Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023

Baroness Sherlock Excerpts

Tuesday 28th March 2023 Grand Committee

[Baroness Drake (Lab)]

My Lords, I hold pension trustee positions, and refer to my interests as set out in the register.

These pension scheme regulations are being introduced for two reasons. First, the Government believe that they will facilitate greater investment by pension schemes into private markets, securing better returns for savers. Secondly, the Government want to increase DC pension fund investments in UK start-ups, infrastructure, green investment and illiquid asset classes in private markets.

Of course, this is to be welcomed if beneficial alignment is achieved between the best interests of the ordinary citizen and their pension pot, and investments that benefit the UK economy to achieve the win-win. However, there are barriers to be addressed in getting there. The problem with these regulations is that the exclusion of performance fees from the DC charge cap will not be the driver of significant changes of investment in illiquid asset classes, but consumer protections will be weakened where money is invested without the security of that cap. The charge cap was introduced to protect millions of people investing through inertia under auto-enrolment. To achieve the diversification of investments which would benefit the UK economy, the complexities of other barriers to investment in private markets need to be addressed. Overreliance on removing consumer protections from pension savers will not do it.

I will reflect on some of those complexities. The pension regulatory environment, which is in perpetual change, is driven by endless policy initiatives without certainty as to the Government’s underpinning strategy. Recent regulation enabled performance fees to be smoothed over a five-year period, but before even testing the efficacy of those changes the Government proposed reversing them in favour of these. Trustees need greater consistency when considering long-term investment decisions—consistency between not only one Government and the next but one Minister and the next. Also, the complexity of regulation means that government contradicts itself. For example, the Government asked the Productive Finance Working Group to make recommendations on increasing private market investments, while TPR was consulting on prohibiting the schemes from holding more than 20% of assets in unregulated investments.

There is also the need to strengthen confidence in government economic policy and governance, a sentiment captured by the noble Baroness, Lady Lane-Fox of Soho, president of the British Chambers of Commerce, in the FT yesterday, where she warned policymakers that

“businesses are holding off making big investment decisions given the UK’s recent political and economic upheaval”

and that,

“People just don’t feel like taking risks”

in the UK.

Inefficiencies from pension freedoms are weakening the long-term private pension system and the approach to illiquid assets. For example, as savers get to 55 or 57, they can take their pots as cash in a series of lump sums and draw down funds in any combination of timing and amount that they choose. Small pots are growing exponentially. People change jobs more frequently. Pension transfers are increasing, including out of workplace schemes. Trustees have to implement these freedoms, which in turn impact on investment decisions.

Higher costs incurred with illiquid assets need to be borne fairly across the members of the scheme, as they would impact members differently. Those close to retirement or who choose to exit the scheme are at greater risk of paying higher fees without the additional returns.

Then we come to the issue of how to ensure value for members and higher returns when performance fees are outside the charge cap and inert citizens directly bear the investment risk. Achieving that higher value will be very challenging, as will measuring it for the Government to see it, as it is with securing standardised disclosure of performance fees. There is a lot of history here about making fees and charges work effectively for ordinary savers.

Ensuring that fees are payable only for realised outperformance is to rest on a tighter definition of performance fees and the discipline of negotiated agreements between trustees and asset managers. Those are the two big levers that are relied on. The Explanatory Memorandum states that excluding pension fees will encourage innovation on fees, but where is the evidence? It is an assertion, and lots of people assert it in their submissions, but it is difficult to find hard evidence. Exclusion of performance fees might set a precedent for removing other charges. Having removed that hard-fought security for consumers, the gate is open. It can disincentivise innovation because the cap has been removed. It can inhibit the evolution of fee structures and private market products that better accommodate DC pensions to the benefit of the UK economy.

Testing the impact of negotiated agreements between trustees and asset managers needs to be assessed much further before weakening the charge cap, given the challenge of achieving member fairness on performance fees. It is an assertion that those negotiated agreements will produce that beneficial result, but that should be really tested before such a critical consumer protection is removed.

The Government have set up a long-term asset fund, the Productive Finance Working Group is considering recommendations and the FCA and TPR have commenced consideration of value for money. This is work in progress, yet the Government push ahead with amending the cap, increasing the risk to the saver.

Investments that help with transition to net zero, environmental protection, housing or infrastructure which support economic growth and savers’ best interest are to be welcomed. Indeed, ESG and TCFD reporting and governance requirements are nudging schemes more and more in that direction. Several pension providers have indicated that they would no longer agree to traditional performance fees but remain committed to investing in private markets. Some large schemes hold illiquid investments within the existing charge cap. Some fund managers are indicating innovating on growth equity funds, and fee and product structures will evolve from the high-growth prospects of the UK automatic enrolment market—agreements achieved through scheme scale, not by weakening consumer protection.

One of the policy options in the impact assessment was government mandating investment in illiquid assets by pension schemes. Although rejected, this is the second hint at mandation after the joint December 2021 letter from the Prime Minister and the Chancellor. These DC savings are citizens’ private assets. Mandation would replace or undermine the fiduciary duty on trustees, require private assets to be harnessed and directed to meet government policy objectives, and probably risk market distortions. It would risk imposing inappropriate risk appetites on savers and increase uncertainty on liability, consumer protection and duty of care. It would certainly weaken employer engagement, and it could seriously risk undermining public confidence in auto-enrolment. Those are big consequences from mandation.

I have four questions to ask the Minister. Can he confirm that the Government have no intention to mandate how pension schemes must invest? How will value for members assessments be altered in light of the new risks arising to pension savers from these regulations? How will the Government ensure that savers close to retirement or who exit a scheme do not pay higher fees without additional returns from illiquid investments? What new measures will be introduced to enhance the availability of charges and cost information on illiquid investments? What new initiatives are the Government expecting the FCA to take to regulate for fairness and consumer duty in all the private markets that these regulations cover? I am sure that the DWP will say that it is not within its remit to know what the FCA is doing, but to make a decision that lifts such a hard-fought-for and fundamental consumer protection on the level of evidence that is before the Government, without knowing, having considered or having discussed with the FCA its approach, is an omission. It would be helpful to leave those questions.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for introducing these regulations and those noble Lords who have spoken. As we have heard, these regulations cover two distinct issues—one minor and the other rather less so. I will do the minor one first; it is a change to correct a drafting error in the Pensions Dashboards Regulations 2022, amending the line in Part 1 of Schedule 2 that specifies which master trusts are required to connect to the pension dashboard by 30 September this year. I do not want to kick a project when it is down, but, to me, that is not the most pressing problem attached to the Pensions Dashboards Regulations 2022. In fact, the Minister recently announced that the entire timetable, which is hard-wired into these regulations, is being scrapped, so the regulations will presumably need to be either repealed or amended. Could the Minister tell us whether the intention is to repeal them or if they are simply going to be amended and when we will know more about that?

On the major provisions in the regulations, the objective behind them is clearly to push pension schemes into investing more of their members’ money in illiquid assets. As we have heard, they will use two basic levers to do that. First, they will require all pension schemes with more than 100 members to explain their policy on illiquid assets and to disclose their schemes’ investments in them; and, secondly, they will exclude specified performance-based fees from the list of charges that fall within the 0.75% regulatory charge cap.

Just to be clear, these Benches would like to see greater investment in ways that will help the transition to net zero and in infrastructure projects that support economic growth, but we have heard today some important questions about the detail of these regulations, and I hope the Minister has some answers ready. First, the question of risk was raised. The noble Lord, Lord Sharkey, is right: I could not find a definition of illiquid assets either, but they clearly cover a wide range of investments. They are not just buildings or infrastructure but, as the Secondary Legislation Scrutiny Committee pointed out, could include art or intellectual property. Some illiquids clearly carry significant risk. This legislation also targets venture capital investments, which often have a high failure rate.

The noble Lord, Lord Sharkey, mentioned the 30th report from the Secondary Legislation Scrutiny Committee, which drew these regulations to the special attention of the House. It expressed concern that, without limits on the proportion of illiquid assets in a pension scheme, the scheme may not be able to deliver the returns that members anticipate. It pointed out that many of those members, of course, have been auto-enrolled by their employer and therefore had no involvement in the choice of their pension scheme investments.

As the noble Lord, Lord Sharkey, pointed out, the committee asked two specific questions that it thought Members of the House might like to put to the Minister. One was about how schemes’ exposure to increased risk of lower returns would be monitored, and the other was how trustees would be guided on assessing the risks to the portfolio. I may have missed this in the Minister’s comments—I heard him talk about advice to trustees on charges, but I am not sure that he talked about advice on assessing risks—so it would be helpful if he would address that.

