Pension Schemes Bill [HL]

Lord Kirkwood of Kirkhope Excerpts

Monday 21st November 2016 Lords Chamber

[Lord Young of Cookham]

My Lords, I am grateful to those who have spoken to this group of amendments to Clause 11, which sets out one of the authorisation criteria, namely,

“that the systems and processes used in running the scheme are sufficient to ensure that it is run effectively”.

Amendment 21, tabled by the noble Lords, Lord McKenzie and Lord Monks, and the noble Baroness, Lady Drake, would amend Clause 11(4)(d) by making it clear that regulations on the matters that the regulator must take into account in deciding whether the schemes, systems and processes are sufficient to ensure that it is run effectively may include provisions about the processes that master trusts are required to follow in relation to environmental, social and governance risks. I think the intention behind the amendment is to do it in relation to the transactions and investment decisions of the scheme, rather than across the range of systems and processes that a scheme may operate on a day-to-day basis, such as staffing and travel. I see the noble Baroness nodding in assent.

Given that this amendment adds environmental, social and governance risks to subsection (4)(d), alongside processes relating to transactions and investment decisions, I am responding on the basis of that first interpretation. Clause 11 sets out specific areas that the Secretary of State may include in regulations and that the Pensions Regulator must take into account when deciding whether it is satisfied that the systems and processes adopted by schemes are sufficient to ensure that they are run effectively.

I have enormous sympathy with the case made by the noble Baroness that environmental, social and governance risks should feature in the way she described, but I remain to be persuaded that it needs to be included in the Bill. There are a number of reasons why. The current regulatory framework allows for ESG—environmental, social and governance—issues to be taken into account. TPR guidance makes it clear that trustees should take into account long-term financial sustainability in their investment strategies and new requirements can be inserted without primary legislation.

Environmental, social and governance issues are already, broadly, taken account of through the existing regulatory arrangements which apply to trustees of pension schemes with 100 or more members, including the statement of investment principles for their scheme, as set out in the investment regulations. The statement must include details of the extent to which the trustees take environmental, social and other factors into account in selecting, retaining and realising investments. These principles have been further supported by the Law Commission’s review of fiduciary duty, which confirmed that trustees should take these factors into account when they are financially material.

The Pensions Regulator has incorporated the Law Commission’s conclusions into its guidance for trustees and its code of practice on “Governance and administration of occupational trust-based schemes providing money purchase benefits”, which gives practical guidelines on how to comply with the legal requirements of pensions regulation. This guidance sets out the regulator’s expectation that when setting investment strategies, trustees will,

“take account of risks affecting the long-term financial sustainability of the investments”.

In addition, Regulation 4 of the investment regulations supplements trustees’ fiduciary duties under trust law by requiring that the assets of all pension schemes must be properly diversified in such a way as to avoid excessive reliance on any particular assets, and to avoid accumulations of risk in the portfolio as a whole. Should the Government subsequently decide to make regulations about the adequacy of the processes that master trusts are required to take into account in relation to environmental, social and governance risks in relation to investments, I can assure noble Lords and the noble Baroness that regulations would be able to cover this even if it was not specified in the Bill, as is done by the amendment. I hope I have said enough to explain why I am not of the view that the amendment should form part of the Bill.

Amendment 22 seeks to insert a new subsection into Clause 11 (4)(g) to make it clear that regulations about the processes used in running the scheme, which the regulator must judge are sufficient to ensure that the scheme is run effectively, may include provision about identifying, reporting, managing and minimising conflicts of interest relating to the work of trustees. The noble Baroness spoke about some of the risks involved here. The objective of Clause 11 is solely to ensure that the schemes are run effectively. It is not directly concerned about the conduct of the trustees undertaking their duties in relation to the pension scheme.

The Government recognised the potential for trustees’ conflicts of interest to arise in some multi-employer schemes and addressed this by introducing additional governance requirements for multi-employer schemes. These provisions were introduced in the Occupational Pension Scheme (Charges and Governance) Regulations 2015, which amended the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to require, first, that there should be a minimum of three trustees, and that a majority of these three or more trustees, including the chair, must be independent of the scheme’s service providers. Furthermore, the trustees must be subject to fixed-term appointment and appointed via an open and transparent recruitment process. The trustees must make arrangements to encourage members to make their views known to trustees on matters concerning the scheme. When establishing whether a trustee is independent of the scheme’s service provider, various matters must be taken into account, which are set out at Regulation 28(3) of the scheme administration regulations 1996 as inserted by Regulation 22 of the charges and governance regulations. An example is whether the trustee is a director, partner, or employee of an undertaking which provides advisory, administration, investment or other services in respect of the scheme.

In addition to these requirements that are currently placed on trustees, Clause 7(2)(c) places a requirement on the Pensions Regulator to assess whether a trustee of a master trust scheme is a fit and proper person as part of the decision on the application to establish a master trust, as set out in Clause 5(3)(a). Clause 7(4)(b) provides for the Pensions Regulator to take into account any matters it considers appropriate that are not covered by regulation when assessing whether a person is a fit and proper person to act.

When the Pensions Regulator is no longer satisfied that an authorised master trust scheme meets the authorisation criteria, including whether a trustee of the scheme is a fit and proper person, Clause 19(1) allows for the authorisation to be withdrawn. Clause 19(2) and (3) provide the process that the Pensions Regulator must follow once a decision has been made to withdraw authorisation. So, in light of existing legislative requirements setting out the required propriety and conduct of trustees of pension funds, and the clear role of the Pensions Regulator set out in the Bill to ensure that trustees of master trust schemes are fit and proper persons, I believe that this amendment is not necessary.

Amendment 23 requires the Secretary of State to make regulations that set a minimum requirement for each of the processes listed in subsection (4)(a) to (g) of Clause 11. I agree in principle that the question of minimum standards is a key one, but I reassure noble Lords that the clause as drafted enables the Secretary of State to set out in regulations factors and standards to which the Pensions Regulator must have regard when deciding whether it is satisfied that a scheme’s systems and processes are sufficient. However, the key difference between the drafting of the Bill now, compared to how the amendment would alter its meaning, is that the amendment states that regulations “must” make minimum requirements.

