Public Service Pensions Bill

Lord Eatwell Excerpts

Wednesday 9th January 2013 Lords Chamber

[Lord Newby]

My Lords, this is an extremely long group of government amendments. I preface my remarks with an apology to noble Lords who have taken an interest in the Bill. The letter that I circulated about government amendments was done at an extremely late stage. There is nothing Machiavellian about that: it flows directly from the fact that we are having this debate two days after the end of the Christmas Recess. The Bill team, myself and others were not working over Christmas to the extent that would have permitted us to get the amendments down earlier and inform noble Lords about them. However, I hope that in most cases, if not all, noble Lords will find them helpful and so will forgive me for that.

I start by noting that I will not move government Amendment 3, which relates to Northern Ireland civil servants. On reflection, that amendment is considered unnecessary because Amendment 9 to Schedule 1 does what is needed to remove Northern Ireland civil servants from the scope of the Bill.

In line with the recommendations of the noble Lord, Lord Hutton of Furness, the Bill was drafted to provide a legislative vehicle for the reform of all public service pension schemes in the UK to make them fairer and sustainable. However, legislative competence for some of the pension schemes is devolved to the Administrations in Northern Ireland, Scotland and Wales. We have always been clear that the devolved Administrations would have the final decision as to whether or not the Bill should apply to their devolved pension schemes.

On 26 November, the Northern Ireland Executive announced their decision to bring forward their own legislation to reform the pension schemes of their public servants. These schemes will be based on the recommendations of the noble Lord, Lord Hutton. This will affect schemes relating to Northern Ireland civil servants, the devolved Northern Ireland judiciary and, in relation to Northern Ireland, local government workers, teachers, health service workers, fire and rescue workers, and police and public bodies whose pension provision has been devolved.

On 28 November, the Scottish Executive announced their decision to exclude the small schemes for which they have legislative competence from these reforms. This will affect a small number of members of the junior Scottish judiciary and some Scottish public bodies whose pension provision has been devolved. The Bill will still make provision for Scottish schemes for which Scottish Ministers have executive, but not legislative, competence. These are schemes relating to teachers, health service workers, firefighters, police and local government workers in Scotland. Consequently, I beg to move these amendments that will collectively ensure that the Bill is disapplied from those pension schemes for which the Northern Ireland Executive and the Scottish Government have legislative competence.

Amendments 102 and 109 relate to the Scottish Government’s wish to extend a power in the Police and Fire Reform (Scotland) Act 2012 to enable pension and other benefit schemes to be made for Scottish police cadets and special constables. This will be done by way of an order made under the Scotland Act 1998 which will be laid before Parliament shortly and is expected to commence in 2013. In anticipation of that order, these amendments will ensure that these pension schemes will be included in the reforms legislated for in the Bill. As such, the new pension schemes made for Scottish police cadets and special constables will be reformed in the same way as the other public service pension schemes in Scotland.

The amendments also ensure that any compensation or injury benefit schemes made under the extended powers will not be subject to the reforms. This is consistent with the Bill’s treatment of compensation and injury benefit schemes in other areas of public service, such as the main police schemes. I am sure that noble Lords will agree that such equitable treatment is fair and proper, and I beg to move these amendments to the Bill.

[Lord Eatwell]

My Lords, I am grateful to the Minister for introducing his amendments, and for his apology with respect to their late arrival. It is of course understandable that this comes after the holiday period, although I was slightly taken aback to hear just now that the Northern Ireland announcement was made on 26 November. What has been happening since then? Christmas started a month later. I am very surprised that we now have Northern Ireland effectively removed from the Bill on the day before Committee, and the House not being informed about this when the team apparently knew of it a month and a half ago.

Before commenting on these amendments, I myself apologise to the House for being unable to be here for Second Reading. I am grateful to my noble friend Lord Davies for having stood in on that occasion.

In considering the Bill most broadly, the first thing that strikes one is the list of professions under Clause 1. These people are the very bedrock of our society. It is crucial to ensure that they have the best conditions, including the best pensions, that are affordable. At the same time, we have to recognise the pressures that an ageing society places on pension provision. The key to squaring the circle is trust; this is going to be a theme in discussing all the amendments to come. We need to incorporate into the Bill a framework that provides clear assurance so that people who perform the public services on which we all depend can face the future with confidence. That means that the Government must place clear, unambiguous commitments in the Bill—not vague promises of Ministers—about what they may really intend. Ministerial promises are simply not good enough, because these measures are intended to be long-term. In the long term, Administrations change and no Administration can bind its successor, so in the long term ministerial assurances are virtually worthless. But if future Administrations are faced with clear primary legislation, then change can be made only by returning to Parliament.

It does not assist in the building of trust when the Government table well over 100 amendments on the day before Committee. Most of these—although not all, as the Minister pointed out and I will demonstrate—arise from the refusal of the Northern Ireland Administration to pass a legislative consent Motion in respect of the Bill. In effect, as we have heard, Northern Ireland is being written out of the Bill. It would be interesting to know what Northern Irish colleagues in this House feel about this. Moreover, given that an important objective of the Bill is to manage the cost of pensions, what implications does this last-minute decision have for the public finances? Presumably this will increase long-term deficit projections—by how much?

More importantly, what negotiations are under way with the Northern Ireland Administration about the future shape of pensions in Northern Ireland; and, indeed, with the Scottish Parliament about the future shape of pensions in Scotland; and, indeed, with the Welsh Assembly, which we are told is still to consider the matter? This Bill has passed the Commons and we do not even yet know who is to be included in it because the Welsh Assembly has not reached its decision.

I am astonished that we have this brief note, circulated the night before, with amendments. We have this brief introduction from the Minister when the Bill has been changed in such a radical and fundamental way. What are the Government going to do now about both Northern Ireland and Scotland? What are they going to do about Wales if the Welsh also refuse to pass a legislative consent Motion? Given that the terms of devolution are different in Northern Ireland, Scotland and Wales, the result of all this is going to be a confused plethora of pension conditions throughout the UK—exactly the sort of confused melange that the admirable report by my noble friend Lord Hutton sought to eliminate. Indeed, it was my noble friend’s recommendation 24 that the Government should introduce primary legislation to adopt a new common UK legal framework for public service schemes. This is clearly what the Government are failing to do.

The reference to Scotland is important, because not all the amendments in this group refer solely to Northern Ireland. The Minister referred to Amendment 96, to a “holder of devolved office”. That therefore applies to Northern Ireland and Scotland. Interestingly, the noble Lord did not refer to Amendment 148, which, in defining what a “devolved office” might actually be, excludes Wales. What will happen to Amendment 148 if the Welsh now refuse to accept being included in national procedures? We really ought to be told to whom this legislation is actually going to apply.

Amendments 102 and 109 expressly include Scottish schemes, established under the Police and Fire Reform (Scotland) Act 2012, within the scope of the Bill. Amendment 139 on the approval of new schemes again refers to all devolved Administrations. What does that mean? It certainly does not mean what is defined by Amendment 148, because we do not know what the Welsh are going to do.

What we have here is a bit of a mess. The Minister must tell us how this mess is going to be resolved. How are we going to try to have some degree of consistency in public pension provision in which people can have confidence throughout the United Kingdom? We can go two particular ways. One is to attempt to negotiate an all-UK structure, which has the sort of simplicity and clarity that was suggested by my noble friend Lord Hutton. The Minister should then tell me what negotiations are proceeding to establish that common UK structure, given the devolved responsibilities of the devolved Governments and Assemblies. We should be completely clear that pensions in Northern Ireland are different from pensions in Scotland, different from pensions in Wales and different from pensions in England, and that the relevant authorities have responsibilities for their particular jurisdictions. However, of course, we do not have that. In Scotland, we have a mixture: some pensions are the responsibility of the Scottish Parliament and some are not.

Our Amendment 28A—which noble Lords may have noticed is buried in this group so that it is almost undetectable, but it is there, although the noble Lord did not deign to refer to it in his opening remarks—seeks to make some sense of this mess by recognising that regulations relating to local government workers in Scotland should require the approval of the Scottish Government. I am well aware that local government pensions are a reserved power under the Scotland Act. In the past, as the noble Lord said, Scottish Ministers have had executive responsibility for making regulations for public service schemes, but they require Treasury approval. But these have typically concerned minor matters. There has not been any big issue which has been likely to bring about a significant difference of opinion between the Scottish Parliament and the Treasury.

However, this Bill completely transforms the situation. It is a framework Bill that will be followed by regulations that are very substantial indeed. Moreover, the local government workers’ schemes in Scotland, like those in England, are funded schemes. It is important, given the extensive powers of interference conferred on the Treasury by this Bill, that the Scottish authorities have appropriate responsibility for decision-making on those funded schemes.

Since, as I understand it, the UK Government have not used their reserve power on Scottish local pensions in the past—in other words there has not been any disagreement in the past, although I am quite willing to stand corrected as it is quite difficult to research these things—it is surely inappropriate to do so now. It is surely right that the Scottish authorities should be responsible if we are going to go for this devolved structure of pensions and give up on the idea of my noble friend Lord Hutton’s proposal for a common UK scheme.

Far from being technical, this huge swathe of amendments raises major questions over the scope of this Bill and introduces complexity where there was once consistency. If the devolved Administrations are to have entirely separate schemes, so be it, but make it clear, rather than this hotchpotch of amendments and qualifications. If we are to have a Public Service Pensions Bill, not a “some people in the public service and some others not” pensions Bill, the Government must reach agreement with the devolved Administrations. They must bring back to this House a proper, comprehensive structure so that we can understand the relationship between those schemes that will obviously be national, such as the schemes for the Armed Forces, who are of course servants of the Crown, and those schemes which are to be devolved. If we are to have a common scheme, let us get on with the negotiations and bring the common scheme to this House. Last-minute changes as far-reaching as these are entirely unacceptable.

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[Lord Newby]

The distinction between the very small numbers that I have been talking about and the rest of the public servants in Scotland is that the rest of the public servants in Scotland are covered by the Bill. The schemes established under the Bill for public servants in Scotland were still negotiated in Scotland, but the framework for public sector pensions in Scotland, with the exception of those very small numbers, will be the same as in the rest of the UK. There is devolved power to the extent of the scheme negotiations within the framework of the Bill.

[Lord Eatwell]

In using the word “power” there, is the Minister aware that it will still require Treasury approval?

[Lord Newby]

I shall come to that in dealing with the noble Lord’s Amendment 28A. I did not fail to refer to it in any slight meant to the noble Lord. I thought that it was more courteous for me to allow him to make his case and then for me to reply to it.

Amendment 28A would change the current devolution settlement. I know how much importance many noble Lords across all sides of the House attach to devolution matters, but a Bill on the reserved matter of public service pensions is not, in the Government’s view, an appropriate vehicle for reworking the devolution settlement put in place by the Scotland Act 1998 or for rewriting the long-standing Sewel convention. I hope that I can explain what I mean by this.

Part II of Schedule 5 to the 1998 Act makes it clear that, with minor exceptions, this Parliament has exclusive competence to legislate for public service pensions in Scotland. This includes the local government pension scheme in Scotland. Requiring the approval of the Scottish Government in relation to reserved matters would run counter to the principles of the Sewel convention. In constitutional terms, approval of the Scottish Parliament in relation to primary legislation on Scottish local government pensions is not needed under the convention. Furthermore, as the Scottish Finance Minister told the Scottish Parliament on 28 November, the Bill does not contain any provisions,

“over pensions for local government, the national health service, teachers or police and fire staff—that would trigger the Sewel convention”.—[Official Report, Scottish Parliament, 28/11/12; col. 14014.]

I can reassure noble Lords that, although the Bill sets a legislative framework setting the parameters for pension scheme designs, Scottish Ministers have the freedom to decide on many of the details of scheme regulations relating to Scottish local government workers. This includes how generous the scheme is. The Treasury has not set a cost ceiling for any of the Scottish schemes. The cost of Scottish schemes will have to be met from the Scottish block grant. Furthermore, Clause 3 explicitly states that Treasury consent is not needed for Scottish local government scheme regulations. When pension regulations are made for the Scottish local government sector, the Scottish Government will design the terms of those pensions under the framework of the Bill, and will put them before the Scottish Parliament. That is how legislation on this topic falls to be dealt with under the devolution settlement. It would be a novel and unhelpful step to make the application to Scotland of legislation that is reserved to Westminster, subject to the prior approval of the Scottish Government in the way suggested by this amendment.

