Budget Statement

Lord Freeman Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Freeman (Con)]

My Lords, I want to concentrate my brief remarks on the relevance of the Budget to transport. I start by paying tribute to the noble Baroness, Lady Kramer, for her work as Minister of Transport. It is rather strange to see her sitting on that side of the Chamber rather than this side. In particular, the coalition Government made good progress, thanks in large part to the noble Baroness, in terms of a national infrastructure plan. It will take a long time both to fulfil and to perfect it, but progress was made and I congratulate her in particular on her role as Transport Minister.

I preceded the noble Baroness by almost 20 years as Transport Minister and want to concentrate my remarks on road and rail transport. In particular, I had responsibility then for HS1, which I am glad to see there are now proposals to extend up as far as Rye—I always thought that was a sensible move—and greatly to improve the economy of a rather deprived part of Kent. I was responsible also for the privatisation of large parts of British Rail, which ended up, obviously, with the privatising of the rolling stock as opposed to the infrastructure. I think that that has stood the test of time.

The Minister and my noble friend Lord Higgins referred to the relevance of a vibrant and growing economy in terms of being able to afford improvement in our infrastructure. I must say to my noble friend that I have sat at his feet for getting on for 20 years and have learned more about public finance from him than from many others. Long may he continue to participate in the Budget debate. It is always a pleasure to sit near him and listen to his words of wisdom. He emphasised once again the importance of connecting a growing and vibrant economy. In this instance I am referring to transport. In the last Parliament, the total investment in transport—not the running costs—was roughly £40 billion. The forecast in the Budget Statement for this Parliament was that over five years it would be £56 billion. That is a 40% increase and must be welcomed because it will improve the living standards and health of the national economy. I welcome what the Chancellor had to say about transportation.

First, on rail, HS2 is still in the planning stage. It seems to have been in the other place now for several years, but I understand that the Commons is getting somewhere towards approving a specific route for the first part of HS2. I hope that it will come to your Lordships’ House in due course. It is an important project in terms of increasing capacity—it is about not speed but capacity—for those travelling from the north to London and vice versa. As I said, that Commons committee is still looking at the detailed objections to the route, but I hope that the other place will make progress and that your Lordships’ House can look at this very shortly.

Many noble Lords may not be aware that the noble Lord, Lord Adonis, has just been appointed to the board of HS2. Perhaps that is why he is missing from the Benches today. I congratulate him on that appointment. He was one of the initiators of HS2. I hope that he will enjoy his position on the board. He may regret not being able to comment as freely as he otherwise would have been able to in your Lordships’ House but I pay tribute to his initiative on HS2. The noble Lord and I are joint patrons of the Independent Transport Commission. His words of wisdom there and particularly on HS2 are welcome.

In the last Parliament there was an increase in expenditure on our trunk roads. The Chancellor mentioned in his Budget speech a figure of £15 billion for this Parliament. These are major trunk roads, many of which need desperately to be improved, particularly in the north of the country.

As far as Crossrail is concerned, which the Chancellor referred to, I congratulate Ministers in the last Parliament —perhaps the noble Baroness had part responsibility for this—for sticking to completion of construction of Crossrail 1. I calculated the cost to be about £2 billion per annum during its construction phase. I hope that the Chancellor will look favourably on extending that to Crossrail 2—that is to say, north-south alignment. Incidentally, although there was frequent comment about HS2 costing £40 billion, £50 billion or £60 billion, the annual cost I calculated to be about £4 billion for construction. That is twice the cost of Crossrail.

Finally, the Budget referred to transport in the south-west. I was delighted to learn that the Chancellor calculated a budget of £7.2 billion for the south-west only in terms of major infrastructure. That is much to be welcomed. Better transport infrastructure must follow an improvement in the economy. I welcome that. I hope that in due course your Lordships will see the result of a successful Budget forecast.

