Draft Combined Authorities (Overview and Scrutiny Committees, Access to Information and Audit Committees) (Amendment) Regulations 2024
(1 month, 3 weeks ago)
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The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Simon Hoare)
I beg to move,
That the Committee has considered the draft Combined Authorities (Overview and Scrutiny Committees, Access to Information and Audit Committees) (Amendment) Regulations 2024.
Good morning, colleagues, and good morning, Ms Rees—it is a pleasure to serve under your chairmanship. The draft regulations were laid before the House on 19 February, and I assure the Committee that they really are as interesting as they sound. They are best described as sensible housekeeping, because if approved by Parliament and made they will complete the legislative framework for overview and scrutiny committees and audit committees of combined county authorities. They make provision in relation to the membership and proceedings of such committees and the allowances for committee members. As Members will be aware, scrutiny and audit are always important, but arguably never more so than now, in a complex and sometimes testing financial environment for local government.
The wider context is that these committees are essential components of the architecture of accountability in combined authorities and combined county authorities. As more powers and resources are devolved to these important bodies and their Mayors, the responsibility to ensure sound governance and effective decision making in the interests of local people and taxpayers becomes ever more important. We are therefore not only ensuring through the regulations that the new combined county authorities have strong and effective overview and scrutiny committees, but pursuing further initiatives to develop this important architecture of accountability; in particular, we have published the English devolution accountability framework and a scrutiny protocol, and we intend shortly to issue revised statutory guidance on overview and scrutiny—[Interruption.] As Skippy the kangaroo bounds into the room, I will pause and welcome the hon. Member for Kingswood to his place, because I have not had the pleasure of doing so. This is the first time he and I have served on a Committee together, and it is a pleasure to do so. I hope he is enjoying his time in the House.
The regulations provide the foundation for the initiatives I have outlined in respect of combined county authorities. If the Committee will bear with me, I will speak briefly about some of the details. The regulations provide for the membership and proceedings of overview and scrutiny committees and audit committees of combined county authorities. They do so by extending the Combined Authorities (Overview and Scrutiny Committees, Access to Information and Audit Committees) Order 2017 so that it applies to combined county authorities as well as to combined authorities, which ensures parity between the two types of authority. At the end of the day, irrespective of which type they are, such bodies are responsible for and spending public money, so ensuring that there is parity of approach is common sense. I detect no dissent between the parties on that.
The regulations enable the payment of allowances to members of constituent councils of combined authorities and combined county authorities who are appointed to overview and scrutiny committees and audit committees. As a way of tidying up, we have also made a few minor changes to the 2017 order to reflect the inclusion of non-constituent members and their nominating bodies in the constitutional arrangements for combined authorities and combined county authorities, and to ensure that the provisions work for both types of authority.
The regulations accommodate the constitutional difference between combined authorities and combined county authorities. If the provisions of the 2017 order were simply applied without modification, there would be no duty on a combined county authority to enable a district council within its area that does not nominate a non-constituent member to refer a matter to the overview and scrutiny committee. The regulations recognise the legitimate interest of such district councils in certain decisions that could be made by the combined county authority by extending the referrals provision to include those councils where a matter relates to the council’s area. That extension also applies to the supply by the CCA of related documents to a council making a referral.
The new allowances provisions were included in the Levelling-Up and Regeneration Act 2023 at the request of some of the existing combined authorities. We believe, as they do, that that will aid quoracy at meetings of overview and scrutiny committees. The regulations enable combined authorities and combined county authorities to pay an allowance to members of their constituent councils who are appointed to overview and scrutiny committees and audit committees.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
It is right to pay members of the combined authorities more, but there is always the slight problem that this is then seen as being about people fighting for posts to get more money, rather than about rewarding people who want to do the job. Is there not a case for the Government to look at paying councillors decent amounts in the first instance, rather than having a system of additional responsibilities? We all know that councillors receive less than the minimum wage if they work full time, and many do end up working full time or quasi-full time. One of the biggest barriers to being a councillor is that working people cannot afford to do it.
Simon Hoare
The hon. Gentleman makes an interesting point, although I am tempted to say it is probably a philosophical point rather than a policy point per se. I served—I think he might have served as well—for 14 years as an elected district or county councillor, and I always saw it as an office rather than as a job. That is why I never thought it was correct, for example, for councillors to be part of the local government pension scheme, which should be specifically reserved for employees. It is, of course, up to local authorities to decide what their allowances are. I certainly agree that being a cabinet member in an upper-tier or unitary authority is virtually a full-time job, and remuneration probably reflects that. However, we should always make the distinction between full-time employment and elected office.
