Public Service Pensions Bill
Lord Naseby Excerpts(13 years, 2 months ago)
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Lord Naseby
“(1) Schedule 6 to the Constitutional Reform and Governance Act 2010 (parliamentary and other pensions) is amended as follows.
(2) In paragraph 19, for sub-paragraph (3) substitute—
“(3) Sub-paragraph (2) does not apply if either—
(a) the trustees of the Fund consent to the new scheme making the provision, and the person making the new scheme is satisfied that the consent requirement is met, or(b) the provision provides for a person’s normal pension age or deferred pension age to change in consequence of a change in state pension age in respect of service after the provision comes into force, but not affecting that person’s right (including a contingent right) or entitlement to or in respect of a pension or future pension payable from the Fund which has accrued in respect of service where that age does not change in consequence of a change in state pension age.”(3) In paragraph 19, at the end insert—
“(8) In this paragraph—
(a) “normal pension age”, in relation to a person and a scheme, means the earliest age at which a person with relevant service is entitled to receive benefits (without actuarial adjustment) on leaving that service (and disregarding any special provision as to early payment of benefits on the grounds of ill-health or otherwise),(b) “deferred pension age”, in relation to a person and a scheme, means the earliest age at which a person with relevant service is entitled to receive benefits under the scheme (without actuarial adjustment) after leaving that service at a time before normal pension age (and disregarding any special provision as to early payment of benefits on the grounds of ill-health or otherwise), and(c) “state pension age”, in relation to a person, means the person’s pensionable age as specified from time to time in Schedule 4 to the Pensions Act 1995.””
Lord Naseby
My Lords, in moving the amendment, I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund and as its only active pensioner within the membership of the fund.
The amendment relates to Clause 31—Parliamentary and other pension schemes: pension age. The clause amends Schedule 6 to the Constitutional Reform and Governance Act 2010, to which I shall hereafter refer as CRAG, by inserting a new paragraph 29A, “Pension age”, into that schedule. It is an enabling measure, not a requirement, as was made clear in the Commons. It enables IPSA, in relation to MPs and the officeholders within its remit, and the Minister for the Civil Service, in relation to the ministerial scheme, to introduce for future benefits a provision whereby “normal pension age” within these schemes will rise automatically with changes in the state pension age.
The PCPF trustees take no issue with the measure itself. As statutory consultees under CRAG, it will be for the trustees another day to debate with IPSA/the MCS the detail as to how such a provision may be implemented for the future. However, we are concerned that the drafting creates ambiguity in the legislation governing the PCPF such that it potentially undermines existing protections afforded to PCPF members in a way that we doubt Parliament intends.
It is important to understand the background. The legislative framework of the PCPF was overhauled by CRAG and is governed by that Act. There was extensive debate at the time of the passage of CRAG about the need to ensure that the accrued rights of PCPF members were appropriately protected in legislation. That was particularly important given that the setting of MPs’ future pension provision was by that Act being transferred to an independent body in IPSA. The legislation appropriately prescribed the boundaries of its powers.
Those boundaries, set out in Schedule 6 to CRAG, were described as follows:
“My aim is to ensure that the statutory safeguards afforded to members of other occupational pension schemes broadly apply to the parliamentary scheme. As with statutory protection for pension schemes elsewhere, amendment 74”—
the government amendment—
“would put a double lock on any provision adversely changing accrued pension rights. It would first be necessary for the trustees to consent to the scheme making such provision and, secondly, each member would have to give his or her informed consent to any changes to accrued rights”.—[Official Report, Commons, 2/3/10; col. 854.]
The details of those boundaries can be found in paragraph 19, “Protection of accrued rights” and paragraph 20, “Meaning of accrued right”, in Schedule 6 to CRAG. These provide, at paragraph 19(2), that:
“The new scheme must not make any provision in relation to an accrued right which puts (or might put) a person in a worse position than the person would have been in apart from the provision”.
Paragraph 20(2) says that the term “accrued right” means,
“a right (including a contingent right) or entitlement to or in respect of a pension or future pension payable out of the Fund”—
the PCPF—
“which has accrued in respect of service before the provision comes into force”.
The protection does not apply if the PCPF trustees consent to the making of the provision and informed individual member consent requirements are met.
Our concern, as PCPF trustees, is that the clause as drafted risks going beyond the narrow scope to which the Government referred. It is important that this does not happen because the structure of the clause means that it disapplies the accrued rights protection in CRAG and the so-called “double lock” enshrined in CRAG would not exist at all. At its most simple, the difficulty with the clause is that it will import language into CRAG that is inconsistent with the drafting that is there already. With inconsistency comes ambiguity and that risks undermining the double lock that currently exists. The clause fails, for instance, to speak of the removal of the protection as applying only in respect of service after it comes into force, this being the critical aspect of the existing CRAG protection.