Budget Statement

Lord Freeman Excerpts

Wednesday 25th March 2015 Lords Chamber

[Lord Freeman (Con)]

My Lords, I want to concentrate on the impact of the Budget and the Autumn Statement on pensions and savings. I very much welcome the initiatives that have been taken, not only by the Chancellor but by the excellent Pensions Minister in the other place, Mr Steve Webb. The noble Lord, Lord Deighton, is going to sit through some three and a half to four hours of debate, so I am not expecting a response, but I would be grateful if he would draw my brief remarks to the attention of the Minister, for whom I have a high regard.

The first point that I want to cover is the taxation of savings interest. This may not sound a very dramatic change, but for a large portion of the population it will have a significant effect because what is proposed, which I welcome, is a tax-free allowance on interest from 2016. Although it is limited to the first £1,000 of savings, it will benefit 95% of savers—that is, 17 million people in this country taken out of tax. The tax-free interest will affect the basic rate of taxation. We have very low interest rates. Those who have looked at their bank statements recently will realise that one is earning something like 1% on bank savings so this elimination of tax, although it may not amount to very much, will be welcomed by many. In due course, I hope that there will be a further extension of this concession in taking savers out of tax.

My second point concerns the cashing-in of savings, typically from defined contribution schemes where people have been saving, perhaps with the assistance of their employers or themselves, into pension schemes. These are typically defined contribution schemes, as opposed to the defined benefit schemes run by the large companies in this country. The Chancellor announced a relaxation in the Autumn Statement, and now again the Budget Statement, which will be subject to legislation, on the rules governing the drawing-down of moneys in savings in these pension pots, although the drawings-down will of course be subject to tax. There is also the trading of annuities, which I very much welcome, although clearly there are issues here which require careful advice to those who are either considering selling their pension or wishing to trade the stream of annuity payments. It is very important that there should be proper care and advice given to those who take advantage of this welcome relaxation.

I start from the principle of trusting the people—those who will receive this benefit—but there has been a lot of cautionary press. Indeed the Opposition, in a recent debate, cautioned about exploitation by those who might offer erroneous advice to pensioners who wish to cash in their pension pots. We need Pension Wise, the new organisation which in literally a few days’ time is to take responsibility for advising pensioners on the use of their funds, to be properly staffed. I suggest that your Lordships’ House have the chance to debate after 12 months the record of the advice given, and any instances of exploitation or bad advice given to people who might not be financially expert in looking after their savings. I hope very much that there will be a report back to Parliament within the first year, or at least after the end of the first year.

Perhaps I may deal briefly with the lifetime allowance for maximum savings with tax relief. It is to be reduced from a pension pot which can be built up, with certain tax reliefs, to £1.25 million—it sounds an awful lot—to a pot of £1 million in 2016-17 and indexed thereafter. However, there is a warning here. If a husband has a spouse and the inflation arising is eating into any payments that come from drawing down those savings, then one journalist estimated quite recently in the press that drawing down £1 million, subject to tax but with a spouse and with necessary inflation-proofing built in, would amount to something like only £30,000 per annum in a pension from the age of 65.

Finally, I want to deal with defined benefit schemes, which are run by the large companies and corporations in this country. A particular problem at the moment is that the very low rates of interest used to discount the liabilities, both gilt rates and corporate bond rates, are such that there are rising deficits in these big pension funds. This is not only in former nationalised industries and large corporations; they cover perhaps well over 50% of those employed in industry and commerce. The impact of these bigger deficits means that companies have to transfer cash into the pension funds to make sure that they have sufficient funds to pay out the pensions. This is causing great concern and I hope that, in due course, the Chancellor can make a Statement on this.

That is all I wish to say, except to repeat the one key point which I hope that the Minister will convey to Steve Webb, the Pensions Minister. I hope that your Lordships will have an opportunity, at least after the first 12 months, to look at the record of these greater freedoms on the population and whether they have been abused by improper advice.

