Grand Committee
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The Deputy Chairman of Committees (Baroness Watkins of Tavistock) (CB)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bell rings and resume after 10 minutes.
Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023
(1 year, 8 months ago)
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Viscount Younger of Leckie
That the Grand Committee do consider the Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023.
Relevant document: 30th Report by the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, these draft regulations were laid before the House on 30 January. Good investments are central to well-run pension schemes and decisions made by the trustees of those schemes have a significant impact on growing savers’ pension pots. Subject to approval, these regulations will help occupational defined contribution pension schemes—the so-called DC schemes—make greater use of performance-based fees, which are payable to investment fund managers when they deliver healthy returns on their investments. This will put DC schemes on an even playing field with other institutional investors such as insurers, investment companies, defined benefit pension schemes and overseas investors when it comes to accessing the same range of investment choices that come with fees.
The regulations also place new duties on the trustees of most DC schemes to disclose additional information about their investments. They are designed to ensure that trustees reflect on the investment decisions they make, as part of their ongoing fiduciary duty to create a diversified investment strategy that delivers for savers. These regulations continue the Government’s commitment to ensure that millions of hard-working savers in occupational DC pension schemes are receiving the best possible value. I am satisfied that these regulations are compatible with the European Convention on Human Rights.
Let me take a step back and put this in a bit of context. Over the past decade, there has been a significant increase in the use of illiquid asset classes such as infrastructure, real estate and private equity within institutional investment portfolios globally. Meanwhile, DC schemes in the UK have relied on public markets to generate returns and diversify portfolio risk. Pension scheme trustees’ primary focus must always be on delivering an appropriate return to members. But by investing almost wholly in liquid investments such as publicly listed equity and debt, pension savers can miss out on the potential to achieve better returns from being invested for the long term. This is a particular concern in DC schemes, where decisions which reduce long-term returns will affect member incomes in retirement.
Currently, less than 10% of UK DC investments are estimated to be in illiquid assets. The Pension Charges Survey 2020 evidenced that two-thirds of DC schemes had no direct investment in illiquid assets within their default fund arrangements. This is at a time when the UK DC market is growing in scale and in ambition. DC pension schemes currently hold over £500 billion of assets, a figure that is set to double to £1 trillion by 2030. The Australian DC market, in comparison, invests somewhere in the region of 20% of assets, on average. This includes investment in major UK assets such as the King’s Cross redevelopment project and Manchester, Stansted and East Midlands airports.
The DWP has run several consultations to understand the reasons why DC schemes have largely avoided investing in private markets. The feedback received highlighted concerns that performance fees, typically associated with illiquid assets and levied by fund managers, would put schemes at risk of breaching the existing 75 basis-point regulatory charge cap. While the charge cap has successfully reduced costs, it has arguably led to more focus on costs than on the returns that different asset classes can provide. In January, the Minister for Pensions launched a consultation on proposals for a value-for-money framework, which aims to address this. These regulations continue that value-for-money theme. The essence of what we are trying to do here is to make it easier for DC schemes to access a broader range of investment opportunities that could generate higher return outcomes.
I will now say a bit more about the issues highlighted during the consultation. We listened carefully to earlier concerns raised during the consultation that this change to the cap could weaken existing saver protections, and we have acted on this feedback. Regulation 2 of this instrument sets out the criteria that “specified performance-based fees” must meet to be considered outside the charge cap. These include a requirement that fees must be paid only once returns to the scheme have exceeded a pre-agreed rate or amount agreed by trustees and the fund manager prior to investment.
The criteria include additional safeguards that trustees must also agree in advance, and that performance-based fee structures include mechanisms to guard against excessive risk-taking or fund managers being paid repeatedly for the same level of performance. The regulations provide for the use of high-water marks and fee caps, for instance, which are commonly applied in the investment market to give investors this extra level of protection.
The regulations are purposefully silent on what rate of returns or type of fee structure mechanisms must be applied. This is to allow trustees and fund managers to develop and negotiate terms that are in the best interests of savers. Provided that trustees and their advisers apply these terms, such performance fees will not erode retirement pots because they should arise only when savers have received a favourable return on their investments.
The DWP received positive responses to this change, particularly from larger DC pension schemes which said that the ability to remove these fees from their charge cap calculations will make it easier for them to consider new asset classes. The DWP has published statutory guidance to assist trustees with determining the criteria for performance-based fees that can be considered outside the charge cap. The guidance is very clear that trustees should seek professional advice on their investments where performance-based fees are prevalent.
To ensure transparency to members, performance-based fees incurred are required to be disclosed, and the value to members assessed, in the scheme’s annual chair’s statement. To be clear, these changes place no obligation on schemes to agree to investments that come with performance-based fee arrangements if this is not in their members’ best interest.
With any investment there is no guarantee of higher returns. In accordance with existing legal requirements, trustees must invest in a manner calculated to ensure security, liquidity and profitability, and have regard to the need to diversify investments. This provides that trustees are guided on assessing the risk of portfolios and, with this, managing the risk of lower as well as higher returns.
Regulation 3 of this instrument sets out new duties on DC trustees to include an explanation of their policy on investing in illiquid assets in their statement of investment principles. These explanatory statements, covered in the regulations, include whether investments in illiquid assets are held, the types of illiquid assets and why this policy is of advantage to members. Where investments will not include illiquid assets, trustees are expected to give reasons why, along with whether they have plans to invest in the future.
While some of our bigger DC schemes already provide this information, this is not the approach taken by all. Some master trust schemes also disclose information on the asset classes in which the scheme holds investments, but this is not commonplace and most members are not in receipt of this information. The regulations address this by placing a duty on trustees to disclose the percentage of different classes of assets held in the scheme’s default funds. Asset classes covering liquid and illiquid are prescribed in the regulations.
Greater understanding and accountability of the investment decisions made by trustees on behalf of their members will be key to improving value for members across all schemes. The industry’s response to these new duties was that the regulatory burden is reasonable and proportionate while still retaining the wider benefits these changes will bring. It is worth noting that asset allocation disclosure is already mandatory for Australian pension schemes.
The DWP will work with the Pensions Regulator to ensure that trustees are supported with the new duties. Information contained in chairs’ statements and statements of investment principles are monitored by the Pensions Regulator as part of its wider strategy on regulatory compliance.
We will also look closely to monitor the impact of our changes on investment performance. In addition, Regulation 7 of these regulations requires that a review of these regulatory provisions must be undertaken and published within five years of the regulations coming into force.
These regulations also correct a drafting error at cohort 1(b) of the staging profile in Part 1 of Schedule 2 to the Pensions Dashboards Regulations 2022. The error relates to the staging deadline for master trust schemes that provide money-purchase benefits only. While we are not aware of any schemes being affected by this minor error, it is none the less appropriate to amend the Pensions Dashboards Regulations 2022 to resolve this issue as soon as practically possible. With that, I commend this instrument to the Committee and beg to move.
Lord Sharkey (LD)
My Lords, as the Minister has said, this statutory instrument contains seven regulations. The first is to do with timings and commencement. We have no comment on this, except to ask why there will be a delay of 21 days in bringing the correcting dashboard regulation into effect.
Regulation 2 excludes specified performance-based fees from the charge cap, and the Explanatory Memorandum sets out the rationale. In paragraph 10.5, the Explanatory Memorandum speaks of
“sufficient safeguards for schemes and members to protect them from excessive charges”
consequent upon this regulation. This is clearly a critical area. The possibility of excessive charges is an obvious concern and was highlighted in the recent SLSC report on this instrument. Can the Minister set out what these safeguards are and on what basis and by whom they were judged to be satisfactory?
Regulation 3 will require schemes to include an explanation of their policy about investing in illiquid assets in their default statement of investment principles, as the Minister said. The taxonomy of asset classes is explained in detail in paragraph 25 of the statutory guidance and is given in Regulation 4(5). This has eight categories and does not attempt to define “illiquid”. In fact, I could find nothing in the instrument and its accompanying documents that approaches a definition. Of course, it may be that I have overlooked it somewhere; I would be grateful if the Minister could guide me on the matter, point to a definition and perhaps explain how it was arrived it and by whom. The chief purpose of this instrument is to remove barriers to investments in illiquid assets, and it would be rather odd if there were no criteria for assessing whether an asset was to be counted as illiquid.
Regulation 4 also requires trustees or managers to report on specified performance-based fees incurred by the scheme.
Regulation 5 requires such disclosures to be made public. This all seems very sensible, but nowhere is there any sense of an upper bound on these specified performance-based fees. In its report, the SLSC made this point.
Since the EM was produced, the DWP has published extensive statutory guidance—22 pages—which states that the rate or amount of these fees is for the trustees and managers of the scheme with support from their advisers and their fund manager to agree based on the nature of the investment proposed. At first reading, this seems a bit like an invitation to a fleecing. The Government were happy to install the charge cap in the first place. What consideration was given to capping these special performance-based fees? Paragraph 76 of the statutory guidance, “Volatility of returns and performance based fees”, states:
“The 2023 Regulations require that specified performance-based fees structures must include mechanisms that offer protections to pension schemes and their members. This is so fund managers are not taking excessive risk or being paid twice for the same level of performance or for performance which turns out to be impermanent.”