The hon. Gentleman asks a good question none the less, and we are responding to issues that leaders and others have raised with us. It is quite hard to recruit members to scrutiny, audit and, sometimes, pensions committees, principally because they are seen as rather dry and desiccated, not particularly sexy, and involve lots of tables with numbers written all over them. The issue is hugely important, and we will keep a weather eye on it. I am certain that section 151 monitoring officers and council leaders will check the motivations of members applying to go on these committees. The hon. Gentleman may be right, but I hope that he is not and that he will take comfort from the fact that we will keep the issue under review. We have identified a problem, which we are trying to solve, and I hope it does not create another problem, to which the hon. Gentleman alluded.
Luke Hall (Thornbury and Yate) (Con)
My hon. Friend is doing important work on speaking to councils to ensure that councillors whose children are born prematurely receive the same support as is available under the new Neonatal Care (Leave and Pay) Act 2023. Will this instrument ensure that it is communicated to combined authorities that, just as for councillors, those extra allowances should be kept open for someone who returns from having a child in neonatal intensive care?
Simon Hoare
My hon. Friend’s intervention is timely because it allows me to pay wholehearted tribute to the work he did on this issue when he was a Minister in the Department. He makes a powerful and compelling point, which he raised with me the week before last at departmental orals on the Floor of the House. The Act covers employees, and because of the differential I was discussing with the hon. Member for Brighton, Kemptown, it does not cover councillors per se. However, the moral argument to which my hon. Friend points is clear and unquestionable. I hope he will draw comfort from the fact that I have just this week signed off the text of a letter, which will shortly—certainly before purdah—go to council chief executives and leaders, that makes that point. If parents who happen to be councillors have the additional challenge of a premature birth, with all its concomitant additional family and caring demands, the last thing they should have to worry about is the six-month rule in relation to attendance at meetings, and if they hold down a job in the council that attracts a special responsibility allowance, that should not come into question.
As much as I might wish to, I cannot direct council leaderships to abide by that missive to the letter, but it would be perverse and contrary, to say the least, if a council leader was to say, “No, I am frightfully sorry, but we are not going to take that into account.” That would be rather inhumane, and I know from all my engagements with local government leaders that they are all humane to their fingertips. I thank my hon. Friend again for all the work that he did on the issue both as a Minister and from the Back Benches—a position to which, I have to say, I could never quite understand why he was returned. He was a first-class Minister, and it would be great to see him back in due course.
As I said, we have consulted, and we think we have responded positively. The draft regulations are a tidying-up exercise. They ensure that there is parity, that regulations are robust and transparent, and that there is local accountability, which is what all local council tax payers want to see. We believe that the draft regulations will be an important step in ensuring that our local government architecture is robust, resilient and fit for the future. On that basis, I commend them to the Committee.
Jim McMahon (Oldham West and Royton) (Lab/Co-op)
It is a pleasure to serve on the Committee under your chairmanship, Ms Rees. The Opposition do not intend to divide the Committee on the regulations, and I welcome the opportunity to address them on behalf of the Opposition.
The instrument makes provision for the membership and proceedings of overview and scrutiny committees and audit committees of combined county authorities, and for the payment of allowances to members of constituent councils of combined authorities and combined county authorities who are appointed to those committees. The Minister went into some detail about what the instrument is intended to do and what it covers, but I want to explore some other aspects of it, while obviously staying in scope, Ms Rees.
My first point, on which I know there will be quite different views, relates to the provision made for overview and scrutiny members to receive allowances. I am guessing that that provision focuses primarily on co-opted members with specialisms, who may be brought in to add value to the scrutiny process. However, notwithstanding the Minister’s comments about councillor pensions—and I accept the strong argument that being a councillor is a vocation, a call and a public service—the Minister must recognise that the more someone does, the less time they have. There are only so many hours in the day, and if a ward councillor, cabinet member or council leader sits on a combined authority, they may now be giving evidence to an overview and scrutiny committee on top of that. That is a full-time job with full-time responsibilities, and it must not be that working-class people who do not have an independent income are not allowed to build up a pension fund for their retirement for that service. This is a point of principle. I do not want to reopen the whole pension debate, but I place that challenge on the table. This is not black and white, and a degree of realism is required.
The measures essentially mirror powers given to local authorities and current combined authorities, so can the Minister confirm that overview and scrutiny committees will have call-in powers? When executive decisions are made by the combined authority, will overview and scrutiny members have the power to call in that decision? Also—this is important in the light of the recent controversy in Teesside—will their remit cover trading companies and joint venture companies that are undertaking work and contracts on behalf of the combined authority?
Can the Minister confirm that the overview and scrutiny committees will have the power to conduct a best value review? Outside of the work programme that the combined authority will be undertaking, would they have the power to self-organise a work programme of their own and undertake deep-dive reviews as they see fit, whether those are about regeneration projects, transport infrastructure or matters the Government might be imposing, such as clean air zones or spatial development frameworks? Can the Minister confirm that the scrutiny committee will have the power to co-opt expert members and, if so, that the scheme of allowances will be varied to reflect the different costs that that might attract? The cost of populating an overview and scrutiny committee with lay members to get a wider resident perspective might be quite different from the cost of getting a specialised accountancy perspective, which may attract a higher price.