I hope that goes some way to explaining to the noble Baroness, Lady Donaghy, what the situation is in Scotland and why it is not for the Westminster Government to set out or agree the details of the schemes. It is for us to set out the framework and then, under the devolution settlement, for the Scottish Government to have negotiations that will lead to detailed scheme provisions.

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Moved by

[Lord Eatwell]

13: Schedule 1, page 23, line 21, at end insert—
“(d) the Defence Fire and Rescue Service”

[Lord Eatwell]

My Lords, I shall speak also to Amendment 15. These amendments concern the position within the pensions system of Ministry of Defence firefighters and police. Clause 9 provides that the normal pension age of a person under the scheme must be the higher of the person’s state pension age or the age of 65, but three categories of workers are exempted from this provision—fire and rescue workers who are firefighters, members of the police force and members of the Armed Forces. Paragraph 6 of Schedule 1 defines fire and rescue workers as being persons employed by,

“a fire and rescue authority in England and Wales … the Scottish Fire and Rescue Service, or … the Northern Ireland Fire and Rescue Service Board”.

However, none of this includes firefighters who work for the Ministry of Defence. This issue seems not to have been noticed in another place when the Bill was considered there. Amendment 13 would rectify this omission by including the Defence Fire and Rescue Service in the definition of fire and rescue workers. Amendment 15 does the same job with respect to Ministry of Defence police.

We should make it clear that we are not seeking to extend the exemptions provided under Clause 9 but merely to rectify what appears to us to be an oversight and to ensure consistency of treatment across the same profession. In my years in this House, it has always puzzled me that when very obvious oversights appear in the middle of the discussion of a Bill, somehow Governments of whatever party think it necessary to defend their original position as if it was an ultimate truth and not admit that occasional oversights are made.

Let us turn to the fire and rescue service. There are two aspects to the job of defence fire and rescue service firefighter. They work at home on domestic military bases and other MoD premises and they work abroad when they are deployed in war zones. In the UK, defence fire and rescue firefighters deal with fires, accidents and floods, and firefighters deployed to war zones deal both with fires and the general catastrophic aftermaths of conflicts. The nature of the work they do—I am sure that the House will appreciate its physicality—is very similar to, if not beyond, that to be expected of a domestic firefighter.

The oversight became evident when the Government were contacted by an MoD firefighter in relation to this issue. In their reply, the Government justified—I was going to say invented—their decision to exclude MoD firefighters from the exemptions in the Bill as follows. First, they said that firefighters are covered by the Principal Civil Service Pension Scheme, and so the benefit structure and contribution rates which apply to MoD firefighters are those of that scheme and not those of the Firefighters’ Pension Scheme. The Civil Service unions accepted an increase in the normal pension age to 65 for all staff joining since 2007 for that general Civil Service scheme. On that basis the Government claimed that MoD firefighters are already subject to the normal pension age of 60 or 65 and so the recommendation of the noble Lord, Lord Hutton, to adopt the new pension age does not apply. The final proposed agreement issued by the Government to the unions on 9 March 2012 includes transitional protection for PCSPS members so that any member who is within 10 years of normal pension age on 1 April will see no change when they retire. However, beyond that there is the proposed tapering arrangement. Although there are many similarities between local authority and MoD firefighters, the Government claimed that the terms of employment, as well as the roles performed, are not identical. Here the Government are correct—the roles performed are more arduous in the MoD than they typically are for domestic firefighters.

During the Second Reading debate, which I had the chance to read, the Minister said:

“The noble Lord, Lord Davies, asked about MoD firefighters. MoD firefighters are in the Civil Service Pension Scheme at the moment. They will have their pension age linked to the state pension age to ensure consistency within the scheme. The Bill does not move any groups from their current schemes. Indeed, these MoD firefighters have always had different terms and conditions from other firefighters. This already includes a pension age of 65 for new joiners as a result of changes implemented by the previous Administration”.—[Official Report, 19/12/12; col. 1585.]

I will make a number of points about the Minister’s statement. First, I am afraid that he misspoke. It is not true that the Bill does not move any groups from their current schemes—it does. Clause 28 closes public body schemes listed in Schedule 10, and the Government have the power to move people from those schemes to schemes established under Clause 1 or to create new public body schemes for them. It is not true that people are not moved from one pension scheme to another in this Bill.

Secondly, there is no reason why the Civil Service scheme rules cannot provide for a different retirement age for MoD firefighters as well as for police. Why can that not simply be put into the Civil Service pension scheme rules?

Thirdly, the fact that MoD firefighters have always had different terms and conditions from other firefighters does not mean that their retirement age should not be aligned with that of local authority firefighters in the light of the recommendation of the noble Lord, Lord Hutton, that uniformed services should have a normal pension age of 60. To quote the noble Lord:

“The exception is in the case of the uniformed services where the Normal Pension Age should be set to reflect the unique characteristics of the work involved. The Government should therefore consider setting a new Normal Pension Age of 60 across the uniformed services”.

MoD firefighters are uniformed, as are the MoD police.

Fourthly, as it stands, the MoD firefighters who have joined since 2007 come under the new rules established then and have a normal pension age of 65, while the rest have a normal pension age of 60. It is true that we on this side of the House, when in Government, introduced the change in 2007, but that was well before the report of the noble Lord, Lord Hutton. In the light of his recommendations, which we accept, all firefighters, including MoD firefighters, should have a pension age of 60.

Finally, in his interim report, the noble Lord, Lord Hutton, said:

“The current public service pensions structure was not designed for modern working patterns and has been unable to respond flexibly to changes in this area and to demographic change over the past few decades. This has led to … unequal treatment of members within the same profession”.

That is what the noble Lord, Lord Hutton, sought to correct. The position of the MoD firefighters is a prime example of the growth of unequal treatment which we now have the opportunity to correct.

It is unfair for firefighters who serve our Armed Forces to have to work for up to seven years longer than other firefighters, remembering that they can—and do—serve in war zones. I hope that the Minister will listen to these concerns, recognise that the physical demands on these firefighters are equivalent to or indeed greater than those on other firefighters, and accept this amendment.

Turning to Amendment 15, I will not repeat all the issues that apply to the MoD police. However, I remind the House that MoD police officers are required to carry weapons and wear body armour in many of the areas in which they serve. The physical demands on them are significantly greater than the demands made on most of our police officers. It is true that some of our normal police officers also carry weapons and wear body armour, although it should be noted that the MoD police often carry heavy machine guns. It seems to me that there has simply been an oversight. Will the Government not own up, say that there has been a slip or oversight here, and accept that MoD firefighters and police, as a uniformed service, should have a pension age equivalent to that of other uniformed services? I beg to move.

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[Lord Newby]

My Lords, these amendments seek to add members of the Ministry of Defence Fire and Rescue Service and the Ministry of Defence Police to the categories of “fire and rescue workers” and “members of a police force” set out in the Bill.

I would like to begin by setting out the current situation before responding to the proposals for change. First, as the noble Lord, Lord Eatwell, pointed out, members of these forces are civil servants who currently, and historically, have access to the Civil Service pension scheme. This scheme currently has a pension age of 65. The principle of working beyond 60 for the MoD fire and police services is already established and has existed for a number of years, while the retirement age for the police and fire services has been well below 60.

Secondly, we should remember that the Civil Service scheme is an extremely good pension scheme with benefits which are far beyond the aspirations of many in the private sector. The scheme has provisions in place to ensure that any individuals who face ill health can be provided with their pension early. Alongside this there is, of course, the option for individuals to retire before their retirement age on an actuarially reduced pension. The value of the Civil Service pension scheme is shown in the fact that DFRS and MDP staffing levels remain good and that individuals in this force have already taken employment on the basis of the package of terms and conditions currently in force. The Government do not believe that there are significant recruitment and retention issues associated with the continued use of the Civil Service pension scheme.

Thirdly, it is worth remembering that the employment status of those working in the Defence Fire and Rescue Service and the MoD Police is very different from those working for fire or police authorities. Members of the DFRS and the MDP are direct employees of the Secretary of State for Defence and their remuneration package is managed in a different way. The kind of changes that are suggested by the amendments would make most sense only as part of a fundamental restructuring of not only the terms and conditions of these forces but their roles and responsibilities and they way in which they are managed. They are currently part of a single scheme that is administered at a national level. There would be significant logistical and administrative difficulties in moving them to be part of a locally administered scheme. The Government do not believe that such a restructuring is a way forward.

Having said that, I should point out that, within the new Civil Service scheme, the flexibility will exist for the impact of the later retirement age to be mitigated for certain groups, should this be felt to be justified. This could, for example, be through fully funded early retirement or more generous early retirement factors.

As the noble Lord, Lord Eatwell, pointed out, these issues were not discussed substantively in another place and the amendments have gone down only in very recent days. However, I can give an assurance that the Government will give these matters extremely careful consideration between now and Report. We are very happy to meet members of the Ministry of Defence Police and the Defence Fire and Rescue Service if they would like to do that. I will be in a position to give a more considered response to movers of the amendments and to the House as a whole on or before Report. I therefore urge noble Lords to withdraw their amendment today.

[Lord Eatwell]

My Lords, I am grateful to the noble Baroness, Lady Harris, for her remarks. I rather pre-empted her discussion of Amendment 15 and I apologise for that. It was, after all, her sensible, balanced and valuable amendment to which we added our names rather than the other way around. I must, of course, accept the Minister’s offer of further consideration. In looking at further consideration, I urge him to put aside the canard of logistical and administrative difficulties. The phrase “logistical and administrative difficulties” is a wonderful excuse for doing nothing on all occasions. As an academic, I recognise that very clearly. It is the doctrine of unripe time: the time is not ripe and therefore we must not do anything. Logistical and administrative difficulties fall into the same pattern.

Nor is the recruitment argument a terribly good one. In this country, where we have 2.8 million people unemployed, it is not hard to recruit people in many professions. The idea that a lack of recruitment difficulties is somehow a justification for maintaining something that is manifestly unfair is not very good. I am delighted that the Government will take this away and consider it. I look forward very much—as, I am sure, does the noble Baroness, Lady Harris—to the Government taking a fair and balanced approach to this issue, which will result in amendments to the Bill that are akin, if not identical, to those we have put down. In the mean time, I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

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Moved by

[Lord Eatwell]

26: Clause 3, page 2, line 10, leave out paragraph (b)

[Lord Eatwell]

My Lords, we now turn to Clause 3, which I believe to be the most unfortunate part of the Bill as drafted. Everything else, broadly, can be dealt with reasonably straightforwardly but this, I am afraid, goes a bit further. The clause undermines everything that was achieved by my noble friend Lord Hutton in building understanding and trust. It would give any Government of the day unprecedented powers over individuals’ property rights—powers which no ministerial assurances or blandishments can dilute.

The damage is all done in subsection (3) of Clause 3. In Clause 3(3)(b), scheme regulations may,

“make provision by amending any legislation (whenever passed or made)”.

It is no wonder that the Delegated Powers Committee of your Lordships’ House objected so strongly. It made the perfectly balanced and reasonable suggestion that Clause 3(3)(b) be limited,

“so far as it confers power to amend primary legislation, to amendments of Acts passed before the end of this session … and to making only consequential provision or provision that is necessary to ensure consistency”.

Our Amendment 26 is designed to do just this by eliminating the offending Clause 3(3)(b) and allowing Clause 3(2)(b) to take the strain of,

“consequential, supplementary, incidental or transitional provision”.

If the Minister has an alternative way of implementing the proposals of the Delegated Powers Committee, we on this side will be happy to support it. However, as the matter stands, the Henry VIII powers in Clause 3(3)(b) really cannot stand.

Of even greater moment is Clause 3(3)(c), which states that scheme regulations may “make retrospective provision”. Just like that: unqualified, unlimited, they may make any retrospective provision, including the withdrawal of previously accrued rights. A central tenet of pension provision is that benefits that have already accrued are deferred earnings and cannot be reduced. To do so would be akin to taking back a proportion of an employee’s wages that has already been paid.

Indeed, it may well be that Clause 3(3)(c) is actually contrary to the European Convention on Human Rights. The Government acknowledge this in the Explanatory Notes, where they say:

“Clause 3: Scheme regulations. This allows for scheme regulations to contain provisions with retrospective effect. Such retrospective changes … may constitute an interference with property within the meaning of Article 1 Protocol 1”.

The noble Lord, Lord Newby, signed the Bill as being not in contravention of the European Convention. It is striking that the Explanatory Notes devote several pages to discussion of this particular issue. Pages 44, 45 and 46 of the Explanatory Notes give detailed legal arguments and case citations on the issue of property rights as protected by the European Convention. Ministers have asserted consistently, both in another place and at Second Reading, that they have no intention of removing accrued rights and that this notion of retrospective legislation will never be used to reduce accrued rights. If that is so, why is there all this stuff in the Explanatory Notes about accrued rights? Why do we have all this material here if it is not relevant because Ministers have no intention? If they have no intention, why is that provision in the Bill?