I cannot see where that is spelled out in the instrument as a must, and I would be grateful for the Minister’s help in clarifying the matter.
Regulation 6 corrects an error in the pensions dashboard, and we have no comment on that.
Regulation 7 provides for a review of the impact of Regulations 2 to 5 every five years, which seems sensible. We are particularly interested in seeing whether the modification of the charge gap and the disclosure requirements lead to an increase in investment in illiquid assets. The SLSC made this point in its formal recommendation to the House:
“As the fee changes made by these Regulations aim to encourage pension schemes to increase their investment in illiquid assets, the House may wish to ask the Minister how schemes’ subsequent exposure to an increased risk of lower, as well as higher, returns is to be monitored and how trustees are to be properly guided on assessing the risks to the portfolio.”
Those are very good questions, and I would grateful if the Minister could address them.
Baroness Drake (Lab)
My Lords, I hold pension trustee positions, and refer to my interests as set out in the register.
These pension scheme regulations are being introduced for two reasons. First, the Government believe that they will facilitate greater investment by pension schemes into private markets, securing better returns for savers. Secondly, the Government want to increase DC pension fund investments in UK start-ups, infrastructure, green investment and illiquid asset classes in private markets.
Of course, this is to be welcomed if beneficial alignment is achieved between the best interests of the ordinary citizen and their pension pot, and investments that benefit the UK economy to achieve the win-win. However, there are barriers to be addressed in getting there. The problem with these regulations is that the exclusion of performance fees from the DC charge cap will not be the driver of significant changes of investment in illiquid asset classes, but consumer protections will be weakened where money is invested without the security of that cap. The charge cap was introduced to protect millions of people investing through inertia under auto-enrolment. To achieve the diversification of investments which would benefit the UK economy, the complexities of other barriers to investment in private markets need to be addressed. Overreliance on removing consumer protections from pension savers will not do it.
I will reflect on some of those complexities. The pension regulatory environment, which is in perpetual change, is driven by endless policy initiatives without certainty as to the Government’s underpinning strategy. Recent regulation enabled performance fees to be smoothed over a five-year period, but before even testing the efficacy of those changes the Government proposed reversing them in favour of these. Trustees need greater consistency when considering long-term investment decisions—consistency between not only one Government and the next but one Minister and the next. Also, the complexity of regulation means that government contradicts itself. For example, the Government asked the Productive Finance Working Group to make recommendations on increasing private market investments, while TPR was consulting on prohibiting the schemes from holding more than 20% of assets in unregulated investments.
There is also the need to strengthen confidence in government economic policy and governance, a sentiment captured by the noble Baroness, Lady Lane-Fox of Soho, president of the British Chambers of Commerce, in the FT yesterday, where she warned policymakers that
“businesses are holding off making big investment decisions given the UK’s recent political and economic upheaval”
and that,
“People just don’t feel like taking risks”
in the UK.
Inefficiencies from pension freedoms are weakening the long-term private pension system and the approach to illiquid assets. For example, as savers get to 55 or 57, they can take their pots as cash in a series of lump sums and draw down funds in any combination of timing and amount that they choose. Small pots are growing exponentially. People change jobs more frequently. Pension transfers are increasing, including out of workplace schemes. Trustees have to implement these freedoms, which in turn impact on investment decisions.
Higher costs incurred with illiquid assets need to be borne fairly across the members of the scheme, as they would impact members differently. Those close to retirement or who choose to exit the scheme are at greater risk of paying higher fees without the additional returns.
Then we come to the issue of how to ensure value for members and higher returns when performance fees are outside the charge cap and inert citizens directly bear the investment risk. Achieving that higher value will be very challenging, as will measuring it for the Government to see it, as it is with securing standardised disclosure of performance fees. There is a lot of history here about making fees and charges work effectively for ordinary savers.
Ensuring that fees are payable only for realised outperformance is to rest on a tighter definition of performance fees and the discipline of negotiated agreements between trustees and asset managers. Those are the two big levers that are relied on. The Explanatory Memorandum states that excluding pension fees will encourage innovation on fees, but where is the evidence? It is an assertion, and lots of people assert it in their submissions, but it is difficult to find hard evidence. Exclusion of performance fees might set a precedent for removing other charges. Having removed that hard-fought security for consumers, the gate is open. It can disincentivise innovation because the cap has been removed. It can inhibit the evolution of fee structures and private market products that better accommodate DC pensions to the benefit of the UK economy.
Testing the impact of negotiated agreements between trustees and asset managers needs to be assessed much further before weakening the charge cap, given the challenge of achieving member fairness on performance fees. It is an assertion that those negotiated agreements will produce that beneficial result, but that should be really tested before such a critical consumer protection is removed.
The Government have set up a long-term asset fund, the Productive Finance Working Group is considering recommendations and the FCA and TPR have commenced consideration of value for money. This is work in progress, yet the Government push ahead with amending the cap, increasing the risk to the saver.
Investments that help with transition to net zero, environmental protection, housing or infrastructure which support economic growth and savers’ best interest are to be welcomed. Indeed, ESG and TCFD reporting and governance requirements are nudging schemes more and more in that direction. Several pension providers have indicated that they would no longer agree to traditional performance fees but remain committed to investing in private markets. Some large schemes hold illiquid investments within the existing charge cap. Some fund managers are indicating innovating on growth equity funds, and fee and product structures will evolve from the high-growth prospects of the UK automatic enrolment market—agreements achieved through scheme scale, not by weakening consumer protection.
One of the policy options in the impact assessment was government mandating investment in illiquid assets by pension schemes. Although rejected, this is the second hint at mandation after the joint December 2021 letter from the Prime Minister and the Chancellor. These DC savings are citizens’ private assets. Mandation would replace or undermine the fiduciary duty on trustees, require private assets to be harnessed and directed to meet government policy objectives, and probably risk market distortions. It would risk imposing inappropriate risk appetites on savers and increase uncertainty on liability, consumer protection and duty of care. It would certainly weaken employer engagement, and it could seriously risk undermining public confidence in auto-enrolment. Those are big consequences from mandation.
I have four questions to ask the Minister. Can he confirm that the Government have no intention to mandate how pension schemes must invest? How will value for members assessments be altered in light of the new risks arising to pension savers from these regulations? How will the Government ensure that savers close to retirement or who exit a scheme do not pay higher fees without additional returns from illiquid investments? What new measures will be introduced to enhance the availability of charges and cost information on illiquid investments? What new initiatives are the Government expecting the FCA to take to regulate for fairness and consumer duty in all the private markets that these regulations cover? I am sure that the DWP will say that it is not within its remit to know what the FCA is doing, but to make a decision that lifts such a hard-fought-for and fundamental consumer protection on the level of evidence that is before the Government, without knowing, having considered or having discussed with the FCA its approach, is an omission. It would be helpful to leave those questions.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for introducing these regulations and those noble Lords who have spoken. As we have heard, these regulations cover two distinct issues—one minor and the other rather less so. I will do the minor one first; it is a change to correct a drafting error in the Pensions Dashboards Regulations 2022, amending the line in Part 1 of Schedule 2 that specifies which master trusts are required to connect to the pension dashboard by 30 September this year. I do not want to kick a project when it is down, but, to me, that is not the most pressing problem attached to the Pensions Dashboards Regulations 2022. In fact, the Minister recently announced that the entire timetable, which is hard-wired into these regulations, is being scrapped, so the regulations will presumably need to be either repealed or amended. Could the Minister tell us whether the intention is to repeal them or if they are simply going to be amended and when we will know more about that?
On the major provisions in the regulations, the objective behind them is clearly to push pension schemes into investing more of their members’ money in illiquid assets. As we have heard, they will use two basic levers to do that. First, they will require all pension schemes with more than 100 members to explain their policy on illiquid assets and to disclose their schemes’ investments in them; and, secondly, they will exclude specified performance-based fees from the list of charges that fall within the 0.75% regulatory charge cap.
Just to be clear, these Benches would like to see greater investment in ways that will help the transition to net zero and in infrastructure projects that support economic growth, but we have heard today some important questions about the detail of these regulations, and I hope the Minister has some answers ready. First, the question of risk was raised. The noble Lord, Lord Sharkey, is right: I could not find a definition of illiquid assets either, but they clearly cover a wide range of investments. They are not just buildings or infrastructure but, as the Secondary Legislation Scrutiny Committee pointed out, could include art or intellectual property. Some illiquids clearly carry significant risk. This legislation also targets venture capital investments, which often have a high failure rate.
The noble Lord, Lord Sharkey, mentioned the 30th report from the Secondary Legislation Scrutiny Committee, which drew these regulations to the special attention of the House. It expressed concern that, without limits on the proportion of illiquid assets in a pension scheme, the scheme may not be able to deliver the returns that members anticipate. It pointed out that many of those members, of course, have been auto-enrolled by their employer and therefore had no involvement in the choice of their pension scheme investments.
