifically excluded from the new clause.
I hope that by answering all those questions, I have satisfied the Committee that this is another excellent clause from a listening Chancellor, and I commend it to the Committee.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
New Clause 3
Nomination of the Chief Executive Officer of the Prudential Regulation Authority: parliamentary oversight
“The Chancellor of the Exchequer shall not nominate a person as Chief Executive Officer of the Prudential Regulation Authority without the consent of the Treasury Committee of the House of Commons.”—(George Kerevan.)
Brought up, and read the First time.
George Kerevan
I beg to move, That the clause be read a Second time.
We on the SNP Benches believe that senior regulators and those charged with supplying independent advice to Government should be independent of the Executive and that the best way of achieving that is to have their appointments confirmed by Parliament. In the case of the PRA, we are suggesting that that should be done through the Treasury Committee. The principle has already been conceded by Government. The head of the Office for Budget Responsibility is confirmed by the Treasury Committee, so in a sense we are simply trying to widen that remit. We have chosen to begin with the head of the PRA, because major changes in the Bill involve the Bank and its relationship to the PRA. Also, Mr Andrew Bailey, the current head of the PRA, is moving on to the FCA, so sometime this year we will indeed be appointing a new head of the PRA.
The principle is simple. This is about the way in which we guarantee the independence of the regulator from the Executive. We accept that the Executive—the Chancellor, in this case—is the correct person to make the nomination, but the way we guarantee the independence of the regulator is to give them a wider base through confirmation by Parliament. Then, if there is ever a conflict between the regulator and the Executive, the regulator can fall back on the fact that they are there, having been confirmed by Parliament. That simple principle is accepted all round the world and, as I said, is already accepted with regard to the OBR.
I hope that the Government will accept this proposal; I hope that the principle is a broad enough one, but I stress that the aim is not to make the regulator in any sense a political figure, but to go in the opposite direction.
We have had some concerns in the last few months regarding the independence of the FCA. We will say no more about that. The point is that the issue of the independence of regulators is in the public arena. The best way for the Government to allay some of those fears is to accept the new clause.
Bank of England and Financial Services Bill [ Lords ] (Sixth sitting)
(8 years, 2 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
Richard Burgon (Leeds East) (Lab)
I would like to express my hearty support for new clause 3. Select Committees have routinely held pre-appointment hearings for a number of public appointments since 2008, with a number of candidates not approved. The previous coalition Government did develop the scrutiny agenda somewhat when the Chancellor agreed to the Treasury Committee having a power of veto over appointments to the Office for Budget Responsibility in 2010.
The Public Accounts Committee has a veto over the appointment of the Comptroller and Auditor General. Appointments to the Monetary Policy Committee and the Financial Policy Committee of the Bank of England are made by the Chancellor of the Exchequer and are then subject to a confirmation hearing by the Treasury Committee. The Treasury Committee has power over the chair and board members of the Office for Budget Responsibility, an arrangement that the Chancellor told the Treasury Committee he would put in place
“because I want there to be absolutely no doubt that this is an independent body”.
The Minister will be aware that, when it examined the proposals for the future Financial Conduct Authority in 2013, the Treasury Committee made a number of recommendations on the accountability of the new body to Parliament, including that the legislation provided that the chief executive of the FCA be subject to pre-appointment scrutiny by the Treasury Committee. The Treasury Committee was disappointed by the Government’s response, particularly in view of the deficiencies in the accountability mechanisms for the Financial Services Authority.
I would like to express support not only for the new clause tabled by the Scottish National party, but for the view of the Treasury Committee, as set out by its Chair, the right hon. Member for Chichester (Mr Tyrie), in his letter to the Chancellor of the Exchequer on 26 January, following the appointment of the current Prudential Regulation Authority chief executive, Andrew Bailey, to be the next leader of the FCA. In that letter the right hon. Gentleman set out his Committee’s view that it should have a veto over the appointment and dismissal of the chief executives of both the FCA and the PRA. Indeed, the letter said that the FCA’s chair, John Griffith-Jones, told the Committee that there was merit in that proposal when he met its members on 20 January.
It would be helpful to know whether the Chancellor has responded to that letter, and whether the Minister can share with us now the Treasury’s thinking on extending pre-appointment hearings and the power of veto to those two positions. I thank the hon. Member for East Lothian for flagging up this issue with his new clause, which we support and will consider returning to on Report, if the Government are not on board with it.
The Economic Secretary to the Treasury (Harriett Baldwin)
I am going to convince Opposition Members that this new clause is not necessary. I will give them an updated response on the Chancellor’s views and the process of recruitment for the new chief executive of the PRA, the deputy governor for prudential regulation. That newsworthy notification to the world is taking place in front of a large crowd, as we can see.
My understanding of the proposed new clause is that it would give the Treasury Committee a statutory veto over the appointment of the chief executive of the PRA, which is soon to be the Prudential Regulation Committee. I am well aware that the Treasury Committee, of which the hon. Members for East Lothian and for Bassetlaw are members, has proposed this measure. Last month, following the announcement of the appointment of Andrew Bailey as chief executive of the FCA, we received a letter from my right hon. Friend the Member for Chichester (Mr Tyrie), in which he argued that the Treasury Committee should have a veto over both the appointment and the removal of the chief executives of the FCA and the PRA. The Chancellor has replied to the Treasury Committee in a letter, which normally would be published by the Committee—I imagine that it has been published already. We believe that such an arrangement is neither necessary nor appropriate for the financial regulators, and I will articulate the reasons why.
First, such an arrangement is not necessary to protect the independence of the FCA and the PRA or of their chief executives. The model of independent regulation that we have in the UK gives the regulator a clear statutory framework of objectives and duties and ensures that regulatory decisions are taken in an objective and impartial way. Importantly, this legislative framework protects the independence of the PRA and the FCA chief executives. It includes provisions that require the terms of appointment to be such that the appointee is not subject to the direction of the Treasury or of any person.
We agree that it is important that the Treasury Committee holds a pre-commencement hearing before the new PRA CEO takes up their post. However, we believe that it is important that the Chancellor remains the person who is fully accountable for deciding on the right person for the job. Pre-appointment hearings are not common for chief executive posts. Hon. Members will understand that such a process would potentially introduce scope for delay and public disagreement, which would not help to recruit good candidates. For example, candidates who are otherwise very good might not want to disclose their interest to their current employer in advance of confirmation of the appointment.
The hon. Member for East Lothian has argued that the arrangements for the appointment of the chief executives of the FCA and PRA should mirror those for the senior leadership position at the Office for Budget Responsibility; that appointment requires the consent of the Treasury Committee. However, the financial regulators are materially different from the OBR. The OBR was established to examine and report on the sustainability of public finances and, by doing so, to help Parliament hold the Government to account for their fiscal policy decisions—the same argument applies to the Comptroller and Auditor General—and as such the OBR has a unique model of dual accountability to the Government and to Parliament.
The previous Government proposed the statutory veto of the Treasury Committee over appointments to provide an assurance of independence and to ensure that those individuals at the OBR have the support and approval of the Select Committee. However, we do not believe that that model of dual accountability is appropriate when regulators are independently carrying out executive functions of the state, such as regulating and supervising the financial services industry. As I have said before, I would welcome the Treasury Committee holding a pre-commencement hearing with the chief executives of the PRA and the FCA. That would provide an important opportunity for Parliament to scrutinise new appointees to those offices before they take up their posts.
Let me update the Committee on the process for appointing the next chief executive of the PRA, who will take over from Andrew Bailey. The Government are running an open competition. The post was advertised on Friday 19 February, which was last week, and the closing date for applications is 4 March—the window is still open should any members of the Committee wish to apply. The appointment is made by the Queen, on the recommendation of the Prime Minister and the Chancellor. Interviews will be conducted in mid-March by a panel chaired by Sir Nicholas Macpherson, together with the second permanent secretary, the chair of the court and one of the other deputy governors. It is expected that the new chief executive will take up the position as soon as possible, but by 1 July 2016 at the latest. You see, Mr Brady, we have all the breaking news after 2 pm in this Committee.
There is another argument that is not in my speaking notes, but which I strongly believe is the case. Let us hypothesise that whoever is appointed through that process then goes through the pre-commencement hearing with the Treasury Committee that we have agreed, and that Committee produces a report that is extremely unfavourable to the person nominated by the Government. I think we can all see that, from a practical point of view, that would be as powerful as having a pre-appointment hearing.
Let us look back at the recent examples of Andrew Bailey’s move to the FCA and, for those of us with slightly longer memories, the appointment in the previous Parliament of Mark Carney as the new Governor of the Bank of England. The Chancellor invested a lot of personal time in those appointment processes, persuading individuals to come across. Imagine if he had had to say, “It is not actually in my power to offer you these jobs; it is in the power of the Treasury Committee.” Would we have seen candidates of such quality prepared to put their names forward? I submit that we would not.
I therefore think that the Government have made the right judgment in agreeing to a pre-commencement hearing. I hope that I have explained to the Committee why I do not believe it would be appropriate to accept the new clause, and I hope that the hon. Member for East Lothian will withdraw it, or that the Committee will vote it down.
John Mann (Bassetlaw) (Lab)
Dear, oh dear. Democracy only goes so far. The United States, with all its systems, must be appointing terrible people, seeing as elected politicians there have a whole range of conferments or otherwise, from the top of the judiciary downwards. Not to give an august body such as the Treasury Committee, which is elected on a cross-party basis by Parliament, the ability to reject an unsuitable applicant demonstrates the fundamental weakness of the last few Chancellors and of the current one, in the style of his predecessor but one—Mr Brown was an example, and Mr Osborne closely mirrors him in every way. Chancellors perceive that they have all the wisdom, yet they are not confident enough to trust a cross-party Committee that would rarely even contemplate criticising, never mind vetoing.
Having sat on that Committee at four different times with a range of Members—indeed, I seem to recall that you, Mr Brady, were one of its leading members when I was first on it—I know that there has never been an instance when it has misused its powers on a partisan basis. Of course, there may be exchanges, particularly with Chancellors and Ministers, where one senses and smells more of a partisan element. However, there has never once been an inkling of that in decision making.
For the Executive to hold in these powers is dangerous for the Executive and for Parliament. The power is simply with a single name; there is no choice or selection process. The proposal from the hon. Members for East Lothian and for Kirkcaldy and Cowdenbeath, which is the same one unanimously put forward by the Treasury Committee in this Parliament, is for the ability to interview and, if necessary, vote against an applicant. That focuses on what the Government want from the post holder and the skills that the post holder will bring. It scopes out precisely how that remit is seen by Parliament. We are the elected representatives. Therefore, in exactly the same way, very successfully, Parliaments past brought in the Select Committee system and further democratised that process through elections to Select Committees. That is popular inside the House and, as time will show, it is increasingly popular outside, as the general public understand how it has strengthened our democracy.
Harriett Baldwin
If I may, I will come back on some of the points made by the hon. Member for Bassetlaw, who seems, I submit, to prefer American democracy to British democracy. I do not know whether this is a preference he has publicly stated, but it certainly seems to be his revealed preference, judging by his comments before lunch on the second Chamber and his comments now. American democracy is very different from ours, it is true, and I am sure that each has different advantages and disadvantages. In America, the judges are elected, for example. That is not something that we have chosen to do in this country. In America, obviously, their second Chamber is directly elected. That is not something that this Parliament has yet chosen to do.
Obviously, the power of the Executive in the British system of democracy is considerably greater when it comes to Budget matters than in America, where for a long time they were unable actually to pass a Budget. In America, where the Senate must confirm presidential nominations for many public appointments, there have been significant delays in filling vacancies. At the end of 2010, for example, 22%—over one fifth—of Senate-confirmed positions remained unfilled or temporarily filled by acting officials. Introducing scope for delay and public disagreement could impede the recruitment of good candidates to these positions. These are Executive posts and, as I said previously, candidates may not wish to reveal their interest to a current employer in advance of being confirmed in the appointment process.
George Kerevan (East Lothian) (SNP)
I remind the Committee that for most of last year the Treasury Committee was in touch with the Chancellor, who was very dilatory in making a fresh appointment to the head of the FCA. Delays can occur even when the Executive are in charge.
Harriett Baldwin
Again, I have to disagree with the hon. Gentleman. There has been a very capable and competent acting chief executive at the FCA throughout this time. I submit that the hon. Member for Bassetlaw would rather that Bassetlaw were in America, from what he has said.
John Mann
The Minister should know her history. The Pilgrim Fathers and the pilgrim contract that created western democracy in the style of the United States originate from Bassetlaw, as does the Great Reform Act of 1832. The writer of the Great Reform Act lived in my house at the time. Bassetlaw and American democracy therefore go together, but we are English. We are part of the United Kingdom. We want our Parliaments to be confident enough to make decisions. If it is not good enough for the Monetary Policy Committee and the OBR, is the Minister really saying that we are not getting people of suitable calibre for those posts?
Harriett Baldwin
The Minister really is saying that. I am saying that these are Executive roles, which the Executive should continue to be able to appoint, obviously with a pre-commencement hearing by the Treasury Committee. I fear that the hon. Member for Bassetlaw’s ancestor’s ticket for this voyage must have got lost, but it was very interesting to hear about the connection with his constituency. Without more ado, I urge the Committee to reject this amendment.
George Kerevan
I normally have a great deal of respect for the Minister’s judgment, but I detected something in her tone which said that even she did not fully agree with her position. On the first point, she argued that statute guarantees the independence of the regulators. If there is anyone is this room, including the Minister, who can put their hand on their heart and truly say that no regulator has ever been leant on by a Minister of any party, then I will accept where the Minister is going. I am a tiny, wee bit cynical that sometimes, despite statute, Ministers of all parties and all jurisdictions tend to lean. We should try to tempt them away from that by giving a parliamentary underpinning to the role and the position of the regulator. That is at the heart of this.
The Minister also cites the problem that might arise from dual accountability to the Executive and to Parliament. If there is conflict, I am always happy for Parliament to triumph over the Executive, but maybe the Minister wants this to be the other way round—indeed, she has said as much. My point is that we already have a degree of dual accountability. The Treasury Committee, standing for Parliament as a whole, questions the regulators on a regular basis to make sure that they are fulfilling their brief. The Committee is not questioning them on policy, but to make sure of their independence. The actual accountability already exists. We are just making it clearer here.
The Minister says that as an alternative there could be a pre-commencement interview. If there is a problem with confusion of lines of responsibility, that is actually a worse way to go than making it clear that the Committee, standing in for Parliament, does have the role of confirming the appointment.
My final point is that this would interfere with the quality of the candidates we might get. I remind the Minister that every single member of this Bill Committee had to stand for election. We put ourselves before the electorate; that is democracy. All we are arguing for is the principle of democratic accountability. If there are candidates for senior Executive positions who are frightened of democracy, they do not deserve the job.
Question put, That the clause be read a Second time.
George Kerevan
I beg to move, That the clause be read a Second time. Forgive me, Mr Brady; I do not normally like the sound of my own voice quite so much as to speak so often, but I will get this over as quickly as I can.
New clause 4 suggests a change in the title of the Bank of England to the Bank of England, Scotland, Wales and Northern Ireland. I know I am at risk of being accused of triviality. In defence, because we are talking about a Bank of England Bill, I thought it was pertinent to bring the matter up. I accept that it is a minor aspect of the legislation.
I am not claiming ownership of the Bank of England for Scotland, even though that institution was first mooted by William Paterson in the 1690s. He suggested the original project to lend His Majesty’s Government the sum of £1.2 million. The geek in me made a quick calculation of what that would be worth today, and it comes out at about £26 billion, so that was quite a serious project for the time. The yield on the original loan was 8%, which was a good deal better than one would get today.
Let me quickly get to the core: why change the name? I appreciate that it is an historic name known around the world and is a great brand. There is a minor irritation in the other parts of the kingdom at the use of the name England. That is no offence to the great people of England—my father is from Liverpool—but it is a minor irritation. But that is the least of it.
I talk of a great global institution, one that has played even more of a global role since the crisis of 2007-08. If it is to play that global role and represent a modern Britain, it needs a name that reflects a modern Britain. That is the issue for me. The intent of the Bill for the Government and the officers of the Bank of England is to modernise. What better opportunity to have a modern name?
I am suggesting a minimum change in legal terms to the Bank of England, Scotland, Wales and Northern Ireland. I suspect that in day-to-day operations it would be comparable to a company saying, “This is the legal name but trading as.” I am sure that for a generation to come it would still be known as the Bank of England, but honour would be settled by the fact that the legal title would be as I suggest. It is the minimum change, and it is put forward as an attempt to gain some common ground.
I know that a number of my colleagues—and not only in the SNP—are considering tabling other amendments with other names on Report. The issue is not going to go away, but I think this solution is doable and still retains the tradition of the Bank of England, which I am sure the Minister will defend.
Richard Burgon
What’s in a name? But we are happy to support the renaming of the Bank of England to the more accurately titled Bank of England, Scotland, Wales and Northern Ireland, purely on a principled basis, given that they all fall under its area of geographical responsibility.
John Mann
Before my hon. Friend sits down, would he like to contemplate that in the unlikely event that Scotland becomes independent and I am an elected Member of this House, I will certainly not be voting to allow Scotland to remain within sterling? Therefore, the likelihood is that Scotland will be required to have the euro as its currency. So if the name were to change and Scotland was using the euro, would the Government of the day not have to change the name back again in order to give some proper accuracy and balance?
Richard Burgon
I thank my hon. Friend for that intervention. It is very helpful. I have to say that I cannot foresee any circumstances in which my hon. Friend would not be re-elected and re-elected as the hon. Member for Bassetlaw—he truly is a man of the people—but I can foresee circumstances where the SNP’s desire might not reach fruition. My hon. Friend raises complicated and important questions and I look forward to the Minister’s response to them.
Harriett Baldwin
Members on the Opposition Benches have highlighted in a nutshell the essence of this debate and made some of the points I was going to make. The Bank of England as an entity predates the United Kingdom itself: it was founded in 1694, before the Union, and in the intervening 322 years it has built a globally prestigious brand, if I dare call it a brand. It is well known around the world and has a worldwide reputation as a strong and independent central bank, although independence obviously came quite a bit later. The hon. Gentleman’s amendment would not change this and it is not something we should dismiss lightly, but I think that people would still carry on referring to it as the Bank of England.
The Bank exists to serve the entire population of the United Kingdom. Its mission statement is:
“to promote the good of the people of the United Kingdom by maintaining monetary and financial stability”,
but I can understand from his political allegiance why the hon. Gentleman did not propose in his amendment that it be renamed the Bank of the United Kingdom, because his party’s aspiration is that we become a disunited kingdom, although we all sincerely hope that that never comes to pass.
I remember that in the referendum campaign there was some talk, not only of whether the euro would become the currency of Scotland, but of the groat becoming the currency of Scotland. I think that not answering that question was one of the real problems that the nationalists encountered in the 2014 referendum. It is worth reminding the Committee that the Bank has a clear framework for ensuring it understands the economic picture across England, Scotland, Northern Ireland and Wales, through 12 agencies located in the regions and countries of the UK. Naturally, Scotland, Northern Ireland and Wales all have their own individual Bank agencies, as do the regions of England, and the agents in these branches and across the rest of the country meet with some 9,000 contacts a year from a range of sectors, which provides a wealth of economic and financial intelligence to the Bank’s policy committees.
That vital source of information helps the Bank’s policy committees to understand both the financial and non-financial conditions for businesses in all four parts of the United Kingdom, whether it is a business’s ability to access credit, the condition of the housing market or the level of output. The Bank actively seeks to understand economic and financial conditions in all corners of the United Kingdom in order to set appropriate monetary policy in the United Kingdom.
It is not only the Bank’s agents who are the external face of the Bank. Members of the MPC, the FPC and the PRA board regularly make speeches and meet with businesses across the United Kingdom. In fact, in 2014-15, members of those three organisations conducted 54 visits in different parts of the UK. Engagement in the different countries and regions of the UK is clearly important at the highest levels of the Bank.
The Bank of England is known as the central bank of the United Kingdom. The hon. Gentleman’s new clause would make no practical difference on the ground. He himself referred to the name being a “minor irritation”. Changing a name steeped in more than 300 years of history, particularly to the name that he suggests, would be to the detriment of the institution. It has become internationally renowned and respected with that name, and the value of that recognition should not be underestimated. International confidence in the Bank of England helps to support international confidence in our economy. Changing the Bank’s name would undermine that international recognition of it as a world-class central bank, and I therefore gently urge the hon. Gentleman to withdraw his new clause.
George Kerevan
Any change to the Bank’s name would not affect coins because the Bank’s name does not appear on coinage, as far as I remember. It does, however, appear on notes. If there was ever an agreement to change the name of the Bank of England, that would have a knock-on effect on notes, but a sensible solution would be simply to let the notes wear out, as they do quickly, and then change them. I am certainly not proposing any name change that would have a major cost; I would not want that.
Members on both sides of the Committee raised the issue of what would happen if Scotland were to become independent. If I gather correctly the drift of the contributions, Members are worried that if Scotland becomes independent post Brexit, the name would have to be changed back. I am glad that Members are still alive to the fact that the independence issue is alive and well north of the border. I will not tempt the Chair’s patience by going too far into that; we will cross that road when we come to it, but I am glad Members are aware that the issue has not gone away.
The Minister’s final suggestion was that if there were to be a name change, it would be better to change it to something such as the Bank of the United Kingdom, and that I am being in some way devious by proposing this longer name. There was discussion about what the new name would be. I have tried to alert Members that that debate is going on in other parties within the House. I have heard suggestions such as the Sterling Central Bank. It seems to me that the longer form I propose is the least change and is therefore most able to encompass the Minister’s last point—we want to retain some of the tradition of the Bank, which was founded initially by a Scots person.
This is a live issue. The name will be changed at some point. Once a debate such as this emerges, it can only go in one direction. It would be better to choose a name that we can all agree on in the here and now. If the Minister rejects that on the basis of some grand tradition of the Bank of England, that undermines the essence of the Bill, which is to modernise the Bank and make it one that works for the whole of the nation as it is presently constituted. She and her Government are hiding behind the notion of modernity but they actually want to maintain a Bank which is run by the Executive, and which is not anywhere near as efficient as she thinks it is in terms of managing the prudential aspects of the economy.
Question put, That the clause be read a Second time.
Richard Burgon
I beg to move, That the clause be read a Second time. This is a simple new clause to change the terminology and move the Bank into the modern world. We have heard the Minister talk in this Committee about the importance of modernising the institution, and we have also heard eloquent discussions of the need to modernise from both the hon. Member for East Lothian and my hon. Friend the Member for Bassetlaw. The clause is a very simple way of showing that we are serious about this.
The Bank and the court of directors were established, as the Minister reminded us, in 1694. A lot of things have changed since then. The Bank is the second-oldest central bank in the world, after the Swedish Riksbank, and it is the eighth oldest bank. The Bank’s own website states that,
“the few public companies formed at the time of the Bank’s foundation, in 1694, tended to be governed by Courts of Directors”.
The phrase “courts of directors” is not used in relation to companies these days. It is worth asking whether the term “court of directors” survived into the modern day in other institutions, and whether this matters at all. Of course, this term did not survive into the modern day in other institutions, unless the Minister can tell me that I am wrong in that regard. If this does matter, should we continue to call what is currently termed the court of the Bank of England by that name? The Treasury Committee report of October 2011, “Accountability of the Bank of England”, stated:
“The Court is the governing body of the Bank of England. In this respect, it is the board of the Bank”.
The report also said:
“Given that the Court has changed recently, its name is outdated and does not give a clear picture of what the Court actually does. In terms of corporate governance the Court is the Board of the Bank and its name should change to reflect that. To reflect the shift of emphasis in its role, we recommend that the governing body of the Bank (Court) change its name to the ‘Supervisory Board of the Bank of England’. References below to the Board of the Bank of England in this report use this term. Whatever name is ultimately chosen, we strongly recommend that the term ‘Court’ is abolished”.
Those are the words of the Treasury Committee report in October 2011. I know that the court of the Bank, in replying to this report, did not express any opposition to this modest proposal to rename it. The court’s response read:
“Whether or not to rename Court is a matter for Government. We simply note that Court itself is divided on the balance of the arguments”.
In considering the cases for and against the renaming of the court of the Bank of England, the court stated:
“On the one hand, renaming would recognise the considerable changes in Court’s actual and prospective responsibilities in the past decade. On the other hand, it could give rise to serious misunderstandings, since amongst central banks ‘Board’ is often used to refer to an executive and/or policy making committee, as exemplified by the Federal Reserve Board and the Executive Board of the European Central Bank”.
We believe that such concerns can be overcome. The board—or the supervisory board, as the Treasury Committee would prefer to call it—would not be changing its responsibilities with this name change. Such a change, however, would be one small statement to help connect it to modern practice in terminology in major financial institutions. It would also cut through some of the mystery of the workings of the Bank and help make it more accessible to everyday people.
Harriett Baldwin
What is in a word? The hon. Gentleman has set out the case for changing the name of the court. I do not know about you, Mr Brady, but I rather like some of our old traditions in this country.
The court has existed since the Bank’s inception in 1694. The composition and structure have obviously changed over its long history. Initially, there were 26 individuals on the court, while today it is much smaller, with the executives and non-executives, and is much more characteristic of a modern, unitary board. The term supervisory board, used by the hon. Gentleman, is more redolent of the German approach to corporate governance than the British one. I am sure he will provide me with examples. It is not the Americans this time, but the Germans.
For me, there is charm in the term “court”, which is rooted in this long history. It has no particular mystery about it; it merely refers to the Bank’s governing body, which does indeed operate like a modern board. I do not feel we should argue over semantics. We should look at how the court functions. As the Committee has already heard, the court is now far smaller and far more effective than it was historically. There is a clear division between the role of the chief executive and the non-executive chair. The court is comprised of a majority of independent non-executive directors, and there are formal, transparent appointment procedures for executive and non-executive directors alike.