I have two questions for my noble friend on the Front Bench. First, what comfort can he provide that the carve-out will not undermine the existing CRAG protections other than to introduce an enabling provision to allow IPSA or the MCS, as appropriate, to tie future service benefits to an NPA that uprates in line with changes to SPA? Secondly, can he confirm that the wording in Clause 31,
“(as well as other benefits)”,
does not extend the application of the carve-out to any benefits other than relevant accrued benefits? I realise that the second question has some technical dimension to it, to which I shall briefly refer. It arises from the wording currently in Clause 31 by way of proposed new paragraph 29A(1) to Schedule 6 of CRAG. It provides that the carve-out from accrued rights protections, to enable the introduction of an NPA that uprates automatically with changes to SPA, is limited. It will apply only to “relevant accrued benefits”. Defined at the proposed new paragraph 29A(3)(d) to Schedule 6 to CRAG, they are benefits accrued after the coming into force of that SPA link—that is, future service benefits. However, the Bill refers to the carve-out applying to,
“relevant accrued benefits (as well as other benefits)”.
The concern is that the additional words in parenthesis could be read as suggesting that the carve-out applies to all benefits, not just to “relevant accrued benefits”.
Having proposed this quite complicated amendment, I hope that nevertheless the Minister will be able to clarify the position and indeed give comfort to me and the other trustees. I beg to move.
Lord Stewartby
My Lords, I support my noble friend, who has explained this technical area very skilfully. Like him, I have to declare an interest as a member of the parliamentary fund and I was a trustee for several years. The great advantage of that is that one does not come to the details of this sort of provision completely unsighted. However, it is a very complicated Bill. As the noble Lord, Lord Eatwell, mentioned, it contains a lot of areas of uncertainty. The same point about ambiguity in drafting was made by my noble friend Lord Naseby. All I want to do is help support the case made by my noble friend and underline every point at which accrued rights are involved. That is a very sensitive area. When the Bill is finally tidied up, special efforts must be made to ensure that accrued rights are dealt with as if they were sacrosanct. I believe they are, but that must be what happens in practice. With those few words, I support my noble friend and hope that the Committee will be sympathetic to the case he put so clearly.
Lord Newby
My Lords, the noble Lords, Lord Naseby and Lord Stewartby, are concerned that Clause 31 as currently drafted creates ambiguity and could have a wider interpretation than is intended. I will seek to put their minds at rest and in doing so answer the two questions raised by the noble Lord, Lord Naseby.
I hope I can reassure the noble Lord that the clause as drafted does not provide for a wide power to amend accrued rights under the relevant schemes. The power provided for in the clause is actually very narrow and the disregard for the accrued rights protections in CRAG applies only to this very narrow provision. The power simply allows those responsible for the schemes to amend them to create a link between normal pension age under the scheme and state pension age, which would apply to benefits accrued from the point the amendment takes place. That is to say, once that link is in place any increase in state pension age will increase the normal pension age, but only for those benefits accrued after the creation of the link. That is the key point. The clause does not allow for changes to the indexation arrangements for deferred members, sweeping changes to the death in service benefits or removal of the final salary link. All these areas will continue to have the same level of protection under Schedule 6 as now.
I believe that the phrase,
“(as well as other benefits)”,
in the clause is of considerable concern, as the noble Lord, Lord Naseby, said. I should like to put on the record the Government’s view that this phrase does not open the door to a wider interpretation of the benefits that could be subject to the state pension age link as a consequence of this clause. It is important to include this phrase, so it is clear that the clause does not reduce the power the scheme already had to change the normal pension age for benefits that accrue after the change. However, it is also clear from the current drafting of the clause that the only accrued benefits that come within the new power are “relevant” accrued benefits, as defined in new paragraph 29A(3)(d). I hope therefore that the noble Lord will find sufficient comfort in what I have said to be able to withdraw his amendment.
Lord Naseby
I am most grateful to my noble friend for listening to the propositions and concerns that we had. I think his answers were very helpful. Certainly, I would like to study his reply very carefully after Committee stage, and if necessary return on Report, but I hope that will not be necessary. At this stage, I beg leave to withdraw the amendment.
Public Service Pensions Bill
Lord Naseby Excerpts(13 years, 3 months ago)
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Lord Newby
My Lords, this Bill offers a rare opportunity to introduce primary legislation that pulls together a new common UK legal framework for public service pensions, and it is right and necessary that we do so. We must have public service pensions legislation that is fit for purpose and ensures that those who commit their careers to delivering our valued public services continue to receive guaranteed benefits in retirement that are among the very best available.