I want now to look briefly at the proposal specifically to exclude certain specified performance-based fees from the list of charges that fall within the regulatory charge cap. As my noble friend Lady Drake has reminded us, the charge cap was introduced to protect the millions of people who are saving and investing through inertia, so surely there must be a compelling case for the Government to do anything that might weaken that. It is worth pausing briefly to remember that, in 2013, DWP research showed the impact of higher fees on pension savings. An individual who saves throughout their working life via a scheme with a 0.5%—50 basis points—annual charge cap on the value of their pot could lose 13% of their savings to charges. Push that to 1% and they could lose almost a quarter; push it to 1.5%, the figure is around a third. These basis points may sound small but their impact on the value of a fund is really quite significant.

--- Later in debate ---

[Baroness Sherlock (Lab)]

I thank the Minister for taking the time to answer those questions. I just want to ask him to explain the definition of an illiquid asset a bit more. He is right to point to Regulation 3(2)(d), which says that they are

“assets of a type which cannot easily or quickly be sold or exchanged for cash”.

I suppose most things can be sold or exchanged for cash reasonably quickly if you do not mind how much you get for them at a fire sale. I have two questions. If that means

“cannot easily or quickly be sold or exchanged for cash”

at a reasonable price, or at least at the price one had paid for them, would that apply to UK gilts last autumn? Secondly, the reason this matters is that there is a lot of money to be made from this definition. Where that is the case, the definition is likely to end up being the subject of some dispute. What is the mechanism to resolve this? Whose decision is it? Does someone just get to do it? Will the regulator push them, or will it end up in court? How will this be litigated?

[Viscount Younger of Leckie (Con)]

I hope I can be of some help. I think I should write a letter on this quite detailed question, as it takes us further from the question originally asked by the noble Lord, Lord Sharkey. Part of the answer could be—I will need to follow up with a letter—that we do not want to prescribe our approach too much. As I mentioned earlier, it will be very much up to the trustees and pension funds to decide for themselves. It might not be right to have too much prescription here, but I will go no further than that. The noble Baroness, Lady Drake, may know more than me, as one can go only so far with a definition. I will write to clarify further what we mean.

Charitable Sector: Food Provision

Baroness Sherlock Excerpts

Monday 27th March 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

My noble friend will not be surprised to hear me say that we are committed to action that helps alleviate levels of pensioner poverty. In answer to one of her questions, the HBAI statistics recorded that fewer than 100,000 pensioners were living in households where a food bank had been used. However, despite those figures, there is more to do.

The figures show that there are 200,000 fewer pensioners in absolute poverty than in 2009-10. Pension credit provides a vital financial support to pensioners. This is one of the actions that has been and is being taken by the Government, and it is proving to be very successful, with a 73% uptake in the last 12 months.

[Baroness Sherlock (Lab)]

My Lords, I am delighted that we are now asking about food bank use in the annual HBAI survey. That is great. But the results are really pretty shocking. For example, they showed that one in six of all people on universal credit used a food bank in the last financial year. When we think that, in the first half of that year, universal credit was £20 higher, furlough was still in place, inflation was 4% and energy bills were half what they are now, it begins to show the scale of the problem.

On 9 January, I asked the Minister what the Government were going to do about the shocking increase in food banks. He said that they needed to know more. Now that they do, what will they do about it?

[Viscount Younger of Leckie (Con)]

First, I welcome the noble Baroness back. It is good to see her in her place. To pick up on what she was saying, our newly published statistics on food bank use, alongside the broad suite of poverty data, will indeed help us to shape future policy considerations. There is much in these statistics—some good, some less good—and I assure the noble Baroness that we will look very carefully at them and use them to help us inform and impact on our policies.

Pension Schemes: Guidance

Baroness Sherlock Excerpts

Monday 13th March 2023 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, the report has said that, since the law was changed to require pension funds to do climate reporting as a way to nudge the companies and assets in which they invest to do better, two broad problems have emerged. First, the data out there are not consistent in timeframes or formats, or across asset classes or managers. Secondly, the regulatory regime seems to focus more on positioning pension funds than on the climate transition plans of the companies; as the report puts it,

“the world needs greening, not the pension fund”.

So will the Government look again at this?

[Viscount Younger of Leckie (Con)]

Not only will we be looking again, but this is an iterative process. As I have said, we are yet to come back on the report, One Year On, but we will come back soon. I also reiterate the fact that we are the lead in the world; I will have to check the figures from the noble Lord, Lord Teverson. For example, since our department introduced TCFDs, over 70% of occupational pension schemes—a value of £1.4 trillion—are now subject to climate disclosure, and over 80% of scheme members, some 20 million people, will be able to access their pension schemes’ disclosures on climate risks and see how they are being managed. That is being published for the first time.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2023

Baroness Sherlock Excerpts

Monday 6th March 2023 Grand Committee

[Lord Allan of Hallam (LD)]

My Lords, on the substance of the two instruments before us and the uprating of payments by 10.1%, we on these Benches, like the noble Lords, Lord Wigley and Lord Jones, of course welcome that. I have learned a lot from noble Lords in the debate. I know from reading Hansard on their previous appearances on these uprating instruments that they have long and honourable records of advocating for sufferers of these appalling diseases. I thank both noble Lords present and those whom the noble Lord, Lord Alton of Liverpool, reminded us are no longer with us. Their words have helped to inform me and provided me with information that I understand will be useful in future years, as we continue to come back to debate these issues.

Much has been said that I will not repeat, but I will emphasise three areas that I am interested in and where I hope the noble Viscount might be able to expand in his response. The first is the question of the latest trends in the numbers of sufferers. As he pointed out, there is an expectation that they will decline once we reach a point 30 years or so after there was a reduction in the use of asbestos. But it would be interesting to hear from the Minister the extent to which there have been any surprises in the data, to understand more about the distribution of sufferers geographically and in terms of their professions, which has already been raised, their gender and any other factors that have surprised people, given the expected exposure and rate of suffering.

The noble Lord, Lord Wigley, was right to remind us that the exposure is not finished. Indeed, as we stand here, we are standing over huge amounts of asbestos, which is securely contained within the basement but which, at some point, will have to be removed as the works take place on this building. That is true across the country: in the 20th century a huge amount of electrical infrastructure was put in using asbestos as a fire preventer, and that is being replaced; people are now saying, “We need to get rid of it”. Whether that is meters in people’s own domestic premises or something on this scale, asbestos exposure is not finished—it will be an ongoing issue. I know that is broader than the instruments before us today, but I hope the Minister will make sure that his colleagues with relevant responsibilities continue to focus on that.

The predictions of expected sufferers would be helpful—not about individuals but about the population as a whole. Making that information public would help people to understand what is taking place. The Minister raised the effect of Covid on the figures, and I think the noble Lord, Lord Alton, asked whether diagnoses were missed during that period. Again, if there were changes during the Covid period, it is really important that we understand whether they were material changes or changes because of practice—because people were no longer presenting to their doctors and, therefore, in a sense, there is a false lowering of the numbers, rather than a genuine change in what has been occurring.

The second area about which it would be interesting to hear from the Minister is research, particularly the development of international networks. It has been mentioned that this affects people across many different countries. I was interested to see PREDICT-Meso, a network of international researchers run by the University of Glasgow involving countries in the EU but also countries such as India and Brazil, which industrialised very rapidly in the 20th century and which will also, sadly, see significant issues. Given that government support for scientific research is very topical at the moment, I am keen to understand the extent to which the Government are supporting research being carried out in this area. Can the Minister say any more about government support for research networks into respiratory diseases?

My final point, which has been touched on already, is about why the uprating is a manual rather than an automatic process. I can see from Hansard that this has been repeated on many occasions. I am sure that those who support the Minister did not have to do much work to recycle the comments made in previous years, but it would be interesting to hear from him again why the Government believe that this should continue to be a manual rather than an automatic process, whereby the people planning can understand that they will be entitled to the uprating, rather than us having to debate it each year. Perhaps the Minister will surprise us and there will be a change in the Government’s position this year, but I will not hang on for that.

I hope that the Minister can put some flesh on those three points about predicted numbers, government support for research and the manual versus automatic process. I will be interested to hear about them, but, as I said, broadly speaking, we welcome the 10.1% increase.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for introducing these regulations to the Committee, and all noble Lords who have spoken. As we have heard celebrated by my noble friend Lord Jones and others, the sums payable under the 1979 and the 2008 schemes are to be uprated by 10.1%—the rate of inflation as measured by the CPI 12-month rate last September, which is in line with other social security benefits, including the industrial injuries benefit.

First, I join the Minister in remembering all those who have suffered so much from these terrible diseases. Although many of us would like not to have to come back every year, it is at least an opportunity to pay tribute to them and to remember the lives so blighted. These schemes continue to provide crucial compensation to those who suffer from these terrible diseases and their families. Annual deaths from mesothelioma in Britain increased steeply over the last half century, due mainly, as we have heard, to the widespread industrial use of asbestos from about 1950 to 1980, which accounts for the high death rates among males over 70 whose younger working lives coincided with that period of peak asbestos use. It is good to see that death rates from mesothelioma among the under 65s have been falling.