The changes in the Bill, which we have discussed at such great length, will further enhance the role of the court, making it a stronger decision-making body. In particular, to remind the Committee, we are making the oversight functions the responsibility of the whole court, ensuring that every member of the court—executive and non-executive—can be held to account for the use of these functions.
This brings the court into line with the recommendations in the Treasury Committee report. My view and that of the Government on the amendment is clear. Changing the name of the court would make absolutely no difference to how it operates in practice. It is the provisions in the Bill that will do that. I oppose the suggestion to change the name from the rather quaint and old-fashioned term of “court”, which has for me some charm.
Richard Burgon
That was indeed a charming oration from the Minister about how things were done in the past and continue to be done to this day. As much as I like many aspects of the history of this country, I am not persuaded that we should not press the matter to a vote. In the name of modernity, I seek to divide the Committee on this issue.
Question put, That the clause be read a Second time.
Harriett Baldwin
Mr Brady, as we come to the final question of our proceedings, I put on record the Committee’s gratitude to you and Mr Wilson for having chaired our sittings so effectively. I also thank the Clerks and the Hansard reporters. For their incredibly diligent work behind the scenes—so often it is unsung—I also thank the Treasury officials, the Treasury legal team and, in this case, the Bank of England’s legal team. I put those thanks and that gratitude on the record. I also thank all members of the Committee for the care and attention that they have given to the line-by-line scrutiny of the Bill.
Richard Burgon
I echo the sentiments expressed by the Minister. I thank you, Mr Brady, and Mr Wilson, the co-Chair of the Committee, for your chairmanship. I thank the Clerks and the staff. I thank the Minister for her patience and courtesy and for the detailed responses she has given throughout our proceedings. I also thank my hon. Friends and all members of the Committee. We have no objection to the Bill being reported to the House.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Enterprise Bill [ Lords ] (Fifth sitting)
(8 years, 2 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Chair
Good morning, everyone. I hope that colleagues had a good half term.
Clauses 22 to 24 ordered to stand part of the Bill.
Clause 25
Disclosure of HMRC information in connection with non-domestic rating
Kevin Brennan (Cardiff West) (Lab)
I beg to move amendment 95, in clause 25, page 41, line 21, leave out from “to” to end of the subsection and insert—
“(a) a qualifying person for a qualifying purpose;
(b) a ratepayer for a hereditament.”
(1A) Information disclosed under subsection (1)(b) may—
(a) be disclosed for the purpose of providing the ratepayer with all information used to assist determination of the valuation of any hereditament for which the ratepayer is responsible for the non-domestic rating liability, and may be retained and used for that purpose, and
(b) include information relating to hereditaments not owned by that ratepayer.”
The Chair
With this it will be convenient to discuss the following:
Amendment 100, in clause 25, page 41, line 22, at end insert—
“( ) Regulations shall make provision for the disclosure of information as to the basis of valuation for a hereditament or class of hereditaments sufficient for an estimate to be made of the prospective non-domestic rates yield in connection with a Business Improvement District Scheme.”
Amendment 96, in clause 25, page 41, line 33, at end insert—
‘( ) an interested person for the purposes of an appeal against an assessment in the rating list;”
Amendment 97, in clause 25, page 42, line 1, at end insert—
“including purposes connected with an appeal against an assessment in the rating list”
Amendment 98, in clause 25, page 42, line 10, at end insert—
““interested person” shall have the same meaning as for the appeal regulations relating to appeals to the Valuation Tribunal for England in force from time to time.”
Kevin Brennan
Excitement mounts as we enter the third day of our proceedings and turn to part 6 of the Bill and amendments to clause 25. The common theme of the amendments is exploring the reform of the unwieldy nature of business rates and business rate appeals. How, without compromising fair access to justice, do we discourage appeals that have no chance of getting through and that may clog up the system? I will briefly go through the amendments in this group and I will make some more general points in the clause stand part debate.
The amendments are concerned with the information held by the valuation office and whether that information should be made available to parties that have a genuine interest, namely those whose property is being rated; hence amendments 95, 96, 97 and 98. The amendments would allow ratepayers to seek professional advice, armed with all the relevant facts and figures held by the valuation office. The Government have held a consultation, which started in late October, on the issue of information exchange between ratepayers and the valuation office. Will the Minister enlighten the Committee on the results of that consultation in relation to the group of amendments under discussion?
Amendment 100 covers the access to valuation office information for the billing authority on issues to do with business improvement districts. The local authority needs the information to judge the likely rate yield for a business improvement district in its authority area. In the Lords, Baroness Neville-Rolfe said that she was not aware of any rating issues involving business improvement districts or of any concerns about a lack of information. However, if that information is not commercially sensitive, why not make access to the information available anyway? That would allow a ballpark figure for a potential business improvement district bid to be known up front and could promote the take-up of future bids. I would be grateful for the Minister’s response on that.
We understand that the valuation office has a duty to respect commercial confidentiality and to protect the privacy of businesses that have supplied information in good faith. Although we understand the need to respect commercial confidentiality, there must be compromise when limited access to key information held by the valuation office is made available to ratepayers and billing authorities to allow them to fulfil their duties as businesses and public sector organisations. I am interested to hear the Minister’s response.
The Minister for Small Business, Industry and Enterprise (Anna Soubry)
I will deal with amendments 95 to 98, if I may. The Valuation Office Agency collects and holds commercially sensitive data from ratepayers, which it has a legal duty to protect. We understand the need for transparency to enable informed and well-founded rates appeals, but our recent consultation on rates appeals reform under the Bill proposed a check, challenge and appeal system that ensures that ratepayers will get more and better information earlier in the appeals process, while protecting sensitive information from excessive disclosure.
The amendments propose far greater disclosure of information and offer no protection to the ratepayer who provides that sensitive information, which is key to a successful valuation process. Although I understand why the amendments have been tabled, I firmly state that they are disproportionate and do not strike the correct balance between openness and the duty and need to protect privacy.
On amendment 100, I have some experience of BIDs. I do not know whether other Members have experience of them in their constituencies, but I had a BID in mine that did not work out. At the completion of the five-year tenure, the businesses—it should always be the businesses—voted not to have a BID anymore and, properly, have gone down a different route. I know that BIDs can be hugely successful; I have been told by my right hon. Friend the Member for Loughborough (Nicky Morgan) that the BID in her constituency works extremely well. Some are good and some are bad.
The proposals in amendment 100 are not needed and I am not aware of any evidence of anyone having said that they are a good idea. The amendment would require the information underlying valuations to be disclosed to the BID, and I do not think that that is based on any practical need. As we know, BIDs set their levies and collect from businesses based on rateable value information from the local authority that in effect operates the BID and collects the levies. We are not aware that the BIDs want any more information on valuation lists than they already have as they go about their business of setting levies.
The review is primarily within the domain of the Treasury, and I am sure we all look forward, the consultation having concluded, to the Chancellor making any such announcements on reviews as he sees fit and proper in his Budget speech. My views are widely known: I very much hope that someone’s rates will no longer go up if they do the right thing and invest in new plant and machinery. That seems perverse, and those of us in the Department for Business, Innovation and Skills continue to make representations to the Chancellor. As Members would expect from our exceedingly good Chancellor of the Exchequer, he is always willing to listen. I am also confident, based on his outstanding track record, that he will, as ever, be on the side of business, as we on the Government Benches always are.
Kevin Brennan
I thank the Minister for her response. I advise her not to have that extra Weetabix before our Committee in future; she needs to pace herself a bit before she reaches her red meat perorations in Committee.
I obviously agree with the Minister’s point about plant and machinery. She knows that Her Majesty’s Opposition completely agree with that idea, which could be of particular benefit to our steel industry; as we all know, it badly needs that kind of support. I hope we will have opportunities in the near future to press the issue further in Parliament and to discuss our steel industry, its future and the need for the Government to do more to support it. The Minister is very persuasive and influential, so I am totally confident that the Chancellor will announce those exemptions for plant and machinery in the Budget.
The Minister has just said that she is very strongly lobbying the Chancellor—whom she described as “listening”—for this exemption, which she sees as absolutely necessary to business, particularly to industries such as the steel industry. I will put my faith in the Minister as far as that is concerned, and I will not press these amendments to a vote today. I note that the Minister has said on the record how strongly she is lobbying for this exemption on plant and machinery, and I offer her my support on that. I am confident that there will be a result from the Government because it is simply common sense to do what the Minister said.
I take on board the Minister’s point about BIDs. That was a probing amendment, and it was useful to hear her views on the variable forms of BIDs and the fact that they can work in some cases, but do not work so well in others. It is worth the Government having on their radar the fact that these sorts of issues around rating could be quite important for BIDs. I note what the Minister said about the broader issues of the consultation, not only the issue of plant and machinery. We can expect to hear from the Chancellor in his Budget statement as to the outcome of that consultation, which Baroness Neville-Rolfe mentioned in the other place. We will obviously be listening very carefully to what the Chancellor has to say when the time comes. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
Clause 25 is about the disclosure of information by HMRC in relation to non-domestic rates. It is fairly generally agreed that the business rates system is broken, and probably has been for some time. It needs significant reform. There are an estimated 300,000 appeals in the system, and back in 2013 the Chancellor promised to deal with that backlog.
Businesses need a much better understanding of how their rates are calculated and to be able to be confident that they are paying the correct amount of tax, so that appeals are much less common than they are currently. There is probably broad agreement on that across the House. If businesses had more access to the information, they would be less likely to appeal. It would save time, effort and money all around. A more efficient, fairer and reformed business rates system would enhance the enterprise environment, which is, after all, the purpose of the Bill.
The actual workings and calculation of how the valuation office arrives at its conclusions are not generally available to businesses. The Department for Communities and Local Government and the valuation office have maintained that the information is commercially confidential, and businesses’ concerns about the process are very well known. Without access to valuation office information, ratepayers cannot have the confidence that their bill is absolutely correct.
A three-stage process is currently in place, which is overly long. It can take nearly three years before even the first two stages of the process are concluded. That sort of delay harms businesses’ cash flow. Under this system, the onus is on the business to prove, with evidence, that the bill is wrong, but they have very limited access to that information. There is no obligation on the valuation office to prove that the information is correct. In other words, in this system the valuation office is both judge and jury in appeal cases, and the appellant has no right to see the evidence used to assess their case.
Valuation tribunal hearings for England will now no longer be free. That represents an additional burden on businesses. Tribunals will listen only to original evidence submitted at the time of the appeal. By the time everything is determined, that evidence could be nearly three years old, as I said earlier. If any new evidence comes to light in the intervening three years, it will be deemed inadmissible. That applies both to the valuation office and to the appellant. It is also proposed that there will no longer be a right of appeal to the upper tribunal on matters other than points of law.
In this system, the valuation office has the monopoly on knowledge and power in terms of business rates and business rates appeals. Those concerns were all raised in the other place when the Bill was discussed there. Another concern was that the proposed challenges to the business rates appeal system will shift the burden of proof even further from the valuation office, which has access to all the relevant information, to the ratepayer, who has no access to it. Will the Minister accept that as a fair assessment of the changes being made?
Checking assessed values will likely become more costly and time-consuming for business. The burden will fall especially on SMEs, which will become increasingly susceptible to the activities of unscrupulous rating advisers. Is it acceptable for the state to impose a significant tax on businesses without any obligation to justify the derivation of that tax liability? I cannot think of any other tax that can be levied where the taxpayer does not understand in detail the basis on which the tax man or woman has calculated the tax due.
The valuation office is currently willing to share rental evidence as part of the procedures leading to a valuation tribunal hearing. Is there any reason why, in principle, that sharing could not be undertaken during the initial check stages? Surely that would make much more sense. The current system forces businesses to overcome many hurdles before they can access that limited information. How do the Government respond to the concerns raised by businesses that they are being given extra burdens rather than relieved of them?
Anna Soubry
I will speak directly to clause 25 and the reasons why I urge everyone to vote for it to stand part of the Bill. Clause 25 removes a major barrier to the efficient system that we all want. The Valuation Office Agency collects information about taxpayers and their properties. That may include plans of a property, details of property use and occupiers’ names. By virtue of the Commissioners for Revenue and Customs Act 2005, the VOA may be prevented from sharing certain information with local authorities, which can result in the same property being inspected by both the local authority and the VOA. Clause 25 reduces the burdens for business while protecting taxpayers’ information by creating a gateway for the exchange of information between the VOA and local authorities.
Clause 25 inserts new sections into the Local Government Finance Act 1988. New section 63A allows the VOA to share information with local government for business rates purposes, and new section 63B ensures that taxpayers’ information is safeguarded, with enforcement penalties for wrongful disclosure of information. New section 63C exempts the information from the Freedom of Information Act 2000, which is consistent with the Commissioners for Revenue and Customs Act 2005. In short, clause 25 will begin to reduce the burden on our businesses, and will make the system better. I am not pretending that it is perfect, but it will certainly make things considerably better.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Alteration of non-domestic rating lists
Amendment made: 10, in clause 26, page 43, line 31, after “English list” insert “or a Welsh list”.—(Anna Soubry.)
This amendment and amendments 11 to 15 extend the amendments made by clause 26 to section 55 of the Local Government and Finance Act 1988, which currently apply to England only, so that the Welsh Ministers have the same power by regulations to make provision in relation to proposals to alter local or central non-domestic rating lists for Wales.
Kevin Brennan
I beg to move amendment 99, in clause 26, page 43, line 41, at end insert—
“( ) provision for valuation officers to provide such information as to the basis of an assessment to alter or enter a rating assessment in the rating list as shall be sufficient for the ratepayer to understand the underlying valuation evidence;”
The Chair
With this it will be convenient to discuss the following:
Amendment 101, in clause 26, page 43, line 45, at end insert—
“(d) provision for a separate procedure for hereditaments with a rateable value below any threshold set out in regulations;
(e) performance standards for the Valuation Office of Her Majesty’s Revenue and Customs and the Valuation Tribunal;
(f) provision for a right to appeal to the Valuation Tribunal if the valuation officer has not given notice of their decision to the person making a proposal for the alteration of the list within 6 months of the proposal being made;
(g) a requirement that the Valuation Tribunal must determine any appeal submitted to it within 12 months of it being made, or within such extended period as may be agreed upon in writing between the appellant and Tribunal.”
Amendment 102, in clause 26, page 44, leave out lines 23 to 25.
Amendment 130, in clause 26, page 44, line 25, at end insert—
“(e) about the parties to be included in the appeal, including billing authorities.”
This amendment would provide for provision to be made in regulations about participation of billing authorities in the appeals process.
New clause 29—Alternative dispute resolution: appeals in relation to non-domestic rating list—
“The Secretary of State may by regulation make provision for a scheme of alternative dispute resolution for the purposes of any appeal against an assessment in the non-domestic rating list.”
New clause 30—Environmental considerations—
“The Secretary of State shall make provision for a scheme of exclusion from any assessment in the 2017 non-domestic rating list or thereafter of an item of plant or machinery required wholly or mainly by virtue of environmental or health and safety legislation and which does not of itself increase the market value or profitability of the hereditament.”
I think that the Opposition were still thinking about whether they wanted to refer to new clause 31 as part of this group.
Kevin Brennan
We will think about new clause 31, although my understanding was that we could not refer to it in this group. In any case, I will refer to the group before us. We are due to discuss new clause 31 on Thursday, and I might make passing reference to it.
Amendment 99 would require valuation officers to provide enough information for businesses to make sense of the underlying reason for their valuation. Amendment 101 is about trying to improve the service of the valuation office by introducing performance standards, appeals where decisions are not timely and time limits on determining appeals, and I would be grateful if the Minister could outline her response to those proposals.
Amendment 102 also deals with appeals. The Bill proposes that a charge be made to a business that puts forward an appeal. This is an enterprise Bill; to add an additional expense to businesses to access a review or appeal at this point in the economic cycle does not seem to be the most enterprising of proposals. As the Minister knows, the international and national markets are volatile at the moment and we are not yet out of the economic danger zone. Placing additional cost on businesses is a threat to recovery and to existing businesses and new start-ups. Why are the Government placing an additional cost burden on business in what they deem to be an enterprise Bill? Amendment 130 includes the billing authority in the appeals process, which seems to be a sensible suggestion.
New clause 29 makes provision for an alternative dispute resolution procedure to cover the work of the valuation office. Does the Minister agree that this is a reasonable proposal? Has any progress been made on the issue since it was raised in the other place, where there was some discussion about an alternative dispute resolution procedure? If the Government are still arguing that existing powers already provide for matters to be refereed for arbitration and that the addition of more processes would complicate and slow down the system, will the Minister agree to a review involving key stakeholders a year or two after implementation, with a view towards full ombudsman status if there are still problems around dispute resolution?
New clause 30 is about plant and machinery that, in this instance, is required for health and safety or environmental reasons. In the Lords Baroness Neville-Rolfe said that the Government were conducting a review of business rates, as we discussed earlier, including the rating of plant and machinery and the roles of reliefs and exemptions. She said that the business rates review was to report by the end of last year. With reference to what we said earlier, will the Minister confirm that the review has concluded and is on the Chancellor’s desk? Will she also tell the Committee whether the review will cover our proposal in the new clause, namely plant and machinery specifically required for health and safety or environmental reasons?
Anna Soubry
I do not know whether the hon. Gentleman will press the amendment to a vote. Although he is right that there is nothing wrong in tabling amendments in order to probe and see whether there areas where we agree, there is a real danger that these amendments would undermine the new appeals process by removing features: for example, the power to charge a fee for appeals, the flexibility for timescales to be determined as the new system beds in and the ability to respond quickly to address performance issues.
I am helpfully assisted, as ever, by my hon. Friend the Member for Great Yarmouth, who is also the Minister in the Department for Communities and Local Government, who makes a clear point about why we are so firm in our desire to make these reforms in relation to charging. It is to ensure that people are dissuaded from making spurious claims and that the whole appeal system concentrates on genuine appeals that must be heard. Unfortunately, there is evidence that the system is effectively being somewhat abused. It is also terribly important to add that we have consulted on proposals and discussed them with business groups, and that we continue to take a collaborative approach as we draw up the draft regulations, on which we will consult.
Kevin Brennan
I think that we all accept that we must reduce the number of appeals within the system, but is it not the case—this was the point behind some of our previous amendments—that the current system almost compels people to appeal due to the lack of information available to businesses? In charging fees before reforming that aspect of the system, the Government might be accused of putting the cart before the horse.
Anna Soubry
The danger, as the evidence suggests, is that businesses will just give it a punt. They will be encouraged by people out there saying, “We can reduce your bills if you let us appeal,” and will think, “I’ve got nothing to lose by doing this, so I’ll have a go.” That is one reason why the system at the moment is indisputably clogged up. I can understand why businesses will say that, but it is not the right way to approach any appeal, in whatever field.
Our other concern about amendment 101 is that it will interfere wrongly with the independence of the judicial body. The amendments will introduce unnecessary and unwanted complications through an alternative dispute resolution mechanism, greater involvement of billing authorities and inappropriate sharing of sensitive ratepayer information, and will pre-empt the outcome of the business rates review by addressing unrelated issues in appeals.
In summary, we have struck the right balance. We are making the necessary reforms, and part of that is ensuring that the appeals that go forward have some substance. The changes will help address that. For those reasons, I oppose the amendments.
Kevin Brennan
I thank the Minister for her response. She is right that we are probing the Government’s thinking in our amendments. Not only is that appropriate, it is our duty as Her Majesty’s loyal Opposition. It is our duty to probe forensically and in detail, and to press her and the Government if necessary, because that is how we make better law.
The Minister rather dismissed amendment 101. I remind her that the amendment simply says that the valuation office should perform according to performance standards, which I had thought would receive a better response from her. She might have said that there is a better way to achieve performance standards, rather than simply dismissing the idea. Our amendment would hold the valuation office—a public body that determines people’s taxation—to better standards for the time that it takes to respond to appeals. It would set a time limit that is not inflexible and that could be varied if there were reasonable grounds for doing so, yet she chose not to respond to the reasonable points made in our amendment.
The Minister almost suggested that the amendment simply seeks to add bureaucratic burdens to the system. It does not. It seeks to bring fairness into the system, rebalancing it away from faceless bureaucrats determining people’s taxation on the grounds of information that businesses know nothing about and back towards businesses, which are not simply composed of feckless individuals who appeal against their taxation on a whimsical basis but are struggling to get by and face significant tax bills, with no idea how they have been determined. To dismiss it, as the Minister for Housing and Planning did in reported speech via the Minister, as simply being a process by which they have a punt is very unfair to many of those businesses, which are trying to understand whether the tax determination that they face is based on real evidence—evidence to which they have no access.
The Minister for Housing and Planning (Brandon Lewis)
I appreciate the hon. Gentleman’s generosity in giving way. Does he accept that the point we are making is that currently the vast majority of appeals make no change? That highlights the fact that there are businesses out there—having been in business myself, I remember experiencing this—that specialise in going round small businesses, saying, “For no-win, no-fee, we will put in a claim.” Those spurious claims are therefore being put in, and that prevents genuine businesses putting forward genuine claims and getting heard in a quick and efficient manner. The Bill is trying to deal with that by changing the system. I hope that the hon. Gentleman accepts that we are looking to help businesses that have a genuine claim.
Kevin Brennan
I absolutely accept that point and the spirit in which the Minister made his intervention. My point is that that is simply one part of the imbalance in the system. The other part is the lack of information available to businesses on how their business rates are determined. That is a real issue, and we should not just dismiss it simply as inappropriate in terms of commercial confidentiality. Many business organisations believe that more information could be made available to them on how their tax is determined. That would also act as an incentive for spurious appeals not to be made.
All we are arguing with our amendments is for that balance to be in place. I remind the Ministers and all colleagues that amendment 101 would introduce performance standards for the valuation office. We want appeals to be timely and some limit to be set on the amount of time that the valuation office can take on determining those appeals, with some flexibility where it is not possible to meet that time limit for very good reasons. I reiterate that the response to the amendment did not adequately deal with those perfectly reasonable proposals. The Government have not offered another way, other than to impose a fee, of improving the service to businesses provided by the valuation office. I cannot see how our proposals are unreasonable.
As I said at the outset, and being a reasonable person, I will not press the amendment to a vote, because I am all for our trying to work through the issues together, but it is important to put on record that there is a real concern in this area, and it is important that the Government are not seen to be complacent about it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 11, in clause 26, page 44, line 5, leave out “Consolidated Fund” and insert “appropriate fund”.
This amendment and amendment 14 ensure that, where regulations under section 55 of the Local Government and Finance Act 1988 provide for valuation officers to impose financial penalties regarding the provision of false information in relation to a proposal to alter a Welsh list, the regulations must require the sums received to be paid into the Welsh Consolidated Fund.
Amendment 12, in clause 26, page 44, line 14, after “English list” and insert “or a Welsh list”.
See the explanatory statement for amendment 10.
Amendment 13, in clause 26, page 44, line 24, leave out “Consolidated Fund” and insert “appropriate fund”.
This amendment and amendment 14 enable regulations under section 55 of the Local Government and Finance Act 1988 to make provision about the payment of fees into the Welsh Consolidated Fund where the fees are paid by ratepayers in relation to appeals relating to proposals to alter a Welsh list.
Amendment 14, in clause 26, page 44, line 27, at end insert—
“( ) After subsection (7A) insert—
(7B) For the purposes of subsections (4B)(b) and (5A)(d) “the appropriate fund” means—
(a) where the provision made by virtue of subsection (4A)(c) or (5) is in relation to a proposal to alter an English list, the Consolidated Fund, and
(b) where the provision made by virtue of subsection (4A)(c) or (5) is in relation to a proposal to alter a Welsh list, the Welsh Consolidated Fund.””
See the explanatory statement for amendments 11 and 13.
Amendment 15, in clause 26, page 44, line 39, at end insert—
““Welsh list” means—
(a) a local non-domestic rating list that has to be compiled for a billing authority in Wales, or
(b) the central non-domestic rating list that has to be compiled for Wales.””
See the explanatory statement for amendment 10.
Amendment 16, in clause 26, page 44, line 47, leave out from “unless” to end of line 48 and insert “—
(a) where those regulations relate to a proposal to alter an English list, a draft of the instrument has been laid before and approved by a resolution of each House of Parliament;
(b) where those regulations relate to a proposal to alter a Welsh list, a draft of the instrument has been laid before and approved by a resolution of the National Assembly for Wales.”
This amendment and amendments 17 and 18 provide for regulations made by the Welsh Ministers under section 55 of the Local Government and Finance Act 1988 as amended by amendments 10 to 15 to be subject to procedure before the National Assembly for Wales equivalent to the procedure before Parliament which is required for corresponding regulations made by the Secretary of State under that section.
Amendment 17, in clause 26, page 45, line 2, leave out from “is” to end of line 3 and insert “—
(a) in the case of regulations relating to England, subject to annulment in pursuance of a resolution of either House of Parliament;
(b) in the case of regulations relating to Wales, subject to annulment in pursuance of a resolution of the National Assembly for Wales.”
See the explanatory statement for amendment 16.
Amendment 18, in clause 26, page 45, line 3, at end insert—
“(3G) In subsection (3E), “English list” and “Welsh list” have the same meaning as in section 55.”—(Anna Soubry.)
See the explanatory statement for amendment 16.
Clause 26, as amended, ordered to stand part of the Bill.
Clause 27
Allowable assistance under Industrial Development Act 1982
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
We may well return to some matters relating to clause 27 if and when we get to new clauses later in our proceedings. We are making good progress this morning, so, who knows, we may well get there on Thursday. In the meantime, will the Minister outline, on the record and for the benefit of the Committee, why the Government believe that clause 27 is necessary?
Anna Soubry
The Industrial Development Act 1982 is 30 years old, and the Government are updating it to reflect economic developments. The clause amends the threshold before which a parliamentary resolution is needed to authorise financial support under section 8 of the 1982 Act. It increases the threshold from £10 million to £30 million, which is a reflection of inflation. A resolution of the House of Commons would still be required for projects over £30 million. It is a technical change, which will result in more efficient procedures to fund section 8 projects worth under £30 million. This would have removed the need for a resolution, for example, in 2013, when support for the start-up loan scheme was increased from £10 million to £15.5 million. I am not saying that that is a small amount of money—of course it is not—but it is in Government terms. It is simply a reflection of the fact that the provision of £10 million was made all those years ago and here we are in this day and age, when inflation has taken that threshold to £30 million. We say that this is a reasonable thing to do and does not take away power from Parliament that it already has.