As the noble Lord, Lord Sharkey, pointed out, the committee asked two specific questions that it thought Members of the House might like to put to the Minister. One was about how schemes’ exposure to increased risk of lower returns would be monitored, and the other was how trustees would be guided on assessing the risks to the portfolio. I may have missed this in the Minister’s comments—I heard him talk about advice to trustees on charges, but I am not sure that he talked about advice on assessing risks—so it would be helpful if he would address that.
I want now to look briefly at the proposal specifically to exclude certain specified performance-based fees from the list of charges that fall within the regulatory charge cap. As my noble friend Lady Drake has reminded us, the charge cap was introduced to protect the millions of people who are saving and investing through inertia, so surely there must be a compelling case for the Government to do anything that might weaken that. It is worth pausing briefly to remember that, in 2013, DWP research showed the impact of higher fees on pension savings. An individual who saves throughout their working life via a scheme with a 0.5%—50 basis points—annual charge cap on the value of their pot could lose 13% of their savings to charges. Push that to 1% and they could lose almost a quarter; push it to 1.5%, the figure is around a third. These basis points may sound small but their impact on the value of a fund is really quite significant.
Viscount Younger of Leckie (Con)
My Lords, I thank the Committee for its input and for the lucid remarks made by the three Peers who spoke. I also thank noble Lords for their interest in this brief debate; I realise that all three Peers have taken a great interest in this issue in the past and are experts at different levels in this sphere. If I may say so, I also thank them for their general support for these regulations. However, I am aware that a number of quite specific and detailed questions have been asked, and I will, as ever, do my best to answer them.
I will start by answering the question about the definition of “illiquid” raised by the noble Lord, Lord Sharkey. Illiquid assets are defined in Regulation 3(2)(d) as those
“which cannot easily or quickly be sold or exchanged for cash”.
I hope that gives him some comfort.
The noble Baroness, Lady Drake, asked about the intention to mandate pension schemes in terms of how they must invest. Throughout the development of these regulations my department, DWP, has been clear that investment decisions, including whether illiquid assets are suitable investments for schemes, remain a matter for trustees, in line with their fiduciary duty to manage risk and reward in their members’ best interests. I alluded to that in my opening speech.
The noble Lord, Lord Sharkey, was the first to delve into the detail of the charging. I hope that I can answer all his questions and the follow-up questions from the noble Baronesses, Lady Drake and Lady Sherlock. The first question was: why amend the charge cap, which has been successful in ensuring that savers are not charged high fees? The charge cap remains an important protector. Our reform is intended to give pension schemes the opportunity to access a wider range of those investment opportunities that can come with fees. We believe that, where higher fees also bring higher total returns, the overall effect will be to grow pension pots—which is surely in the interests of savers.
The noble Lord, Lord Sharkey, further asked how one prevents fund managers taking excessive risk or, as he put it, being paid twice for the same level of performance. To come within the definition of specified performance-based fees in the regulations, a fee structure must be designed between the fund manager and the scheme trustees to mitigate the effects of short-term fluctuations in the investment performance or value of the managed investments. Different mechanisms can be in place within a fee structure that protects from excessive risk or repeated payment, such as so-called high-water marks, whole fund structures, clawback mechanisms, escrows and caps. Statutory guidance explains these mechanisms and trustees are encouraged to seek professional advice on them before they agree to invest. I will come on later to answer the question about protections for trustees. In fact, it was about guidance for trustees, which I will come back to.
The noble Lord, Lord Sharkey, asked further about how performance-based fees might be measured and apportioned fairly, which is linked to the question raised by the noble Baroness, Lady Sherlock, about smaller schemes. We recognise that this is a challenge, and trustees should work with fund managers to consider how performance-based fees should be charged to ensure fair allocation for members. This is particularly important in open-ended funds, where members can enter or exit at various points and may not always benefit from periods in the investment cycle where there is positive performance. Trustees are thus encouraged to review industry guides published in 2022, which provide useful help on member fairness and other challenges for DC pension scheme decision-makers when investing, or considering investing, in illiquid assets.
The noble Lord, Lord Sharkey, asked how the regulations ensure that members are protected against paying high fees for moderate performance, which is an interesting point. The regulations are clear that, for performance-based fees to fall outside the charge cap, scheme trustees must agree with fund managers methods to mitigate the risk of fees increasing due to market volatility and the time period by which any fee will be measured. To ensure transparency to members, payments of performance-based fees are required to be disclosed and the value to members assessed in the scheme’s annual chair’s statement, as I mentioned in my opening speech.
The noble Baronesses, Lady Drake and Lady Sherlock, asked an important question about how the Government will ensure that savers close to retirement or who exit a scheme do not pay higher fees without additional returns from illiquid investments. As I said before about another matter, this is a challenge. DWP statutory guidance sets out that trustees should work with fund managers to consider how performance-based fees should be charged to ensure fair allocation for members. As mentioned earlier, trustees are encouraged to review industry guides published in 2022, which provide useful help in this respect.
The noble Baroness, Lady Drake, asked what the value would be for members in terms of how it is assessed, and how it could be altered in the light of new risks arising from these regulations. Trustees who pay specified performance-based fees will be required to assess the extent to which these represent good value for members. This builds on existing requirements on all DC schemes to assess values for all costs and charges for members. Schemes with under £100 million in assets will not be required to include this as part of their extended value for member comparison against larger schemes. This may help to answer a question raised by the noble Baroness, Lady Sherlock. Moving forward, it is proposed that specified performance-based fees will be included in the costs and charges metric for the new value-for-money framework.
The noble Baroness, Lady Drake, asked further what new initiatives the Government expect the FCA to take up to regulate for fairness and consumer duty in all the private markets that these regulations cover, which is an important question. Existing FCA duties to authorise investment providers and vehicles, and regulate private markets, will apply. The Government expect trustees and their advisers to seek detailed confirmation—
Viscount Younger of Leckie (Con)
My Lords, as I was saying, I will conclude my remarks, although there are a number of questions that I still wish to address.
The first was from the noble Baroness, Lady Drake, concerning what new initiatives the Government expect the FCA to take on to regulate for fairness and consumer duty in all the private markets that these regulations cover. I started to answer this, but I will cover it again. The FCA’s existing duties to authorise investment providers and vehicles and regulate private markets will apply. The Government expect trustees and their advisers to seek detailed confirmation from fund managers as to how a proposed product complies with the charge cap regulations, including in relation to any specified performance-based fees, before assessing whether it is in the best interests of the scheme to invest.
I now turn to the question asked by the noble Baroness, Lady Sherlock, on guidance for trustees, which was a good point. It will be for trustees of pension schemes, considering professional advice, to determine their allocations to illiquid assets subject to their cash-flow obligations and subject to their duty to act in the best interests of their members. Many pension schemes are comfortable with the notion of segmenting their portfolios into a liquid component and an illiquid component. This allows separation of the portion of their assets that will not be needed for liquidity purposes for many years. The Pensions Regulator’s code of practice contains guidance for trustees on their investment approach. This includes how they should evaluate performance, and risk and reward profiles.
The noble Baroness, Lady Drake, asked why we should legislate so soon after the 2021 regulations came in, which gave schemes the option to smooth over multiple years of the presence of performance fees with the charge cap. Feedback from the industry suggests that changes introduced in 2021 would go only so far and were unlikely to move pension schemes away from a focus on cost to one of value, which is one of the key principles of what we are doing in these regulations. We want trustees to have the confidence to invest in illiquid assets that come with fees where it is in their members’ best interests, safe in the knowledge that, in targeting higher returns, they will not fall foul of this charge cap.
The noble Baroness, Lady Sherlock, asked about other challenges that DC schemes face when considering investment in illiquid assets. It is fair to say that our change removes a regulatory barrier. At the same time, we recognise there are other non-regulatory challenges for DC schemes, such as those relating to lack of scale, liquidity and regular pricing. We continue to discuss these with the industry and believe that, with government encouragement, it will be incentivised to come up with solutions to meet those particular challenges.
The noble Lord, Lord Sharkey, asked why there are 21 days before the dashboard regulations are brought into effect. He might know this, but for the benefit of the Committee, this is commensurate with Regulation 1 of the Pensions Dashboard Regulations 2022.
The noble Baroness, Lady Sherlock, asked a number of questions about the timing of dashboards legislation. We are considering legislative options to amend the connection deadlines and will update Parliament, if this is of help, before the Summer Recess. I hope that is not too far away.
The noble Baroness also asked whether the dashboards will ever happen. I was perhaps expecting that question, so I will use this opportunity to say that pensions dashboards will be a vital tool to help savers plan for their retirement, and the Government remain thoroughly committed to their delivery. I know that this commitment is shared across the pensions industry, but it is vital that the foundation upon which the dashboards ecosystem is built is safe, secure and works for both the pensions industry and individuals searching for their pensions. As the noble Baroness knows, more will be coming out on this shortly and I have also pledged to update Members when we think it is right. This could be in advance of the summer, as I think I have said in the past.