However, we also have an obligation to ensure that these generous arrangements are provided on a fair, transparent and sustainable basis. This Bill is based on the recommendations of the independent Public Service Pensions Commission, which was chaired by the noble Lord, Lord Hutton of Furness, who I am delighted will be taking part in the debate today.
In June 2010, the noble Lord accepted an invitation from the Government to conduct a fundamental structural review of public sector pension provision and to make recommendations on pension provisions that would be affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights. This Bill fulfils the Government’s commitment to bring forward fundamental changes to public service pensions based squarely on his recommendations.
I thank the noble Lord, Lord Hutton, for his significant role in bringing about these important reforms. His recommendations mark an important milestone in the history of public service pension provision, and we are extremely grateful to him for having undertaken this somewhat thankless task. I must also thank those in the other place for their work on the Bill to date.
As was made clear on Report in the Commons by my ministerial colleague the Economic Secretary there are some areas in this Bill that we are reflecting on further, following representations made in another place. For example, we are looking at the best way to reflect our commitment to member representation on scheme boards and at how personalised information is provided. As for the powers that would allow scheme managers to make retrospective changes to schemes, I am aware that this is an issue about which many feel uncomfortable and that the Delegated Powers Committee has also expressed concerns. The Government are considering their response to the Committee’s report, and we will return to that matter.
As we begin our consideration of the Bill, we must not underestimate the importance of what it is trying to achieve. We are in a world where people are living longer. While this is obviously an extremely important and welcome trend, we must face the consequence of this improvement on the costs of providing public service pensions. As well as looking at how to keep the increasing costs under control, we must also consider the fairness of the arrangements. I hope and believe that the Bill gets this important balance right.
The Bill is in one respect rather curious, in that many features of public sector pension schemes are not covered in detail. They will be set out in detailed scheme rules which will eventually come before Parliament in the form of negative resolution statutory instruments. What the Bill does is provide an overarching framework for all public service pensions schemes. This is not a new approach. The Bill before us today supersedes the Superannuation Act 1972, which followed the same principle. The reason for this is simple: detailed pension schemes are extremely complicated, will vary between different parts of the public sector and will need in some respects to change over time. They are much better suited to secondary legislation.
This inevitably means that many of the most important aspects of the schemes—for example, the accrual rates and the revaluation rates—are not in the Bill. The key principles which underpin public sector pensions and the way in which pensions schemes will be determined are, however, covered by the Bill, and I should like to turn to some of its principal provisions. However, I stress at the outset that the Government intend that public service pensions continue to set a high-quality benchmark and one to which many in the private sector could usefully aim.
The Government intend that public sector pensions should continue to be based on defined benefits. For many years, these have been based on an individual’s final salary. This has had a degree of inequity in that, per pound contributed to the scheme, those on high final salaries have received a greater return in terms of the pension that they have received. This Bill proposes that members’ benefits should be calculated on a fairer basis; namely, on an individual’s career-average earnings. By following this approach, low earners will no longer be expected to subsidise the benefits of higher earners.
The Bill links normal pension age to state pension age for most members. This will automatically track changes in longevity and protect the taxpayer from the associated cost risks. Historically, improvements in longevity have not been well managed, and the failure to do so in a timely manner has represented the single biggest risk to the future affordability of these pension schemes. The establishment of the link between public sector and the normal state pension age addresses this problem. As an exception to the link, a normal pension age is set at 60 for firefighters, police officers and members of the armed services in recognition of the unique characteristics of those public servants’ work. We want to be sure that these normal pension age provisions remain appropriate, which is why the Government intend to review the provisions as and when the state pension age changes. This will ensure that a consistent approach to pension age policy is taken across government as a whole.
Of course, normal pension age does not represent the age members must work until; rather, it is a point on which to base the calculations. Members can choose to retire earlier or later if they wish and, should they decide to do so, a fair adjustment will be applied to their benefits. The same principle applies in other pension arrangements—it is built into annuity rates, for example—and it is right that it applies to public service pension arrangements, too.
In addition to the longevity link, the Bill includes provision for an employer cost cap which will provide additional protection against unforeseen changes in the cost of public pensions. If the cost of a scheme rises, the scheme rules must set out a process for agreeing how they can be brought back under control. The cap may well in practice not be breached, but if it is, the Bill provides for a clear way of dealing with what could otherwise be an unacceptably high cost to taxpayers. In effect, the employer contribution to the scheme is being fixed within specified margins. Any change beyond those will result in benefits or member contributions being adjusted to bring costs back under control. Details have been made available in the House Library regarding the practical application of the cap and the Government’s intentions around the valuation procedures to be followed in the new schemes. These are new and important elements of the Government’s policy, and I hope that these papers provide useful clarification to the House.
