Taxation: Tax Collection

Lord Newby Excerpts

Tuesday 5th February 2013 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government whether they have sufficient resources and staff in place for the full collection of tax.

[Lord Newby]

My Lords, this Government are investing in HMRC so that it will collect £9 billion a year more from its compliance activities by 2014-15 than at the start of this Parliament. The number of HMRC staff in compliance roles fell under the previous Government. Under this Government there will be around 2,500 more staff tackling tax avoidance and evasion.

[Lord Harrison]

My Lords, given that the Public Accounts Committee found that £1.1 billion was lost to the Treasury by foolishly cutting 3,300 staff from the compliance and enforcement unit of HMRC, can the Minister give us a greater assurance that that folly will not be repeated, especially with the new comprehensive policy that has been announced on offshore tax evasion? Will the Minister say when that will be published, what its focus will be, and whether that, too, will be properly resourced to do the job that is required of it?

[Lord Newby]

My Lords, it is important to recognise that the big cut in staff in HMRC took place before 2010. The number of staff fell by 25,000, and 10,000 staff working in compliance roles—that is, the very staff about whom the noble Lord is concerned—were cut during that period. We have added 2,500 staff in that area since we came in and they are generating a very significant amount of additional funding. On international tax evasion and avoidance work, a whole raft of initiatives is under way. There is a new unit within HMRC and we are working very closely with the OECD. I am sure that a number of further announcements in this area will be made during this calendar year.

[Lord Sharkey]

My Lords, the 2010 comprehensive spending review committed HMRC to improving the customer experience. However, in December last year, the National Audit Office concluded that customers were still not getting a good service. For example, last year 20 million calls went unanswered and there was a cost of £33 million in phone charges to customers kept hanging on. Will the Minister say whether HMRC intends to increase staffing and resources to address this problem?

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[Lord Newby]

My Lords, HMRC has a target of answering 90% of calls. It was more than achieved in the third quarter and was certainly a better performance than that achieved in some earlier parts of the year. An example of the challenge that HMRC finds itself facing in this respect is that the number of calls that it gets per day ranges from 86,000 to 3.2 million on a peak day. Either a very small number or a very large number of people phone, and it is unsurprising that on a small number of days it is impossible to reach the 90% target. However, HMRC has put more resource in. It has upgraded the equipment and, as I said, the 90% target has been more than met in the last quarter.

[Lord Eatwell]

My Lords, when he assumed office, the Chancellor of the Exchequer commissioned a study on the creation of a general anti-avoidance regime. The committee that performed that study reported two years ago. When are the Government going to do something about it?

[Lord Newby]

I am surprised that the noble Lord does not know that the Government are committed to introducing a general anti-abuse rule in this year’s Finance Bill.

[Lord Hamilton of Epsom]

My Lords, the Government could do with fewer tax inspectors if they simplified the tax system. How are they doing on that?

[Lord Newby]

My Lords, I think everybody agrees that we have a particularly barnacle-encrusted tax system. This Government have set up the Office of Tax Simplification, which has started work in this area. One advantage of the general anti-abuse rule is that once such a rule is in place, it should not be necessary to introduce as much new tax legislation to deal with tax abuse, because the general rule will cover it.

[Lord Barnett]

My Lords, will the legislation include a definition of aggressive tax avoidance as compared with ordinary tax avoidance?

[Lord Newby]

I think that the noble Lord is crying for the moon.

[Baroness Farrington of Ribbleton]

My Lords, will the Minister help me? I have heard conflicting figures for staffing at HMRC. Can he tell me the figures for the total staffing complement over the past three years, as well as give me the breakdown between individual areas of work?

[Lord Newby]

My Lords, the staffing level at HMRC fell from about 94,000 to 66,000 under the previous Government. Under the comprehensive spending review, it is due to fall by about another 10,000. While that is happening, there will, as I said, be an increase of about 2,500 for compliance. There will therefore be a shift towards more compliance against a backdrop of a significant change in the way in which people submit tax returns. In 2010 only 42% of corporation tax returns were submitted online, but in 2011-12 that number had increased by 96,000. As I have said before, the number of staff you need to process that kind of activity has fallen considerably because they are no longer dealing with paper returns.

[Lord Tebbit]

My Lords, will my noble friend think again about the answer that he gave to the noble Lord, Lord Barnett? The noble Lord asked a perfectly simple and straightforward question and it deserves a rather better reply.

[Lord Newby]

My Lords, my reply would be that the Government are cracking down very hard on tax evasion and tax avoidance. We are putting more resources into this area. We are submitting more cases for prosecution and are having more successful prosecutions. The key question is: what is the outcome on the ground? Are more people who avoid and evade tax being taken to court, and are abusive practices being cracked down on? Yes, they are.

Banking Reform

Lord Newby Excerpts

Monday 4th February 2013 Lords Chamber

[Lord Newby]

My Lords, the Government have today laid before the House the Financial Services (Banking Reform) Bill, and their response to the report of the Parliamentary Commission on Banking Standards that was published on 21 December last year, following the commission’s pre-legislative scrutiny of the Bill. I thank and pay tribute to the members of both the Independent Commission on Banking and the Parliamentary Commission on Banking Standards. The two commissions, whose membership comprises some of the most distinguished policymakers and formidable intellects in the world, have between them shaped a set of reforms to British banking that will lead the world and set an example to other countries in the seriousness, radicalism and meticulousness of the changes that are proposed. The Bill that is published today reflects their painstaking work, and the Government have accepted almost all their recommendations.

The reforms address what the Chancellor has called the British dilemma: how Britain can be a leading global financial centre, with more than its share of international trade in financial services, while at the same time not exposing the ordinary working people of this country to the catastrophic risks of banks failing. These reforms were, and are, necessary. The previous regime was tested and failed. UK taxpayers had to bail out the banks with £65 billion of the hard-earned money of ordinary working people, while those who had taken a one-way bet with their money slunk away, losing nothing more than their job—and sometimes not even that.

The anger that the country feels about what happened must be channelled into change, to reset Britain’s banking system. The objective of the Bill proposed by Vickers and endorsed by the commission is that any failure of any bank in future should not impose a cost on the taxpayer, and not interrupt for a second vital banking services. That is a high ambition, but one that is appropriate for a country with a reputation for financial stability and confidence that has for centuries been one of Britain’s chief assets in the world.

As is well known, the Bill will erect a ring-fence around the core operations of banks headquartered and regulated in the UK. Within that ring-fence, banks must be completely insulated from activities such as using depositors’ funds to speculate for the banks’ own benefit in capital markets. In the event of failure, depositors will be given preference in liquidation. As a result of the commission’s recommendations, the Government are making a number of further changes to the Bill. First, in the honourable Member for Chichester’s acute phrase, which will permanently enter the lexicon of banking, the ring-fence will be electrified. The regulator will be given the power to order the full separation of any bank that attempts to undermine the ring-fence. The directors of the banks will be personally responsible for ensuring that their banks comply with the ring-fencing rules, and the Prudential Regulation Authority will conduct an annual review of the operation and adequacy of the ring-fence rules.

Secondly, there are explicit provisions in the Bill for the principal aspects of ring-fencing, including that there should be separate boards of directors, remuneration arrangements and human resource management, for ring-fenced banks. Thirdly, the Bill gives us an opportunity to make an historic change in the competitive environment of UK banking. Competition is essential to ensure that customers benefit from innovation, extracting customer service and efficiency from their banks. That has not always been the experience of customers in the past. As well as bringing in a seven-day automatic account-switching service from September this year, the Government will take steps to tackle the cosy arrangement whereby the biggest banks determine how payment systems will be run. Why should it be necessary in 2013 for a cheque to take six days to clear, with banks and not customers scooping up the interest on balances during this delay? Why should a new bank have to beg an incumbent bank for permission to use the payments system? We will require access arrangements to payments systems that are fair, reasonable and transparent. The commission has, rightly, emphasised the importance of competition. I am grateful to it for propelling this drive further, as I am to my honourable friend the Member for South Northamptonshire, for whom greater competition in banking has been a personal crusade.

The fourth change is that more parliamentary scrutiny will be built into the secondary legislation that implements this high-level Bill. Drafts of the principal statutory instruments to be made will be available to the House before Second Reading. The Government accept the recommendation of the Delegated Powers and Regulatory Reform Committee on the type of scrutiny each should receive.

These are historic reforms, but they are appropriate for our country, and for an industry in which, directly and indirectly, 2 million people work. It is our biggest export earner and contributes £1 in every £8 of our tax revenue. We should take the steps necessary to restore confidence in and to an industry in which it has fallen so far. There is much scrutiny of the Bill before us, both here and in the other place. I look forward very much to our discussions in the weeks and months ahead.

[Lord Davies of Oldham]

My Lords, I am grateful to the noble Lord for repeating the response to the Urgent Question but I am appalled that this issue is being tackled as an Urgent Question. It means that this House has merely 10 minutes to consider the matter. Surely on this issue—the most significant piece of legislation that will go before the two Houses relating to an industry that has been at the centre of the greatest crisis in many years—there should have been a Statement in the other place. Why was it a junior Treasury Minister who made the Statement and not the Chancellor?

This is indicative that the Government would like to water things down. They have done that from the beginning. When the Vickers commission reported, the Government’s first reaction was to set about watering down its recommendations, by allowing, for instance, the reduction of the advised leverage ratio. When the Joint Committee of the two Houses proposed to electrify the ring-fence, the Government’s first reaction was to refuse to commit to it. As we see today, they have significant reservations about it. They have produced only a partial climbdown.

Does the Minister agree with the noble Baroness, Lady Kramer, who is in her place? I apologise if am pre-empting what she might say but I will have no other opportunity in this debate. She is the economics spokesperson for the Minister’s party. She believes that attempting to limit the procedure to individual banks will effectively tie up the sanction in years of complex litigation. That is why we endorse her viewpoint; it is ours, too, that this should be legislation. The back-stop power should apply to all banks.

Is it not vital that the Government make up their mind shortly and include a reserve power in this Bill for full separation of retail and investment banking, in case ring-fencing does not work,? That is what the Opposition have asked for. I believe that is what the noble Baroness, Lady Kramer, is asking for. It is certainly what the parliamentary commission indicated in its report and I fail to see why the Government are not more responsive in an area that they must know causes the greatest anxiety to the British people. The Government must look closely at this, and be determined, clear and effective, and not wishy-washy.

[Lord Newby]

My Lords, I smile with amusement when the noble Lord accuses the Government of not taking this issue seriously. When his party was in his power, and we and I suggested to it and him that they do exactly that, we were told that it was irrelevant to the problems that we were facing and that we should definitely not do it. I will certainly not take any lessons from him about the importance of this issue.

As for whether the legislation should include reserve powers to implement full separation across the sector, this was put to the Governor of the Bank of England, who said that he did not want such reserve powers. More importantly, general reserve powers would give huge power outwith Parliament to tear up the provisions of the Bill as we envisage it, and fundamentally change some of the ways that we see it working. The Government think that if you got to the point where that was a possibility, or you wanted those powers, the appropriate way to do it would be to come back to Parliament, rather than leaving it to the regulator to exercise what would be very sweeping powers indeed.