[Lord Lester of Herne Hill]

I was not expecting to be on my feet at all, but the answer to the noble Lord, Lord Eatwell, is that the Joint Committee on Human Rights, to which I belong, has for many years persuaded successive Governments to be as full as possible in explaining compatibility statements to enable us to scrutinise whether or not those statements are, in our view, accurate. That is why we welcome the fact that any Explanatory Notes are as full as possible in explaining the Government’s view as to whether or not a Bill is compatible with convention rights. I hope that that is a helpful explanation.

[Lord Eatwell]

I am grateful to the noble Lord because he has reinforced my point in a very satisfactory way. My point is that the issue referred to here is the compatibility of the threat to accrued rights. That is what the full statement is about, and that is why I am so interested that the Explanatory Notes deal fully with the question of accrued rights. The noble Lord is quite right to say that the Explanatory Notes are full and comprehensive, but why are they there if accrued rights are not in any way under threat?

I return to the discussion of this issue. As the Bill proceeded in the Commons, the Chief Secretary to the Treasury asserted very clearly that the Government would not reduce accrued benefits, having previously said, in a speech on 20 June:

“I also want to make it absolutely clear that we are fully committed to protecting the pension that has been earned to date”.

That is great, but it is inconsistent with Clause 3(3)(c). When he was asked about the retrospective provisions in Clause 3 by Mark Durkan MP, the Chief Secretary replied:

“The hon. Gentleman will know that the provisions in the clause to which he refers mirror directly those in the Superannuation Act 1972, which this Bill in many cases replaces. It was passed in the year I was born”—

he is younger than me—

“and it has been used by a number of Governments to make adjustments to public service pensions … The provisions to which the hon. Gentleman refers are in fact more limited than those in the 1972 Act”.—[Official Report, Commons, 29/10/12; col. 60.]

However, I am afraid that Mr Alexander misspoke. Section 2(3) of the Superannuation Act provides that accrued benefits can be reduced but only with the consent of affected members. However, the Bill as it stands allows for the reduction of accrued benefits without member consent. As such, it does not mirror the Superannuation Act, as the Chief Secretary said.

Amendment 28 gives effect to the Government’s intention for the Bill to mirror the Superannuation Act 1972 by providing exactly the same protection for members that Section 2(3) of the Act provides. As such, it is difficult to see how the Government could object to this amendment.

I move from the discussion in another place to the debate here at Second Reading. The noble Lord, Lord Newby, said:

“There is a lot of suspicion about this that is misconceived. Pensions legislation has historically contained such powers”—

actually, it has not—

“which have been seen to be necessary for the lawful and efficient operation of the scheme. They are generally used for minor and technical changes, for rectifying errors and making changes for the benefit of members. The intent of the Bill is simply to allow for these minor changes. There is no sinister intent”.—[Official Report, 19/12/12; col. 1584.]

If there is no sinister intent, why is Clause 3(3)(c) maintained in this wide form? Why is there no qualification? If this is indeed the way that pensions legislation has historically contained such powers—and I presume that the noble Lord, Lord Newby, was referring to the 1972 Act—why are there not the same protections for members as those contained in that Act?

It is also worth noting that the noble Lord, Lord Hutton, said:

“In relation to retrospectivity, the Government have a serious problem. We have to be mindful if there are to be DB schemes in the public sector. We know that there are fewer in the private sector, but those 2.6 million people in the private sector who still have access to a defined benefit scheme know for certain, because of the current law that their accrued rights cannot be changed”.

Accrued rights in the private sector cannot be changed unless members give their consent to a change, perhaps to deal with minor technicalities or deficiencies, which would ultimately improve the quality of their scheme. The noble Lord continued:

“The same rules should apply in the public sector. I do not believe that we can have a different set of rules in relation to accrued rights for people in public sector schemes”.—[Official Report, 19/12/12; col. 1582.]

Therefore, the scope of Clause 3(3)(c) is unreasonable, unethical and directly undermines the trust that is essential to the effective implementation of the Bill. Amendment 28 achieves what the Government claim they wish to achieve. If the Minister has another suggestion for better achieving the same goal, we will be happy to support it. However, I ask him: why is Clause 3(3)(c) written in these unqualified, global terms? Why do we have a clause in the Bill that states:

“Scheme regulations may … make retrospective provision”?

That is unqualified. Why is that provision there? Why is it not qualified in the way that it has been in previous legislation? I beg to move.

[Lord Whitty]

My Lords, I have several amendments in the group that all relate to the same issue of retrospection and the way in which there should be consultation and negotiation on any such change.

Like my noble friend Lord Eatwell, I was not here at Second Reading, for which I apologise, but I thought I should make absolutely clear my overall view of the Bill and my approach to it in my amendments. It can be summarised simply: I do not like the Bill. I do not like the campaign that the Government and their media allies have conducted against the public sector workers who serve them, and against their pension entitlements. In many ways it has been a despicable campaign. In more technical terms, I do not like the way in which the Government have interpreted my noble friend Lord Hutton’s recommendations in terms of attempting to achieve a commonality of approach across all public sector schemes—an ambition in which, as it happens, they have singularly failed because we have ended up with a complete hotchpotch of schemes. The history of all these schemes is different. They relate to different sectors, different industries, different patterns of negotiation and different kinds of jobs. It was therefore difficult to get to commonality. Nevertheless, the Government have attempted to reach that commonality and have made a hash of it.

I have sympathy with all public servants who are detrimentally affected, prospectively and currently, by aspects of the Bill. I have sympathy with firefighters, teachers, civil servants, health service workers and so on. I even have some slight sympathy with the judiciary. However, I am going to focus all my subsequent remarks on the local government scheme. One of the differences between the schemes that exist currently in the public sector is that the local government scheme, unlike the vast majority of other schemes, is a fully funded scheme and always has been. It is therefore on a different basis and the Treasury should approach it differently from the way in which it is attempting to approach the other schemes. Ideally, I would like to exclude the local government scheme entirely from the Bill. I recognise we are not at that point, but it would be the more logical outcome.

--- Later in debate ---

[Lord Newby]

I am very relieved to have that qualification. However, I briefly repeat what I said at Second Reading. The schemes that are now going forward, covered by the legislative framework of this Bill, are, in our view, extremely sensible and generous provisions that reflect the importance that the Government attribute to the work undertaken by all the public servants covered by the schemes.

Having got that out of the way, we quite like the amendment of the noble Lord, Lord Whitty. It has the advantage of simplicity and would allow schemes to make minor and technical changes in the interests of efficiency but restrict changes that were materially detrimental to members. The wording that he has used in the amendment and the sentiments contained in it will certainly form part of our consideration of what we ourselves table on Report.

Amendment 28 deals with member consent locks. I should be clear, as my colleague the Economic Secretary was in the other place, that the Government have significant concerns about the consent locks contained in the amendment. We do not believe that this is the right way forward. I have previously mentioned that there are a number of options in terms of how to facilitate retrospective powers, and in our view consent locks are very much at the extreme end of this spectrum. We do not think that it is appropriate to give members, employers or anyone else the power unreasonably to hold each other or the Government to ransom and to inhibit changes for the greater good. There have been some damaging examples of this in the past. Therefore, the application of universal consent locks is not an avenue that we intend to investigate as we develop our amendment on this subject for Report.

[Lord Eatwell]

My Lords, perhaps it will assist the Minister if I point out that this is not a universal consent lock; it refers purely to accrued rights and indeed, as I said, it reflects the Superannuation Act 1972.

I am the chairman of a private sector pension fund; I did not declare an interest because, as this is about public sector pensions, there is no particular interest for me to declare. With regard to the extreme end of the spectrum, we have used consent locks in the private sector while negotiating various reforms of rights and have always found that negotiations with members are fruitful and produce generally positive results. I therefore do not think that so-called consent locks should be seen as extreme; they are simply the fruitful basis of consensual reform of a pension scheme.

[Lord Newby]

I hear what the noble Lord says and I hope that our amendments can satisfy him in this area; I suspect they will do so without having consent locks. However, it will be a good outcome if he is happy at the end.

On Amendment 30, discussed by the noble Lord, Lord Witty, as part of the debate about retrospective powers, our view is that it simply does not do that. Clause 3(5) deals with the generality of Treasury powers and this amendment would loosen up the area that the Treasury would have to consider. The Treasury would not then look at changes to schemes that were revenue-neutral. Our view is that in order to meet the requirement by the noble Lord, Lord Hutton, that we need a greater degree of consistency across the schemes, it would be sensible for the Treasury to look at changes, whether or not they have a financial implication, to try to ensure that we maintain consistency to the maximum possible extent.

Moving to Amendments 116 and 119, which deal with consultation, this takes us back to a debate in the other place about the appropriate statutory consultation requirements for changes in scheme regulations for the new schemes. In the other place the Government set out the reasons why it is not appropriate that primary legislation should require that all consultation on such changes be carried out with a view to agreement. As made clear in the Government’s consultation principles, consultation can have a number of purposes, including garnering views and preferences, understanding possible unintended consequences of a policy or getting views on implementation. The Bill already goes further than those consultation principles, not to mention the arrangements in place for a number of the existing public service pension schemes, in requiring that all changes to scheme regulations would undergo statutory consultation. However, such consultation must be proportionate; it would not be right for us to establish today that all consultation must seek to reach agreement, as that will not always be possible, or indeed the aim of the exercise.

Amendment 119 goes even further, requiring that all changes to scheme regulations should undergo not only consultation with a view to reaching agreement but also a parliamentary reporting process. In the case of changes to the protected elements set out in new subsection (6), scheme regulations could be changed only by agreement. We believe that this is an impractical measure. Changes are required to scheme regulations for the most minor of reasons. Surely it cannot be right or sensible that such an exhaustive consultation procedure be put in place for every such minor instance. Instead, the Government have established a balance in their consultation requirements. Clause 19 puts in place a statutory requirement for consultation. Clause 20 goes further than this and puts in place more onerous requirements for those situations where a future Government may seek to amend the core elements of the new schemes. This already goes further than some feel is appropriate in binding the hands of future Administrations. However, the Government are determined that this protection should remain in order to give confidence to members of those schemes that the Government are committed to the scheme designs that have been negotiated.

Amendment 119 also makes changes to the protected elements set out in Clause 20. These are the core elements of the schemes protected by the extra consultation requirements in the clause. The Government have included the career-average nature of the schemes, member contribution rates and benefit accrual rates in these protected elements, and are convinced that including these elements strikes the right balance between giving reassurance to members and ensuring that schemes are flexible enough to operate in the real world. Finally, Amendment 119 also seeks to require agreement through consultation to any change to the protected elements before such a change could be made.

The Government are committed to the reforms to pensions set out in the Bill and in the separate documents that describe the details of the new schemes that have been negotiated with member representatives. We have put a great amount of time and resource into developing these schemes and have come to what we believe are the right outcomes in the designs that have been established. However, it would be irresponsible and frankly unrealistic for this Government to seek to bind the hands of all future Governments within the next 25 years, as this part of the amendment would seek to do. Instead we have sought to put in place a more onerous process that would cause any future Governments seeking to fundamentally change these pensions to properly consider the impact of their actions and to justify the need for such changes to those affected and to Parliament.

Amendment 120 is intended to be consequential on some of these other changes and would amend the provision in Clause 21 to specify that scheme regulations will be subject to the negative procedure unless otherwise specified. However, the amendments in question do not propose any change to the procedure around scheme regulations, and therefore we believe that the amendment is unnecessary. I hope that in view of the assurance I have been able to give about amendments coming forward on Report, noble Lords will feel able to withdraw their amendments.

--- Later in debate ---

[Lord Eatwell]

My Lords, I am grateful for the support from around the House for the propositions that I advanced with respect to Amendment 26. I am grateful to my noble friend Lord Whitty, who had his own very sensible amendments, to the noble Baroness, Lady Hollins, to my noble friend Baroness Donaghy and to the noble Lord, Lord Newby. Those sympathetic noises and/or general support are most encouraging. I was also delighted to hear sympathy from the noble Lord, Lord Newby, for Amendment 27 and especially Amendment 28. As currently drafted, Clause 33(a) and (c) disfigure this Bill and we look forward with great interest to hearing the Government’s proposals. It would be enormously helpful if there could be a degree of consultation with those Members who have spoken from these Benches as well as, if she wishes, the noble Baroness, Lady Hollins, prior to those amendments finally being tabled. I hope that the Minister will be able to give the commitment that, whether or not there is consultation, the amendments revising these important clauses will be put down at least one week before Report to allow Members to consider what may be quite complex amendments with some care and be able therefore to respond effectively and appropriately on Report.