As I said earlier, I emphasise that this Bill is not just about fairness to taxpayers; it is also about fairness to scheme members. This is why we propose transitional arrangements for members of most schemes who have less time than others to adjust their retirement plans. Those who were 10 years from their current normal pension age on 1 April this year may continue to accrue benefits on their existing terms; their pensions will be unaffected by the Bill—
Lord Naseby
I apologise for making an intervention, and I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund, but I would like to tell my noble friend that in Committee I shall be moving an amendment to Clause 31, concerning the rights of the members of the PCPF and their appropriate protection in legislation. The Bill, as currently drafted, casts doubt in that it could be read as enabling IPSA, in relation to MPs’ future pension provision, to break the link between members’ accrued benefits and their final salaries. I wish to place that on the record.
My understanding is that we are going to have the Committee stage pretty soon after we come back. I hope very much that my noble friend and I can have a discussion on that amendment before we come to the Floor of the House.
Lord Newby
My Lords, I am very happy to have an early discussion with my noble friend and look forward to debating any amendment that he may wish to bring forward.
As I was saying, we want public pension recipients to be reassured that, as a result of the provisions set out here, the new schemes will be administered and governed as effectively as possible. The new open scheme arrangements will ensure greater accountability and transparency through a common approach, an approach that will be independently overseen by the Pensions Regulator. The Bill builds on the regulator’s existing role and powers in relation to public service schemes and, as far as is appropriate, mirrors the existing approach to other occupational pension schemes. The regulator’s new powers will help public service pension schemes deliver good standards of administration and governance, ensuring that scheme costs and risks are understood and managed effectively.
All these changes demonstrate that the end of the current benefit arrangements and the creation of these fairer, more sustainable pension schemes are the right and proper way forward. It is right that public service pensions continue to set a good-quality benchmark for the private sector, and a race to the bottom in terms of pension quality must be avoided.
A consistent approach across schemes regarding consultation processes and the application of financial directions from the Government will also mean that members see unprecedented certainty about how their pensions are handled. It will no longer be the case that a member in one scheme can look over to another public service workforce and marvel at the myriad different quirks and anomalies within the scheme rules. There is some scope for variation to suit the needs of each workforce but, as the noble Lord, Lord Hutton of Furness, recommended, this is a common framework which brings all these schemes together under one legislative umbrella.
We have said that we hope and expect that the new schemes that will be drawn up under this Bill framework will last for at least 25 years. Of course, no Parliament can bind its successors, but we have included in the Bill enhanced consultation procedures, both with those who would be affected by any significant changes and with Parliament, to ensure that there is a high hurdle to be cleared before any such changes could be made.
The approach we are following will apply across all public service pension schemes, including smaller public body arrangements. We are aiming to reform the pensions in those bodies by spring 2018, and there will be no exceptions. This is why I am pleased that the Northern Ireland Government have indicated their intention to maintain parity with the changes set out in this Bill when they bring forward their legislation. Likewise, I hope our colleagues in Scotland and Wales will follow suit for the handful of schemes where competence for pension legislation sits outside Westminster.
Finally, we have also taken the opportunity of the Bill to reconsider whether certain generous historical entitlements remain appropriate in the modern age. The Great Offices of State pension arrangements, which apply to the Prime Minister, the Lord Chancellor and the Speaker of the House of Commons, give unusually generous pensions to these office holders. The scheme will now be closed to new office holders. Future holders of these positions will be entitled to a scheme that is the equivalent of those available to Ministers, thus ending this historical anomaly.
In conclusion, I believe that the package of measures contained in the Bill will fulfil the legitimate and worthy aim of bringing about long-term structural changes that are in the best interests of members, employers and other taxpayers. This is sound, reforming legislation, which I hope will continue to command cross-party support. We must, however, get the detail—
Taxation: Avoidance
Lord Naseby Excerpts(13 years, 4 months ago)
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Lord Newby
My Lords, HMRC does indeed estimate that the tax gap in 2010-11 was £32 billion, which represents 6.7% of total tax due. The tax gap as a percentage of tax due has fallen from 8.2% since 2004. It is not good enough but it is going in the right direction. The absolute determination of the Government to bear down on this was evidenced by the decision we took last year to divert £900 million into this area, which has since been supplemented by an additional £77 million to increase the specialist abilities within HMRC to deal with some extremely clever advisers and companies that seek to minimise their tax.