Kevin Brennan
I thank the Minister for that explanation. It makes sense to update the limit after such a lengthy period and on that basis we do not intend to divide the Committee on clause stand part.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
Grants etc towards electronic communications services and networks
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
I should say from the outset that we also support this clause, but we would like clarification on how, and how often, the Minister expects these powers to be used. I would like to discuss that before we give the clause a fair sending-off. Ensuring adequate infrastructure provision is obviously a very important role of Government. To be slightly controversial—though it is not controversial with Opposition Members—this Government and its coalition predecessors do not have a good record when it comes to infrastructure in general and digital or communications infrastructure in particular. As this week’s leader in The Economist makes clear, investment in infrastructure is vital to stimulate the long-term health of the economy.
It might look as though this clause represents a “get out of jail free” card for Ministers as regards communications infrastructure. This week a businessman in the north-east told the North East chamber of commerce that he can see his house, with its 50 megabit connection, from his office window; but he has to go home to send important work emails because the business park he works in does not have decent enough broadband.
Ministers have handed hundreds of millions of pounds to BT to roll out what a well-functioning market would potentially have delivered anyway, leaving harder-to-reach communities behind. The result is that we have a superfast broadband roll-out programme that is fragmented and monopolistic and that will be bad for consumer choice, bad for the taxpayer, bad for competition and bad for investment. The Government seem to have realised this and triggered their own Back Benchers, in a classic move, to clamour for the break-up of BT after the Government handed it the monopoly in their bungled procurement programme. Will the Minister assure the Committee that they have learnt lessons from these mistakes about broadband? Are the powers contained in the clause just for Ministers to cover over their own record on broadband roll-out, or will they fit into some kind of strategy and long-term vision for communications infrastructure? Broadband Delivery UK and Ofcom have no plans for broadband roll-out to business parks, meaning that many are being left behind as the Government’s superslow broadband roll-out creeps out to residential areas. Will the powers in the clause be used to address what is becoming an increasing problem for firms based in business parks, and what else are the Government planning to do to sort that out?
We have also tabled new clauses that might be debated on Thursday. I hope that between now and then, Ministers will take a good look at them. If they are serious about tackling the issue, I hope that they will support the clauses when we come to discuss them.
Anna Soubry
If I may, I will speak specifically to the clause. If we were to stray into discussion of the successes—there have been many—of the Government’s programme to roll out superfast broadband and generally improve access for individuals at home and businesses in a digital age, we could be here for the rest of the morning. We do not mind debating such things, but this is neither the time nor the place to do so; a number of hon. Members, particularly on the Government Benches, might want to make all sorts of contributions to that debate based on their experience and that of their constituents.
We know that there are concerns and that much more needs to be done and will be done. Clause 28 is essentially one of the pieces of the jigsaw. The Industrial Development Act 1982, to which I have referred, is now more than 30 years old, and some parts need updating.
Bill Esterson (Sefton Central) (Lab)
The Minister wants to keep us on the clause, but it is actually very wide-ranging. On line 22, proposed new section 13A, “Improvement of electronic communications networks and services etc”, says:
“This section applies if it appears to the Secretary of State that adequate provision has not been made for an area in respect of electronic communications facilities.”
My hon. Friend the Member for Cardiff West gave an example, and I have numerous cases in my constituency, as do the Minister’s hon. Friends. If not now, when we will address some of those concerns? When will the Secretary of State take the powers given to him in the clause to improve broadband, whether for trade in this country or for the important international trade on which we rely to close the trade deficit and improve prosperity overall?
Anna Soubry
Sorry, Sir David; I was enjoying an interesting piece of information from my hon. Friend the Minister for Housing and Planning. He was telling me, by way of giving an example of the progress that this Government are making on addressing the problem—I am waiting for him to give me a nod before I use these words—that a deal has been struck with the Home Builders Federation that from now on, all new homes will include access to broadband. That is excellent news.
I think that some of us had begun to create the argument that there is nothing to prevent local authorities from making it a condition of granting planning permission, especially to new business estates, that proper access should be included to superfast broadband, mobile phones or whatever it may be. Even if they cannot make it a condition of planning permission—we all know how these things work and the sorts of discussion that developers have with local authorities—those things should absolutely be there. There is a growing feeling that in this modern age, digital technology, superfast broadband and what I call full-fat mobile phone technology should be treated as a fourth utility. If we are making some movement towards that—my hon. Friend the Minister for Housing and Planning might be able to update us—it would be a commendable move.
Brandon Lewis
I thought I would join the gang in mirroring the interventions from those on the Opposition Front Bench. I hope that my right hon. Friend will agree that it is good news that we announced a deal a couple of weeks ago between BT Openreach and the Home Builders Federation. Now, all builders putting in a planning application, particularly small and medium-sized builders, will be encouraged to notify BT. There is now a clear and simple system for them to ensure that every new home built can have access to superfast, or indeed infinity, broadband. All the details are available on the Department for Communities and Local Government website. I hope that my right hon. Friend will agree that it is a big step forward for people across the country who, as she rightly says, now see broadband as one of the most important utilities.
Anna Soubry
That is excellent news. I am sure that all of us will ensure that it is communicated all the way down to our local authorities.
Kevin Brennan
We are enjoying this subject; I think the Minister made a further policy announcement in saying that in future, the Government intended to make it a requirement of planning applications—
Kevin Brennan
I am sorry; I thought that when Ministers spoke in this place, they spoke on behalf of the Government. Is it the Government’s intention, given what the Minister said earlier, to make broadband part of a planning application? Can she clarify that for the Committee?
Anna Soubry
The hon. Gentleman has a remarkable ability to take what I would have thought was the most innocuous of statements and turn it into some sort of great Government policy announcement. He does not understand localism. He thinks that all power must vest here in Parliament, centrally in Whitehall, but one of the great joys of our Government is that we believe in devolving power down to local authorities. All I was saying was that as far as I know, there is nothing to prevent a local authority from making such a condition, whatever the development might be. That is the joy of localism: planning officers can look at an application and say, “Let’s make it a condition of this planning application that you provide access to superfast broadband.”
What is not to like about that? We do not need the heavy hand of Government for that to happen. Local authorities are to be wildly encouraged to use common sense so that they deliver to householders and businesses the tools that they need in a modern age. That is what I am saying, and I do not think that there is anything contentious about it. I did warn you, Sir David, that if we got into this debate we would be here all day.
Anna Soubry
But we are not going to be stuck on this clause all day. This clause is technical and will enable financial assistance to be granted to improve electronic communication networks and services. The power will not and should not be used to displace investment by industry.
Communications infrastructure investment, as we know, continues to grow. I am happy to put it on the record that I have not enjoyed the best of experiences with BT. I was due to meet BT representatives one day, and on that very day BT decided to disconnect my constituency telephone. You couldn’t make it up.
Anna Soubry
I hope so. It was not because IPSA had failed to pay my bill; it was because my team had, quite reasonably, asked BT to improve the internet connection, which many of us know is not always the finest. For some reason—BT still has not explained why—in the attempt to improve my internet connection, it disconnected all the phones. Even more bizarrely, although it had taken about five seconds to disconnect them, it took about three days to reconnect them.
Anyway, you see how we drift, Sir David. However, my dear friends at BT are investing £3 billion in deploying fibre broadband. Virgin is investing £3 billion to extend its network footprint from 13 million to 17 million homes by 2020. We know that we must do more, but those are the huge advances being made. Investment by non-major operators such as UK Broadband, Gigaclear, CityFibre and Hyperoptic also plays a valuable role.
The clause is effectively a backstop. It gives Government the option to provide targeted support where it is most needed. That is why I hope that all hon. Members will not hesitate to support it.
Kevin Brennan
That was a surprisingly enjoyable exchange. I think that the Minister both overestimates and underestimates her power. She seems to think that when she says something as a Minister of the Crown, it does not have force. She is here, radiant with the lawful power of her office, so she should not underestimate the effect of her words, particularly in this kind of forum, even when she is expressing personal opinion rather than speaking in her role as Minister. Perhaps the Minister also sometimes overestimates her power in trying to decide whether we are venturing too widely on a clause. Of course, you have the authority and power to decide that, Sir David, and you would quickly call us to order if we were doing so.
This has, however, been a useful exchange. On that basis, having put our points on the record and with the possibility of extending this discussion when we get to the new clauses later on, I do not intend to divide the House over clause stand part.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
UK Government Investments Limited
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
The Government spokesperson in the other place said that the clause
“is an administrative measure to enable the Shareholder Executive’s ongoing work to continue after its functions transition to UKGI and ensures that a specific funding power is in place”.—[Official Report, House of Lords, 30 November 2015; Vol. 767, c. 937.]
A number of questions were raised in the Lords, and I want to give the Minister an opportunity to update the Committee on some of those issues. Will she give us some idea about the combined costs of UK Government Investments and whether there are cost savings as a result of merging the two entities under the clause? Will she give us any information about the status of civil servants if they are recruited to the new body? Will they become agency employees or secondees to the new organisation?
Will all the employees in every part of UKGI be subject to the proposed public sector exit payments that come later in the Bill? I assume that the restrictions under those public sector payments may well apply to the new employees of UKGI, but it would be helpful if the Minister confirmed that. Will guaranteed bonuses be offered to the staff? For higher earners in Government, that is the traditional method of incentive and is currently outside the public sector exit payments provision.
If the permanent secretary to the Treasury is on the board of the new body, how will that role be squared with their role as an accounting officer, given that they will have duties to the company under company law? Is there a conflict of interest, and what will the relationship to Ministers be?
On improving the service to customer departments, what are the current identified weaknesses and how will these arrangements help to improve that? How are the Government going to evaluate the new body’s performance in relation to improving the service to its customer departments? What independent body will be charged with evaluating whether it has provided a better service to those customer departments?
I would also be interested to know whether this arrangement has any implications—this is reasonably topical at the moment, given our recent discussions—relating to the requirements of state aid rules and Brussels? Do we need to be aware of any particular interplay here? What would the role of UKGI be in relation to the Department of Energy and Climate Change? That Department is responsible for environmental improvements, so how will it relate to UK Government Investments Limited? Do the Government have any intentions about—or have they given any thought to or had any discussions on—the possible privatisation of the company at some future date? Is that part of the Government’s thinking in setting up the body under the Act? I look forward to the Minister’s response.
Anna Soubry
I may not be able to answer all the questions that the hon. Gentleman has asked, but I assure you, Sir David, that I will write to him with any answers that I am not able to give today.
Clause 29 ensures that UK Government Investments Limited can carry out its important work, which is managing taxpayer stakes in businesses, running corporate and financial asset sales and providing corporate finance advice across government. The creation of UKGI will bring together the Shareholder Executive from the Department for Business, Innovation and Skills and UK Financial Investments Limited from the Treasury into a single company. I pay tribute to all the members of ShEx whom I have met. It has been a pleasure to work with them. I value the advice they have given me; I know I speak for all Ministers who have come into contact with them. I do not know United Kingdom Financial Investments Limited as well, but I know the Shareholder Executive and it has served me extremely well. I just wanted to record that.
This coming together with respect to Government investments—I do not know what one would actually call it, as it would not be a company; it is indeed a body—will provide corporate finance services across Government. The decision to establish it as an arm’s length company will provide it with additional independence and a clear corporate governance structure. Again, it needs to be stressed that ShEx has a level of independence that means that one trusts the advice given.
ShEx operators will transfer out of BIS to UKGI, and ShEx will be rebranded as UKGI. It will continue to offer impartial advice directly to the Secretary of State and to the permanent secretary of the Department. That point is worth mentioning: the advice is given not just to Ministers but to the permanent secretary and civil servants throughout the Department.
From 1 April, UKFI will become a subsidiary company of UKGI, continuing to operate as it currently does until, in time, it fully merges with UKGI. The Chancellor will be the Minister responsible for the company and will bring together expertise from the private sector with that of civil servants. The Government intend that UKGI will be directly funded by its parent Department, HM Treasury. That will enable ongoing ShEx work to continue after it becomes part of UKGI.
UKGI’s arm’s length status as a company means that it cannot be directly funded on a continuing basis as an element of administrative expenditure without a specific power. The clause is in line with HM Treasury’s manual, “Managing public money”, which requires specific statutory authority for significant items of ongoing Government expenditure. Given that the activity and staffing levels of ShEx and UKFI will continue in UKGI, costs for the company are not expected to depart greatly from the current costs, which are about £14 million combined. Of course that may vary, depending on the work that UKGI is asked to perform.
I am confident that I have not answered all the questions, and I apologise for that, but I will write with all the answers.
Kevin Brennan
I thank the Minister, and I appreciate that I asked a lot of questions. I am perfectly content for her to provide us with the answers to all of the unanswered ones via correspondence. I think it is right that the body should be part of the Treasury and it is right to legislate through the clause to give it authority. We will support the clause on that basis.
It would be useful if the Minister answered one of my questions if she can, although if she cannot I accept that. Quite soon we will discuss the UK Green Investment Bank, a Government-created company that has been put out to privatisation. My question is whether there is any intention—I do not think there should be—
Anna Soubry
I have been helpfully advised. I did not think there were any plans for privatisation, and I am more than happy to confirm that. Perhaps I can also add that there are no guaranteed bonuses—they are all performance-based. Any secondments would be on the same terms as the Home Department.
Kevin Brennan
Through that intervention the Minister has helpfully shortened the letter that she will have to write to the Committee. With her assurance on the privatisation question, I am happy, at this point, with the promise of correspondence from the Minister, to allow clause stand part to proceed without any intervention on our part.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Disposal of Crown’s shares in UK Green Investment Bank company
Mary Creagh (Wakefield) (Lab)
I beg to move amendment 129, in clause 30, page 48, line 2, at end insert—
“6B Report on remuneration of chair, non-executive directors and executive team
(1) For each year following a disposal of shares held by the Crown in a UK Green Investment Bank company the Secretary of State must lay before Parliament a report on the remuneration of the company’s chair, non-executive directors and executive team by the company.
(2) The report shall include a statement of the framework or broad policy for the remuneration of the above individuals.
(3) The report shall include the value of the following, where applicable, in respect of each individual—
(a) salary or fee;
(b) pension;
(c) other cash or non-cash benefits, including bonus or performance-related payments; and
(d) shareholdings in a UK Green Investment Bank company.”
This amendment would require, following a disposal of shares in a UK Green Investment Bank company, that the Secretary of State report annually on the remuneration of the Chair, non-executive directors and Executive Team of the company.
The UK Green Investment Bank began operating in 2012 as a fully Government-owned bank. It purpose is to invest in viable green infrastructure projects that would not otherwise be able to obtain funding due to market failure, or to stimulate the market. It has invested in 58 projects with a total value of more than £10 billion.
In June 2015, the Government announced plans to privatise the Green Investment Bank and this Bill, introduced in the House of Lords, is the legislative means to do that. The Government’s primary goal is for the Green Investment Bank to be reclassified as a private sector organisation, so that its finance will not contribute to public sector net debt. To achieve that, the Government believe that they must remove reference to the Green Investment Bank’s green purposes and identity from the Enterprise and Regulatory Reform Act 2013.
I am sure that the Minister will argue that a privatised Green Investment Bank will have access to a greater volume of capital and a larger range of sectors. I have just come from a meeting with the Aldersgate Group about the European Commission’s circular economy package, which was published on 2 December. That is a whole new area in which the Green Investment Bank could invest over the next five years and which is set to create 90,000 new green jobs in the UK economy.
The Green Investment Bank supports the move, and the Government have drawn on that support as a primary motivation for their plans to proceed. The Environmental Audit Committee heard in an inquiry that concluded just before Christmas that the Government had not undertaken enough consultation on the decision to privatise the Green Investment Bank. That is often contrasted with the detailed consultation that went into the original formation of the bank, from which, the Committee was told, privatisation so soon after creation was not discussed. The EAC also heard that the Government had not presented enough evidence for privatisation, or considered a wide enough range of alternatives to a sell-off. There are obviously many different ways in which a Government can decide to privatise or part-privatise their assets.
In its response to the EAC report, the Government said that their announcement to privatise had been followed up
“by substantial engagement with stakeholders and the media to explain the case”
for privatisation. The Government also claimed that they had undertaken unpublished market testing over the course of two years. I am interested to hear from the Minister whether she would be willing to publish that market testing.
The Government said that they would not publish an impact assessment because there were no regulatory or significant cost impacts of the sale of the Green Investment Bank or changes to its pre-existing policy goals. We will talk about that later when we come to clause 32.
So the only robust consultation that the Government can point to, if they do not publish the market testing, is that with the Green Investment Bank itself. The Government also relied heavily on the support of the Green Investment Bank and its executives for privatisation in evidence and in response to the Committee.
The amendment that I and my right hon. Friend the Member for Don Valley have tabled invites the Government to commit to providing information to Parliament on the remuneration of the Green Investment Bank’s senior management and board after privatisation. After all, what could they possibly have to hide?
The information set out in our amendment is currently provided in the Green Investment Bank’s annual report. How much will those in charge of the Green Investment Bank stand to gain personally from the privatisation process? How objective can their views be, if they are to gain personally from the bank’s privatisation?
This amendment follows a long series of difficulties with banks that have, by necessity, been taken into public ownership and in which large numbers of senior executives have continued to receive very large bonuses. At a time when people in my constituency have barely seen their pay rise over the past seven years, we do not want employees of a state-owned bank suddenly having a huge payday from the privatisation of this bank.
The Government will continue to act as a minority shareholder in the short term. The Environmental Audit Committee wants that minority shareholding to continue in the longer term, but the Government have implied that that will not happen. As such a shareholder—for the time being—will the Government continue to be represented on the remuneration committees of the privatised banks? As a shareholder, what are their current expectations for remuneration? Does the Minister envisage any change to those expectations post privatisation? With that, I commend the amendment to the Committee.
Caroline Flint (Don Valley) (Lab)
It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Wakefield on tabling the amendment and thank her for asking me to put my name to it. I also congratulate my hon. Friend on becoming Chair of the Environmental Audit Committee. I know that she will use all her talents and her tenacious approach to delving into the detail of policy areas to ensure that the Government are held to account by her colleagues from all parties on the Committee.
As my hon. Friend said, it is interesting that the Green Investment Bank drew cross-party support when it was established. It is important to understand the context. We are in the process of an energy industrial revolution in terms of technology for reducing the amount of energy we use and the different ways we can create energy in future. Not only can we make our planet safer but we can be imaginative and creative about the job prospects that the sector can bring for those in work today and for our children in the future. Something like 60% of the infrastructure projects that the Government are looking to support are energy-related, which gives a sense of the enormity of the process.
Why was the Green Investment Bank so important? As my hon. Friend said, it was an acknowledgement that sometimes the market does not deliver what we want and that, although not choosing winners, Governments can play a role in encouraging innovation. Take the defence sector, pharmaceuticals or academic research—there have been countless examples over many years and under many different types of Government of where the public sector, by which I mean the Government, has, by putting some resource into innovation and by understanding some of the related risk, led the way to some profound things that today we take for granted. For example, if it was not for the Apollo space missions way back then, we would not have Teflon in everyday use. I am not saying that we were behind all that, but it is an example of where creativity made a difference. Sometimes it is only Governments and Administrations that can get behind those sorts of projects.
The Green Investment Bank was set up to acknowledge the fact that, although there already has been innovation in the wider marketplace—for example, nuclear and other forms of technology—in a number of other areas it has been difficult to get the finance and to get people to take on the risk involved in looking at some of the more novel projects.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
My right hon. Friend is making a powerful speech. We should always bear in mind the fact that the Government have the ability to make an impact not only in supporting innovative technologies that perhaps would not get off the ground otherwise but in supporting regions and regional economies that would not otherwise be able to take advantage of certain opportunities. I will of course always mention my region, the north-east, which has led on some innovations in the low-carbon technology sector. It probably would not have been as successful as it has been without support such as that offered by the Green Investment Bank.
Caroline Flint
I thank my hon. Friend for her intervention. Having spent the past five years as a shadow Energy and Climate Change Minister, I find it most encouraging that, when we look at the investment going into these projects we can see that, despite the recession and the economic problems we have had for a number of years, green energy is one of the few sectors that has bucked the trend. More pertinently, when we look at the spread of investment, the research that goes into some of these projects and the jobs coming out of them, it is one of the few sectors where we can really talk about a one nation policy. Opportunities in the sector are far more open to all regions and countries of the UK than some other sectors such as finance, which is why it is such an interesting area to think about today and for the future. How do we protect those jobs for the future?
The Labour party has been at the fore, as the last Labour Government passed the Climate Change Act 2008 with all-party support. I think that only five Members of Parliament voted against it. I am not sure, Sir David, how you voted on that one. [Laughter.] Actually, I cannot quite remember whether you voted against it or not. Anyway, although there have been a number of wobbles in the past five years on a number of different aspects of green technology such as onshore wind farms and what have you, this country is lucky, compared to other countries, that there is political consensus on this important issue.
This is about saving the planet, but I am a bit of a meat and potatoes sort of person and this is also about creating the jobs and skills of the future. In that way, the issue is much bigger than for Friends of the Earth and Greenpeace. It becomes an everyday issue for everyday communities. In my part of the country in Yorkshire, I see what is happening on the east coast in Hull and in Grimsby, in my own area, and over in Sheffield regarding nuclear development, I can see how this picture comes together. The Government are yet to promote the story in the way that it deserves.
What is important about the Green Investment Bank and accountability is that, although it was recognised that investment came in from different sources and that the sector bucked the investment trend as the recession hit, it was also accepted that sometimes more novel and complex projects need a little bit of a push. That is why the Green Investment Bank was there—to focus on more novel and complex projects that struggle to find funding and involve a bit of risk. Sometimes Governments are a little too risk averse on different public policy fronts, and there is a balance to be struck.
As my hon. Friend the Member for Wakefield said, to date just about £2.3 billion of public money has gone into 60 projects with a total value of more than £10 billion. The Green Investment Bank has done really well. I will not make partisan points about it just because it was set up under the previous Government. However, the concern has been that, in a move to privatisation, its focus on the more novel, innovative areas will actually decline and it will just become a run-of-the-mill funding organisation for projects that, to be honest, are easier and less complex and for which funding can be sought in other areas of the marketplace. It will then be focused on issues that maximise shareholder return. Maybe in five or 10 years’ time, we could have had this discussion but, given the infancy of this project and, despite its youth, the good work that it has been doing, it is a shame that the Government have taken this route.
There has already been a discussion in the other place about how the green elements should be privatised. I am afraid that I am old enough to remember the privatisation of things such as our rail and energy services. As I used to say when I was doing the shadow job, if only Margaret Thatcher could have seen how some of these energy companies have behaved towards their customers in the past few years. I do not think that that was her vision when she set out to privatise the energy sector. In transport, energy and water the financial payback packages for those at the top of organisations seem over the top given the public service performances of some of those companies. These areas are of huge importance to the public, which is why I support the amendment. As my hon. Friend the Member for Wakefield said, everything that we are asking for in this amendment is currently covered in the annual reports of the Green Investment Bank remuneration committee.
As the UK Government would for now remain a shareholder, they would have influence over the policy of this privatised bank. The Government have already conceded that they do have a role to play in protecting the greener aspects of this bank and supporting innovation in this sector. It would be in the public interest and would aid transparency to continue the reports on how people are paid—whether the chair, the non-executive directors or the executive team—so that we can set how they perform against how they are rewarded. That is a safeguard and it is in the public interest. I cannot for the life of me see why anyone would object to this, and I therefore support this amendment.
Hannah Bardell (Livingston) (SNP)
It is a pleasure to serve under your chairmanship once again, Sir David. I begin by stating that we support the amendment. We support its intentions and we believe that transparency in any financial organisation is to be welcomed, especially when it is at the level of the executive of a large corporation. I pay tribute to and congratulate the hon. Member for Wakefield on her election as the Chair of the Environmental Audit Committee, and we look forward to working with her. The right hon. Member for Don Valley made a powerful speech and we agree with much of what she said.
I have had discussions and engagement with the Green Investment Bank, and we would like to hear the Minister give guarantees today that it will remain headquartered in Edinburgh. That is very important to us. We would also like to hear that the Government will retain their golden share and their interest. We would also like confirmation that the bank will seek to have responsible shareholders. As the right hon. Lady said, it is so important that whoever invests in this organisation keeps its green objectives and its intentions at the heart of what it does.
As the right hon. Lady said, we are at a tipping point in terms of energy development, technology and innovation. We have a low oil price that is providing significant challenges. In Scotland we have seen the removal of wind farm subsidies, and the carbon capture project competition was taken away. These have been huge disappointments.
We hope that the projects and investment that have already been undertaken by the Green Investment Bank will continue. Some of them are key to the development of green technologies in Scotland. If you will indulge me, Sir David, I will give a list of a few of these projects. There is a £2 million investment in a sewage heat recovery scheme with an installation programme in locations across Scotland, which began in Borders College back in 2015; a £28.25 million equity investment in the construction of the Levenseat renewable energy waste project; a £6.3 million loan to Glasgow City Council to enable the first wave of the replacement of 70,000 street lights with lower energy and low-cost alternatives; biomass boilers across a number of distilleries in Scotland; and a £26 million investment in the new biomass combined heat and power plant near Craigellachie. These are significant and important projects.
When we look at the challenges of the oil and gas industry and the talent that unfortunately has been lost as a result of a low oil price, we have to look at where those skills can be redeployed. Aberdeen and the north-east of Scotland have some of the most innovative and experienced people. I was in the service sector of the oil and gas industry before I came to this place. Every day I saw incredible, innovative and inspiring people and technologies. The Green Investment Bank plays a key role in ensuring that projects such as those I have listed can continue to thrive, and that the energy industry’s new technologies thrive and are invested in.
