Health and Safety at Work etc. Act 1974 (General Duties of Self-Employed Persons) (Prescribed Undertakings) Regulations 2015

Baroness Donaghy Excerpts

Wednesday 22nd July 2015 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I regret that these regulations are before the House. As they are here, I think they are the least worst option. I see from the impact assessment that a “probabilistic” approach was taken to these regulations. It is not a word I have ever heard of. I hope they veer towards the probable rather than towards the ballistic in their outcome.

As the Minister has said, the catch-all provision to ensure that those self-employed persons who may pose a risk to others are not exempt from Health and Safety law is at least an improvement on the original intention. The word “may”, however, leaves an awful lot to be desired. This all arose, of course, from an explicit assurance by the noble Lord, Lord Wallace of Saltaire, to my noble friend Lord McKenzie of Luton, who was seeking inclusion of this provision in the Bill.

I still believe that the phrase,

“may pose a risk to others”,

will cause confusion. Professor Löfstedt actually recommended exemption from Health and Safety law for,

“those self-employed people whose work activities pose no potential risk of harm to others”,

which is what the noble Baroness herself just quoted. There was no “may” about it.

It may be that the impact will be minimal because, even under current legislation, there is evidence that a significant number of self-employed people do not think the Health and Safety at Work etc. Act applies to them. In one piece of qualitative research, only five out of 60 people interviewed thought that they had any health and safety obligations. Not a single one of them responded to say that this change would make a difference to their working practices.

The regulations may be more about perception than a real change, as stated by Professor Löfstedt. In one sense, I hope that is correct, and that health and safety at work will not diminish. However, perceptions are extremely important, and these regulations may encourage the perception that not only is health and safety a burden but that it is respectable to avoid obligation. There is still potential for self-employed people to assess incorrectly whether the exemption applies to them. The Health and Safety Executive guidelines—to which, again, the Minister referred—are still in preparation, so we do not know what impact or coverage they will have.

With approximately 266,000 new businesses being established each year, we do not know what impact these regulations will have on them. As the impact assessment points out:

“The newly self-employed will still need to spend some time determining whether they are exempt under the proposals”.

I hope it will be made clear, in communicating information about these regulations, that there are still more than 40 sets of regulations that apply to the self-employed, either explicitly or in more general regulations. For example, the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations, known as RIDDOR, will still apply. When I was preparing my report on fatalities in the construction industry, I was concerned about the low level of reporting of accidents and injuries under RIDDOR. It was quite clear that hospitals were more likely to know the extent of occurrences under RIDDOR than the reporting mechanism itself. It was also clear that there was a pattern that low levels of reporting on minor injuries also saw a higher proportion of serious injuries and fatalities. I realise that these comments apply to construction, which is not an exempt industry under these proposals, but I am making the point that, if anything, there is a problem of underreporting, which can lead to more accidents. It is in the interests of government and the taxpayer, as well as the self-employed person, to be conscious of the costs to the health service and the DWP of any increase in accidents at work. This is why I remain concerned about the policy of exempting people from an Act that has served and is serving this nation well.

[Lord Cormack (Con)]

My Lords, it is very clear from what the noble Baroness has said that the health and safety of the English language are at risk. I should like an assurance from my noble friend that the word “probabilistic” will never appear again in any document or on the Floor of this House. I should like an assurance that she will take some time during the Recess to distribute to everyone within her department a copy of Sir Ernest Gowers’ Plain Words. May we also have a resolution that, when we come back in the autumn, acronyms will be banned?

Health and Safety Executive

Baroness Donaghy Excerpts

Thursday 3rd April 2014 Lords Chamber

[Lord Bates]

It is a good question. The point is that fines for intervention are where visits and inspections have taken place and problems have been found which have resulted in prosecution. In those circumstances, the view of the HSE and of the Government is that the taxpayer should not have to pick up the bill; the person who has not been fulfilling the obligation to implement the rules correctly should pay the price.

[Baroness Donaghy (Lab)]

My Lords, the Minister will be aware that the Health and Safety Executive played a key role on the Olympic construction site. Our country should be very proud that not a single person died as a result of that building work. Following on from the question of the noble Lord, Lord German, the independent report states that the link between funding of the regulator and income from fines is a “dangerous model”. How will the Minister ensure that the HSE’s integrity and independence will be protected?

[Lord Bates]

That is a very good point. I certainly endorse what the noble Baroness said about the Olympics. There were 46,000 people working on that site and to have not one fatality is exemplary. That gives me the opportunity to point out that that is one thing that the UK does extraordinarily well. Fatalities in the workplace are much lower in the UK, at 0.71 per 100,000 workers, compared to an equivalent rate of 0.81 in Germany, 1.57 in Italy and 2.49 elsewhere. That is an important record, showing that the HSE is working correctly with contractors in major projects, and this will ensure that that work continues in future.

Employment

Baroness Donaghy Excerpts

Thursday 20th March 2014 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I thank the Minister for initiating this debate, and in doing so, I note that he is much admired for the way in which he steered the Welfare Reform Bill and the Pensions Bill—two of the most difficult Bills in Parliament—through this House. In fact, I think that he is more appreciated by this side of the House than he is by his own party. I say this because my contribution is not very supportive of the Minister’s claims and I wanted to place on record my admiration for him before I rubbished his thesis.

I understand why there is a great deal of celebration from the coalition Government about the level of employment. However, the increase in inequality, the way we treat our young people, the way we treat public sector workers, the increasing economic fragility of people’s lives and the experience of most women in terms of income and childcare mean that there is absolutely nothing to celebrate. The economy is nearly 2% smaller than it was at the end of 2007. Looking at the very short term, it is true that the number of unemployed actively seeking work has shrunk by 250,000. I accept that. However, there are still 770,000 more people unemployed than at the end of 2007—a total of 2.4 million. That represents little change from May 2010. Unemployment has averaged nearly 8% since 1980. So we have to ask how—or even whether—the economy can bring that level down to the 2% we had for 25 years after the Second World War. We had growth averaging 3% a year for more than 60 years. Achieving that over a period of time under current government policies is beginning to look unlikely.

Then we have low productivity. Firms have survived by shelving investment and paying their workers less. This might work in the very short term but it will not lead to growth. George Osborne knows that low productivity has slowed growth and will continue to do so. The Financial Times has used the Office for Budget Responsibility’s own model to show that the £85 billion deficit target in 2013-14 will actually be £111 billion.