We are 13 years on from the establishment of the Greater Manchester Combined Authority, and the scrutiny functions put in place then have not really been reviewed in their totality since. We have just expanded them to cover more combined authorities and more county combined authorities. Do the Government see the regulations as an opportunity to review the effectiveness of overview and scrutiny to ensure that the relevant checks and balances are in place, as more and more is devolved down to local level? The public rightly expect that, with more taxpayer’s money—public money—involved, the checks and balances will be robust and fit for purpose. I would welcome a response on that.
My final point is more about the long-established principle of new burdens, which ensures that, whenever Parliament passes new legislation that requires councils or combined authorities to do something in addition to their existing powers, the cost of that new responsibility is borne by Parliament and the Government, not the component councils. I am not saying that we need a money resolution or a proposal to give grant support to combined authorities, but we need to be careful that we do not create legislation that allows combined authorities to create overview and scrutiny, and audit, functions, if they do not have the specialist teams they need to support them properly. We all know that when local government excels in scrutiny, it is because it has a well-resourced team that enables it to do proper, deep-dive reviews and investigations, to call in expert witnesses and to really go through things. I am not seeing that provision of finance in these regulations, so I would welcome a response on that.
Labour is fully supportive of devolution. We also recognise that, the more powers we give out, the more robust the checks and balances need to be. We are concerned that 14 years of Conservative economic management, compounded by spiralling inflation and the failure to grow our economy, have hit councils hard. We are keen to ensure that locals are supported where the Government have failed. We will not expect councils to live hand to mouth, with short-term financial settlements year on year—I think we are now on our sixth single-year financial settlement, which makes it difficult for councils to plan. Labour will give councils long-term, multi-year funding settlements so that they can plan ahead, as well as the tools they need to get on with the job.
Lloyd Russell-Moyle
I generally support the regulations; it is important that our combined authorities are able to properly scrutinise the work that is done. However, I am worried about the roll-out and patchiness of combined authorities across the country, because it seems to be an ad hoc system: authorities can put forward a bid to the Government, and if Nero on high puts his finger in the air, it is accepted, but if Nero does not accept, I am afraid they are damned to the current local government settlement.
Sussex is a perfect example. We have put forward two devolution plans, both of which were rejected by the Department. One was a combined county authority plan—I call it the two-county plan, but the Department called it the three-county plan—including both Sussex and Surrey. For some reason, the Department still thinks that East and West Sussex are separate counties, but we are one county, even though we have two county councils, which should be abolished. We also put forward a Greater Brighton devolution plan that would have combined district authorities and turned them into unitary authorities. That was also rejected, because the Department was, at the time, insistent on a particular model of directly elected Mayors, which Conservatives and Labour across Sussex felt would not be appropriate for the diversity of Sussex. However, we did want to work better and co-operatively.
I know that the Department has been more flexible about the new devolution deals, but it is time that it put forward a clearer set—a smorgasbord, if you will—of options that councils can go for, including the powers that they are allowed to draw down and the financial resources that go with it. The Department should be much clearer on those powers and therefore on the scrutiny. At the moment, we are giving scrutiny powers—I am trying to make sure that I speak on the motion—but we are not necessarily as clear as we could be on how devolution powers are to be given in a clear and formulaic way. I advocate that, in Sussex, we be allowed back round the table to have those discussions, which could be to the advantage of all.
We also need to look at the funding for these areas. We need longer-term funding deals that include a proper integration of NHS and social care. We have seen that in Manchester, but it has not been afforded to other devolution deals. Without a hold on the purse strings, any scrutiny will be just a nice piece of paper that does not change the policies. It is time that we looked at a proper devolution deal with some tax-raising powers. If it is good enough for London and good enough for Wales, it is good enough for the rest of the country.
Simon Hoare
I am grateful for the contributions from the hon. Members for Oldham West and Royton and for Brighton, Kemptown.
The speech from the hon. Member for Brighton, Kemptown sounded like a reprise of “I like potato and you like potahto”. Maybe we should have a musical duet at some point: he says “ad hoc” and I say “iterative, responsive and organic”. I think that we have been perfectly sensible in not having a one-size-fits-all, top-down approach, but in responding with full rigour in terms of the scrutiny of proposals for grassroots-authored changes to the local government landscape. That is probably the right way to go, on balance, because it allows us to work with the grain of local communities and their local elected representatives, rather than having some one-size-fits-all impost.