I looked through the latest statistics on mesothelioma deaths published by the Health and Safety Executive last year, which went up to 2020. As the noble Lord, Lord Alton, said, there were 2,544 mesothelioma deaths in Great Britain in 2020, 6% up on 2019 but similar to the average across the previous eight years. But as the Minister pointed out, there are gender differences here. Those deaths comprise 2,085 men and 459 women. The projections are that annual deaths in men will reduce after 2020 but that female deaths will not, likely staying in the range of 400 to 500 throughout the 2020s but hopefully reducing further after that. Does the Minister know why there is this gender difference? I would be interested to know anything he can share on that.

Pensions Dashboards (Prohibition of Indemnification) Bill

Baroness Sherlock Excerpts

2nd reading
Friday 3rd March 2023 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Lord, Lord Young of Cookham, for introducing this Bill, and all noble Lords who have contributed. I am grateful to the noble Lord, Lord Young, for his characteristically clear introduction. I commend him on his many years of service in the interests of debating pensions and, like him, I say it is nice to have those of us interested in pensions dashboards back together again. It is always good to get the band back together again, even if the pensions dashboards crew is about as un-rock and roll as it is possible to be. But it is lovely to be here today.

I have a long speech on the importance of pensions, which I am going to spare your Lordships this morning because, if nothing else, the noble Lord, Lord Holmes of Richmond, has done a fine job of this and it is a very narrow Bill today. But since the discussion has ranged a bit more widely, I will say that we were supportive of the idea of pensions dashboards in the original legislation but that support came with a number of questions. Like so many things, things can be a good idea, but how they are done is crucial to whether they end up being a good idea. We raised questions about ID, data security, governance and redress. What happens when things go wrong? This is an unusual situation, where tens of billions of pounds of assets will be mandated by the state to be released and put on to this central spot. If something goes wrong, this is potentially very serious indeed.

I think that was amplified by the Government’s insistence on going with commercial dashboards from the outset. This House had to press to insist that a public dashboard be there from day one, but I still think the Government’s attachment to commercial dashboards raises some risks. Imagine for moment that you are a commercial pensions company. You can sit somebody down, show them your dashboard and say, “Look at your pots all over here. Let’s gather them all into one tidy pot in this corner. Should I just move them into this space?” It does not take very much imagination to consider the possibilities for mis-selling even within what is legal. Those questions have been raised and have yet to be satisfactorily answered.

The principle of today’s Bill is very simple. It is that the interests of pension scheme members should be protected from the actions of rogue trustees and others who fail in their statutory duties. The Bill, as we have heard, will make it a criminal offence for a trustee or scheme manager who is given a penalty for failing in their duties to dip into scheme funds to pay the penalty. Inasmuch as it aligns the position in relation to penalties for failure to fulfil dashboard requirements with those for other comparable penalties, the Bill seems straightforward and we are very happy to support it.

But I would like to add a few brief questions to those put to the noble Lord, Lord Young, and the Minister may wish to reflect his view as well, given the Government’s wholehearted support of this Private Member’s Bill. First, can somebody confirm to the House that this Bill simply replicates for dashboard-related breaches the prohibition in the Pensions Act 2004 which prevents trustees or managers using member funds to pay regulatory penalties; in other words, that there is nothing novel hidden in here?

Secondly, why was the provision not included in the Pension Schemes Act 2021? Was it, as the noble Lords, Lord Young and Lord Sharkey, have suggested, simply an oversight? If so, I do not think the noble Lord, Lord Sharkey, should beat himself up. I do not think it is his job to bury in the small print details of how things may align with the original legislation. I certainly feel no guilt at all. Frankly, I am prone to feeling guilt but, on this occasion, I feel absolutely fine.

Thirdly, will it be permissible for trustees to be covered by indemnity insurance paid for out of scheme funds? I think this can be done elsewhere.

On a related point, when we debated the Pensions Dashboards Regulations on 15 November 2022, the then Minister, the noble Baroness, Lady Stedman-Scott, said

“we accept that the regulatory requirements on trustees have grown a great deal over the years”.—[Official Report, 15/11/22; col. 839.]

It is always the case that rogue trustees can simply ignore the rules, but has the DWP made any assessment of whether there is a point at which the demands and risks of trusteeship might deter individuals and lead to a growth in the use of corporate trustees, and whether that might lead to a reduction in the important diversity of trustee experience which may be necessary to protect members’ interests?

My final question was going to be to ask whether trustees are ready for the first connection deadline on 31 August 2023. However—as the noble Baroness, Lady Altmann, rightly pointed out—yesterday, from a clear blue sky, dropped a Written Ministerial Statement which was just 418 words long. It calmly and simply said that additional time would be needed to deliver the technology and for the

“industry to help facilitate the successful connection of a wide range of different IT systems to the dashboards digital architecture.”

The Minister continued:

“Given these delays, I have initiated a reset of the Pensions Dashboards Programme in which DWP will play a full role. The new Chair of the Programme Board will develop a new plan for delivery.”


The Statement also said:

“DWP will legislate at the earliest opportunity to amend the timing of these obligations”.


We do not know, therefore, when the start date will be, but given that we are not promised another update before the Summer Recess, presumably it is not imminent. Can somebody, either the mover or perhaps the Minister, tell the House what on earth has gone wrong? Is it technical? Is it problems with schemes? Is it data?

When did the Government know? Did they know when this Bill was going through another place just recently? Did they know when we debated the regulations in November in some considerable detail? I am really interested to know to what extent the problems associated with creating commercial dashboards and connecting them to the dashboard architecture from day one have contributed to the need for a reset. What does it mean that

“DWP will play a full role”

in the new programme? Was it not playing a full role already? Has that changed?

When will the Government legislate to delay the programme? Are there plans to amend, for example, the many forthcoming pensions regulations we have before us? Also, I wonder, given that there is now no urgency at all, would government legislation not be a better way to deal even with the matters under debate today than a Private Member’s Bill which has the wholehearted support of the Government?

The Government were so confident of being able to meet their dashboards timetable—–on which we challenged them—that they hardwired the connection dates for schemes into the schedule. It says that the “staging deadline” for

“master trust schemes that provide money purchase benefits only”

for 20,000 or more relevant members is 31 August 2023, and so on. They were that confident. But since then, because that was published, pension schemes have spent time and money scrabbling to get ready for those hard deadlines. I suspect the irony will strike them that we in Parliament are debating a Bill designed to ensure that trustees pay penalties if they do not get their schemes connected to the dashboards in a timely and appropriate manner and the DWP just slips out a Written Statement saying, “You know what, we are not going to make it for August, after all. We are just going to reset the programme and we will give you some kind of update before the summer.”

I know that things go wrong. I get this. I have been a special adviser in government. I have been involved in enough programmes. But when things go wrong, I think the House is owed an explanation of exactly what went wrong. I suggest to the Minister that one thing he might usefully do is to forward to his colleagues in another place the proceedings of this House on the original legislation, the debates on the regulations and the associated debates. The Government were warned that this was incredibly complex. They were warned about the issues about data, ID and all kinds of things. I think this may be a good opportunity, since we are to have a pause enforced, for the Minister to tell the House that he will take the opportunity both to engage with the concerns raised around the House and to brief the House on how these are going to be addressed. I look forward to the replies.

Social Security Benefits Up-rating Order 2023

Baroness Sherlock Excerpts

Wednesday 22nd February 2023 Grand Committee

[Baroness Lister of Burtersett (Lab)]

My Lords, I welcome the Minister to this annual outing for us social security geeks and thank him for meeting me earlier this week. Of course I welcome the uprating of benefits and the benefit cap in line with inflation, even though it is no more than convention that leads us to expect it when it comes to the benefits themselves. I realise that the Government were under some pressure from within the Conservative Party to limit the increase to that in average wages, and it is to their credit that they withstood that pressure.

However, there is a real danger that, come April, some of the media will go to town on the 10.1% increase as if it somehow represents a bonus for claimants not enjoyed by those in paid work. It is therefore important that the Government make clear the context of the increase and also that, for two-fifths of universal credit claimants, their UC is topping up earnings. The issue was raised in the Commons debate on the regulations by Conservative MP Jerome Mayhew, who said it had been raised by his constituents on the grounds that they felt it was unfair, but he explained why

“it is fair. That is because it is morally right to protect the purchasing power of those very poorest families at an absolute level, even when other people in employment are suffering as well. I think it is right, because personal inflation is at its highest in the poorest families and food inflation is responsible for a higher percentage of their spending”.—[Official Report, Commons, 6/2/23; col. 706.]