The Government’s headline increase in apprenticeships is positive on the face of it, and of course it makes the unemployment figure look better. However, the reality is very different. The minimum wage rate for an apprentice is £2.68 per hour. Although it is a positive step to acquire skills and work experience, when the wages are under £100 a week before travel costs and bills, it starts to look less attractive—and if those apprenticeships do not lead to a job, it breeds cynicism and despair. Most of the new jobs in the service sector are filled by young, unskilled workers on short-term, part-time and zero hours contracts, which is a guarantee that low productivity will persist. The impact on young people is extremely worrying.

The latest survey from the Prince’s Trust confirms what some of us know already. Young people are having a tough time finding security and fulfilment—unless they come from a privileged background. Some 9% of respondents to the survey said that they had “nothing to live for”, and one-third of young unemployed people have considered suicide. Clearly, there are other factors such as an increase in homelessness, poor careers advice and the break-up of families, but we cannot be proud that in this country a large proportion of apprenticeships are just an excuse for cheap labour, or are of poor quality and short duration. The Government’s own research shows that one in five apprentices receives no on-the-job or off-the-job training, and 25% are paid less than their legal entitlement. The Work Foundation has found that, despite the range of skills that are deemed necessary for a career in social care, only around one-third of health and social care apprentices receive both on-the-job and off-the-job training, and one-fifth report receiving neither. It is no coincidence that most new claimants of housing benefit are working rather than unemployed.

A Manpower survey shows that job prospects are better than they have been for six years, in particular in the building industry, the utilities and large companies. If that leads to more jobs for skilled workers, it may help productivity, but if it represents more low-paid, temporary and unskilled work, it will disguise the real problem. The Government have made much of the fact that private sector jobs have increased by 1.5 million and that that has made up for the loss of jobs in the public sector. Even if we discount the tragic loss of skills and commitment to public service that that represents—a hollowing out of the Civil Service and local government, and unsustainable pressure on health service staff—the figures hide blatant exploitation of workers and the prevalence of low pay, particularly among women workers. Some 11 million people have had no increase in real earnings since 2003.

The Government have also made much of the increase in self-employment. Research by the Office for National Statistics shows that women have made up more than half of the 10% growth in self-employment since the recession began. If this represented an increase in business start-ups and thrusting entrepreneurs, we would all be cheering, but the reality for most is very sobering. According to HMRC, in 2011-12 the average income for a self-employed man was £17,000. Even taking account of the ability to offset a large proportion of costs and expenses if you are self-employed, that is still a surprising figure. The average for women, however, was £9,800—40% less than men. In almost every region apart from London, the south-east and Scotland, self-employed women earned less than £10,000 a year. This suggests a great deal of substitution from low-paid employment to low-earning self-employment.

A recent report by the Women’s Budget Group notes that much of the increase in women becoming self-employed is effectively because of precarious work and zero-hours contracts rather than because of the creation of new businesses. Scarlet Harris, a spokesperson for the group, said:

“Clerical, cleaning and caring work, which is predominantly carried out by women, has experienced some of the fastest growth in self-employment in recent years. These women, who already suffer poverty rates of pay, are now having to contend with the poor working conditions and complete lack of job security that self-employment brings. These shocking gender pay gap figures should end any delusions people have about the UK’s four million self-employed workers”.

A BBC investigation last month found that advisers are encouraging individuals on welfare-to-work schemes to become self-employed in order to move them from unemployment benefits to working tax credits. Has the Minister investigated this matter? If so, how does he plan to deal with it?

Not only is the gender pay gap widening for the self-employed, but ONS figures show that the gender pay gap as a whole in the UK widened in 2012 for the first time in five years, from 9.5% to 10%. The Chancellor of the Exchequer said that the recent Budget is for,

“the makers, the doers, and the savers”.—[Official Report, Commons, 19/3/14; col. 794.]

He should have added—“and young people and women can push off”.

Finally, I do not believe that we can win a race to the bottom. We need high-quality jobs, investment in manufacturing and good-quality training and careers advice. The World Economic Forum in Davos concluded that the biggest threat to prosperity in the next decade was the increasing gap between rich and poor. This Government are following a path that will ultimately fail, at enormous cost to people’s security and aspiration. It really is a case of, “Never mind the quality, feel the width”.

Pensions Bill

Baroness Donaghy Excerpts

Monday 20th January 2014 Grand Committee

[Lord German (LD)]

My Lords, I am grateful to the noble Lords, Lord Browne and Lord Lawson, for raising these issues, because they allow us to examine the approaches which might be taken in the regulations which may follow and to ask the Government to describe which of these approaches, or what combination of these approaches, they might take. It is quite clear, in my view, that there are two separate approaches: one based on regulation and the other based on openness, transparency and disclosure. There is no reason why you cannot have some of one and some of the other; where the balance is drawn is a matter for debate and discussion. Ultimately, this matter goes to the heart of the success of our pensions industry for savers. The saver must have trust in a system which has a long tail behind it to understand that his or her money is being invested wisely and will return on that investment to provide a pension.

Auto-enrolment will, in the long run, be a success only if the schemes into which people are enrolled are well run and invest people’s savings responsibly. This is particularly important in DC schemes because, in the end in those schemes, the saver bears the investment risk of that complex decision process, which is more often than not made entirely without the saver’s knowledge or input. I was very interested in the chain described by the noble Lord, Lord Lawson, which stretched from Manchester to Monte Carlo. I dare say that if you started to plan these chains out around the world, you would probably find that these decisions were taken in all sorts of places and the connections very wide. That helps demonstrate the length of the chain in investment decisions, particularly if you start with the saver.

Of course, auto-enrolled savers do not choose their own pension provider. Poor pension companies might not become immediately evident to the saver. The best governance of the system would ensure robust oversight of savers’ interests and, most importantly, open communication with savers. It is not always obvious that those in the investment chain place the obligation to protect the best interests of savers at the heart of their decisions, particularly if they are in Monte Carlo. Fundamentally, that means improving transparency and promoting the disclosure of clear and relevant information to savers, as well as ways in which savers can easily find out information about their own savings.