Lord Naseby
Why does HMRC not take action a bit nearer home and look at the smuggling into this country of cigarettes and tobacco? The percentage for this is still 20% to 25%, denying retailers and the trade a normal profit margin and ensuring that cigarettes are cheaper and easier for young people to take up. That percentage has not changed for the past three years.
Lord Newby
My Lords, tobacco smuggling is a significant issue but in the overall quantum of tax that is currently not paid but should be, it represents a relatively small proportion.
Financial Services Bill
Lord Naseby Excerpts(13 years, 5 months ago)
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Lord Hodgson of Astley Abbotts
My Lords, my noble friend raised some very interesting points. Of course the RDR issue has two parts. He referred to the basis for charging, but there is the qualification aspect as well. RDR will require advisers to get QCF level 4, which is only A-level standard. It does not seem to me to be too much to ask that people who are advising on savings should have an equivalent of an A-level qualification. I rather support the idea that RDR should endeavour to encourage the emergence of a profession. He referred to the fact that the profession was largely an elderly one and that we needed to encourage some new, younger blood. Careers will be more likely to be attractive if the idea of RDR with some qualifications—making you like the solicitor and accountant in your high street—comes to pass.
My noble friend’s second point was about the method of charging. We have here the question of how we square the circle between the reluctance to pay fees and the need for continuing advice. If you have a pension scheme that will last you for 15, 20 or 25 years, you need someone who is prepared to step up and advise you as to how it is going ahead. My problem is that we are now sufficiently far down the track on the idea of fee paying and the ending of commission. There is no doubt that commissions were raised not so much from the IFAs but often from the producers, to try to make the sale of the product more attractive. I do not think, as my noble friend said, that by any manner of means the IFAs have been the only people to blame, but we are sufficiently close to the start now that we need to continue with the approach of fees. It is not ideal, but I think that order plus counter-order would equal disorder. We have been marching the IFA community towards a fee-based remuneration schedule for two or three years. To pull back in the middle of November, when it is due to go live on 1 January, would cause the most enormous difficulties for the producers and the industry.
Lord Naseby
My Lords, I was not intending to take part in this debate. At one time, I was chairman of the Children’s Mutual, which was a friendly society/insurance company. At the weekend, in Northampton, I had discussions with some friends whom I would call middle-class savers. Not a single person, frankly, was the least bit prepared to pay a fee. It goes deeper than that. One’s own children are not prepared to pay fees up front.
There may have been much wrong with the old system in that it was not as closely scrutinised as it should have been in terms of the total cost to the saver. Nevertheless, here we are three and a half years into a major austerity programme and sufficient resources are not available for people who are genuinely wanting to or having to save. I do not know what the minimum fee will be and perhaps my noble friends on this side will be more up to date on that. I cannot see that it can be less than £500, if not considerably more.
I say to my Front Bench that it is all very well ploughing on because this has to happen in January but, as an aside, I reflect on how the FSA took three and a half years to realise that the projections on pensions were totally out of court. We have all been living with a base rate of 0.5% for a couple of years. Here we have projections approved by the FSA at, I think, 5%, 7% and 9%. That was totally out of court and nothing happened from the FSA. There had jolly well better be a plan B somewhere in the hip pocket because I very much fear what will happen. During the first three or four months nothing much will happen but, thereafter, there will be a major crisis unless there is a plan B ready to deal with it.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, my noble friend Lord Flight has spoken eloquently on the issue of the retail distribution review both on this and a number of other occasions, both when we have been discussing this Bill and at other times as well. Clearly, his concerns go to the heart of the RDR. I respect him for the force and strength of his arguments and for the clarity with which he has put them. However, I think that my noble friend Lord Hodgson of Astley Abbotts, in his short remarks, takes a more realistic and pragmatic view of some of the things that are necessary in the RDR and of the practicalities of where we are now some five or six years into the process which was initiated back then by the FSA.
The RDR certainly goes beyond the requirements of the markets and financial instruments directive; that is true. It is to be implemented at the end of this year. It will, among other things, as we have heard, prevent product providers from offering commissions to advisers. These rules will go beyond the requirements of the directive, which does not prevent product providers paying inducements to intermediaries. I think that it is a bit of a leap from there to say that the EU has taken a positive view that commissions should be paid in the way that they have been to date, as I think my noble friend possibly recognises.