[Baroness Kramer]

My Lords, I will not repeat the question on reserve powers. I have a feeling that this House will take it on if the Government do not.

May I ask a question about the competition aspects of the Chancellor’s speech? His comments were welcome but to be able to change from one bank to another when all those banks are essentially alike is not real choice. Will the Government look seriously at splitting up some of the major banks, especially those in which we have ownership? I have not read the Statement but can he comment on whether Chancellor or the legislation will allow the FPC to set the level of the leverage back-stop so that it could be higher than the rather modest levels proposed under Basel III?

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[Lord Newby]

On the second point, the Government’s view is that, as a general rule, we support the level proposed by Basel III and do not want the UK to be out of line with what is happening elsewhere in the global banking community. As my noble friend knows, the Government and I completely share her views about the importance of competition. As a first step, it is very important that we see rapid progress when it comes to those branches that, for example, RBS is supposed to be divesting itself of but which so far have not been divested. That is one step towards the greater competition that she seeks.

[Lord Martin of Springburn]

Many of these big banks took over our friendly societies, which were excellent self-help groups and were able to ensure that young couples got a mortgage. In fact, the friendly- society legislation governed the trade union movement at one time. Will the Government look at the restoration of the friendly societies, which were gobbled up by these banks? There are far too many young couples out there who have to rent property when, like the rest of us, they would rather be in an owner-occupier situation.

[Lord Newby]

My Lords, the Government share the noble Lord’s support for the mutual sector. It is interesting that, over the past couple of years, the mutual sector has been doing very well: Nationwide and the Co-op have been growing rapidly, which we very much welcome. We also welcome some of the specific decisions that have been taken by banks such as Nationwide, under which people who want a mortgage will get preferential treatment if they have had an account with that mutual for some time before they asked for it. That situation was commonplace a generation ago.

[Lord Higgins]

My Lords, some aspects of this answer are certainly welcome, not least in respect of speeding up the clearing of cheques and so on. However, can my noble friend be a little clearer on precisely what the situation is? Are the Government coming down in favour of a ring-fenced arrangement, which will be electrified? If so, is it not important that we electrify the loopholes as well as the ring-fence? Can he make it clear, if the system really is effective, how the position of a bank operating under it will be any different from having a split between the two sides of the bank?

[Lord Newby]

My Lords, on the first question, as to whether we are having full ring-fencing and whether we are electrifying the loopholes, I think, to take the analogy on, that if you have a proper, electrified ring-fence, there are no loopholes. First, the aim of the electrified ring-fence is to set up a very robust system. Secondly, the electrification not only allows the bank that has transgressed to be dealt with but will act as a very severe deterrent to prevent banks transgressing in the first place.

There is a rather long technical answer to his second question, which I am happy to give, but I suspect, given the time, that I will have to do it on another occasion.

Children: Childcare Costs

Lord Newby Excerpts

Thursday 31st January 2013 Lords Chamber

[Baroness Deech]

To ask Her Majesty’s Government whether they have any plans to assist full-time working parents by granting tax relief on childcare costs.

[Lord Newby]

My Lords, the Government announced in the mid-term review that they would support families with childcare costs. They are considering options and will make an announcement shortly. Earlier this week, they published plans to improve high-quality childcare which represents true value for parents, children and the taxpayer.

[Baroness Deech]

The noble Lord will appreciate that improvements in quality do not amount to affordability. We cannot expect, and the Government cannot call on, women to take half the top jobs and half the places in boardrooms without childcare help, because they are squeezed out in mid-career by unaffordability. Childcare for a woman in full-time work is just as worthy of tax relief as secretarial assistance for the businessman, who receives the full allowance on that. The difference in treatment of employees with workplace nurseries and those without is unfair, and it is even worse for the self-employed. Therefore, will the Minister please consider basic-rate tax relief being available for the employed and self-employed alike who wish to work full time?

[Lord Newby]

My Lords, the factors that the noble Baroness has referred to are exactly the kinds of considerations currently being undertaken. Of course, the Government are extremely keen, not just in this area but more generally, to ensure that women can achieve their potential. She will be aware of the steps that my right honourable friend the Secretary of State at BIS is taking to ensure that a higher proportion of women is appointed to boardrooms up and down the country.

[Baroness Massey of Darwen]

My Lords, does the Minister accept that there are many different kinds of families and parents in different economic situations? How will the Government differentiate between the different kinds of families—for example, single-parent families and so on—and decide who needs more relief or less relief?

[Lord Newby]

I absolutely agree with the noble Baroness. She will be aware that the Government have already focused funding on childcare and free childcare for the most vulnerable. That is why we will be increasing the number of two year-olds who get 15 hours’ free childcare from about 20,000—the number funded under the previous Labour Government—to about 260,000. This is one of the most tangible ways of focusing childcare support on people at the bottom end. Those getting that additional free childcare support in the first instance will be children on free school meals and looked-after children—that is, those from the poorest families.

[The Earl of Listowel]

My Lords, following the Government’s recent announcement, is the Minister aware of the widespread concern among practitioners about the increasing ratio—to above 3:1—of the very youngest infants to carers? The additional investment in training that the Government have offered to reassure these practitioners is welcome. However, can the Minister go further in reassuring them, given the utmost importance of the highest quality of care for children at this tender age in terms of their future welfare and indeed their future productivity, as well as the deep adverse consequences for them of early poor-quality care in terms of their future outcomes?

[Lord Newby]

Absolutely, my Lords. That is very much the thrust of the proposals that were announced at the beginning of this week. We have looked in particular across the EU, where childcare and nursery care is in some cases thought to be better than in the UK and two things have emerged: first, that we need to have better-qualified people involved and, secondly, that the ratios that the noble Earl spoke about are tighter in the UK than virtually anywhere else. However, the two go together, and that is why in our plans for early years teachers and educators we are putting a lot of emphasis on improving the qualifications of people working in childcare, while having more flexibility in the numbers.

[The Lord Bishop of Chester]

My Lords, would it not be unfair to introduce this tax relief for working parents with children while denying effective tax relief through transferable allowances to those parents who choose to stay at home with young children and who are currently penalised through the tax system for doing so?

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[Lord Newby]

My Lords, obviously one of the problems with simply having a tax relief-based scheme is the one that the right reverend Prelate refers to. That is why we are looking at a number of options, some of which are tax based and others of which are not. I hope very much, however, that the Government will be in a position to make an announcement on this very shortly.

[Baroness McIntosh of Hudnall]

My Lords, going back to the question from the noble Earl, Lord Listowel, does the Minister agree that one of the real problems in the provision of childcare is the very low rates of pay that are awarded to people who are in fact qualified and have a great deal to offer, but who are in the main only able to earn extremely low wages? If the Government’s plan is to put more burdens on those people by increasing the numbers of children that they can look after, is it likely that that will do anything at all either for the childcare or for the people delivering it?

[Lord Newby]

My Lords, I think the question that we have to look at in terms of the number of children is why it is that those countries that, by common consent, have the best childcare provision in the world have higher ratios of children. The answer is partly that we need to have a combination of things of which better training is one. The pay is very low, but the Government will fund the additional free support which I mentioned earlier at a higher average rate of pay than is currently paid across the sector.

[Lord Martin of Springburn]

My Lords, not so long ago—and it might still be the case—employees in the House of Commons who had children in nursery care were given tax-free vouchers by the House. Will the Minister and his department look at extending this scheme to the wider population?

[Lord Newby]

Yes, my Lords. Vouchers are one of the possible ways of dealing with this, and they are one of the options being considered.

[Lord Tomlinson]

Will the Minister explain to the House how improving the demands for training of care assistants of young children by requiring them to have a C-grade GCSE in maths and English helps them to make better provision for the children in their care?

[Lord Newby]

My Lords, I think it is recognised by common consent that having better qualified teachers and assistants in this area is beneficial to the pupils and the young children being cared for. If we want, as we do, to improve the quality of the care given, part of it will involve soft skills but another part will involve basic competence.

Public Service Pensions Bill

Lord Newby Excerpts

Wednesday 30th January 2013 Lords Chamber

Moved By

[Lord Newby]

That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1, Schedule 1, Clause 2, Schedule 2, Clause 3, Schedule 3 Clauses 4 to 17, Schedule 4, Clause 18, Schedule 5, Clause 19, Schedule 6, Clause 20, Schedule 7, Clauses 21 to 26, Schedule 8, Clauses 27 and 28, Schedule 9, Clauses 29 and 30, Schedule 10, Clauses 31 and 32, Schedule 11, Clauses 33 to 40.

Motion agreed.

Air Passenger Duty

Lord Newby Excerpts

Monday 28th January 2013 Lords Chamber

[Lord Newby]

My Lords, I join all other noble Lords in thanking the noble Lord, Lord Palmer, for securing this debate. I should perhaps declare a former interest as a former adviser to the Caribbean Banana Exporters Association. In addition, until I took this job, I was a regular traveller to the Caribbean in connection with the Sport for Life international educational programme, so I was a regular payer of APD to the Caribbean.

I will begin by acknowledging the important contribution that the aviation and tourism industries make to the economy. The United Kingdom’s aviation sector connects millions of consumers and businesses with international markets. The five airports that serve London offer at least weekly direct services to more than 360 destinations worldwide. That is more than Paris, Frankfurt or Amsterdam. Overall, the United Kingdom has the third-largest aviation network in the world, after the United States of America and China.

Tourism is our fifth-biggest industry and our third-highest export earner, worth around £116 billion to the economy, or roughly 9% of GDP. Despite the tough economic conditions, the UK’s tourism sector is growing at around 3% per year. As the noble Lord, Lord Lee, pointed out, we are seeking to promote tourism as part of the GREAT campaign—one of the most ambitious and far-reaching marketing campaigns ever undertaken by the UK. We have also, as he mentioned, made changes to the rules for Chinese visitors to make it easier for them to obtain visas for travelling to the UK.

Turning to APD itself, I would like to reiterate some of the history, which I know a number of noble Lords have already done to a certain extent. APD was introduced in 1994 as a pure revenue-raising tax. It was introduced in recognition of the fact that air travel was otherwise undertaxed compared to other sectors of the economy. Air travel is zero-rated for VAT, and the fuel used in air travel and in nearly all domestic flights is entirely free of tax. The initial rates of the duty were £5 for flights to destinations within the European Economic Area, and £10 for flights to other destinations.

In 2008, the previous Government announced a restructuring of APD, increasing the number of bands from two to four. The reason given was that this would improve the environmental signal given by the tax. As a result of that restructuring, the highest rate was increased to £170. These changes were enacted in the final Finance Act before the 2010 election.

In the period since the election, the Government have limited increases in air passenger duty to inflation only. During this time, rates have increased by only £1 for the majority of passengers. Budget 2012 set out rates from April 2013, which will also rise only by inflation. The real burden of the duty will therefore remain unchanged for at least a further year. Therefore, the fears of the BCC are, frankly, greatly exaggerated.