I hope that the Government will tell us a little bit today about how they propose to deal with these very important issues and which approaches they intend to take that might guide the legislation that is to follow in regulations. Could my noble friend say something about how they intend to make the application of the UK stewardship code applicable to all pension schemes into which people are auto-enrolled?

[Baroness Donaghy (Lab)]

I just want to say a few words about the culture within the financial services companies and how difficult it is, given that culture, to have any compliance rules that staff will obey if their jobs depend on selling products. I think it was the whistleblower Dave Penny, who worked for Lloyds TSB, who gave a long list of tricks of the trade that he had tried to warn against. We all know the fines that that company had to pay for using those tricks in both PPI and bond selling. Mr Penny said:

“A supposedly strict compliance regime is meaningless if the management style is putting immense pressure on staff to sell, sell, sell. To keep their jobs, staff will always find ways around compliance”.

That has not gone away just because of the massive fines and compensation that these companies have paid. Only a couple of months ago, a woman in her 60s received a cheque from her son for £35,000. She planned to put that into a stock market investment. That same day that the money arrived in her current account, she was called by a Lloyds employee, who told her that the money could be at risk—an extraordinary claim to make about funds left in the care of a clearing bank. The Lloyds customer said, “The woman at the other end of the line said that my money might not be safe in my current account over the weekend and recommended that I transfer it to a savings account where it would be less easy to steal. I was naturally very worried about this and the bank did not really explain why my money would not be safe in my current account. The whole thing caused me a great deal of distress and eventually my husband intervened, and called the bank to say I did not want to transfer my money to a savings account and went ahead with my original investment plans”.

Of course, there is a financial incentive to place money in an investment account in a bank, no matter how low the interest rates compared with a current account, which is the sole reason why that employee made the effort to contact that person. I realise that that is not of direct relevance to these amendments, except to say that compliance will not work unless you deal with the issue of the culture in these companies. We will see all these tricks of the trade happening again, particularly as the Government are going on the pot-follows-member formula. This will give many more opportunities for companies to salami-slice their charges as each of these small pots is transferred.

[Lord Bates]

My Lords, this has been a useful debate with lots of high-quality and thoughtful interventions. I will try to follow that standard by putting some remarks on the noble Lord’s amendments on the record, and also on my noble friend Lord Freud’s Amendment 70.

As your Lordships will be aware, we launched our recent consultation on charging in October 2013, following on from the Office of Fair Trading’s September 2013 market study into defined contribution workplace pensions. That study raised concerns, which the Government share, about the weakness in the buyer side of the market—a point made powerfully by the noble Baroness, Lady Donaghy, in recounting those examples—the complexity of the product and a lack of transparency, which hinders consumers’ abilities to compare schemes. My noble friend Lord Lawson, a distinguished economist, mentioned the principal agent problem, which has at its heart, in an economic context, asymmetry of information. Transparency must therefore be part of the play which somehow levels the playing field between one side and the other.

Our consultation sought views on how the total cost of scheme membership, including transaction costs, might be captured, reported and managed. My noble friend Lord German rightly said that perhaps it was not an “either/or” solution, but more of an “and” solution. That was reflected in the consultation’s remit, which presented not just one idea but alternative measures to improve the transparency and disclosure charges, as referred to by my noble friend Lord Lawson with regard to his proposed new schedule: a cap on charges on default funds of defined contribution workplace pension schemes, a point made powerfully by the noble Lord, Lord Browne; a ban on active-member discounts and commission; and an extension of the ban on consultancy charges to all schemes used for automatic enrolment. Quite a wide-ranging consultation was launched.

By November last year we had 160 written responses from the evidence received. We will be publishing our response to this consultation shortly. In fact, Steve Webb, the Minister for Pensions, will be updating the other place on his response to the issue of a cap on charges on Thursday this week. I know how the machinery of government works; that does not quite deliver what we want before us in Grand Committee as we consider the amendment. But that information will be in the public domain, and I am sure will be a source of debate for others to draw upon on Report. I will offer some reassurances in the interim.

Pensions Bill

Baroness Donaghy Excerpts

Wednesday 18th December 2013 Grand Committee

[Lord Whitty (Lab)]

My Lords, as my noble friend said, I have an amendment which is very similar to hers. It is worded slightly differently and in my view, and with no disrespect to my noble friend, it is in a better place—in other words, it relates to Clause 3 rather than Clause 2. However, the central issue is that for a lot of people who have worked most of their working life and have paid into the earnings-related pension in its various guises over that period, a figure of £144 or thereabouts will be a significant drop compared with what they might otherwise have expected.

If we are to have a scheme that is going to achieve a reasonable degree of support and consensus across the workforce and among potential and future pensioners, we need to pitch it at a level where existing workers do not miss out. I think that most of us are reasonably convinced that a single-tier answer is the right one, but it has to be structured on the basis of people’s existing expectations. The exact formula that we have in these amendments may not be acceptable to the Government but it needs to be a lot closer to current expectations for this reform to receive the kind of support that the Government are hoping for. At the moment, I know that £144 is, in a sense, a guess—or, if I am being nice to the Government, an informed guess—but it has raised alarm bells, certainly among the trade unions and those who, on pension schemes, represent the workforce who have hoped for more from the earnings-related element of the state pension.

I do not expect the Government to accept these amendments but I hope that they take the issue seriously before we reach the final stages of the Bill, and certainly in the regulations that are coming forward to define the level of the new single-tier pension.

[Baroness Donaghy (Lab)]

I support my noble friends Lady Turner and Lord Whitty. The pension letter that I receive reads a bit like a history book. Having completed the 40 years, I have a bit of graduated pension, some SERPS and some S2P. Obviously it all adds up penny by penny but, as I said at Second Reading, one of my concerns is that simplicity is not of itself the best objective. If the amount is set too low, the middle earners will not buy in to the new system. Any system that does not have a buy-in from the middle earners will, in the future, give rise to enormous political pressure from those people for some form of opting out, which I do not believe anyone in this room wants.

When we looked at all the charts at the briefing, we found the crossover point—which I think was in about 2040—before people start losing out. The discussion that took place on Monday about net versus gross may well place that crossover point a lot earlier, and people will see that they are going to lose out much earlier. They will then make a judgment about whether this flat rate is any good and, again, either there will be pressure to opt out or there will be pressure—dare I say it?—for SERPS, graduated pensions or S2P in about 20 to 30 years’ time. Therefore, this gives rise to very important issues.