The hon. Members’ point is well made, however. There will come a time—I am not entirely convinced that the time is now, but it is probably fast coming—for what hon. Members on both Front Benches agree is an overdue and much-needed review of the funding formula, along with broader discussions about how local government is funded and the powers and responsibilities that it enjoys. One needs to review the new landscape—two-tier, unitary, county and unitary combined, devo deals, elected Mayors and so on—to ensure that the taxpayer is always securing best value for money and that the decision making is as simple as it can be and as transparent as it needs to be. There is a piece of work that I see clearly enveloped within the debate, which I am sure will come in the next Parliament, about how we fund local government.
Devo deals per se fall under the ministerial responsibility of the Under-Secretary of State, my hon. Friend the Member for Redcar (Jacob Young), so I will ensure that the remarks of the hon. Member for Brighton, Kemptown are brought to his attention. I am sure that if my hon. Friend sees fit, he will engage in correspondence. Maybe unusually for the hon. Gentleman, who sometimes has a reputation in this place for making a cheeky-chappy sort of point, he has made a sensible point and has made it well. His question deserves additional thought; I do not hold the portfolio or the corporate knowledge to respond to it in the detail that it deserves, but I will ensure that that happens.
To turn to the questions from the hon. Member for Oldham West and Royton, allowances for co-opted members and the rate of pay for councillors are within the discretion of each local authority. The hon. Gentleman makes the important point that we are at a transition stage. A lot of our councils are now multimillion-pound businesses. Are we still right to think of them as a sort of receptacle of the voluntary sector? If we want serving in local government to have a broad attractiveness, the whole area of remuneration must be taken into account to ensure that the scale of the challenge is attractive to people who may consider standing for election to local government.
George Freeman (Mid Norfolk) (Con)
I do not want to detain the Committee with a long digression on local government finance, but does my hon. Friend agree that, as well as remuneration for time, it might be an attractive incentive for councillors if the Treasury allowed them to retain some of the money they save through efficiencies, or that they attract through higher growth, and to put it back into local services? That would provide a strong incentive to attract great leaders—not for personal remuneration, but for the ability to do a great job.
Simon Hoare
I have huge sympathy for my hon. Friend. I think we will not be able to deal with these issues, and we will miss the most golden of opportunities, if, when we arrive at that position—and it will be in the next Parliament—we do not do so on a cross-party basis. The hon. Member for Oldham West and Royton is probably bored of hearing me say that I am absolutely convinced of the considerable and overwhelming merit of that approach. I say that because some of the delivery of new formulas and so on will extend beyond three years or the narrow confines of a five-year Parliament, which would not enable anyone to do anything particularly big, bold or challenging.
The hon. Member for Oldham West and Royton spoke about the merit of multi-year settlements, and I agree. That is a compelling and clear argument. It is helpful to councils and, as is often neglected—although not by the hon. Gentleman, I am sure—it allows those in our voluntary sector far greater certainty with regard to recruitment and planning if they can be certain that their commissioned fee will last for two or three years, rather than just a 12-month cycle. By definition, we will probably not attract the best people if all we say is, “You start on the 1st, and then you are on notice, because we don’t know if we will be able to renew your contract next time.” Those of us with direct local government experience know full well that, without the expertise and efficacy of our voluntary and charity sector, our communities would be very much the poorer.
The point made by my hon. Friend the Member for Mid Norfolk ties in very well with those made by the hon. Members for Oldham West and Royton and for Brighton, Kemptown. Within the conversation about how the funding model for local government is changed and evolved to meet the times, nothing should be off the table. It is a window of opportunity to recalibrate the future of local government and its relationship with the centre, which should sustain it in a practical way, not for a hand-to-mouth two or three-year spending settlement period, but for 10, 15 or 20 years. I see considerable merit in that in terms of value for the public purse and the quality and reliability of delivery of public service.
The hon. Member for Oldham West and Royton asked some specific questions. Yes, overview and scrutiny committees can call in. I certainly anticipate that scrutiny would cover trading companies and JVs. Yes, they can instigate best value reviews, and where local authorities have identified a lacuna of expertise, the recruitment of lay members to provide expert advice in certain areas—sometimes on a very bespoke basis, sometimes on a more permanent, standing basis—should be encouraged. I do not see any inhibitor in these regulations to allowing authorities to do that.
The hon. Gentleman asked about new burdens. This instrument is a tidying-up exercise. All authorities expect that they will have an element of scrutiny and audit. I do not see that qualifying as yet, if at all, as new burdens, but we will keep it under review. If we are able to invest to save, and to drive better-quality service more efficiently through the audit and scrutiny process, it would be a rather foolish Minister who set his face against delivering that. We see this not as a new burden, but as a continuation of an accepted task, and an important one.