Kevin Brennan
Perhaps I might seek your guidance, Sir David, because we have ranged quite widely and I was going to make some remarks in the clause stand part debate that I could incorporate into our discussion of the amendment if you thought that was appropriate. You seem to be nodding, so I will do that and hope that I will not be ruled out of order if I range a little more widely. This will save us the later debate on whether the clause stands part of the Bill.
First, I congratulate my hon. Friend the Member for Wakefield and my right hon. Friend the Member for Don Valley on their amendment. It is a great advantage having such expertise available to us on our Back Benches. I also congratulate my hon. Friend the Member for Newcastle upon Tyne North and the hon. Member for Livingston on their contributions in support of the amendment. My right hon. and hon. Friends have put their finger on a very good point, to which I will return once I have made a few more general remarks, without detaining the Committee for too long.
Anna Soubry
The debate has been wide ranging, and I make no criticism of that. A number of questions have been asked that I intend to answer at this stage, but our discussions will continue in our consideration of the next clause.
The Green Investment Bank was a success and a product of the previous Government. We are proud to have introduced it. It is right that it is doing well. From market testing we know that there is a thirst and a desire out there to purchase it. We will sell it sooner rather than later and for all the right reasons. The bank has proved that investing in green projects is a financially sound and right thing to do. Many would say that it has led the way. As I said, the bank has proved that the sector is worthy of investment, which is why it is now time for us to sell it.
Specifically on the question asked by the hon. Lady whose constituency I will remember in a moment, when prompted—
Anna Soubry
Behave!
The hon. Lady asked whether the Government would guarantee that the bank will keep its headquarters in Edinburgh. GIB management have made it perfectly clear that Edinburgh is the best place for the bank to do business and why would they not say that, because Edinburgh is indeed a fabulous city in which to do business. Lord Smith, who is the chair of the bank—I will refer to him in our next debate—wrote to the Scottish Government, John Swinney in particular, to confirm his personal commitment as chairman of the Green Investment Bank to Edinburgh. We cannot of course force the bank to remain in Edinburgh, but I can see no good reason why on earth its management would not want to stay there.
The hon. Member for Wakefield asked whether we would publish the market testing. No, we will not. It is commercially confidential, as might be imagined, so that is perfectly normal. By the way, I congratulated the hon. Lady last week on her election—I add that in case anyone thought I was being churlish for not mentioning it.
The right hon. Member for Don Valley asked whether the Government would retain a minority stake in the bank. We intend to sell a majority. It is crucial that the Green Investment Bank is classified as being in the private sector—that is absolutely what we want. We may retain a stake, but at this stage we cannot commit to that. When we debate the next clause I will explain why and what we are seeking to do—in essence, to protect the green credentials, as so many hon. Members agree that we should.
To turn specifically to the amendment, once GIB is sold it will be subject to normal company law, under which a company of the size of the Green Investment Bank—GIB is a horrible term—that is not quoted and listed on the stock exchange is required to include aggregate information on total remuneration and specific information on the highest-paid director. Those are the minimum requirements—please note “minimum”.
The Green Investment Bank is currently required to report to higher standards, which is right, because it is entirely publicly owned. It currently reports the details included in the amendment and it may choose to continue to do so once it is in private ownership. I cannot see any reason why it would want to move away from its established principles.
When the Green Investment Bank is privatised the Government will not control its remuneration policy. We cannot control key aspects of corporate policy, such as remuneration, in a private company, and rightly so. There is no reason why the privatised Green Investment Bank should be singled out by the Secretary of State to report on its remuneration to Parliament, especially if it is not spending public money. If the Government do not hold any share in the Green Investment Bank, we would have no power to compel it to provide the amendment’s level of information if it chose not to do so.
Hannah Bardell
I hear what the right hon. Lady says, but does she not agree that this could be the start of something great? We could start a domino effect of companies being more open about their remuneration, which would send a very strong message about how we could do that and support it.
Anna Soubry
The thing is that we do have requirements for private companies, and I have explained what they are, but we cannot make the Green Investment Bank do anything more unless it chooses to lead the way. There are many companies, for example, that will only deal with Fairtrade products; many companies choose to do things in a certain way and can in many respects, it can be said, change the culture. I am firmly of the view that this amendment is not necessary and should be resisted.
Kevin Brennan
It saves time if the right hon. Lady gives way, because, as she knows, under Committee rules we can make further speeches if necessary. Is it not the case, following privatisation, that the Government intend to retain the ability to invest in the bank? Is it not still the Government’s intention to hold a stake in the bank following privatisation? Therefore, why is it inappropriate for the Government to have influence over remuneration policy?
Anna Soubry
I thought I had made it clear that we have not decided whether we will retain a stake. We do not know whether we will retain a stake at this moment. When it is privatised there is no reason why it should be subject to laws that are different from those that other companies are subject to. When we come to our second debate, which I think is the real bone of contention, or the cause of concern, I will explain what the Government are doing and, most importantly, what the Green Investment Bank’s chair has said about keeping its green credentials.
Mary Creagh
The Minister is saying, “Trust us. We’re not sure when we’re going to do it, but sooner rather than later,” but also, “We’re not sure whether we’re going to have a minority share, or when it will be fully viable.” There is a series of uncertainties around the privatisation of the bank, but surely the argument is that this is a bank that was created with taxpayers’ money; it is not one that was private and then taken over by taxpayers, as Lloyd’s and HBOS were. It was created by the people of this country, who have made it clear in no uncertain terms on our constituency doorsteps that they do not want to see bankers coming off with huge bonuses, which is what the risk is.
Chairs can change; they are appointed for three or four-year terms. I have every confidence in Lord Smith, but four years down the line, when it is fully privatised and the City of London is back rolling again, things could change and the pressure on the chair from the bank executives could be very high to double or treble their remuneration, as has happened in other former state privatised assets. I am thinking of QinetiQ, but also of the rolling stock companies that made multimillionaires out of managers who had previously been very happy on British Rail salaries.
Anna Soubry
I am afraid that I do not share the hon. Lady’s determination that Government always know best and we cannot trust the private sector to do the right thing. I absolutely do. When we sell the bank off, as I am confident that we will, I do see why it should be subjected to more onerous conditions than are already imposed on companies. It is a worrying feature of Opposition Members that they simply cannot trust people in business to do the right thing. They have to over-process and over-manage; they will not let business get on and do what it knows best.
Caroline Flint
I do not think this is some sort of willy-waving competition about who does best. I think it is about looking at where the public sector and Government have a role to play in setting out policy and setting up frameworks. The truth is that there is greater transparency in the corporate sector today only because, sadly, it let people down. It did not volunteer to do it itself, or to introduce a national minimum wage or much of the health and safety legislation that Governments of different colours have supported over generations. It is more transparent because the market failed and people were let down. Here is a really good example. I ask the Minister—[Interruption.]
Caroline Flint
I ask the Minister to consider this: the Green Investment Bank is not broken and has not caused a problem, so why would we not want to retain some of the best elements of what is, in effect, a public-private partnership to ensure that it can still do good and command public trust and support?
Anna Soubry
With respect to the right hon. Lady, that is not what her amendment is about. She is now talking about what is to come in the next debate. Clause 30 seeks to put something on to this business once it has been sold into the private sector. It is important that we remember that when it is sold is when taxpayers will get their money back. Having got their money back, that will be the end of their involvement in it, save for the bank, which we created, continuing to have its green credentials, as I will describe when we reach the relevant clause.
The amendment is unnecessary. When the bank is privatised, we will not control its remuneration policy, and rightly so. If the Government retained a minority stake, we could not control remuneration policy because it would be wrong of us or Parliament to seek to control the decisions that are properly for the board of the company and its shareholders to make. The bank will not be treated differently, nor should it be. As I said, the investment made on the behalf of the taxpayer will have been paid back and the bank will then be free to continue its great work, unconstrained by anything that Government might put on it. As a shareholder, however, we can still express views and agree with other shareholders as to the level of reporting that would be appropriate on this and other issues. I therefore suggest that the amendment might look good on paper, but is absolutely not the right thing to do in reality when we privatise 0the Green Investment Bank.
Kevin Brennan
Before my hon. Friend the Member for Wakefield responds to the debate, I want to reply to some of what the Minister said. It was interesting to hear the Minister accuse the Opposition of not being prepared to trust business. She is asking us to trust investment bankers. The Minister proposes that we should abrogate our responsibility and give way on our social and environmental consciences to the man from Deutsche Bank. I am afraid that that will not happen.
Anna Soubry
Is the hon. Gentleman suggesting that the clause should apply to all banks? If he is, why did he not do that during the 13 years that his party was in power?
Kevin Brennan
My view, which I have made clear previously and with which many people agree, is that we should have done more to regulate the City’s activities during our years in power. Having said that, some of the siren voices in our ear screaming that we should not do so came from Conservative Front and Back Benchers, who were saying that regulation was unnecessary and would spoil the UK’s position as a global financial centre. The very voices that were shouting at the previous Government not to do it were those on the Conservative Front Benches.
It seems pretty rich, in all senses of the word, for a Department that is led by a former investment banker, who was earning £3 million a year from a bank that was fined £600 million by the European Union, to lecture the Opposition on trusting investment bankers when the Green Investment Bank is privatised. The genuine concern is that it may end up being a Chinese-owned investment bank. That is the pathway the Government might be setting us on with this privatisation proposal.
Kevin Brennan
As I have already said no, I will in a moment, if the Minister will allow me to finish my point. We believe it is absolutely essential that we do not miss this legislative opportunity to make it clear that we want the Green Investment Bank, if it is to be privatised, not to turn into just another investment bank—a bank that is going to be investing in non-environmental projects, for example.
Kevin Brennan
I have already indicated that I will give way. The Minister should understand that the conventions of the House mean that I will do so when I have finished my point, and that any number of sedentary interjections from her will not stop me from finishing my point before I do her the courtesy of giving way, which is entirely my choice, as you will confirm, Sir David. I am happy to give way to the Minister.
Anna Soubry
I am sure that the hon. Gentleman is not trying to suggest that the Secretary of State for business is in any way untrustworthy.
Kevin Brennan
I certainly am not doing so. I am saying that the organisation that the right hon. Gentleman previously worked for was fined £600 million by the European Union for its dodgy dealings.
Kevin Brennan
That was not the Secretary of State’s responsibility, but I am pointing out that being lectured by Government Members on trusting investment bankers might occasionally provoke a response from us. If the hon. Lady does not like that, that is tough.
My right hon. and hon. Friends have made extremely important points about what could happen following privatisation unless better assurances are given by the Government. To complacently say that after privatisation the Government—who, despite what the Minister said, will probably retain a stake in this bank and will almost certainly have some part to play in providing finance to the bank for its green investments—should have no influence over the remuneration of the directors of the bank seems to be a complete abdication of responsibility. I encourage my hon. Friend the Member for Wakefield, should she choose to do so, to press the amendment to a vote.
Mary Creagh
This has been a lively debate, which is always a good thing. I take issue with some of what the Minister said. First, we have just had our half-term recess, so Committee Members may have seen the excellent, Oscar-nominated film “The Big Short”, but if any have not seen it, I recommend that they do so as soon as possible to see exactly what was happening in the banking industry in 2007.
Mary Creagh
I will when I have finished my point. That film demonstrates the mystification of investment. Selena Gomez explaining complicated financial terms, such as CDOs—collateralised debt obligations—is a highlight of the film. Essentially the film showed that a huge financial fraud was perpetrated on people in advanced western democracies through a series of reckless gambles by big banks in both the United States and the United Kingdom, as a result of which taxpayers lost $5 trillion, wiped off the value of stocks, pension funds and investments. In the case of the United States there was massive suffering with the foreclosures epidemic in certain areas. In my view, the Bill is an opportunity for the Government to intervene in the private market, as they are doing in other areas.
Anna Soubry
Does the hon. Lady agree that what this amendment seeks to do is not to have any influence over remuneration or otherwise, but to require the privatised Green Investment Bank to write a report.
Mary Creagh
If it is such a small deal, I do not understand why the Minister is resisting it so vigorously. I think the Prime Minister once said that sunshine is the best disinfectant. My understanding is that, at the moment, those Green Investment Bank executives are classified as public sector employees and as such cannot earn a greater salary than the Prime Minister of this country. I can 100% guarantee that that will change as soon as the bank is privatised. [Interruption.] This Committee can at least ensure that we find out what is happening. I may come back on Report with stronger amendments.
If the Minister chooses to criticise that, I may reconsider and see whether we want to table something more stringent—perhaps a pay cap. Other clauses of the Bill cap the pay and exit conditions of people in a private company, Magnox—I am sure we have all had plenty of letters from them—and interfere in the workings of private businesses to introduce an apprenticeship levy, which Labour Members support but which many private sector companies are most unhappy about.
Kevin Brennan
If there is a fundamental objection to interfering with the pay and conditions of people working in the private sector following privatisation, why are the Government doing that later in the Bill on exit payments?
Mary Creagh
Good point, beautifully made. The issue of remuneration is of concern to the Government. This started off as a probing amendment, but I will take it all the way to a Division. It has grown legs. The more the Minister has argued, the more that I think there is something here.
Hannah Bardell
Is this not about transparency? This could be a starting point to shine a light and set an example for other organisations and other banks. Fundamentally, lack of transparency has got us where we are today. If we are able to make banks and organisations more transparent, hopefully they will bounce off each other and set examples among themselves.
Mary Creagh
Yes, that is an excellent point, although I think those of us who are waiting for transparency from banks will have a long wait. We have been waiting for transparency on gender equality since the Equal Pay Act 1970.
My right hon. Friend the Member for Don Valley spoke about market turbulence and the postponement of the sale of shares in Lloyds. The Chancellor said in January that the share sale would be postponed because of market turbulence. The sell-off of Lloyds shares was scheduled for spring; he has now said that it will come after Easter. Over the past eight weeks, we have seen a bear market, great turbulence in the financial markets, panic selling of crude oil, and oil prices at a 13-year low. We had the news this morning that investment in North sea oil and gas industries has fallen from an average of some £8 billion a year over the past five years to £1 billion this year. These are worrying times for the global economy, and the market is hugely volatile. All bank shares are currently falling in price, whether they are UK bank shares, European bank shares or US bank shares. Whether this is a phased sale or a one-off sale, the Minister has still not committed to giving us the business case and to publishing the impact assessment, which is what the Environmental Audit Committee asked for.
Would the Minister care to intervene and say who is advising her on this, apart from the Green Investment Bank executives? Has she sought any outside firm from the City of London to advise her on the sale, or is it simply the advice of Green Investment Bank executives who potentially stand to gain from the sale? As the Minister is grievously unhappy about this, I will press the amendment to a vote.
Question put, That the amendment be made.
Kevin Brennan
So much for the Secretary of State’s fat cats after that debate. This stand part debate is probably a good way for us to move towards our lunch-time break—or should I say our break for prime time in the House, to be more accurate? We will probably come to the meat of this part of the Bill when we discuss clause 32, but I would be grateful if the Minister explained the purpose of clause 31 and why it is necessary that it stands part of the Bill. That might run us nicely towards that prime-time break.
Anna Soubry
As I rise, I am helpfully provided with those very reasons. The clause is a transitional provision relating to the clause 30 provisions on the Green Investment Bank that requires the Government to report to Parliament with details of a proposed sale of the bank before that clause, which repeals and amends parts of the Enterprise and Regulatory Reform Act 2013, can come into force. The report must include details of the type of sale that the Government intend to undertake, the expected timescale and the objectives to be achieved. That will ensure that Parliament is kept informed and demonstrates that we will bring the repeal into force only at the appropriate stage in a transaction process. Like the report in clause 30, this report must also be sent to devolved Ministers. That, in short, is the reasoning behind the clause, which I commend to the Committee.
Mary Creagh
I was not going to speak, but having heard from the Minister I think I will. It strikes me that the clause is a blank piece of paper that gives the Secretary of State carte blanche. He or a future Secretary of State may or may not make regulations or a decision to dispose of the share, and then they will lay a report before Parliament to say what type of disposal is intended. That comes back to my Committee’s request that the full impact assessment is published to Parliament. Parliament has not seen an impact assessment of the disposal of the bank or any such detail. Will the report be scrutinised by a Delegated Legislation Committee or will it go through on the nod as one of the remaining orders of the day? I seek clarification from the Minister on what type of scrutiny the House will have of the bank’s disposal.
Anna Soubry
I will have to write to the hon. Lady to do that. I apologise; I cannot do that in any other way, but I will do that. It goes without saying that when we get to the next clause, many of the issues that we have already debated will be further debated, and rightly so.
Question put and agreed to.
Clause 31 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Stephen Barclay.)
Enterprise Bill [ Lords ] (Sixth sitting)
(8 years, 2 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
The Committee divided: - Ayes: 6 / Noes: 11 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 11 - Question accordingly negatived.
The Minister for Small Business, Industry and Enterprise (Anna Soubry)
Good afternoon, Ms Buck; it is a pleasure to serve under your chairmanship. I shall explain why this clause should not stand part of the Bill. The clause was inserted by the Lords, and I can understand why it was felt that that was the right thing to do. There is a general agreement that the Green Investment Bank—there is no debate about this—has been extremely successful. It is beginning to return some money and has also made it very clear to the market that it is possible to invest in excellent green projects and get a return.
The time has now come for us to sell the Green Investment Bank, so getting back the money that has been invested by the taxpayer and, most importantly, ensuring that it goes into the private sector not just for the sake of it, but so that it can continue to do its excellent work and, crucially, be free to raise equity.
We have always said that the Green Investment Bank will still be green after privatisation. Green investment is what it does, and it is difficult, frankly, to believe that anybody would want to buy it or have a share in it unless they subscribed to its fundamental core business, which is to invest in green projects. We have to be realistic: why would anybody buy it if they wanted to turn it into some other bank?
We also said that the only reason we had to repeal the green protections from existing legislation was to allow the Green Investment Bank to be off the Government’s balance sheet post-sale. In other words, we have to do this—repeal the green protections—or it will still, in blunt terms, be on the Government’s books. However, if we repeal them, it will be off the books and in the marketplace and able to trade in the way that it has been doing.
However, because we understand the concerns of hon. Members and noble lords in the other place—indeed, many of us share those concerns—we have found a device to protect the Green Investment Bank’s green purposes but without the need for legislation. In other words, to use a phrase that has been used quite a lot so far this week, we are having our cake and eating it.
The Green Investment Bank will implement a special share to be held by an independent company—that is, independent of the Government, Parliament and the Green Investment Bank itself. The special shareholder, as it will be called, will have the right to approve or reject changes to the Green Investment Bank’s green purposes if such a change is ever proposed. Work is under way now by the Green Investment Bank to put that in place and it will be implemented at the point of any sale. We will not repeal the current statutory protections until that point. In other words, there will be no gap in protection.
To provide further assurances to hon. Members that we will do this, the Secretary of State said on Second Reading that the special share will be put in place, and the chairman of the Green Investment Bank, Lord Smith, wrote to Lord Teverson on 5 February to give him that assurance. Baroness Neville-Rolfe, who is a Minister in Department for Business, Innovation and Skills, also wrote to Lord Teverson on 17 February saying the same. On that basis, we believe that we do not need green protections in legislation.
Kevin Brennan (Cardiff West) (Lab)
Were that proposal to be implemented, it would in effect do the same as is being proposed in clause 32, which still remains part of the Bill at the moment. The key question, however, is not that, but whether that will satisfy the Office for National Statistics in relation to whether the Green Investment Bank will be treated as being on or off the books, as that seems to be the Government’s primary concern. What guarantee can the Minister give about that?
Anna Soubry
The best thing that I can say and do is this. I am very grateful because I have copies not just of the letter from Baroness Neville-Rolfe, but of the letter from Lord Smith who, as we all know, is the chairman of the Green Investment Bank. He wrote to Lord Teverson of Tregony. I am more than happy to share the letter in whichever way is best, whether by sending a copy to all members of the Committee or even by putting it in the Library. Although, actually, it is not my letter to put in the Library, I am more than happy—and I know that the noble Lord is more than happy—for it to be shared with everyone. I will not read it all because it is rather long and, interestingly, deals with a number of matters, but I want to put his words on the record. He wrote:
“In this letter I would like to set out the steps GIB plans to take to deliver the full spirit and intent of the Lords’ amendment. The only substantive difference between this plan and the Lords’ amendment is that the establishment of a special share would not be required by statute. Requiring the special share by statute is a key indicator of public control preventing the company’s re-classification to the private sector. GIB instead will create a special share in the bank on a non-legislative basis, to enable the company’s re-classification to the private sector. This is essential to give GIB the freedom to borrow without this impacting on public sector net debt and more importantly to allow GIB to raise equity. GIB intends to have in place a clear process detailing how a special share will be created and will set out that process, and show our progress in delivering it, before the Enterprise Bill returns to the Lords. It is my intention to share our progress as transparently as we can, as a means of building confidence that the special share can be put in place without the requirement to do so in law. I would also note that the current statutory protections over the green purposes will remain in place until the point that the special share is implemented. There will be no gap.”
Now, we all want the Green Investment Bank to continue its investments in the green sector, but I hope that everybody in the Committee will accept the noble Lord’s words about exactly what he is now undertaking. As he says, we should protect the special green background of the bank—the whole thrust of it. He is already doing that to protect its special workings. There will be no gap, and it will therefore continue as it is sold and, no doubt, in perpetuity.
Kevin Brennan
I have a copy of the letter, as Lord Smith also sent it to Lord Mendelsohn on our Front Bench and he was also involved in the amendment. Will the Minister confirm, however, that the letter contains no indication of the view of the Office for National Statistics about using this mechanism, rather than the mechanism currently in clause 32? As far as I can see, the letter contains no reference to the ONS directly approving this mechanism.
Anna Soubry
I undertake to find Lord Smith, and I will ask him for his views. In the meantime, I can tell the hon. Gentleman that we believe that the proposal will satisfy the ONS. As he can imagine, my officials have engaged with the ONS for some considerable time and have continued to do so specifically about this proposal from the Green Investment Bank. We are satisfied that it will allow the Green Investment Bank to move to the private sector and to protect its green objectives.
Baroness Neville-Rolfe, in her letter to Lord Teverson, who moved the amendment in the other place—it matters not that he is not of the political persuasion of anyone on this Committee—said:
“I would like to reiterate the commitment that the Secretary of State made in the House of Commons during Second Reading of the Enterprise Bill on 2 February, that a special share will be created in GIB with the power to protect the green purposes.”
I therefore seek to persuade the Committee that there is no need for this clause, notwithstanding the fact that the noble lords, with great respect to them, inserted it in the Bill after a debate. Given that the Green Investment Bank has come up with this device—I do not mean that in a bad way; quite the contrary—I seek to persuade the Committee that the rightful concerns about the future of the Green Investment Bank’s green objectives are now properly secured for a very, very long time. On that basis, I will ask the Committee to agree that clause 32 should no longer stand part of the Bill.
Kevin Brennan
It is nice to see you again in charge of our proceedings, Ms Buck. We come to an unusual role reversal in that the Minister is arguing that a clause should not stand part of the Bill, and we are arguing that it should. In fact, she is so keen that clause 32 should not stand part of the Bill that she tabled amendment 30, which was not selected, to delete it. The amendment was not selected because, in essence, it was otiose, as the correct way to get rid of a clause is to vote against it following a stand-part debate, which is what she now proposes. I interpret the tabling of the amendment as a kindly way to indicate the Government’s position to the Opposition, rather than any incompetence on her part, although she wrote to my hon. Friend the Member for Wallasey (Ms Eagle), the shadow Secretary of State, following Second Reading to indicate that she wanted to get rid of the clause. As the Minister has rightly indicated, the Secretary of State gave such an indication on Second Reading.
The Minister wants to get rid of the clause because the Green Investment Bank would remain on the Government’s books after privatisation, according to the Office for National Statistics, if there was any suggestion of statutory control of its purpose. Of course, there is currently statutory control of the bank’s purpose. The first point one might raise is whether the Government should allow that ONS ruling to drive policy in this area. It seems pretty obvious that they should not allow the ruling to drive policy so powerfully, but they are so obsessed with being able to say certain things about public debt that they are unwilling to allow a technical issue—that is what this is—that does not truly reflect problematic public debt to spoil their narrative on public finances. That is driving their obsession with removing statutory protection for the Green Investment Bank’s purposes. Ironically, that does not always happen. The Treasury is all too ready to allow UK borrowing to be part of the financing of the Asian Infrastructure Investment Bank. The Treasury was not worried at all that public debt will be part of the financing of that bank, yet it is extremely reluctant to allow the same for our own Green Investment Bank.
The Green Investment Bank is a flagship Government policy, and it is a genuinely innovative policy in the public sector. I praise the coalition Government for introducing it, as I have in previous debates. I should point out that it was initially conceived during the previous Labour Government. It would be a terrible shame if we did not acknowledge that; I am sure that no one in the Committee would like me to leave out anything of factual importance for the historical record. It would be a terrible shame if the Government were not willing to do for our own Green Investment Bank what they were willing to do, and have done, for the Asian Infrastructure Investment Bank. Will the Minister tell the Committee why the Government were prepared to do that for the Asian Infrastructure Investment Bank but not for the Green Investment Bank?
Mary Creagh (Wakefield) (Lab)
I know from my time shadowing DFID that many questions were raised about the fact that we chose to be foundation sponsors of the Asian Infrastructure Investment Bank. There were a large amount of questions about the human rights implications, in particular about the sort of projects the bank would be investing in, given that—along with the other founding partners—it is under Chinese state Government control, when they have a completely different approach to human rights and natural resource exploitation, particularly in sub-Saharan Africa, to that of our own country and the Department for International Development.
Kevin Brennan
I wish I had spent my lunch hour more productively, because somebody pointed out to me that a report is out today on human rights, businesses and the Department for Business, Innovation and Skills. With a busy day in Committee, I have missed the opportunity to give a brilliant response to my hon. Friend’s intervention. Nevertheless, she is right, and on trend in terms of today’s news cycle.