I know that we are going to have another discussion about net versus gross when we come to later amendments, but I want to make the point that this is not a straightforward issue. I realise that there is cross-party consent about the flat rate but I am slightly sceptical about its long-term holding, although the Minister has said very confidently that it will last for more than 10 years. I hope that he is right, because the last thing I want to see is Governments tinkering with this. As I said, I do not want my grandchildren to have a history lesson in 40 years’ time in which they are reading about the different names for the pension.

[Lord McKenzie of Luton]

My Lords, perhaps I may raise a point about the level of the single-tier pension, and couple it with a reference to passported benefits in the impact assessment. I looked at the assessment again this morning and there was a point that I had not identified, or did not understand before. This is to do with the interaction with the guarantee credit. This passage is about passported benefits, but it says:

“Receipt of Guarantee Credit passports pensioners to the full amount of Housing Benefit and Council Tax Benefit, if the pensioner is eligible for these benefits. There is little reduction in Guarantee Credit eligibility resulting from the single tier”—

about 1%. I thought that the whole thrust of this simplicity as a base for people to be able to make judgments about saving was that, in a sense, it floated people at a level which was above the guarantee credit. Here we are saying that only 1% of people who get STP will not be affected by guarantee credit in the future. Can the Minister explain that to me, please?

Pensions Bill

Baroness Donaghy Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I believe that some humility is required when we consider people’s pensions. Trust in the pensions industry is low for a very good reason. What is decided in this Bill in 2014 has a 40-year horizon—that is, up to 2054. Does anyone really believe that this legislation will last for 40 years?

There are two things that I am absolutely certain about: Governments will tinker and the financial services industry will get away with whatever it is allowed to. The Government have said that their aim is to,

“better support people to save for their retirement”,

and that is surely welcome. I have no idea whether the proposals in the Bill will do that, although auto-enrolment is a very good start.

When SERPS was established in 1978 as an addition to the basic state pension, the thinking of the day was that those earning slightly more would expect a better pension. When SERPS was replaced by the state second pension, or S2P, no doubt the thinking was the same. If it all disappears next year, the additional state pension will have existed for 36 years, so it nearly qualifies for the 40-year time horizon but not quite. Does anyone really believe that a flat-rate state pension will last for more than 10 years? I very much doubt it. That is not to say that clarity and simplicity are not welcome, but they are only two ingredients. If someone realises that they are clearly and simply going to be poor in retirement, it does not take us very far.

My first encounter with pensions was in 1970 when, as a NALGO branch secretary, I campaigned for an occupational pension for university non-teaching staff at the University of London. The existing schemes were college-based and run by insurance companies with very high administration costs. It took five years to establish the Superannuation Arrangements of the University of London—or SAUL, as they are called—and it now has assets of more than £1 billion. It was an uphill climb because the majority of staff were women. The assumption was that women were not going to stay in the job very long and would probably get married, so why would they want an occupational pension? Those on the lowest grade and part-timers were not even allowed into the college-based pension scheme, presumably because it was felt that they would not stay at work for very long.

That was the era when men could ask, “What’s a nice girl like you doing being passionate about pensions?”—I am trying to make it interesting—and suggesting alternative ways of expending that energy. It was the era of smiling through gritted teeth. It is where the 700,000 women born between 6 April 1951 and 5 April 1953 started their working lives. They probably had to struggle to join an occupational pension scheme, and they were probably advised to pay the lower national insurance stamp and rely on their husband’s pension. They had to fight every step of the way for employment equality, and now they are told that they are not eligible for the single-tier pension.

To give the Pensions Minister, Steve Webb, some credit, he did try to construct an argument as to why the 700,000 women would not receive the new pension. He compared them as a group to those who reached state pension age before April 2010 and those who will do so after April 2016. The Minister weighed up the good and the bad news and the “somewhere in the middle”, and argued that, on balance, the 1951-53 group was not being disadvantaged. That may look good on paper but, for a generation of women who have experienced every form of pension discrimination, it must look like more of the same. I ask the Minister to reconsider this decision. It he agrees to reconsider it, he will have the satisfaction of having 700,000 pleased and extremely surprised women on his hands.

I want to turn to the impact of increased national insurance contributions on public service pensions. I shall keep my remarks short because the noble Lord, Lord German, and my noble friend Lord Whitty have covered this area very well. Are the Government planning to pay these unbudgeted extra costs, which, if not met, could unravel a series of delicate negotiations with public sector workers? Is the Minister able to give us some assurance on this issue at this stage? If not, it will certainly come back in Committee.

I now turn to the issue of trust and transparency. The recommendations of the Workplace Retirement Income Commission, chaired by my noble friend Lord McFall of Alcluith, in 2011 really say it all:

“For consumers to have more trust in the pensions system, the industry needs to show it can reform itself to be trustworthy. An industry-led drive around disclosure, transparency, clear communication, and driving down costs and charges will help to achieve this … the Government and the Pensions Regulator should make it a priority to promote strong and consistent governance and employer engagement with workplace pension schemes, whether trust or contract-based”.

It is a good report and, in my view, it deserves further consideration.

A lack of transparency and overcharging, if not dealt with, will scupper this legislation or its potential good reputation. The Centre for Policy Studies said:

“In 2010, the City extracted some £7.3 billion in implicit charges, about which investors were told … nothing”.

The Royal Society of Arts, of which I am a fellow, referred to written evidence to the Work and Pensions Select Committee stating that from the time when the new Pensions Act is introduced,

“we can expect that many will be sold pensions where 50% or more of their potential pension disappears in charges”.

I am sure that we will come back to this in Committee, but limiting the “wrapper” charges is only a quarter of the story. It is the hidden charges for investing where the costs add up.

I have been a board member of two pension schemes—one as an employee representative and one as an employer representative, although not at the same time, I hasten to add. I lost count of the number of times I listened to presentations by investment companies which were trying to win the contract for investing the pension fund. You were drowned in glossy charts and sales-speak, and I would have liked a hot dinner for every time I heard, “And we aim to be in the upper quartile of returns”. If everybody was in the upper quartile, it would not be the upper quartile. Of course that was their aim, but if only the delivery had been as glossy and promising we would not be so apprehensive now.