I hope that that has answered the questions raised by my hon. Friend the Member for Mid Norfolk and Opposition Members. If it has not, I apologise, and I am sure that they can drop me a note. I am grateful for the support of the Labour party. I am also grateful to my friend, the hon. Member for North Tyneside, whose telephone provided both the noise of Skippy the kangaroo and, when the hon. Member for Brighton, Kemptown was speaking, one that sounded a little bit like a Muscovy duck. We are grateful to her, and I look forward to serving with her on another Committee for even more Percy Edwards-type noises.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Combined Authorities (Overview and Scrutiny Committees, Access to Information and Audit Committees) (Amendment) Regulations 2024.
Draft Tertiary Education and Research (Wales) Act 2022 (Consequential Amendments) Order 2024
(1 month, 3 weeks ago)
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The Secretary of State for Wales (David T. C. Davies)
I beg to move,
That the Committee has considered the draft Tertiary Education and Research (Wales) Act 2022 (Consequential Amendments) Order 2024.
It is a great pleasure to serve under your chairmanship, Mr Stringer. The draft order will make changes to UK legislation arising from the establishment of the Commission for Tertiary Education and Research in Wales, which I will hereafter refer to as the commission, under powers in the Senedd’s Tertiary Education and Research (Wales) Act 2022. The commission will be the regulatory body responsible for the funding, oversight and regulation of tertiary education and research in Wales. The 2022 Act also provides for the dissolution of the Higher Education Funding Council for Wales, the existing regulatory body for higher education in Wales, which I will hereafter refer to as HEFCW. The Welsh Government have announced that the commission will become operational in August 2024 and that HEFCW will be dissolved at the same time. The order’s amendments to various pieces of UK legislation, many of which replace references to HEFCW with references to the commission, are therefore needed in advance of that change taking effect.
Article 2 of the draft order amends the House of Commons Disqualification Act 1975 so that members of the commission in receipt of remuneration will be disqualified from membership of the House of Commons, in the same way that members of HEFCW are currently. Article 3 replaces a reference to HEFCW and the Welsh Ministers with a reference to the commission in section 82 of the Further and Higher Education Act 1992, which makes provision about the assessment of maintaining academic standards in higher education institutions in Scotland and Wales.
Article 4 amends schedule 1 to the Freedom of Information Act 2000, which lists public authorities for the purposes of that Act. Once it comes into force, the 2022 Senedd Act will repeal section 62 of the Further and Higher Education Act. Section 62 is referred to in schedule 1 to the Freedom of Information Act in order to define institutions in the Welsh higher education sector within the scope of the 2000 Act. Article 4 replaces that cross-reference with an equivalent definition, which will ensure that there is no material change to the institutions in the Welsh higher education sector subject to the 2000 Act.
Article 4 also amends part VI of schedule 1 to the Freedom of Information Act by adding the commission to the list of public authorities for the purposes of that Act, and removing the reference to HEFCW from the list. Article 5 amends section 32 of the Counter-Terrorism and Security Act 2015, which makes provision about monitoring the performance of further and higher education bodies in discharging their duty to prevent people from being drawn into terrorism. In line with section 32 of the 2015 Act, the Home Secretary has delegated that monitoring function to HEFCW in relation to higher and further education in Wales. Our amendment will ensure that, once HEFCW is dissolved, that function can be delegated to the commission in the same way. Finally, article 6 updates the Higher Education and Research Act 2017 to ensure that the commission can enter into joint working arrangements with education and research bodies across the UK, including UK Research and Innovation and the Office for Students, as HEFCW can currently.
I welcome the establishment of the commission and hope it will have a positive impact on the tertiary education and research sector in Wales. In particular, I am pleased that the draft order will support collaboration and joint working between the commission and its counterparts in other UK nations, and the continuous improvement of the education and research sector in Wales and more widely across the UK. I commend the draft order to the Committee.
Jessica Morden (Newport East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Stringer. I will not detain the Committee long, especially after the high excitement of Welsh questions earlier. This straightforward statutory instrument, laid as a consequence, as the Secretary of State said, of the passage of the Tertiary Education and Research (Wales) Act 2022 in the Senedd, will replace references in reserved UK legislation to the Higher Education Funding Council for Wales with references to the new Commission for Tertiary Education and Research. It will also make technical amendments in relation to provisions being repealed as a consequence of the Act.
The Act formed part of the delivery of the Welsh Labour manifesto commitment on tertiary education. Although this is of interest to no one other than myself, my father spent his career in tertiary education in Gwent, in Pontypool College. The Act renews the 30-year-old system that predates devolution, under which tertiary education is currently organised and funded. When the commission becomes operational on 1 August, it will, for the first time, take a coherent and system-wide view of tertiary education, bringing under one roof the funding, oversight, quality and regulation of higher and further education, local authority maintained schools, sixth forms, apprenticeships, and adult and community learning, as well as other responsibilities for research and innovation.