I am not saying that it is easy to solve this problem. As Kermit the Frog said, it is not easy being green. This is not an easy area to navigate, but the Government seem to want to make it more difficult than it is already. As I said earlier, the Green Investment Bank was an embryonic idea under the last Labour Government. It was mentioned by the former Chancellor of the Exchequer, Alistair Darling, in one of his Budgets and it was being developed in the Cabinet Office and in the Department for Business, Innovation and Skills when I was a Minister in both.
I was very pleased when the coalition Government brought forward proposals, having worked up those ideas so that they were workable, and when the Bill was passed and the bank was set up. I was also pleased about the good start the Bill has had and how well it got under way, which Members have also mentioned. There have been some criticisms about the straitjacket the Treasury might have put on the Green Investment Bank, but nevertheless it has been able to participate in the financing of projects that otherwise probably would not have taken place and that make a real contribution to meeting our commitments under the Climate Change Act 2008. I think we are all agreed that its creation is a good news story.
The Treasury does not want it appearing on the books because of the targets the Chancellor set for debt and deficit reduction. However, when we consider what we are doing here, we have come to a strange pass when even something that we all agree would be a good thing—that is, even good borrowing—is bad if it is on the Government’s books, and for no other reason than that. Sometimes we seem in this country to be the prisoners of public accountancy conventions in making public policy, rather than people who use common sense, as we are supposed to do in Britain, about when borrowing is good and effective and is used to invest—after all, that is what we are talking about—in growing our economy in the future in a sustainable way. During very difficult years following the banking crash, in which we were sometimes in recession, a significant part of recent growth in the UK came from the green economy. By some estimates it accounts for a million jobs in the low-carbon sector, worth more than £100 billion. It is disappointing that the Government are in danger, if they are not careful, of undermining one of the key drivers of that sector. If we were able to tap into our country’s potential in respect of wind, wave and tidal power, we could create hundreds of thousands more high-quality, sustainable jobs for our economy.
The CBI’s “The colour of growth” report says we have a £130 billion share of a global low-carbon marketplace that is worth about £4 trillion. That will rise hugely, given the opportunities around the world in years to come, but we are in danger of slipping down the ranks. We must not abdicate at this point our leadership on this issue. If we do, our prosperity, as well as our environment, will ultimately suffer.
Privatisation is not the only way that the Green Investment Bank could go out and borrow in the market; that could be done under the current legislation, in any case. However, because of the Government’s financial orthodoxy and desire to be able to say what they want to say about their targets, they are extremely reluctant to allow the Green Investment Bank to do it.
Mary Creagh
One thing that came out in the Select Committee’s evidence session was that the Green Investment Bank was very keen for the Government to retain their minority shareholding in the bank. That confirms my hon. Friend’s point about the fiscal orthodoxy with which the Government are pursuing this sale. Obviously, the bank’s green purposes would be protected as long as the Government’s minority share was in place.
Kevin Brennan
My hon. Friend makes a valid point. I met and had discussions with executives from the Green Investment Bank, and I think it is fair to say that, like any good public servants, they are trying to carry out Government policy in the best way they can. I think it is also fair to say that they would see privatisation as a positive step for the bank. Whatever decision the Government ultimately take on privatisation, it is sensible at this early stage—we heard earlier about market conditions and whether this is the right time for the sale—for them to retain some sort of stake, at least into the near future.
In a sense, we are debating a notional concept. This is not the sort of debt on the books that will be of great concern to markets or to the City. It is part of the obsession of the boffins at the Office for National Statistics that where the Government, in any minor way, have an influence over what an institution such as the Green Investment Bank does, by setting out to limit the types of investment that it makes in any way shape or form, it has to be counted as being in the public sector for the purposes of Government debt. It is an incredibly esoteric and technical reason for requiring the Green Investment Bank to be privatised, even though there is clear evidence of real problems with that process, as we heard in our discussions earlier today.
When the Government announced their privatisation plans for the bank on 25 June 2015, the Secretary of State for Business, Innovation and Skills gave the following assurance to the House in a written statement:
“This should bring a number of important benefits, giving GIB greater freedom to operate across a wider range of green sectors in accordance with its green purposes, which are enshrined in legislation.”—[Official Report, 25 June 2015; Vol. 597, c. 27WS.]
In that announcement, the Secretary of State emphasised that the green purposes of the Green Investment Bank were protected by the legislation in which its duty to pursue them was enshrined. Obviously, something has gone horribly wrong since that announcement. The advice from the Office for National Statistics to which I referred earlier has led the Government to say that they instead intend to repeal the very legislative protection that the Secretary of State prayed in aid when announcing the decision to privatise the bank on 25 June 2015. That is why, by October 2015, they had to say—and this time I am not directly quoting, I am paraphrasing, bowdlerising, perhaps satirising—“Do you know what? That is not so important after all. It does not really matter if we repeal all that to make sure that the Green Investment Bank does not appear on the books”. The letter of 15 October, in which the Secretary of State for Business, Innovation and Skills announced his intention to repeal the relevant measures in the Enterprise and Regulatory Reform Act 2013, offered no assurance, at that point, that those green purposes would definitely be maintained. He said:
“We want to ensure the Green Investment Bank’s green principles continue to underpin its business in future and this will form an important part of our discussions with potential investors”.
That is all very well, and I am sure that potential investors will come along and happily assent to the green purposes of the Green Investment Bank prior to privatisation. That is not the question, however; the question is what happens after privatisation. That is what we are considering here and now.
At that point, when the bank is either fully or partly in the private sector, how are we to ensure that it maintains its green purpose and does not simply become yet another bank, albeit a very small bank that can easily be, and is likely to be, gobbled up by somebody else in the marketplace? That is why the Lords defeated the Government on this issue and introduced the special share that is the feature of the clause we are debating. The Minister said that the Green Investment Bank can create this special share itself and she quoted the letter from the chairman of the Green Investment Bank, Lord Smith, to our noble Friend Lord Mendelsohn and to Lord Teverson, one of the instigators of that amendment in the House of Lords.
I think the Minister said that this would satisfy the Office for National Statistics. She said she was confident that it would; I do not think she gave us a guarantee. We need, frankly, an absolute assurance on that before we relinquish this legislative opportunity to future-proof the purposes of the Green Investment Bank. I cannot see, having read the letter carefully and listened carefully to the Minister, that there is any such cast-iron guarantee in that letter or in what the Minister said. Surely, it would be better to leave the clause in place, if this is intended to be sent back as an assurance to the House of Lords, which is what the Minister seemed to be indicating, so the House of Lords can decide, ultimately, whether she has satisfied the concerns raised in that House. If she wishes to use her Government majority in this place to remove it from the Bill at this stage, she is doing so without having given such a cast-iron guarantee and I would not be surprised to see the provision put back in.
Can the Minister guarantee categorically to the Committee that the special share will be acceptable to the Office for National Statistics? Can she guarantee that privatisation will not dilute the green purposes of the Green Investment Bank, or is she just keeping her fingers crossed in that regard? Have the Government discussed or considered the possibility of some form of penalty for the privatised company should it depart from the green purposes currently enshrined in legislation when the legislative guarantees are removed?
Am I right when I say that the only reason the legislative lock on the green purpose is being repealed is purely in order to get the Green Investment Bank off the Government books? Is that the only reason for removing the lock? If it is, is it a good enough reason, given what I said about the technical nature of the issue? Can she give us any indication of the Government’s view about the stake that they expect to retain in the Green Investment Bank, if any, following privatisation?
There are other points under clause 32 that are relevant and about which the Government ought to be able to tell us, in particular as regards the £1.8 billion the Government set aside to fund the Green Investment Bank and its projects, much of which is yet to be committed. Do the Government intend that the £1.8 billion originally intended to be committed to green projects will stand? Or do they intend that the money will be taken back to the Treasury during the privatisation process? If it is the latter, what do the Treasury intend to do with that money? Will it be set aside against the deficit or will it be used for other green projects and initiatives? We need clarity on that.
Mary Creagh
I apologise for my late arrival in Committee, Ms Buck. I spent my lunch hour delving into the Green Investment Bank’s remuneration committee, and I have printed edited highlights to share with the Committee.
I am keen to put the record straight. In the discussion that we had this morning, I said that as public sector employees the bank’s executives could not earn more than the Prime Minister. That was the case in 2012-13, when the chief executive earned £139,000, but things changed quickly in 2013-14. The latest figures show that the chief executive is earning £325,000 a year, with £147,560 awarded under the long-term incentive plan. There is also a short-term incentive plan and an offshore wind fund that is linked to remuneration, as well as a 10% contribution to a defined benefit pension scheme, and also life insurance and medical insurance. I want to put that on the record to inform the Committee’s deliberations.
The current rules of the bank, as set out in statute, are to provide for best practice and leadership on remuneration in the financial services industry. That is indeed what the remuneration committee sets out: it sets out very clearly what people are paid. I will come back later to some aspects of the bank’s remuneration, but I was keen to put the record straight on the amount that the chief executive earns.
I return to the clause stand part debate. The Environmental Audit Committee concluded that the protection of the green purposes was the most important objective of any sale; in its view, the sale should not go ahead if those green purposes could not be protected. Our Committee argued that the protections proposed by the Government, centred on assurances from buyers and the commercial logic of continuing to invest in green projects, were not sufficient. We recommended that the Government support the creation of a special share in the Green Investment Bank to protect its green purposes. We accepted that the share should be owned in a way that did not compromise reclassification to the private sector—in other words, that the share was not owned by the Government or a public body.
At the time our report was published, just before Christmas, such a mechanism had been added to the Bill by the House of Lords under clause 32. We have heard from the Minister that she plans to approve the creation of a special share, which the bank itself is somehow going to do. I have a series of questions for her. If the mandate for the special share is not laid out in statute, what guarantee is there of its longevity? If the bank’s board or chief executive changes, or if the shareholders decide to change the special share through a vote at their annual meeting, how will it be protected? How will it be established? The Minister discussed some sort of separate company being set up; would it be registered at Companies House? Who would its directors be? What would their relationship be to the Green Investment Bank and what control would they have when eventually all the shares were sold off? How would it be maintained? What constraints would there be on how it could be used?
On the principle of the sell-off, I return to the Select Committee’s report. It is a shame that the evidence was not really consulted on and there was no real consideration of alternatives. Our Committee was disappointed that the Government appear not to have considered a wider range of options for recapitalising the Green Investment Bank, such as citizen finance—green projects are currently extremely popular given the very low returns people can expect to earn on cash deposits—or the European fund for strategic investment. We were surprised that the Government had apparently undertaken little or no external consultation on the move, especially as the bank’s inception was marked by a laudably high degree of consultation.
Before proceeding with the sale, the Government must publish a robust business case—this goes back to our deliberations on clause 31—and an impact assessment in support of the decision to sell and of the timing of the sales, in accordance with the lessons identified by the National Audit Office’s Comptroller and Auditor General after the Eurostar sale. As part of those publications the Government must also indicate whether the full range of options for the bank’s future, including innovative recapitalisation options, were considered before the announcement of the intention to privatise. If they were not, they should explain why.
On the Government’s minority share, the Select Committee’s report also recommended that, in line with the bank’s own wishes, the Government should retain a minority stake in the company for as long as possible to ensure the bank’s future success. It is not only a matter of protecting the green purposes, although that would be a happy by-product, but about the signals the Government are sending to the market at a time of high investor uncertainty and potentially low investor confidence.
In response to the Select Committee’s recommendation, the Government reiterated their plan to sell the bank as a going concern but disagreed that a continued Government shareholding in the GIB would be essential to its future success, without giving any specific reasons for that disagreement. The Government gave no commitment on their future stake, and the Minister’s comments when she gave oral evidence suggested that the plan is eventually to sell the entire Government stake. If there is a phased sell-off, how will the Government use their minority share in the interim period? What is the objection to continuing to hold it? When they have relied so heavily on the bank’s views in favour of privatisation, why do they disagree on that point?
I turn to the green purposes. In paragraph 46 of the Select Committee report, we made it clear that we were keen to ensure that the bank retained its unique role in the green economy. In terms of establishing a special share that is owned in a way that does not compromise reclassification to the private sector, we recommended that:
“The Government should examine and report on the possibility of including under the share’s protection: (a) a nominated set of priority sectors, which would be much wider than that allowed under the State Aid rules and could establish GIB’s focus on specific Sustainable Development Goals in which the UK already excels, such as Affordable and Clean Energy, Industry Innovation and Infrastructure, and Responsible Consumption and Production”—
all areas in which the UK has a clear lead—
“and (b) an explicit statement of GIB’s focus on projects which lack sufficient funding. If such protections via the special share are not practicable, the Government must say how it intends, through the sale, to preclude the possibility of ‘mission creep’ even if the green purposes are protected.”
For example, the new special share could specify, by either volume or value, the type of green investments. That would require some thought and preferably public consultation on either the volume or the value route, because we could end up with one big green project and lots of ungreen projects, or lots of very small green projects and one very big ungreen project. There are pros and cons to both volume and value. There could be some sort of lock between the two or a formula in the shares to ensure that, by volume and by value, the bank’s green purposes are protected.
Finally, our Committee expressed concern that a privatised bank could invest in questionably green projects, such as fracking and coal-fired power stations, although I understand that the Secretary of State for Energy and Climate Change has said that she wants the coal-fired power stations to close by 2025. That concern was exacerbated by the Minister’s comments in oral evidence, where she appeared relaxed about that possibility and implied that it could be possible within the bank’s existing green purposes. The Government’s response to our report claims that it is not possible to place controls on the Green Investment Bank limiting such investments while achieving their aim of reclassifying the bank to the private sector. Will the Minister say whether, through this workaround—the special company and the special share—questionably green projects can be ruled out?
The Government claim that the Green Investment Bank’s business plan sets out a clear path for investment in established green sectors over the coming years and makes no mention of a move into controversial sectors. However, as we know, markets change, economies change, times change and—one day, we hope—Governments change, so things may look very different in 2020. What guarantees can the Government or the bank provide about the nature of its future investments, and what constraints will there be to prevent it from altering its green purposes?
Representatives of the bank told the Select Committee that they are very happy for the Government to remain a minority shareholder. They said that the Government have been a very good shareholder, and they want that continuity in going from being purely publicly owned to being publicly and privately owned. They envisage some sort of hybrid stage. They also want the Government to retain a minority shareholding to demonstrate a commitment to the bank. The bank’s chief executive said in oral evidence:
“with that commitment you will get much more interest in the people wishing to buy the reciprocal 70%-ish, 75%, whatever that number is. That is important in terms of driving the competitive tension in the process to get the best possible price, to get the best possible commitment to the greenness of the Bank going forward, and to make sure that we have an enduring institution here that is around in five years’ time, in 10 years’ time building the clean, green infrastructure the country will still need.”
As I said earlier, any future sale of shares must be preceded by a period of consultation and evidence gathering, and a report to Parliament on the success and impact of the initial majority share sale.
Anna Soubry
I am going to talk about why I seek the support of the Committee in ensuring that the clause does not stand part of the Bill. I am not going to answer all the points that have been made, because, frankly, that would be way off topic. However, there are a number of points that I can address and questions that I can answer, and I hope that that will be helpful.
Kevin Brennan
On a point of order, Ms Buck. Is it in order to quote so extensively from a letter that has not been shared with all members of the Committee? I have seen the letter because it was sent to another Member of the House of Lords, but I seek your ruling.
The Chair
It is perfectly in order, but it would be useful, as the Minister has indicated, if she circulated that letter.
Anna Soubry
It is not mine to circulate, but I have no problem doing that. I am sure that Lord Smith will not have any problem with it either. It is all on the record.
Anna Soubry
The hon. Member for Cardiff West has said that he has seen the letter. What is important is whether what is in the letter is to be believed. That is what matters, and I respectfully suggest that Lord Smith’s fine words can be accepted. If anyone has got a problem or thinks that in some way I am reading something out inaccurately, I am sure—
Mary Creagh
What the Minister is saying is fascinating, but she is asking the Committee to remove clause on the basis of a letter we are hearing for the very first time in response to our remarks. My hon. Friend the Member for Cardiff West has seen the letter, but I have not, despite the big report that the Environmental Audit Committee did on the bank. It is the Minister’s responsibility to circulate things to the Committee in good time, so that we can look at them and all work from the same bundle of documentation.
What the Minister has said is interesting. I have more questions on the basis of the establishment of a charity and so on that come out of what she said. I would have made a different speech had I been in possession of that letter, but I was not, so I could not. I respectfully suggest that it is for the Minister, in asking us to remove the clause, to give us the reasons why we should do so, by circulating the documentation.
Anna Soubry
It is not for me to tread into what must be a dispute with the hon. Member for Cardiff West. He has the letter. Presumably, Opposition Members met to decide which way they would vote. If the hon. Gentleman has not shared the information, had the debate and said, “By the way, gang, I’ve got a letter here that absolutely sets out all these things,” that is not for me to tread into.
The most important point is not procedure and process—the Labour party has to learn and understand this—but content and delivering in the right way. That is what I am seeking to do. It is absolutely clear that Lord Smith and, most importantly, the Secretary of State and the noble baroness have all given an absolute guarantee in this place and the other place that we will take and have taken all the intent of the clause and put it into action. Members may remember that that is how I began my remarks. I explained what would happen, the process and how we would achieve what Members want us to achieve, and that is the most important thing and that is what is happening.
Mary Creagh
On a point of order, Ms Buck. A whole series of evidence has come to the Committee. Some of it has come in from people, such as the Magnox emails, and I seek your guidance on whether the Committee Clerk has received the letter under discussion. I have not seen or received it in any of the emails that have been sent to us. Given that it is a material point on which we are being asked to vote imminently, I cannot understand why there is this gap.
The Chair
The fact is that the Minister has the opportunity to circulate the letter, although it has not been circulated.
Caroline Flint
Further to that point of order, Ms Buck. If I understand correctly what you said, the Clerk has not received a copy of this letter. Can the Committee adjourn, so that we can get the letter photocopied and circulated to the whole Committee? Perhaps hon. Members can put up their hands if they have the letter in front of them. It seems that many of us do not.
The Chair
I do not believe that it is appropriate to adjourn the Committee, but the Minister has the opportunity to circulate the letter and I hope that that will be done. Given that we have taken a number of points of order and interventions, I hope that we can quickly revert to the substance of clause 32.
Anna Soubry
I am more than happy to circulate the letter, but the point remains that this is not about process, but substance. I started off by saying—I am happy to repeat it—that we understand hon. Members’ concerns. We have found a device to protect GIB’s green purposes. GIB will implement a special share, to be held by a company independent of the Government, Parliament and GIB itself. The special shareholder will have the right to approve—and so it goes on. I referred to letters, and I read out those letters, though I did not have to do so.
The simple truth is that Opposition Members perhaps now realise that we have grabbed hold of the intention of the noble lord’s amendment that was successfully moved in the other place. Nobody should have a problem with that. As I said from the outset, we have found a device to implement it without passing legislation, to secure the objectives of the Green Investment Bank. Nobody can have any complaint. On that basis, I hope that the Committee will vote to reject the noble lord’s amendment and that the clause does not stand part of the Bill.
Kevin Brennan
I say gently to the Minister that we are not discussing a matter of arid process.
Kevin Brennan
The Minister asks me from a sedentary position why I did not share the letter, yet she is the person whose legislation this is. She is the person who has the panoply of a Bill team of civil servants supporting her in her work. I have told the Committee that I am in possession of a letter to Lord Mendelsohn, which I presume is identical to the letter on which she relies in praying in aid her policy. I have a copy of a similar letter among my papers, which I happened to procure. If she wants to pray mainly in aid a document to support her position as a Minister in Committee, at the minimum, it is a simple courtesy to share that document with all Committee members in advance. She knows that to be true.
All manner of huffing, puffing and bluster will not take away the fact that that is the sort of courtesy from Ministers—whatever political party they come from—that is part of this House’s procedure and has been for a very long time. Rather than trying to defend her position, she should go away and think about what needs to be done, as a Front Bencher, in relation to making arguments and providing documentation to the Committee, as the normal courtesies require.
Apparently, we are going to get the letter circulated to hon. Members at some point, but not until after we have disposed of the very clause that she is praying that letter in aid of, so that she can expunge it from the Bill. That is not good enough. It is a slipshod approach to parliamentary scrutiny, so the Government must improve how they handle such matters in Committee.
Anna Soubry
I did not respond to that because I did not think it was particularly relevant, but I am happy to tell the hon. Gentleman that that is an international bank and, because of that, we are not aware of any legislation over it that comes from this country. I therefore do not think he can make that comparison.
Kevin Brennan
Frankly, sometimes the Minister seems to want to chair the Committee as well as be the Minister on it so that she can decide what is relevant, what is in scope and what is not in scope. The Chair is perfectly qualified to tell us what is in scope when we discuss clauses and amendments to the Bill and I am sure that, if we were out of scope, Ms Buck would be quick enough to tell us. That is not for the Minister to decide. As I have said before, the Government have their way and the Opposition have their say and it is her minimum responsibility to make a good attempt to answer questions that are put to her about the Bill. She really should respond to such inquiries in a more appropriate fashion.
The Minister did not answer that question in the course of the debate and she has not explained fundamentally what the problem is with the Green Investment Bank being on the books. She gives the impression that it cannot be privatised without getting rid of the statutory requirement for the bank to have green purposes to its investment, but it can be. The Government could privatise the bank and hold not a single share in it, it could be completely in the private sector, with every intent and purpose except one: the technical ruling by statisticians in the Office for National Statistics —I am not sure whether boffins is the right term, so I will call them statisticians. I will not call them boffins, as long as she agrees not to call hard-working public sector and private sector workers “fat cats”. The bank could be in the private sector completely, the Government could hold no stake in the bank whatever—to all intents and purposes it would be a private sector company—but it could retain, perfectly legally, a statutory obligation to invest in green projects.
Caroline Flint
My hon. Friend is making an interesting point about what happens when an entity is transferred from the public sector to the private sector. Presumably, when it was decided to privatise our rail sector, we must have ensured that in doing that we kept providing a rail service within its locus. When we privatised our energy, there must have been the condition that the companies were run as energy companies. I cannot really see why, for the Green Investment Bank, which was born in the public sector to meet a particular need, that cannot be enshrined in its transfer to the private sector.
Kevin Brennan
My right hon. Friend is completely right. I have heard no convincing argument from the Minister that there is any other reason than the desire to get the bank off the books at all costs, even at the expense of the statutory protection that the Secretary of State prayed in aid as necessary protection—[Interruption.] If the Government Whip wants to intervene, he is free to do so, although it is not the convention for Whips to do so during Committee sittings.
The Secretary of State prayed in aid that legislation when he was saying that he wanted to privatise the Green Investment Bank while maintaining those green protections. The Minister has said that she is confident, in creating the Green Investment Bank special share, that the Office for National Statistics will allow the Green Investment Bank to be taken off the books. My point is twofold. First, why is it so necessary for the Green Investment Bank to be taken off the books, other than the fact that the Government want to tell a particular story with regard to public sector debt? Secondly, she cannot offer a complete guarantee at this stage that the ONS will approve that mechanism. If we had in front of us a different letter—one from the ONS confirming that it has had discussions with Government, the Green Investment Bank and possibly others and that the arrangement the Minister says we should rely upon, in relation to the ruling and the bank not having to be on the books, is completely acceptable to the ONS—we might be in a different position. If that letter were circulated to us all, we might be better placed to make a judgment on whether it is right at this stage to give up the protection of the clause. We still have Report stage and an opportunity for the Lords to look again at these matters.
Hannah Bardell (Livingston) (SNP)
To clarify, Scottish National party Members have had sight of that letter through the Scottish Parliament. It was made available through the Scottish Parliament Information Centre—SPICe. However, I take the point that it should have been submitted to the Committee. That is not the responsibility of others, but it would have been respectful. There has been a legislative consent motion in the Scottish Parliament, and our Government in Scotland have sought assurances and come to an agreement, but there is a valid point in terms of procedure that I want to put on the record.
Kevin Brennan
The hon. Lady is right; that is a basic courtesy. Rather than resist that, it would be better if the Minister simply said, “Yes, it would have been better had the letter been circulated.” We could then move on from the issue. However, she is not prepared to say that. I say to her gently that in future, it would be better if she followed that procedure if she is going to rely so heavily on a particular piece of correspondence.
Anna Soubry
I realise that it is a bit embarrassing that the hon. Gentleman has a letter he has not shared with his colleagues, but in any event, it does not matter. The most important thing is that we are going to share it. I assure him—he need have no fear—that if there are any such letters that support a good argument, I will be more than happy to share them with everybody on the Committee. It is not a problem.
Kevin Brennan
I will interpret that in an extremely generous way and take it that the Minister is promising not to rely in future on a letter in this way without sharing it with the Committee, as per the usual conventions and normal courtesies of the House.
I return to the Government’s desire to remove the clause from the Bill. I am not satisfied—I sense, looking around me, that my right hon. and hon. Friends are not satisfied either—that that is the right thing to do at this stage. Not least because of the issue around the letter, we should at the very least be given time to cogitate further between now and Report on the protections in the clause. The Minister is confident on this; she always displays confidence, so there is nothing unusual about that, but it is still not a guarantee.
I cannot say in all honesty that I am convinced the special share proposal—interesting though it is; I am certainly not ruling it out—provides a guarantee that the green purposes of the bank will be protected, without a clear indication from the Office for National Statistics, rather than the coded message the Minister has given the Committee. On that basis, I will resist the removal of the clause from the Bill at this stage, so that we can consider it on Report. If Government Members choose to exercise their majority and the clause is removed from the Bill, despite the debate we have had, we will certainly want to consider that further on Report.
The Chair
The Question is that clause 32 stand part of the Bill. As many as are of that opinion say “Aye”.
Kevin Brennan
On a point of order, Ms Buck. The Question was that the clause stand part of the Bill. The Committee voted that the clause should stand part of the Bill. The Minister cannot then move that the clause should not stand part of the Bill.
The Chair
For clarity, I will put the Question again.
Question put, That the clause stand part of the Bill.
Anna Soubry
We announced on Second Reading that the Government will accept the intent of clause 33, but will table tidying-up amendments. That is what we now seek to do with new clause 5.
