Digital Economy Bill

Baroness Drake Excerpts

Report: 3rd sitting (Hansard - continued): House of Lords
Wednesday 29th March 2017 Lords Chamber

Moved by

[Baroness Drake]

33ZYEA: After Clause 95, in subsection (2), after “undertaking” insert “or activities”

[Baroness Drake (Lab)]

My Lords, Amendments 33ZYEA and 33ZYEB, which are in my name and that of my noble friend Lord Mendelsohn, amend the Government’s Amendment 33ZYE on the Crown guarantee for pensions liabilities in BT plc. I am not a member of the BT pension scheme, but for some years as a trade union official I represented the majority of BT employees, including on pension matters. In March this year, BT and Ofcom announced agreement on a regulatory settlement that would see Openreach become a distinct, legally separate company within the BT group. Once the agreement is implemented, around 32,000 employees will transfer to the new Openreach Ltd, following TUPE consultation and once pension arrangements are in place. This transfer is expected to be the largest TUPE transfer in UK corporate history and is an important pillar of the agreement between BT and Ofcom.

My amendments seek to address causes of concern for employees who will be transferred and to seek assurances that they and the BT pension scheme trustees need. As the noble Lord mentioned, the BT pension scheme currently has a Crown guarantee of BT’s obligations to the liabilities of the scheme provided for in the Telecommunications Act 1984. The implementation of the agreement between BT and Ofcom is subject to the satisfaction of certain conditions, which include new legislation providing for Openreach pension liabilities to be covered by the maintenance or equivalence of the current BT plc Crown guarantee, so ensuring that employees who are BT pension scheme members will not lose that protection on transfer to Openreach—in effect, ensuring maintenance of the existing Crown guarantee for both BT plc and the new Openreach Ltd pension liabilities.

I believe government Amendment 33ZYE does not make explicit provision for Openreach pension liabilities to be covered by the maintenance or equivalence of the current Crown guarantee for two reasons. The purpose of my two amendments is to address each of those two reasons. Amendment 33ZYEB addresses the first reason, which goes to the future scope and operation of the Crown guarantee covering Openreach pension liabilities, which I believe is of material concern to the scheme members and the trustee.

New subsection (5) proposed in the Government’s amendment—which my amendment would delete—sets out that any regulations made under the proposed new clause may provide for the Secretary of State’s liabilities to be limited so that the Crown guarantee does not cover pension liabilities arising in Openreach Ltd after a future date, whether such liabilities arise because of a person’s continuing employment or indeed from anything else occurring. The Crown guarantee covering Openreach Ltd would be more restricted than the current Crown guarantee covering BT plc—they would not be equivalent.

The trustee’s engagement in the Ofcom review was on the understood basis that affected employees of BT plc who transfer to Openreach will continue to benefit from the same Crown guarantee protections as they would have done with BT plc—that the guarantee in respect of Openreach pension liabilities would be,

“equivalent in operation and scope”,

to the current Crown guarantee. The DCMS press release of 15 March states that the Government’s intention in bringing forward this amendment is to,

“maintain pension protections for BT Pension Scheme members … and provide peace of mind to affected workers”.

The power to restrict the guarantee to exclude Openreach pension liabilities arising after a future date is problematic for several reasons. First, it does not maintain equivalent Crown guarantee protection, as there is no provision in legislation for the current Crown guarantee to be so curtailed. Secondly, restricting the Crown guarantee will cause significant concern to the trustees and employees affected. It would not maintain existing pension protections and is outside the understood implementation of Openreach Ltd.

If Ofcom has reserved revisiting full separation of Openreach from BT if it considers functional separation not to be working appropriately, the implications of full separation would need to be addressed at that time. BT workers who are members of the BT pension scheme have the security of a Crown guarantee to all their service. These rights were confirmed by the Court of Appeal. To remove them is wrong and in no way required by this regulatory settlement between Ofcom and BT plc.