Mr Mayhew made a strong moral case and rightly pointed to how, when energy and food prices are rising faster than overall inflation, those on low incomes suffer most. According to the Child Poverty Action Group, of which I am honorary president, in 2023-24 benefits will be 14% higher in cash terms than in 2021-22, but over the same period prices will be 21% higher for low-income families, so despite the uprating in line with overall inflation, they will be worse off. The Resolution Foundation warns that even as inflation starts to fall, food price inflation, currently running at nearly 17%, will continue to pose a particular problem for low-income families, as will high energy costs.

There are a number of further important points that help put this April’s uprating in context and serve to strengthen Mr Mayhew’s case. First, claimants have had to live on benefits plunging in value over the past year as a result of an increase last April of a mere 3.1%, despite our best efforts in both Houses, when inflation was expected by the OBR to average 10.1% over that period. According to the Joseph Rowntree Foundation, as a result 2022 saw the greatest fall in the value of the basic rate of unemployment benefit since 1972, when annual uprating began. The Minister has, as I expected, pointed to the additional cost of living payments that have been made and to the extension of the discretionary household support fund available from local authorities but, welcome as they are, neither provides the certainty and security that an increase in weekly benefits provides. One Citizens Advice adviser cited in a just published report spoke for many when they described the support fund as

“a very small sticking plaster on a very big wound”,

and because the cost of living payments take no account of family size, couples with two or more children will be worse off despite them, according to the CPAG. I will leave to the forthcoming debate on the additional payments Bill the other problems associated with one-off payments.

Just how difficult this past year has been for families in receipt of benefits was underlined in an open letter to the Prime Minister and the Chancellor yesterday from a group of organisations which called on them not to let this become the “new normal”. Resolution Foundation research highlights the emotional distress suffered by many in receipt of benefits and that one-third of poorer household feel that their health has been negatively affected by the cost of living crisis.

This all underlines the point that we made last year about the shortcomings of an annual uprating based on inflation around half a year earlier, especially at a time of high inflation and given that universal credit can be uprated much more quickly. Nigel Mills, a Conservative member of the Work and Pensions Committee, was one of those who expressed exasperation at this state of affairs in the Commons debate. He said:

“Now that we know that more of the legacy benefits will be continued on late into this decade, surely it is time to try to get a system that means we can do an uprating that reflects the real cost of living at the time that income comes in.”—[Official Report, Commons, 6/2/23; col. 687.]


His plea was echoed by Sir Stephen Timms, the chair of the committee that last year called for reform but to no avail, but it was ignored by the Minister in his closing speech. I know that the Minister addressed that in his opening speech, but I ask him to take this point back to the department and have another look at it.

Another theme of the Commons debate was the extent to which the benefits being uprated meet or do not meet the needs of those who rely on them. I think I have raised this issue in just about every uprating debate I have participated in, but it has taken on a renewed urgency given the growing evidence of hardship. Indeed, the APPG on Poverty, which I co-chair, is currently undertaking an inquiry into benefit adequacy. Bright Blue is one of many organisations that have recently drawn attention to this issue. In a recent article for Conservative Home, its head of research noted that

“the baseline level of support is inadequate in helping people avoid destitution.”

Similarly, the Joseph Rowntree Foundation concluded in its poverty report that

“the basic rates of benefits are inadequate and do not allow recipients to meet their essential needs.”

Have the Government’s considered the recommendation from Bright Blue and others that there should be a Low Pay Commission-type body to advise government on benefit rates?

Although it has been a failing of successive Governments to have uprated benefits without questioning whether the rates are adequate to meet people’s needs, the situation has been made worse by the cuts made over the past decade, which have reduced the value of working-age and children’s benefits and, particularly for families with children, have broken the link between need and entitlement. That is another reason why inflation-proofing is justified now.

However, one key benefit is not being inflation-proofed: the local housing allowance. Despite the Work and Pensions Secretary representing the freezing of the allowance as maintenance in cash terms at the elevated rates agreed for 2021—as if it were a bonus—the fact is that the value of the LHA has been cut for the third year running when average private rents increased by between 8.6% and 10.5% between September 2020 and September 2022, according to a highly critical Secondary Legislation Scrutiny Committee report. Although that freeze is covered by separate regulations, it affects the impact of the regulations that we are debating today because it means that claimants must use more of their basic benefit to cover their housing costs. I argued this earlier in Oral Questions but neither of the questions I asked were replied to by the Minister, and he may well bow his head in shame at that.

[Baroness Sherlock (Lab)]

He could answer them now.

[Baroness Lister of Burtersett (Lab)]

Yes, he could. Incidentally, the concern that this freeze is causing was evident from the unprecedented number of unsolicited briefings that I received for my Question.

According to the IFS—these figures are different from the ones I used earlier—just 8% of low-income private renters now have all their rent covered by housing benefits, compared with almost half in the mid-1990s. For 32% of them, the amount of rent not covered by housing benefits eats up at least one-third of their non-housing-benefits income, a situation faced by just 14% of the group in the mid-1990s. I ask the Minister not to say again that those affected can turn to discretionary housing payments because, as they are discretionary and cash-limited, they do not provide the security that is needed. The DHP budget was cut by 29% last year, leaving many authorities struggling to meet demand, according to Shelter.

Another related way in which the link between need and entitlement has been broken is the benefit cap, which, along with the two-child limit, hits larger families particularly hard. Of course, it is very welcome that the cap will for the first time be uprated in line with inflation this year, but that will cover only one year’s inflation. According to calculations done for me by the Library, the rates contained in the regulations will still leave the cap 9.8% less than it would have been had it been uprated in line with inflation since it was set at its current level in 2016. How is that fair? Whatever one thinks of the cap—I agree with the noble Lord, Lord Freud, that it is an excrescence—at the very least, its level should be maintained in real terms annually. I hope that it will be from now on for as long as it exists.

--- Later in debate ---

[Baroness Janke (LD)]

My Lords, as the two previous speakers said, I am sure it will be a matter of great relief to the poorest citizens and families that this year there is a realistic rise, unlike last year when, despite forecasts from the Bank of England of inflation rising to 7.9%, the rise in benefits and pensions was only 3.1%. Other speakers have referred to the distress suffered by so many citizens who have had to manage with that, despite the crisis in energy costs and the cost of living, and the pressures that have been put on families and individuals in recent months.

Some evidence of the level of distress caused by this policy is the increase in the use of food banks. The number of food bank users increased to over 2 million in 2022, of whom 832,000 are children. A measure that was intended for emergency charitable use has now become a national institution and without it many impoverished families would go hungry.

The increase in short-term government funding is a positive step and it is to be welcomed that it is excluded from the benefit cap. I share the views of the noble Lord, Lord Davies, on the triple lock and agree that we should retain it until the state pension has regained much more of its value, because it is taking quite a time to catch up. Large numbers of the poorest pensioners are dependent on the state pension but that is sometimes not appreciated. We hear quite a lot of speeches from people nowadays saying that the triple lock should be abolished because everybody is jolly too well off; in fact, large numbers of pensioners are completely dependent on the state pension so to those people, it is absolutely crucial that it retains its value.

We would also like to see an extension of auto-enrolment to younger workers and those on lower incomes. They could get started a bit earlier and would welcome that in their older age.

I also recognise the campaign on pension credit and know that the noble Baroness, Lady Stedman-Scott, was keen to pursue it. It has encouraged me greatly to hear the adverts and to hear from the Minister today that the percentage of take-up has increased so much. I would certainly like to have a look at that.

The uprating increase of 10.1% will, we hope, provide more protection to those on limited incomes but the situation for many families does not improve—it only worsens. We have heard from the noble Baroness, Lady Lister, about the benefit cap and although it will be uprated today it has quite a bit to catch up. The benefit cap has been found by many studies to be a major contributor to poverty in families. There are 123,000 households subject to that cap. That is 64% higher than before the pandemic; 85% of them are families with children and 65% are lone parents. The benefit cap takes no account of the size of a home needed to house a family, so the freezing of the local housing allowance at the March 2020 level, despite rapidly increasing rent costs, will mean more capped households falling into poverty.

I have these questions for the Minister. What will the Government do to prevent a new wave of homelessness following the freeze in the LHA? I point out to him that in my city of Bristol, for example, the cost of a one-bedroom home at the 30th percentile is 7% higher this year. But with housing benefit still frozen, there is now a shortfall of £18.41 a week between what can be claimed and what has to be paid.