The clause was added by an amendment in the Lords and inserts a near-identical replica of a clause in the Small Business, Enterprise and Employment Act 2015, including the provisions on market rent options. Discussions with Opposition Front Benchers and pub tenants clarified that their main concern was that the first part of the pubs code consultation proposed that the market rent-only option should only be offered to tenants on a rent increase. The intent of the amendment was to prevent that.
The second part of the pubs code consultation, which was published on 4 September, sought views on whether the condition for a rent increase or rent assessment should remain or be removed. The consultation document confirmed that the Government did not intend to frustrate access to market rent-only options. The consultation on the pubs code regulations closed on 18 January.
The evidence in the consultation showed that there was a risk that our proposals would limit significantly the ability of tied tenants to choose MRO at rent assessment. Many recent rent assessments have resulted in no increase. So, contrary to our intentions, a large number of tenants would be denied the offer of MRO at their rent assessment. We have therefore tabled a new clause to ensure that the effect of the Lords amendment is absolutely clear. It puts beyond doubt that MRO will be available at rent assessment, irrespective of the level at which the rent is set. Finally, as the pubs code regulations will be made under the Small Business, Enterprise and Employment Act, we have ensured that the territorial extent of the new clause is in keeping with the 2015 Act by formulating the pubs provision as an amendment to it.
Other points at which MRO will be made available were subject to the consultation regulations. We will publish responses when we have analysed and considered the responses on all the issues raised in the consultation. The point, in short, is that the measure should have been in the Bill, but was not. The noble Lords understandably and rightly added it. We do not seek to undo their work. The new clause does nothing more than tidy up the measure and make it effective.
Bill Esterson (Sefton Central) (Lab)
What a lot of tidying up needed doing. Confusion reigned at one point. We have moved from one debate in which the Government have not exactly covered themselves in glory to another in which they have been in danger of making heavy weather of something on which there has been broad, cross-party agreement for quite some time.
The challenges faced by tied tenants have provided an opportunity for long discussions with publicans in my constituency, and MPs from across the House have had similar conversations with pub tenants and pub companies around the country. The relationship between pub companies and tied tenants has long been of concern to those of us who value our pubs. The average of four pub closures a day, according to CAMRA, is the highest closure rate since the early 20th century, when legislation forced one in 10 pubs to close. Implemented properly, the legislation we are debating could help many tied tenants in the UK, whose pubs account for around 29% of pubs according to industry research in 2012.
Jo Churchill (Bury St Edmunds) (Con)
I represent Bury St Edmunds, the home of Greene King. I just want to put it on the record that other beers are available.
Bill Esterson
My hon. Friend the Member for Cardiff West just suggested that I was about to be invited for a pint of something that is already on in the Strangers’, but we can discuss that later perhaps.
The market rent-only option will also benefit consumers. We have seen welcome growth in sales of real ale and micropubs that specialise in local, microbrewed ales. The Cornerpost in Brighton-le-Sands in my constituency opened last year and serves locally brewed beer; it is already popular in the neighbourhood. It is clear that many people, including me, have enjoyed access to micropubs. Giving more pubs the opportunity to go free of tie will be as welcome for pub goers as it is for tenant landlords.
The argument for a tie-free option is clear, but it has taken a significant amount of time for the Government to reach the point of putting real support on the table for tenant landlords. In January 2013, the Government announced a statutory code of practice and an adjudicator, but it was not until mid-2014 that they included the plans as part of the Small Business, Enterprise and Employment Bill—now the SBEE Act 2015. However, the option to give tenants the automatic right to go free of tie was not included in the Bill.
In November 2014, amendments to the SBEE Bill were agreed in this House, despite Government opposition. The amendments included a market rent-only option as part of the new regulatory regime. In the Lords, the Government accepted the will of this House, and in March 2015 Baroness Neville-Rolfe made clear the Government’s commitment to both market rent-only and the parallel rent assessment that goes with it. Following the assurances of the Minister, amendments were not pressed to a further vote. Baroness Neville-Rolfe told peers:
“I was clear at Second Reading that the Government accept the will of the other place that there should be a market rent only option. Our work since has been to ensure that it delivers the protections for those tied tenants without potential unintended consequences. The questions that have arisen and the discussions that have taken place are over exactly how the market rent only option should work in practice. I am pleased to say that we have now reached a position where the Fair Pint campaign and CAMRA are content with our amendments.”—[Official Report, House of Lords, 9 March 2015; Vol. 760, c. 448.]
On parallel rent assessments, she said that the pubs code would
“require pub companies to provide parallel rent assessments and turn the adjudicator functions in relation to PRAs into a duty. We have made a commitment to this House to introduce PRA. This commitment, together with the duty on the Secretary of State to produce the pubs code in Clause 42(1)”—
of what was then the SBEE Bill—
“means that the Government must deliver on these provisions in…secondary legislation one year after these provisions come into force, as I explained a minute ago. There can be no doubt that we will introduce these provisions.”—[Official Report, House of Lords, 9 March 2015; Vol. 760, c. 468.]
I note that one year is coming up very, very soon.
The promise of parallel rent assessments is of course important, as it means that pub tenants can compare like with like. As long as the parallel rent assessment is an independent process, then tenants can make a meaningful comparison between the situation they face as a tied pub tenant who buys beer and other supplies from their landlord on the one hand, and a tenant who only rents the pub premises, buying their beer where they want, on the other hand.
When Baroness Neville-Rolfe made her promises last March, tenants and pubcos alike had accepted the arrangement, and yet what followed was a lengthy delay, and the feeling among organisations representing tenant landlords that they were being kept in the dark about progress. The consultation on the draft pubs code, when published, caused dismay on all sides: parallel rent assessment was missing and conditions were placed on market rent-only that would block access to it for many tied landlords—a point that the Minister accepted in her opening remarks.
I will return to details of the draft code shortly, but for now I should like to reiterate the importance of improving the relationship between pub tenants and pub companies by quoting Dave Mountford. Dave used to be a tied tenant and now runs a free house called The Boat. I am sure Dave will be known to some Committee members at least from his work with the Pubs Advisory Service. Dave said:
“Between 2007 and 2012 I ran a Punch Taverns leased pub. During that period…I lost in excess of £85,000, eventually going bankrupt in 2013, despite running what became the busiest Pub in the area, achieving sales of £500,000 per year.
In 2012 myself and my wife took on a Free of tie Pub very close to our first Pub in The Peak District. This Pub was sold by Punch Taverns as being non viable, having had 5 tenants in the 6 years Punch owned it. It was purchased by a local business man for us to run.
Despite being closed when we took on the Pub it is now, 4 years later, a thriving and profitable business, and despite paying a higher rent than we did at our tied Pub, the ability to choose who we purchase our beer from means we can negotiate our own suppliers and prices.
Being able to utilise the huge range of craft beers, which were denied to us by the exorbitant price charged by Punch, we have developed a reputation for a wide range of choices, and an excellent reputation for food.
We have invested our own profits back into the Pub, developing it further, and in our 4th year we achieved a turnover of over half a million pounds running a Pub that Punch sold as being ‘unviable’.”
Dave goes on to say:
“It is important to remember that MRO is only an option and if the Pub Companies and Brewers run a robust and positive business model then they have nothing to fear from an alternative model. MRO should encourage competition between Pub Companies striving to recruit the best people to run their Pubs rather than exploiting the unwary and the inexperienced.”
Strong words. Sadly, Members on both sides of the House have heard numerous examples of similar experiences from pub tenants up and down the country.
The Government’s new clauses will in principle make it easier for a tenant to qualify for a market rent-only agreement. The inclusion of a parallel rent assessment should give tenants the opportunity to make an informed and objective decision about the best option available to them, as it will mean that tenants will be able to compare what they are being offered by their landlord—the pubco—with the situation if they pay only market rent.
The adjudicator will be able to take into consideration broader issues of unfair practice in what has become a very unbalanced relationship between many pubcos and their tenant landlords. It is hoped that that will mean that examples of pub tenants who have been promised major investment by the pubco but seen nothing, or who live in very poor living accommodation at their pub, will become a thing of the past, and that if the landlord promises to repair or maintain the public area or the living area, the repairs will take place in a timely fashion if they are part of the agreement with the tenant.
New clause 5 entitles a tied pub tenant landlord to market rent-only at rent renewal. When the Government published part 1 of the consultation, the impression was given that tenants would be able to access market rent-only agreements only if a rental increase was on the table at assessment, a point raised by a number of Members at Business, Innovation and Skills questions at the time. That was clarified by the Minister, and she has done so again today. We are pleased to see that the Government have listened to the many voices calling on them to confirm the position on market rent-only and parallel rent assessment.
New clause 6 enables the adjudicator to report on breaches of the code to the Secretary of State. It is a report mechanism to keep in check the large pubcos, both on the issue of market rent assessment and, more broadly, on the type of unfair business practices to which I referred a few moments ago. I commend Members in the other place for their dogged determination on this issue before the Bill came to this place. We should also commend the Pubs Advisory Service, which has done a great deal to fight for a fairer deal for tenant landlords right the way through the passage of this Bill and did so for a considerable time before the Bill was published.
Ultimately, the measures are about giving tenant landlords a transparent set of options when it comes to negotiating their rental agreements with pubcos. What was needed was an option for tenant landlords to choose to shake off their beer ties with the pubco and agree to pay them only rent while getting their beer elsewhere. That is what was agreed in the previous Parliament, it is what the Lords amendments sought to clarify and it is what we are told is the purpose of new clauses 5 and 6.
It is important to remember that there are significant concerns about what has happened since Baroness Neville-Rolfe made her promises in March 2015, hence the need for in-depth debate this afternoon. By including market rent-only in the Bill, Members in the other place intended to give us a chance to rectify any shortcomings in the pubs code that might still result from the Small Business, Enterprise and Employment Act 2015, not least following the apparent omissions in the consultation on the pubs code.
Market rent-only is a valuable option to have on the table at rent renewal, but its absence for the majority of tenants, according to the consultation, meant that until the amendments—now to be replaced by the latest round of Government changes—were agreed in the Lords, a significant question mark remained for many pub tenants about whether they would ever be able to consider it. Remember: that was because the Government’s consultation suggested that market rent-only would be available only for tenant landlords at rent renewal if the renewal was going to lead to a rent increase.
The problem with having a rent review that was triggered, among other things, only if rents were rising was that recent rental surveys showed that rents for some pubs were decreasing at rent review. Under market rent-only conditions, as indicated in the first part of the consultation, none of the pub tenants whose rent reviews were due would have been entitled to the market rent-only option. Market rent-only is not just about rent. Indeed, the whole point of it is to reflect the overall financial burden of being a tied pub. It is also about the beer tie, which places a financial obligation on the tenant, and any other obligations they face.
Anna Soubry
I am glad that we all agree. To make it absolutely clear, new clause 5 will replace clause 33. I hope all Members of the Committee will vote in favour of these amendments. I know it sounds strange to vote against clause 33, but the new clause will replace it and all that will happen is that we will honour the full intention of the other place by making sure that their amendment is better written and any loose bits are tied up. We want anybody who is listening to this to know and understand that the full weight of what the other place put into the Bill will stay in the Bill—it is just that we have tidied it all up. We are all as one.
Bill Esterson
Briefly, I hope that the Minister’s confidence is justified that this does what she says it does and that it achieves what was agreed by Parliament in the previous Session, what was in the Small Business, Enterprise and Employment Act 2015 and the essence of what the Baroness said in March and what was agreed in the Lords. I hope for her sake that that is all true and that it really will deliver for pub tenants. I take those assurances away. We have got to this point; it has not been the Government’s finest hour—I think the Minister acknowledges that—and with those remarks we will support what the Government are doing.
The Chair
For the sake of clarification, new clause 5 will come at a later stage. Now, the Question is that clause 33 stand part of the Bill.
Question put and negatived.
Clause 34
Report on pub company avoidance
Question proposed, That the clause stand part of the Bill.
Anna Soubry
Again, the new clause replaces clause 34; it tidies up and clarifies but does not change the intent of clause 34. I make that absolutely clear. It clarifies that it relates to avoidance of all regulations made under part 4 of the Small Business, Enterprise and Employment Act—the pubs code—not just the Act itself. It makes clear that business practices occurring after the Act was passed in March 2015 can be reported on. It amends the 2015 Act rather than leaving a separate provision in the Bill. It makes the territorial extent consistent with the 2015 Act; in other words, it makes it consistent in England and Wales.
Bill Esterson
I do not intend to detain the Committee on this section except to say that the Minister’s explanatory statement makes very clear where we stand: that this is intended to clarify the effect of the Lords amendment. With that assurance, as I said in my closing remarks on the previous provision, assuming that all is going to go ahead and that this will be brought back later to be voted on, the sector is happy as things stand.
We have finally got where we need to get to on the pubs code. I am sure there will be a decent degree of scrutiny of the implementation of the code, the role of the adjudicator and how the pub tenants’ relationship with pub companies operates in the future. With those comments, I am happy to go along with what the Minister is proposing.
The Chair
As with the previous clause, new clause 6 will be dealt with at a later stage. We are now considering the Question that clause 34 stand part of the Bill.
Question put and negatived.
Clause 35
Restriction on public sector exit payments
Kevin Brennan
I beg to move amendment 116, in clause 35, page 50, line 16, after “exceed” and insert
“a maximum of no less than”
This amendment would provide that regulations may make provision to secure that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed a maximum of no less than £95,000.
The Chair
With this it will be convenient to discuss the following:
Amendment 109, in clause 35, page 50, line 16, leave out “£95,000” and insert “£145,000”
This amendment would increase the cap to a level similar to the NHS, £145,000.
Amendment 112, in clause 35, page 50, line 16, at end insert
“which amount shall be subject to annual re-evaluation”
This amendment would subject the amount of the cap to annual revaluation.
Amendment 114, in clause 35, page 50, line 16, at end insert
“except for payments made to a person earning below the national average wage”
This amendment would exempt from the cap those earning below the national average age.
Amendment 115, in clause 35, page 50, line 16, at end insert
“except for a person who has been in long-term service”
This amendment would exempt from the cap those who have provided ‘long service’
Amendment 128, in clause 35, page 50, line 16, at end insert
“the level of the provision made under subsection (1) will be linked to inflation and earnings growth.”
This amendment would ensure that the level that the restriction on public sector exit payments is set will be linked to inflation and earnings growth.
Amendment 104, in clause 35, page 50, line 34, leave out paragraph (c)
This amendment would exclude from the cap compensatory payments made by an employer to a pension scheme which do not go to the person leaving the service.
Amendment 121, in clause 35, page 50, line 40, leave out subsection (g)
This amendment would remove payment in lieu of notice from the public sector redundancy exit payment cap.
Amendment 105, in clause 35, page 51, line 7, at end insert
“including payments relating to employees earning less than £27,000 per year”
This amendment would provide that regulations may exempt from the public sector exit payment cap those earning less than £27,000.
Amendment 106, in clause 35, page 51, line 7, at end insert
“including cases relating to employees who have been in long-term service”
This amendment would provide that regulations may exempt from the public sector exit payment cap employees who have provided ‘long service’.
Amendment 108, in clause 35, page 51, line 7, at end insert
“including where the full council of a local authority decides to grant a waiver of the cap”
This amendment would provide that regulations may make exemptions where the full council of the local authority decide to grant a waiver of the cap.
Amendment 122, in clause 35, page 51, leave out lines 18 and 19 and insert—
‘(9) The amount for the time being specified in subsection (1) shall be increased by order made by the Secretary of State every year by a revaluation percentage.
(9A) The revaluation percentage to be specified in section (9) is the percentage increase in the general level of earnings in Great Britain in that year.”
This amendment would ensure that the level of the cap is maintained in real terms.
Amendment 124, in clause 35, page 52, line 35, at end insert—
‘(2A) All prescribed public sector authorities may relax the restrictions imposed by regulations made under section 153A, if certain conditions are met.
(2B) The Secretary of State shall by regulations made by statutory instrument specify the conditions to be met under subsection (2A).”
This amendment would extend the waiver in respect of the cap to all public sector authorities.
Kevin Brennan
We have had a very exciting afternoon, as I am sure you would agree, Ms Buck. The Government have adopted what might be called the “Boris principle” on voting—namely, that they can ignore the result of the first vote if they do not like the way it came out and demand a second. We live and learn about parliamentary procedure. We obviously respect your ruling on the matter, Ms Buck, with absolute and total respect.
We now come to part 8, which interestingly has nothing to do with enterprise, despite the Bill’s title. This has been called a “Christmas tree Bill”, because it has lots of different baubles on it. If that is the case, part 8 is an Easter egg hanging on the Christmas tree, because it has absolutely nothing to do with enterprise. Nevertheless, the Government chose to include it and it was ruled to be in scope, so it is completely in order for us to discuss these matters as part of the Enterprise Bill.
Let me make it clear from the outset that the Opposition agree that excessive exit payments in the public sector should not be paid, and that abuses in that regard should certainly be ended. The problem with the Government’s approach is that they are attempting to govern by headline in a very complex area. In doing so, they are creating anomalies and unfairness, and—that old favourite of ours—legislating to invoke the law of unintended consequences. That is what is likely to happen as a result of legislating rigidly on this matter, as they are doing.
Governments often resist legislating rigidly in Bills because they understand the mess that can ensue. It was Otto von Bismarck—not Leo from “The West Wing”—who first said that people should not see how two things are made: laws and sausages. This is a very good example of that. Putting such things in the Bill is basically a Government headline for the tabloid press about public sector fat cats—an odious remark that the Secretary of State made on Second Reading, which was an insult to many thousands of decent, hard-working people in this country. By legislating in that way, all sorts of messy, sausage-like substances will seep out.
The first group of amendments to clause 35 are about where an exit cap should be placed, who should be covered and who should be exempt. They are largely probing amendments, but I may press one of them later to test the Committee’s opinion on it, because it refers to what the Government said their intention was in introducing this legislation on exit payments. The amendments also cover an annual revaluation to ensure that the value does not diminish and that more workers are not caught inside the exit cap net.
Let me go through the amendments in turn. Amendment 116 would provide that regulations may make provision to secure that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed a maximum of no less than £95,000. In other words, it seeks to ensure that the cap cannot be lowered further without legislation. I would be interested to hear from the Minister what the Government’s intension is on the question of whether it can be lowered without further legislation.
Amendment 109 probes why the cap has not been set at a level similar to the NHS level, which was £145,000. Although it is a probing amendment, I am interested to know why the provision introduces a disparity between different sets of public sector workers. The NHS caps underwent proper research, consultation and subsequent scrutiny, and were seen to be fair. I am afraid that that compares very badly with a completely rushed consultation with minimal research and the resultant limited scrutiny that these Government proposals have had.
In the other place, Baroness Neville-Rolfe said:
“A cap even at the level proposed by the Government will not affect the large majority of public sector workers”—[Official Report, House of Lords, 4 November 2015; Vol. 765, c. GC366.]
Will the Minister supply the Committee with the figures for the workers who would be affected by an exit cap payment of £95,000? The words, “a large majority” are a bit woolly; we need a bit more precision than that when we are legislating. What are the exact projections for the cap of £95,000 and what would the exact projections be if the cap were introduced at £145,000? I do not intend to press the amendment to a vote—it is a probing amendment—but we want to understand who is being affected and what we are talking about. Perhaps the Minister would supply the Committee with the cost to the public purse of the cap set at those two limits. I hope that she is able to do so. If she is not accepting on the grounds of costs, she will obviously have those figures to hand.
Mary Creagh
Has my hon. Friend looked into whether the employees of the UK Green Investment Bank would be covered by the cap? Obviously there are several executives who, as I mentioned previously, get significantly more than the £147,000 cap. Looking into their terms and conditions, I notice that they have a six-month notice period and that pay can be given in lieu of notice. In the event of that happening for one of the Green Investment Bank employees, does my hon. Friend think that this cap would click into force? Give that the Green Investment Bank might not be privatised until 2018 or 2019, how does he think that those employees would be affected?
Kevin Brennan
As I understand it from the Secretary of State, they would be affected only if they were officially classified as fat cats. If they are not affected, they are not officially fat cats in the eyes of the Secretary of State and if they are affected, they are officially fat cats according to the Secretary of State. It remains to be seen whether those employees are fat cats under the Government’s own definition.
Amendment 112 would subject the amount of the cap to an annual re-evaluation. Amendment 122 covers a similar subject. It is vital that any proposed cap is flexible and updated on a regular basis to take into account differences in pay and increases in separate areas of the public sector. In considering the scope and impact of the policy, it is important to note that the proposal to make the cap effective at £95,000 means that it will not just impact on higher paid senior managers.
If the £95,000 figure is not uprated, it is likely to affect more and more grades, so we ask the Government to consider re-evaluating it annually, perhaps using the same uprating as for public sector pensions. Similarly, will the Minister open discussions with the relevant stakeholders on technical considerations such as whether the cap will include other means by which an individual can access an unreduced pension, such as on compassionate grounds?
Uprating is important if workers are not to fall further behind. Having the uprating enshrined in primary legislation rather than being devolved to secondary legislation would ensure that it is reviewed annually. I would be interested to hear the Government’s explanation for why they are not picking this route and why they want to do it through secondary legislation. We will listen to that explanation with an open mind.
Amendment 114 would exempt from the cap those earning below the national average wage, who, by definition, could not be called the best paid—they would, however, be called fat cats by the Secretary of State. It is hard to see how the Government can include that group of workers if that is really what they think the measure is about. What are the specific reasons for not including people earning below the national average wage in an exemption from the exit cap? The only way those workers could get up to the cap is through decades of long service, and surely that kind of loyalty is not something the Government want to punish.
How many workers earning below the national average wage will be included in an exit cap of £95,000? I would be interested to hear the Government’s figures. I am sure they will have crunched the numbers carefully in considering and developing the policy, and I presume the Minister will have the figures to hand and examine them carefully before deciding whether to oppose our amendment.
It has been widely mentioned—this is really important and I will come back to it later—that the then Exchequer Secretary to the Treasury, the right hon. Member for Witham (Priti Patel), said in January 2015 on exit payments:
“This commitment, which will be included in our 2015 General Election manifesto, will cap payments for well-paid public sector workers at £95,000.”
I give her credit for her clarity on that. She went on to say:
“Crucially, those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
That commitment was given by a Treasury Minister a year ago. When the Conservative party manifesto came along, it said on page 49:
“We will end taxpayer-funded six-figure payoffs for the best paid public sector workers.”
On Second Reading in the House of Commons, the Secretary of State for Business, Innovation and Skills said that the measures were needed because
“Too many public sector fat cats are handed six figure pay-offs when they leave a job”—[Official Report, 2 February 2016; Vol. 605, c. 817.]
If someone is affected by this provision, according to the Secretary of State they are a fat cat. The amendments will allow us to explore exactly why that is a dreadful thing to say.
Mary Creagh
Has my hon. Friend seen any figures on the impact of the measure according to gender? Does he know whether there has been a gender impact assessment? I am thinking in particular of people who have worked for a long time as, say, teachers or nurses and who will be above the £27,000 a year de minimis requirement set out by the Treasury Minister, but who find themselves unable to continue, perhaps after a traumatic event or injury at work, and are able after a period of 30 years to leave. How does he think they will be affected? Does he see that there could be a discriminatory impact?
Kevin Brennan
My hon. Friend’s astute intervention saves me from going into too much detail on that score, but she is absolutely right: we simply do not know the equality implications of the measures, particularly in regard to gender, because the Government have not supplied us with the figures. It seems intuitively highly likely that the impact will be skewed heavily against female workers in the sorts of occupation that she outlined and perhaps in other public sector occupations.
The Bill, as it stands, does not have any such exemption as the Treasury Minister indicated it would last year. As far as I can make out, that was not the initial intention or, indeed, what was stated in the Conservative party manifesto. Despite the Government’s arguments, while the public sector exit payment cap includes pension entitlement within its scope—that is a key issue—it will affect employees on even lower salaries, as current pension protections wither on the vine.
Mary Creagh
That is a key point. We know that people working in the public sector have certain protections. In some services, those protections kick in at age 50, and in others at age 55. By including pension rights, people who may be forced to retire on the grounds of ill health or their simple inability to carry on working will find a cap on exit payments, meaning that they can get the six months’ notice. But the far more lasting injustice will be that their pensions cannot be made up as though they had worked to 60 or, in some cases, to 65. They will suffer detriment for the rest of their lives through loss of pension income that will not have been made up.
Kevin Brennan
My hon. Friend makes that point far better than I would have made it. Again, her intervention is astute and understands the implications of what the Government have done by including pension payments within the exit cap. If the Government were serious in their rhetoric that doing so would affect only the best paid, it would be straightforward to include a provision in the Bill to exclude those on average earnings or below. On Second Reading, the Minister said:
“What we do know is that there is a very small number of workers in the public sector on about £25,000 who could be caught by this… But those are extremely rare conditions.”—[Official Report, 2 February 2016; Vol. 605, c. 886.]
We are concerned about the Government’s reluctance to make the necessary exemptions to ensure that those unfortunate few, which is what Ministers tell us they are, are not disproportionately affected. If the low and average paid are affected in rare circumstances only, excluding them from the cap will not result in the Government losing a great deal of money, so what is the problem with exempting the low paid from the provisions?
Lucy Frazer (South East Cambridgeshire) (Con)
Does the hon. Gentleman know of any private company that pays three times annual salary as an exit payment?
Kevin Brennan
That is not what we are discussing here. We are discussing the terms and conditions that public sector workers signed up to in agreement with the Government. In many cases, such people may have been in service for a long time and may well have given up the opportunity to earn more in the private sector by working as loyal public servants.
During the clause 26 discussion on Report in the Lords, Baroness Neville-Rolfe indicated that a drop of £500 would not be disproportionate for someone previously entitled to a pension of £12,500. I have to say that a drop of 4% is significant for somebody on a relatively small income, especially when that income is below that of someone on the national minimum wage. To say that a 4% cut is not significant is highly misleading.