Illiquid investments have the potential to bring strong returns, and exempting specified performance-based fees from the charge cap will help to remove a barrier to investment in this area. Placing new duties on trustees to disclose their illiquid investment strategy and their asset classes will also ensure ongoing consideration of a diverse range of assets as part of a more balanced portfolio. Considering the financial challenges that many are facing, it is vital that decision-makers are continually reviewing investment propositions that can deliver the best possible outcomes for the millions of savers in occupational pension schemes. With that, I commend this instrument to the Committee.
Baroness Sherlock (Lab)
I thank the Minister for taking the time to answer those questions. I just want to ask him to explain the definition of an illiquid asset a bit more. He is right to point to Regulation 3(2)(d), which says that they are
“assets of a type which cannot easily or quickly be sold or exchanged for cash”.
I suppose most things can be sold or exchanged for cash reasonably quickly if you do not mind how much you get for them at a fire sale. I have two questions. If that means
“cannot easily or quickly be sold or exchanged for cash”
at a reasonable price, or at least at the price one had paid for them, would that apply to UK gilts last autumn? Secondly, the reason this matters is that there is a lot of money to be made from this definition. Where that is the case, the definition is likely to end up being the subject of some dispute. What is the mechanism to resolve this? Whose decision is it? Does someone just get to do it? Will the regulator push them, or will it end up in court? How will this be litigated?
Viscount Younger of Leckie (Con)
I hope I can be of some help. I think I should write a letter on this quite detailed question, as it takes us further from the question originally asked by the noble Lord, Lord Sharkey. Part of the answer could be—I will need to follow up with a letter—that we do not want to prescribe our approach too much. As I mentioned earlier, it will be very much up to the trustees and pension funds to decide for themselves. It might not be right to have too much prescription here, but I will go no further than that. The noble Baroness, Lady Drake, may know more than me, as one can go only so far with a definition. I will write to clarify further what we mean.
Baroness Drake (Lab)
Trustees cannot make investment decisions now without taking advice. These regulations may be adding a bit of extra detail, but that principle is already there. The department and regulators can mandate trustees to provide more information, and transparency is a great thing; I do not demur from that. The Minister has identified all the other things that need to be done and discussions that are going on.
However, there is an issue about which there is still not a clear answer. Organisations such as the PLSA, which is a trade body representing pension schemes and their administrators, do not think that this is the correct thing to do—and that is not the only one. I do understand why, in the absence of evidence and the presence of many other significant barriers, the Government have chosen to weaken a fundamental consumer protection in the as-yet-unverified belief that it will be a major driver of increased investment in illiquid assets.
That is the bit I cannot find anywhere. I can find assertions of views but the reasoning is, I am afraid, quite weak. What worries me is that this will start encroaching on what was such a fundamental protection. Most schemes come in way below 0.75%—there is so much headroom—and we know that leverage can come from the scale of the scheme master trusts that are coming. So why are you doing this when you cannot yet have confidence—because you have not tested it —that it will actually benefit the saver?
Viscount Younger of Leckie (Con)
I thank the noble Baroness for her further question. I will add some further detailed comments to the letter that I am going to write to the noble Baroness, Lady Sherlock, but let me say this: I am aware of the natural scepticism of the noble Baroness, Lady Drake, for what we are doing in bringing in performance-based fees. Her question is one that we have asked ourselves. I clearly have not managed to convince her about the consumer protections that we believe are there. I spent some time spelling out what those protections are, including the role of trustees, what is expected of trustees, the guidance for trustees and the role of the FCA and the regulator in all this. There is a lot that I would prefer to put down in writing. I am not sure whether I am going to be able to convince the noble Baroness but I hope that I have given her some comfort that I will at least try my best.
Building (Public Bodies and Higher-Risk Building Work) (England) Regulations 2023
(1 year, 8 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Scott of Bybrook
That the Grand Committee do consider the Building (Public Bodies and Higher-Risk Building Work) (England) Regulations 2023.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, under the Building Safety Act 2022 and subsequent secondary legislation such as this, the Government are introducing a raft of measures to improve building safety. We are introducing the biggest reforms to the design and construction sectors in a generation, including the introduction of duty-holder and competence requirements for all building work. They also include introducing a more stringent regulatory regime during design and construction for higher-risk building work, to be overseen exclusively by the Building Safety Regulator.
The “higher-risk” definition during design and construction applies to work on buildings with at least two residential units, care homes and hospitals that meet the 18-metre or seven-storey height threshold. Under the current system, there is an exemption available to public bodies where they can obtain partial or full exemption from the building control procedural requirements if this is approved by government. These regulations will ensure that, in future, any exemption allowing public bodies to carry out building control on their own buildings will be limited to non-higher-risk building work only.
The exemption will not apply to higher-risk building work moving forward, as the Building Safety Regulator will be the sole building control authority for all higher-risk buildings, including those owned by public bodies. Although these regulations make only a small change, they are an important part of our ongoing reforms to ensure the safety and standards of all buildings and to ensure a consistent approach by the Building Safety Regulator to all higher-risk building work.
These regulations make three sets of changes. However, I will start by providing some context and background. After the tragedy of the Grenfell Tower fire in 2017 and the deaths of 72 people, the Government committed to fundamental reforms by implementing the recommendations of Dame Judith Hackitt’s independent review and introducing a new building safety regime. The review made significant recommendations, including the need to reform building control as the system which checks that building work complies with building regulation requirements such as fire safety.
Building control is carried out freely across the public and private sectors at present. Anyone commissioning building work, whatever its nature, can choose to use either the local authority—that is, the local council—in the public sector or a private sector approved inspector to carry out the building control. There is then a further option, open specifically to public sector bodies. If approved by Ministers, these bodies can obtain an exemption from some or all of the procedural requirements of building control and then carry out building control on their own buildings. This exemption has very rarely been used and almost all building control is carried out by either local authorities or approved inspectors, as opposed to public bodies self-regulating. In all cases, and irrespective of any exemption, the functional requirements of the building regulations, such as fire safety, continue to apply.
One of Dame Judith Hackitt’s main findings on building control was the lack of a level playing field between public and private sector building control. She recommended that the Building Safety Regulator should carry out building control for higher-risk building work and therefore end the choice of building control for these buildings. The Building Safety Act 2022 contained many reforms related to building control, including implementing a recommendation to end duty-holder choice of building control for higher-risk buildings, as well as strengthening the regulation of the building control profession.
These regulations are only a small part of our building control reforms, which themselves are only a part of wider building safety reforms. However, they are important. They contain measures that support the new system and its operation for higher-risk buildings, led by the Building Safety Regulator. The three sets of changes that these regulations make are as follows. First, the regulations end Ministers’ ability to grant building control procedural exemptions to public bodies for higher-risk building work. Building control on higher-risk buildings will in future be overseen exclusively by the Building Safety Regulator. However, the ministerial ability to grant exemptions for non-higher-risk building work is unaffected.
Secondly, the regulations require any public bodies with a partial exemption under Section 54 of the Building Act 1984 to cancel their public body notice with the local authority if the building work becomes higher-risk building work. Local authorities will also be required to cancel public body notices under the same circumstances. Currently, no public body has a partial exemption and therefore these measures are being introduced for future use as opposed to changing any existing arrangements. Only one public body, the Metropolitan Police, currently has any type of exemption, and separate regulations to be introduced later this year will change that exemption so that it applies to non-higher-risk building work only.
Thirdly, the regulations will allow the Building Safety Regulator to fine public bodies £7,500 if they have not cancelled their public body notice when building work becomes higher-risk building work. This will ensure an equal approach to approved inspectors, who will become registered building control approvers under the new system and who will be liable for sanctions if they fail to cancel an initial notice, which is their equivalent of a public body notice, under the same circumstances. Public bodies will be allowed to contest any fines, first through the Building Safety Regulator and ultimately in the courts.
These regulations support the aim of increased building safety, in particular for higher-risk buildings, by ensuring that the Building Safety Regulator is the sole body carrying out building control on such buildings. It also removes any possibility of this approach being undermined in future by public bodies being given exemptions that circumvent the Building Safety Regulator and the higher-risk building control regime. I hope noble Lords will join me in supporting the draft regulations. I commend them to the Committee, and I beg to move.
Baroness Pinnock (LD)
My Lords, I support the regulations that the Minister has detailed. They are entirely appropriate and another step in the right direction to overhaul and thoroughly improve building safety, particularly as in this case they apply to higher-risk buildings. I have a couple of questions for the Minister which I hope she will be able to answer.
My first question struck me when I was reading the details in the statutory instrument. Why on earth should any public body be exempt from basic building safety? Why is there an exemption? We would not be having this debate if there was no exemption. I did not quite hear what the Minister said, but it is my understanding that, of the higher-risk buildings that are in occupation, care homes, hospitals, secure residential institutions, I think, and military barracks are excluded from the definition of higher-risk buildings—if my memory of when we went through the Bill serves me right—and I have never understood why that should be the case. I would think that many hospitals would fall under this, as they are high enough to comply with the definition of a higher-risk building. I wonder why they are exempt, if I heard correctly and have read the Explanatory Memorandum correctly. Do we know how many public bodies will now be drawn into this? There are not that many that are very high-rise. It would be interesting to know.