There are two closely related reasons why I shall ask the noble Baroness not to press her amendment. Both my points flow from the principle that the regime has been designed to ensure that we do not mistakenly apply a one-size-fits-all requirement to schemes. A minimum requirement, as something that necessarily has to be set out in regulations, may have some unintended consequences. First, were a minimum requirement to be applied, there is a risk that the one-size-fits-all approach could cause some schemes to fail to meet the criteria and therefore fail to achieve authorisation, despite having systems and processes which are sufficient to ensure that the scheme is run effectively.

Secondly, not all of the specified processes easily lend themselves to a minimum requirement. This brings a similar practical consequence to the point that I have just mentioned. Further, addition of the “must” in this amendment may result in finding the Secretary of State in a position where he cannot comply with his regulatory duties because there is no one-size-fits-all requirement in that case. An example for both these scenarios would be resource planning, where flexibility would be needed to cater for different scheme requirements. Another would be in relation to records management or administration, where flexibility would be needed to cater for different scheme requirements, sizes and structures.

For example, we would want to ensure that administrative systems must be adequate to support current operations; regularly monitored to ensure capacity; and adequate to support the anticipated growth of the scheme. This is more flexible than a minimum standard and tailored to a scheme’s own strategy for achieving sufficient scale. I hope that I have said enough for noble Lords to concur that the question of minimum standards is a key one, and that we will seek to use the regulation-making power in this way when appropriate, taking account of considerations to which I have just referred.

Finally, Amendment 20A stipulates that regulations about the processes must include provision about the areas listed under subsection (4) of the clause. As I have noted previously, we want to consult industry and other interested parties on the content of regulations made under Parts 1 and 2. The list provided at subsection (4) has been included in the Bill to provide clarity to industry now about the areas that the Government believe such regulations are likely to cover. However, the Government do not intend to stipulate the areas that must be included in the regulations made under this clause without consulting on those regulations. I hope that I have made the right assumption about what the amendment is aimed at and explained why the change would not be appropriate.

Finally, we have our old friends, negative and affirmative. I can only repeat what I have said on earlier occasions, and what my noble friend has said before—namely, that we would like to reflect on the balance of affirmative and negative in the Bill as a whole and come up with a balanced assessment of what we believe to be appropriate. On that basis, I hope that the amendments will not be pressed.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I support the case that the noble Baroness made for Amendment 22. I am very worried about conflicts of interest. The Minister was very generous and set out a detailed explanation that will repay careful study by us all tomorrow. I will certainly do that. What happens to trust deeds in all this? My experience as a defined benefit trustee is that the trustees have control, responsibilities and duties and are able to effect measures through the trust deed. We seem to be leaving all that to one side in this legislation. There may well be a case for not including measures such as Amendment 22 in the Bill. However, fundamentally different conflicts of interest face trustees in a profit-making master trust situation when they have members on the one hand and providers on the other. I am sure that the noble Baroness, Lady Drake, who knows a lot more about this than I do, makes an important point here. I am willing to discuss how we resolve this issue and whether we include the relevant measure in the Bill, but I will be following it very carefully as this legislation goes through.

[Lord Young of Cookham]

I take the noble Lord’s point. Under the authorisation criteria, the Pensions Regulator has to assess,

“whether each of the following is a fit and proper person”,

and one of them is a trustee. However, I take on board what the noble Lord says, which echoes what he said in an earlier debate—namely, that we should not lose sight of the responsibilities of trustees when we focus on the Pensions Regulator and everybody else. I should like to reflect on the point he has made and, indeed, the other point made about potential conflicts of interest and master trusts.

Pension Schemes Bill [HL]

Lord Kirkwood of Kirkhope Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 21st November 2016 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I wonder if I could make a short contribution on this amendment. I declare an interest: I am chair of a DB scheme for the superannuation fund for the GMC and have been chair for a number of years. It is a DB scheme and I do not have as much experience of DC schemes, but I am interested in the Bill. I am sorry that I was abroad when the Second Reading debate took place; I have read it carefully and some very powerful speeches were made.

We have heard again from the noble Lord, Lord Naseby, on the important point about mutuals and AVCs. An important point about AVCs has also been made by the noble Lord, Lord Flight, and I hope we will get some kind of indication about how the Government are going to respond to that.

My real reason for speaking is to support the comments by the noble Lord, Lord McKenzie. I have been doing legislation of this kind for some time, and this is by some margin the most statutory-instrument-framework type of Bill that I have come across. I understand perfectly well that there are reasons for this; long consultations about some of the problems that the Bill addresses could have provoked some of the outcomes we are trying to avoid. But I spent the weekend looking at the Bill and found that its vagueness—in terms of the policy that is left to the Government to decide at a later stage, much of it through negative rather than affirmative regulations, as currently set out in the Bill—makes it impossible to fit the pieces together properly.

I may be revealing my lack of experience—there are other colleagues in the Committee who know far more about some of the detailed aspects of master trusts—but I make a real plea to the noble Lord, Lord Freud, who has experience of dealing with concerns of this kind on all sides of the House from other Bills in the past.

Policy notes are one way of doing that. I do not think anyone is seeking to stop, hold back or prevent any of the ambitious and necessary outcomes that the Bill seeks to achieve, but we could well be in a position of being presented with statutory instruments in an undesirable way. We have had some conversations about what powers we in this House should properly have over secondary legislation and how we should exercise them. I think that can be avoided if the Minister adopts his tactic of consulting at every opportunity—at the appropriate moment as soon as the policy is finalised; offline, as it were—and with some policy notes. Then we will be confident that it will be safe for us to sign off Royal Assent for the Bill in the expectation that every opportunity will be taken by Ministers at every stage, if they cannot provide draft statutory instruments, to make alternative arrangements such as policy notes so we can be sure that we know what we are voting for and considering in secondary legislation. That is a very important point that the noble Lord, Lord McKenzie, made.

The Constitution Committee does not do notes of this kind unless it is seriously concerned, and we as a Committee would be foolish not to pay careful attention to the fact that it is urgently drawing matters of this kind to our attention. So I hope that we can get some kind of reassurance on that point from the Minister on the wind-up on these important amendments.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

Clause 1 is critical to the Bill. It sets out the scope for the regime, so I welcome these considered amendments, which give us the opportunity to explore this important clause in detail.