In introducing these changes, the Welsh Government are implementing the main recommendations of the independent Hazelkorn review, which noted the confusion and complexity of the sector in Wales and the lack of system-wide strategic view and collaboration, as well as the incoherent learner pathways. I am pleased to confirm that the architect of many of the marketised reforms to tertiary education in England, the former Minister for Universities, Jo Johnson, similarly backed a
“joined-up system of regulation and funding for all post-16 education”
in England, deriding what he called a
“bewildering array of regulatory and funding bodies”.—[Official Report, House of Lords, 15 June 2021; Vol. 812, c. 1813.]
After the Secretary of State’s attempted tour de force at Welsh questions—some little problems with Wrexham there—I am sure he will acknowledge that Welsh Labour is leading the way in this legislation.
Labour Governments invest in young people’s futures. Combined with the Welsh Government’s young person’s guarantee of education, training or work for all 16 to 24-year-olds, the new system will create the conditions for a highly skilled society with equality of opportunity and a civic mission at its heart. Its strategic duties will also include contributing to a sustainable and innovative economy, which is crucial for a UK Labour Government to deliver their plan to make Wales a green energy superpower, investing in the industries and jobs of the future.
This statutory instrument makes only a few minor and technical legislative amendments, so Labour has no reason to divide the Committee. However, I would ask the Minister to check with his officials whether the Department has notified the Welsh Government that the order has been laid. It is my understanding that that did not happen on this occasion, and it would be good to know that the issue will be taken forward and that people will check that the Welsh Government are notified.
David T. C. Davies
I thank the hon. Member for Newport East for her valuable contribution to the debate. I am 99% certain that the Welsh Government were advised about the order, and I am getting nods from officials. I think that the Welsh Government actually offered to send officials along to take questions. If I am incorrect, I will write to the hon. Lady.
As I said, the order provides for a number of consequential changes to UK law, which are necessary ahead of the Commission for Tertiary Education and Research becoming operational in August. To respond to the hon. Lady’s points, it is of course always a pleasure to help the Welsh Labour Government implement their manifesto commitments.
In reference to the hon. Lady’s father, he did indeed have a distinguished career in education in Wales. It was a pleasure to meet him 20 years ago when I was in the Senedd—in fact, I think we collaborated to save a community theatre. I know he did a lot to support the arts for young people in Monmouthshire, and he was well respected by everyone who knew him.
I thank everyone for the productive manner in which the debate has been carried out and for the way in which the UK and Welsh Governments have worked together in preparing the order, and I commend it to the Committee.
Question put and agreed to.
Draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024
(1 month, 3 weeks ago)
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The Parliamentary Under-Secretary of State for Work and Pensions (Paul Maynard)
I beg to move,
That the Committee has considered the draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024.
It is a pleasure to serve under your chairmanship, Dame Maria. The regulations introduce new measures that will support trustees and sponsoring employers of defined-benefit occupational pension schemes to plan and manage their scheme’s funding over the longer term. The regulations will require trustees to send a statement of the scheme’s funding and investment strategy to the Pensions Regulator, alongside the three-yearly actuarial valuations already required. This will articulate the trustees’ approach to long-term planning and risk management.
The regulations will work with the regulator’s revised funding code of practice, aiming to strike a fair and lasting balance between providing security for members of defined-benefit schemes and affordability for the sponsoring employer.
Sir Greg Knight (East Yorkshire) (Con)
The explanatory memorandum states on page 7:
“There were concerns that the new regime would result in a disproportionate governance burden for small schemes”.
Does the Minister intend to address that concern?
Paul Maynard
My right hon. Friend makes the very fair point, which I have always been conscious of in this brief, that small schemes may occasionally get out-shouted by some of the larger schemes. Alongside the Pensions Regulator, we have engaged extensively not just with industry but with the professional bodies that are often more involved in the running of smaller schemes. I am confident we have struck the right balance between providing the clarity and assistance that trustees of smaller schemes need, and the interests of members in ensuring that they get the benefits that are due to them. It has been quite a long process to come up with this particular set of schemes and, in my view, we have struck the right balance.
As many will know, DB schemes have around £1.4 trillion of assets under management. In a world where most DB schemes are closed and maturing, it is more important than ever that sponsors and trustees work together, are clear how their promises will be met, and agree how to manage the funding and investment decisions involved. These regulations will support them to do that.
DB funding levels have indeed improved in recent years. It is important that schemes take advantage of the opportunities that that brings, and crystal-clear funding standards enable that. This package of measures aligns with the Government’s policy on investing in productive finance and the consultation on options for defined-benefit schemes.
Mr John Baron (Basildon and Billericay) (Con)
As somebody who has run pension fund money, I have a few concerns. One is the administrative concern raised by my right hon. Friend the Member for East Yorkshire, but this could also smack of the approach, “I’m from central office—nothing to be concerned about”—[Interruption.]