What plans do the Government have to review the range of evidence about the benefit cap? I am sure the noble Baroness, Lady Lister, can provide plenty. She has certainly made that case very articulately many times. I feel it is time that the Government re-evaluate and look into the circumstances that this is causing. I would also like the Minister to look at the findings of studies of the two-child limit. This seriously disadvantages families. It was championed by the Government as an incentive to people on benefits to work. However, official statistics show that most families affected are in work while a study found that those affected felt strongly that the two-child limit unfairly punished hard-working, low-income families at a time when they needed most support, that is, at the birth of a child. I hope that we may revisit that.

All in all, I am grateful that we are having a much more realistic increase this year. I hope that some of the points made by other noble Lords about the delay and distress caused by the way that the increase is calculated can be looked at. I hope that we will look again at how some of the most vulnerable underprivileged families, and particularly children, are faring under the current benefits scheme.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his introduction and all noble Lords who have spoken. As my noble friend Lady Lister said, it is nice to have the band back together again. I also find it very moving that people turn out every year to try to make the case and to bear witness to the struggles that so many people around the country have and why it matters.

I will talk briefly on each order in turn. If we come back again, I notice that it has been nice to have had the Minister here previously as a Whip, although if one can be here one year as a Whip and the next year as the Minister, perhaps his noble friend to his right should be thinking very carefully about what might happen next year if he is not very good indeed.

I shall run though each order in turn, although probably not in the order the Minister did. GMP is really interesting. As we have heard, this gives schemes the percentage by which they have to uprate GMP between 1988 and 1997. I have a really simple question: can the Minister remind the Committee why the cap was set at 3%? That makes me Clive Myrie to the contestant behind me, my noble friend Lord Davies, who asked a much better question, so I will simply wait and let the Minister answer that instead. It will be very interesting.

Is there any reason why the Minister thinks we ought to worry when the gap is so big between the cap at 3% and the prevailing inflation rate at 10.1%? Is there any cause for concern there?

The only other point I want to raise on GMP is that some people with a large GMP lost out when the new state pension was introduced in 2016. The Minister will be aware that the Work and Pensions Select Committee called on the Government to identify those who were affected, calculate their losses and get in touch with them. Obviously that did not happen. The Parliamentary and Health Service Ombudsman reported on two cases of people who complained that they had not been given enough information by the DWP about the fact that the reforms could leave them worse off. The ombudsman said that the DWP failed to provide clear and accurate information despite being warned, with the result that some people were not aware that they might need to make alternative provision for their retirement. The ombudsman recommended that the DWP should

“review and report back its learning from our investigations. In particular”,

it should improve its communications on this issue. In response, in August 2021, I think, the DWP finally published a fact sheet on GMP and the effect of the new state pension. I then read with fascination the growing correspondence between the Select Committee and successive Pension Ministers, driven, I think, by correspondence from members of the public who were concerned about the effect. For the record, I commend the Committee for its detailed and tenacious work on this frankly very technical issue.

I shall ask the Minister two brief questions. First, now that there is a fact sheet, what is DWP doing to draw its existence to the attention of those who might need to know about it? Secondly, can the Minister tell the Committee how many people have successfully applied, or indeed applied at all, for any compensation since the PHSO report?

I now turn briefly to the draft Benefit Cap (Annual Limit) (Amendment) Regulations because the case has been made so well by my colleagues that there is not much left for me to say. As we have heard, the Secretary of State is required to review the level every five years. My noble friend Lady Lister and the noble Baroness, Lady Janke, have set out the background to how we got here and the consequences of the failure to uprate it hitherto. I remember the then Secretary of State Iain Duncan Smith saying very clearly that the original rationale for the policy was to ensure that people who were unemployed and on benefits would not receive more than average earnings. We had a debate at the time because, for example, child benefit also goes to those on average earnings. However, even allowing that for the moment, the problem with that argument is that the level of the cap was not in any way tied to average earnings. Having brought it in in 2013, not only was it not increased but it was reduced in 2016 and never increased after that until these regulations. Is the Government’s rationale for the benefit cap still related to average earnings? If not, what is the rationale, so we can assess how effectively the policy is achieving its objective? Has DWP made any assessment of the impact of the benefit cap on child poverty? If not, would it like to?

I turn now to the draft Social Security Benefits Up-rating Order, which we debate every year, except during the years of shame. It is worth reminding ourselves for the record that before 2010 annual uprating of benefits by at least inflation was the norm for both Conservative and Labour Governments. However, between 2013 and 2020 this was abandoned, with most working-age benefits and tax credits being either frozen or uprated by just 1%. The reason I continue to repeat this, even in a year when they are being uprated, is because that means that most benefits and credits have fallen in value even before the latest cost of living crisis. Many noble Lords have expressed relief that, finally, having debated the alternatives and being subject to pressure from around both Houses and outside, the Government decided to raise benefits and tax credits in line with CPI last September.

However, as my noble friend Lady Lister said, this is not an act of unusual generosity. It is simply a decision not to cut the value of benefits in the middle of a cost of living crisis, which should be a pretty obvious decision. To do the alternative would have consequences that we have heard about already. Of course, as noble Lords have pointed out, the reference point is the 12-month CPI rate in the previous September. When inflation is as volatile as it is now, that gap can cause real hardship. If we go back a year to last April, inflation was nearly 10%, but benefits were uprated that month by just 3.1%—the CPI rate from the previous September, and that loss of value is baked in because it is the basis for this year’s increase.

The result of this is that the value of out-of-work benefits is at a historically low level, as my noble friend Lady Lister said. As the noble Baroness, Lady Janke, said, it is no wonder that food bank use is at a new high. Trussell Trust food banks gave out 1.3 million parcels between April and September, which is up by one-third on the year before and includes an estimated 328,000 people using its food banks for the first time, so new people are being drawn into the need to use food banks to survive. The Trussell Trust thinks that this winter will prove to be its busiest ever. I want to put something in particular to the Minister. The Prime Minister told the Liaison Committee in December that he very much hoped that food bank demand would be lower by the end of this Parliament. Is there any plan in DWP to take action to make sure that this will actually come to pass?

Although most working-age benefits will be increased by 10.1%, there will be no change to two crucial benefits: first, the childcare element of universal credit and tax credits and, secondly, the local housing allowance, as mentioned by my noble friend Lady Lister and the noble Baroness, Lady Janke. Why are those two not being uprated? Is the presumption that they are not affected by inflation in the same way? Childcare is in crisis. We know that employers are desperate for staff and parents cannot afford childcare. I notice that we keep seeing media briefings appearing about possible benefit crackdowns and how people need to work more hours. Can the Minister confirm whether it is the case now that the childcare support in universal credit is sufficient to cover part-time hours only because the cap in it has been frozen for so long? Of course, that is not to mention the fact that for parents to get that help, they have to pay the money up front for childcare and then claim it back. That makes it a non-starter for most parents who are poor enough to be entitled to universal credit in the first place in the middle of a cost of living crisis. Can the Minister tell us what the plan is to address this?

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, I start by thanking the Committee in general for its overall support for these regulations. I also thank various Peers, including the noble Baroness, Lady Lister, and the noble Lord, Lord Davies, who made some very kind remarks about me coming into this particular role; I appreciate it. I was more than prepared for the fact that a good number of questions would arise from these regulations, of which there are three; I will of course do my best to answer them.

Let me start, in what I hope is not too discordant a way, by taking some issue with what the noble Baroness, Lady Sherlock, said. There is no question that there is no way in which we have played fast and loose with this; that is a bit unfair. A huge amount of thought has gone into this. I think the Committee has acknowledged that we have moved in the right direction by raising many of these benefits by 10.1%.

[Baroness Sherlock (Lab)]

Let me just clarify: I was not suggesting that the Government played fast and loose this year. I was talking about previous years when they broke with uprating and did not uprate at all, not this year. I am sorry if I did not make that clear.

[Viscount Younger of Leckie (Con)]

That is fine; I accept that. I think we can leave it at that.

I will start by tackling a couple of issues that were raised by the noble Baroness, Lady Sherlock, towards the end of her speech. She made some good points that completely chime with what the Government think. We totally understand that a number of individuals are suffering as a result of the war in Ukraine, the pandemic and cost of living issues generally. I completely acknowledge that; I hope the Committee understands that.

Let me start on why childcare has not been included; perhaps I can help. Regardless of the number of hours that they work, eligible parents can claim back up to a generous 85% of their childcare costs each month, up to the maximum amount of £646 for one child and £1,108 for two or more children. The vast majority of UC claimants receiving a childcare element do not hit the UC childcare caps. In fact, between August 2020 and July 2021, 92% of universal credit claimants receiving a payment for the UC childcare element were eligible to receive the full 85% of their childcare before the earnings taper.