I am delighted these remarks have received a sympathetic response, and on that basis I beg leave to withdraw the amendment.

Amendment 26 withdrawn.

Public Service Pensions Bill

Lord Eatwell Excerpts

Wednesday 9th January 2013 Lords Chamber

[Lord Eatwell]

My Lords, my noble friend has made some interesting and important points. One of the issues that really need to be faced, on Report in particular, is that in the negotiations that followed the Hutton report, Local Government Employers, the unions and the Government managed to formulate what could be called a “deal” about the way in which pensions were to go forward. Regrettably, elements of that deal do not appear in the Bill. In response to challenges in the Commons, Ministers gave assurances on a number of occasions but, given that this is expected to be a Bill lasting 25 years, covering several Administrations, these assurances should be in the Bill. A deal is a deal and simply going back to assurances is, at least partially, reneging on the deal.

Having said that in support of my noble friend, I will now speak to Amendment 35, which is also in this group. My noble friend Lord Hutton’s report recommends:

“Every public service pension scheme (and individual LGPS Fund) should have a properly constituted, trained and competent Pension Board, with member nominees, responsible for meeting good standards of governance including effective and efficient administration.”

One can understand why my noble friend recommended this given that, as my noble friend Lord Whitty has commented, there are 89 local government pension funds, with over £150 billion of assets under management, as well as the other pension schemes. Clause 1 currently provides for the establishment of a pension board for a scheme but leaves it completely unclear whether there is a requirement for one pension board for each fund in the Local Government Pension Scheme. Under the clause as drafted, it would be perfectly possible to have one pension board for all 89 pension funds—that is not ruled out. The Minister in another place said the combined effects of Clauses 4 and 5 rule this out. I have studied these clauses carefully and have taken advice, and have been assured that they do not rule this out. Indeed, one could have various combinations of boards servicing the 89 LGPS funds and other schemes.

Given that, as the Hutton report says,

“all scheme members deserve to know that their scheme is being properly run”,

it is entirely desirable to make clear in the Bill that a pension board for each pension fund is a prerequisite, both as a measure of efficient management and to give confidence to the members of individual schemes that they have a board that they can identify with and have access to. I will, in due course, ask the Minister to consider carefully taking on board Amendment 35 to give suitable clarity to what is meant by the establishment of pension boards and ensure that there is a pension board for each scheme.

[Lord Newby]

My Lords, the noble Lord, Lord Whitty, has proposed Amendments 33, 36, and 44, which are concerned with ensuring that there is a scheme manager and pension board for each local authority pension fund. The amendments also provide for national pension boards in the Local Government Pension Scheme. Amendment 35, tabled by the noble Lord, Lord Eatwell, raises much the same issue.

Both noble Lords seek assurance that there must be a pension board for each local authority pension fund within the local government scheme. I can reassure them on that point. Police, fire and local authorities will be scheme managers in respect of their part of the pension schemes for those workforces. The effect of Clause 5 is that the scheme regulations must provide for a pension board to assist each scheme manager in that role. It follows that there will be a pension board for each scheme manager.

Noble Lords may say that Clause 4 does not in explicit terms require there to be a scheme manager for each local pension fund, and hence a pension board also for that fund, but that is the purpose of Clause 4(5). The intention is also clear from Clause 5(6). This anticipates that the scheme managers of locally administered funds will be the local authority or a committee of the authority.

Amendment 36 is also concerned with requiring national pension boards to be established in the Local Government Pension Scheme for England and Wales, and the one for Scotland.

[Lord Eatwell]

I ask the noble Lord to return to the point he just made, because it is similar to a point made in another place. There is a scheme manager for each scheme. Clause 5(1) states:

“Scheme regulations for a scheme under section 1 must provide for the establishment of a board with responsibility for assisting the scheme manager”.

That does not suggest that there should be a board associated with each scheme manager. It does not say that, but a board might be just one gargantuan board that serves a variety of scheme managers. I quite understand that the noble Lord is sympathetic on this issue and wishes to assure us that that is what the Government mean but it is not what they say.

[Lord Newby]

My Lords, that is what we mean and I am advised that that is what the clause says. I will look at it again and if there is any further clarification that I can give the noble Lord, I will write to him. I think that we just have a difference of view about what the current provision states.

Amendment 36 would require national pension boards to be established in the Local Government Pension Scheme for England and Wales, and the one for Scotland. We cannot support these amendments but, as the noble Lord, Lord Whitty, will be aware, we have tabled Amendment 45 to deal with that issue, which we will consider in due course. When we do, I hope that the noble Lord will be persuaded of it.

Amendment 115 concerns Schedule 7, which sets out the mechanism to maintain the final salary link for service in the current schemes. The schedule is designed to allow public servants’ final salary benefits to remain fixed to their final salary on leaving pensionable public service, even after they enter the new schemes. This was a key part of the recommendations of the noble Lord, Lord Hutton, and a vital aspect of the reform deal for public servants. The mechanism also includes provisions for this link to be maintained even if the person moves between public service schemes or leaves public service for periods of not more than five years. Again, this is exactly in keeping with what the noble Lord, Lord Hutton, proposed.

This approach allows public servants the flexibility, for example, to take carer’s leave or gain experience in other sectors, without being inhibited from doing so by the detrimental impact on their final salary pensions. This is consistent with a wider objective to modernise public service terms and conditions, and it smoothes movement between different sectors and departments to enable the sort of skills-sharing that is required for a modern-day workforce. Amendment 115 seeks to remove this flexibility for those in the Local Government Pension Scheme by stipulating that the link is maintained only if the person remains in pensionable service for the purpose of the new local government scheme.

I am not sure that the amendment delivers on its purpose but, none the less, I must oppose it on principle. It would leave in place a movement barrier that we wish to dislodge and be inherently unfair to local government workers. It would lead to the unfair scenario where a teacher who moves to local government for a period before returning to teaching would maintain their final salary link, whereas a local government worker who moves to the education sector before returning to local government could lose their final salary link. That would not be right.

I reassure the House, however, that the Bill does not impose any new liabilities on the funded local government scheme while a person is not in local government scheme employment. Under paragraph 2 of Schedule 7, the link applies only where someone who leaves the local government scheme transfers their rights to benefits from the old scheme, and therefore the liability, to their new employer’s final salary scheme.

Amendment 126 seeks to remove local government pension schemes from the powers set out in Clause 23, which allows pension payments to be made outside schemes that will be established under Clause 1. Although the pensions that will be made under the Bill will continue to be among the best, not every last person working in the public sector will want to be part of them. In these circumstances, it is important that alternative provision can be made so that public servants can continue to save for their retirement, where the scheme manager or employer considers this appropriate. The clause therefore allows for pension payments, or other benefit payments, to be made outside the new schemes to people who are entitled to join the schemes made under this Bill.

An example of an alternative arrangement would be the employer making contributions to an individual’s personal pension scheme where that individual is on a short-term contract and does not wish to be part of the public service scheme for just that short period. This is nothing new across public service schemes as a whole. The power already exists for some of the current schemes; for example, in Section 1 of the Superannuation Act 1972.

However, I recognise that there is some concern, expressed by the noble Lord, Lord Whitty, and no doubt shared by others, that these powers may be used to override eligibility for the schemes that will be established under Clause 1. I can reassure noble Lords that the clause will not allow eligibility for the main scheme benefits to be overridden. The scheme regulations will spell out who is eligible to be a member of a pension scheme made under the Bill. This scheme could not be used to remove these eligibility rights. In short, while this clause could allow alternative arrangements to be offered, where these suit an individual’s personal circumstances, it does not allow schemes and employers to make such alternative arrangements mandatory. I hope I have reassured the noble Lord, Lord Whitty, that any fears he has about the operation of Clause 23 with regard to the LGPS are entirely unfounded, and that this amendment is not necessary.

Finally, Amendment 127 seeks to remove the reformed Local Government Pension Scheme from the provisions of the Pensions (Increase) Act 1971. This Act provides for the indexation of pensions in payment across the public sector. The amendment would mean that the provisions of that Act would not apply to the CARE element of the LGPS, instead, indexation of CARE pensions in payment would be linked to the revaluation of active member benefits, which is provided for under this Bill.

I understand that this amendment has been tabled to overcome a perceived problem with the Pensions (Increase) Act, which creates difficulties for uprating pensions in the year the member retires. However, this amendment is both unnecessary and undesirable. It is undesirable in a piece of framework legislation such as this to carve out one particular scheme for special treatment. This is especially the case when the revaluation of CARE benefits in the year of retirement is a calculation that will have to be made by all the new CARE schemes established under the Bill.

Furthermore, it is unnecessary. I am pleased to be able to reassure the noble Lord that the Government already run a CARE scheme: the Nuvos section of the Principal Civil Service Pension Scheme, which makes provisions for civil servants. This issue was addressed when that scheme was introduced, and is dealt with via the scheme rules. Should the noble Lord care to look at the detail of this, I refer him to rule C.9—the retirement index addition—in the 2007 rules for the existing civil service scheme. The reformed schemes set up under this Bill, including the LGPS, will also be able to overcome any technical difficulties with appropriate provisions in scheme regulations. There is no need to make any further provision in the Bill to allow them to do so.

With these reassurances, I hope that the noble Lord will feel able to withdraw this amendment.

--- Later in debate ---

[Lord Eatwell]

My Lords, before speaking to the amendments in this group tabled in my name and that of my noble and learned friend Lord Davidson of Glen Clova, perhaps I may associate myself most heartily with the words of the noble Lord, Lord Sharkey. That should not be surprising as the first part of my Amendment 41 is virtually exactly the same as his amendment, but I must say that he put the argument beautifully. The idea that one could not accept the notion that one-third of pension board members are nominated by members of the scheme seems extraordinary. One-third is a lower limit which should certainly be accepted.

On the pension fund board which I have the honour of chairing there is one independent member; namely, myself. Otherwise one half of the remaining members are nominated by the members of the scheme and the other half by the employer. It is just under 50% because of one independent member. If that can be the case in what is, I hope, a harmonious pension scheme, I do not see why it cannot be appropriate for public sector schemes. The argument that the public sector is widely spread over different locales and can cover lots of different activities is clearly spurious as a private scheme for a very large company would be doing the same thing. That is the argument which was presented in another place, but it has been dismissed by the noble Lord, Lord Sharkey, and he was absolutely right to do so. It really has no substance at all.

I shall deal briefly with the amendments tabled in my name. Amendment 38 is all about transparency and effective governance. Under Clause 6(2)(c) pension boards are obliged to publish information about,

“matters falling within the board’s responsibility”.

As we can see in Clause 5(2), these include compliance with a whole series of aspects of the scheme’s regulations, whether it be an unfunded scheme, a defined contribution scheme or, indeed, a funded scheme with respect to its investment strategy. All the amendment seeks to do is ensure that the financial information associated with the running of the scheme is available to the board members so that they can comply with the requirements set out elsewhere in the Bill. If they do not have all the financial information they need, how can they fulfil the responsibility of ensuring that the scheme complies with regulations and other legislation relating to governance? Surely having knowledge of the financial structure and oversight thereof is key to this. We learnt from the Financial Services Bill that oversight does not mean control of but simply access to information about, so if this Bill is to be consistent with that Bill, oversight here would mean access to information that will allow the board to fulfil its responsibilities.

Amendment 39 similarly is devoted to transparency and requires that a policy governing the appointment of board members should be published. High quality board members are absolutely essential if public service pension schemes are to be well run. It is vital that the process for appointment is clear and well considered. It is therefore important that this is a transparent process so that members are reassured as to the quality of their board members. This will also promote fairness in appointments. Given that under Clause 5(4) scheme managers have an obligation to ensure that board members do not have any conflicts of interest, a clear and open appointment process with established criteria for appointment will aid scheme managers in fulfilling that statutory obligation. All Amendment 39 does is say, “Publish your policy on your appointment so that everybody knows what the criteria are, how they can apply, and so on”.

Regarding Amendment 41, I have already referred to the part which deals with the one-third of board members, and the noble Lord, Lord Sharkey, has put it better than I could. Amendment 41 also includes the requirement that there be one independent member. It is enormously valuable to have independent members, who often have professional expertise, to assist on pension fund boards. The report of the noble Lord, Lord Hutton, made it clear that it would be desirable for pension boards to have independent members. The amendment seeks to ensure that the recommendation of the noble Lord, Lord Hutton, is taken into account.