The Chair
The Minister was making a speech, but Mr John Baron was intervening. If it is convenient for him to continue his intervention, that would be appropriate.
Mr Baron
Thank you, Dame Maria. I fully understand where the Government are coming from on these measures, but what assurance can the Minister give that the Pensions Regulator, if and when it intervenes, is suitably sighted of investment risk, so that it understands the pension scheme and its funding liabilities, and whether or not it has low funding capability, so that it will be a help rather than a hindrance?
Paul Maynard
I am grateful for that intervention. The Pensions Regulator is expert in regulating, but more than that, it recruits investment consultants, experts in covenants, and experts in risk management. It reaches out to the wider community—to not just those who run pension schemes, but those who manage the process from beginning to end. Having met with the regulator on many occasions, I am confident that it has the necessary skillset to implement its own funding guidance and ensure that it is adhered to by scheme trustees.
As I was saying as my hon. Friend intervened, DB funding levels have improved in recent years. It is important that schemes take advantage of the opportunities that brings, and crystal-clear funding standards enable that. This package of measures aligns with the Government’s policy on investing in productive finance, and the consultation on options for DB schemes. We want to encourage schemes to get the most from their assets through more productive investments, while at the same time ensuring that scheme members can be confident that they will receive the benefits that they have been promised. We know that most DB schemes are well-managed and properly funded, and that the vast majority of members will receive the promised pension.
Good practice is not universal. Some schemes still take inappropriate levels of risk. There remain around 27% of schemes, on a technical-provisions basis, that have a deficit that will need to be repaired. The regulations embrace good practice and build on the existing funding regime for DB schemes by providing clearer funding standards, which will ensure, as far as possible, that schemes are properly funded over the long term.
The regulations set out the details for the scheme funding provisions in the Pension Schemes Act 2021, the details for the funding and investment strategy, and how important metrics, such as maturity, covenant strength and low dependency, must be determined. Schemes will be required to have a funding and investment strategy that sets out the way pension benefits will be paid over the long term. That could be through buying out with an insurer, entering a super-fund, or running on with employer support.
As they were originally drafted, the regulations would have meant that one component of the reforms—recovery plans—would come into effect from April and not September. Having identified that, and to avoid potential confusion and additional administrative requirements for the small number of schemes affected, we withdrew the regulations and re-laid this revised version.
I am pleased by the positive response to the regulations from our stakeholders, and I am confident that the regulations will support schemes and sponsoring employers to make long-term plans so that their members get the retirement income that they have contributed towards and rightly expect.
Gill Furniss (Sheffield, Brightside and Hillsborough) (Lab)
It is a pleasure to serve under your chairpersonship, Dame Maria.
The regulations will place additional duties on the trustees of defined-benefit pension schemes to help ensure good practice. As the Minister pointed out, the vast majority of those schemes are already well run by dedicated trustees who want to do right by their members, but we know that that is not universal and we support measures to ensure that people’s money is well looked after.
The defined-benefit pensions sector is an evolving industry. As has been highlighted, the last significant legislation relating to it dates back to 2004-05, a time when many defined-benefit schemes were open. The landscape has changed significantly, and it is vital that regulation keeps up. For instance, research shows that many large schemes are yet to set long-term objectives. The requirements in the regulations should, I hope, help to fix that.
Turning to the consultation, I am aware that, while many stakeholders were supportive of the objectives of the regulations, concerns have been raised about the extra administrative burden that they may incur. I am also concerned that underfunding could be a risk to scheme members and pension protection funds, and I would welcome the Minister’s reassurance on that point. Will he outline what discussions he has had with the Pensions Regulator on its implementation of the flexibility that it may well be awarded? Could we please have more guidance on what exactly will be required from each DB scheme?
We will not oppose the regulations and we hope that they are successful in promoting good practice across the sector. I thank the Minister for his explanation of the changes, and I look forward to his answers about extra guidance for affected schemes and to the questions that I have just raised.
Mr Baron
I will keep my comments very brief, for the benefit of the Committee. I seek clarification. It is not just the admin cost of these measures that concerns some of us. I am pleased that the Minister responded about the investment expertise that he believes the Pension Regulator will ensure is present whenever it intervenes, but there is a clause in the explanatory memorandum that concerns me slightly. Paragraph 7.1 states:
“Rather than eliminate risk from the system, the changes aim to support trustees in planning for the long-term and managing risk effectively—balancing the protection of member benefits with the sustainability of the employer.”
That makes sense, except that the sustainability of the employer can fluctuate depending on the economic cycle and individual circumstances. If we take that at face value, we could have a situation where the company’s fortunes are fluctuating and therefore to maintain the balance, as mentioned in the explanatory memorandum, the investment strategy has to fluctuate as well. That is not the best basis on which to take forward a long-term investment strategy. Will the Minister put my mind at rest that that will not be a problem for companies or, more importantly, those who hope to benefit from the pension over time?