I think the reason that care homes and hospitals were excluded from this is that they are already covered by fire safety regulations and legislation, but I am quite in favour of belt and braces. If there are fire safety regulations that control that, let us add to them regulations such as these because the two could work in harmony to ensure that, in this case, quite vulnerable people would have double the protection that we would want to make sure they had. That is another little query in this case.
My next point is about the Met Police. How on earth does it get an exemption? Where did that appear from? Somebody ought to say, “This will not do. You’ve got to be included in this because, as a Government, we are determined to ensure that any higher-risk buildings are totally safeguarded against the risks that were identified by”—as the Minister reminded us—“the Grenfell Tower tragedy nearly six years ago, which was just awful”. Let us get this right. If it means more regulation and better safety for more people, it gets a big tick from me.
Baroness Taylor of Stevenage (Lab)
My Lords, we absolutely support the introduction of these regulations, which are the latest welcome—if somewhat belated—step in establishing a more stringent building safety regime for higher-risk buildings, as recommended in Dame Judith Hackitt’s review as far back as 2018. Although we are going in the right direction, it remains an appalling scandal that tackling the shocking failures in building safety standards has now dragged on for more than five years.
I agree with the noble Baroness, Lady Pinnock, that the push for the deregulation of building control in favour of the private sector providing those services was at least a contributory factor in some cases to non-compliance with building safety regulations. I know that the Minister is aware of the case of Vista Tower in Stevenage and Sophie Bichener, who has fought a long campaign on these matters. We welcome the focus now on ensuring that the Building Safety Regulator is the building control authority for all higher-risk building work carried out on public body buildings.
This SI also removes the power for the Secretary of State to grant exemptions for higher-risk buildings, although, as the Minister told us, the exemption power still remains for non-higher-risk buildings. We will need to be reassured that these definitions are very tight and will be adhered to so that we can be assured that all building work will be correctly categorised in terms of the building’s risk. There will need to be clear criteria for the change when an authority is required to declare that its building has gone from “non-higher-risk” to “higher-risk”.
I have done so before, but I want to pay tribute to the tenacity of the campaigning Grenfell survivors, building safety campaign groups and individuals across the country who have worked tirelessly to bring the seriousness of the issues being dealt with here today to the attention of the Government and the public. I draw the Minister’s attention to a number of questions that have been raised in relation to the Explanatory Memorandum, although, of course, we will be happy to receive responses in written form if she is not able to answer them today; they are questions of clarification and do not change our support for the regulations.
First, when looking at the building safety leaseholder protections regulations, the Secondary Legislation Scrutiny Committee identified the issue of public bodies claiming that their SPVs—special purpose vehicles—are responsible for building safety, rather than the bodies themselves. Would these regulations also apply to SPVs?
The Explanatory Memorandum to the earlier Higher-Risk Buildings (Key Building Information etc.) (England) Regulations 2023 quoted a number of 13,000 higher-risk buildings in the UK. Do we know how many of them are the responsibility of public bodies?
What estimate has been made of the resources needed by the Building Safety Regulator to assess and carry out this building control work? I am aware that, earlier this month, the Government announced a welcome £42 million to recruit building control inspectors and fire inspectors for the Building Safety Regulator. Do we know the timeline for their recruitment and how quickly that will move forward?
Has any thought been given to the possibility that public bodies may have to pass on charges to tenants for retrospective building safety work? Have the Government specifically prohibited public bodies from doing so? Once the Building Safety Regulator starts looking at buildings, it may well identify further causes of work and that charge may be passed on to tenants; they can be very substantial bills.
The Explanatory Memorandum refers to a separate instrument that will limit the Metropolitan Police’s existing exemption and ensure that the Building Safety Regulator is the sole building control body for its buildings. I agree with the noble Baroness, Lady Pinnock: I cannot think of any reason why it is exempt from this in the first place but, clearly, that needs a separate instrument. How many buildings are affected by this and when will the instrument be introduced? Do we have a date yet?
The Explanatory Memorandum refers to a “for information” letter that has been sent to all government departments. Will the Minister please lay a copy of it in the Library?
The impact statement on this SI, as on other similar regulations relating to building safety, states:
“There is no, or no significant, impact on the public sector.”
Surely the assessment and collation of information, particularly where public bodies such as housing authorities have significant property holdings, will present a resource issue. If the Building Safety Regulator identifies significant issues, that, too, will result in potentially expensive remedial works. I am thinking particularly but not exclusively of local authorities, whose resources are already stretched to breaking point. Has the Local Government Association been consulted on this or asked for a view on the impact of safety regulations such as these on public bodies?
This is my last question; I am sure the Minister will be pleased to know that. Does Section 32 of the Building Safety Act apply similar provisions to those in this SI to buildings in the private sector? Does this mean that the framework for building control of higher-risk buildings is now complete, or are there still other regulations to be laid before the House?
In conclusion, we are pleased to see this suite of building safety regulations come forward and that this SI puts building control back into the hands of a regulator who will, we hope, ensure that the highest standards are met. We welcome the Government’s commitment, as stated by the Minister. We have some concerns about the resources and capacity of the Building Safety Regulator, on which it would be helpful to have some reassurance from the Minister; about the potential impact on resources for the public sector; and about whether this can be passed on to tenants. However, with those caveats, we welcome this better regulation overall and hope that it will give some further reassurance to those who occupy the buildings belonging to public bodies.
Baroness Scott of Bybrook (Con)
My Lords, I thank the Committee and the two noble Baronesses opposite for their support of these regulations. This marks another step for building safety reform and the introduction of a higher-risk building control regime overseen by the Building Safety Regulator. I will go through a few of the questions that were asked.
The noble Baroness, Lady Pinnock, asked why a public body would be exempt. I have to say that these are just procedural exemptions; public bodies still have to comply with building regulation. They provided public bodies with some flexibility, if the Government agreed, but no more bodies will be drawn in; we are at the end of that now.
The noble Baronesses, Lady Pinnock and Lady Taylor of Stevenage, asked why the Met Police got an exemption. The Met Police will be included from October for all its higher-risk buildings. We will have a separate SI for the Met Police so it is not going to get away with it; this will cover it as well.
The noble Baroness, Lady Pinnock, asked how many public bodies with existing exemptions are affected. As I said, all public bodies interested in getting a building control procedural exemption, either partly or wholly for higher-risk building work, are affected. They will no longer be considered for an exemption as these will be unlawful. Interest in using this exemption has been very low: there is currently only one public body with an exemption and only one exemption has been granted since 2000. We are talking about one body and no public bodies are currently requesting a new exemption. As I said, the one public body that has that exemption is the Metropolitan Police. It covers all its building work but it was agreed that, from October 2023, it will be limited to non-higher-risk building work only. This change will be included in separate regulations later in the year, as I said.
The noble Baroness, Lady Pinnock, asked about the definition of higher-risk buildings. She is quite right that this is about residential buildings—they must have at least two residential units in them—and care homes and hospitals. They also have to meet the 18-metre or seven-storey height threshold. The other areas that she was talking about are non-residential and are therefore subject to separate fire regulations.
I think it was the noble Baroness, Lady Taylor of Stevenage, who asked about the recruitment of building control officers. This is important. We have put £42 million into this and we have started a programme of recruitment over three years, before we have to recharge it. That work is already happening; I will ask if there are any further details or updates on that as well.
I might have to look in Hansard for the details of some of the further questions from the noble Baroness, Lady Taylor of Stevenage, but I have noted some. I will write a letter on SPVs; the overarching answer is no but I want to make sure that I give the noble Baroness the details of why.
We talked about the 13,000 properties and how many the SI affects. It is one; that has been answered. As I have said, we have put in £42 million to help with recruitment. There was also something about retrospective charges in the public sector but I will look at the details of the noble Baroness’s question and send her something. We have discussed the Met Police.
The noble Baroness mentioned a letter. I am not aware of it but we will look into that and, if possible, put it in the Library for all noble Lords. We will also give the noble Baroness more detail about the private sector and local authorities in a letter, and make sure that both noble Baronesses get that letter and a copy is put in the Library.
As noble Lords know, these regulations are an important part of this Government’s reforms to ensure that residents are safe and feel safe in their homes. Before I sit down, I once again pay tribute to the Grenfell community. Without them and their sad loss, we would not be discussing these things. They are always in our thoughts. I once again thank noble Lords for their contributions today.
Treasure (Designation) (Amendment) Order 2023
Lord Parkinson of Whitley Bay
That the Grand Committee do consider the Treasure (Designation) (Amendment) Order 2023.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord Parkinson of Whitley Bay) (Con)
My Lords, I am very pleased to move this order, which was laid before your Lordships’ House in draft on 20 February. The revised code of practice was laid before your Lordships’ House in draft on 23 February.