So we believe that our policy provides fairness in the welfare system between those receiving out-of-work benefits and those in work by putting in place a reasonable cap on the childcare costs that a household can have reimbursed through UC, in each assessment period. We believe that the childcare policy aligns with the wider government free childcare offer in England and our similar funded early learning offers in the devolved nations. We keep childcare under review. We know that childcare costs are extremely high; I am certainly aware of that. I cannot add anything more to that, only that the Committee should be aware that we are aware of these issues. I will stick with that.

Secondly, the noble Baroness, Lady Sherlock, raised a perfectly reasonable point about food back usage. I am aware from a previous Oral Question in the Chamber of various Peers’ strong concerns and the comments that have been made. I chime with those as well. As the noble Baroness knows, food banks are independent, charitable organisations and our department does not have a role in their operation. What she and the Committee should know is that we are looking to give some feedback from a series of questions posed by the Family Resources Survey. We hope that these will be published next month and will give the Government some idea about usage. It is very much our wish that food banks are not needed. We need to continue to work as hard as we can to look at the reasons behind their usage. We can all guess what they are; I have given some flavour of that this afternoon.

On the same theme, I will touch on inflation. This leads to a number of important points raised by noble Lords, in particular the extremely good point from the noble Baroness, Lady Lister, on the increase in food prices. We are all concerned about the price of certain food items rising particularly steeply. Like many countries around the world, and as the noble Baroness knows, the UK faces the challenge of high inflation. We will continue to provide support through cost of living payments, which have been well rehearsed in this Committee and in the Chamber, while increasing state pensions, benefits and the benefit cap levels by 10.1%.

To help the Committee, the CPI stood at 10.1% for the 12 months to January 2023, down from 10.5% in December. This monthly decline was principally driven by lower rises in motor fuel. The Bank of England predicts that the CPI will continue to fall. The OBR states that government action has limited the severity of the recession and protected 70,000 jobs, and that it will take 3.4 percentage points off inflation by the end of March. This will contribute to a fall in inflation, which, as the Prime Minister has said, is expected by mid-year.

This leads quite neatly on to some of the points raised by the noble Baroness, Lady Lister, and the noble Lord, Lord Davies. To paraphrase, the general gist of their question was: why can we not uprate more frequently using a more up-to-date CPI figure? That is a fairly reasonable question. The Secretary of State undertakes an annual review of benefits and pensions. As I mentioned earlier, the CPI in the year to September is the latest figure that the Secretary of State can use. This is crucial to allow sufficient time for the required operational changes before new rates can be introduced at the start of a new financial year.

All benefit uprating since April 1987 has been based on this particular timing. Given the volumes involved, the technical and legislative requirements and the interdependencies across government, we state very firmly that it is not possible to undertake the uprating exercise any later than currently timetabled. I do not say this to be particularly cheeky but I wonder whether the comments might not have been quite so critical of this timing issue for the higher uprated figure had there been real evidence today of a much lower level of inflation, so all those people would be getting more than the level of inflation—perhaps I should not go there.

I turn to the local housing allowance—the LHA—which was raised by the noble Baroness, Lady Lister, and others; yes, we had 10 minutes on this in the Chamber earlier. I am not sure that I can really add to what I have said. I genuinely believe that the £1 billion that we invested in 2020 to provide support for private renters by increasing the rate to the 30th percentile was the right thing to do. It is a fact that it has been frozen but it is also a fact that the discretionary housing payments—DHPs—and homelessness protection grants are helpful. I say again that we believe it is right that we defer to local councils and local authorities to make the right decisions in terms of how to target the funds that we have given them, including to people who are generally suffering and are on the lowest incomes. It is up to them to decide what to do.

Local Housing Allowance Rates

Baroness Sherlock Excerpts

Wednesday 22nd February 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

Although I do not have that particular figure—perhaps it would come from local authorities—I will certainly be very happy to write to the noble Lord with that information.

[Baroness Sherlock (Lab)]

My Lords, let us try to understand the system. The Government set up a system where you were meant to be able to rent one of the cheapest 30% of properties in an area on the local housing allowance rate and then they froze those rates in cash terms while rents kept going up. That forces people on low incomes to compete for fewer and fewer properties in their local area. This is not at the margins. Roughly 1.5 million people on universal credit get the housing allowance. Over half of those are having to top up their rents by an average of £100 a week. The inflationary increase that the Minister mentioned for the adult allowance on universal credit was a top-up of £100 a month, but £34 extra a month is coming in. How does that work?

[Viscount Younger of Leckie (Con)]

The noble Baroness might like to be reminded that the LHA was originally set at 50th percentile of local market rents and then the policy was reformed, as she will know, in 2011, when it was reduced to 30th percentile. The reforms were made for a reason, because the scheme was unsustainable, with excessively high LHA rates in some areas. Having said all that, we are very aware of the pressures at the moment, as I said earlier, and that is why we have other initiatives to help those who are really struggling— I acknowledge that they are—in some cases with their housing costs.

Health and Safety and Nuclear (Fees) Regulations 2022

Baroness Sherlock Excerpts

Tuesday 31st January 2023 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, the Health and Safety and Nuclear (Fees) Regulations 2022 statutory instrument was laid before Parliament on 20 December 2022 and came into force on that same day. These regulations correct an error in the powers used to make the Health and Safety and Nuclear (Fees) Regulations 2021. The error was an unfortunate oversight. Due to the volume of Covid, Brexit and trade agreement work, pressures on the Government Legal Department—GLD for short—resulted in this referencing error not being picked up in checks. HSE and GLD regret the error and are taking steps to reduce the risk of this sort of error happening again. The error was identified by GLD during a recent review.

The urgency to make these regulations arose from the need to use the powers in the European Union (Withdrawal) Act 2018 before they expired on 31 December 2022 and so avoid the requirement for primary legislation. This instrument has to be made in the affirmative and debated in both Houses because this is what the EU (Withdrawal) Act 2018 specifies.

This instrument is non-contentious, as it repeats the previous regulations with some minor technical changes. The preamble to the Health and Safety and Nuclear (Fees) Regulations 2021 did not cite one of the enabling powers and was not made with the consent of HM Treasury to certain fees for chemical regulation functions which were transferred from the EU. The correction ensures that the Health and Safety Executive can continue to recover its costs for these functions.

The preamble in the 2021 regulations refers to paragraph 7 of Schedule 4 to the European Union (Withdrawal) Act 2018. It should also have referenced paragraph 1 of Schedule 4 to give the powers for the provisions which allow charging for certain regulatory activity around biocides and classification labelling and packaging—so-called CLP. In addition, this same error was repeated in later regulations, which contained a series of amendments to, and mirrored powers in, the 2021 regulations. This instrument also corrects that error.

Biocides and CLP provisions in the fees regulations 2022 rely on paragraph 1 of Schedule 4 to the European Union (Withdrawal) Act 2018, and so consent from HM Treasury is required, as referenced in paragraph 3 of that schedule. I can assure your Lordships that consent has been given. I can also assure your Lordships that we have a rigorous checking process in place which will normally ensure that errors are identified before instruments are made.

In conclusion, I take this opportunity to emphasise that this instrument is a restatement of the fees regulations 2021, with the correct powers cited in the preamble and for which HM Treasury consent has been obtained. These changes put beyond doubt the ability of HSE to charge fees for certain biocides and CLP regulatory activity. The instrument makes no changes to policy or duties, although, as explained in the Explanatory Memorandum, it corrects some minor technical errors as well.

I hope that colleagues of all parties will join me in supporting the new regulations, which I commend to the Committee. I beg to move.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for that introduction, and I can only take it that the remarks he addressed to “colleagues of all parties” means me, so I am delighted to be here. I also love it when a Minister announces, as was done in the Commons as well, that an instrument is non-contentious. From the Opposition Benches, our mind goes, “Well, we’ll see about that; that’s our call.” It is not the kind of thing one can do unilaterally.

However, as we have heard, this instrument revokes and replaces the Health and Safety and Nuclear (Fees) Regulations 2021, as amended by the amending regulations, and consequentially revokes Regulation 14 of those. We have heard that the purpose is to correct a number of errors. I accept that some of them are clearly technical. There is the incorrect cross-reference in Regulation 12, the error in the definition of “nuclear provisions” in Regulation 16 and the omission from Regulation 22 of the process clarifying how to interpret terms on classification, labelling and packaging, and so on.

However, there is a more serious error. The fees regulations 2021, as amended, were meant to enable the Health and Safety Executive and the Office for Nuclear Regulation to charge fees for a range of specified activities, but, as we hear, it has become apparent that an error in the preamble to the regulations and to the amending regulations has caused a problem. Neither cites paragraph 1 of Schedule 4 to the EUWA 2018, but both should have done so. The problem is that that would have allowed provision for the charging of fees in connection with functions following Brexit, particularly those performed by the HSE in relation to biocides and chemicals—I still think fondly of our long debate on biocides and chemicals not very long ago.