I will respond to the point made by the noble Lord, Lord Monks, that this is a regressive tax. This is not a regressive tax. In terms of its impact on deciles of income-earners, households in the highest decile pay more passenger duty as a proportion of their income than those in the bottom income decile. As the noble Lord, Lord Palmer, pointed out, to improve the fairness of the tax overall the Budget 2012 also confirmed the extension of air passenger duty to business jets from April this year.

Concern has been raised by virtually all speakers—I suspect it was every speaker—about the impact of APD on the competitiveness of the United Kingdom. There have been widespread calls for a cut in the level of the tax or for its abolition. The noble Lord, Lord Palmer, was kind enough to mention my interest in cricket. My boyhood cricketing hero was Geoffrey Boycott. I hope that the noble Lord will not be too disappointed if I proceed more in the manner of Boycott playing an innings on a troublesome Headingley wicket than Brian Lara at the Antigua Recreation Ground.

The Government’s view is that there can be a sustainable platform for economic growth only if we are willing to tackle our overspending. Demands for cuts in air passenger duty must therefore be balanced against the Government’s general revenue requirement and the need for a fair contribution from the sector towards reducing the deficit. Air passenger duty is forecast to raise about £2.9 billion in 2013-14. This revenue is essential if we are to maintain progress toward our goal of deficit reduction. If APD were reduced or abolished, other taxes would have to be increased or public expenditure cut by an equivalent amount.

The noble Lord, Lord Palmer, and many other noble Lords have asked the Treasury to undertake a study into the macroeconomic impact of air passenger duty. The Treasury keeps all taxes under review and considers them in the round. This is not the only tax that many people would like to see abolished. In fact, it is almost impossible to find a tax whose abolition would not be cheered to the rafters, so the fact that people would like this tax abolished is not in itself a good reason to abolish it. I am afraid that I must reiterate the context in which we are working. Our central goal as a Government remains tackling the fiscal deficit. This requires the aviation sector to make a fair contribution, which is what we believe APD does.

[Lord Morris of Handsworth]

The Caribbean Governments are not asking for the APD tax to be abolished. What they are asking for is equity of application.

[Lord Newby]

My Lords, the noble Lord, Lord Morris, anticipates me. I was just coming to the Caribbean but a number of noble Lords have called for the tax to be abolished tout court. There have been strong arguments—

[Lord Howell of Guildford]

We must have accuracy in this debate. I am aware of one calling for abolition; sensibly, none of the rest of us is calling for abolition. For the Minister to pin his arguments on the abolition plea alone really is to distort the debate and not to do justice to this House.

[Lord Newby]

My Lords, I was simply stating that I thought that several noble Lords—at least one—have called for abolition.

[Noble Lords]

One.

[Lord Newby]

Okay, one noble Lord has called for abolition. I am sorry if I exaggerated the opposition but it certainly felt as though a number of noble Lords were calling for the abolition of the tax.

On the Caribbean, there have been strong arguments presented tonight and over the years about the effect of APD there. I am aware of the strength of the arguments because in a former existence I made them myself. In response to these arguments, changes to the structure of APD were considered as part of the 2011 consultation. For a number of reasons, it proved much more difficult to do it than appeared at first sight. One of the main challenges is that if you adopt the pure principle of a distance-based tax, it would be seen— bizarrely, in my view—as a proxy to taxing fuel. That would be illegal under the Chicago Convention on international aviation, so the Government looked at a rather simpler restructuring. However, they found that the only way they could have done it that would have dealt with the disparity of treatment between the US and the Caribbean would have required an increase in the duty for about 90 per cent of passengers, including those flying to Europe and the USA. The Government felt that, in the current economic climate, it would not be fair to ask the majority to pay more to help fund a cut for the minority.

[Lord Foulkes of Cumnock]

I think the Minister has been listening carefully to the debate. He will recall that I gave him a suggestion; my understanding is that it was not considered in the review. It came up very recently from a meeting between the Caribbean Council and Ministers from the Caribbean. I asked the Minister for a very simple pledge to take this new suggestion back now and discuss it with the Chancellor: Bermuda should be designated the capital of the Caribbean for this purpose only. Surely that is the least he can do for the people of the Caribbean, on behalf of whom my noble friend Lord Morris spoke so eloquently.

[Lord Newby]

The noble Lord, Lord Morris, anticipated me two minutes ago and the noble Lord, Lord Foulkes, has anticipated me just now. I was about to say that I had not heard the Caribbean Council’s suggestion of designating Bermuda the capital of the Caribbean. My experience of the Caribbean does not fill me with hope that, when push comes to shove, there would be much agreement to designate anywhere as its capital. I am not sure whether you can designate somewhere as a capital for one purpose but not a capital for every other purpose. However, it is a new suggestion; I will certainly take it back and we will see whether it deals with the problem. My initial thought, not having heard the suggestion before, is that it is probably not quite as simple as that.

The Government recognise the mutual benefit of tourism and trade between the United Kingdom and the Caribbean. We welcome the work of the UK-Caribbean Forum to establish a new and improved strategic partnership to promote prosperity, growth and development within both regions. No doubt this topic can be discussed in that forum.

The noble Lord, Lord Howell, and other noble Lords referred to the devolution of air passenger duty to Northern Ireland. The Finance Act 2012 devolved to the Northern Ireland Assembly the power to set rates on direct long-haul flights leaving from Northern Ireland. The rate on short-haul flights will remain the same as that for the rest of the United Kingdom. In devolving direct long-haul rates to Northern Ireland, the Government responded to the wishes of the Northern Ireland Executive. We also recognised that Northern Ireland is in a unique position within the United Kingdom in that it shares a land border with another EU member state that has a lower rate of aviation tax. Further devolution of air passenger duty to Scotland or Wales is a subject that requires careful continued evaluation before we can be confident of its effects across the UK as a whole.

I return to my initial comment that I thank the noble Lord, Lord Palmer, for securing the debate. The Government want to ensure that aviation and tourism continue to grow to promote economic growth and support jobs across the country more generally. However, we also believe that aviation must bear its fair share of the fiscal burden so that we remain on course to address the record deficit. Air passenger duty makes an essential contribution to the public finances and to this Government’s plans to create a stable platform for growth.

European Banking Union: EUC Report

Lord Newby Excerpts

Thursday 24th January 2013 Lords Chamber

[Lord Newby]

My Lords, I thank the noble Lord, Lord Harrison, and the European Union Committee for the report and for the typically thorough work they undertook before they drew up their proposals and thoughts on the European banking union. As we made clear before, we believe it is vital for the UK that financial stability is restored to the eurozone, and these proposals set out ambitious reforms to help achieve that. Their potential impact is significant in the UK as well as in the eurozone, and it is important that they are properly scrutinised and that the issues they give rise to are properly debated. So I am grateful for the committee’s efforts and for the chance to do just that today.

As noble Lords are aware, the Government support proposals to establish a comprehensive banking union in the eurozone and have been engaging positively in the negotiations. Achieving a genuine economic and monetary union and restoring stability within the eurozone will require a comprehensive set of measures, including a single supervisory mechanism, risk mutualisation plans, such as mutualised deposit guarantees, a common fiscal backstop and a common framework for rescuing eurozone banks. These measures together will help to break the dangerous, and mutually destructive, link between indebted countries and unstable eurozone banks by mutualising financial risk across eurozone countries.

The December Council meeting marked a significant point in the negotiations to establish a single supervisory mechanism and, importantly, as we have been discussing, the Council agreed a number of safeguards for the single market which will ensure that neither the City nor the UK will be marginalised. A number of noble Lords have referred to some of them, but I hope the House will not mind if I set out some of these protections.

First, the ECB will have a duty to have regard to the unity and integrity of the internal market in performing its supervisory tasks. The noble Lord, Lord Kerr, said that that may not be a new duty, but it is quite helpful to have it reiterated. Not only that, it will also be subject to an obligation to ensure that no action, proposal or policy of the ECB shall directly or indirectly discriminate against any member state or group of member states as a venue for the provision of banking or financial services in any currency. The ECB will be required to agree a bilateral memorandum of understanding with the UK—by which we mean the PRA—setting out how it will co-operate in discharging its supervisory tasks, so we can look forward to a constructive and collaborative supervisory dialogue underpinning the robust supervision of cross-border firms and activities throughout the EU. The way in which the supervisory authorities in the UK and the EU work together now, not least the ECB and EBA, is through close, professional working. It is not done in the spirit of two mutually opposed forces coming together on a day-to-day basis with different views. They are technicians, very often, trying to deal with common, difficult, technical problems, and that has infused the discussions to date.

In December, there were two important decisions on parity within the single market, which mean that the PRA and ECB will be operating on equal terms. The Council agreed the principle that the ECB’s supervisory powers should be analogous to those available under Union law to national supervisors in non-participating member states. Powers and decisions of the EBA, for example in cases of binding mediation in the event of disputes between supervisors, will apply equally to the ECB and other supervisors. So the ECB has no special status.

Perhaps most importantly, as a number of noble Lords have pointed out, the Council agreed that key decisions in the EBA will be made by a double-majority voting system. Therefore, although we hope that the EBA will continue to be driven by consensus, with votes very much the exception, the voting arrangements will ensure that all member states, whether or not participating in the banking union, will continue to have a meaningful voice. In practical terms, where the EBA votes on a standard which applies to firms throughout Europe, this will require the support of those in the banking union and those outside it. Not only will the usual qualified majority apply, but a majority of the group of non-participating member states—which, of course, includes the UK—will also have to support any proposal.

A number of noble Lords have expressed support for these protections. It is fair to say that even if the Council had not actually read the report of the committee of the noble Lord, Lord Harrison, it did address a number of the other issues raised in it. First, it clarifies the scope of ECB supervision. It establishes robust governance arrangements in the ECB which separate the performance of the ECB’s monetary policy and supervision tasks. These arrangements will also ensure that those non-eurozone member states which choose to participate in the SSM will have a voice in decision-making. We should not think that separating those two elements of what the ECB does is too difficult a job. That is, broadly speaking, what we are going to be doing with the Bank of England, the PRA and the other bodies that we have just established here. It is eminently doable. The way in which the EU and the ECB are setting about doing it looks perfectly reasonable.

The Council decision also confirmed that the EBA will ensure a geographical balance in its appointments. On this point I need hardly remind noble Lords that the UK plays a leading role in the EBA and currently holds one of the six seats on its management board, which is based in London.

While the Government are broadly content with the outcome of the December meeting, noble Lords will be aware that negotiations are ongoing. However, I assure you that we are working hard to ensure that the final agreement continues to reflect these points. As for the next steps, negotiations concerning the recovery and resolution directive are similarly active. I will come back to those shortly.