National Infrastructure

Lord Freeman Excerpts

Thursday 22nd January 2015 Lords Chamber

[Lord Freeman (Con)]

My Lords, in a spirit of consensus, I agree with a great deal of what the noble Lord, Lord Adonis, said and congratulate him on securing this very important debate. I also associate myself with a number of recommendations that my personal friend, John Armitt, made in his excellent report to the Opposition.

I welcome the policy statement on national networks but I have one problem with it, which is the timescale. Governments of all hues over the years have made the same mistake of not thinking long-term. It seems important that one should be looking at least 30 years ahead, whereas at present the policy statement tends to be looking at a much shorter period. It is over that length of time that policy involving all modes of transport can be properly taken into account.

I will make four simple points. The first is that all modes of transport should have been involved in the policy statement, although I very much welcome it and it is definitely a step forward. Air transport is not included, for example, and it is important that we avoid some of the mistakes made in the past in rail and road planning, forgetting the implications for proposals for national airports. Secondly, and here I agree with my noble friend Lord Heseltine, local authorities up and down the country should play an important role in the planning of infrastructure. The delegation of responsibility to local authorities in this matter, in terms of both policy and finance, is extremely important. Thirdly, the private sector has a role to play in the planning of national infrastructure. I give noble Lords one example: on the west coast main line the franchisee has much responsibility, financially and in planning, in contributing to the improvement of that line running from London to Scotland. I welcome the initiatives already being taken by the Department for Transport to think long-term about improving that line.

Lastly, I will take what some of your Lordships might think a step too far. I think that this House should emulate the other place, the House of Commons, which has an excellent Select Committee on Transport. I see no reason why your Lordships—or the Government, in discussion with the Opposition—should not consider setting up a Select Committee in this House specifically to deal with transport. A lot of your Lordships have a great deal of experience in this field. Bipartisanship and looking long-term, which are both important principles, would be encouraged and developed if we could have a Select Committee, built to be bipartisan between opposition and government on planning infrastructure, devoted to considering this matter over the long term.

Pension Schemes Bill

Lord Freeman Excerpts

Monday 12th January 2015 Lords Chamber

I am sure that we all recognise the need to provide people with guidance to make our pensions products safe for future pensioners. Given the lack of detail in the Bill, I am sure the Minister will want to support this amendment so that we can have a regular review of the workings of the Bill, and in particular how the pension guidance guarantee works in practice for the benefit of the people who use it. I beg to move.

[Lord Freeman (Con)]

My Lords, I find myself in sympathy with the spirit of the amendment but, I am afraid to say, the detail is somewhat defective. The spirit must be right because the more information that can be available and collected accurately, the better, so that the schemes in the Bill can be improved or amended in due course.

I draw the attention of my noble friend the Minister to the comments of the chartered institute and Royal London; first, on eligibility; secondly, on take-up; and, thirdly, on effectiveness. It is not really possible within a short period of time—that is, on an annual basis—to measure accurately the results of this legislation under those three categories. I look forward to what the Minister has to say, whether in response to this amendment or in due course on Report. I very much associate myself—and, I know, some of my colleagues—with the spirit of the amendment but I think the devil is in the detail.

[Lord Newby]

My Lords, I am grateful to the noble Lord, Lord Bradley, for the way in which he moved the amendment, and for setting out some of the broader issues that are covered by a number of groups. I hope the Committee will forgive me if I, too, take my introductory remarks slightly wider than the amendment itself, because I think they are both relevant to this amendment and spill across a number of groups.

First, I draw noble Lords’ attention to the publication today, which the noble Lord, Lord Bradley, referred to, of an update from the Treasury on the implementation of the pensions guidance service. It announced that the brand for the service will be Pension Wise, with the tagline, “Your money, your choice”. This branding will be used by all delivery partners and is designed to be easily recognisable. The HM Government logo will be used to support the Pension Wise brand where appropriate, to underline the credibility of the service. In answer to one of the points made by the noble Lord, Lord Bradley, potential scammers and fraudsters should be aware that the Bill introduces a new criminal offence which means that anyone passing themselves off as Pension Wise could face prosecution. I can reassure the noble Lord at this point about the way in which the guidance providers will themselves be regulated, and on the basis for the compliance.