The Government are supportive of the RDR, which is intended to address long-running problems that impact on the quality of advice and consumer outcomes in the UK retail investment market. The financial detriment caused to consumers as a consequence of poor, biased financial advice leading to the mis-selling of products cannot be overstated and has led consumer groups such as Which? to support the measures in the RDR. For example, following the FSA’s pensions review in 2002, 1.7 million consumers received compensation totalling £11.8 billion due to pension mis-selling alone. More recent scandals such as Arch Cru, where between 15,000 and 20,000 people lost out on thousands of pounds because they were told that high-risk investments were low risk, demonstrate the devastating effects of poor financial advice. Indeed the FSA has estimated detriment to consumers to be in the region of £223 million per annum, so we cannot wish the problem away.
To tackle the problem, the RDR will raise the professional standards of investment advisers, address the potential for adviser remuneration to distort consumer outcomes and improve transparency for consumers. As part of this, the rules banning commission payments to advisers will tackle the risk as well as the perception that commission paid by product providers may bias advice, and rules requiring advisers to agree their charges upfront will promote transparency for consumers. Taken as a whole, the Government’s view is that the RDR should improve consumer confidence and trust in investment advice and it fits with the Government’s wider agenda on increasing transparency in the market.
I am not going to repeat all I said in answer to my noble friend’s recent Question, which led into the points about training. Again, while he and my noble friend Lord Naseby are quite right to raise concerns around the transition, I think that my noble friend Lord Hodgson of Astley Abbotts is right to point out the need for and desirability of professionalisation, but also that the bar has not been set excessively high. I do not want to trade data, but I think that this is quite important. The FSA’s latest research shows that the proportion of advisers who meet the RDR’s new qualification requirements has increased from 50% in summer 2011 to 71% in spring 2012. The FSA research also shows that 93% of advisers are still on track with their prediction—93%, not 91%. I know that my noble friend challenges that, but the FSA has looked at this very carefully and its advice and research shows that 93% are still on track with its prediction to complete the appropriate qualification in time.
Having said all that, I should just spend a minute on the amendment itself. As we discussed in Committee, the FCA and the PRA will be required to have regard to the principle that any burden they impose should be proportionate to the benefits that flow from it. This proportionality principle will apply to any proposed requirement whether it originates in EU law or purely domestically, so it already covers gold-plating. I would also point the House to government Amendment 44, which we will be debating in due course, and which adds a new regulatory principle giving the regulators the duty to have regard to the desirability of sustainable UK economic growth. That is a principle that will apply also to both the FCA and PRA. I am sure they will take it very seriously when they consider gold-plating. It will also be pointed out to them as a hook, as it should be, to avoid unnecessary gold-plating. So, in short, I do not believe that the amendment is necessary, nor does it fit with the Government’s wider aims in this area. I hope that my noble friend will feel able to withdraw it.
Financial Services Bill
Lord Naseby Excerpts(13 years, 10 months ago)
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Lord Naseby
My Lords, before I begin my speech I wish to offer an apology to the House in general and in particular to my noble friend on the Front Bench. Regretfully, due to the vagaries of public transport, I was not in my place as I should have been at the start of the debate. However, I have heard most of the speeches subsequently.
I wanted to take part in this debate because, as we all know, the financial sector is absolutely vital to the success of this country. It does not matter whether you are a small shopkeeper, a SME or any other form of business, a major or minor saver, the success of our country stems from the success of the financial sector. The Bill, huge as it is, has the potential to create the right conditions providing not only that the structure is there but that we can find the men and women to use, work with competence and understand the culture behind it.
I do not have the skills or the competence to make a judgment on the major financial dimensions and controls of the Bill. Others who do have such competence have spoken today and I hope that my noble friend on the Front Bench will listen to and take on board what they have said today and what will arise in discussion in Committee.
However, there is a certain area where I can claim some competence and skill. It straddles the area that my noble friend—I do treat him as a friend—Lord Borrie has half discussed this evening and I would like to add to that. He and the House will know that I have asked a number of questions about the Office of Fair Trading. Much of the work that it does is good, but there have been a number of examples, particularly in the recent past, where extensive inquiries have been undertaken over months and, indeed, years, costing millions of pounds to both the public sector and the companies or organisations that were under investigation and where it has been subsequently found that there was no wrongdoing.
It has been mentioned by a couple of noble Lords that we are now in a transition period. It is very important in a transition period, if I may use a cricket metaphor, that the ball is not dropped in the slips. One of the areas that deeply concerns me at the moment is that of payday lenders. I asked Citizens Advice whether there was a current short example that I could quote to your Lordships. In November 2011, a citizens advice bureau in the West Midlands saw a woman who was earning £880 a month. This did not prevent her taking out 19 payday loans. She was granted these short-term loans. By the time she came to the citizens advice bureau her entire wages were being taken up in debt repayments. As a result, she was having to use payday loans to replace her income, not to supplement it for short periods as payday lenders suggest in their advertisements.