However, proposals relating to the second and third pillars of the banking union—the common resolution mechanism and the common deposit insurance scheme—have not yet been issued. We recognise that the decisions relating to the funding of any resolution mechanism and deposit insurance scheme are politically difficult, particularly within participating member states, and decisions relating to debt mutualisation and common fiscal backstops are more difficult still. None the less, in the context of a banking union for participating member states, the UK supports these concepts in principle. Having said that, we cannot provide more detailed views until the proposals have been published, although of course we take note of the points that members of the committee have raised in their report and today.

On the specific points raised by noble Lords in their speeches, the noble Lord, Lord Harrison, was the first to raise the question of the concentration of power in the ECB, which I have spoken about in part. As I have said, there is an analogy with the Bank of England to a certain extent. For clarity, although there are 6,000 banks within the eurozone area, the ECB proposes to directly supervise on a continuing basis probably a couple of hundred of them. However, it will retain the power to go in if there is a particular problem, where a national supervisory body may be thought by the ECB not to be dealing with an issue adequately.

In that respect the noble Lord, Lord Flight, used the analogy of the ECB’s role being a bit like the PRA as opposed to the FCA in the UK. It is not a direct analogy but there are some relevant comparisons. We think that the system we have set up will be robust. If that is the case, in principle, the one being envisaged here also should be. The problem is that it is a multiplication of the kind of problems that we had here when the crisis struck. When everything is going well, you can make things work. But, here, we had a real problem with managing a financial crisis because two or three individuals could not make the system work.

We hope that we have changed the system to make it less dependent on individuals but when you have a system involving a minimum of 17 national supervisors and a super-supervisor, as it were, no one in their right mind would think that dealing with a crisis will be easy. In particular, by definition, no one will have been through it before, so they will be learning on the job. That is an inevitable consequence of doing anything new. The ECB is working very hard to put in place systems which it hopes will be very robust in stressful times.

The noble Lords, Lord Flight and Lord Trimble, asked about what is happening next and whether the steam has gone out of the negotiations. We are very confident that the steam has not gone out of the negotiations in terms of the SSM. The Irish have got this as one of their top priorities during their presidency. We are hoping that relatively soon there will be the final agreement on the regulation which will underpin these changes. We hope that the SSM will be operational by March 2014, which, in anyone’s view, is as quick as one could reasonably expect.

The noble Lord, Lord Harrison, was the first to raise the dread word “referendum”. He described it as new-fangled. I have very fond memories of the 1975 referendum. However, I remind him that the Government have legislated for referendums to take place on European matters in the UK when significant changes are due to take place. That was before the Prime Minister’s speech yesterday. I am delighted that next week the House will have the chance to spend considerable time talking about this matter; not least because it enables me to say today that I am not going to talk about it because the House will have considerable time to talk about it next week. As noble Lords can imagine, that is a considerable relief.

Among other things, the noble Lord, Lord Trimble, asked about the timetable on the recovery and resolution directive, which is obviously of huge importance for the whole of the EU. Again, these are one of the priorities of the Irish presidency, which is looking for an agreed approach in the first quarter of this year. Member states, including ourselves, are actively and positively engaged in these negotiations. We strongly support this timetable as it is essential that all member states need to get a common set of credible tools and powers to deal with resolution and recovery as soon as possible.

The noble Baroness, Lady Falkner, was worried about the male-dominated nature of the debate. I think that this gets back, in part, to the male-dominated nature of the financial services sector, which will take a long time to sort out. However, as other noble Lords have pointed out, on this subject, we have some extremely eminent female economists and knowledgeable women in your Lordships’ House. I hope that they will speak in future debates.

The noble Baroness referred to bond yields and breaking the debt spiral. I think that I can give her more than a glimmer of hope in terms of bond yields. The bond yields of Greece, Spain and other countries under stress have fallen significantly. In Greece, they have fallen by one-third over the past two months. This is a very big shift in the right direction as far as they are concerned. Bond yields now in the vast bulk of the eurozone, even among the difficult economies on the periphery, are at a sustainable level.

The noble Baroness referred to the financial transactions tax and asked whether this could damage London. The Government’s view is that we have no intention of joining the FTT. We do not believe that it will have a deleterious effect on London, quite the opposite; however, I have severe doubts as to whether the FTT will ever raise anything like the funding that is envisaged for it. I remind noble Lords that we already have our FTT in the City on shares; it is known as stamp duty, so this concept is not totally unknown to us. However, it has to be said that the City is very keen for us to abolish it and believes that there would be significant economic benefits if we did so.

The noble Lord, Lord Kerr, as always, asked a number of very specific and penetrating questions. He asked how many countries will remain with us in our “out” group, and what they have said so far. Their attitudes are, like ours, dictated by their domestic debates. Some have confirmed that they will not join for now, some have confirmed that they are unlikely to join in the long term and others have said that they intend to join at some point. However, given that the eventual package is not known, we do not think that it is wise for us to give names at this stage because it would be unfair to say that all those countries have formed an absolutely settled view about what they are going to do. As noble Lords say, if the number of “outs” falls, there will have to be a review and we are confident that we will be able to secure a sensible voting arrangement going forward. However, we do not envisage that we will be in that position for some considerable time, if at all.

[Lord Kerr of Kinlochard]

I am very grateful to the noble Lord for giving way. Can he help me? In the cases where countries have declared a position, will he write to me and set out what that position is? I drop my third question, which is: what is the Government’s assessment of where those who have not declared are likely to go? However, my first two factual questions are the following. What are the public positions? Where there are public positions, will the noble Lord write and let me know what they are?

[Lord Newby]

Yes, of course. It will not be a comprehensive letter in the sense that not all the countries have expressed a position, as I said, but one or two have and we can collate those relatively easily.

The noble Lord referred, as I did in my introductory remarks, to the importance of the MoU between the Bank and the ECB. We agree with him that it is crucial in setting the tone for the supervisory relationship. The Bank and the FSA are already working with their ECB counterparts and both sides, as it were, are keen to ensure that we have a robust approach to supervision of cross-border banks and cross-border financial services activities.

The noble Lord, Lord Hamilton, was the gloomiest voice in the debate. I would like to comment on two of the points that he raised. The first was about accountability and the extent to which there is a democratic deficit. The ECB is accountable to the European Parliament and the European Council. National parliaments of participating member states will be able to hold it to account through questions. I think that for the foreseeable future national parliaments will play a larger role in terms of the profile of the accountability than does the European Parliament, given its low profile. This debate here is an example of the kind of thing that one hopes would be happening across the EU.

The noble Lord, Lord Davies of Stamford, raised a number of issues and came up with three logical outcomes in terms of our supervision compared with that of the ECB: either we do what it says or it will be more or less strict—I paraphrase the noble Lord. That is slightly misleading, given that we are working towards a common rulebook. So the supervisory approach will be broadly common. For example, the recovery directive is one way in which there will be a broadly similar approach across the EU, with or without the banking union.

[Lord Davies of Stamford]

I am very grateful for the Minister’s comments. Of course, the rules themselves—such as those relating to liquidity ratio, capital ratios, capital adequacy and so forth—will be set up by the EBA, and there will be a common rulebook. However, supervision is about how strictly the banks’ activities are looked at, and that affects authorisation, licensing and review of the asset quality of the banks concerned. In these areas potentially there will be very considerable scope for a difference of approach by different supervisors. That is exactly what I meant by more and less strict approaches.

[Lord Newby]

To the extent that there will be, in effect, two major supervisors—ourselves and the ECB—I think that the MoU will help in that respect.

The noble Lords, Lord Dykes, Lord Flight and Lord Liddle, all talked about the role of London and what the impact of this will be. Undoubtedly for many companies, particularly financial services companies, the City is their entry point to Europe and to capital markets more generally. Regardless of whether they are successful in actually trading in Europe to the extent that they want, that is undoubtedly the way it is seen. It is very important that we work extremely hard, as we go forward, to make sure that the single market is embedded and strengthened and that we protect the City at the same time. I would love to have a long debate with the noble Lord, Lord Desai, about the future of the eurozone economy, but I fear today is not for that.

The noble Lord, Lord Liddle, asked whether we had looked at being a member of the banking union. The truth is that once we had decided that we were not going to join the euro, that was off the table. All parties have agreed in recent years that joining the euro is not for the UK at this time; sadly, that is where we find ourselves. I agree with the noble Lord that there is a real problem about social and political consent for the austerity packages across the EU. Nevertheless, in some countries—Ireland is probably the best example—there is a real sense of a corner having been turned and major new foreign investment in that country, which suggests that foreign investors also think so.

The Government support comprehensive banking union in the eurozone, and we will do what we can to promote its development while safeguarding the UK’s role as a regional and global banking centre. We look forward to being informed and influenced by the noble Lord, Lord Harrison, and his committee.

Bank of England

Lord Newby Excerpts

Tuesday 22nd January 2013 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they agree with Mark Carney, the new Governor of the Bank of England, that the Bank’s target should be changed from inflation to nominal gross domestic product.

[Lord Newby]

My Lords, the Chancellor set the remit for the Monetary Policy Committee at Budget 2012 to target inflation at 2%, as measured by the 12-month increase in the consumer prices index. The Government have no plans to change the inflation-targeting framework.

[Lord Barnett]

That was not really an Answer to my Question. I understand what is in the current Monetary Policy Committee target and that it has not changed. However, is the Minister aware that the ONS has recently found that GDP—real GDP, that is—was 3% less than it was before the recession and that growth, as most forecasters are saying, is not likely to be very good? So at least it would be helpful—if anybody can do anything about it—if the man whom the Prime Minister described as the best in the world was given these additional powers. Does this mean that if the Governor took those powers to himself, the Chancellor would override them with the current powers that he has?

[Lord Newby]

My Lords, the Question that has been raised, about whether to change the inflation target, is an important one. Before any change is made, however, the question that we have to answer conclusively is: what could the MPC do under that target that it cannot do now? A debate is currently going on that is academic in part and in which all the commentators are involved. For the time being, however, we see no reason to change the current framework.

[Lord Bilimoria]

My Lords, the Government should be congratulated on appointing Mark Carney and for the first time bringing in somebody from outside the United Kingdom to serve as Governor of the Bank of England. It shows not only what an open country and economy we are but that we can get a fresh input of ideas—such as the suggestion that we should look at GDP as a target as well as interest rates. I think that the noble Lord, Lord Barnett, probably meant to ask whether the Bank of England should look at inflation targeting as well as targeting GDP—as the Fed in America always has—to help growth in the economy.

[Lord Newby]

My Lords, I am extremely grateful to the noble Lord. The House will be aware that under the Bank of England Act the MPC has to meet, or aim to meet, an inflation target. Subject to that, it has to aim to promote the Government’s broader economic objectives. It is worth pointing out that in the past 20 years, the vast bulk of which have been conducted under the current regime, we have had an inflation target of 2%, inflation having been one of the main economic problems facing this country over recent decades. Against a target of 2%, the outturn has been 2.1%, so it has been a pretty effective target.