Finally, I look forward to the Committee stage when we will have the opportunity to consider this wide-ranging Bill in detail.

Mesothelioma Bill [HL]

Baroness Donaghy Excerpts

Wednesday 5th June 2013 Grand Committee

[Lord Wills]

My Lords, I, too, support the amendments. I very much agree with my noble friend on the Front Bench and the noble Lord, Lord Wigley, that these amendments go to perhaps the most important issue in the Bill. I agree with everything that has been said so far although, given the hour, I do not intend to rehearse all the arguments.

I assume that this particular issue must lie very near the heart of the deal that the Minister has done with insurers. I am confident, from everything that he has said today in Committee, that he has done the very best deal that he thinks possible, particularly given the need to get a resolution quickly so that those who are suffering from this terrible illness get the support that they deserve as quickly as possible. I am sure that that has been at the forefront of his mind. He has said already in Committee that he is going to return to his discussions with insurers, and I hope that he can assure the Committee that he will convey to those insurers the strength of feeling that he has heard, at this late hour in our proceedings, about this issue. He knows it already. He has heard it at Second Reading and this has been a consistent concern throughout.

I hope he will remind his interlocutors that there is a real risk that if they do not agree what is widely conceived of as being a just settlement—and this is not a just settlement, in my view and that of every other speaker so far this evening—and, worse still, if they threaten delays or legal action as a result of anything that the Minister goes back to them with, this Bill is most unlikely to be the last word on these issues, given the strength of feeling in both Houses of Parliament on this issue, which we have seen time and again in recent years and which is responsible for this Bill coming before us. I hope that he will remind them of the risk that any future legislation may well be tougher than this Bill.

[Baroness Donaghy]

My Lords, briefly, we are being presented with the alternatives of finding the paperwork, in which case the process is dealt with in one way, or not finding the paperwork, in which case this new levy will apply. As a fully paid-up administrator, I think there is a range in between about the effort that is put in to find the paperwork. If we are talking about incentivisation, I would argue for 130% instead of 70% because that might make some people try a little harder to find the paperwork. I really should have put an amendment in to make it 130%. I believe that there should be some incentivisation but I would turn the argument on its head: we should try to persuade the insurance companies to try a bit harder to find the paperwork.

[Lord Freud]

My Lords, the amendment seeks to set the rate of payment at 100% of the average civil award amounts. Many noble Lords expressed opinions about this at Second Reading as well as today. I know that I have the support of all present today in wanting to guarantee the maximum payment possible for those people who, through no fault of their own, cannot bring a case against a specific employer or that employer’s insurer.

To tidy up some of the questions asked by the noble Lord, Lord McKenzie, on the tariff tables, I think he caught that they were published in an ad hoc statistical report only today. I apologise that it is so late; we will circulate all of that to Peers tomorrow. It is based on a survey of civil compensation undertaken between 2007 and 2012 registered with the Compensation Recovery Unit, so it is a broad mix of cases. That is what the figures are based on.

To make a point that is really at the heart of this, and as many noble Lords have pointed out, if we were going after the people who should pay the money, it would be a very different proposition in terms of justice as opposed to our asking for money from a group of insurers that may or may not have been doing this business during the time. We are actually asking a group of active insurers to carry a particular burden when we know that of the industry as a whole, 40% are in run-off, including many of the biggest ones involved in mesothelomia. If one looks at insurance as one industry, all in one category, that is one way of thinking; if one starts to individualise what different insurers are doing, it becomes a different debate.

Mesothelioma Bill [HL]

Baroness Donaghy Excerpts

Monday 20th May 2013 Lords Chamber

[Baroness Donaghy]

My Lords, I congratulate the Minister on his commitment to the Bill and thank him for promoting it—I expect against considerable odds.

I understand the reasons for the severe limitations, and I believe it is important that the Bill becomes law as soon as possible. We will have the opportunity in Committee to examine some areas, which have already been raised by noble Lords, to see whether those limitations can be stretched. I am interested in trying to extend the eligibility date and the coverage, and genuinely do not understand why compensation would be less than 100%, rather than the 70% figure.

My reasons for being interested in this Bill are threefold. First, one of my sisters-in-law died of mesothelioma. She was a nurse and would push trolleys through the basement of Scunthorpe Hospital. In the 1950s and 1960s, hospital basements were probably among the most dangerous places to be. The mother of a colleague also died of mesothelioma. She did not work in a hospital but washed the overalls of someone who did. So this is about very personal tragedies.

Secondly, I became interested in this disease when I conducted my report into construction fatalities and found out how many construction workers were affected. My third reason is that, as a former trade unionist and president of the TUC, I witnessed the tireless and continuing efforts of the trade union movement over decades to claw, inch by inch, some concessions for affected workers, despite the strongest possible resistance from employers, the insurance industry and some in the legal profession. It was as recently as 1968, only 45 years ago, that the British Medical Journal suggested that mesothelioma was a primary cause of death rather than a secondary cancer. This is not an area, as my noble friend Lady Taylor said, in which we can take pride in the UK, and we know that the worst is yet to come.

I will concentrate on the administration of the proposed scheme and the potential impact of Ministry of Justice streamlining of the overall claims procedure, as it affects mesothelioma suffers. If the administration of the scheme is to be contracted out, I ask the Minister what safeguards will be written into the tender to ensure absolute independence and integrity. This would apply in particular if the insurance industry were to be the scheme administrator. The conflict of interest would be obvious, even if we were looking at an industry with a benign record. However, we are looking at one more commonly characterised by delaying tactics, spurious arguments and obfuscation. The Bill allows for the scheme administrator to,

“help a person to bring relevant proceedings (for example by conducting proceedings or by giving advice or financial help”.

Surely it would be unacceptable to allow this particular fox into the chicken run.

A comment in the departmental briefing indicated that the insurance industry,

“is currently to set up a body, at its own financial risk, that could deliver the functions of the scheme”.

If the industry satisfies the DWP’s requirements,

“we would be able to start making payments more quickly than if DWP work to establish the scheme following Royal Assent”.