For the Government to give themselves, through proposed new subsection (5) in their amendment, a power now to limit the Crown guarantee adds to the trustees’ uncertainty, fails to reassure employees and provides an unhelpful backdrop to the scheme’s 2017 triennial valuation. Proposed new subsection (5) seems to allow regulations that enable the Secretary of State to turn off the tap of the Crown guarantee to Openreach from a future date. That would not be maintenance of the Crown guarantee or provide peace of mind to affected workers—the Government’s promised intention. Proposed new subsection (5) could also inhibit employees moving freely between employment with BT and with Openreach, because the security of their pensions could be prejudiced, and deny Openreach access to skilled people in BT plc.

My amendment deletes proposed new subsection (5) in the government amendment, which is not required to implement the Ofcom-BT agreement on Openreach. Proposed new subsection (5) has also caused lingering anxiety about the Crown guarantee for BT plc pension liabilities. The Government have said that they intend to maintain the Crown guarantee for BT pension scheme members who transfer from BT plc to the new Openreach company and those whose employment may move in future between the two companies, but their amendment does not expressly commit them to maintain the current Crown guarantee to cover Openreach pension liabilities.

Will the Minister give a categorical assurance that relevant employees can move over to Openreach knowing that the pension liabilities, including those arising from future service of Openreach—a legal entity created as a result of the new regulatory settlement between BT plc and Ofcom—will continue to be covered by the current Crown guarantee, maintained for all members of the BT plc pension scheme?

The Minister will be aware of the extensive litigation on the interpretation of the Crown guarantee and will understand that members of the BT pension scheme will be anxious to ensure that no changes could be made to the Crown guarantee which, whether deliberately or inadvertently, might reduce or alter its scope or coverage in so far as it relates to the pension liabilities of BT plc. My understanding is that the amendment is not intended to have that effect. There are circa 330,000 members of the BT pension scheme. Many are pensioners. Will the Minister confirm that my understanding is correct and that it is not possible for any regulations made under the powers arising from the government amendment to disturb or reduce the scope for effect of the Crown guarantee as it applies to the pension liabilities of BT plc in any way?

My Amendment 33ZEA addresses my second reason for concern. Proposed new subsection (2) in the Government’s amendment sets out the circumstances in which regulations may extend the coverage of the Crown guarantee. It states that the relevant circumstance is one where relevant BT plc employees become employees of another company,

“in connection with any part of the undertaking of BTplc being transferred or outsourced”.

Proposed new subsection (2) is important because how existing BT plc employees switch to become employees of the new Openreach Ltd needs to fall within the circumstances set out in that subsection.

--- Later in debate ---

[Baroness Drake]

My Lords, amendments on the matter of Openreach and the Crown guarantee were not tabled until Report—which is understandable, given the timing of the discussions with Ofcom. I was therefore unable to have the benefit of being able to probe in Committee, so I ask noble Lords to forgive me for taking some time now. I also thank the Minister for his courtesy in meeting me and for his consideration of my concerns, and I thank the civil servants in the DCMS, who were so patient in dealing with my questions and queries.

I welcome the Minister’s statement that there will be a technical amendment at Third Reading to remove any ambiguity about what is covered under any transfer of undertaking under proposed new subsection (2). I also welcome the unequivocal assurance that the powers arising from the amendments to the Bill will not disturb the existing Crown guarantee relating to BT plc pension liabilities.

On the issue of the protection of the pension liabilities on behalf of those members transferred into Openreach —the Openreach created as a result of the regulatory settlement—obviously I will read the detail in Hansard, because I was trying to take all the words in. That provides quite a lot of assurance to the members and the trustees, but I would like to read it and, if I may, reserve any concern I may have in that reading. However on first hearing it seems to confirm that the Government’s intention is that the existing Crown guarantee will be applied in all respects to those people transferred to Openreach under the regulatory settlement agreed with Ofcom. On that basis, I beg leave to withdraw the amendment.

Amendment 33ZYEA withdrawn.