[Lord Howarth of Newport]

My Lords—

[Lord Peston]

My Lords, would the Minister care to reflect on the irony of what he and government spokesmen are generally saying? The Europhobes on the government Benches are terribly upset with the idea that Brussels wants to get, and is getting, too involved in the determination of our economic policy, but is not our economic policy being driven by a quite different group—namely the credit rating agencies, which have no democratic legitimacy whatever and whose operations would not bear the slightest scrutiny if ever we were able to examine them properly? Is it not about time that the Government put the needs of our economy first and not the needs of the credit rating agencies?

[Lord Newby]

My Lords, the Government do not put the needs of the credit rating agencies first. The Government are seeking to promote growth within a stable framework while reducing the deficit. We do not know what the credit rating agencies are going to do, but I can assure the noble Lord that people in the Treasury are not spending every night awake worrying about them. They are expending their efforts on promoting growth on the basis of a reducing budget deficit and a credible long-term macroeconomic policy.

[Lord Forsyth of Drumlean]

My Lords, is it not obvious to everyone that inflation targeting has failed? The Bank of England has consistently failed to meet its inflation targets and we have zero growth in the economy. Would it not be sensible for the Government to listen to Mr Carney’s suggestions?

[Lord Newby]

My Lords, the Government will listen to Mr Carney’s suggestions. Mr Carney has said that he will not comment on the position in the UK until he arrives. His key speech on this issue was made in February last year before he was appointed. In that speech, he said among other things that,

“if nominal GDP targeting is not fully understood or credible, it can, in fact, be destabilizing”.

There is no quick and easy answer—

[Lord Wigley]

My Lords—

[Noble Lords]

Order!

[Lord Newby]

There is no quick and easy answer to dealing with these issues, but the Government will listen very carefully to what Mr Carney says when he arrives.

[Lord Davies of Oldham]

My Lords, is it not abundantly clear that monetary policy can only do so much and that the whole question of the rate of inflation is marginal to our position in terms of the need for growth in the economy, as the noble Lord, Lord Forsyth, indicated? When will the Government realise that, as we tremble not on our fiscal cliff but on the brink of the possibility of a third recession, it is necessary to address the real economy and abolish plan A?

[Lord Newby]

My Lords, I do not think that people struggling to make ends meet think that inflation is irrelevant. Keeping inflation down is a central aim of government policy. In terms of what is happening in the broader economy, I remind the noble Lord that the CBI industrial trends survey published today echoes the views of the British Chambers of Commerce quarterly economic survey published a couple of weeks ago: namely, that there is an improvement in confidence; that orders are increasing; and that employment expectations are improving. The noble Lord should not overdo the doom and gloom.

Public Service Pensions Bill

Lord Newby Excerpts

Monday 21st January 2013 Lords Chamber

[Lord Newby]

My Lords, this is a rather disparate group of amendments. I will start with government Amendment 117. Amendment 117 is part of the wider package of amendments that seek to meet the desire of the Northern Ireland Executive to be removed from the provisions of the Bill. The provisions in question would have required a report to be laid in the Northern Ireland Assembly, should the responsible authority have sought to make changes to the protected elements in the schemes for which Northern Ireland has devolved competence. Given that this is consequential and in line with many other amendments relating to Northern Ireland, I hope that that amendment will be uncontroversial.

I will now speak to government Amendment 118 and Amendment 118ZA. Government Amendment 118 recasts the timing of the 25-year period of protection. The amendment will ensure that all schemes made under the Bill benefit from this protection until 31 March 2040. It is currently intended that the new Local Government Pension Scheme will be in place earlier than April 2015. Concern was expressed in another place—which the noble Lord, Lord Eatwell, expressed here today—that the scheme would lack the protection in this clause until 1 April 2015 had passed. The amendment seeks to deal with this concern. Although the Government have no intention of making changes to the core elements of the new Local Government Pension Scheme in its first year, we are happy to rectify the situation. The amendment will ensure that all schemes, even those that might be implemented before 1 April 2015, receive the full protection from Clause 20 for 25 years.

Amendments 116A and 119A would increase the required levels of consultation and parliamentary process for all scheme regulations that make adverse retrospective changes to members’ benefits. As the noble Lord, Lord Eatwell, says, we have debated the issue of retrospection a number of times in your Lordships’ House. As discussed when we were considering the potential amendments laid to Clause 3, the Government are aware of the concerns on this issue and intend to bring forward their own amendments in this area. I plan to have a draft amendment available in advance of Report stage and I hope that it will meet the concerns of the noble Lord, Lord Eatwell.

Amendment 117A in the name of the noble Lord, Lord Flight, would, as he said, end the protection set out in Clause 20 after 12 years. It would require a review of the effectiveness of the cost cap to be conducted by the Office for Budget Responsibility, and that review would determine whether the clause’s protections would be extended beyond 2027.

Although I understand the noble Lord’s reluctance to bind subsequent Administrations for 25 years to a more onerous process, I must reiterate the Government’s position on the new 2015 schemes. First, we believe that if the cost cap is necessary, it will work. If it does not, the solution does not lie in reducing the consultation and reporting requirements that govern fundamental changes to public service pension schemes. To make this amendment would risk causing unjustified concern and uncertainty to scheme members about the commitments that the Government have given in the context of negotiating the important reforms made by this Bill. I am very happy in that respect to repeat the statements of my right honourable friend the Chief Secretary to the Treasury when he described the new schemes as,

“a deal that can endure for at least 25 years and hopefully longer”.—[Official Report, Commons, 2/11/11; col. 929.]

We have committed that this belief should be enshrined in the primary legislation governing these schemes. We do not share the gloom of the noble Lord, Lord Flight, as to their unaffordabilty. Therefore, I hope that he will not press his amendment.

Amendment 118B was discussed in another place, and there the Government set out their belief that the elements of the new pension scheme designs which have been designated as “protected” are the right ones. It is right that members and their representatives should seek reassurance from the Government over their commitment to the new schemes that have been negotiated. However, these schemes must work in the real world. Public service pension schemes require regular tweaking to keep them in line with all kinds of other legislation, and the processes in Clause 20 are not designed for such changes. The protected elements, which have been included by the Government in Clause 20, are those which form the core of the new schemes. The kind of regular, purely administrative, changes that are made to the regulations of public service pension schemes are unlikely to touch on these aspects of design. If they ever do, it would be right for scheme members to be reassured about the impact of such changes through the procedures in Clause 20. Those elements suggested by the amendment go beyond this. These are aspects of design which are likely to require administrative changes, and so the proper consultation requirements which should apply to them are those set out in Clause 19. It is not as though the changes are not consulted on at all.

It may be of benefit to the House if I give a couple of examples of the kind of changes to the three heads under the noble Lord’s amendment that have been made in a couple of years, which demonstrate the kind of thing that we are talking about. In respect of pensionable earnings, for example, we are about to remove all references to primary care trusts in connection with their role in establishing pensionable earnings for practitioners. That is a small administrative change to reflect the fact that PCTs are on the way out. On ill health benefits, we have made changes that allow scheme medical advisers to determine that a member can satisfy the severe ill health condition for the purposes of the Finance Act 2004. It is a small administrative change. In respect of early retirement, changes made from 1 April 2010 required that an employer should pay the costs of the early payment of a mandatory retirement lump sum, paid to a member retiring on the grounds of redundancy. So, again, it is a small administrative change.

In view of the reassurance that I have, I hope, been able to give the noble Lord, and my attempt to clarify the way in which the clauses work, I hope that he will feel able not to press his amendments.

Having given reassurance to the noble Lord, Lord Flight, that we believe that the cost caps will work, I am afraid that I cannot support Amendment 118C. This amendment cuts across the provisions relating to the cost cap mechanism set out in Clause 11. As discussed in another place, that mechanism already contains a number of its own consultation requirements. Indeed, the arrangements in Clause 11 are actually more stringent than those set out in Clause 20. It may be to the benefit of the House if I read it out. The Bill says that,

“scheme regulations may provide for … a procedure for the responsible authority, the scheme manager … employers and members (or representatives of employers and members) to reach agreement”.

So there is a requirement in the Bill that they have to reach agreement, whereas Clause 20 requires only consultation with a view to reaching agreement.

[Lord Eatwell]

The noble Lord is very kind to read out that little piece from the earlier clause. However, it uses the word “may”, and “may” is not a requirement.

[Lord Newby]

My Lords, we are back to the “may” and “must” issue here. Clause 11(6) states:

“For cases where the cost of the scheme would otherwise go beyond the margins, scheme regulations may provide for—”.

It then lists several things that may be provided for. This is one of those cases where in reality the difference between “may” and “must” is not only negligible, it does not exist. The schemes will include those provisions; that is exactly why they are in the Bill. Having another process for consultation, as the noble Lord suggests, is unnecessary. I hope, therefore, that he will feel able to withdraw the amendment.

[Lord Eatwell]

My Lords, I am grateful to the Minister for those comments. I am particularly pleased with government Amendment 118, which achieves what we were attempting to achieve through Amendment 118ZA in a very satisfactory and comprehensive manner. Regarding the other amendments which we have proposed, as I have said on numerous occasions, we look forward to the Minister’s amendments with respect to the retrospective measures in this Bill.

I wish to comment on his rejection of Amendment 118B, which seeks to include the scheme’s definition of pensionable earnings, ill-health benefits and early retirement rights under the so-called protected elements in Clause 20. The examples he gave were indeed administrative, but they were not in the least reassuring. The fact that there was a series of administrative changes does not mean that future changes will also be of such limited significance, because the clause allows for greater changes. It is like saying that it might not be very significant if one player on a football team has a shirt that does not quite match those of the others. It is very significant if he is then not allowed on to the pitch. Giving us these so-called reassuring examples is an exercise in which I hope we will not indulge in the future, because it does not address the nature of the argument. However, at this time I beg leave to withdraw Amendment 116A, which deals with the issues of retrospection that we will discuss on Report.

--- Later in debate ---

Moved by

[Lord Newby]

117: Clause 20, page 11, line 40, leave out paragraph (d)

--- Later in debate ---

Moved by

[Lord Newby]

118: Clause 20, page 11, line 42, leave out from second “period” to end of line 43 and insert “beginning with the coming into force of this section and ending with 31 March 2040;”

--- Later in debate ---

[Lord Eatwell]

My Lords, the purpose of this proposed new clause is to evaluate scheme participation. I am sure all of us are very concerned that members should participate fully in the pension scheme that is available with their employment. Some of the new measures which will be introduced this year are complex but it will typically be in members’ best interests to remain in their defined benefit scheme—in this case, their average earnings defined benefit scheme.

The role of the proposed new clause is to require the Government to assess the attrition of membership of public sector pension schemes consequent upon the increase in contributions which will take place following the 2010 spending review. The purpose of the amendment is to determine whether the number of members opting out of any public service pension scheme in consequence of the increase in contributions exceeds by 5%—this is an arbitrary number—the drop-out rate immediately before the contribution increases. Therefore, it seeks to pick up what the consequence of contribution increases and the various changes which the Bill will introduce might be.