I was in the world of advertising and I listen to the advertisements and it has come over in the past few days that there are a number of companies in this area. The new authority which is to take over has to have a competence not only to license particular companies in the payday loan area—there is a function there that is required—but has to have an ability to take action early before matters escalate out of control. We are in a transition period and I say to my noble friend on the Front Bench that I hope we will not allow this problem to escalate out of control.
There is a second area in which I have some competence. In the past I had the privilege of being chairman of a friendly society. I took through the House the Building Societies (Amendment) Bill, which was started in another place by a former Member of Parliament, John Butterfill. The provisions of that Bill, which came into effect just before the financial crisis in 2008, gave some flexibility to building societies in what they could or could not do and allowed them to develop as good mutuals. Yes, I am one of those who regrets the demutualisation of so much of what was the mutual movement.
When I was chairman of a friendly society we tried very hard to extend niche areas. We were a small operation with assets of only £1 billion at the time. We looked at the niche markets we could provide that were not available or on offer from the banks. Every time we tried the FSA put the claw of scrutiny upon us—which was fair enough—and it was very difficult to find new markets to move into and develop. The same applied to the credit unions. The child trust fund came forward and the friendly society movement received 25 per cent of that market. Indeed, without the drive and enthusiasm of the friendly society movement, the child trust fund would not have developed as it did. Sadly, the knife went in from the Liberal Benches. Whoever was to blame, the scheme could have been modified and need not have cost the Exchequer the money it was costing. The point I wish to make today is that the regulator has to look at the extent of the risk to smaller operations, which often tend to be community based, and not decide that just because they are small they are ultra risky.
There needs to be a change in attitude in a number of other areas. One in particular is the alleged pension mis-selling situation. There is no doubt that there was some pensions mis-selling in the late 1990s. Equally, though, by the time we had gone through the FSA’s requirements, we and many other small pension providers soon found out that, on a generous estimate, up to 25% of pensions might have been mis-sold. There is a requirement in life for a bit of caveat emptor, but the early claims companies got on the back of this and made it into a business of its own, almost regardless of the validity of the claims. Basically, the providers would say, “It is easier to settle than it is to contest this”.
The banks have also had to face challenges in relation to the selling of PPI and some other products. While a person who has genuinely been mis-sold a product should be properly compensated, with the new regulator we must not allow a situation to arise where it is far more troublesome to deal with a tidal wave of claims from the claims houses. They have very persistent people working in them, and it is cheaper to settle than to look at the validity of the claim.
I shall finish by saying that my noble friend Lord Lawson, who has been in his place for almost the whole debate, mentioned the word “cost”. Cost is a crucial feature in relation to anything in financial services, and particularly in relation to the controls and requirements being put on the industry. The new FCA will need to keep abreast of the comparative costs between what is proposed for the UK and what is happening in other major financial centres around the world. We need to remain cost competitive as well as control competitive.
Coins
Lord Naseby Excerpts(14 years, 2 months ago)
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Lord Sassoon
My Lords, first, on the implementation of the introduction of the new 5p and 10p pieces, the Government took the view, after consulting the industry, that there should be a delay of one year from the date of January 2011, when the previous Government had originally intended to introduce the coins. The noble Baroness refers to the Automatic Vending Association. When we announced the delay in the introduction, the association’s CEO said:
“This … is fantastic news for the vending and coin machine industries because it allows them more time to update coin mechanisms, providing a saving of £16.8 million to the vending industry—a real help in the current economic climate”.
So the introduction of the new coins has been done in full consultation.
When it comes to the £1 coin, the issue is rather different. It is one not of cost saving but of potential risk and a drop in confidence as a result of counterfeiting. The counterfeiting of £1 coins is estimated to account for almost 3 per cent of the stock, but the Royal Mint conducts regular public awareness surveys to ensure that public confidence in the pound is high, and the Government have no change to the £1 coin in mind.
Lord Naseby
My Lords, the consultation with business and industry and the saving are welcome, but after the new coins have been in circulation for a period, will it be obvious to the consumer which coins they have in their pocket when they arrive at a parking meter?
Lord Sassoon
Noble Lords may not be aware that they may have in their pocket two different sorts of 1p and 2p coins, because they were changed from cupronickel to copper-plated steel in 1992. When looking in my pocket this morning, first, I could not distinguish them and, secondly, I had not been aware of the distinction. This is well trodden territory as successive Governments have updated the coinage, and there should be no particular difficulty.