That is beginning to sound like a done deal to me. I am very concerned about the implication that any other scheme administrator might be slower at paying out when we know that time is of the essence for these sufferers. Why not put it out to tender without delay? If it is a done deal, what guarantee will there be that awards will not be cash-limited? I appreciate that the department will remain responsible for overall performance, financial accountability and oversight of the scheme, but I wonder what it will mean in practice if the department does not have the resources to carry out that responsibility.

I understand that the scheme will be funded by a levy on remaining insurance companies. We do not know the total sum of money available. How can we be sure that the cost will not be met by the insurance companies making considerable savings elsewhere? I appreciate that this area is not under the direct purview of the Minister, but will he give an assurance that nothing in the MoJ’s “streamlined” procedures will be allowed to worsen access to compensation or increase the administrative burden on claimants and their families? Will he ensure that the insurance industry will not receive its payback in this area?

We should remind ourselves that, as the Minister said, it is only 14 years since the retention of information by insurance companies was introduced. Although tracing has improved, it is still unimpressive. Insurance companies should not be allowed to profit from their own incompetence. Neither should they be allowed to slide out from under the extremely efficient and effective procedures in the Royal Courts of Justice, presided over by Senior Master Whitaker, as my noble friend Lord McKenzie mentioned. Insurance companies collected the premiums that were meant to cover,

“all bodily injury and disease”.

Their record in honouring this cover is a disgrace. They consistently resisted efforts to centralise information to improve the success rate for tracing, using business confidentiality as their reason.

As I said, we do not yet know what the total cost of the new scheme will be. The impact assessment indicates the possibility that the industry might pass any extra costs on to customers, and that premiums might increase by 2.24%, although the impact assessment stated that this was unlikely. One way of preventing this would be to cash-limit the awards. I am not in favour of this and I remain concerned about a scheme that is financed and administered by the insurance industry.

On a separate matter, the impact assessment refers to an independent NIESR feasibility study, and the fact that the full report and survey findings will be published in the summer of 2013. Will there be an opportunity to benefit from the report’s findings before the Bill completes its stages in the House? I mentioned the impact assessment on a couple of occasions and make the point that it is a very substantial piece of work. Of course it contains assumptions and uncertainties, but I congratulate the department on its thoroughness.

Finally, despite my concerns and questions, I feel sure that the whole House will agree that this is a very important piece of legislation, and will be a fitting tribute to the Minister when it becomes law, as I sincerely hope it will. I look forward to the rest of the debate and to Committee.

Jobseeker’s Allowance Regulations 2013

Baroness Donaghy Excerpts

Wednesday 13th February 2013 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights. These regulations are designed to work alongside the introduction of universal credit by removing all the existing income-related provisions from jobseeker’s allowance. They also work alongside the Welfare Reform Act 2012, which removed the existing income-related provisions from other Acts.

Under JSA, there are currently two elements—namely, a contribution-based element and an income-based element. The first element is for people who have paid sufficient national insurance contributions. The second element is for people who have low or no incomes. From this April, the income-related elements of JSA will gradually be phased out for any cases where universal credit has been rolled out. The new regulations will remove the income-related elements and make provision for an award of JSA based solely on national insurance contributions.

In addition, to further align with universal credit, the regulations will introduce revised conditionality and sanctions regimes into JSA. We have of course already largely aligned the JSA sanctions regime with the universal credit sanctions model. Noble Lords will recall that last October, we introduced a number of changes to JSA, including sanctions of up to three years for those who persistently fail to comply with the most important job-search requirements. The changes we made last year have helped staff and claimants to prepare for the introduction of UC and for the revised JSA regime. These regulations now complete the alignment with universal credit.

However, beyond these changes people will find that the effect of the existing JSA benefit regime is unaltered. Noble Lords may find it helpful if I provide more detail on how these changes will be applied. As noble Lords will know, JSA is a benefit payable to people who are out of work and seeking employment. The work-related requirements in these regulations will apply where the claimant claims only jobseeker’s allowance. Where a claimant receives both jobseeker’s allowance under these regulations and universal credit, the work-related requirements provided under the universal credit regulations will apply. That will ensure that even where a claimant is in receipt of the two benefits, they will have only one clear set of requirements placed on them at any time. As these regulations align JSA to UC, there will be little difference between the respective conditionality regimes if they move between the two benefits.

People claiming JSA under these regulations will, as with UC claimants, generally be expected to be available for full-time work immediately, depending on their commitments and capabilities, and to treat their day-to-day work search as if it were a full-time job. This means that they will be expected normally to demonstrate that they are spending 35 hours per week finding a job. However, requirements can be tailored to meet a wide range of circumstances. For example, their requirements can be reduced if the claimant is a carer or disabled, or has recently been a victim of domestic violence.

Under these regulations there will be three levels of sanctions in the JSA regime—high, medium and low level. These sanctions will broadly work in the same way as equivalent sanctions within the universal credit regime. The universal credit sanctions regime, which is mirrored in these JSA provisions, is designed to provide greater clarity for claimants and to ensure that there are proportionate consequences for failing to meet requirements, especially repeat failures. For example, to act as a deterrent, the sanction periods escalate where a claimant repeatedly fails without good reason to comply with a reasonable requirement. This more robust but proportionate model is designed to be more effective in encouraging claimants to engage with the requirements which help them to move into or to prepare for work.

It is important to remember that our focus will not be on imposing sanctions but on ensuring that claimants meet the requirements that will support them into or towards work. The requirements expected of claimants should be reasonable and will help claimants to understand and meet the requirements so that they can move into work as soon as they are able to do so. Using the claimant commitment, we will clearly communicate both requirements and the sanction consequences of not meeting them. Only if they fail to meet a suitable requirement without good reason will a sanction be imposed.

These regulations were subject to statutory formal consideration by the Social Security Advisory Committee. The committee decided that formal referral was not necessary but raised a number of points, all of which were considered, and changes were made where appropriate. As the sanctions and conditionality rules for JSA were being brought broadly into line with universal credit, these regulations were included as part of the Social Security Advisory Committee’s wider universal credit consultation exercise.

Therefore, the views expressed during the consultation period regarding the proposals for the universal credit conditionality and sanctions regime also applied to the reform of JSA. Those views were considered and changes were made. For example, we decided to remove a reference to long-term impairments in Regulation 9 of the JSA regulations. This change takes into account a range of physical and mental impairments that a claimant may have when considering any limitations that may be placed on a JSA claimant’s work-related requirements.