The amendment is not a challenge to the appropriateness of the contributions but merely seeks to provide the sort of information that the Government, employers who are members of the various schemes and, indeed, the members themselves need in order to understand the dynamics of what is going on in public sector pensions. Providing that information to all those groups would be beneficial and would lead to a better informed debate and better informed consideration in future of the development of public sector schemes. I beg to move.

[Lord Newby]

My Lords, it is probably sensible to remind ourselves why the increases in employee contributions were felt to be necessary. The noble Lord, Lord Hutton, was clear when he said in his interim report that,

“there is clear rationale for increasing member contributions to ensure a fairer distribution of costs between taxpayers and members”.

He sets this in the context of the cost of public service pensions having risen by a third over the past decade to £32 billion and of those increases having fallen mostly on the taxpayer. Subsequently, in 2010, the Chancellor announced a proposed increase in member contributions of 3.2 percentage points, to be phased in progressively over three years from April 2012. Let me be clear: the Government stand behind the justification for these increases and fully expect them to be implemented and carried forward into the new schemes. Proposed scheme final agreements clarify this. The noble Lord, Lord Eatwell, is right to raise the issue of participation, and I welcome the opportunity to set out what we are doing to maximise this.

First, we have protected the lowest earners from the increases. We know that they are those most likely to opt out, so there will be no increases for those earning under £15,000, and limited increases for those earning under £21,000. Secondly, we have split up each year of proposed increases so that we can assess the impact, particularly on opt-out, of year one, before finalising the approach for the next. As a result, I am pleased to be able to say that following the increases in contributions in April 2012, scheme data show that there has been no discernible increase in opt-out. This perhaps should not come as a surprise. Union representatives at the Bill’s evidence session in the other place unanimously stated that they would continue to advocate membership to their members.

We should also remember that the auto-enrolment policy—begun by the Opposition but implemented by this Government last year—will further encourage pension participation more generally. Therefore, given the clear rationale for rebalancing costs fairly, and the specific steps that the Government have taken to minimise opt-out, we do not intend to revisit the contribution increases after their implementation.

Of course, the Government will closely watch what is happening in practice. We monitor opt-out as a matter of course. In the unlikely eventuality that opt-out rates dramatically rise, naturally we will have to consider the best way forward. However, we think that this is highly unlikely, and the evidence bears that out.

We do not, however, believe that a statutory, independent review of the appropriateness of the increases would be right or necessary. We believe that increasing contributions is appropriate and that it will leave public service workers with pensions which remain the envy of many in the private sector. Introducing a statutory review mechanism would be misleading to members about the intended permanence of these increases.

The Government will continue the implementation of the increases and will continue to monitor opt-outs from schemes, but we cannot agree to this amendment to provide for a formal review, as, in our view, this would set an unrealistic expectation that the increases might be reversed.

[Lord Eatwell]

It would have been very nice if the Minister had addressed the actual amendment instead of the fictional one that he seems to have been discussing. There is no suggestion in this amendment of looking at the “appropriateness”, as he put it, of higher contributions. The intention is simply an information exercise; we want to know what is happening and we want it to be clearly revealed. The various measures that he described to maximise participation are very appropriate and desirable, but will they work? We are told, “We believe they’re going to work”, but some people believe in fairies.

[Lord Newby]

My Lords, I suggest to the noble Lord that it is not a question of hoping, thinking or believing; it is a fact that the increases have been implemented and there has not been a discernible increase in the opt-out rate.

[Lord Eatwell]

The point is that, if there is a proper review available to all—which the noble Lord is not relying on; I presume that he is relying just on the evidence provided by his officials—we will be able to assess the consequences of the increases.

Finally, I think that when the noble Lord was discussing the measures to prevent opt-out, he mis-spoke. It is not correct that somebody earning less than £15,000 a year is not subject to higher contributions. I think he will find that part-time workers earning less than £15,000 per year are subject to higher contributions.

However, given what we heard, which was clearly a misunderstanding of the purpose of the amendment, for the moment I beg leave to withdraw it.

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Moved by

[Lord Newby]

121: Clause 22, page 12, line 24, leave out “in public service” and insert “specified in section 1(2)”

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Moved by

[Lord Newby]

128: Schedule 8, page 47, leave out lines 4 to 39

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Moved by

[Lord Newby]

133: Clause 25, page 13, line 16, leave out from “Wales” to end of line 18

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Moved by

[Lord Newby]

135: Clause 26, page 13, line 31, leave out from “1972” to “(schemes” in line 33 and insert “so as to extend access to schemes under section 1 of that Act”

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Moved by

[Lord Newby]

136: Schedule 9, page 54, line 15, leave out from beginning to end of line 12 on page 55

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Moved by

[Lord Newby]

137: Clause 27, page 14, line 12, leave out “13 and” and insert “(Information about benefits) to”

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Moved by

[Lord Newby]

140: Clause 28, page 15, line 2, leave out “the scheme” and insert “a scheme to which subsection (2) applies”

--- Later in debate ---

[Lord Newby]

My Lords, the Government have always been clear that pension reform should extend to all public service pensions. Clause 28 and Schedule 10 are the means by which that work will be continued, even after enactment of the Bill. To date, the Government have focused their resources on reforming the largest public service pension schemes as these affect the vast majority of public service employees. As such, pension reform for the smaller public bodies is not as advanced as the reforms to these major schemes. Noble Lords may be reassured to know that reform of these smaller schemes is anticipated to be completed by 2018, after the reforms to the larger schemes are operational in 2015.

The Government’s policy with regard to these schemes is clear: any public body whose defined benefit pension scheme needs to be reformed is listed in Schedule 10 or may be added to it. Members of these schemes should be well aware that their pensions are in scope of the reforms. However, the arrangements surrounding some of these pension schemes are complex and it may be unnecessary to include them in Schedule 10 if they are able to reform on their own initiative. If so, they will not need to be listed.

To date, we have worked hard to ensure that all the public bodies that operate pension schemes eligible for reform by the powers under Clause 28 have been listed in Schedule 10. However, we are trying to be realistic with this provision: of the more than 400 public bodies that provide pensions to their employees or officeholders, some may not yet have been identified appropriately. That said, I can assure the noble Lord that the vast majority of public bodies that provide pensions through one of the major public service schemes will be reformed by Clause 1, so the number of public bodies that may have to be added will be extremely low. However, if we need to include such schemes, the Bill needs to provide for the Treasury to add them via Schedule 10.

I note what the noble Lord says about draconian powers but it is worth noting that the Delegated Powers and Regulatory Reform Committee did not express any concerns whatever about this power as currently drafted. It is a sensible way of dealing with the addition of a small number of public bodies to the universal principles of public sector reform. I hope therefore that the noble Lord will withdraw his amendment.

[Lord Eatwell]

My Lords, perhaps the Minister will clarify for my edification his reference to schemes reforming themselves and then not needing to be incorporated into Schedule 10. What will be the criteria of satisfactory reform and who will do the judging?

[Lord Newby]

My Lords, the criteria for satisfactory reform is that we want all public bodies to adopt schemes which are in line with the provisions of the Bill. So, if the schemes do that, that is fine. There are a number of schemes, some of which are listed already and some of which may need to be listed subsequently, when the Government and the Treasury believe that the process will be helped if they are formally listed in the Bill or under the Act.

[Lord Eatwell]

I thank the Minister but this is unsatisfactory. It leaves an area of uncertainty hovering over smaller schemes, which may be in or may be out. I presume, therefore, that the Treasury will make a judgment as to what it thinks in its wisdom is right. I do not think that is a proper way to go forward and may return to this issue later. For the moment, I beg leave to withdraw the amendment.

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Moved by

[Lord Newby]

144: Clause 28, page 15, line 30, leave out “which are closed under this section” and insert “to which subsection (2) applies”

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Moved by

[Lord Newby]

145: Clause 29, page 15, line 44, at end insert—
“( ) This section does not apply to a public body pension scheme which relates to a devolved body or office.”

--- Later in debate ---

[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.

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Moved by

[Lord Newby]

148: Clause 33, page 18, line 14, at end insert—
““devolved”: a body or office is “devolved” if or to the extent that provision about pensions payable to or in respect of members or staff of the body, or a holder of the office—
(a) would be within the legislative competence of the Northern Ireland Assembly were that provision contained in an Act of the Assembly, or(b) is not a reserved matter within the meaning of the Scotland Act 1998;”

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Moved by

[Lord Newby]

149: Clause 33, page 18, leave out line 15

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Moved by

[Lord Newby]

154: Clause 34, page 19, line 46, leave out paragraph (b)

Public Service Pensions Bill

Lord Newby Excerpts

Tuesday 15th January 2013 Lords Chamber

Moved by

[Lord Newby]

43: Clause 5, page 3, line 39, leave out subsection (7)

[Lord Newby]

My Lords, this group of amendments is concerned with the recommendation of the noble Lord, Lord Hutton, that each public service pension scheme should have an advisory group.

[The Deputy Chairman of Committees (Baroness Anelay of St Johns)]

My Lords, we are joined seamlessly at the hip—my noble friend Lord Forsyth will be pleased. On this occasion, I hope that noble Lords will feel it right to leave the Chamber quietly so that the aficionados of the pensions Bill can continue with their work.

[Lord Newby]

My Lords, as I was saying, this group of amendments is concerned with the recommendation of the noble Lord, Lord Hutton, that each public service pension scheme should have an advisory group. Although these have always been dealt with administratively, we have listened to concerns raised in another place and proposals from stakeholders. As a result, we have decided to make these groups plain on the face of the Bill.

Amendment 45 introduces a new clause to require scheme regulations to establish a scheme advisory board. The central purpose of the scheme advisory board will be to consider and advise on the desirability of future changes to the schemes. The board will advise the responsible authority on any matter that it asks the board to consider, whether wide-ranging or focused on a single issue. The board’s role will supplement, rather than replace, the role of other persons and bodies in responding to consultations under Clauses 11, 19 or 20.

The scheme advisory boards may play an additional role in the locally administered police, fire and local government schemes. In those schemes, the board may also advise the scheme managers and pension boards when such advice is requested or on their own initiative. Subsection (2) provides that the board can advise them on the effective and efficient administration of the scheme, any connected scheme and any pension fund that relates to them.

This amendment is in light of proposals that employer and employee representatives have put forward in respect of the local government scheme in England and Wales. While the precise role will be a matter for scheme regulations, we envisage that the locally administered schemes will want to provide for the advisory board to offer central support to scheme managers. That advice is likely to cover matters such as best practice and ensuring consistent approaches to the management of the schemes.

The advisory board will identify policy and operational issues that need to be resolved, either by better practices at a local authority level or perhaps through changes to scheme regulations or guidance. In turn, the advisory board will be able to advise the relevant parties on how changes should be made to improve the management and administration of the schemes and their pension funds. For example, there will almost certainly be an advisory board role to agree and advise on the interpretation of the legislative requirements—potentially around co-commissioning of expert advice and systems—and the co-ordination and co-commissioning of services. It is likely that, for the funded local government scheme, it will monitor fund performance across the pension funds. The employer and employee representatives in that scheme envisage a role to support scheme managers and pension boards to improve fund management across the scheme. These amendments allow for that.