We have taken considerable care in defining master trusts and setting the scope for the new authorisation regime. The guiding principles throughout have been twofold: the first is to ensure that members are protected against the risks that arise in these new structures; the second is to ensure that the extent of any regulation is proportionate.

For example, the definition applies to schemes which are open to more than one employer because the level of engagement and involvement of the employers and scale of such a scheme is likely to be very different from that of a single employer scheme or a scheme in which all the employers are part of the same corporate group. It applies only to schemes which offer money purchase benefits because of the risks that the member bears in relation to such benefits, but we have been careful not to create a loophole for schemes which offer mixed benefits—as we will come on to later.

However, we also need to be mindful of the fact that master trusts are a recent development in a rapidly changing pensions landscape, and the master trust market is evolving all the time. A one-size-fits-all regime may not be proportionate, and we therefore need flexibility to be able to respond to the needs and changes. It is for this reason that Clause 39—which we will come to later in Committee—makes provision allowing for the disapplication of some or all provisions of the Bill for certain schemes.

Turning to the specific amendments, my noble friend Lord Flight seeks to exclude from the definition “AVC only” and “relevant centralised” schemes. I have sympathy with his intentions. Many defined benefit schemes offer AVCs for historic reasons and could be considered to be DB schemes to all intents and purposes, but schemes such as this could be excluded from regulation under our powers under Clause 39, and we prefer to use this power rather than to create a list of exemptions in the Bill, allowing time for more detailed consultation with industry about the diverse types of scheme that currently exist.

I put it on record that our intent is to propose such a carve-out. That is: we intend to consult on regulations under Clause 39(1)(b) to disapply some or all of the provisions of the regime for a mixed benefit master trust scheme, where the only money purchase benefits are those related to additional voluntary contributions of non-money purchase members, but we will also be considering carefully the need to avoid creating any avoidance loopholes as we go through that process.

In relation to the relevant centralised schemes, I am concerned that my noble friend’s amendment may go too far. The definition to which he refers is not confined to industry-wide or not-for-profit schemes, and although there may be a case for excluding some such schemes, I am wary of creating a loophole.

Our aim is to protect members from the risks that are particular to master trusts, and these may equally arise in industry-wide schemes. Similarly, although it is true that most master trusts are run for profit, and that this gives rise to certain risks which the regime seeks to protect, it is not this feature alone which determines the nature of master trusts.

I am grateful for the amendment tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. As the noble Lord said, it is a probing amendment to investigate the boundaries of the definition. The amendment would change the definition of master trusts in the Bill and extend it to all schemes which offer money purchase benefits, including those which are used by only a single employer or employers connected to each other.

On the noble Lord’s question of how and when we plan to consult on draft regulations, and indeed on the question asked by the noble Lord, Lord Kirkwood, we have worked with the industry and the regulator to establish the key criteria for master trust authorisation. We intend to continue these discussions to develop more detailed policy and secondary legislation. We will follow the published government principles to ensure that consultation is an ongoing process, using the most appropriate forms of communication. The timing of that formal consultation on draft regulations will depend on a number of factors. We anticipate that the initial consultation to inform the regulations may take place in autumn 2017. I hope that that gives the noble Lord, Lord Kirkwood, some reassurance about the process.

The amendment would extend the scope of the definition and the authorisation regime considerably and would do so in a way that would be disproportionate. To take the example of the scheme starting as a single group employer picking up a non-associated one and moving back and forth, if the scheme is intended to be used for more than one unconnected employer, it is within the scope of the regime. If it starts with only connected employers but takes on an unconnected employer, it will fall within the regime at the point that it takes on the unconnected employer.

--- Later in debate ---

[Lord Young of Cookham]

The noble Baroness has accurately summarised what I said. We would use this clause to disapply only if we did not think that it was proportionate to apply the regime due to other existing protections in place.

[Lord Kirkwood of Kirkhope]

My Lords, perhaps I may make two quick points in response to the Minister’s explanation on these amendments, which was on the whole very helpful. The first is a wide point in support of the plea of the noble Lord, Lord Flight, that trustees need to be left with some discretion. I understand the responsibilities of trustees in a defined benefit context and I cannot believe that they are that different in a DC context. There is a body of trust law which they can found on; they have duties and responsibilities flowing from that. I think that a scheme’s continuity strategy would be an integral part of what trustees would want to do anyway. They would be derelict in their duty if they were not doing that, so the point made by the noble Lord, Lord Flight, is important. Other amendments which we shall come to later in Committee seem to take trustees for granted and use primary legislation to require them to do things that would interfere with their proper trustee duties. I would like the Minister to reflect on that.

My other point is that although I agree with the case of the noble Lord, Lord McKenzie, on Amendment 8 in preparing to adopt a master trust assurance framework— I do not make this as a cheap point just because I am Scottish—the Pensions Regulator and the Institute of Chartered Accountants in England and Wales may give the best advice in town but there is another part of the United Kingdom with a trust law which is, in some respects, slightly different from that of England and Wales. The Minister is on pretty firm ground in saying that putting this into legislation might startle the horses north of the border. We need to remember that trust law differs in some respects on each side of the border. However, the point made by the noble Lord, Lord McKenzie, was in principle the right approach. I support what he was trying to do but the Minister was also right to say that Amendment 8, as drafted, would not be acceptable—certainly not to me, if nobody else.

[Lord Young of Cookham]

If I may respond briefly to the first point made by the noble Lord, Lord Kirkwood, we are rolling out auto-enrolment, where employers have to enrol employees into a policy. Very substantial sums of money are in the process of being invested and it is crucial that there should be public confidence in the regime. I accept entirely what he said about the responsibility of trustees but we want to go beyond that and have a statutory framework in which people can have confidence that their master trust, which is getting their money and the employer’s money, is robust, has been approved and ticks all the boxes that we have outlined in earlier clauses. This is not to take away from the responsibilities of trustees but to give an added bonus of public endorsement and confidence in an area of public policy.