The Government made the case in the House of Lords that leaving with a payment of £95,000 or above would be a large amount for any employee. For example, the Minister in the other place said that she does
“not accept that those exiting with a payment of £95,000”—
which is not the case—
“will generally be subject to hardship”.
The idea that someone will receive £95,000 is a myth. A large amount will never actually be seen by employees on low to average incomes, because the payment includes compensation paid to the pension scheme. My noble Friend Baroness Hayter pointed out that
“they cannot go off and use that money to live on while trying to retrain or move or find another job; it is an actuarial payment that never comes near their bank account… This is not a sum of money they can use to buy themselves an annuity to help train or move or anything else—it is money they never see.”—[Official Report, House of Lords, 30 November 2015; Vol. 767, c. 984-985.]
Mary Creagh
On the point made by the hon. and learned Member for South East Cambridgeshire, I did a quick Google search and discovered a headline relating to Tesco, which we have discussed in Committee previously:
“Ousted Tesco boss is handed £20million payoff”.
I do not know whether that was three times his annual income, but that is what the Daily Mail reported was received by Philip Clarke, 54, who stepped
“down after 3.7% drop in like-for-like quarterly sales”.
Kevin Brennan
As ever, I cannot fault my hon. Friend’s interventions, even if I might fault her sources from time to time. She is right to point that out to the Committee. Let us take a hypothetical example of how someone might be affected. The Government are trying to make out that people will not be affected, but, to take her point, if we take someone who has been a librarian in the public sector for 34 years and who has reached the age of 55 with a career-average salary for pension calculation purposes of £25,000, their pension accrued at one 49th per year of service would add up to £510.20 for each year of service. With 34 years of service that would come to £17,346.93. Under the regulations, if it came to pass that that person had to leave the service owing to redundancy, they would get a pension of £17,346 11 years earlier than the normal retirement age of 66. Therefore, if we take those 11 years and count in the pension, that adds up to £190,816 of pension paid before normal retirement age.
The payment required by the pension fund to enable that unreduced pension to be paid would be likely to breach the Government’s proposed £95,000 exit cap. There are technical reasons why it does not add up to the full amount of £190,000, but the so-called strain payment required is highly likely to exceed the Government’s proposed cap, so the employer would not be able to make the member redundant without breaching either the proposed cap or the current local government pension scheme regulations.
On Report in the House of Lords, Baroness Neville-Rolfe said of that example that that person would not be affected by the cap if they were aged 52. That is correct, but that misses the point as no pension payment would be in play if someone were made redundant earlier than age 55. That would be a simple redundancy payment, paid directly to the member of staff in the normal way, which would be unlikely to breach the cap. The issue is with people made redundant after the age of 55 who are automatically entitled to early retirement rather than a straightforward redundancy settlement.
It is important to note that in the example I gave the normal retirement age is 66 and while many local government employees who are currently 55 will have some protections in place to mitigate the worst effects of such a cap, that will not be true for all employees, nor will it be true for staff as time moves on. We must remember that the proposals are expected to be in force for some considerable time and all current protections are withering on the vine as we speak.
Amendment 115 would seek to protect workers who earn less than £27,000 and have many years of loyal service. The Government’s manifesto referred to “best paid workers”, so I wonder whether they consider a worker earning £27,000 a year to be one of the best-paid workers in the country who should be covered by the cap. I do not think that was the original intention—in fact, I know that, because as I said earlier the right hon. Member for Witham, when in the Treasury, said that
“those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
She did not think that they were fat cats at that time and she thought they should be protected, so we need to understand why that is not happening in the Bill.
Why not accept amendment 115? Will the Minister outline the unusual circumstances, as Baroness Neville-Rolfe did, in which workers will be caught out? Why was a lower earnings floor not included given that the Government promised that a year ago in their manifesto, which said that they would pursue the “best paid workers” and that that was the cap’s intention? Of course, once the election was over, the Government ignored what they had said. The Minister referred to the small number of low-earning, long-serving public servants, but can this Minister supply the Committee with her estimate of how low-paid and long-serving workers will be affected by the cap?
I was going to talk about the poor quality of the consultation. I do not want to detain the Committee for too long, but the consultation was in no way of the same quality—I pay tribute on that score at least to Lord Maude—as the consultation done when caps were introduced previously in the civil service. Further problems have emerged as a result of how poorly the consultation was conducted. Usually, a full consultation takes 12 weeks rather than the four weeks taken by this one, which began on 31 July 2015 and concluded on 27 August 2015. Problematically for a lot of workers in education, of course, that coincides exactly with the summer recess, and the measure could have a big impact in schools and education. The National Association of Head Teachers has pointed out that there are particular problems relating to the proposals as a result, and that it did not get a proper opportunity to consult its membership about them.
That takes me to amendment 128, which would ensure that the restriction on public sector exit payments is set at a level linked to inflation and earnings growth, of which arbitrary fixed caps do not account. If the cap is introduced, there must be a commitment to index-linking it to ensure that it meets the original intention without becoming more and more punitive over time. Any cap must include a mechanism for index-linking in line with pay and prices.
This is a long group of amendments; I apologise, Ms Buck, but I must go through each one. Amendment 104 would exclude from the cap compensatory payments made by an employer to a pension scheme that do not go to the person leaving the service. That refers back to strain payments, which I was discussing earlier.
Mary Creagh
My hon. Friend is making an excellent point, and I agree particularly with his amendment to ensure that exit payments are linked to inflation and earnings growth. Otherwise, the cap would become an arbitrary bar that could dissuade people from going into public sector jobs.
For the record, I wanted to draw to my hon. Friend’s attention, particularly in terms of pensions, the payoff of £3.6 million made to Richard Glynn, chief executive of Ladbrokes. When Dalton Philips, chief executive of Morrisons, left after a chequered reign, his payoff was £4 million. The boss of Barclays, which of course is partially state-owned, left with £28 million in cash and shares. On the pensions point, the disgraced chief executive of Volkswagen, Martin Winterkorn, left with a €21 million pension pot. Just to be clear about the—
Kevin Brennan
Ms Buck, I will respect your ruling on my hon. Friend’s intervention, but I completely understand why she made it.
We were just about to discuss strain payments, which are made when workers in their 50s must take redundancy. The shortfall in their pension is actuarily adjusted at the time of redundancy. As I pointed out earlier, they do not receive the money in their pocket; it is paid by the employer to the pension scheme. I think we can agree that such payments are qualitatively different from the other payments covered by the legislation, which is why special provision should be considered to limit their impact.
Strain payments do not apply to the highest-paid workers. A middle-ranking public servant with long service is much more likely to be affected by the Government’s current proposals than a highly paid or best-paid worker who has worked in the public sector for a short period. Strain payments could make up a considerable amount of the £95,000 cap. If so, long-serving, loyal workers could finish work with a significant shortfall in the amount that should have been allocated to help them to deal with redundancy, unemployment and uncertainty. They will have little left over in their redundancy payments to pay for annuities to provide for long-term security. Some in areas of high unemployment will have little chance of getting alternative employment, and they will also be too old to retrain effectively. In other words, they will be left high and dry. I do not think that was the intention of the Minister, her Department or the Government, but surely she can see the difficulties for these workers if the vast majority of any settlement is taken up by strain payments, which are related to pensions.
Mary Creagh
I am not clear whether the provision applies retrospectively or about how far back it goes. Does it not potentially open the door to class actions from large groups of people? I can see one class action in development from the Magnox employees, who are working for a privately owned company that has been nationally owned. Does my hon. Friend find it interesting that the Minister was so keen to resist our amendments this morning that would have provided transparency on the remuneration of executives of the Green Investment Bank yet is so very keen to impose a cap on people working for a formerly state-owned company that is now a private company?
Kevin Brennan
I do not believe the provision is retrospective—retrospective legislation is rare in the direct sense—but it certainly affects existing agreements and undermines previous agreements that the Government made and said were fair and would stand for a very long time. In the case of contractual obligations, the provision raises serious questions as to whether the Bill as it stands is legally sound. As well as the practicalities of the measure to include notice pay in the cap, there is also the impact on those who are too ill to work. Modelling by the National Association of Head Teachers shows that a headteacher who is compelled to leave work due to developing a physical condition and who is unable to work out their notice due to illness will be significantly worse off compared with an able-bodied head because of the proposed cap currently being drafted to include pay in lieu of notice. Does the provision to include notice pay and holiday pay comply with the provisions of the Equality Act 2010? What advice has the Minister had on that?
My next point relates to the way in which schools are run, because they are different from other organisations in relation to notice for obvious term-time reasons. The Government have committed to academise poorly performing schools. That can often include the removal of a headteacher from a school. How would that be possible under the provisions if that same headteacher decided to work out their notice, rather than leave straightaway? That is what anyone would do if their payment in lieu of notice was to be included in the exit payment. If a school is trying to make a fresh start under a new head, it will find it very difficult to remove the incumbent swiftly, because that person will seek to work out their notice rather than depart immediately. That is understandable, because who would act in a way that was financially disadvantageous to them in such circumstances?
The real problem is that notice periods for headteachers are often exceptionally long. If a headteacher is leaving just after Christmas, their period of notice might not technically run out until after the summer holidays in some cases. Schools and pupils could suffer under these plans if there were such delays. Has the Minister considered that? What is her response to that problem?
Amendment 105, on which I may well seek the Committee’s opinion, provides that regulations may exempt from the public sector exit payment cap those earning less than £27,000. Amendments 115, 105 and 106 offer protection for low to moderately paid public sector workers who have provided long service. I will not repeat the arguments made earlier, but the fact remains that excluding workers who earn less than £27,000 per year would protect workers earning the average wage of £26,400. A promise to protect those workers was made by the Government; that is the point.
Kevin Brennan
The Minister shakes her head, but the then Treasury Minister specifically made that promise. I will read the quote again:
“those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
I cannot imagine anything more emphatically clear being said by a Government Minister, so why has that exemption not been included in the Bill? Amendment 105 would provide that exemption. As such, unless the Minister can convince us otherwise, we should insist on the Government keeping their word by pressing the amendment to a Division.
Amendment 108 is about the waiver process. The Government’s consultation response made mention of a waiver process and said that the full council would
“take the decision whether to grant a waiver of the cap in cases involving Local Authorities and for local government bodies within their delegated powers”.
In the Lords, Baroness Donaghy said that despite the assurances made in the consultation response, there was no reference to that in the Bill. That is a crucial issue for local government and should be dealt with in the Bill, rather than through secondary legislation. The Government’s draft statutory instrument allowing a waiver if the full council agrees has been published. That does not give local government the certainty it needs if it is to continue the job of restructuring itself in the face of the huge cuts to it. We have already seen agreements dealing with pay and conditions that were drawn up in 2010 disregarded just six years later. There is a concern in local government that it is not being given the certainty on waivers that it expected to see in the Bill, and it would like to know why.
Which public authorities will be allowed to exercise a waiver, and which will not? If there are exemptions from the waiver, will the Minister explain her logic in deciding which public bodies should be exempted and which should be included? The Government have done much to try to remove schools from local authority control. Will the waiver apply to all schools in local authority control? Will waivers apply to academy schools? Will there be a level playing field between the two categories of taxpayer-funded schools, or will one be favoured more than the other?
The ability of a local authority or other public sector body to seek a waiver would concur with the Government’s professed desire for local democracy and localism in general. Will the Minister explain how she drew up the rules for including or excluding public bodies and her role in the monitoring of waivers?
Hannah Bardell
I echo much of what has been said by the hon. Member for Cardiff West. His comments have been extensive and detailed, so I will not keep the Committee for long. However, I want to support the amendments and highlight our concerns with the Bill. As we have heard, the Cabinet Office confirmed that someone earning less than £25,000 could be affected because of their long service. We share the concerns raised directly with us by Unison that the cap would affect redundancy payments for a wide range of NHS staff. Those people are not classed as executives, because redundancy calculations are made on the basis of length of service and earnings. Because a significant number of NHS staff work unsocial hours, capping the payments could affect staff in band 6 and above.
There is logic and sense in supporting the amendments and some of the comments made in the briefings. For example, the Local Government Association criticised the Government’s plans and the cap of £95,000. We understand the logic behind having a cap, but it is about how we legislate. In the other place there were concerns about the lack of an impact assessment to go with the proposals. Once again, we are seeing legislation that has not been clearly thought through. The Cabinet Office has admitted that a small number of people might be affected, but we need a proper impact assessment to understand that, and the amendments speak to such concerns.
My hon. Friend the Member for Kilmarnock and Loudoun, who was very keen to speak, has had to go to another debate. The issues that he wanted to raise relate to his experience and the experience of others in local government, particularly in Scotland. The Scottish Government have not been in favour of compulsory redundancies and have managed their workforce in a more creative way, which is something that should be considered. It is important that we look behind the pay cap and the details of it.
The overarching issue for us relates to the strain payments. As has been said, much of the payment does not actually go into people’s pockets; it goes to making up the shortfall in pensions. In summary, we support the amendments.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Ms Buck. My hon. Friend the Member for Cardiff West, the shadow Minister, made a powerful speech to which I hope the Minister has listened. I hope we will hear about changes to the current proposals, and I hope that our logical amendments to what seems to be an irrational approach to dealing with a problem of the Government’s own making will be accepted. Ideologically driven cuts to the public sector have proved far more costly than the Government initially anticipated. We only have to look at the payments made as part of the top-down reorganisation of the NHS, which is estimated to have cost £1.6 billion in six-figure pay-offs alone to 1,000 highly paid officials. That goes some way to explaining the Government’s keenness to claw back some of those payments, or certainly to ensure that that does not happen in future. They appear to be trying to slam the gate shut after the horse has bolted.
Nobody questions the logic of what the Government are trying to achieve in trying to prevent significant pay-offs. However, it seems to be a sledgehammer to crack a nut approach. In my former role as shadow Attorney General, I came across examples in parliamentary questions to the Department that tried to uncover similar practices in the Law Officers Department. The Crown Prosecution Service had spent £83 million since 2010-11 on redundancy packages, and 24% of that went to just 153 individuals who received redundancy payments in excess of £100,000 each.
No one is questioning the principle behind what the Government are trying to achieve. They have clearly said that the measure is aimed at the highest paid officials, but in reality it will hit the redundancy packages of ordinary civil servants on modest wages—even some on wages below the national average—who have given long years in public service. It would, for example, hit a worker on just £24,611 who had worked for 34 years and was over 50.
When their lordships considered the proposal in Grand Committee, my noble Friend in the other place, Baroness Hayter, asked:
“Is this just a rather nasty, crafty little device that they have alighted on simply to help to reduce the deficit, given that the Chancellor seems to be having difficulty with it, by hanging that deficit around the neck of their own employees? Or is this just mistaken drafting, which the Minister will be happy to amend on Report?”—[Official Report, House of Lords, 4 November 2015; Vol. 765, c. GC359-60.]
Unfortunately, the answer given seemed to indicate that it was not a mistake, that it is the Government’s intention and that they do not intend to amend the measure. I very much hope that the Minister tells us something else today. It would be good to hear from her that the Government have taken on board some of the concerns about the impact of the measure. I hope that they will accept the amendments we have tabled or give some indication that they will amend the clause themselves, as they seem happy to do with other clauses. That does seem to have caused confusion with voting in Committee.
Anna Soubry
It has been a good debate and I will be the first to admit that there have been some good contributions. It is absolutely right that we should go into the matter in detail. It has to be said at the outset that the Government are acting on what was very clear in the manifesto promise upon which we were elected. We said that we would cap the public sector pay-out to end six-figure pay-outs. I am bound to say, as somebody who was self-employed for nearly 20 years, that this is the sort of stuff that simply never came my way at all. That does not mean to say that I do not have any sympathy for people who—and this is the most important point—are made redundant. That means that they had a job and, suddenly, they do not have a job. We have to recognise that we are talking about people who are being made redundant.
To answer the hon. Member for Wakefield directly, people who are made redundant because of ill health are not touched by the cap at all. I hope that we can deal with that claim. We have to set this in some context. In terms of statutory redundancy in the private sector, I am reliably informed that the maximum statutory payment that someone could receive if they earned £25,000 and had worked for some 30 years is £14,250. I am told that the evidence is that the average payment is in the region of £16,000. We have to set what happens in the private sector in sharp focus and contrast that with what happens in the public sector.
We have heard much about modelling, in effect, of what happens when people are on lower pay and find themselves being made redundant. They first thing to say, of course, is that nurses do not get made redundant. On the contrary. It is fair to say that we are rather keen to employ more nurses, not to make nurses—nor, indeed, teachers—redundant. In any event, the Cabinet Office has confirmed that no civil servant earning below £25,000 will be caught by the cap. We are not saying that there are not exceptions. To be truthful—and I always want to be truthful—we cannot actually find an exception. I will go through some examples that I hope will give some assurances to people. We cannot actually find an example—we are not going to say that there are not any but we cannot find one—of somebody who could be earning £25,000 but finds themselves having a payment, on being made redundant, of more than £95,000 and therefore having it capped.
A senior manager at grade 7 in the civil service with a classic pension scheme who leaves aged 55 with 30 years’ service would not be caught by the cap if he or she were earning below £50,000. A prison officer earning £28,000 with 34 years’ experience would be able, even with the cap in place, to retire on a fully unreduced pension aged 52. A tax inspector aged 52, earning £60,000 a year with 25 years’ experience, would have a pension of £17,500 per annum instead of £19,000.
The hon. Member for Livingston was specifically concerned, and many others would be concerned, at the thought of a nurse being made redundant. Frankly, it is difficult to conceive but it might happen. I am trying to imagine what the circumstances could be. No one earning below £47,500 in the NHS will be affected by the cap and the vast majority of nurses earn below that figure. To satisfy the hon. Lady—I know that she specifically raised that point—we said that we would go away and look at it all and that is exactly what we have done.
Catherine McKinnell
I thank the Minister for giving way, and I would very much hope, obviously, that she would be truthful. The information she provides gives some reassurance for today but, given that the £95,000 will not be indexed by the Government, will she explain how longer-term security will be provided? Also, if she is so confident that no one will be affected, why will the Government not accept the £27,000 cut-off that they seemed to promise before the election but are not delivering in the legislation?
Anna Soubry
Let us make it clear that what a Minister said before the manifesto was written does not count as a manifesto commitment. The manifesto is what matters the most, and in it we made it clear that we would place the cap at £95,000. I can go only on the figures—I specifically asked for them. Someone on £25,000 who has worked for 30 years in the private sector will get a maximum of £14,000 and we are talking about people in the public sector who have been working on that same salary for the same length of time having their payment capped because it might exceed £95,000. We really must see the cap in context.
Catherine McKinnell
Will the Minister clarify something? When she talks about someone in the private sector earning a maximum of £14,000—
Catherine McKinnell
Gaining a maximum pay-out of £14,000. Is the Minister talking about a statutory redundancy payment or a private contractually agreed one? If it is the latter, how does she know what all the private contracts provide for?
Anna Soubry
That example shows the profound difference between the private and public sectors. I do not for one moment say that people who work in the public sector do not work hard, but we must take a long, hard, honest look at the terms and conditions of those who are paid for by other taxpayers, to ensure fairness and equality between the sectors.
Catherine McKinnell
I thank the Minister for giving way. She is not comparing like with like by saying that the statutory redundancy payment is all that a private sector employee would get. In the vast majority of cases there would also be a contractual sum that would or could be agreed, and her analysis is, therefore, unfair.
Anna Soubry
I am just putting out the figures on statutory redundancy payments, and setting the context—it is important that we understand the context. That does not mean that there are not lots of people working in public service on low wages—my own brother works on a very modest wage within the NHS. We have to look honestly at those terms and conditions. My hon. and learned Friend the Member for South East Cambridgeshire made an important point. She struggled to think of examples of people on £25,000 who had worked for 30 years and would, in the event of being made redundant, be entitled to more than £95,000. That is all I am saying. That is why such examples are so interesting and, I think, make my point.
I will give some more examples. A librarian, earning £25,000 and with 34 years’ experience, would, even with the cap in place, be able to retire on a fully unreduced pension at the age of 55. A health and safety inspector earning £50,000, with 20 years’ experience, would receive a pension of £12,000 per annum, rather than the £12,500 they would have received before the cap. I think we would all struggle to imagine teachers being made redundant, but a classroom teacher earning £38,000, which is the maximum of the upper pay range, with a normal pension age of 60, would not be caught by the provisions.
We know that the armed forces are exempt. Again, I am grateful to my officials, because I asked why and whether they were put into a special case for good reasons such as the nature of their service. In fact, I am helpfully advised by my officials that, given the higher payments to those in more senior ranks, who can get quite substantial amounts of money for redundancy, we are looking at that situation and ensuring that there is a responsible attitude and pay-out.
Mary Creagh
Earlier, I made the point about the impact of potential gender discrimination. Has the Minister done any sort of gender impact assessment of the working of the two rules, in particular given the exemption for the armed forces, which are dominated by men?
Anna Soubry
I am not aware of any tooling, but I do not see this as a question of gender at all; rather, I think—
Anna Soubry
I am sorry, I really do not see it as a question of gender. If it was a question of a large number of public sector workers being women and tending to be low paid, the hon. Lady might be making a good point. Therefore, it behoves all councils, of whatever political persuasion, to ensure that they do not in any way, shape or form discriminate against women, nor should they see certain jobs as jobs for women or as in some way for pin money; and, if we are honest, local authorities of all political persuasions have done that over the years. I am delighted to see that those old-fashioned, outrageous attitudes are beginning to move.
Anna Soubry
No, I am going to make some progress, if I may. I did not intervene on any hon. Members, because I want people to be able to develop their arguments.
I will go through the list. Among firefighters there have been few if any formal redundancies. They receive statutory redundancy entitlements and the other staff fall under local government arrangements. People might want to know about the judiciary. Why are judges not covered? Judges cannot actually be made redundant. Magnox workers we will deal with in connection with the next group of amendments.
I was asked a number of other questions, including about academies, which are classified as part of the public sector—I will deal with that one in a moment. On pension top-up, it is often the case that those with the highest salaries will receive the greatest top-up, and we know that there are some examples of that. In answer to the hon. Member for Wakefield, the Green Investment Bank could well be in scope if it remains in the public sector as defined by the Office for National Statistics. If we are successful and the bank is sold into the private sector, it will not be in scope. Another important point is that the £95,000 cap represents only 5% of exits to date. As we might imagine, those primarily affected are the highest paid. That is an important statistic.
Catherine McKinnell
Will the Minister address the point about indexation? I appreciate that she is giving helpful statistics about the number of people affected or likely to be affected today, but it would also be helpful to keep in line with rising prices and wages into the future.
Anna Soubry
That is a good point. I am more than happy to take that one away and give her a response later.
Lucy Frazer
Subsection (9) states:
“Regulations may substitute a different amount for the amount for the time being specified in subsection (1)”,
so it looks as if there is provision to up the cap in future.
Anna Soubry
I am grateful to my hon. Friend. Another question that has been asked is why so much will be in secondary legislation. One reason why we are doing that is that it is genuinely a much better way to introduce something that will undoubtedly—I am not going to pretend otherwise—have its complications and nuances. It is important that we do not just introduce blanket rules, but have provisions to look at any cases that might or should be exempted.
Somebody asked a question—forgive me for not remembering who, but I think it might have been the hon. Member for Wakefield in an intervention—about the national health service, which, as she identified, has a cap of £160,000. This legislation will affect the existing cap, taking it down to £95,000.
I want to make some progress and deal with the amendments. Amendment 109 seeks to raise the cap to £145,000. I would argue that it is unclear whether the Opposition favour completely uncapped exit payments or a cap set at what could be over 10 times the maximum statutory redundancy. The Government have made it clear, however, that we want to put the figure at £95,000. We were very clear about that in our manifesto.
Amendment 105 seeks to impose a £27,000 earnings floor for the cap, but the cap will have no impact at all on the large majority of public sector workers. As I have said, it will affect only the top 5%. We are really struggling to find an example of any civil servant earning below £25,000, for example, who would be in any way affected by the cap. Those earning below £27,000 will not be caught and, in any event, we believe that this represents a generous package that many will be entitled to.
Amendments 106 and 115 would exclude those in long-term service. There may be some instances where individuals with very long-term service on more modest salaries could be affected by the cap, but as I have explained, the £95,000 represents a generous package compared with what is available to those on similar pay in the private sector. The majority of long-serving employees caught will be those with high or very high salaries.
Amendments 112, 116, 122 and 128 relate to annual revaluation. Amendments 112, 122 and 128 all seek to subject the cap to annual revaluation, while amendment 116 seeks to impose a minimum level of £95,000 for the cap. All those amendments fail to offer the flexibility that the clause provides for. The clause allows the Government to amend the level of the cap to take into account all prevailing circumstances, with the additional scrutiny of the affirmative procedure. Any form of fixed-term revaluation would just create an artificial and arbitrary mechanism. As any amendments to the cap require an affirmative procedure, the current mechanisms for changing the cap offer both flexibility and full parliamentary scrutiny.
Amendments 104 and 121 would exclude pension top-ups and payment in lieu of notice. We are not discussing retirement in the normal manner; we are discussing the additional top-ups linked to redundancy, funded by employers. As I mentioned previously, any earned pension that has been accrued by an individual is outside the cap. Again, it is really important that everybody appreciates that any sums of money paid by an employee into a pension pot of any description—anything accrued by them through their own money—is outside the cap. These top-ups linked to redundancy can greatly increase the value of pension payments above the level that has been earned through years of service. They often represent a substantial amount of an individual’s exit payments.
Payments in lieu of notice are also part of an exit payment and can be substantial for high earners—again, the emphasis really is on high earners—as some recent high-profile exits have shown. Excluding such payments would not just be unfair, but provide an obvious loophole to avoid the effect of the cap.
Amendments 108 and 124 relate to extending the waiver to local authorities and public authorities. Although we note and agree with the intentions of amendment 108 to give the full council of a local authority waiver power, I would argue that the amendment is unnecessary. Our indicative regulations, published on 3 November 2015, demonstrate that it is already our policy to give the full council of a local authority waiver power, and that will be articulated in the final regulations.