Finally, Amendment 42 uses exactly the same definition of member nominee and independent board member as the Pensions Act 2004 and provides for a nomination process for board members. In that respect, it simply mirrors the Pensions Act 2004, and in particular mirrors the definition of an independent board member, referring specifically to the nature of their independence. The criteria set out in Amendment 42 are those which we have already accepted for the private sector, and it seems entirely appropriate that they should fit here. These amendments are to provide transparency, which will enable the boards to do their jobs better. Transparency over an appointments process and a nomination process will enable the boards to be better constructed.

[Lord Newby]

My Lords, I begin by speaking to government Amendment 40. It deals with matters related to those that have been raised by the noble Lords, Lord Sharkey and Lord Eatwell. Amendment 40 delivers the Government’s policy commitment for scheme members to be represented on pension boards. Our amendment explicitly requires scheme regulations to provide for members of a public pension scheme, and any connected scheme, to be represented on the pension board. Unlike the amendments proposed by the noble Lords, Lord Sharkey and Lord Eatwell, it does not specify a proportion of board members that must be member representatives, nor does it say how member representatives are to be appointed to the pension board.

The noble Lord, Lord Sharkey, asked whether draft regulations could be made available to Members of your Lordships’ House. I confirm that we will make them available to all Members who have spoken in the debate today. In our view, these matters are rightly left to scheme regulations. In their amendments, the noble Lords have broadly sought to replicate the requirements that relate to boards of trustees in other occupational pension schemes. Amendments 34 and 41 seek to adopt the requirement for at least one-third of board members to be members or their representatives in trust-based schemes. Amendment 42 seeks to adopt a similar process for nominating member representatives to the board.

The noble Lord, Lord Sharkey, asked me to explain our rationale from first principles. I am not sure whether I shall go quite that far back, but I will attempt to explain it. We believe that the amendments fail to recognise the major differences between the public service pension schemes and the trust-based schemes that these provisions were designed for. For example, the effect of Amendment 42 would be to require Norfolk County Council to allow every member of the local government pension scheme in England and Wales, directly or indirectly, to participate in the selection of member representatives to their pension boards. The same would apply to each of the other 88 funds in the Local Government Pension Scheme. This is clearly unintended but it serves to highlight the fact that the public service schemes are indeed different. A one-size-fits-all process for nominating member representatives to pension boards would not, in our view, be appropriate, nor is it appropriate to set a quota. The public schemes are not directly comparable to trust-based pension schemes. The public service schemes are significantly bigger than most occupational pension schemes and many involve multiple and diverse employers. For example, there are over 5,000 employers in the LGPS in England and Wales. Those are not just local councils but also local charities and housing associations. That broad range of interests needs to be represented on the public service pension boards too.

Consequently, our view is that imposing a requirement for one-third of pension board members to be members, or their representatives, could lead to them being the largest interest group on the pension boards. Of course this is not an issue in private sector schemes, where there is often only a single employer to accommodate on the trustee board. The Bill already provides the necessary flexibility for the details to be agreed in each scheme, following consultations with members and other interests. This approach will allow the pension board membership to be tailored to the varying structures of each of the public schemes. The pension boards will then be able to appropriately reflect the range of employees and employers in each scheme. We believe that this is the right approach.

One of the other amendments in the name of the noble Lord, Lord Eatwell, relates to public pension boards having an independent member. The noble Lord, Lord Hutton, did indeed say in his report that it was important that pension boards include independent members. Although we accept that independent members can play a role in pension boards, we do not see a case for mandating each pension board to have such members. The reasons for mandating independent trustees in the private sector do not, in our view, flow through to the public sector schemes. Independent trustees reinforce the separation of pension schemes from the employer in the private sector and, as we have discussed previously, we are not convinced that this is required in the public scheme.

Amendment 39 would require a scheme manager rather than scheme regulations to determine the policy governing the appointment of pension board members. Clause 5 provides that it is the scheme regulations that would provide for the establishment of a board. Within that, schemes are likely to set out the detail of a board appointment process in the scheme regulations. If schemes determine to delegate this matter to scheme managers, then scheme regulations could require the scheme manager to publish these matters. It would be wrong for the Bill to prejudge the outcome of scheme-level discussions about how to best constitute and appoint pension boards in each of the schemes.

Having said that, we agree with the sentiment of the amendment. Pension boards must be transparent and representative of the interests of stakeholders, both members and employers. That is why Clause 6 already requires the publication of details of pension board membership and the board’s responsibilities.

In responding to Amendment 37 from the noble Baroness, Lady Donaghy, I hope she will not mind if I repeat what I said at Second Reading: the Government believe that the Local Government Pension Scheme,

“is fully compliant with Articles 8 and 18 of this directive. We believe this compliance is achieved by the high standard of legal security that applies to LGPS funds and benefits”.—[Official Report, 19/12/12; col. 1586.]

I am well aware that Unison has long argued that the scheme is not compliant with the European directive, and I recognise that it feels strongly on this issue, but we simply do not agree. The reasons why have been set out in a number of letters from Ministers to Unison over the past five years, not just the past two.

The previous Government implemented EU directive 41/2003 through the Pensions Act 2004. As that Act relates to the governance and administration of pension funds, that legislation is therefore already within the scope of Clause 5(2). I assure the noble Baroness that Amendment 37 is therefore not necessary. I hope that she will feel reassured and not press it at the appropriate time.

The final amendment in this group is Amendment 38, tabled by the noble Lord, Lord Eatwell. This amendment was considered in another place and resisted on the grounds that its application would be inappropriate. One of the key concerns that we have with this amendment is that it seeks to give the pension board of a funded scheme responsibility for the oversight of investment management. The existence, performance or level of any local authority pension fund has no bearing on the benefits that members receive.

Economy: Effect of US “Fiscal Cliff” Solution

Lord Eatwell Excerpts

Tuesday 8th January 2013 Lords Chamber

[Lord Newby]

My Lords, I completely agree with the noble Baroness. That is why the Prime Minister has set promoting a US/EU trade agreement as one of his top priorities for the G8, as well as moving forward on other trade agreements, such as that with Canada, which are already a long way down the pipeline.

[Lord Eatwell]

My Lords, will the noble Lord consider answering the Question asked by my noble friend Lord Barnett? He asked what the assessment was of the impact of the fiscal cliff solution on the UK economy. As the noble Lord said, this had led to a 1.7% increase in the fiscal burden on GDP, and the debt ceiling debates in seven weeks’ time referred to by the noble Baroness, Lady Kramer, may add further burdens to the US economy. Is this good or bad for Britain?

[Lord Newby]

Whether it is good or bad for Britain, it is what is happening in the US. What I said in my original Answer was that the estimates, which were published by the ONS at the time of the Autumn Statement, were based on an assessment of what was likely to happen, which is exactly what has happened. The Bill passed last week is having an impact of 1.7% on US GDP. The ONS assumed that the Bill passed last week would have an impact of about 1.7% on US GDP. We factored that into our calculations and the growth forecast produced for this year will be unchanged because what has actually happened is what we thought was going to happen.

Banks: Money-laundering

Lord Eatwell Excerpts

Tuesday 18th December 2012 Lords Chamber

[Lord Sassoon]

My Lords, on the first of my noble friend’s points, I certainly agree that the banks need to get much more intelligent about this matter. I have met in the Treasury senior bankers on the retail or wealth management side of these banks to make precisely my noble friend’s point: namely, that they need to be intelligent about this matter. This must not be a box-ticking exercise. I have made the same point to the chairman of the FSA. My noble friend raises a very important point.

[Lord Eatwell]

My Lords, I believe that this is the last time the noble Lord will appear at the Dispatch Box in his current position. I am sure that the whole House wishes him well in his future endeavours.

Turning to the Question, the FSA rulebook states that the chief executive function is the function of,

“having the responsibility … for the conduct of the whole of the business”.

Indeed, the notion of chief executive responsibility is at the heart of the FSA’s regulatory philosophy. While I understand the concept of the independence of the FSA, given that it has been established that HSBC has committed very serious money-laundering offences, would the noble Lord expect the FSA to implement its own rulebook and would he therefore expect it to take enforcement action against the relevant chief executive of HSBC?

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord Eatwell, for his kind words, but I regret to say that the House may have me at the Dispatch Box again for the Topical Question tomorrow, unless I can persuade a colleague to take it from me. As for HSBC, the FSA will do what it should as the independent regulator in this area. However, it is important that the FSA has agreed a series of additional measures with the HSBC board, including establishing a committee of the main board of the bank with a mandate to oversee matters relating to anti-money-laundering, reviewing relevant group policies, appointing a group level money-laundering reporting officer and having an independent monitor in place to look at the bank’s compliance across the group with UK anti-money-laundering regimes. The FSA has agreed a tough series of measures with HSBC right across the group.

Autumn Statement

Lord Eatwell Excerpts

Wednesday 5th December 2012 Lords Chamber

[Lord Eatwell]

My Lords, I thank the noble Lord, Lord Sassoon, for formally introducing the Statement. In a way, it is a pity that our new convention does not involve repetition of the Statement for there is no doubt that the Chancellor is to be congratulated on the positive morsels that he managed to identify in a very frugal, even miserly, meal.

Three central facts are revealed in this Autumn Statement and the accompanying OBR report. First, the OBR assesses growth this year to be at minus 0.1%. It had expected plus 0.8%, so it is a reduction of about one percentage point. For next year, 2013, it has downgraded its growth forecast from 2% to 1.2%. I fear that next March the ever overly optimistic OBR will be downgrading its forecast once again. Therefore, the growth outlook is rather bleak.

I wish to refer for a moment to paragraph 1.14 of the Autumn Statement, dealing with the sectoral composition of growth in the UK economy. It argues that, if we leave out the financial sector and the North Sea oil and gas sector, the rest of the economy has done comparatively rather well. That is rather like saying that, if we leave out the bowlers, the batting average of the team tends to go up. This is a disreputable piece of analysis and I hope that we will never see its like again.

The second fact revealed in the Autumn Statement is that, compared with the forecast made just last March, the deficit is up in every year of the forecast. Noble Lords may be rather surprised by that assertion because, if they listened to the Chancellor’s Statement, they will know that he seemed to claim the opposite. How can I claim that the deficit is up? I can quote the OBR, which says that,

“policy decisions by the Government and reclassifications have reduced [public sector net borrowing] this year by £16 billion, more than offsetting forecast changes which overall have pushed borrowing up £4 billion”.

I repeat: policy decisions and reclassifications—in other words, fiddling the figures.

What does this fiddle consist of? The main component in padding the numbers is the asset purchase facility transfer of £11.5 billion from the Bank of England to the Treasury. In principle, this seems okay—after all, we are told that the Japanese and the Americans do it too—but what is striking is that no allowance has been made for the requirement expressed in the letter from the governor agreeing to this transfer that, if and when interest differentials change, the Treasury must pay the money back. Will the noble Lord tell us what contingency has been made by the Treasury for transfers back to the Bank in the next five years and what impact this contingency might have on the deficit?

The third fact that is clear in this Autumn Statement is that the end of austerity has been postponed for another year. The noble Lord, Lord Sassoon, has referred us before to his belief that the deficit programme is a five-year rolling programme. So every year the end of austerity is always five years ahead. Like middle age, it retreats before you. Now it has been extended from 2017 to 2018. Under this rolling programme which always extends, austerity will always be with us and it is clear why. We are travelling in the wrong direction, away from growth and away from debt reduction. Surely now is the time to ask why. Why are the British people being subjected to this unending economic misery that is not only cutting living standards now, but as the OBR points out, will cut living standards in the future as productive potential is undermined by low investment and the corrosive impact of unemployment?

In the realms of economic policy there are two entirely different approaches to cutting public indebtedness. The Government’s approach is based on the belief that eliminating the deficit is necessary to produce growth: austerity is the necessary precursor to recovery. Noble Lords will remember that there was even a new expression coined for this approach, “expansionary fiscal consolidation”—a term that seems to have been dropped from government usage in the past year or so. The idea was that cutting the deficit, aligned with a supportive monetary policy—that is, low interest rates—would restore business and consumer confidence, stimulate spending and set the economy on the road to recovery. For the past two and a half years, the UK economy has been the guinea pig on which this theory has been tested. The result: interest rates in a no-growth economy are predictably roughly zero in real terms, but ever looser monetary policy is producing ever less discernible results. Indeed, there is now no discernible result.