The order designates an additional class of treasure, based on the outstanding historical, archaeological or cultural significance of a find that would not otherwise fall under the Act. The order further exempts from treasure legislation finds that also fall under the Church of England’s legal processes for dealing with moveable objects. The revised code contains clear information about the treasure process, clarifies the time limits for each part of the process, and provides guidance on the new definition and exemption.
During 2019, DCMS carried out an extensive consultation on the Treasure Act. The 32 questions covered issues ranging from practical administrative procedures to views on the future of treasure. Over 1,400 responses were received from a variety of individuals and organisations. These included detectorists, who make up 95% of treasure finders, commercial and community archaeologists, landowners, and cultural and archaeological organisations. The many thoughtful and considered responses have been fundamental to our work on these proposed changes, and we are very grateful to everyone who took part.
In addition to the consultation responses, we drew on the expertise of the treasure registry at the British Museum—which administers the process on behalf of DCMS—Amgueddfa Cymru and National Museums NI, and officials in Wales and Northern Ireland. We also commissioned full and detailed research from Heyworth Heritage on the options and impacts of extending the definition of treasure. We aim to simplify the treasure process and to strengthen its capacity to preserve important and significant finds for public access. To explain how the order and the revised code will do this, it may be helpful if I outline the background to the Treasure Act.
The Treasure Act 1996 replaced the common law of treasure trove in England, Wales and Northern Ireland. I am very pleased to see the noble Lord, Lord Inglewood, in his place, for he played a key role in bringing the Act on to the statute book. The Act essentially retained the definition of treasure as being composed of gold or silver, with the addition of an age limit of 300 years or older. The Act removed the common law condition that a treasure find had to have been hidden with an evident intention by the owner to return to recover it. The removal of this condition brought under the treasure process objects associated with Christian burials, meaning that such finds would be subject to the new Treasure Act and the Church of England’s legal processes. In 2002, an order was made extending the definition of treasure to include hoards of prehistoric base-metal objects and individual prehistoric objects with very low precious metal content. This draft order will amend that order.
Under the Act, a finder has 14 days to report a treasure find to a coroner, who will decide whether the find meets the definition of treasure. Treasure belongs to the Crown. Treasure finds are offered to museums which, if they wish to acquire them, will fund a discretionary reward for the finder and landowner. The amount and division of the reward is decided by the Secretary of State, advised by the experts of the Treasure Valuation Committee. This process is expertly delivered by our partners at the British Museum, Amgueddfa Cymru and National Museums NI.
In England and Wales, the Portable Antiquities Scheme, the voluntary recording scheme for archaeological finds made by the public, is managed by the British Museum and Amgueddfa Cymru in partnership. The scheme plays a key role in facilitating the reporting of treasure cases and their acquisition by museums. Aside from being the gateway to the treasure process, its role in ensuring that over 1.5 million archaeological finds made by the public have been recorded has added significantly to our archaeological knowledge. It has provided the data for nearly 800 research projects, including 161 doctoral theses. We have provided additional funding to support the scheme, including for a new Portable Antiquities Scheme database. This will include a treasure tracking system, which will noticeably improve the efficiency of the treasure process.
National Museums NI plays an equally important role, administering not only the treasure process but the reporting of archaeological objects, which is mandatory in Northern Ireland. It was part of the group which redrafted the code, along with its colleagues and officials from England and Wales—a demonstration of this partnership in action.
The Act has undoubtedly been successful at preserving finds for public access. Over 17,500 finds have been reported, 95% by metal detectorists, and of these 6,000 have been acquired by 200 museums across England, Wales and Northern Ireland. These 6,000 finds include the Shropshire bulla, the extraordinary golden pendant found in 2018, which was a star exhibit in the recent Stonehenge exhibition at the British Museum—it dazzled that Shropshire lad, my noble friend Lord Harlech, who has admired it online—and the Corrard torc, an equally singular piece of Bronze Age jewellery, now at Enniskillen Castle Museums.
Although I am not allowed to pick favourites, as a Northumbrian I have been particularly pleased to have two encounters with the eighth-century cross pendant found in Berwick-upon-Tweed in 2019. It is marked with a runic inscription of a previously unknown Anglo-Saxon name, perhaps its owner or a loved one. I had the pleasure of seeing it at the launch of the annual treasure report at the British Museum and then back at home in Northumberland at Berwick Museum and Art Gallery. That cross reflects the dual purpose of the Act, which is to preserve finds for the public which give them a personal and often tangible connection to the people who made and used these objects, and to provide material for academics and researchers, leading to new insights into our shared history.
The Treasure Act gives museums the first option on acquiring important and significant finds. It is a fundamental part of the UK’s cultural protection legislation, but there have been several times when the Act has not been able to secure important finds. The Crosby Garrett helmet, a unique Roman ritual object found in Cumbria, did not meet the definition of treasure because it is made of base metal. It was sold to a private owner, despite the great efforts of museums, including the brilliant Tullie House Museum in Carlisle, which I visited earlier this year, to raise funds to purchase it at auction. I am pleased to say that York Museums Trust was more successful in its bid to buy the Roman Ryedale hoard, and we are very grateful to the public and private donors who helped to fund that process so that the hoard can be admired by the public. But apart from the uncertainty of the sales process, museums acquiring finds on the open market may find that they are subject to premia and other costs.
The export licence deferral process, for cultural objects recognised as national treasures, can keep treasure finds in the UK, as happened with the bronze birrus Britannicus figure, which I had the pleasure of seeing at a bustling Chelmsford Museum in half term. But we should not need to rely on this system, which is triggered only when an owner wishes to take or sell an important cultural object abroad, to protect important finds which are made of base metal. The designation of the new class of treasure is intended to address this situation.
Finds will fall under the new class if they have any metal element, are older than 200 years old and meet the very specific wording in the order. They will have to demonstrate an exceptional insight into an aspect of national or regional history, archaeology or culture by virtue of their rarity, location or connection with a person or event. Where the coroner agrees that the find, either individually or in combination with other objects in the same find, meets one or more of these conditions, it will be defined as treasure. This new class will include finds which, despite being made of silver or gold, are currently not defined as treasure. Potentially, this includes gold or silver finds which are between 200 and 300 years old and single gold coins, such as the extremely rare Henry III penny found in Devon in 2022. Currently, these do not fall under the Act. It is worth emphasising that finds such as these will be defined as treasure only where they meet the new significance definition.
This additional class of treasure is limited to metal finds. I am aware that the Government are being urged to widen the definition of treasure further to include non-metal finds. Consideration was given to including other materials, such as stone and ceramic, in this statutory instrument, but we decided that doing so would be premature for several reasons. First, there would be significant implications for the resources of the Portable Antiquities Scheme in England and Wales, where there is no mandatory reporting of archaeological objects. There would also be an impact on archaeological excavations and archives and, potentially, on the planning conditions for some building development. Our view is that all these are important issues that need to be fully considered and canvassed before the definition of treasure is extended to non-metal finds. We will be monitoring the effect of the new class of treasure on museums, the work of treasure administrators and coroners and their staff. This information will support further consideration of the definition of treasure, including the possibility of widening it to include other materials.
We are also aware of concerns that this class may lead to the treasure process being overwhelmed. The wording of the order has been drafted to limit the definition of “significance” to only the most archaeologically, culturally and historically outstanding finds and, as I previously mentioned, we have increased funding for the administration of the treasure process. The order before the Committee is designed to provide a mechanism to acquire exceptional finds when they are recognised, but it does not impose upon finders, curators or administrators the duty of considering, at length, the possible significance of every single find.
The order also exempts from the definition of treasure finds which currently fall under both the Treasure Act and the Church of England’s statutory controls for moveable objects. The exemption will remove the confusion of having two overlapping legislative regimes and satisfies the undertaking the Government made during the passage of the Act. We have worked with the Church of England and believe that exempt finds will have a sufficient level of protection under the Church’s statutory processes. Equally, finds relating to other faiths and to Anglican congregations in Wales and Northern Ireland retain the protection that they have under the Treasure Act.
In addition to the order, we are also considering the revised code of practice, which contains guidance for users of the treasure process as well as the fundamental principles by which the process operates. The code has been revised to bring it up to date and to make it easier to use and more comprehensible. It introduces a more efficient process, with defined deadlines to reduce uncertainty about the responsibilities of all the parties in the treasure process. The process is almost unique in its capability to balance the differing interests of finders, landowners, archaeologists and curators to enable magnificent finds, such as the recently discovered Tudor pendant, to be preserved for the public to enjoy. It is that public interest which is the overriding principle of the treasure process, and we believe that the new class of treasure, the exemption and the revised code support that fundamental principle. I commend these changes to the Committee and look forward to hearing noble Lords’ views on them. I beg to move.
Lord Inglewood (Non-Afl)
My Lords, I must begin by stating unequivocally that I am a supporter of the statutory instrument and the code of practice. I should bracket that with a reference to my interests as set out in the register. As the Minister said, the SI and the code of practice are the logical evolution of the earlier statutory instruments and codes of practice which are all based on the Treasure Act 1996, for which, as the Minister said, I had ministerial responsibility. Interestingly, that Act was the result of 25 years’ lobbying by the late Earl of Perth, about whom a close personal friend, who was a director of one the main London museums, said to me “The great point about the Earl of Perth is that he never gives up”.