I have some questions. The effect of the error was that the required Treasury consent was not sought prior to the making of regulations under paragraph 1 of Schedule 4 to the EU withdrawal Act. I accept that the Treasury has indicated that it would have given consent had it been asked. However, it was not asked, which is of course the problem. The EM says that the error

“may raise doubt as to HSE's ability to continue to recover the affected fees.”

Can the Minister unpack that a little more for us? First, we need to be clear what fees have already been charged using the flawed powers in the 2021 regulations. When these regulations were debated yesterday in the Delegated Legislation Committee in another place, the Minister, Mims Davies, said:

“About £25,000 was charged across the industry under the powers related to the error. However, HSE judged that there is a low chance of any case being brought, due to the amount of money involved. That is why we are rectifying it extremely quickly. HSE will continue to manage any legal implications on a case-by-case basis.”—[Official Report, First Delegated Legislation Committee, Commons, 30/1/23, col. 8].


Can the Minister tell the Committee: was there a legal basis for charging those £25,000-worth of fees? If not, will the money be refunded to the firms which paid them, or do I take it from that last sentence of the Minister that the Government are simply waiting to see whether anyone who paid them under deficient rules will sue to get their money back? Were any fees not charged as a result of this error that would otherwise have been charged? If so, has any revenue been lost?

There are two other questions. We need to know more about how we got here and, more importantly, how the Committee can be assured it will not happen again. I accept that drafting errors happen, of course, but there are quite a lot of errors in one set of regulations here. Yesterday, the Minister gave the explanation that the noble Lord has repeated today, which dumps the blame pretty much lock, stock and barrel on the Government Legal Service, saying that it was under pressure as a result of Covid, Brexit and trade agreement work, it had too much pressure and that is why it happened. The only problem with that is that two of those three were completely foreseeable. I realise that post Brexit there will have to be redrafting of regulations and other legislation, but the volume and speed is a direct consequence of decisions the Government made about the nature of Brexit and about the way to handle retained EU law.

So, knowing all this, why did the Government not plan and resource the GLD accordingly so that it could deal with the volume of work and the pressure that it would be facing? We cannot simply accept that our statute book should be in a mess as a result of Brexit. There were various points at which these errors could have been picked up. Why were they not? Is there a quality assurance process in place? Does the HSE or the DWP do any checking of their own legislation? Do they literally just give it to the GLD, say, “Do it!” and then take whatever is given back and put it out? Is there a quality assurance process and, if so, why was none of the errors picked up? I spent some years as a non-executive director on a board. If the executive reports a significant error, the question that one asks is: is it systemic? If the answer comes back, “No, it is not”, then one wants evidence of that; if the answer is: “Yes, it is”, one wants to know how one can be assured that it will not happen again?

The Minister yesterday in the Commons said that,

“the HSE and the GLD have completed a full review of the lessons learned,”

and,

“identified some practical actions”.—[Official Report, Commons, First Delegated Legislation Committee, 30/1/23; col. 7.]

to improve ways of working between their officials. That is nice but—this is an important question—if those practical actions had been in place, would they have avoided these errors? So, one has done lessons learnt. If one had done those things then, could this error have happened? If it could still have happened, then we have not solved the problem. Did the review look at other errors, other than the one that it turned out had created this problem?Crucially, how confident is the Minister in assuring the Committee that something this serious will not happen again?

Finally, we are told that

“the Department is adopting the free issue procedure in relation to this instrument.”

Do I take it that that means that there will be free issues of this instrument and the amendment regulations? What will be the cost of that?

Given that I have fired a number of questions, I really want to get answers today—I do not want any more letters because they never arrive, or they may arrive eventually but it takes a long time and these regulations have already been made. To clarify, I am interested in finding out: what happened; why the mistakes were not picked up; whether fees were charged without any legal cover and, if so, whether fees are going to be refunded and whether there were fees that could have been charged that have not been; whether there is quality assurance in place; and whether the DWP and the HSE do any checking of their own legislation and how they can assure us that this will not happen again. I look forward to the Minister’s reply.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Sherlock, for her response. I totally understand the tone and nature of the questions that she has asked. I hope that I can respond. It may be that the detail in the responses is not quite what she is looking for and, of course, I will say that I will write to her if the answers are deemed to be not satisfactory. But I will certainly do my best.

I should like to say first that these errors are unfortunate. As I said, the error was an unfortunate oversight caused by pressures on the GLD—the legal side—due to the volume of Covid, Brexit and trade agreement work. Despite checks in place, the omission of one of the powers from the preamble was not noticed. I shall go into a little more detail in terms of how the error was noticed. The preamble to the fees regulations 2021 referred to Paragraph 7 of Schedule 4 to the EUWA 2018 but should have also referenced Paragraph 1 of that schedule. The error was repeated in the amendment regulations, being a set of regulations that amended the fees regulations 2021. Due to that unfortunate oversight, the correct power was not cited in the preamble, which meant that certain regulations were made without the consent of HM Treasury, as they should have been. The error was spotted during a recent review of the fees regulations 2021, as I mentioned.

On the noble Baroness’s question what has been done to prevent such errors happening again, I believe that the review has been rigorous, and we do not believe that it will happen again. However, I shall give a bit more detail. HSE and GLD have completed their review of lessons learnt. This has identified some practical actions that can be taken including better ways of working between GLD crucially and HSE policy officials.

The question of HM Treasury and its role came up, and perhaps I can be helpful in answering some questions. HM Treasury has approved the 2022 fees regulations and has confirmed that consent would have been provided at the time of the 2021 regulations, if sought. HM Treasury consent was given when the fees were first introduced into UK law in 2019 by way of amendments to the fees regulations 2016. HSE is informing HM Treasury of the proposed treatment of the approximately £25,000 of fees received between 1 April 2021 and 21 December 2022. Some 14 companies have been charged between £500 and £5,000, so I hope that is helpful.

These regulations put beyond doubt the ability to charge these fees. We are liaising with HM Treasury on the repayment. There is a quality assurance in place, and we regret that it was human error that led to this. We have reviewed our processes, as mentioned earlier, and have implemented actions to improve this. If they were in place, the error would have been avoided. I hope that helps to answer the questions raised by the noble Baroness.

[Baroness Sherlock (Lab)]

On the £25,000, I asked a specific question: was there legal cover for charging that money? I would like an answer to that. I think the Minister said that the HSE is informing the Treasury as to what it will do about the money. Can he inform us what it is going to do about it rather than just the Treasury?

[Viscount Younger of Leckie (Con)]

Those are two fair questions. I will have to write to the noble Baroness to follow through on the specific details that she has asked for. I will certainly write a letter and make sure that she is fully informed. With that, I commend these regulations to the Committee.

Universal Credit: Benefit Cap and Two Child Limit

Baroness Sherlock Excerpts

Tuesday 24th January 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

My Lords, first, we are very aware of the fact that some people are finding it particularly difficult at the moment—some very good points have been made about that. One of the issues to focus on, which we are doing, is childcare, which is a key enabler of employment for parents and has clear developmental benefits for children. Of course, the onus falls on the caseworkers in the jobcentres. Often they are very well trained, and they have to deal directly with these people who come with some heartfelt stories.

[Baroness Sherlock (Lab)]

My Lords, can I give a specific example? The most reverend Primate has talked about the impact on individuals. The larger families study that the Minister mentioned interviewed parents who have been affected by this. It gives the example of a single mother who had experienced domestic abuse. She was given an exemption from the two-child limit under the rape clause because the child was conceived by rape, so she was then awarded an extra £237 a month. But then the benefit cap kicked in and she got only £30 a month of it. Because she struggled to provide for her children, she ended up returning to a violent relationship. I ask the Minister again: what does he think about the impact of these policies, not just their number?

[Viscount Younger of Leckie (Con)]

The noble Baroness makes a good point because we should be aware of the impact, which is why we are working hard on a number of initiatives. As she will know, there are a number of fallbacks on top of this, particularly the provision of cost of living support worth over £37 billion for 2022-23, including £400 for the non-repayable discount to eligible households. However, it is more than this. I am in awe of people on the front, including those who work in the front line of the jobcentres, who work with the social workers, and indeed with the Church, to see through these very challenging issues for some families.

Bereavement Benefits (Remedial) Order 2022

Baroness Sherlock Excerpts

Tuesday 17th January 2023 Grand Committee

[Baroness Brinton (LD)]

My Lords, I too start by thanking the Minister for his helpful explanation. I apologise for not being able to attend the briefing, but Monday mornings are a problem.

On balance, we on these Benches are as pleased as other speakers that this has now come to fruition. We are grateful for the work that the previous Minister, the noble Baroness, Lady Stedman-Scott, did on this. The example given by the noble Baroness, Lady Hayman, was extremely helpful, and the points raised by the noble Baroness, Lady Altmann, and the noble Lords, Lord Jones and Lord Davies, on some of the other implications, such as tax, are very interesting.