I should also like to thank the Secondary Legislation Scrutiny Committee for its earlier consideration and analysis of these regulations. As noble Lords will be aware, the committee drew attention to the importance of guidance for our staff in operating a fair and effective conditionality and sanctions policy. Therefore, we have placed in the House Library copies in draft of key chapters of the guidance covering approaches, including that for good reason for sanctions. Today we have published a draft of the claimant commitment.

In conclusion, I can assure noble Lords that, beyond the changes I have outlined, the rules for the new-style JSA will be very similar to the existing rules for the contributory element of JSA. In particular, there have been no changes to the national insurance contribution conditions which need to be satisfied to qualify for entitlement and the fundamental structure of JSA remains untouched. I seek noble Lords’ approval of the regulations and commend them to the House.

[Baroness Donaghy]

The Minister will remember that I raised a number of issues in the debate on 17 January concerning the self-employed and the quasi self-employed. These were mainly around the requirement for monthly reporting, the burden of different systems being applied for tax and benefit purposes, and the need to recognise that not all self-employed people were in a position to choose their employment status. If I had had time, I also would have raised the problems caused by the different criteria used by HMRC and the DWP for claiming reasonable expenses, as well as the need to recognise seasonal variations for those working in agriculture and preparation periods for freelance writers.

I made the point that under generally accepted accounting principles, a true and fair statement of how a business is doing involves accounting for business receipts and expenditure over a period to which they relate. The huge advantage of working tax credits was that this principle was also adopted, enabling claimants to draw up one set of accounts that keeps administration costs down and matches the support given by the benefits system to the actual state of the business. The universal credit regulations have departed completely from these generally accepted principles by requiring a month by month reporting system and not allowing any carryover of a previous month’s loss. This artificially short period does not present a true and fair picture and does not allow for events beyond the claimant’s control.

No provisions have been made in the regulations for seasonal gains and losses or periods of economic difficulty, and there is no recognition that a business may experience low or no profits. Added to this, there is no facility for carrying forward a loss made in one month to subsequent months. This is a fundamental flaw in the design of the regulations for the self-employed. The Government see the need for this facility, but have not made any changes, because the IT system has not been designed to allow carry-forward. In reply to the point about carryover in January, the noble Lord, Lord Freud, assured the House that,

“I am aiming to introduce something for that to work efficiently; that will be in time for when the people who need it will be using it”.—[Official Report, 17/01/13; col. 832.]

The noble Lord made a similar remark earlier this evening. I believe that the Minister is looking for a solution, but it is not yet there and I have a number of real concerns.

My first concern is the Minister’s statement that, “It will be in time for when the people who need it will be using it”. I am not so sure that the Government have the luxury of the six months’ grace or the year’s lag. What happens if the wife or husband of the self-employed person puts in a claim for universal credit first? Surely the information on the self-employed person’s earnings will be required straight away. Secondly, the regulations could have a damaging impact on particular industries. I use the example of farmers and the farm industry, although other examples could be writers and actors. A farm could have a negative cash flow for eight or nine months a year, as cited in the Social Security Advisory Committee’s recent report, and its entire income could be concentrated in a three or four-month period when the farm’s produce is sold. Even a quarterly reconciliation would not work in these cases, let alone monthly assessment.

There are also a range of factors beyond the farmer’s control, such as the weather and inability to move stock, which would affect the profitability of a farm. In answer to a Parliamentary Question on 28 February last year, we find that in excess of 90% of farmers in England and Wales are self-employed; and between 31% and 43% of all farmers earned less than the national minimum wage over the past five years. Imagine the scene at the assessment interview, where there is a framed motto on the wall which reads:

“Universal Credit should support people to be self-employed but only insofar as self-employment is the best route for them to become financially self-sufficient”.

This is a point that the Minister has already raised. I realise that it is a long motto to have on the wall, but it is important to quote the Government’s response to the Social Security Advisory Committee in full.

So the farm worker, possibly self-employed or technically self-employed, is sitting there and told by the assessor that his way of life is not “the best route for them to become self-sufficient” and that he should go back and look for work. Remember that 60% of farmers’ income already comes from taxpayer subsidies. That is the self-employed in the farming industry down the pan for starters. Obviously we should not accept that a third of all farmers should seek alternative work without considering a number of factors, many of which I have mentioned. How qualified will the assessors be in making these judgments, and how detailed will the guidelines need to be to ensure consistent standards of application? The Government have apparently turned their back on a pilot scheme, which is regrettable.

A third concern is the construction industry, where bogus or quasi self-employment is anything from 40% to 90%. It suits the contractor because it gives flexibility to hire and fire and it sometimes suits the individual for tax reasons. Other workers accept self-employed status as the only way to get a job. Contractors must submit monthly returns detailing all their subcontractors’ pay during the tax month and certifying that none of them is an employee. The view of the Business, Innovation and Skills Committee in 2008 was that,

“the questions asked of a contractor to establish whether any of their sub-contractors are self-employed, are remarkably similar to the criteria used for identifying direct employment”.

As I said in my report on the underlying causes of fatal accidents in construction, the current system,

“relies too much on HMRC monitoring and enforcement resources which are likely to come under pressure in any economic down-turn”.

Taxation: Families

Baroness Donaghy Excerpts

Thursday 17th January 2013 Lords Chamber

[Baroness Donaghy]

My Lords, I thank my noble friend Lady Hollis for introducing this debate and for her leadership. She keeps us all on our toes. Equally, I would like to say how pleased I am that the noble Lord, Lord Freud, is still in his place. It is nice to know that there is somebody there who understands what we are talking about, even if we do not always agree with what he says. I want to deal with the self-employed and the impact on them of draft Universal Credit Regulations 57 to 59 and 62 to 64.

Many self-employed people will not become IT moguls, business entrepreneurs or worldwide rock stars. Many are self-employed because they cannot find secure employment. They are often self-employed on building sites, because the choice is either that or no job at all. They are “white van man”. They are those who, 50 years ago, would have worked in large factories, utilities or local authorities, doing manual or craft jobs. Often, they have been failed by our education system; they are important. Many such people prefer to be independent and would never assume that they would have to turn to the state for help. It is against their natural inclinations. However, sometimes they need assistance, particularly if they have a family to support in hard times. They should be able to expect a state system that responds to their needs. I am grateful to the Low Incomes Tax Reform Group for its briefing on this subject. There have been some improvements to the rules for the deduction of expenses but the most serious objections that were raised last summer remain.