The standards for designated guidance providers are in fact a Financial Conduct Authority instrument, so it is a legal document which it is exercising, I am sure the noble Lord will be pleased to know, under Section 333H, Standards for Giving of Pensions Guidance by Designated Guidance Providers, of the Financial Services and Markets Act 2000. It is therefore very much a statutory underpinning of all the guidance which guidance providers will have to follow. This is a detailed document to which I will refer later. Also from today, following the publication of the document, individuals have the opportunity to register their interest in early access to the service as part of the piloting activities. The publication also sets out details of how consumers can access and use the guidance, with further information on the progress and costs of implementation. I am sure that noble Lords will find this information useful.

I can assure the House that the Government are committed, in looking at the specific amendment, to a full programme of monitoring and evaluation which will look at the uptake of the guidance as well as how it is achieving its objective of informing consumer decision-making at the point of retirement. I share the noble Lord’s focus on ensuring that we maximise take-up of the guidance, and that is why the Treasury is legislating, through this Bill, to place a duty on the FCA to require pension providers to signpost people to the guidance as they approach retirement.

Last year, the FCA consulted on its proposals for delivering against this duty, and in November published a very detailed policy statement with its near final rules. Following Royal Assent, these rules will require pension providers not only to signpost individuals to the guidance service in wake-up packs issued four to six months ahead of an individual’s nominated retirement date, but to recommend to their customers that they seek guidance or advice whenever a consumer wishes to access their pension fund. That is one of the reasons the Government are announcing the Pension Wise brand now, so that the industry can get ready for these new requirements and start bringing the service to their customers’ attention as soon as possible.

I will clarify a statement I made to the House at Second Reading in response, I think, to the noble Lord, Lord McKenzie, on the issue of requirements in the round and progress towards the standardisation of the pension statements that providers will send to their customers approaching retirement. While it is not yet a formal requirement, the Government are clear that progress must be made by industry more quickly. The FCA has clarified in its near final rules that will underpin the guidance service that information about a customer’s pension pot must include, at a minimum, the current value of the pension pot, along with information on guarantees and other relevant special features. Building on this, the Treasury is working with the industry to standardise how the key information is presented. We have made it absolutely clear that the Government consider this to be a key priority. A wide range of respondents to our consultation last year on the pension freedoms made a convincing case that it is necessary to help consumers understand and engage with decisions on what to do with their pension savings. The Government welcome the recent commitment from industry trade bodies to support the development of standardised materials by the Treasury and to encourage their members to use them in communications with their customers as soon as possible.

The Government welcome the FCA’s commitment to consider making such standardisation a mandatory requirement in the wide review of its rules that will take place in the first half of this year. If the trials show that such standardisation helps consumers, I imagine that will be a very strong case for the regulator to require it. We must recognise, however, that not all individuals will seek to take up the guidance offer. It is their choice to do so. They may have other sources of help and advice, such as an independent financial adviser or advice services provided by their employer. We must ensure that consumers know that the guidance service is available and how it can help them, and encourage consumers to use the guidance as far as possible. We must, however, respect the fact that there will be consumers who will be content and equipped, for a variety of reasons, to make decisions without taking guidance. The FCA has introduced a number of safeguards to ensure that consumers are encouraged to seek guidance or, if they do not, are provided with the necessary information to support decision-making.

In summary, it is made clear that firms should not do anything to dissuade customers from getting the guidance. It has reaffirmed the expectation that firms will encourage consumers to shop around on the open market. It has introduced a new requirement that when communicating with customers about accessing their pension funds, firms are required to ask whether they have taken guidance or relevant financial advice and, if not, to encourage them to do so. It has introduced a new requirement on firms to recommend that consumers should seek guidance or advice rather than simply signposting to it. It has also confirmed that firms will be required to give a description of the tax implications of the option selected by a consumer.