I am sorry that I will now get into some really difficult areas; I hope the Minister will bear with me. I appreciate that I am creating a scenario to which there may not be a speedy response, and I am more than happy to have a written reply. I am particularly interested in paragraphs 7.23 to 7.25 of the Explanatory Memorandum, which set out the determining hierarchy should there appear to be more than one claimant. It is very helpful.

In his introduction, the Minister talked about polyamory, but there are other circumstances as well, such as where people with caring responsibilities live under the same roof, which might include familial members who are not actually spouses but, in the event of the death of the parent—for this purpose I am assuming it is a sole parent who is dying—there are others who will take over responsibility for the children. I know that there has been some concern over multiple claims, and paragraphs 7.23 to 7.25 helpfully set out the priority order.

For me, the issue is much more about the JCHR’s proposal that this benefit should be identified as belonging to children. I am not sure it said it should be paid directly to the children, but because much of it is determined on the age of the children it is clearly designed to support extra costs for somebody with children who has lost a partner. For me, that is important, because I want to raise the issue of kinship carers.

I make a full declaration: I think that my husband and I counted as kinship carers 20 years ago when we became foster parents and then guardians, approved by the family courts, for our best friend. When she died, her children joined us. We had to navigate all the systems in place at that time, which included going to the family court and getting the residency order. That enabled us to claim child benefit for the children. I know that is now means tested, but I am talking about eligibility for child benefit.

The organisation Kinship consistently reports that family members who take on responsibility for children after a partner either has been unable to look after them or has died, as in this circumstance, have ended up having to leave their jobs, not being entitled to benefits and finding every barrier put in their way because they are not typical family carers. Even though they may have had to go through the fostering approval process, as we did, because the courts need to be satisfied that they are capable of looking after and taking responsibility for the children, they are not entitled to foster payments because they are regarded as kinship carers.

The “Emmerdale” actor Jay Kontzle, who was raised by his grandparents after his mother died when he was four, recently said he saw at first hand the way it affected their lives. His grandmother had to stop work and they both had to take on the very difficult task of looking after their orphaned grandchild. It is helpful that he has done that. Kinship surveys have shown that 45% of carers give up jobs and have found repeatedly that they were not eligible for support.

I am remembering my schoolgirl Latin. There is a word, “num”, which notoriously requires a negative answer. I think I expect a negative answer, but there is a real injustice here for this group of kinship carers, whose identification is confirmed by the courts and other benefits but who would not be eligible under these arrangements unless they were living in the same house. How long do they need to live in the house? I wonder whether the Minister can look at this. It may be that this is one of those special cases where there is nobody else who would obviously qualify but where it is needed, for the children and the life changes they will face, for the kinship carers to be considered eligible.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his introduction to this remedial order and all noble Lords who have spoken. I always think that any debate that starts, “Let me give some context from 1925” is never going to be speedy, but let us work through what we have heard today.

Before I start, I congratulate the noble Baroness, Lady Hayman. It is always lovely to find that somebody who writes to a Member of the House of Lords is listened to, the issue is taken up and something happens. I congratulate her on her perseverance, as well as the former Minister, the noble Baroness, Lady Stedman-Scott, on her willingness to listen.

I would be very interested to hear answers to a number of the questions that have come up. Obviously, I am glad the Government are stepping forward to take the appropriate response to fulfil their legal obligations. We would not want in any way to stand in the way of this, but there are some important questions still to be asked about how it will work in practice, as my noble friend Lord Davies said.

First there is the question of how DWP will make decisions on whether someone was cohabiting with a partner who has died and therefore is eligible for support. As we have heard, DWP has established practices to decide whether someone is cohabiting. Many years ago, I ran a charity working with single parents, and the rumour mill was alive that the “two toothbrushes test” was the one deployed. Whether or not this was ever the case, the assumption is that in plenty of cases there was no formal evidence, such as a shared rent book or shared bills, yet people were held to be cohabiting when in fact they were being given benefits as a single parent.

There is no question that the DWP has ways of determining this. The noble Baroness, Lady Altmann, pointed out that it has always been able to do so. Indeed, ironically, widowed parent’s allowance was not given to someone who was cohabiting, but you lost it if you started cohabiting after you were bereaved. There obviously must have been some means for making this assessment.

My noble friend Lord Davies asked a really good question: will the criteria be the same for this as for other tests that are applied? If the Government could explain that, it would be really helpful. I would be very interested in the answer to the question raised by the noble Baroness, Lady Brinton, about the hierarchy and the breadth to which that is accepted.

The next thing I found myself wrestling with is the fact that WPA is an “overlapping benefit”, in the jargon, so presumably there will be some people who claimed another contributory benefit because, at the time, they were deemed not to be eligible for widowed parent’s allowance, yet they should have been and had they been entitled to WPA they might have been better off. Can the Minister tell us whether the previous benefit payment is off-set against the backdated WPA where this happens? If so, over what period are the payments?

As we have heard, the order has retrospective effect to the date of the McLaughlin judgment in 2018. My noble friend Lord Jones asked some very good questions about how many people will be affected and the global sum involved. To take that on a stage, can the Minister tell us the most that any one person could be due in backdated benefits? I want to know because of the point raised by the noble Baroness, Lady Altmann: if the sum is large enough for someone on modest means, they might want to husband it quite carefully, but if that is the case, they might have some left over when they go into the next financial year because it has been disregarded for only 12 months. If so, they could find themselves penalised and given less in means-tested benefits in the following year because they had this capital sum available. Will they be told that? How will they be warned that this could happen? The other side of the coin—the point made by the noble Baroness, Lady Altmann—is: if they decide to spend it all in the first 12 months, is there any danger that it then gets treated as notional capital because the rules on deprivation of capital hove into view? If the Minister could reassure us, that would be helpful.

The next question is on tax credits. I confess that I am quite confused on this. I was trying to listen to what the Minister said, but I did not quite catch it. Tax credits do not treat capital in the way universal credit does, so I am still not clear as to how any backdated lump-sum payment for WPA will be treated for those on tax credits. I think I heard the Minister say that a backdated payment will be assessed in the year of payment, not the year of entitlement. Can he confirm that? Could he possibly confirm to me now, before I carry on asking questions, whether that lump sum is treated as capital or as income for tax credit purposes? Maybe he could nod if it is capital or if it is income—I am trying to avoid having to intervene to ask the question again when he responds. If it is treated as capital and it is all treated in the year of payment, then it is disregarded and we do not have a problem; if it is treated as income, we do. In which case, can he explain what happens? What is it set against? Is it just the tax credit entitlement in year? Is there any effect from previous years? If this is the case, I assume there is no question of going back and reopening finalised previous tax credit awards. Is there any implication for previous years’ tax credit awards that are not yet “finalised”, in the jargon? Could that happen in any way?

Finally on this point, there is the question of the benefit cap. WPA and BSP both count towards the benefit cap, so it is obviously possible to imagine that a lump sum might take somebody over the benefit cap threshold when an annual entitlement would not have. Will this be affected by the benefit cap, or will the cap be applied retrospectively to previous years by attributing the relevant WPA to each year? What will happen there?

On the money front, there is the question of taxation. As we have heard, BSP is not taxable but WPA is, and in the year of entitlement rather than the year of payment. Therefore, if a lump sum is paid for backdated entitlement, tax is likely to be due on that. Like others, I read the very interesting briefing from the Low Incomes Tax Reform Group. It pointed out that the plan seems to be to pay lump sums gross rather than net of tax, so the obligation then rests on the claimant to pay the backdated tax. I think I heard the Minister say that the Government will flag these cases up to HMRC so that it knows to make an assessment for tax, and I think he said they will flag it up to the claimant so that they know the tax will be payable. Could he clarify that last point in particular? Will they be told what is payable and which tax year it applies to? Many of those people will not have an accountant or any way of understanding this, but they need to know how much of this lump sum to keep to give to the taxman down the line, rather than spending it and then finding themselves even worse off.

--- Later in debate ---

I suspect I have missed out on answering all the questions, but I will look at Hansard, as will my team, and will be sure to answer any questions I have not answered in letter form.

[Baroness Sherlock (Lab)]

I am grateful to the Minister and thank him for the answers he has been able to give. He was unable to answer questions from my noble friend and me about the treatment of the lump sums, which are extremely important. They are at the heart of the way this order will be operationalised. Given that, according to the order, it takes affect the day after it is made, can the Minister undertake to write as quickly as possible?

[Viscount Younger of Leckie (Con)]

The noble Baroness raises a very fair point. I will speak to the team and see what we can do to write a letter quickly covering all the points, not just that particular point.