Has business confidence returned? The OBR says:

“Lack of confidence regarding the outlook for global and domestic demand is leading firms to postpone investment decisions”.

Has household confidence returned? The OBR states:

“Our forecast for real household disposable income growth is weaker than in March”

It adds that this,

“is expected to constrain household spending”.

So if households are not spending and businesses have no confidence and are not spending, where is the recovery to come from? Net trade has a negative impact on the economy as markets overseas stagnate and the Government are cutting net spending, so making things yet worse. The experiment has failed and the British people are paying the price of the failure. The plans to spend something on infrastructure are welcome after the savage cuts of the past two years, but notice that government investment was down 20% last year and another 9% cut is forecast for this year. The infrastructure plans are a drop in the ocean. Even their impact on demand is offset by the fact that they are to be funded by cuts elsewhere.

On top of all this, the Funding for Lending scheme is not working and the Work Programme is not working. No wonder that in summing up the whole impact on growth of the policy measures in this Autumn Statement, the OBR says they have,

“a limited impact on our economic forecast”.

All the Chancellor’s rhetoric about growth signifies nothing. The Chancellor indicated in the Statement that he intends to make significant cuts in benefits for those out of work, on top of cuts to welfare expenditure announced earlier this year in the Budget. Unfortunately the data supplied in the Autumn Statement do not include the analysis of the distributional impact of policy measures as do Budget documents. Could the noble Lord tell us what is the net impact of the measures announced today on the lowest decile of income recipients?

The most extraordinary aspect of this Autumn Statement is that the Chancellor has implicitly recognised that his policy has failed but is continuing with it none the less. If the policy was working, if expansionary fiscal consolidation had a shred of credibility left, instead of extending austerity to 2018 he would be doing more of it now—let us get on with it, get it done and put us on the road to recovery—but he has lost the courage of his convictions and not found the courage to admit the failure of his policy. There is another way, another approach to cutting the deficit, and that is by stimulating growth that cuts the deficit, not cutting the deficit and hoping that growth appears.

However, growth depends on confidence in growing demand. It requires a substantial infrastructure programme; investment in education and research; substantial reform of the banking industry to deal with the difficulties identified the other day by the governor; and a British investment bank to lead the way in funding the investment that demand would stimulate.

The dreadful growth figures and the slowness of the recovery comprise the worst economic performance of our economy in attempting to come out of recession for more than 100 years. We cannot go on like this. The Government must recognise that their core policy has failed and have the courage to face that fact.

Financial Services Bill

Lord Eatwell Excerpts

Wednesday 5th December 2012 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, in most cases the legislation places duties, powers and obligations on the Bank as an institution. The Court of Directors is responsible for managing the Bank’s affairs. In practice, the Court of Directors, in a similar way to other governing bodies, delegates the vast majority of the Bank’s day-to-day decisions to the executive, with the court itself taking only the most important strategic decisions. There are, however, some instances in the legislation where the duties, powers and obligations are placed directly on the court. For example, the court is responsible for determining the Bank’s strategy, including its financial stability strategy, and it also has the power to delegate additional functions to the FPC.

On Report, the noble Lord, Lord Eatwell, and I discussed whether the court would take the decision whether or not to withhold from publication a report of the oversight committee. I stated clearly that I would expect a decision of this importance to be taken by the court rather than to be delegated to the executive. However, in the light of that debate, I asked my officials to look right through the Bill again to see whether there were other key decisions for which responsibility should lie unequivocally with the court. This group of amendments is the result.

Amendments 4, 5, 6 and 7 confirm that the court will decide whether oversight committee reviews should be withheld from publication in order to protect the public interest.

Amendments 1, 12 and 26 to 31 make the same change to confer a number of other responsibilities directly on the court. These are the power to delegate additional functions to the oversight committee, responsibility for being consulted on the PRA’s strategy, and the power to appoint non-executive members to the PRA board.

Amendment 25 puts beyond all doubt that the court may not delegate any functions that are explicitly given to it in legislation. I should make it clear that this does not mean that all functions that the legislation confers on the Bank will automatically be undertaken by the executive. The court will of course retain discretion either to delegate these roles to the executive or to reserve those decisions for itself. However, I believe that these amendments provide important clarity by identifying those roles within the legislation that will be the responsibility of the court in all cases. I beg to move.

[Lord Eatwell]

My Lords, I am very grateful to the noble Lord for having clarified some obscurities in the Bill that arose from the use of the generic term “the Bank” to refer sometimes to the court and sometimes to the executive. However, the noble Lord has just said something which has disturbed me. He said that, for clarification, when the term “Bank” is used, this does not necessarily mean the executive; it may mean the court. It seemed to me that he was acknowledging that an uncertainty remained. Perhaps I misheard. I should be very happy if I did, because the sort of clarification that he has set out is very welcome.

[Lord Flight]

My Lords, there is one area in this territory on which I would appreciate some clarity. The principle of returning the oversight of banks to the central Bank, which I think has been widely supported, has, to my mind, always been about the concept that the central Bank ought to be in regular contact with banks, that it ought to know what is going on and that it ought to be able to head off practices that are clearly potentially damaging to the banking system. However, I am not clear how the staff of the Bank and the staff of the PRA will interact. One would have thought that quite often it would be the staff of the Bank who were having regular dialogue with banks and learning what was going on and what might be going wrong, but it is the PRA—to some extent a sort of cuckoo plopped into the middle of the Bank of England—that essentially has the legal tasks. Therefore, we have clarification of the definitions of “Bank” and “court” but below what I call the executive level I am still not entirely clear where the staff of the Bank or the staff of the PRA will be carrying out supervisory activities.

--- Later in debate ---

[Lord Eatwell]

Just for clarity, the noble Lord said that it is the responsibility of the directors—that is, the court—to decide who takes the various decisions. I presume what he has said does not apply to the Monetary Policy Committee?

[Lord Sassoon]

Indeed. I should say that it is subject to what is laid down in statute about the Monetary Policy Committee and the Financial Policy Committee and so on. If they are decisions of the Monetary Policy Committee, then they are the decisions of the Monetary Policy Committee. If they are the decisions of the Bank, the court will decide how they are taken. As for the question from my noble friend Lord Flight, of course it will be the PRA staff who will supervise and lead on the direct relationships with the banks or insurance companies, for example, that are being supervised. Technically, the PRA staff will be seconded from the Bank. There will be a close working relationship, which is part of the benefit of bringing it all together under the one umbrella.

--- Later in debate ---

[Lord Newby]

My Lords, Amendment 11 responds directly to a request made by the noble Lord, Lord Eatwell, on Report. On hearing my noble friend Lord Sassoon’s explanation of the underlying purpose of the FPC’s reviews of its live actions—namely, to consider whether they are still necessary and whether they should be removed or revoked—the noble Lord, Lord Eatwell, responded,

“if that is what the new section meant, why did it not say so?”.—[Official Report, 6/11/12; col. 978.]

I believe that the purpose of the reviews could have been derived implicitly from the clause as it was originally drafted. However, I accept that this could be made more explicit in the clause, and Amendment 11 seeks to do exactly that. This is a straightforward amendment, which responds directly to concerns raised in this House about the clarity of the drafting. I hope that noble Lords can support it. I beg to move.

[Lord Eatwell]

My Lords, I am grateful to the Government for having taken on board the fact that there was some infelicity in the drafting at this point. I am delighted to support the amendment.

Amendment 11 agreed.

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[Lord Fraser of Carmyllie]

My Lords, I declare an interest as a director of ICE Clear Europe, and I warmly welcome this extremely valuable amendment. It seems to go wider; noble Lords may think that it is a narrow amendment, but they have no idea what a sense of confidence it has given to the City at this time. I regard that as very important.

During the 1970s, we generally regarded the Foreign and Commonwealth Office as having the function of managing orderly retreat. Now we have absolute confidence that within the Treasury there is a very clear understanding that it will look after the best interests of the City of London and the pre-eminence of the City. It is a difficult task and I do not underestimate how important that is. The amendment is to be warmly welcomed. Noble Lords may think that it is minor, but it does a great deal more than simply to change the position of the clearing house and the direction.

I have one simple question, and I will not be worried in the least if the Minister slaps me down. Amendment 20 says,

“to accept a transfer of property, rights or liabilities of another clearing house”.

Does that refer only to a clearing house that still operates as a going concern? Frankly, I would regard that as unlikely. It is much more likely that the Bank of England would want to intervene at a point when it was in administration or in the process of liquidation. If I am told that that line encompasses all those particular circumstances, I will be more than happy to be told to shut up.

[Lord Eatwell]

My Lords, perhaps I may simply elaborate a little on the question posed by the noble Baroness, Lady Kramer. Given that there is not to be a transfer of obligations between platforms, and given that the collapse of a platform could impose significant systemic risk on the economy with a large number of unclear positions, are we to understand that the lender of last resort will be required to stand behind a collapsed platform?

[Lord Myners]

Perhaps I may also ask a question following that of the noble Baroness, Lady Kramer. The concept of interoperability is very important in the clearing of derivatives, so that corporates in particular can offset a position with one platform where they have a credit with another platform where they have a deficit. Will the Minister clarify that that involves a degree of mutualisation in the event of a failure of a platform because the failure of that platform will transfer to other platforms?

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[Lord Sassoon]

My Lords, Amendments 33 and 34 concern the new power provided for by this Bill for the regulators to disclose the fact that a disciplinary warning notice has been issued. We have of course already discussed this new power and the safeguards to which it should be subject in quite some detail. I am speaking to these two amendments again only because, as a result of being erroneously assigned on the day’s Order Paper, they were not moved on Report on 26 November. I am grateful to the noble Baroness, Lady Hayter of Kentish Town, for being the first to spot this. So to be absolutely clear, these are simply Amendments 97ZA and 97ZB—as they were—retabled from the Report stage.

To remind your Lordships briefly, Amendment 33 brings the decision to disclose the fact that a disciplinary warning notice has been issued into the list of matters subject to the procedures set out in Section 395 of FiSMA. Amendment 34 sets out the criteria with which the process for deciding to disclose a warning notice must comply, noting that the decision must be taken either by a person other than the person by whom the decision was first proposed, or by two or more persons not including the person by whom the decision was first proposed.

The amendments secure the involvement of the Regulatory Decisions Committee, or an equivalent body for decisions, to disclose the fact that warning notices have been issued. It is a proposal that the House supported and endorsed when we debated it last week.

This group of amendments may be the penultimate time that I will speak on the Bill during its passage through this House. With this in mind, perhaps noble Lords will permit me to conclude this debate by reflecting a little on the past months since our lively Second Reading debate on 11 June. It was so long ago that the England football team was still in the European Championship and preparing to play France as we were kicking off our consideration of the Bill. Of one thing we can be certain: the performance of this House on this Bill was rather better, I regret to say, than the performance of the England football team.

I believe that the Bill that we are sending back to another place is greatly improved from the Bill that we debated at Second Reading in June. That is due to the very constructive contributions and engagement from noble Lords right across the House, not least from the Bishops’ Benches, and I pay tribute to all who have contributed to those debates. No other legislative house in the world could have brought to bear such expertise in financial services and their regulation as this House has on this Financial Services Bill.

As I need to keep my closing remarks brief, I can only apologise for not naming individually the many noble Lords who have made important contributions to our debates. However, I would like to thank the opposition Front Bench—too many of them to name—led so ably by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter of Kentish Town. They have shown real tenacity and skill in their contributions. We have not always agreed with the points that they have made, but I have always valued those points and would like to thank them for their constructive and thoughtful approach throughout.

I thank, too, my noble friends Lord Newby and Lord De Mauley for the support they have given me, not least in calming down the House when it seems to have got rather excited by some of my contributions. This has been a long Bill, and it would not have been possible to provide the level of response that the House has rightly demanded without the able assistance of my noble friends.

I should also mention and thank the Bill team, which has worked continuously to provide support to the House throughout the stages of this Bill. It has done an outstanding job, which has been widely and rightly acknowledged. The excellent work of the parliamentary counsel in drafting the Bill and the subsequent many amendments to it deserves special praise.

I believe that we have significantly improved this important Bill in key areas. We have enhanced the governance of the Bank of England; given economic growth a higher priority in the new regime, for the FPC, FCA and PRA; significantly improved the robustness of the UK financial system by bringing investment firms, recognised clearing houses and holding companies within the special resolution regime; responded to industry concerns, in particular over the new warning notice power; offered consumers better protection, particularly in relation to payday loans; and, in the LIBOR clauses, moved swiftly to tackle the shameful behaviour of some in the industry.