The policy on which the Act was based was taken on by the subsequent Labour Administration in very much the same way as we envisaged when it was put on the statute book. It seems to me a very good example of how sensible, pragmatic public administration can be achieved if dogma is not allowed to intrude too far.
The other thing the Minister said is that this legislation has been a success in what it has brought about. That is not only to the credit of politicians; indeed, it may have happened despite politicians. It also reflects well on both the work done at the British Museum through the Portable Antiquities Scheme, then led by Roger Bland, and the finds liaison offices scattered across the country. Indeed, I dare say that, had we known what we know now then, in 1995-96, we might have done what we are seeing take place here this afternoon.
Lord Vaizey of Didcot (Con)
It is a great pleasure to follow the noble Lord, who, as we have heard, was responsible for this important legislation when he was the Heritage Minister.
The debate has prompted me to recall my early days as a Minister in the Department for Culture, Media and Sport in 2010. The Crosby Garrett helmet, which the noble Lord referred to, was discovered in May 2010 as we came into office and became a bit of a cause célèbre. As he was speaking, I googled the helmet and discovered that it was the most popular subject in an obscure tradition that has fallen into abeyance, “Ask Ed Vaizey”, where I had the idiotic idea of asking members of the public to send me questions as DCMS Minister, which I then promptly answered on a YouTube channel. I have no idea what the answer was because I did not want to play YouTube loudly in the Moses Room while the noble Lord was speaking. However, although there were only two sessions, I think, the most popular question was about the reform of the Treasure Act. Of course, that reform never happened under my watch. It took a dynamic, forward-thinking and energetic Minister to bring these important reforms before us today.
The Treasure Act and the Portable Antiquities Scheme were one of my first headaches when I was the Minister in 2010 because, at that time, the Treasury was asking all departments to find savings. I have to say, I was not strongly aware of the Portable Antiquities Scheme but I soon came to understand its importance, its value and, dare I say it, its value for money. It is that classic British institution: a win-win for all parties involved. In the great scheme of things, it costs very little money indeed; its impact is absolutely enormous; and it brings together two communities that are, in theory, diametrically opposed to each other—metal detectorists and archaeologists.
There are many other countries where the stand-off between archaeologists and metal detectorists can be very detrimental to heritage but I am glad to say that, because, as the noble Lord pointed out, the Portable Antiquities Scheme works so effectively and is stewarded so well, it has brought these two communities together. The archaeologists understand that metal-detecting is a huge passion. There are 40,000 metal detectorists in the UK who go about their business every weekend. They have been immortalised in an award-winning television series, “Detectorists”, which has taken the culture of British metal-detecting all around the world. Detectorists will find things in the ground, but thanks to this scheme, they now know exactly to whom they can take the find. They can have it recorded and catalogued and, if it is of importance, they can potentially expect to receive a reward. Also, because the landowner potentially benefits as well, there is an incentive for them to work with metal detectorists to organise official metal-detecting days to discover objects.
The scheme works extremely well. This subtle but important change will extend the opportunity to record and acquire more treasure finds. I know that there is some debate in the archaeological community about pushing the reform even further to mimic the scheme that exists on the Isle of Man, where worked stone and pottery can also be considered treasure if it is of a unique character and deemed important enough for our cultural heritage. However, I understand the department’s position; they want to see whether this change works as effectively as possible.
The Portable Antiquities Scheme is an unsung but important part of our heritage ecosystem. The only time that I ever managed to get any publicity for it was when I went religiously every year to the British Museum’s exhibition of finds discovered in the previous year under the scheme. As a Minister, it was one of my highlights of my year. One year, I picked up an object, having forgotten to put on the white gloves required to handle an object of such beauty and fragility, and at last I found a way to get the Portable Antiquities Scheme on to the front page of the Daily Mail.
I commend these changes.
Lord Redesdale (LD)
My Lords, I must start by declaring an interest as patron of the Redesdale Archaeology Group, which was formed recently after the excavations in Northumberland of High Rochester. I raise this because I spent last summer happily shifting vast amounts of dirt—that seems to be what archaeologists do more than anything else. We had two very keen metal detectorists as part of that archaeological dig, Richard Wilson and Alan Grey. Through their immense work, going after every single ping in the ground, we found one silver denarius after two weeks. Happily, we extended our knowledge of High Rochester, a Roman fort, and found two phases of an occupation that we did not know about before, but talking to them summed up how difficult it is to be a detectorist. The wonders of the hoards that we talk about are something most detectorists do not find.
One aspect of the Portable Antiquities Scheme that is rarely raised is that millions of objects that are reported will never find their way into a museum but, without that scheme, we would not know of those objects in the first place. Following the two previous speakers, I can say that I have never been a Minister and probably never will be but, as one of the founders of the All-Party Archaeology Group, I have spent years lobbying on behalf of the Portable Antiquities Scheme.
What is unusual is that this is a debate where we are not asking for more money or to carry on the existence of the scheme. This is one of the areas I would like to raise because it is difficult to see how the provisions of the Treasure Act could be implemented without the scheme. The scheme started via the work of Roger Bland and is carried on by Dr Michael Lewis under the auspices of the British Museum but its survival should not be taken for granted. There were a number of occasions when it looked like the scheme would not be able to go forward because of budgetary constraints. I ask the Minister: is it not time to start thinking about whether the scheme should be put on a statutory footing? Although the DCMS has been generous in its provision, that does not automatically mean that the scheme would survive if a different Administration came in with different priorities.
On the new code of conduct, which is set out very well in a new video on the Portable Antiquities Scheme’s website, there is one area that causes most concern to detectorists: the time it takes objects to go through the process of being assessed as to whether they are treasure. The new code of conduct sets out a timescale by which that should happen but the major block—it always has been the major block—is time in the coroners’ courts. Getting to the coroners’ court, and the coroner having the requisite knowledge, has been a major issue.
In the past, it has been mooted that a specialist coroner could be appointed specifically to deal with treasure, which would massively reduce the time taken and introduce a level of expertise that would cut down significantly the questions being raised about the objects themselves because there would be a knowledge base. That would help detectorists come to a conclusion about whether objects are treasure. Are the Government thinking along these lines? It would not only save time; time no longer being taken up in coroners’ courts means that it could also save a great deal of money.
On that basis, these statutory instruments are to be welcomed. I thank the Government for their support of the Portable Antiquities Scheme but I very much hope that, looking forward, it will be understood that the Treasure Act will be difficult to maintain if that scheme is not in existence.
Lord Bassam of Brighton (Lab)
My Lords, this has been a fascinating debate so far, and I will try to add a little bit to it. I always know it is an important debate when the noble Lord, Lord Vaizey, turns up to entertain us for the afternoon. We welcome the bringing forward of this statutory instrument and the accompanying guidance, which is a fascinating document. We can see that it is the result of a lengthy consultation process, as the Minister said, which was started back in 2019.
As he outlined in the supporting documentation, there has been a growth in detectorism and the number of detectorists. In fact, as the Minister was speaking of his many visits to museums and places, I was thinking that perhaps he sees a future for himself as a detectorist, out there at the weekends with his metal-detecting device, because he is clearly very enthusiastic for it, and rightly so. As he said, more than 95% of finds since 1996 have been made by metal detectorists and the annual number of cases of treasure has climbed in the intervening period. It is clear that there is no shortage of treasure, enthusiasm or talent in this country and there is a desire to satisfy ourselves about our heritage, as a nation with a rich history. There is clearly an increasing urge to be connected to the past. For some, this takes the form of researching their family history, while for others it is a more active pursuit which takes place on our fields, beaches, riverbanks and other places where detectorists gather.
As noble Lords have already said, the Treasure Act has helped to put many important finds in the hands of museums, providing another important means for people to be informed about the history of their local area. As the Minister hinted, several significant finds in recent years have not been protected under the law, leaving artefacts at risk of falling into private hands, unless museums were able to rely on other methods, such as securing export bans. There is obviously a ready market for finds overseas, and I suspect particularly in the USA.
The step-by-step approach proposed by the Government, making changes so that metallic items are captured by the Act but not yet extending it to non-metal objects, appears a sensible way forward. While we support the order, the consultation underpinning it was launched a long time ago in 2019 and we wonder why it has taken quite so long to bring this change forward. If any further changes are deemed desirable, such as extending it to non-metal objects, we would like to see a more rigorous timeframe so that there can be greater certainty. Clearly this is a growing area of interest.
Can the Minister talk about the role of local museums and whether such institutions will be at the front of the queue to claim items found in their area? Previous research by the Museums Association shows that local authority funding cuts have resulted in a drastic scaling back of support for local museums. Are any steps being taken to address that issue? I know the Minister will be familiar with concerns raised by stakeholders and in another place about the potential for these changes to lead to underreporting of treasure finds. Will he comment on those fears?