Banks: Cheques
Lord Naseby Excerpts(14 years, 10 months ago)
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Lord Naseby
To ask Her Majesty’s Government what is their response to the proposed withdrawal of cheques by the banks.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Payments Council has made a clear statement that cheque facilities will continue to be available until the alternatives that are put in place, including a paper-based system, are available, acceptable and widely adopted. Many users continue to rely on cheques, particularly small businesses, charities and the elderly. The Government believe that cheques should not be phased out unless suitable alternatives are in place for all users.
Lord Naseby
Is my noble friend aware that the Payments Council is little more than a bankers’ quango? Is it not extraordinary that this proposal takes no account of the Federation of Small Businesses, which has 200,000-plus members, who are totally against such a change? It takes no account of the hundreds of thousands of clubs, and their treasurers, up and down the country—I declare an interest as treasurer of the Lords and Commons Tennis Club. Furthermore, there are certain technical issues in the City, where those who fail to take up a rights issue have to be presented with a cheque and where, for takeover bids that fail, there has to be a cheque drawn. There are myriads of activities that require cheques, affecting tens of millions of people. Is it not time that the bankers for once thought about the public? Should not the Government consider putting further pressure on the Payments Council to make sure that cheques remain a normal method of doing business in this country?
Lord Sassoon
My Lords, it is correct that the Payments Council is an industry body. It is the banks and the other industry players who pay for and maintain the payments system, but it is a body with a chairman and four other independent members, and the Bank of England is an observer on the board. Back in December 2009, the Government welcomed the commitment made by the Payments Council, which was clear that if it took a decision in 2016 to end the present system of cheque clearing in October 2018—and it will take that decision only in 2016 if it does so at all—it will do so only if there is an available, acceptable and widely adopted alternative system. The Government have been clear that that must include a paper-based system. We believe that it is appropriate to continue to work closely, as we do, with the Payments Council to make sure that it is held to the commitments that it has given. The council is consulting users widely and has another round of consultation running now, and it will I am sure continue to take note of the important views of all users of cheques.
Public Expenditure: Reserve
Lord Naseby Excerpts(14 years, 11 months ago)
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Lord Naseby
Has my noble friend seen the number of recent articles about the Office for National Statistics and the conflict between the figures that it has produced for the output of the construction industry and the figures that that industry believes are correct? The difference appears to be 0.3 per cent of national growth. This is a severe and difficult area and therefore should not the Office for National Statistics resolve that issue once and for all before the next lot of statistics come out?
Lord Sassoon
We are straying a bit from the subject of this Question but, as there do not seem to be many other noble Lords wanting to get in, I will say that I know how difficult it is for the ONS to produce these statistics. I am sure that it will continue to look at all ways of improving the way that it deals with the data. There was a one-off change to the way in which construction data were reported and the industry is questioning that. I am sure that the ONS is on the case.
Financial Services: Shareholder Engagement
Lord Naseby Excerpts(15 years, 2 months ago)
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Lord Sassoon
My Lords, the takeover panel operating independently keeps that issue and all other issues related to the good working of the takeover market under regular review. The department of business consultation, A Long-term Focus on Corporate Britain, which is currently calling for evidence, will be interested to hear what people have to say on that very topic.
Lord Naseby
Has my noble friend noted the recent statement from the Financial Reporting Council suggesting that annual reports shall no longer be printed? How does he think that will improve small shareholder engagement?
Lord Sassoon
My Lords, there is a fine balance to be struck between making sure that shareholders get all the information they require on the one hand, and on the other hand allowing companies to take advantage of electronic and other media to disseminate information in a way in which an increasing proportion of shareholders wish to receive that information and which may be environmentally friendly if it does not require large amounts of paper to be used. I am glad that the FRC is grappling with that issue.
Bankruptcy
Lord Naseby Excerpts(15 years, 4 months ago)
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Lord Sassoon
My Lords, when the Government came into office, we had been put on negative credit watch by one of the main rating agencies, unprecedented for the UK, and were paying interest of £120 million a day. The first or second largest holder of bonds in the world had talked of the UK as a “must to avoid” and described the UK’s gilts as,
“resting on a bed of nitroglycerine”.
The Government have restored confidence in our public finances by setting out a clear plan to restore the budget to balance and that is what enables us to borrow what we need to borrow on the international markets on reasonable terms.
Lord Naseby
Has my noble friend had a chance to read the statement from the shadow Chancellor in which he said that the problem for the Labour Party was that it had built up a reputation for 13 years of overspending and debt? Is that not near-bankruptcy?
Lord Sassoon
I completely agree with my noble friend. That is indeed it. I was looking at the Oxford English Dictionary this morning and I saw that one definition of “bankrupt” is,
“one who has brought himself into debt by reckless expenditure or riotous living”.
I would not presume to accuse the previous Government of riotous living.