Benefit Cap (Housing Benefit and Universal Credit) (Amendment) Regulations 2016

Lord Kirkwood of Kirkhope Excerpts

Tuesday 8th November 2016 Lords Chamber

Moved by

[Lord Kirkwood of Kirkhope]

That this House regrets that the Government have not, in advance of the entry into force of the Benefit Cap (Housing Benefit and Universal Credit) (Amendment) Regulations 2016 (SI 2016/909), made additional support available to those individuals affected by the benefit cap to find work.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I am delighted to take the House to the much more straightforward issue of social security secondary legislation. The House has been hard at work all afternoon, so I do not want to detain it any longer than I can help, but I hope that this will be an interesting break from the important topics of children and social work that we were considering earlier.

It is my pleasure to move the regret Motion which stands in my name and would amend the Benefit Cap (Housing Benefit and Universal Credit) (Amendment) Regulations to provide that additional support be made available to individuals affected by the benefit cap to find work. I want to acknowledge how hard business managers have worked to find an appropriate time slot for this short but important debate. It was important to have a discussion about the implications of the new measures at roughly the same time as the change was made—which, as colleagues know, happened yesterday. I am grateful for the effort made to make the debate relevant in terms of its timing.

I am grateful too—as I always am, and as the House always should be—for the work that has been done by the Secondary Legislation Scrutiny Committee. I find what it does invaluable; it helps me to understand and interpret legislation that is sometimes complicated even for somebody like me who has done work in a field such as social security. Its report captured my attention and led to this debate.

I acknowledge that there are two important additional exemptions in the regulations. I pay tribute to the noble Baroness, Lady Pitkeathley, and her colleagues on the opposition side and to the Minister for achieving them. If they had not been in these regulations, I would have been tempted to try to annul them altogether. It was obviously a clever trick on the part of the Minister to put in a couple of exemptions so that we could not attack the regulations more fundamentally.

Anyway, that is by way of preamble. We are considering a fourfold increase to 88,000 in the number of households that the cap will now cover. The two significant differences are that it is set at a lower level and it is tiered. Both differences will change the incidence and the effect but not the fact that it will be out-of-work households of a working age that carry the weight of the changes. I cannot miss the opportunity to observe in passing that over the period since 2010 working-age families have carried more of the can than maybe they should. In retrospect we might look back on that and wonder why we did not spread the load more widely. We have had debates about that in the past.

I hope that in the new regime we are now under with the change of Government in the summer, there will be better consideration of these matters and the incidence of cuts falling on working-age families in the future. Certainly, some reassuring things were said by the Prime Minister in her early incarnation. The new Secretary of State is a man with whom I am certainly very happy to do business. He is a sensible man and I have known him a long while. I look forward to working with him in the social security field in future.

I will not labour the objection because the noble Lord, Lord Freud, has heard me on this ad nauseam. I am of the school of thought that benefits should be assessed by way of establishing need; that need should lead to the entitlement. This second raft of supporting mechanisms in our social protection policy is that there is an annual uprating, an undertaking that adjusts rates. We have a perfect system there for adjusting—reducing, increasing, or anything we like—that is well understood and has been in place since the Second World War effectively. It hurts me that we start having vanity projects unleashed by uncontrolled Chancellors of the Exchequer who know nothing about what the Department for Work and Pensions really wants to do, visiting cuts in an unexpected way. For example, these cuts will have the arbitrary outcome of particularly affecting large families, which is no surprise, in high-rent areas, which is not a surprise either. Indeed, the only way in our benefit system that you can get anywhere near £20,000 or £23,000 by way of benefits is by being in one or both of those categories. There is no other way. Jobseeker’s allowance pays £73 a week, not £23,000 a year. The general public find that difficult to understand but we in this House know better. The arbitrary nature of a policy such as the cap being introduced is dangerous and it hurts people.

Turning to the Motion, I worked as hard as I could to see if I could go with the grain of what the Government are trying to do. I agree that of the three objectives in this policy, getting more people into work is something that we all favour, but the so-called work incentives deployed in this measure are threatening to most people. They will continue to be threatening unless these people can be assured—as can we as policymakers—that they are being given a fair shot at getting into employment. Now, phase 1 of the cap substantially had its incidence in London. There is a labour market in London that is as vibrant as any in the United Kingdom. The tiered effect of phase 2 of the cap will produce difficulties all across the United Kingdom in varying labour market conditions. People will find it very much harder in phase 2 to respond to the exhortation that work incentives are being increased. It is very difficult for people to do that without substantial support and that is absent at the moment, so far as I am concerned. This Motion merely says, if I can put it this way, that it is not safe to introduce this yet—not until we get better provision made and help people into work.

There are three other things I will briefly canvass. Obviously, one of the other objectives in this is trying to persuade the Government—I hope the Minister will reflect on this—that it is madness to put this benefit cap into universal credit. None of the figures we are talking about this evening draws any experience from universal credit yet because it is too early in its rollout. However, putting the clauses of the benefit cap into universal credit will make it even harder to get people to understand what universal credit is trying to do. I do not think that it is too late to do that, although these regulations go through the motions of it. I just hope that the ministerial team will reflect carefully on opportunities in future under the new Government to try to strip out benefit capping from universal credit when it is properly introduced.

On the Government’s claims of success, I do not know if the Minister saw the IFS observation note published on Sunday, but there is some evidence of movement. However, the Government are vastly over-claiming the success of this policy. The IFS says that in 2015-16, phase 1 of the benefit cap saved directly some £65 million. In 2016-17, it expects it to directly save another £100 million on top of that. Yet that has been covered off by people claiming discretionary housing payments, in 2015-16 for £26,000 and in 2016-17 for the £20,000 cap. I am sorry—I did not make that very clear. The savings of £65 million and £100 million are, the IFS estimates, some 1% of the £12,000 million to be saved over five years, so it is not a huge amount of money.

The point I was garbling there is that the £65 million saving must be offset by £25 million in DHP awards in 2015-16. We now know that in phase 1, 40% of people subjected to the cap made successful applications for discretionary housing payments. It comes to the point where you really need to ask yourself whether the savings made, when measured against the discretionary housing payments paid at the moment, are worth the effort. The National Audit Office and Comptroller and Auditor-General, when they get round to it in due time once this whole policy area settles down, will start asking themselves that question: whether the totality of the spend to try to handle some of the transitional arrangements and mitigate some of the effects does not make the policy less than worth doing because it so affects the money actually saved.

