Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020

Lord Hain Excerpts

Wednesday 21st October 2020 Lords Chamber

[Lord Hain (Lab) [V]]

My Lords, it is a real pleasure to follow my noble friend Lady Drake and the noble Baroness, Lady Altmann, who speak with tremendous authority on these pensions-related questions.

The Government’s insolvency reforms initially applied only to companies. They have now been extended to cover co-operative societies and community benefit societies such as credit unions, following lobbying, in particular by Co-operatives UK. So far, so good. Co-op retail societies have been doing well, with sales booming and market share rising, but some other smaller co-operatives have had to close for a few months or furlough staff.

In its efforts to modify measures originally designed for companies, Co-operatives UK gave priority to preserving co-operative and community purpose and to retaining democratic member control. I strongly applaud those efforts. I acknowledge too its September 2020 guidance to co-op societies facing financial strife, a 10-page brief on insolvency and financial liquidity that offers advice on how to respond to a crisis and how, in the worst case, to face up to a possible insolvency. However, I fear that those 10 pages of well-intended advice to co-op societies facing financial distress illustrate the shocking way in which workers’ rights are overlooked when businesses in Britain face going bust.

The opening paragraphs on page 1 of the guidance acknowledge that directors of co-op societies facing insolvency have a duty of care to the society’s creditors. When businesses face insolvency, the interests of creditors, especially those with secured debts, often and maybe always override those of employees. Witness what happens when companies in financial distress stay in business but use a “compromise agreement” to avoid meeting their obligations to the firm’s pension scheme. Only later does the Co-operatives UK brief say that only if there is no imminent threat of insolvency should directors

“Put employees and volunteers first”.


Sadly, even then the brief does not suggest consulting employees about the choice between furlough or redundancy. It recommends talking to workers about other options such as reducing pay and working hours only after big decisions have been taken.

The very last point at the foot of the final page of the brief covers good practice with employees. It says that

“looking after employees at a time of crisis is crucial”,

and refers to four pages of further advice, none of which covers possible insolvency. So there is no discussion of the possible threat to employees’ pension rights when businesses face insolvency, no mention of underfunded pension schemes, nothing about redundancy rights or unpaid wages, and nothing about unmet tax and national insurance obligations. That is a perfect illustration, sadly, of where workers stand when businesses face going bust: little more than an afterthought. But I do not blame Co-operatives UK: its brief simply reflects the sad reality of workers’ rights and the unfairnesses of Britain’s insolvency law.

Millions of jobs are in jeopardy today, in every sector of the economy, and it remains all too easy for directors of businesses facing financial distress to sacrifice the interests of the workforce by sidestepping their responsibilities for pay, redundancy, tax, national insurance and pensions. Despite the warm words we had during the passage of the insolvency Bill in the summer, the Government’s reforms have yet to address that fundamental flaw. Can the Minister give me any assurances about that, please?