Paul Maynard
I thank the shadow Minister—the hon. Member for Sheffield, Brightside and Hillsborough—and my hon. Friend the Member for Basildon and Billericay for their contributions.
I will do my best to reassure my hon. Friend. I fear he has greater expertise than me in this matter, so I may not succeed, but I am sure he will let me know. To his specific point, the funding risks taken by schemes need to be supportable by the employer. They are required to address any deficit that emerges if risks materialise. When we say “employer covenant”, we are really referring to the strength of that covenant—the financial ability to plug a gap should it occur.
The key objective of the reforms is to provide clearer and more enforceable funding standards. The regulations will define the strength of the employer covenant and set out the principles for how that is to be assessed. They will then set out a further principle for how to determine scheme liabilities. The level of risk that can be taken depends on the strength of the employer covenant and the maturity of the scheme. The regulations will require schemes, as a minimum, to have sufficient funds to have a low dependency on their sponsoring employer by the time they are significantly mature to meet the scheme’s future pension promises. That means that, under reasonably foreseeable circumstances, further employer contributions will not be expected.
Mr Baron
This will be my last intervention. I take on board what the Minister has said, but he still has not directly answered the bit of my question about the fluctuating fortunes of a company. I appreciate that pension schemes going forward will be funded on a low-dependency funding basis and should be fully funded from the registered date. But what assurance can he give that, if the fortunes of the company fluctuate markedly, and if the trustees are going to meet the obligations according to the explanatory memorandum, they will not find themselves in a situation where they have to continually adjust the investment risk profile of the portfolio they are overseeing to ensure that they maintain that balance during what could be difficult economic times?
Paul Maynard
I am sure my hon. Friend will be aware that we have seen volatility in pension schemes over recent years. Many DB schemes are now funded to surplus, to a much greater extent than has hitherto been the case, but I recognise that that will not always be in the case. Let me try to go down one level further in terms of what the regulations will prescribe in the hope of reassuring him. If I do not reassure him, I will happily invite him to the Department for a thorough going-over with officials, but let me do my best first.
The regulations are subject to the principle that the funding and investment risks taken by a scheme before the relevant date must be supportable by the employer. The relevant date is the date on which the scheme is expected to reach significant maturity. Less mature schemes, such as open schemes, can support more risk because there is more time to adjust any funding shortfalls that may emerge if the risks are realised.
The regulations amend the Occupational Pension Schemes (Scheme Funding) Regulations 2005. They require trustees and managers to follow the principle that when determining recovery plans, the period for the recovery must be set with reference to what the employer can reasonably afford. The regulations will also make it clear that when determining an appropriate recovery plan, the trustees and managers must take into account any impact on the sustainable growth of the employer.
What I draw from that, and what I hope my hon. Friend will draw from it, is that should a DB scheme find itself facing a deficit that was not anticipated, both the trustees and the managers of the scheme will have the flexibility to determine the appropriate recovery plan, and that any variation within a short period of time can be accommodated by the fund. Over a longer period, the reference date that they start their planning from should enable longer-term volatility—the ups and downs that we naturally see across time—to be smoothed out. If that does not answer my hon. Friend’s question, he can grab me at the end and he will get a speedy invite.
On the point the shadow Minister made on some of the issues around guidance more generally, we have tried to ensure that the regulations are flexible and will work well for all schemes. It is important to make the point that even mature schemes can invest in a wide range of assets as long as they reach low dependency at significant maturity. We also want the regulations to allow open schemes to take account of new entrants and future accrual when determining when the scheme will reach significant maturity. To make long-term planning and implementation easier and to avoid unnecessary administrative burden, we have given the Pensions Regulator the flexibility to ask for less detailed information depending on the circumstances of a particular scheme.
We can expect the revised DB funding code of practice to be laid before Parliament this summer, in time to come into effect from September 2024 in line with the regulations. Around the same time as the Pensions Regulator publishes its code, the regulator will also publish the fast-track parameters and the updated impact assessments. Later in the summer, the Pensions Regulator will consult on the covenant guidance. There is a whole suite of things coming up over the course of the summer, all intended to be in force ready for 22 September, when the regulations will become effective.
We are making sure, in collaboration with the regulator and the industry, that any burden is proportionate to the outcomes and reflects the particular circumstances of any individual scheme. Fundamentally, as the shadow Minister agreed, the regulations will guarantee that member benefits are protected, but that we enable defined-benefit schemes to grow as best they can to meet any funding shortfall that may occur. On that basis, I hope that I have answered everyone’s questions, and I commend the regulations to the Committee.
Question put and agreed to.