I noticed a Motion that went through the House just after the summer where £585 million went to Northern Ireland for mitigating effects. That is for a community of 1.8 million people. When you look at the amount of discretionary money and some of the block grant Scotland is using—principally at the moment to mitigate the bedroom tax changes, but no doubt the Scottish Government will think about using their own money to mitigate some of the cuts under this policy too—the totality of public spend begins to be questionable. I am not sure that it can be claimed that this is a clear success in terms of making a significant saving to the public purse.

My next point, briefly, is that the evaluation is weak. I know that the Minister is very hot—and rightly so—on the research dished up for his consideration. I ask him to look at that again. There are dynamic effects, which I understand are difficult to measure. He has said that many times before. The Ipsos MORI survey was done with 490 people who had been subjected to phase 1 of the cap. Those 490 self-selected respondents do not seem to me to be a core collective statistical analysis of the experience across the whole cohort of those subjected to the cap. For example, I do not think that there has been any attempt at all to follow up offload destinations. There are people who just left and stopped claiming benefit. They have disappeared and we need to look at that very carefully indeed.

--- Later in debate ---

[Lord Freud]

I am sorry. I did not mean not to be serious. My best understanding of this is that where someone has been capped and will no longer be capped then we will inform them of the change. If that is not the case, I will write to the noble Baroness; if it is, I will not. However, I am pretty sure that it is the case.

To pick up on the concern expressed by the noble Lord, Lord Kirkwood, regarding the point made by the Secondary Legislation Scrutiny Committee, the committee wrote to my colleague the Minister for Welfare Delivery to express concern about the equality analysis. I imagine that the noble Lord saw that letter. Ministers fully considered the equality analysis at the same time as the regulations were made but there was simply a delay in publishing it. Perhaps noble Lords can cast their minds back to the peculiar period in our history following the June referendum, when the machinery of government perhaps was not working quite as smooth as it usually—or always—is.

On evaluation and the Ipsos MORI survey that the noble Lord talked about, the numbers came about because it was a longitudinal survey to understand what was happening; a lot of different levels of analysis went on, which looked at different outcomes, some of which were done on a quantitative basis, others on a qualitative basis; that was a qualitative one. We are committed to go on evaluating it and now we are developing the plans to understand behaviours and attitudes. The quarterly benefit cap statistics will continue to be produced, and the May 2017 release will be the first to show the impact of the lower levels.

I hope I have reassured the House that the Government have put in place measures that provide significant additional support to claimants affected by this policy to help them adjust, and wherever possible to move into work.

[Lord Kirkwood of Kirkhope]

My Lords, I am grateful to the Minister and to all colleagues who have contributed to this debate. I think it has been worth while. My difficulty with the Minister’s response—which I will study, as I always do; I have the box set of the Freud responses over 10 years—is that I was looking for “additional”, but I did not get that. It is also too passive. A lot of good work is laid in front of some of these people who are confronting quite catastrophic changes in their financial circumstances. I would have expected a benefit team to have been geared up to deal with that specifically, certainly for six months or so, and that is absent. That is inadequate, because people will suffer as a result of it not being there.

I trust that the Minister has taken the message that although we had important debates about this in 2010 and 2015-16, this is a clear and present danger if it is not got right, and it will continue to be considered in that vein by the department. However, because of the absence of the activity that I was looking for and the additional measures which were not produced, I fear I must test the opinion of the House.

Welfare Reform and Work (Northern Ireland) Order 2016

Lord Kirkwood of Kirkhope Excerpts

Tuesday 13th September 2016 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

The Minister is right to point to the differences that apply in the different jurisdictions throughout the United Kingdom, but would he agree with me that the excellent work that Professor Eileen Evason did in identifying the mitigating factors has helped bring forward this set of proposals, with which I agree? After a four-year period, taking this together with what is happening in other parts of the United Kingdom such as Scotland, it should be possible for the DWP centrally to look at best practice and at whether some of these mitigating measures are having a beneficial effect that could be applied in other parts of the country.

[Lord Freud]

The DWP has embedded a “test and learn” approach, and really does look at things. Clearly, where you have different strategies in the different countries of the United Kingdom, one can look at what differential impact those policies have had. I am sure that the DWP will take the opportunity to assess that.

The Welfare Reform and Work Act built on the 2012 reforms. This order provides the legislative framework to replicate some of the most important aspects, with changes such as improving fairness in the welfare system by changing the benefit cap level. This order will bring the level of the benefit cap in Northern Ireland alongside that in Great Britain, ensuring parity, through changes such as providing new funding for additional support to help ESA and UC claimants with health conditions and disabilities into work, as well as reforming the ESA work-related activity component, so that the right support and the right incentives are in place for those capable of taking steps back to work. Then there are changes such as correcting the unsustainable rise in benefits compared to earnings by freezing most working-age benefits. Importantly, these changes will help to ensure that the budget of the Northern Ireland Executive is placed on a stable footing.

It was agreed in the fresh start agreement that the Executive could supplement benefits from within their own budget. The agreement allocated up to £585 million of the Executive’s block grant over four years to provide supplementary welfare payments in Northern Ireland, which would be reviewed in three years. Under the 2015 order, the Assembly has already passed some regulations for supplementary welfare payments relating to the 2012 reforms. The provisions of this order will give the Assembly the ability to design and pass further such regulations, including a cost-of-work allowance, and supplementary payments to those affected by the removal of the spare room subsidy. These time-limited payments follow the recommendations of the Evason report, which flowed from a commitment in the fresh start agreement.

This order is about delivering the fresh start agreement and returning Northern Ireland to a position of legislative parity and financial stability. It is about supporting hard work and creating the right incentives for people to find work and create a self-sufficient life, supported by but independent from the state. It is about making sure that spending on welfare is sustainable and fair to the taxpayer, while protecting the most vulnerable. Building an economy based on higher pay, lower taxes and lower welfare is right for the UK, and right for Northern Ireland. I beg to move.