The scheme advisory board will not have a separate role in advising the scheme managers and pension boards in the nationally administered schemes. That is not needed in those schemes. Unlike the locally administered schemes, the scheme manager and responsible authority will be the same person. Importantly, the amendments maintain a clear separation between the advisory board’s policy role and the scheme manager and pension boards’ responsibilities for the management, administration and governance of the scheme. The noble Lord, Lord Hutton, highlighted the importance of this separation of roles in his report.

Finally, the amendment requires that scheme advisory board members must not have a conflict of interest that could prejudice the way they undertake their role. This does not prevent a scheme member, or an employer or employee representative, being a board member. Those are not interests that would prejudice the way they undertake the role—indeed, they are instead interests that support such an undertaking. I commend these amendments to the Committee.

[Baroness Donaghy]

My Lords, I want to speak to Amendment 45. The Local Government Association and the relevant unions welcome this amendment as it ensures an effective separation of responsibilities for boards at local level and at national level, as was required. While it is a positive step, a concern for the LGA and the unions is the scope of the role of the board as contained in the amendment, particularly the nature of the advice which the scheme advisory board can offer. The current wording of Amendment 45 restricts this advice to that of desired changes to the scheme. The LGA and unions believe that the introduction of a scheme advisory board offers the potential for advice, not only on scheme changes but also other areas including scheme governance, technical advice and cost management. Will the Minister comment on this?

--- Later in debate ---

[Lord Newby]

My Lords, on the noble Baroness’s question about the broader scope for the local authority scheme, I direct her to subsection (2) of Amendment 45, which states:

“Where the scheme manager of a scheme mentioned in subsection (1) is a local authority or a committee of such an authority, the regulations may also provide for the board to provide advice (on request or otherwise) to the scheme manager or the scheme’s pension board in relation to the effective and efficient administration and management of … the scheme”.

That goes beyond simply the scheme content. It relates to the way that the scheme is run as well. There is already a much broader role in respect of the local authority scheme than for the nationally administered schemes.

I hope that the noble Lord, Lord Hutton, will not mind if I write to him to answer his question.

Amendment 43 agreed.

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Moved by

[Lord Newby]

45: After Clause 6, insert the following new Clause—
“Scheme advisory board
(1) Scheme regulations for a scheme under section 1 which is a defined benefits scheme must provide for the establishment of a board with responsibility for providing advice to the responsible authority, at the authority’s request, on the desirability of changes to the scheme.
(2) Where the scheme manager of a scheme mentioned in subsection (1) is a local authority or a committee of such an authority, the regulations may also provide for the board to provide advice (on request or otherwise) to the scheme manager or the scheme’s pension board in relation to the effective and efficient administration and management of—
(a) the scheme and any statutory pension scheme that is connected with it, or(b) any pension fund of the scheme and any connected scheme.(3) A person to whom advice is given by virtue of subsection (1) or (2) must have regard to the advice.
(4) The regulations must include provision—
(a) requiring the responsible authority—(i) to be satisfied that a person to be appointed as a member of the board does not have a conflict of interest, and(ii) to be satisfied from time to time that none of the members of the board has a conflict of interest;(b) requiring a member of the board, or a person proposed to be appointed as a member of the board, to provide the responsible authority with such information as the authority reasonably requires for the purposes of provision under paragraph (a).(5) In subsection (4)(a) “conflict of interest”, in relation to a person, means a financial or other interest which is likely to prejudice the person’s exercise of functions as a member of the board (but does not include a financial or other interest arising merely by virtue of membership of the scheme).
(6) In this Act, a board established under this section is called a “scheme advisory board”.”

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[Lord Whitty]

I fully support the amendment put down by the Front Bench. However, with regard to the arrangements for the Local Government Pension Scheme, would it not have been better if the Government had set out in one place the totality of the arrangements that were intended for the local government scheme, rather than attempt yet again to generalise the provisions to cover most of the public sector schemes? It is probably too late for the Government to do that; in which case, I hope that they will support my noble friend’s amendment.

[Lord Newby]

My Lords, I am genuinely confused. In our view, Amendment 45 establishes pension policy groups. I do not know what the noble Lord’s Amendment 46 will do that our Amendment 45 does not. What is the function of his groups that goes beyond the functions of our scheme advisory board? In tabling this amendment, we thought that we had done exactly what my colleague in another place suggested, which was to take it away and bring forward proposals that did what the noble Lord wanted. My view was that our amendment not only does what the noble Lord wants but goes rather further, in providing for the scheme advisory board to advise the responsible authority on any proposed change in the scheme regulations, not just significant changes.

[Lord Eatwell]

Perhaps I might respond to the point that the noble Lord has just made. I think that he is being a bit obtuse. Amendment 45 refers to an advisory board to be established for each scheme; it does not refer to general national boards, which would cover a range of schemes that may be within a particular area of concern. This is a different animal. If he thinks that it is the same, it would have been enormously helpful if he had made it clear when he introduced the amendment, which he failed to do.

As I read this, the scheme advisory board refers only to defined benefits schemes. We know that there a small number of defined contribution schemes. Why are they left out? Amendment 45 also states that:

“Scheme regulations … must provide for the establishment of a board”,

which suggests a board related to each scheme, not the overall national bodies referred to in Amendment 46.

[Lord Newby]

Perhaps I may quote the noble Lord’s Amendment 46:

“The Treasury shall make directions providing for the establishment of a pension policy group for each scheme”.

That is what Amendment 45 says. What is the difference?

[Lord Eatwell]

Perhaps we are arguing over the definition, but it seems to me that the whole issue of the policy boards was that they were national boards. If we look at the actual boards that have been established, they are national boards, which have a national overview. If that is what was meant by Amendment 45, I am very happy. However, it would have been enormously helpful if the Minister had said so when introducing his amendment.

[Lord Newby]

I apologise to the noble Lord. There is no doubt in my mind that when government Amendment 45 says:

“Scheme regulations … must provide for the establishment of a board”,

for each scheme, that is the same definition of “scheme” as in Amendment 46. I am sorry if I did not make that clear to the noble Lord. I made in error the assumption that it was relatively straightforward.

Amendment 46 withdrawn.

--- Later in debate ---

[Lord Newby]

My Lords, this issue has been debated in another place on a number of occasions. There is a technical problem with the amendment over the concept of “replacing schemes”, which is pretty difficult to express in law. The key thing here is not the drafting but the principle that is raised by the amendment.

I am pleased to be able to add my assurances to those of the Chief Secretary and the Economic Secretary in another place. The Government have no—zero—intention of replacing the defined benefit schemes that have been negotiated with different scheme designs. Officials and members’ representatives have worked very hard to ensure that these reforms are sustainable. I am confident that they will last for a generation. The Government would not have invested so much time and energy in developing and legislating for the mechanisms in the Bill if we were intending to do anything other than retain defined benefit schemes. It is not the case that these mechanisms could be amended on the nod. If any future Government wanted to move away from the current defined benefit system, they would have to go through the procedures in Clause 20.

However, that is not really the point. As I have made clear, there is no possibility of this Government wanting to replace the defined benefit schemes that we have worked so hard to develop. We therefore feel that this amendment is unnecessary and I hope that the noble Lord, Lord Eatwell, will withdraw it.

[Lord Eatwell]

My Lords, that is extraordinary. The noble Lord, Lord Newby, has simply reinforced the argument that I made. We are expected to accept assertions about intentions in the future and that that is to be enough to cover this particular circumstance. I accept that there may be difficult technical issues in drafting but that is not the point, as the Minister himself said.

The point is that those members who have given up their final salary defined benefit schemes, and reached a deal that agrees to the Government implementing career average defined benefit schemes, should have confidence in the Government keeping their part of the deal. It should not just be the Minister standing here and this Government but Governments stretching over the next couple of decades doing this. That confidence would rest in the commitment to maintaining a defined benefit structure.

What I hear from the Minister is an unwillingness to do that. All he will do is say, “I will give assurances”. How can he give an assurance for someone standing at that Dispatch Box, whoever it may be, in 10 years’ time? He cannot, so the point of this amendment, ill drafted though it may be, is to ensure that any Government of the day changing the status of pension schemes for so many of the public servants who make our lives worth while and secure would have to come back to Parliament with primary legislation to change the nature of the scheme. I did not hear any commitment on the part of the Government to do any such thing and to include such security in their pension provision for those who serve us so well. I shall look at the drafting, but we shall certainly return to this on Report. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Donaghy]

My Lords, I support this group of amendments. Lest my noble friend Lord Whitty and I are accused of running or producing the local government show, I want to deal with the Civil Service pension scheme in relation to this subject. According to the First Division Association, the current wording of the Bill does not reflect the discussions with the unions on revaluation, and seeks to extend the Treasury’s control far beyond that which is necessary and prudent. In the light of the FDA and others v the Secretary of State for Work and Pensions and others in 2012, there is no need for this clause to be in primary legislation, as it is better suited to the scheme regulations that will lay down the parameters for each distinct scheme. There is no similar clause setting out the terms of the indexation of pensions in payment, even though that element is consistent across all schemes.

Fundamental to the agreement reached with the Civil Service was the understanding that, as with indexation of pensions in payment, revaluation would never be negative. If the relevant index was negative, as has been the case in recent history, the figure of zero is used and there are no increases or decreases applied. This is vital to the confidence of pension saving. Just as pensions in payment should not fall from one year to the next, a principle held by successive Governments, so pensions being accrued should not similarly be reduced. That reflects existing practice.

The FDA was not informed at any stage that the Government intended to deviate from that approach in the new scheme, and to do so now would be a fundamental challenge to the agreement. The continued inclusion in the Bill of a provision allowing negative revaluation to occur could have a profound effect on member behaviour, and specifically opt-outs. Scheme members are likely to react to an announcement that their whole pension is to be revalued downwards as a result of a negative figure for the consumer prices index in September; their response is likely to be one of mass opt-out. This is a hugely counterproductive approach for the Treasury to take on the pretext of share and risk, and the cost of management mechanisms already accounts for inflation—yet the Treasury wants additional cost to be accepted by members through this provision, which puts participation at risk.

[Lord Newby]

My Lords, the amendment proposed by the noble Lord, Lord Whitty, raises the important question about how negative growth should be treated in these new schemes. For the revaluation of active members’ accruals each year the Treasury will lay an order which will establish the changes in earnings or prices. Scheme regulations will then use these changes when applying the revaluation mechanism that they decided on in their proposed final scheme designs. This approach mimics the current arrangements for the indexation of public service pensions in payment; it allows for the agreed scheme-specific variations, but also ensures that the underlying growth measures are transparent and consistent.

As the noble Lords have pointed out, this approach allows for the growth measure to be negative. I am not looking bemused because I did not realise that that was the case; we have never sought to hide that fact. Before explaining the rationale behind this, I should point out that brief periods of negative growth are unlikely to impact significantly upon the total value of any pension, in much the same way that brief periods of unusually high growth would not. After all, pensions are built up over a long period. I should remind the Committee that negative growth is exceptionally rare. It is not the case that in recent times the preferred index has been negative; the CPI has never been negative. The Committee should also be aware that this clause impacts only on those scheme members who are in employment, building up their pensions. It does not impact at all on pensions in payment.