Amendment 124 seeks to grant all public sector authorities waiver powers. However, the potential inappropriate use of settlement agreements and exit payments more widely is precisely why the clause requires approval by a Minister of the Crown— rather than the employer—to relax the cap. Ministerial or full council approval means that the power will be exercised objectively with full accountability and will prevent circumvention and misuse.
For all those reasons, I very much hope that Committee members will take the view that the amendments add nothing and are not necessary, and that the Government have done the right thing by introducing the cap at £95,000. The reality is that in any event very few, if any, lower-paid workers will be affected if they are made redundant. It has to be said again that, compared with what is available in the private sector, an exit payment of £95,000 for someone who has been on low pay must be seen as generous.
Kevin Brennan
Let us make sure that that “very few, if any” is none. We have the opportunity to do that now. We could fulfil the Government’s objective and, if the Minister is right that no lower-paid workers will be affected, it would cost nothing at all, but it would provide assurance to people who are not fat cats on high pay in the public sector that the provision is not intended for them and will not affect them.
Mary Creagh
Does my hon. Friend think the Minister was being slightly misleading when she said that people in the private sector would be entitled only to the maximum statutory redundancy pay of £14,500? That is the statutory maximum, but, as I said in earlier interventions, when people are made redundant they are often entitled to pay in lieu of notice, so it is slightly misleading of the Minister to use the statutory maximum for redundancy in the private sector as a comparator.
Kevin Brennan
I do not think the Minister was being misleading, because had she been, it would have been out of order, but she was perhaps using an example that was not directly comparable, if I can put it that way.
Jo Churchill
I am listening to the hon. Gentleman and, having run a small business, I can say that when one faces decisions about making staff redundant, one is invariably looking at a situation in which one’s business is compromised by financial circumstances or a change in direction or whatever. To surmise that the majority of businesses—99%-plus of which are small and medium-sized enterprises in this country—give enhanced rates and so on is an illusion.
Kevin Brennan
That is certainly not what we are saying with the amendments, which are designed to ensure that the Government’s avowed intentions and the sentiments with which they were expressed are actually fulfilled. Without going over all the detail in this lengthy groups of amendments—the Minister made an effort to respond in some detail, for which I thank her—it is important that we test the Committee’s view on the Government’s previous position.
Last year, the then Treasury Minister, the right hon. Member for Witham (Priti Patel), said:
“This commitment, which will be included in our 2015 General Election manifesto, will cap payments for well-paid public sector workers at £95,000. Crucially, those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”
That is exactly what amendment 105 would do. It would fulfil the commitment that that Minister made to the British people at that time, which was the basis on which people understood the Government were intending to act to ensure that those earning less than £27,000 would not be affected. On that basis, I ask my hon. Friends and others to support me in voting for amendment 105, but I beg to ask leave to withdraw amendment 116.
Amendment, by leave, withdrawn.
Kevin Brennan
I beg to move amendment 110, in clause 35, page 50, line 16, at end insert
“except in the case of conciliation settlements”
This amendment would exclude settlements made at an early conciliation stage from the public sector exit payment cap.
The Chair
With this it will be convenient to discuss the following:
Amendment 111, in clause 35, page 50, line 16, at end insert
“except in the case of exit payments for potential claims under Part IVA of the Employment Rights Act 1996 (protected disclosures)”
This amendment would create an exemption from the cap for whistle-blowers.
Amendment 127, in clause 35, page 50, line 16, at end insert
“except for those payments made in COT3 pre-conciliation settlements.”
This amendment would ensure that Early Conciliation settlement via ACAS, cases when organisations use payments as an alternative to legal claims, which employers are legally obliged to attempt, would be excluded from the restrictions on public sector exit payments.
Amendment 118, in clause 35, page 50, line 16, at end insert—
‘(1A) Regulations under subsection (1) may not apply to exit payments paid under terms of settlement agreed between the parties in respect of litigation concerning claims of unlawful discrimination, harassment or victimisation (or both) brought under the Equality Act 2010, or exit payments that comply with an award order (or both) of a court or tribunal in relation to such claims.”
This amendment would exclude discrimination cases from the cap on public sector exit payments.
Amendment 125, in clause 35, page 53, line 24, at end insert—
“153D Reporting and referral mechanisms to be included in regulations under section 153A
(1) The Secretary of State shall by regulation make provision in relation to restrictions imposed by section 153A where the exit payment relates to a potential claim under Part IVA of the Employment Rights Act 1996 (protected disclosures).
(2) Regulations under subsection (1) shall—
(a) provide for the creation of a regulatory referral system, to apply where an exit payment relates to a potential claim under Part IVA of the Employment Rights Act 1996, in circumstances where—
(i) the Minister of the Crown as described in section 153C considers it appropriate; and
(ii) there has been suspected or likely wrongdoing, malpractice, health and safety risk, breach of law or regulation; and
(b) provide that any individual who is subject to an exit payment as described in subsection (1) shall have access to legal advice on section 43J of the Employment Rights Act 1996 (contractual duties of confidentiality).
‘(1) The Secretary of State or the Treasury shall periodically produce guidance on exit payments made in accordance with section 153D(1) for relevant public sector employees as described in section 153A(2).”
This amendment would provide further protections for employees who have made protected disclosures when being considered for exits.
Kevin Brennan
The amendments deal with the impact of the exit cap on conciliation and tribunal services for those who have been involved in disputes because of disability or whistleblowing, or general conciliation. Amendment 110 would exclude from the public sector exit payment cap settlements made at an early conciliation stage. I am discussing this in tandem with amendment 127, which would ensure that early conciliation settlement via ACAS—cases when organisations use payments as an alternative to legal claims, which employers are legally obliged to attempt—would be excluded from the restrictions on public sector exit payments.
Catherine McKinnell
My hon. Friend makes an important point. I hope the Minister is listening, because it is not just about the financial savings in these cases, but also the human cost involved where there may be a discrimination or whistleblowing claim, which is a very traumatic experience to have to take to tribunal. People should be able to get a fair settlement through the ACAS process if that is the most sensible course of action for them.
Kevin Brennan
I will come on to whistleblowing, but my hon. Friend is absolutely right to make that point.
Amendment 118 would exclude payments from the cap if they relate to claims of unlawful discrimination, harassment or victimisation under the Equality Act 2010. The Equality and Human Rights Commission is concerned that the provisions of clause 35 disincentivise the early settlement of disputes. The Government have given assurances that the cap will not apply to tribunal awards but, perversely, the cap will therefore encourage claimants to pursue their claim at tribunal, where awards in discrimination cases are uncapped, rather than settling at an early stage.
What assessment has the Minister made of the concern raised by the Equality and Human Rights Commission? Would a better approach not be to make it clear in the Bill that payments in respect of discrimination litigation, both tribunal awards and settlements, are excluded from the cap, while monitoring the existing, robust safeguards to ensure that the approval process continues to operate effectively? These safeguards will deter unmeritorious claims and encourage settlement where that is merited and offer value for taxpayers’ money. It is important that we hear the Government’s thinking on this matter.
Catherine McKinnell
Again, my hon. Friend makes an important point, which also highlights the Government’s glaring omission in not undertaking any form of equality impact assessment of these changes. Had they done so, it may well have highlighted the impact on these groups, who will obviously be disproportionately affected if the changes are not made by the Government.
Kevin Brennan
Yes, and that is exactly how bad law gets made, as we know. Therefore, I encourage the Minister to give some further thought to those points if she has not already decided how she will deal with them.
Amendments 111 and 125 would provide protections for whistleblowers—my hon. Friend mentioned this earlier—and remove them from the cap on exit payments. Capping payments could act as a deterrent to whistleblowers. There is concern across the House about the unintended consequences of an exit cap on whistleblowers’ willingness to come forward. Whistleblowers are public-spirited individuals who, when they spot an injustice or malpractice, make it public. We have seen their value not just in the public sector but in the private sector as well, but whistleblowing often leads to a backlash from the authority or business concerned. As a result, many whistleblowers do not continue to work in the same industry, understandably, and they often suffer financially as a result of their brave actions.
It is possible that such workers might think twice about whistleblowing if they are to be further punished financially by the proposed cap. Will the Minister update us on the latest view of the Treasury and her own Department on relaxing the cap for whistleblowers? The Government would do a grave disservice to openness and transparency in the public sector if they did not afford those brave individuals the protection they deserve.
Anna Soubry
I get slightly agitated when it is suggested that we did not think of something. Obviously we have thought about this issue, and we have already discussed with officials precisely those two points about people who have been booted out or unfairly dismissed for whistleblowing or through discriminatory injustice by their employer. As we know, tribunals—unusually, given the powers of the various tribunals—can give an award that is basically unlimited, meaning that in such circumstances, people who have done the right thing by whistleblowing or who have been treated unfairly through discrimination would find themselves unfairly treated by the imposition of a cap. We are absolutely alert to that issue.
Anna Soubry
I do not know why the hon. Lady is saying no. That is exactly the mischief that the amendments seek to cure. We understand exactly what the trap could be. The other thing that we absolutely understand is that only a tribunal can find that somebody has been made redundant or dismissed unlawfully because of their whistleblowing or because of discrimination. In other words, people must go through the whole process of giving evidence, with all the trauma involved, in order to get a finding. The difficulty is ensuring that we know on exactly what basis someone is entitled to a substantial amount of money in damages, in effect, for injustice.
If they have not gone all the way through to a determination by tribunal—everybody is wildly and rightly encouraged not to go all the way through the process but to settle, avoiding all the trauma, costs and loss of time—the problem is then that usually, although it should not be so, they will be subjected to a confidentiality agreement, or to some device that satisfies everybody. They get the money to which they are properly entitled, but nobody says, “Actually, yes, we did sack you because you are a whistleblower.” We are absolutely alert to the possibility that the measures could create problems.
That is why the regulations will deal specifically with such instances. We will issue good guidance to all public authorities so that in instances where there is a settlement—in other words, where an organisation says, “Yes, we accept that we made you redundant because you blew the whistle, and that was the wrong thing to do, but we are not going to go all the way to tribunal; we are going to settle beforehand”—the parties must clearly mark in some way the reason why they are settling, so that the payment can be exempted from the cap.
The hon. Member for Cardiff West and I are both trying to cure the same mischief. The question is how we achieve that. The trouble with the amendments is that they would open the process to abuse because somebody could claim to be a whistleblower without in fact being a whistleblower—they could be a fantasist. Such cases are rare, but it is a dangerous loophole that could be opened up, which is why we must ensure that we have a mechanism so that we know whether a person who is entitled to a large sum of money because they have either blown the whistle or have been discriminated against is not subject to a cap. We aim to do that through regulations.
In the case of a settlement agreement, where there is no finding by a tribunal, the claim might not be genuine for the reasons I have just explained, so appropriate scrutiny is essential before making exit payments over the cap. We will issue guidance to assist relevant authorities in determining when to use their discretion to relax the cap. Obviously, they should relax the cap if they have accepted that somebody has been unfairly dismissed or made redundant because they were a whistleblower. I hope that makes sense.
Catherine McKinnell
As a former employment lawyer, I can not help feeling that the Minister is creating a potential can of worms. Even though the issues may not be successful at tribunal for one side or the other, it is often in the employer’s interest to settle a case simply on cost grounds where the case would cost more to fight than to settle. From what the Minister is saying, it is not clear that the provision will allow for such circumstances and will not significantly complicate the situation for public sector employers across the board.
Anna Soubry
Forgive me, but I thought I had made it absolutely clear that this is about settlement agreements. Obviously we do not want people to go to tribunals; we want people to settle. In the case of a settlement agreement—this is the point—there is not a determination by a tribunal. Conciliated by ACAS or agreed privately, there is no finding by a tribunal, but the claim may not be genuine, so appropriate scrutiny is essential before making exit payments over the cap. [Interruption.] The hon. Member for Newcastle upon Tyne North says that I have not said that, but I have just said it again. Guidance will be in place to assist relevant authorities in determining when to use their discretion to relax the cap, so it will be made absolutely clear. If a public authority employer is of the view that somebody has been unfairly dismissed either because they are a whistleblower or because they have been discriminated against, guidance will make it very clear that they should relax the cap to allow for an extra-large payment to be made.
Hannah Bardell
Unison has raised concerns that a perverse incentive will be created for employees to avoid settlement via the early conciliation process, which is the optimum stage. What is the Minister’s view of that?
Anna Soubry
That is exactly what this is all about. It is about ensuring that, when two parties reach their settlement, the employer understands that it must not impose the cap. If the employer is admitting, “You have been made redundant in the wrong way. We accept that you are a whistleblower. Somebody said that they were going to make you redundant, and they did the wrong thing,” it has to make that clear when deciding the amount of damages to be awarded: “We find that you were a whistleblower. We find that you were discriminated against.” By doing that, the employer can relax the cap without any hassle or difficulty. I do not think it could be more clear.
Catherine McKinnell
To put it politely, the Minister is severely optimistic if she thinks that this is straightforward, because it is not. She will know that a settlement agreement is only entered into when neither party will accept liability. Therefore, it is not as simple as the employer accepting liability for something and entering into an agreement. Would it not make more sense to simply accept the amendment and to exempt all such agreements and arrangements from the cap altogether?
Anna Soubry
Absolutely not—and for the exact reason that the hon. Lady gave: we know that lots of people in settlement agreements will not accept liability. We also know that if we agree to the amendment, we will open the floodgates for people to make spurious claims that they have been made redundant on the grounds that they were a whistleblower. We will then get into a nightmare situation where there is a hearing to determine whether that person’s claim is accurate. Members are not letting me make progress, so that I can further explain this provision, which we have put some thought into.
Ministers of the Crown and Scottish Ministers will have discretion and be able to delegate it in the normal way. Under draft regulations, discretion will also be held by full council for local government bodies and for Welsh Ministers. A blanket exemption from the cap would unfortunately open the door to sweetheart deals designed to avoid the effect of the cap, based on dubious claims.
On amendment 125, there is no need for a regulatory referral scheme for whistleblowing claims. Whistleblowers can already make a disclosure directly to the relevant regulator or other prescribed person. Settlement agreements cannot stop them; the law is clear on that. There is no need to require that whistleblowing claimants have access to legal advice before entering into a settlement agreement. The Employment Rights Act 1996 already makes settlement agreements unenforceable unless the employee has received independent advice, so there is no need to require Ministers to produce guidance on settlement agreements for whistleblowers. In fact, we have already had three guidance documents in 2015 alone.
We have looked at this issue. Although I am not an employment lawyer, I am an old lawyer, so I can see the difficulties, but I am satisfied that the way we craft the regulations and, most importantly, the guidance we give to employers will cure the mischief that we all want to be cured.
Kevin Brennan
This is a complicated area. We have skirted over it a little bit, but there are real concerns about the implications for things such as early conciliation, which I raised under amendment 110. It has been rightly pointed out that that is a concern to trade unions, and Unison in particular. There is also a concern about the impact on whistleblowers. I think that the Minister was trying to give the Committee an assurance, in her own unique way, that the Government are committed to ensuring that genuine whistleblowers—
Kevin Brennan
And, as the Minister rightly says from a sedentary position, people who are discriminated against are not impacted when made redundant. I will not press the amendments to a vote at this stage.
Anna Soubry
As the hon. Gentleman might imagine, I often am quite robust with my officials. I am keen to ensure we get this right. If we need to go away and make another tweak, we will, because I want to be sure we get this right.
Kevin Brennan
The Minister said in response to one of our amendments that, in such areas, secondary legislation is often a better way to do things. If the Bill were rigid, it would create the kind of anomaly and cause the kind of concern raised by myself and other Opposition Members.
I take at face value the Minister’s commitment to go back and think about this, and we will have an opportunity on Report to explore some of these issues further and to ensure that we get the right sort of response from the Government. No doubt, those who watch our proceedings will have listened carefully to what the Minister had to say. Perhaps she will provide the Committee with some further information to help our proceedings on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kevin Brennan
I beg to move amendment 113, in clause 35, page 50, line 16, at end insert
“except where exit payments are made under existing public service agreements”
This amendment would exempt exit payments made under existing public service agreements.
The Chair
With this it will be convenient to discuss the following:
Amendment 119, in clause 35, page 50, line 16, at end insert—
‘(1B) An exit is not a relevant public sector exit if, prior to regulations, the terms of an exit taking place after the regulations issued under subsection (1) coming into effect are subject to a contractual agreement made prior to those regulations coming into effect between—
(a) an employee of a prescribed public sector authority and their employer, or;
(b) a holder of a prescribed public sector office and the relevant prescribed public sector authority.”
This amendment would exclude from the public sector exit cap certain exit agreements that have already been entered between the employer and employee, prior to the implementation date of the cap.
Amendment 120, in clause 35, page 50, line 16, at end insert—
‘(1C) Regulations made under this section may not take effect before 1 April 2018.”
This amendment would ensure that redundancy schemes underway before regulations implementing the cap take effect are not interfered with retrospectively.
Amendment 107, in clause 35, page 51, line 7, at end insert
“including any period of institutional reorganisation being implemented within two years of the passing of this Act”
This amendment would provide that regulations may make exemptions from public sector exit payment cap for any period of institutional reorganisation being implemented within two years of this Act.
Kevin Brennan
I am afraid it is me again. Hopefully, we do not have too much longer to go this evening.
This third group of amendments on clause 35 is about exit payments, which we have already started debating, and whether the Bill—my hon. Friend the Member for Wakefield, who is not in her place at the moment but has been here for the vast majority of our proceedings, raised this issue earlier—will retrospectively apply to agreements that have already started.
Let me first turn to amendment 113. A public service agreement was introduced by Lord Maude in 2010 that saved a significant amount of money in the first year in which it was implemented. More than 90% of one union—Prospect—voted for it. The review was based on research, analysis, consultation and, I think some would agree, a degree of give and take. It was an attempt to find a solution that was fair to both the taxpayer and the employee. It was supposed to settle the issue of access to pensions for 25 years, but now 100 pension schemes will be forced to change their rules. People made plans on the basis of those renegotiated conditions, which were supposed to last for 25 years. They had a significant effect on those workers’ life plans and the decisions that they made.
Comparing the quality of the process and the outcome, the 2010 review and the present review are light years apart. That has added to the worry of many workers, particularly those who are in a state of limbo when considering the outcome of the Bill. Why have the Government not considered allowing workers who were covered by the 2010 Maude agreement to continue to be covered by its terms and conditions? If that is not possible, will the Minister at least consider letting workers who started the process under the Maude review continue through to completion?
On amendment 119, many workers would have already started and completed their redundancy process had they known of the Government’s true intentions last January. They were wooed into a false sense of security by the pledge that the Minister for Employment said would be made, which I referred to earlier. The Government are directly responsible for the many workers who are now trying to complete their redundancy process before the Government pull up the drawbridge with this change of approach. They would have been reassured by the Government’s manifesto pledge to end taxpayer-funded, six-figure payoffs for the best paid public sector workers, because they did not think it was intended to cover them. They would have looked at their pay packet and thought, “I’m on £25,000, £26,000 or £27,000. The Government couldn’t possibly mean me.” Many people who might have considered taking voluntary redundancy would have thought, “I have had that reassurance from the Government. It has been made twice, so they are not thinking about me. I won’t be affected by these measures.” If they had known the full story, they might have changed their decision. They might have finished the exit process by now, so they would not be caught in this widened net.
Many of those people are on low or middle incomes and have not had the ability or the time to save large amounts of money to see them through the crisis of redundancy that they might be facing. What assessment has the Minister made of the number of workers who are already in the process of negotiation? What would the cost to the public purse be if all those who have started the process were allowed to finish and not to fall victim to the retrospective nature of this Bill? I am interested to know what figures the Minister has on that, because if she opposes the amendment today, she will obviously be doing so for a reason.
Will the Minister give us an idea of the Government’s intended date for the implementation of the Bill, assuming that it completes its passage through Parliament? We found out today that it will be considered on Report in the Commons on 8 March, and then there may be reconsideration in the Lords. When does she expect that it will be implemented? What reassurance can she give to workers that, if they have already negotiated exit settlements, the Government will not overturn those plans at the last minute and in effect make them the victims of a retrospective measure? Many of the arguments that I used for amendment 119 also apply to amendment 120, and I respectfully ask for her responses to them.
I turn to amendment 107. In speaking to amendment 119, I mentioned how workers were caught unaware by the Government’s widening of the net. A sensible solution might be to accept that there should be a period of grace, given that there was a change of approach. Amendment 107 would propose a period of two years before the legislation takes effect. Baroness Neville-Rolfe said that that would frustrate the intention of the cap. It would not do that, but it would give people who have plans under way an opportunity to complete them before it comes into force. After all, their expectations were very different as a result of Government’s previous statements.
Anna Soubry
Amendments 113 and 119 would limit the cap to new entrants, as has been described, and therefore not stop existing highly paid individuals from receiving six-figure payouts. That is why I oppose those amendments. Public sector exit payments have cost £2 billion a year in recent years and asking taxpayers to continue to fund exit packages of more than £95,000 for those already employed does not represent value for money and goes against our manifesto commitment.
We signalled our intention to end six-figure exit payments as far back as January 2015. We committed to do so again in our manifesto and in the Queen’s Speech. We have since issued a public consultation and consultation response. Public sector employers can therefore be in no doubt about the Government’s intention to end exit payments of more than £95,000 and should be planning accordingly. To answer the hon. Gentleman’s question directly, the regulations giving effect to the cap will not be in force until 1 October 2016 at the earliest, giving employers and employees time to prepare. The power to relax the cap can address any unforeseen unfairness or hardships that arise, which will include cases where the exit is agreed and scheduled to take place before the regulations come into force, but, for a reason beyond the control of the employee, the exit occurs after they have come into force. For those reasons, I ask the Committee not to support the amendment and I ask the hon. Gentleman to withdraw it.
Kevin Brennan
I will not press the amendment to a vote. I am grateful to the Minister for indicating the earliest date at which the legislation can come into force; it is useful to have that guidance. I do, however, think that again the emphasis on the very highly paid is not correct. Many on lower pay who have made plans accordingly could be affected, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kevin Brennan
I beg to move amendment 103, in clause 35, page 50, line 38, at end insert—
“( ) Regulations shall make provision to require prescribed public sector authorities to consider, prior to making a public sector exit payment—
(a) whether the payment being paid is appropriate; and
(b) whether the payment would provide value for money.”
This amendment would ensure that when considering staff for exits value for money is considered.
Value for money is a key concern, which is why it is mentioned in the amendment. The Government seek to justify a cap on exit payments solely on the basis of the cost of payments to staff between 2011 and 2014, which is not a helpful period to look at because the evidence provided fails to recognise that during that period employment across the public sector was reduced by 790,000, which inevitably affected the cost of exit payments. During that period, civil service employment fell by 107,350 using the current compensation scheme arrangements. No evidence has been offered to demonstrate that an exit payment cap would deliver real value for money and savings into the future, and it could do the opposite, as changing the compensation payments will naturally affect the willingness of staff to exit the public sector, which could lead to higher costs elsewhere.
We have already heard about the deal that Lord Maude described in 2010 as fair to the taxpayer as well as fair to workers; he also said that the deal was fair to employees. The agreement took into account length of service, salary and age, and there was a salary cap that protected against extremes, which resulted in a huge decrease in the number of settlements over £100,000, which is the Government’s intention in the measures before us.
Exit payment caps will have significant effect on workers, whose terms and conditions will be dramatically altered; there will also be an impact on the efficiency of the Government. Both of those issues should be of concern to the Minster. Baroness Neville-Rolfe said in another place that the amendments on value for money were not “necessary or desirable.” She went on to say,
“There is already a fundamental duty on the public sector to ensure that exit payments are value for money and that they are made in the most appropriate manner.”—[Official Report, House of Lords, 30 November 2015; Vol. 767, c. 981.]
What is the clear evidence that imposing the cap does not represent value for money or is not appropriate in a particular case?
Does the Minister now agree that it might have been a mistake not to have the formal impact assessment that colleagues referred to earlier? Even the Dangerous Dogs Act 1991 had an impact assessment that reached some 50 pages.
Kevin Brennan
That is exactly my point. Even the Dangerous Dogs Act had an impact assessment that was 50 pages long. The idea here is that we should not have an impact assessment of a measure that is extremely complicated and affects tens of thousands of workers and hundreds, if not thousands, of public and private sector businesses and bodies. It deserves an impact assessment. It would have made the issue of value for money far more transparent than it is to us in Committee. There is a lack of information about the likely savings to the taxpayer because a proper impact assessment has not been undertaken.
Perhaps the Minister can tell us what proof she is offering that what she is proposing will offer value for money and will bring genuine savings, and that some of the unintended consequences will not militate against that and make any net savings very small or even negative? Where are the facts and figures to support the Government’s claim that the previous schemes did not offer value for money and her new scheme will? In 2010, the scheme the Government introduced was said to offer value for money. Does it still offer value for money now? If not, what has changed in the meantime? Can the Minister guarantee that her changes will not damage the existing value for money that is being achieved as a result of that settlement?
What assessment has the Minister made of the impact of reduction of flexibility brought about by the exit payments cap on the ability of management to manage restructuring of organisations in terms of downsizing? What assessment has she made of the potential impact on staff morale? Is she satisfied that introducing exit payment caps will not actually result in moving costs from one section of the public purse to another. Why are the publicly owned banks the ones that are exempted from the value for money test in the Bill?
I want to mention the fact that the impact on value for money also affects the private sector. Private sector companies working in the nuclear industry will be affected by the exit payment proposals and their impact on value for money. We know about the specific concern in relation to Magnox, which we will discuss further at a later stage. When Magnox stopped producing electricity and moved into decommissioning, the staff were promised that their pensions and severance benefits would be safeguarded. If the Bill goes ahead as it stands, many hard-working and long-serving staff would lose a significant amount of money. There could be a significant impact on value for money in the private sector.
Value for money needs to be looked at in the round, taking in its impact on workers, employers’ ability to manage change, and the knock-on effect on other Government Departments and, indeed, on nuclear safety. I look forward to the Minister’s response.
Ordered, That the debate be now adjourned.—(Stephen Barclay.)