Pensions Act 2014 (Consequential Amendments) Order 2016

Lord Kirkwood of Kirkhope Excerpts

Thursday 8th September 2016 Lords Chamber

[Baroness Drake (Lab)]

My Lords, it is unfortunate that there has been an oversight in providing a right of appeal in respect of certain decisions on NI credits for the new state pension, but clearly it is recognised that this SI seeks to correct that.

However, I am a little confused because, as I understand it, the decisions potentially impacted by the oversight in relation to the appeal relate to credits for, in certain circumstances, people caring for children under 12, carers and spouses and civil partners of members of Her Majesty’s Armed Forces. It would be helpful if the Minister could clarify exactly which classes of credits were impacted by this appeal oversight, because it is difficult for the layperson to work it out. In particular, will he say whether that category or class of credits includes applications for credits from those caring for at least 20 hours a week, including grandparents?

The concern has to be over the extent to which the omission of a right of appeal may have affected individuals’ access to such credits and whether this SI addresses that sufficiently. Again, it was quite complex trying to follow what exactly was the answer to that question. Is it possible for the Minister to confirm or indicate the number of claimants who have been denied a right of appeal to date as a result of this omission—that is, the population denied that right rather than those who sought, in the absence of that right, to appeal?

The oversight concerning an appeal embraces all decisions on the relevant credits made between 6 April 2016 and the date when these regulations restore a right of appeal. The Explanatory Memorandum refers to minimising,

“the period when there is no right of appeal”,

for these certain classes of credits, but I am not sure how that impacts the individuals who may have sought to exercise a right of appeal during the period. Does this mean, for example, that all those who made applications for such credits which failed will automatically be written to and told that they now have a right of appeal? I am not quite sure how they will be addressed under this SI. It would be helpful to have that clarified.

As the Explanatory Memorandum observes, some credits are posted automatically while other credits must be applied for: for example, the credit for caring for at least 20 hours a week. The omission of an appeal sits alongside what appears to be government reluctance to report on the success of measures to improve the take-up of claimable benefits. The noble Baroness, Lady Altmann, as Pensions Minister, commented that it was regrettable that the number of carers claiming for NI credits was still so low—so I will take this opportunity to ask the Minister whether it is possible to be advised on how many carers claim such credits and the number the DWP estimates could be eligible for such credits, so that we have some idea of what the noble Baroness, Lady Altmann, was referring to when she referred to the regrettably low number of claimants.

My final point is on the uprating of the new state pension and the consequential adjustment to income-related benefits. Sections 150, 150A and 151A of the Social Security Administration Act refer to uprating by no less than earnings or prices. There is no reference to the triple lock in the new state pension. I cannot miss this opportunity, given that there has been much speculation and comment about the longevity of the triple lock, not least from the Government’s previous Pensions Minister. Can the Minister confirm the exact extent of the Government’s commitment to retaining the triple lock?

Given the introduction of universal credit, over time the adjusting of income-related benefits to take account of the uprating of the new state pension will largely be in respect of awards of universal credit and pension credit. The experience of the poorest pensioners will continue to be influenced by the extent to which the uprating of the pension guarantee credit is comparable to, or less generous than, that applied to the new state pension. Can the Minister confirm the Government’s policy for the uprating of pension credit, not least over the course of this Parliament?

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I will make a short contribution to this debate. I think the House is grateful to the Minister for coming forward with these two corrections to omissions. It is reassuring to hear, if I understand the Minister accurately, that these things have been caught in time, so that there has been no real loss to individuals. Like the noble Baroness, Lady Drake, I would like more reassurance, because it was quite a complicated explanation. I think the Minister said that no results in terms of loss of appeals to national insurance credit were discernible.

It would be valuable if the Minister could take careful note that some of us might like to come back to monitoring this in the uprating debate next spring, so that we will have a better chance to look at all the downstream consequences of the changes. In addition, I would like to hear a little more reassurance about paragraph 12 of the Explanatory Memorandum, Monitoring and Review, which says:

“We will not monitor these changes specifically, but will do so through established customer feedback processes”.

I wonder what that means and how meaningful it is when these changes might be affecting tiny numbers, but the tiny numbers might be significantly affected. I am a bit nervous about leaving this to customer feedback. Will the Minister take that point on board?

On another process point, I have always been amazed at the extent of the expertise available to the professionals in the department, the Pensions Directorate and the Pensions Agency, its predecessor. They were expert at coping with this immense detail. The regulations contain two omissions, and that is two omissions too many. They may be relatively minor in their extent, but, as I keep saying to the Minister, the ministerial team has to make sure that there is enough resource in the department to ensure that parliamentary draftsmen get all the details they need, so that omissions are not made in future. The department continues to suffer staff cuts in a way that puts unreasonable pressure on the experts who are good enough to provide us with the regulations that we consider here in Parliament. Will the Minister reflect on that?

It may be that these are two completely one-off exceptions. I hope that it is not the beginning of a trend. Those of us in Parliament who look at these things will be watching very carefully. I do not blame the professionals in the department: if they are underhanded in terms of dealing with the immense volume of ineffably complicated minutiae of legislative proceedings and provisions, they need all the help that they can get.

Again, I welcome the fact that this seems to have been picked up in time, but if the Minister could give us some more reassurance about winners and losers, even if it takes him over the coming months until the next uprating in the spring, I am perfectly content to support these regulations. I support the points raised by the noble Baroness, Lady Drake, but I am perfectly happy to support these regulations and allow them to go forward.

Universal Credit

Lord Kirkwood of Kirkhope Excerpts

Tuesday 19th July 2016 Lords Chamber

[Lord Freud]

As I said, I am looking at this area. It is not as simple as some of the figures might make you think. I, too, read the IFS research with great interest. Inequality among children has fallen very steeply since the mid-1990s, most of it post the recession. Whenever the IFS says anything nice, I really appreciate it. It said that the important reason was a remarkable fall in the share of children in workless households. Indeed, we have half a million fewer since 2010.

[Lord Kirkwood of Kirkhope (LD)]

Will the Minister confirm that, if my history is right, he is the single surviving Minister since 2010 holding down the same office in government, promoting the interests of universal credit? Is this because the subject area is so complicated, or maybe because he is unpaid? Do any of the 11 pilots currently being mounted by the department address the issue raised by the noble Lord, Lord Hylton, which is important? Packages of support and advance payments are available, but this does not seem to be communicated to the people who need them most. I hope that the Minister will stay in his position for some time yet.