Finally, I think the Minister’s Commons colleague volunteered him to address the exemption granted to items that fall under Church of England processes. Perhaps he can say a bit more about this and on that decision to ensure the record is complete.
Although these questions need answering, we hope this order and the accompanying changes to guidance will further increase interest in finding treasure, help protect those items for the future and, in doing so, make a positive contribution to the telling of important local and national historic stories.
Lord Parkinson of Whitley Bay (Con)
My Lords, this has indeed been an entertaining and informative debate, and I am glad that two of my predecessors have excavated themselves to join us. I can see why they speak so fondly of their time engaging with this process because it is a highlight for any Minister at DCMS to be involved. I am glad that the noble Lord, Lord Inglewood, shared the tribute that I paid to him for his work, with the late noble Earl, Lord Perth, and all those who urged the important change. He is right to highlight what a success the Act has been and the number of items that it has saved for the nation to be shared with the public and to highlight the way that it has inspired people to discover more or to shed new insights into the past, sometimes including obscure practices, such as why people would ask my noble friend Lord Vaizey any questions. That practice is no longer continued.
The noble Lord, Lord Inglewood, is right to point to the fact that this is not because of the work of any legislators or Ministers but because of the many dedicated experts who are engaged in the process. I am glad that, in our debate, Roger Bland, chairman of the Treasure Valuation Committee, and Dr Michael Lewis, head of the Portable Antiquities Scheme, received the credit that is due to them.
The noble Lord is right to talk about the disappointment that can ensue when these items are not shared with the public. One of the most wonderful things about this is that items often end up in a museum close to where they were found. They help us to understand local and regional history as well as our shared national history. The noble Lord, Lord Bassam of Brighton, is right to point to the important role of local museums in sharing these items and giving credit to those who have found them and generously donated to support them.
The noble Lord, Lord Inglewood, is right to point out that these items are not always expensive. Their value lies in their importance and in the fact that they have been lost to human view for so long. They can quite often be purchased for reasonable sums, and there are many generous grant-making bodies, such as the Art Fund, the National Heritage Memorial Fund, the V&A, Arts Council England and many more, which help to keep these items in public collections and shared with museums and local visitors around the country.
The noble Lord, Lord Redesdale, asked whether we had thought about putting part of this process on a statutory footing. I will take that point away and discuss it with colleagues, but I underline the point that I made in my opening remarks about the resources that we have given to ensure that the process is well administered. In 2022-23, we gave the British Museum £365,000 for the administration of the Portable Antiquities Scheme, £150,000 to support the treasure process and £808,000 to support a new Portable Antiquities Scheme database. The scheme in England now employs 40 full- time and part-time finds liaison officers and 12 part-time liaison officers. We will be monitoring the impact of these changes on the scheme’s resources, but I will take away the noble Lord’s point about statutory support.
The question that the noble Lord asked about whether a specialist coroner would help speed up the process has been looked at before. I will discuss that with officials as we monitor the impact of the changes that the statutory instrument brings about. We have certainly assessed the additional work that we know this will cause coroners and we are aware that some parts of the country may be more affected than others. We have engaged with the Chief Coroner’s office, with coroners themselves and with colleagues across government on the order and the revised code, and we will be providing opportunities for training and advice for coroners and their staff, as well as monitoring the impact of these changes.
The noble Lord, Lord Bassam, invited me to say a bit more about the Church of England exemption. I explained the history to it in my opening remarks: as the established Church, the Church of England is the only Church that is officially recognised and that has a formal relationship with the state. It is therefore the only Church that has its own specific legislation, including a system of controls on the protection and disposal of moveable objects associated with its buildings and land.
Before the 1996 Act, the common law of treasure trove required that treasure had to have been hidden with an evident intention by the person who hid it to return and find it, which meant that objects related to Christian burials were not treasure. The 1996 Act removed that requirement, bringing these objects into the treasure process, while they also remained under the statutory processes of the Church of England. It highlighted the possibility that other treasure objects might be found, not in association with burials, which could be subject to both of those statutory regimes. It was to remove this confusion that these finds have been exempted from the definition of treasure. Our view is that the Church of England’s statutory processes provide sufficient protection for these finds. Equally, finds associated with other faiths and the Anglican Communion in Wales and Northern Ireland are protected by the treasure process.
I am grateful to noble Lords who have taken part in our debate today. As I said, we will keep the impact of these changes very much under review. Each year, we publish a Treasure Act statistical release and an annual report. Seeing its publication and some of the items found over the previous calendar year at the British Museum is indeed a highlight for us all. Because of that report, we will be able to monitor how many additional cases go through the process. In addition, we will speak to all those involved in the process, whether administrators or acquirers or finders of treasure, to see how effective the change is and how it has affected them. With renewed thanks to noble Lords who have taken part in the debate, I commend this instrument to the Committee.
Revised Code of Practice laid under the Treasure Act 1996
Lord Parkinson of Whitley Bay
That the Grand Committee do consider the Revised Code of Practice laid under the Treasure Act 1996.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee
Local Government and Elections (Wales) Act 2021 (Corporate Joint Committees) (Consequential Amendments) Order 2023
Baroness Bloomfield of Hinton Waldrist
That the Grand Committee do consider the Local Government and Elections (Wales) Act 2021 (Corporate Joint Committees) (Consequential Amendments) Order 2023.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, the draft order we are considering will make changes to UK legislation arising from the establishment of corporate joint committees in Wales, under powers in the Senedd’s Local Government and Elections (Wales) Act 2021. The 2021 Act established a new framework for regional collaboration between local authorities in Wales called corporate joint committees—CJCs. I am aware that the noble Baroness, Lady Wilcox—who is the only other Member here in Committee—was an architect of these very structures, as leader of the Welsh Local Government Association.
For the benefit of Hansard, and the others here present, these committees can exercise functions transferred from principal councils on a regional basis. They can be established either at the request of two or more principal councils or, in relation to some functions, at the instigation of Welsh Ministers.
The Welsh Government have established four CJCs in Wales—north Wales, mid-Wales, south-east Wales and south-west Wales—reflecting the four existing city and growth deal areas. Each CJC is comprised of the leaders of its constituent county and county borough councils, and eligible officeholders from national park authorities located in that CJC area. As a corporate body, a CJC is able to directly employ staff, hold assets and manage budgets.
The CJCs began operating formally on 1 April 2021. From June last year, they came under duties to prepare strategic development plans and regional transport plans in their regions. They also have the power to do anything to enhance or promote the economic well-being of their areas. As CJCs further develop, Welsh Ministers may decide to increase their functions in future through regulations, although the Welsh Government have said that there are no current plans to do so.
Baroness Wilcox of Newport (Lab)
My Lords, I have great pleasure in speaking on behalf of the Opposition regarding this statutory instrument and thank the Minister for her kind words. When I was leader of the Welsh Local Government Association, I spent a great deal of time in discussion with Welsh Government Ministers over this change to current legislation to ensure that it resulted in the best fit for local authorities to enable effective joint working on specific projects to benefit the people of Wales. Therefore, it gives me immense pleasure, in my current role in your Lordships’ House, to be the Member who speaks for the Labour Party with this legislation as it proceeds into law. One does not often see something through its entire process in political life, but this is one of those rare occasions, and I am delighted to be able to do so.
Let me give some appropriate context. We began discussing these changes in detail during 2018. Initial reservations and relevant concerns were raised by council leaders, but through careful consideration and adjustments from the Welsh Government and local government, a suitable agreement was finally reached. In legislative terms, the Local Government and Elections (Wales) Act 2021 provided for the establishment of corporate joint committees, which enable and support the delivery of important local government functions regionally. A small number of outstanding technical issues emerged during the implementation of the CJCs, including their relation to taxation status and pensions. As your Lordships are aware, when issues arising from Senedd legislation require amendment of UK-wide legislation in a way that is beyond the Senedd’s legislative competence, an order under Section 150—power to make consequential provision—of the Government of Wales Act 2006, can be developed in partnership with the UK Government in Westminster.
These changes will resolve key operational issues that CJCs have raised and allow them to plan with confidence in future financial years. Section 150 supports the delivery of the commitment in the Welsh Government’s programme for government to ensure that each region in Wales—north, south, east and west—has effective and democratically accountable means of developing its economy. The Welsh Government, in liaison with local government, have established CJCs to support and encourage regional working through a coherent, consistent, simplified and democratically accountable and controlled mechanism.
CJCs will allow local government partners to deliver their regional ambitions, develop successful regional economies, and ensure local growth in a collaborative and strategic way. As the order has been developed with the Welsh Government, and makes technical amendments that result in a coherent, democratically controlled mechanism that operates regionally, we fully support it. Diolch yn fawr.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Baroness for her supportive comments. I too am delighted to take part in this move to unblock the UK legislation to allow the Welsh Government to progress these exciting plans. I close by offering my thanks for the productive manner in which the UK and Welsh Governments have worked in preparing this order, which I commend to the Committee.
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
My Lords, I think that may be the fastest passing of a statutory instrument that I have yet witnessed.