Pension Schemes Bill

Lord Freeman Excerpts

Tuesday 16th December 2014 Lords Chamber

[Lord Freeman (Con)]

My Lords, it is a privilege and a pleasure to speak immediately after my noble friend Lord Jenkin of Roding. I must say that this is the first time I have heard applause in this House, and I think that it is a great tribute to my noble friend. He has announced his retirement after 50 years’ service in Parliament, 25 years in the other place and 25 years here. He was the MP for Wanstead and Woodford, and a Minister between 1970 and 1985. I think that those who have served in Government will realise that 15 years is a quite remarkable length of time. He was a Secretary of State three times—for social services, for industry and for the environment—and many of the Bills that he was responsible for and the decisions he took still stand and are respected.

I would particularly like to note the encouragement that my noble friend offered to new Members of the other place. He would not always praise them, but would offer them encouragement by saying, “I think that speech was a bit too long”—or too short, but that encouragement was always appreciated. It is now my pleasant duty to invite the House to salute in the traditional way a parliamentary career of great distinction and to wish my noble friend not only long life and happiness with his family, standing at the Bar and represented there, but also the wish to see him back here in the House often. We all salute a great parliamentarian.

[Noble Lords]

Hear, hear!

[Lord Freeman]

My Lords, I am quite conscious of the fact that my contribution to the Pension Schemes Bill is not likely to attract this number of noble Lords so, as they say, please leave quietly. I shall restrict my remarks to a relatively short period of time, because we are pressed by our schedule.

These two important Bills follow the very welcome Budget and subsequent announcements from the Chancellor of the Exchequer, which I fully support. Many noble Lords will warmly welcome the flexibility of the rules being proposed in these two Bills, particularly in relation to defined contribution schemes. I shall restrict my remarks to direct and defined contribution schemes rather than defined benefit schemes, which of course for very large companies in this country, including in particular the public sector, make up the majority of schemes. However, it is the defined contribution schemes where the amount of money that has been saved by the prospective pensioner is going to be affected quite significantly.

I welcome the provisions in both of the Bills that are before us today, particularly with regard to flexibility on the drawing down of savings, but, as has already been mentioned by the speaker on the Opposition Front Bench, there are certain concerns which this House should have when reviewing the Bill in Committee so as to ensure that this new flexibility, which I welcome, does not put a pensioner in a position of inadvertent poverty. The point made by the noble Lord, Lord Davies of Oldham, is absolutely right. Your Lordships—and those who are responsible for the implementation of this legislation—should always remember that there is a tremendous difference between guidance and advice. Advice is something that you pay for, as the noble Lord, Lord Davies, pointed out, and is between the pensioner and either an individual or a respected firm. Guidance is something that the Bill deals with, and is much to be welcomed.

When one starts contributing to a pension scheme, if one is employed by a large company, and it is a defined benefit rather than a defined contribution scheme—that is, over the lifetime the individual earns an entitlement from the pension fund that is underwritten by the employer, which is a big difference from the contribution schemes where an individual is saving for later life—it is important to look at who is providing advice. The Bill provides for guidance as opposed to advice—free guidance to individuals, who may wish to ask themselves, “I have built up this substantial pot of money but I still have 15, 20 or 30 years after retirement. What is the most sensible proportion that I should leave in my pension pot and how much should I draw down, either in individual lump sums or all at once?”. That is where advice is absolutely crucial.