[Lord Freud]

I thank the noble Lord. His sums on this are right, although, along with him, I am not sure whether that is a compliment or the opposite. With the figures that we are looking at, we are disentangling legacy systems—which are pretty odd in themselves—from the new system. One fact about the very big ALMO figures is that ALMOs want rent a week in advance, so it is not surprising that a lot of people are in arrears when you compare them with housing associations, which take the rent four weeks in arrears. That is the kind of thing that I have to disentangle.

Poverty

Lord Kirkwood of Kirkhope Excerpts

Thursday 14th July 2016 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Whitty, and to contribute to this debate. The noble Lord, Lord Bird, made a very robust and passionate speech, and his enthusiasm and fresh thinking is welcome in this House. I have been studying this area of policy for longer than I care to remember, and I think it is important that from time to time we step back and look at what we have achieved and what challenges lie ahead. I will certainly come to the noble Lord’s conference: as long as the conference fee is not too high I will happily come and look at prevention, emergency-coping and cure. I am slightly worried about the use of the word “cure”, but be that as it may, I will stand shoulder to shoulder with him in raising the issue. I congratulate him on using the word “poverty”, because we in this House sometimes pussyfoot around with all sorts of euphemisms for poverty. Politicians do not like talking about it, but 15% to 20% of our population experience poverty and we should face up to that more directly.

I ask the noble Lord to bear in mind, in the course of his developing thinking, that we need a proper network of social protection across the United Kingdom. I think he accepted that when he said that, when people are in need, have no options and are inescapably caught in household circumstances over which they have no control, the state has to step in and provide protection and support to allow them to trade out of their circumstances in the best way they can. It is not an easy thing to do, because individual circumstances are so diverse and the state cannot discriminate but has to have common systems that are available equally to all citizens. I ask him to bear in mind that the social protection system that we have in this country should deal with the redistribution of income throughout individuals’ lifetimes as well as taking snapshots and looking at individual circumstances.

The noble Lord is, I think, in danger of falling foul of one of the myths to which Professor John Hills referred in his excellent book Good Times, Bad Times—namely, that those in dependency are all the same people all the time, and it is a question of “them over there” who are in dependency and “us over here” who are paying the taxes. That is completely contrary to the facts. You need only to recognise that in every three-month period a million people go into work and a million come out of it to see that there is an evolving pattern of falling in and out of poverty and in and out of benefits. Therefore, it is a complete myth to think that people on benefits never change and that they are always there and always costing money. However, that myth is sometimes fostered in the newspapers. The kind of prejudice visited on those in dependency is like the prejudice which we talked about, very usefully, when we discussed the fourth Oral Question earlier today.

We have to deal with that prejudice and we have to deal with the ignorance about the scale of the money that is spent on social security and the social protection network. If you include education, health, pensions and all the other bits and pieces of state support that are available—and have been available, certainly to me and my generation, with defined benefit pensions and all the rest—the amount of money spent actually looking after those in dependency is very small. In his book, John Hills calculates that if you take social protection over that broad gamut of policy areas, for every £12.50 that is spent on social protection, £1 is spent on supporting people who are in dependency, on jobseeker’s allowance and the like. So we need to get the balance right here and understand that, although these figures sound like enormous sums of money when they are dealt with in pounds sterling at today’s prices, if they are taken in the totality of the public spend of £735,000 million, or whatever it is, it is money well spent on providing social protection available to all of us, given that not many families in this country will not need to access healthcare, pension provision, education and the like at one time or another. Therefore, I appeal to the noble Lord to make sure that he does not fall foul of the myths that exist in this area.

In the minute that is left to me, I want to say that this is a very important moment. That is another reason why I am pleased that we are having this debate this morning. A new Government are being formed. I hope fervently that we keep the present ministerial team on this subject area. In my view, any changes would be disastrous. As people know, I am a fervent advocate of delivering universal credit, which I think, if it was a bit better funded, would deliver a lot of the things to which the noble Lord, Lord Bird, aspires. I welcome what the new Prime Minister said on the steps of No. 10 Downing Street about trimming back austerity, because I think that austerity has been part of the problem and one of the causes of poverty. I argue that we should focus on two things for the rest of this Parliament, the first being that we should deliver universal credit in the best and most efficient way we can. The other important Conservative manifesto promise was to halve the disability employment rate. That, too, is an important part of the programme. These two things should be priorities for us in the months and years ahead.

I repeat that I am very willing to contribute to anything the noble Lord, Lord Bird, is doing in this area, and share his enthusiasm. I wish him luck in achieving some of the ends that he set out this morning.

Universal Credit: Rent Arrears

Lord Kirkwood of Kirkhope Excerpts

Wednesday 13th July 2016 Lords Chamber

[Lord Freud]

What we are aiming to do with universal credit—and there is evidence of success in this—is to get people to take control of their own lives. It is much more difficult for people to switch to going into work if their rental situation is locked up in a dependency situation. We are aiming to free people from that so that they can move into work. There are good signs that we are being successful in getting people into work.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, the Minister’s announcement that he is undertaking a review is very welcome, but will he include the evidence that the noble Lord, Lord McKenzie, has just put forward about the increasing incidence of rent arrears? We need to make sure that this is merely a short-term spike and not a long-term trend. In the course of his researches, will he look into why the safety net measures built into the design of universal credit, to which he referred, appear to be failing in this instance? This is important. By a country mile, this is the biggest change programme that Her Majesty’s Government are bringing forward. It is mission-critical for the United Kingdom, particularly after Brexit, and it is important that we get it right.

[Lord Freud]

I absolutely accept that we need to get it right. I am spending quite a lot of time with the ALMOs. I have had a couple of meetings with Eamon McGoldrick and John Bibby to discuss their findings. It is complicated. The essential fact is that landlords like their money paid in advance and all benefits systems pay in arrears, so we do not know how much of this is what the ALMOs call book arrears and how much is real arrears. We need to get to the bottom of that and we need to get to the bottom of what are the processing and payment systems issues. We need to understand what the existing arrears are. They are much higher than we expected—50%—and that is a frightening fact. We may be looking at a group going into UC which is unusual because it is moving up and down, and we need to understand and quantify those factors.