The monthly assessment requirement will mean that small businesses will draw up accounts not once but 12 times a year. The absence of any carry-forward rule will result in genuine trading losses going unrecognised. In addition, the minimum income floor does not allow enough time for a business to grow and develop. It gives no help when a business is experiencing a temporary dip in profits. It also prevents pension contributions and legitimate business expenses being fully recognised.

Under generally accepted accounting principles, a true and far statement of how a business is doing involves accounting for business receipts and expenditure over the period to which they relate. If a business buys stock for resale, it will account for the purchase price over the period in which the stock is expected to be sold. A tax bill, referable to a tax year, may be paid in two instalments but accounted for over the whole year. An insurance premium, paid in one instalment, will be spread over the period of the insurance cover, which is usually a year. Investment in essential equipment will be written down over the equipment’s expected life. If there is a deficit in one accounting period, it can be set against surpluses in other periods which give a true and fair picture of the state of the business.

This method of accounting is also followed for working tax credit, enabling claimants to draw up one set of accounts that keeps administration costs down and matches the support given by the welfare system to the actual state of the business. The universal credit regulations depart completely from these generally accepted principles. Under Regulations 57 to 59, businesses will account to the DWP month by month on the basis of amounts received in the month, minus business expenditure paid out in the month. If that produces a loss for the month, it may be not be carried forward to subsequent months. It is simply disregarded.

If it produces a result lower than the minimum income floor, or MIF, Regulation 62 will substitute a minimum income floor equal in most cases to the national minimum wage for a 35-hour working week, less a deemed amount of tax and national insurance on that level of earnings. It is almost as though someone has drafted these regulations with no experience of the fluctuations of running a business.

Although I was not self-employed myself, I ran a student union for 16 years with a turnover of about £750,000 a year. You learnt that, to get a true picture of March and April, it was better to take the figures together because Easter came at different times each year. You learnt that because of a large booking in July, you made more profit than during the rest of the year. The following month, because it was the only chance for major refurbishment projects and major expenditure, the figures would look pretty dreadful, but I still collected my salary. Unlike a person running their own business under these regulations, it did not have any consequences.

The real objections to this method of accounting are that one month is an artificially short period over which to draw up a set of accounts, and that cash-in, cash-out does not present a true and fair view as it does not relate receipts and expenses to the period over which they accrue. The failure to recognise losses further distorts the economic picture, and imposing a minimum income floor does not allow for events beyond the claimant’s control.

This particularly applies to farmers. It does not take account of the ups and downs in a normal trading cycle that are part and parcel of any self-employed business. Legitimate business expenditure is doubly limited by the denial of any carry-forward relief and by substituting the minimum income floor for the net profit figure for any month in which the net profit figure is lower.

The accounting method imposed by the regulations presents a wholly distorted picture of how the business is doing and ignores the economic reality. The minimum income floor will apply to most businesses after a start-up period of 12 months. Originally, each claimant was to be allowed one start-up period in their lifetime. Since the consultation in the summer, that has been relaxed in that a start-up period may be permitted once in every five years to accommodate a claimant who did not succeed in their first attempt at running their own business but wants to try again. This is a small improvement and should be acknowledged.

After the start-up period, the minimum income floor will apply to every claimant who is “gainfully self-employed” unless they are subject to no work-related requirements, a work-focused interview requirement or a work preparation requirement. A claimant is gainfully self-employed if the business is their main employment and is,

“organised, developed, regular and carried on in expectation of profit”.

If the claimant is not gainfully self-employed, they are not subject to the minimum income floor. Instead, they will face work-search or other requirements imposed by jobcentre staff and sanctions for non-compliance.

One change since the summer is that in calculating the minimum income floor there will be deducted,

“an amount that the Secretary of State considers appropriate to take account of any income tax or national insurance contributions for which the person would be liable in respect of the assessment period if they had earned income of that amount”.

Whether this change is good news or not will depend on what amount the Secretary of State considers appropriate for the purpose. There is a risk that the Secretary of State will assume that a self-employed person pays the same amount of tax and national insurance, over the same period, as an employed person.

In reality, the self-employed pay tax and national insurance in two instalments, in January and July, based on their earnings in the previous period. If the Secretary of State considers it appropriate to take account of the tax and national insurance actually paid by the self-employed claimant, at the time they pay it, that will give at least some measure of relief when the business needs it. Otherwise, the self-employed claimant would be earning less than an employed claimant, yet receive less by way of universal credit because of the distorting effect of the minimum income floor.

On pensions, the self-employed are responsible for their own pension provision, but they will receive no recognition for it under the minimum income floor. They will be at a disadvantage over the employed claimant, whose pension contributions will be relieved in full as and when they are paid.

I raised the issue in November 2011 about what happens when a business suffers a downturn or undergoes a period of economic difficulty. I think I used the example of a farmer who was affected by foot and mouth disease in neighbouring stock and was working twice as hard but could not move his stock for sale. I hoped that the minimum income floor could be suspended during periods when the business suffered in such a way. Assurances were given in the debate that these were,

“issues that we are looking at very closely”.—[Official Report, 1/11/11; col. GC 453.]

However, no such provision has been made by the regulations. There is no recognition in the regulations that a business may experience low or no profits.

The absence of any facility for carrying forward a loss made in one month to subsequent months remains a fundamental flaw in the design of universal credit for the self-employed. In discussion, the Government have appeared to see the need for this facility but have not made any changes because the IT system has not been designed to allow carry-forward.

The burdens that the proposed regulations impose on the smallest businesses and the disregard for the most basic principles of accountancy will seriously hamper claimants who wish to enter work via the self-employed route. In many cases, they would find themselves better off on benefits than in work, which is plainly contrary to the Government’s intention.

There are 4.5 million self-employed people in this country, any of whom may at some point need to claim universal credit due to the risk and uncertainties inherent in running one’s own business. Self-employment is a viable route out of welfare and into work. I hope that the Government will reconsider the regulations and create a system that is as responsive to the self-employed as it is to the employed and unemployed.