I hope that when the Ministers take these Bills through Committee, they will be able to answer some of the detailed questions about who pays for those who will give advice. My understanding is that it will be from public funds, which the Treasury will require to be raised from those who are providing guidance, and that the individual bears no financial burden by saying, “I want to draw down some money. Here are my assets. Here is how long I and my dependants expect to live”. That advice is absolutely crucial. The citizens advice bureaux are perhaps not the right entities to provide that advice. We need a new cadre of trained and respected bodies and individuals to provide that free advice. Pensioners and prospective pensioners should be strongly recommended to take that advice.

I will conclude by making a comment, if I may, on defined benefit schemes. Like a number of noble Lords, I have served as a trustee and now the chairman of a large defined benefit pension fund. That fund bears the risk of a diminution in the assets and—this is my final point—the movement of interest rates. When a pension fund calculates its deficit or its surplus, typically every three years, one of the factors used is the gilt rate. The gilt rates are at historically low levels at the moment, which means that when the actuary discounts the liability of the lifetime of the remaining members of the pension fund, which might be 15 or 20 years after they have retired or even longer, a very low rate of discount is applied and therefore the liabilities in the accounts of the pension fund rise. Over the past two or three years, they have risen dramatically. Although I welcome low gilt rates and low interest rates, when we come to the valuations very shortly—on 31 December of this year—we will find that the deficits of some of our largest pension funds have again risen. I have no solution to that, but we need to reflect on whether there needs to be some kind of change in the principles that are applied.

I very much welcome the Bill and I look forward to Committee.

Queen’s Speech

Lord Freeman Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Freeman]

My Lords, I will concentrate my remarks concerning the gracious Speech on the proposals put forward on energy. Together with the noble Lords, Lord Whitty and Lord Rowe-Beddoe, I helped produce a report on renewable energy. The single point that I make with great emphasis, and address through my noble friend on the Front Bench to the Department of Energy, is that policy has been developed over the past two years in this Parliament, and now is the time to implement it. There should be no more changes, because the financing of our new energy policy in the coming years will require very significant sums of money as well as certainty for the private sector.

I very much welcome the proposals for the green investment bank and the reforms to the electricity market included in the gracious Speech. The past two years have been very productive for the development of policy in the Department of Energy on low-carbon energy, cutting emissions and facilitating investment; but now is the time to send a message to the private sector—I will come to this in a moment—that there will be no more changes or developments in policy. Time is running out. We need an embargo on further policy initiatives.

I very much welcome the feed-in tariff and the guaranteeing of the price for low-carbon technology—the investment costs of producing electricity. The initiatives taken by the department for building new capacity in both nuclear and renewable energy provide fair incentives.

I will say a word about wind power, and in particular offshore wind. I very much welcome the developments that have occurred over the past few years and the significant investment. Compared with the investment in offshore wind that the Germans and the French have achieved, we have a good record so far. The intermittence in the supply of electricity coming from offshore wind is a problem. I hope that the private sector can develop the technology to take excess power generated by prevailing winds that the Central Electricity Generating Board does not need and store and use that electricity, perhaps using new technologies such as electrolysis to convert and store hydrogen for use in transport, particularly delivery vehicles, buses and so on.

The costs entailed in the delivery of this new energy strategy are very substantial. Estimates for the next five years in this country alone exceed £100 billion. When one considers that policies in France and Germany have brought a fall in central government financing, one can understand that we face a very significant challenge in raising the money. Most of it must come from non-government sources. Obviously there will be subsidies for low-carbon technology that the Government will provide, but the bulk of the investment will have to come from the private sector. UK institutions such as pension funds will not be able to supply a large proportion of that money. Sovereign wealth funds will probably be a better source of finance. The green investment bank is likely to have only something like £3 billion, whereas £100 billion will be required over the next three to five years.

We can also export some of our technology—particularly to China, India and Brazil—for cash receipts. Whether the Government or the private sector facilitate that, it could be a source of funding. The EU Project Bond Initiative, aimed at raising money for energy projects and guaranteed by the European Union, holds some promise. I once again emphasise the importance of certainty for the private sector that no more policy initiatives will proceed. Policies completed: implementation now.