Life Chances Strategy

Lord Kirkwood of Kirkhope Excerpts

Wednesday 11th May 2016 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

It is important that the Minister is able to give the House an assurance that the Prime Minister’s earlier exercise in trying to family-proof new legislation is continued through the rest of this Parliament. Can she give us an assurance that the legislation in the Queen’s Speech will be subject to the family-proofing that the Prime Minister set out some months ago in his speech?

[Baroness Altmann]

As the noble Lord is well aware, I cannot anticipate what will be in the Queen’s Speech, but I can certainly repeat that the family test is applied to all new policies developed by this Government.

My noble friend Lord Shinkwin made an emotional and passionate intervention on something that I feel very strongly about, and I certainly agree about the importance of considering all the requirements for a successful working life for disabled graduates, as well as the early encouragement of disabled children.

In conclusion, we have already committed to tackling the root causes of poverty. I am sorry that I have not had time to go into more detail about all the points that have been raised in this excellent debate. But I assure noble Lords that our intention is that, by putting people first and reiterating the importance of family in our new life chances strategy, we will, together, be able to transform people’s lives. Our forthcoming explanation of and further information on the life chances strategy will demonstrate how we and others across society will be able to achieve this.

Personal Independence Payment: Mobility Criterion

Lord Kirkwood of Kirkhope Excerpts

Wednesday 4th May 2016 Lords Chamber

[Baroness Altmann]

My Lords, I can only assure the House again that the aim of PIP is to make sure that the assessment looks at the individual and their needs, unlike the previous system, where there was no face-to-face assessment and decisions were made without the professional medical advice which we have brought in under PIP. Under DLA, too many people were given lifetime awards—that is at the heart of some of the problems we have been hearing about this evening—whereas under PIP claimants have regular reviews to make sure that the support they get reflects their current circumstances.

Unlike DLA, PIP considers mental health, cognitive impairments and other non-physical disabilities equally, but this is not just about trading off between mental and physical conditions, as the noble Baroness may have feared. It is about getting the right support that reflects current circumstances. Under DLA, people were not necessarily seen by an assessor. Neither is this about saving money—we are spending more on PIP, and more people have Motability cars now than when PIP started.

The system is working. Some 22% of claimants now receive the highest rates of both components compared to only 15% under DLA. Therefore, under PIP more people are getting more help. Some 22,000 more people are using the Motability scheme since PIP was introduced, and as noble Lords will be aware, for DLA claimants leaving the Motability scheme following a PIP reassessment, we have agreed a £175 million package of transitional support with Motability, including a £2,000 payment for most claimants.

PIP is performing well. We have now cleared well over 1 million claims for PIP, and the majority of claimants appear to be happy with their PIP decision. The suggestion that so many people are appealing and overturning their assessment is simply not the case. Only 5% of PIP claims have gone to appeal, and 40% of those appeals—not the 60% figure mentioned by the noble Baroness—were successful. Therefore, the proportion of PIP assessments which are overturned on appeal is 2%. When a decision is overturned it does not automatically mean that the original decision was wrong. Often claimants provide additional evidence not available to the original DWP decision-makers.

We are committed to engaging with disabled people, and that was fundamental to the design of PIP in the first place. We held a widespread consultation on the very topic of this debate—the moving around criteria.

I would like to clarify what appears to be a widespread misconception regarding the differences between the mobility assessment in PIP and the mobility assessment in DLA. Many noble Lords have spoken of a “20-metre rule”, but there is no such rule. Some people believe that we have changed the assessment of a distance a claimant is able to walk from 50 metres to 20 metres. This is not the case. The higher rate of DLA was always intended to be for claimants who were unable, or virtually unable, to walk. This is still the case in PIP, but we have gone further. Under PIP, if a claimant cannot walk up to 20 metres safely, reliably, repeatedly and in a timely manner, they are guaranteed to receive the enhanced rate of the mobility component. If a claimant cannot walk up to 50 metres safely, reliably, repeatedly and in a timely manner, then they are guaranteed to receive the enhanced rate of the mobility component. I can assure the noble Baroness, Lady Brinton, that if a claimant is in extreme pain, they will be assessed as not reliably able to walk that distance. The reliability criteria are a key protection for claimants.

It was after my department’s work with the noble Baroness and noble Lords in 2013 that we set out these terms, not just in guidance but in regulations, confirming our commitment to getting this right. If a claimant cannot walk up to 50 metres without such problems, they will still be entitled to the mobility component at the standard rate. If they cannot walk that distance reliably and in the other ways in which we have protected it, they will be entitled to the enhanced rate. Therefore, the enhanced mobility component of PIP goes to those people who are most severely impacted and who struggle to walk without difficulty.

[Lord Kirkwood of Kirkhope (LD)]

The Minister is doing a comprehensive job of explaining the background, and that is important. However, will she accept that there is a great deal of frustration within the disabled community? In spite of repeated freedom of information requests to get some of the data and the metrics around the things she has just been describing, the department has hidden behind the view that these are ONS-qualified statistics and therefore it has to wait until they have been properly digested and published. My point is that this Motion is a request for urgent talks. We believe that this policy is going badly wrong. Will the Minister use her good offices to get the meeting that is being asked for so that the talks can look at what the data are telling us about the level of losses, which we have only the word of Motability to go on? It is doing the best that it can, but these are not comprehensive statistics. The fact is that, as we sit and speak this afternoon, we do not know the extent to which this policy is taking away the enhanced mobility component in PIP. That is dangerous, because if we do not get in touch with that information and use it to assess what is going on, we will not make this change early enough, and this policy will need to change.

[Baroness Altmann]

I thank the noble Lord for his question. I can assure him from my own experience that it is important that we have any statistics properly verified before they are released as official statistics. We will release relevant data, and if we have any further information, I will be happy to write to the noble Lord with any other data we can provide.

As regards the information that the noble Baroness, Lady Grey-Thompson, asked for on the amount of money spent on mandatory reconsiderations and appeals, we will provide written details of those costs.