The Government have listened carefully to the views of noble Lords and the amended Bill reflects many of the concerns of this House. The Bill will be an important addition to the statute book, and one that has been greatly improved thanks to your Lordships’ expertise. I beg to move.

[Lord Eatwell]

My Lords, I rise not with respect to the amendment but to reflect on the latter comments of the noble Lord, Lord Sassoon. As he said, the Bill began its somewhat laborious journey with its First Reading back in May. The process has been extraordinarily laborious considering that it was a politically non-contentious Bill. We should perhaps learn some lessons from this. The main lesson is that, if there is pre-legislative scrutiny, a valuable process that we introduced, more notice should be taken of the conclusions of that scrutiny than is evident in the Bill before us. I refer particularly to the advice from the Treasury Select Committee that a new Bill be drafted rather than that we rely on the complex structure of amendments to prior legislation that we have had to wade through over the past several months.

Given the weighty nature of the work that we have had to deal with, it is appropriate to thank those who have been involved with the Bill. I add my thanks to those of the noble Lord, Lord Sassoon, to my noble friends Lady Hayter, Lord Davies, Lord Stevenson and Lord Tunnicliffe. I also thank Mr Whiting and the Bill team, who have been helpful and courteous throughout, and the noble Lord, Lord Sassoon, for dealing with often complex matters and, occasionally, defending the indefensible with his usual good humour. Finally, in thanking individuals, I must thank Miss Jessica Levy, our talented and all-knowing researcher.

Effective regulation at the macro and micro level of systemic risks and the risks associated with individual firms is in the interests of households and industry and is essential for the success of the UK financial services industry. Therefore, we on this side wish this Bill well. I hope that the measures over which we have laboured will prove a success.

[Lord Barnett]

My Lords, I cannot let the Bill pass without saying a few words. I described the Bill as “shambolic” and was told by an old friend—a normally good friend who happens to be a former Conservative Cabinet Minister—that he was surprised that I was so political in using that unusual expression. I apologise to the noble Lord, Lord Sassoon, and the House. I could not think of a better word to describe what was in the Bill and what had happened.

My main concern with the Bill is the very principle of giving such huge powers to the Bank of England—and they remain. It is the principle that worries me. We have given huge powers to the Bank of England. We have added to the Bank of England Act, as I mentioned earlier today. We have given the Bank powers over the OFT, FCA, FSA and PRA, and over changes in FiSMA—so many different initials that one forgets precisely what we did do. We amended a lot because there was a lot to amend, because unfortunately these days, under both Governments, the House of Commons guillotines so much that very little gets done properly. Legislation comes to this House for amendment and we amend it well, I am happy to say, as we did on this occasion.

My worry is that we started off with an unusually large Bill: two volumes of clauses and schedules. It was so big and it has become even bigger because we put in provisions dealing with the LIBOR scandal. This should have been a Bill on its own. We on this side of the House rightly agreed with the changes resulting from the Government’s acceptance of the Wheatley report. These provisions dealt with it properly and the Opposition accepted them, but they did not just come forward in a Bill; they came forward scattered in amendments throughout the Bill. I hope that it deals with the LIBOR scandal but it is difficult to tell if it really did, because on top of all this we are now told that there will be secondary legislation as well. I regret to say that we do not understand what we have passed here, because we still do not know what is going to happen.

I hope that we have done the right thing and that everything is going to work out, but the plain fact is that, with the LIBOR scandal, there were some in the Bank of England, the FSA and many other bodies whose main concern was primarily with interest rates. They knew nothing whatever about what the noble Lord, Lord Sassoon—I nearly said “my noble friend Lord Sassoon”; I feel he is that—was talking about. He described this LIBOR scandal as a global one, affecting some $300 trillion. It affected all that, but nobody in the Bank of England or the FSA or anybody else knew the slightest thing that was going on in the LIBOR scandal. Therefore, I would like to finish by asking the noble Lord, Lord Sassoon, a question.

Financial Services Bill

Lord Eatwell Excerpts

Wednesday 28th November 2012 Lords Chamber

Moved by

[Lord Eatwell]

107AA: Clause 57, page 141, line 8, at end insert—
“( ) The first case requires the Bank of England, FPC, FCA or PRA to provide the Treasury or the Secretary of State with an early warning of the possibility that a notification of a material risk to public funds may be given, and full information about the circumstance.”

[Lord Eatwell]

My Lords, this set of amendments is inspired by the words of the noble Lord, Lord Sassoon, in Committee. He said:

“It is clear that the success of the new regulatory structure, which, rightly, we are spending so much time debating, relies heavily on the relationship between the Treasury and the Bank of England, and I believe that the Bill provides the necessary clarity of responsibilities. However, it also depends on the personal relationships at play here, particularly between the most senior leaders of the two bodies—the Chancellor of the Exchequer and the Governor of the Bank of England. One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level during the previous decade”.—[Official Report, 10/7/12; cols.1051-2.]

The noble Lord’s words are an important warning to us all, in considering this part of the Bill, on the relationship between the Treasury and the Bank of England at times of crisis. That relationship will depend not only on the personalities involved, but on the statutory responsibilities which the Bill places on those personalities. This group of amendments is intended, in some parts, to extend the statutory responsibilities of the Bank and the Treasury; but, most especially, to clarify those responsibilities, so that the failures which we saw under the previous arrangements, which were due to the principals in the tripartite structure not actually meeting for a decade, will not recur.

Amendment 107AA requires the Bank to give early warnings to the Treasury of a threat to public funds. At the moment, the Bill refers to the possibility of a threat to public funds, which must be immediately notified. However, I think that this notion of possibility is far too vague. Suppose that the Bank thinks there may be a catastrophic event, with a probability of 5%. Is that a possibility? But then, what if the probability is 1%—is that a possibility? What if the probability is only 0.5%—is that a possibility? In our view, a full, continuous exchange of information between the Bank and the Treasury, and the addition of a requirement of an early warning, does just what is needed. It ensures that the Bank is required to convey the information when it first has any indication of a threat—let alone any notion of possibility, whatever “possibility” might mean. If we incorporate the idea that the Bank must give early warning to the Treasury as soon as it knows what is going on, or has some inclination of a threat, without fussing about whether it is “possible” or not, then information will flow in an appropriate way.

--- Later in debate ---

[Lord Newby]

My Lords, this group of amendments was debated at length in Committee. I am sure that, like the noble Lord, Lord Eatwell, many of us were indeed inspired by the way that my noble friend Lord Sassoon sought to reject them. Amendments 107AA and 107AB, and Amendments 107AD and 107AE, attempt to create an early warning system for public funds notifications. I understand that this reflects a concern on the Benches opposite that the drafting of the Bill—specifically, the legal effect of the term “material risk”—does not require the Bank to notify the Treasury in enough cases, even those in which there is a very low probability of public funds interventions being required.

After our debate in Committee, my noble friend Lord Sassoon asked Treasury officials and legal advisers to look again at the material risk wording to make absolutely clear that it delivers the low bar that we are looking for: a possibility test rather than a probability test. Our officials have concluded that the legal effect of the existing wording is indeed to require the Bank to notify the Treasury where there is a realistic possibility of circumstances arising in the future in which public funds could be put at risk. I do not think it would be appropriate to lower the bar even further from “material risk”. The result of doing so would be to require the Bank to notify relatively trivial and implausible risks, which could mean the Treasury receiving a large number of notifications of far-fetched risks that require no action or engagement from the Treasury whatever. I am satisfied that the material risk terminology will give us the right result.

Let me reassure the House that I agree entirely that the Treasury must be informed well in advance of a risk to public funds crystallising in order fully to consider and evaluate different options for managing or mitigating the risk and, ultimately, with a view to avoiding entirely any recourse to public funds. As my noble friend Lord Sassoon said in Committee, no one would be keener than us to have an early notification mechanism in place if we believed it necessary to achieve this aim. However, I am confident that the existing trigger in Clause 57 already sets the very low bar that we need.

The other aspect of these amendments is to extend the duty to notify to the PRA, FCA and FPC. I feel strongly that diluting accountability in this way would be a mistake. As we saw with the failed tripartite system, the clear disadvantage of spreading responsibility across several different organisations is that each can blame the others when things go wrong and risks can fall between the gaps. I believe that the system set out in the Bill, which makes the Bank the single point of responsibility for financial stability and crisis management, is the correct approach to eliminate confusion and overlap and ensure that the Treasury is always informed of risks to public funds.

In a similar vein, Amendments 107AC and 107AF seek to add references to risks to the objectives of the PRA and FCA into the notification duty. I can reassure the noble Lord that any risks that arise in the spheres of responsibility of the PRA and FCA that could potentially pose a threat to public funds must be notified to the Treasury by the Bank in the normal way. As was made clear in Committee, the duty to notify the Treasury of risks to public funds will require the Bank and its senior management to identify and evaluate risks emanating from all parts of the financial sector, working closely with the PRA and the FCA. The Bill itself places duties on the PRA and the FCA to co-ordinate with the Bank in this work. New Section 3P(1)(b) of FiSMA, as inserted by Clause 6 of the Bill, requires the regulators to take steps to co-operate with the Bank in connection with its duty to notify the Treasury of risks to public funds. We believe that that is an adequate provision.

Amendment 107AG would add “comprehensive” to the requirement that the crisis management MoU make provision regarding the obtaining and sharing of information. I do not quite see what “comprehensive” would add. Surely the most sensible approach here is for the Treasury and the Bank to agree between themselves what information the Treasury would find useful, including the format of the information and its frequency. That is exactly the approach taken in the MoU. Paragraph 18 makes it clear that the Treasury and the Bank will determine between themselves a suitable frequency for updates on each different risk, reflecting the severity and immediacy of the risk to public funds. Paragraph 21 states:

“The Bank will provide the Treasury with information needed on the options for managing the situation, including on options commissioned by the Treasury”.

I therefore do not think that Amendment 107AG is necessary.

Amendment 107AH attempts to turn the MoU into a piece of secondary legislation, subject to parliamentary approval via the affirmative process. I agree with the noble Lord that the MoU is a very important document, which sets out how the Bank and Treasury will interact in a crisis, to a level of detail and in a style that simply would not be possible in legislation, either primary or secondary. Having looked again at the MoU, I continue to believe that its content and style make it unsuitable for inclusion in secondary legislation. I would be loath to lose the level of nuance and detail that is currently included in the draft MoU but which is not legislative in nature. It would also make the MoU less flexible and make it more difficult for the Bank and Treasury to adapt or change the MoU to reflect changing circumstances. On the basis of these explanations, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Eatwell]

Will the Minister explain why he always qualified the notion of “threat” as a threat to public funds and failed to accept the argument of serious threats to the financial system that do not necessarily pose a direct threat to public funds?

[Lord Newby]

The reference in the Bill to public funds goes to the heart of the Treasury’s responsibility vis-à-vis the regulators in managing the financial services sector, and we have been very clear that we want to do that. On the more general issues that the Bank may want to raise with the Treasury, which go beyond a risk to public funds, the Bank and the Treasury are in regular contact via non-statutory routes, as it were, which give ample opportunity for the two to discuss at great length and with great frequency any emerging issues that they feel the other should be aware of.

[Lord Eatwell]

My Lords, we have seen a display of remarkable complacency from the Minister, even in his final remark suggesting that the Bank and the Treasury can informally arrange regular contact. I remind him that the head of the FSA and the head of the Bank did not meet for a decade within the tripartite structure. Now we are going to have a structure of not just three regulators but five or six regulators and he is not even willing to contemplate ensuring a statutory requirement for them to provide a suitable exchange of information.

I am sure that the noble Lord’s officials assured him that the term “material risk” was satisfactory. It would not be surprising as they drafted the legislation. It would be nice to hear that some independent opinion had been taken. He said that our amendments would lead to the Bank notifying “trivial and implausible risks”. Yes, trivial and implausible risks, such as credit default swaps, might fail to transfer risk. Those were trivial and implausible. There was the trivial and implausible risk that an economy of just 2% of the eurozone—the Greek economy—would lead to stagnation in the whole zone. There is another trivial and implausible risk.

The extreme complacency being displayed by the Government over these arrangements really beggars belief. With respect to the amendment which would insert the word “comprehensive” before “sharing of information”, “Oh, it’s unnecessary. We know that they will exchange all the necessary information”—just like they did not do in the past. Why can we not create a proper statutory requirement when there has clearly been such a deficiency in these procedures in the past? That, after all, is what this Bill should be for.

Having said that, and I hope having established some matters for discussion at Third Reading, I beg leave to withdraw the amendment.

Amendment 107AA withdrawn.

--- Later in debate ---

Moved by

[Lord Eatwell]

107AG: Clause 64, page 145, line 3, after “and” insert “comprehensive”

--- Later in debate ---

[Lord Eatwell]

My Lords, Amendment 107AG is very simple. It seeks to insert the word “comprehensive” before “sharing of information”. The very least we can do to ensure that there is proper exchange of information between the Bank and the Treasury, particularly given the comments by the Treasury official that such information exchange does not take place, is to take this amendment seriously. I should like to test the opinion of the House.

Bank of England

Lord Eatwell Excerpts

Monday 26th November 2012 Lords Chamber

[Lord Eatwell]

My Lords, I thank the noble Lord, Lord Sassoon, for repeating the Chancellor of the Exchequer’s Statement, and I commend the Chancellor and the Government on their choice of the new Governor of the Bank of England, Mr Carney. Perhaps the noble Lord could let us know why the Government have brought forward the announcement of this post, which we were told on several occasions by the Treasury would be included in the Autumn Statement. What motivated the decision to bring the announcement forward?

We have been discussing the role of the Governor of the Bank of England extensively during the passage of the Financial Services Bill, which is before your Lordships’ House right at this moment. One of the issues that have dominated our discussion of the role of the governor is the extraordinary number of responsibilities which are going to be heaped upon him by this Bill. The Chancellor has said that Mr Carney will maintain his position as chair of the Financial Stability Board, which is also a very onerous job at the very centre of international financial regulation, especially innovation in financial regulation. Are the Government really content that it is appropriate for all these tasks to be heaped upon one individual or have they received assurances from Mr Carney of plans to spread the load somewhat among his deputy governors when he actually assumes these very heavy responsibilities?

In this respect, I wonder what commitments the Governor-elect may have given with respect to the future organisation of the Bank to ensure that it is properly accountable in a way that the Financial Services Bill, which is before us, does not ensure? For example, have the Government examined the structure of accountability of the Bank of Canada? They would find that there are much more rigorous procedures in place than those that we are currently putting in place for the Bank of England.

We on this side are delighted that Mr Carney has requested that he have a pre-commencement hearing before the Treasury Select Committee. Do the Government now recognise that this should be a standard form for senior appointments of this type at the Bank and, indeed, at the major regulators being put in place by the Financial Services Bill?

The Government will be aware that in August Mr Carney was asked whether he was a candidate for the governorship of the Bank of England. He replied, “No, never”. Can the noble Lord, Lord Sassoon, enlighten us as to what led Mr Carney to this fortunate change of mind?

Finally, I am delighted that the Chancellor took the opportunity to pay suitable credit to the current Governor, my former colleague and friend, Mervyn King. I, too, look forward to the opportunity of thanking him in an appropriate way when he retires from his position. However, in the mean time, I return to my first comment and congratulate the Government on the appointment they have made.

Financial Services Bill

Lord Eatwell Excerpts

Monday 26th November 2012 Lords Chamber

There are some government amendments within this group. I see nothing wrong with them as far as I understand them. They are quite sensible amendments. I hope that the Minister will recognise, in a complementary way, that my amendments are also very sensible and that they would give some cohesion and equality of treatment to the whole of this changing sector. I beg to move.

[Lord Eatwell]

My Lords, I support my noble friend Lord Whitty. He has clearly hit on something that is very real in the development of consumer financial services today and is very beneficial to the expansion of competition in the provision of financial services. It seems peculiar that, in the drafting of this clause, the Government both include the condition, in subsection (4), and then say, a few lines later, “We may leave this condition out”. Surely there is already enough evidence of the importance of non-financial parent institutions developing financial services. Why, then, as my noble friend has so clearly described, do we not recognise it now?

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, new Part 12A of FiSMA, as inserted by Clause 26, extends and strengthens the regulatory framework by giving the regulators powers to act in relation to a parent entity, which is itself not regulated, but controls and exerts influence over a regulated entity. As we have heard, Amendments 90 and 91 seek to make significant changes to the scope of the powers over parent undertakings. We have not heard new arguments this afternoon, and regret that I probably will not advance any significantly new ones either—as is often the case. However, let me go through the argument as clearly as I can.

The Government are extending and strengthening the regulatory framework, so it is important that these new powers, which are untried and untested in the UK, have safeguards in place to ensure that they are used in a targeted and proportionate manner. I stress the new powers; they are not powers that previous Governments have sought to put in place, so we will put an important additional series of safeguards in place. However, their untried and untested nature is principally why the Government have proposed limiting the power to financial institutions of a kind prescribed by the Treasury in order to keep it within reasonable bounds.

As has already been identified today and on other occasions, if your main business is owning or managing authorised persons, you are caught, but if your main business is making or selling bread, then you are not. That is what the Government intend at this stage. We do not wish, at this stage, to give the financial services regulators powers of direction in relation to parent undertakings whose main business is not related to financial services. However, the Government are very much alive to the concerns raised by the noble Lord, Lord Whitty, which is why we propose to take a power to remove the limitation to financial institutions. We accept that it may be appropriate to widen the scope of Part 12A powers to catch a wider range of parent undertakings but the Government remain unconvinced that now is the appropriate time for these new powers to apply to parent undertakings which are not themselves financial institutions. It is a developing area of financial services industry practice. We need to watch it closely and the noble Lord, Lord Whitty, is right to remind us of that. The provision future-proofs the powers and ensures that the Treasury has the flexibility to respond if circumstances change and firm structures evolve, such that parent undertakings are no longer captured within the scope of the power.

I know that in both Houses there has been interest in strengthening the application of the powers over unregulated parent undertakings. Government Amendments 91A to 91E seek therefore to improve the usability of the powers. Amendments 91A, 91B and 91C lower the trigger for use of the power against parent undertakings and make the power more usable. Amendments 91A and 91B clarify that the regulators can give a direction if it is considered desirable in order to advance the FCA’s operational objectives or any of the PRA’s objectives, or if the giving of the direction is desirable for the purpose of the effective consolidated supervision of the group. Amendment 91C is a related consequential amendment.

As a result of these amendments, the FCA and PRA, would no longer have to demonstrate that,

“the acts or omissions of the … parent … are having or may have a material adverse effect on the regulation … of one or more … authorised persons … or the effectiveness of consolidated supervision”.

After reviewing the powers in light of statements made in this House about the imperative need for the regulators to have effective powers over the parent undertakings of authorised persons and consulting with the authorities, the Government consider the previous threshold was set too high, which would have made the power difficult to use in practice. The high threshold may also have hindered and sometimes prevented the regulators properly supervising complex financial groups.

These amendments will mean that the powers can be used effectively by the regulators to address difficulties within the group as a whole. That will better fulfil the Government’s objective of ensuring that the regulators have the tools they need to conduct suitably robust supervision of unregulated holding companies.

Amendment 91E would make similar changes to the power of direction that the Bank of England has in relation to the parent undertaking of a recognised clearing house. Amendment 91D would remove the requirement that a direction must specify the period during which each requirement remains in force. This ensures that, in appropriate cases, the regulator can give a direction of an indefinite duration. It better aligns the new Part 12A powers with the provisions in new Sections 55L and 55M to be inserted into FiSMA, which provide for the imposition of requirements on authorised persons by the FCA and PRA of an indefinite duration.

While we think that directions in relation to unregulated parent undertakings should generally be of limited duration, we can conceive of cases—for example, in connection with structural reform of the kind envisaged by the Banking Reform Bill—where it would be appropriate for a direction to have an indefinite duration. Amendment 91D therefore provides the regulator with the flexibility to give a direction of an indefinite duration.

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[Lord Eatwell]

My Lords, I support my noble friend’s very sensible amendment. I loved his last line: that “may” may be what is required in this respect. The amendment does two things. First, it is future-proofing—something on which the Treasury is usually very keen. Secondly, in an area where we know—and the Government have acknowledged—that abuses are taking place, it preserves the potential for self-regulation but is a shot across the bows, which should make those who are behaving improperly take much greater care. It preserves a spirit of self-regulation, if self-regulation is seen to work effectively. Given that the Treasury or the Secretary of State may by order amend Schedule 17 in the manner set out by my noble friend, I would like to commend this amendment to the Government.

[Lord Hodgson of Astley Abbotts]

I rise briefly to support these amendments. They seem extremely sensible. I do not want to repeat what the noble Lord, Lord Eatwell, has just said. I like the idea of “may”; I like the idea of self-regulation; and I like the chance for the industry to be able to put its house in order. That is clearly very sensible. The only point I would add is that we now have a situation where a substantial proportion of claims coming forward are fraudulent, semi-fraudulent or unjustified. In each case, the firm about whom the complaint is made must pay £850 to have the case investigated. That is a staggering sum of money and it ends up being paid by the consumers. We really need to find a way to short-circuit that, so that where the claims are fraudulent, something can be done to ensure that the claims management companies, rather than the firm, end up with some of the costs—and, indeed, to ensure that the costs are not passed on to the rest of us. There is a good idea here. I hope that the Government will give the amendments a sympathetic hearing.

Financial Services Bill

Lord Eatwell Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Eatwell]

80B: Clause 23, line 21, leave out “of practice”

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[Lord Flight]

I think that I was interrupted right the way through, as a matter of fact.

[Lord Eatwell]

My Lords, the government Front Bench should calm down and allow us to conduct this discussion broadly under Report mechanisms but in a way which takes us forward on what, as my noble friend has said, is an enormously complicated Bill.

I am afraid that I think the proposal of the noble Lord, Lord Flight, is unfortunate and I cannot support it. It is unreasonable to provide this sort of protection to financial advisers, who should take full and appropriate care in the advice that they give. If they have taken full and appropriate care, they will be able to defend themselves at a later stage against the problem that the noble Lord, Lord Phillips, raised a few minutes ago, but I think it inappropriate that they should not be sensitive to potential comeback for advice which is inappropriate and misconceived.

[Lord Newby]

My Lords, when we debated this issue in Committee, my noble friend Lord Sassoon made it clear that this was an important issue for the regulator to review. The FSA has now committed to consider whether to investigate the case for a longstop as part of its business planning for 2014-15.

The amendment deals with the Limitation Act. It is important to be clear about both the nature of the issue and why I do not think that requiring the regulators to apply the Limitation Act when making rules provides the solution.

First, it is important to be clear that time limits apply for consumers bringing complaints to the FOS. These are: six years from the event that the consumer is complaining about, or, if later, three years after the consumer became aware, or ought to have become reasonably aware, that they had cause for complaint. The question which we are now debating is whether there should be a further absolute or overriding limit, possibly of 15 years. This is an extremely important question for the regulator to review and it is clear that it needs to take into account the particular features of financial services and financial service products in doing so.

When the FSA considered the issue previously, it noted that the long-term nature of some financial services products means that it can take many years for consumers to be made aware that they may have suffered detriment. An example from recent years includes inappropriate pension advice to switch from one investment or one type of pension to another. Consumers did not necessarily realise that this advice was inappropriate until many years later and as they approached retirement. This kind of advice was the subject of the FSA’s pensions review covering the period 1988 to 1994, and concerns about advice given in this period came to light only some years later. Advice from this period is still the subject of consumer complaints now.

It is important to realise that many of the matters that the FCA or PRA, or indeed the FOS, which is also relevant here, will be dealing with will not be subject to the Limitation Act at all. The Act applies to certain causes of action in private law, such as actions for breach of contract or negligence, but the FOS is required to determine cases by reference to what is,

“fair and reasonable in all the circumstances of the case”.

In some cases, there will be no private law course of action and so nothing for the Limitation Act to apply to.

It is also worth remembering that the Limitation Act is very context-specific legislation. Time limits vary considerably according to the nature of the claim; for example, the time limit for libel is one year whereas for negligence it is six years. The time limit also varies on the facts of the case. For example, it is extended in certain cases involving fraud or where the claimant has a disability. Even the 15-year, longstop period that applies in cases of negligence has exceptions—for example, for claims involving personal injury. Therefore, it would be particularly inappropriate as a guide for the FCA in its rule-making powers. It would be next to impossible for the FCA to know how the Limitation Act would apply to all the cases that could be subject to any proposed rule. Far from bringing the financial services into line with other sectors, we would, in our view, be failing to acknowledge that in financial services, as in other sectors, there are many claims to which the Limitation Act does not apply.

Having said that, the regulator will look again at the case for a longstop. In view of my arguments and this commitment by the regulator, I hope that my noble friend will feel able to withdraw his amendment.