However rare negative growth might be, if scheme members can benefit from the upside risk of revaluation—which they will, since there are no plans to cap revaluation rates—it would be unfair, in our view, for them to be shielded from any potential downside risk. Furthermore, by imposing a revaluation floor, scheme costs would rise and could lead to a breach of the cost cap set out in Clause 11. This is because previous scheme valuations based on standard, long-term growth assumptions would have essentially underestimated the cost of future accruals. If this were the case, it would be likely to lead to an increase in members’ contributions or a reduction in the scheme accrual rate. This would be unfair to anybody reaching pension age when positive growth returns. Their benefits would have been reduced to pay for those people who benefited from the revaluation floor.

It is only right that public servants receive their defined benefit pensions so that they can plan properly for their retirement. However, there is no logic in going beyond this by protecting their accruing benefits from any brief periods of deflation before their pensions come into payment. I believe the approach of directly tracking growth—with no caps or floors—is the fairest way forward. As I have said before, the noble Lord, Lord Hutton, described the idea of an indexation floor as an “asymmetric sharing of risk”. We agree. It is fair to say that the Local Government Pension Scheme does not specify, as the noble Lord, Lord Whitty, implied, that there will be no decrease possible within the scheme rules. My understanding is that it says that the basis of revaluation would be CPI.

Another point was raised about legislating for the measure. I am now coming on to the amendment of the noble Lord, Lord Eatwell, about whether we should legislate for a specific measure and whether the Treasury is being given too much discretion. It has obviously been the case within the last generation that the basis of measuring prices has changed: it has changed from the RPI to the CPI. Our expectation is that the CPI would continue for a very long time, but these things sometimes change and we therefore believe that the best way of dealing with it is in primary legislation. Incidentally, I am not implying that if the measure changed, the pensions would change. It would simply be that the scheme rules would have to reflect any new measure that came into general use.

Moving on to Amendment 49, it is worth re-emphasising that the annual revaluation will set out the general changes determined by the Government’s preferred measure, which is CPI at the present time. As I said, it is necessary to give a limited amount of discretion to the Treasury to determine the measures, but we do not believe that this is going to be a likely or common thing. It is apparent from the wording of the clause that the estimates of changes must be made in a reasonable and appropriate manner. Any attempt to exercise this discretion in such a way that did not produce accurate and appropriate estimates, with reference to a reasonable index of prices or earnings, could be challenged by scheme members. Any decision which is not reasonable—even without this amendment—could be challenged by judicial review and struck down by the High Court, so we do not believe that this amendment would change the position or provide any additional protection to members.

[Lord Eatwell]

I have listened very carefully to what the Minister had to say. Of course, my amendment does not in any way restrict any necessary flexibility in the future in adjusting the manner in which revaluation takes place. However, it would—if I may use the term—sensitise the Treasury when making decisions of this sort to be aware that it is required to act in a reasonable and fair manner.

At the moment, the expression in the Bill provides the Treasury with such a carte blanche—

“estimated in such manner as the Treasury consider appropriate”—

that not even the words “reasonably” or “fairly” appear in the Bill. All we were trying to do was to avoid any rounds of judicial review over these matters and instead to ensure that when Treasury officials look at the calculation of an index—whether they are moving to geometric means or whatever they are doing—they consider very carefully whether this would be deemed reasonable in the public domain. The Minister himself has used the expression “reasonable and fair” in referring to what the Treasury will do, so surely this amendment has either no effect or a positive effect. We may disagree about whether it has no effect or a positive effect, but it does no harm and reinforces what the Minister has said. Surely, he would regard that as a good thing.

[Lord Newby]

My Lords, this question of putting “reasonable” into the Bill came up in a number of contexts on the Financial Services Bill. It would be perfectly possible to spatter this Bill, that Bill and every Bill with “reasonable”. The view that we took then, and which I take now, is that, of course, the Treasury always operates in a fair and reasonable way, but because it already has a broad legal obligation to do so it is simply unnecessary to put it into the Bill.

--- Later in debate ---

[Lord Whitty]

I thank the noble Lord for that intervention. I had not expected to agree with him this afternoon, particularly on subsequent amendments, but I agree with him on that issue. It is important to recognise that the acceptance of those accountancy standards is causing the problem. That is why the noble Lord, Lord MacGregor, in the speech to which I referred, suggested that the Bank of England, government actuaries and the accounting profession sat down and looked at those assumptions. Slightly more tangentially, the Treasury Select Committee in another place has also touched on this point.

I am suggesting that the Government take the initiative whereby, once the Bill is passed by this House in whatever form, they set up a review looking at whether the present conventions and the way in which these public service pensions are assessed are correct—although there is a wider application—and whether we are getting a seriously misleading impression that has a detrimental effect. As the noble Lord said, there has been a devastating effect on large numbers of private sector providers.

The amendment would have no effect on the rest of the Bill but would give the Government a lever to look at the issue again and provide for expert assessment, which, given that the newly formed schemes are not coming in until 2014, could come into place before the first revaluation of those schemes. I hope that the Government will take this matter seriously and have a look at it. I certainly hope that the House and anyone involved in looking at public and private pension schemes will recognise that this is a serious problem. I beg to move.

[Lord Newby]

My Lords, perhaps I might start by saying that the Government take the issue seriously, and it clearly is serious. However, I wish to set out the ways in which different public servants’ pension schemes are, and will be, valued when the Bill comes into effect.

As noble Lords are aware, the majority of the main public service schemes are unfunded. There is no pot of assets that can be valued; future benefit payments are paid out of general tax revenue. They need to be valued in a different way from funded schemes. It is important that these schemes are valued to ensure that contributions paid reflect the costs of employing staff. The Government therefore carry out valuations of unfunded pension schemes to determine the level of contributions. This is done using a number of assumptions and methodologies that adapt to changing circumstances and improvements in the method. These valuations will also be used to set the level of the employer cost cap. The assumptions used in these valuations take account of the risk profile faced by government in providing pension benefits. The valuations can therefore be different from those used by typical private sector funded schemes, where the primary purpose of valuations is to provide security to member benefits.

However, the Local Government Pension Scheme is in a different position. As has been discussed, it is a funded scheme, with benefits paid out of one of 89 different LGPS funds in England and Wales. These funds, as we have discussed many times in our consideration of the Bill, are individually managed. Valuations of the funds perform a similar function to those in unfunded schemes by assessing whether fund assets will be sufficient to meet liabilities and setting the contribution rates to be paid into the funds. This valuation process is managed at the local level and is dealt with in greater detail in Clause 12.

The amendment would place a statutory obligation on the Government to appoint a body to carry out a review of the way in which valuations are carried out in the public service schemes. This is unnecessary for either the funded or unfunded schemes. Under Clause 10, Treasury directions will set out the details of how valuations of unfunded schemes will be carried out. The Treasury will be obliged to consult the Government Actuary before these directions are made to ensure that they are fit for purpose. The Treasury has also committed to involving other stakeholders, such as public service employers, scheme actuaries and trade unions, when considering the approach to valuations.

Turning to the funded schemes, the Bill already provides for a greater level of scrutiny of LGPS fund valuations. Clause 12 specifies that employer contributions to these funds must be sufficient to ensure the solvency of the funds, which is an existing feature of the regulations. The clause also requires that contributions are set at a level that will ensure the long-term cost efficiency of the scheme. This is a new provision, which aims to prevent employers deferring the payment of any costs needed to meet the long-term liabilities. The clause will ensure that local fund managers take this approach. It requires an independent review of each fund’s valuation and the employer contribution rates that result from it. These reviews will result in a report covering all the LGPS funds, which will be made public.

The Government intend to publish a single report for the local government scheme in England and Wales. This will allow straightforward comparisons to be made across each of the 89 funds in the scheme. This new and enhanced level of scrutiny will provide a consistent basis for assessing the assets and liabilities of all LGPS funds, improving their transparency and management of these funds.

In addition, the scheme advisory board proposed by Amendment 45, which we have just debated, may also oversee and advise on the management of pension funds in the local government schemes. These boards will play a role in ensuring that the schemes—and individual LGPS funds—are well managed. As such, there will be an ongoing role for pension boards in the scrutiny of pension fund management and valuations.

Under the existing provisions in the Bill, there are a number of ways in which we can achieve what the noble Lord, Lord Whitty, seeks to achieve. I will go away and look again to make sure that I am not missing anything or whether we do need a belt and braces. I am not sure that we would do it in the way that the noble Lord suggests and I am not sure that we need to do it, but this is definitely a serious issue. The Government want to make sure that nothing in the Bill means that we cannot take that initiative if we decide to do so anyway. I will go away and look at it again. If I think there is anything further that I can usefully say, I will write to the noble Lord, but I am not absolutely guaranteeing the letter.

[Lord Whitty]

My Lords, I am very grateful to the Minister. I am glad that the Government see this as a serious issue and I am grateful to him for setting out what will be the procedure and structure of valuation in the future, specifically for the LGPS and more generally. I should have said at the beginning that my comments were primarily related to funded schemes, but of course post-2014 will bring a lot of the other public service schemes closer to being fully funded schemes—not quite in most cases. This means that the ratio between liabilities and assets and their correct valuation will be an important issue for all funded defined benefits schemes.

My amendment was intended to allow the Government at some future stage to look at the way in which these schemes would in future be assessed. I do not disagree with the mechanism but, as the noble Lord, Lord Flight, says, some of the presumptions and the passive acceptance of the accounting conventions could mean that the schemes looked seriously underfunded when in practice they were not. There may be other problems with the conventions and it would be wise for the Government to undertake this review whether or not it is seen as part of this Bill. I think it is something that the Government need to deal with.

I am grateful to the Minister for indicating that he is prepared to look at this again, and I think that in some contexts the Government will need to do so. Meanwhile, I beg leave to withdraw the amendment.

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[Baroness Wall of New Barnet]

My Lords, I, too, would like to support in particular Amendment 53 and to some degree Amendment 54, especially with regard to the front-line staff in the ambulance service. I am sure the Minister is aware that in the private sector the task of the job and the onerous nature of that task is always directly related to age regarding how pensions are dealt with. Very often there is mood music around that says the public sector wants to be treated differently from elsewhere. As I know from my work with ICI, there were always certain jobs that were absolutely prescriptive in the task of the job and the risk of the job being associated with the age of individuals. We are really asking for that responsibility to be taken by employers in that context.

[Lord Newby]

My Lords, although these amendments all have a common theme, they are quite specific, so I will start with Amendments 52, 55 and 57. It is important to note that the link between the normal pension age and state pension age in most schemes is not the only provision in the Bill which is designed to manage the longevity risk. The link between the deferred pension age and state pension age in all schemes is just as important. This link is universal, with no exceptions. It therefore applies to former members of the police, firefighters and Armed Forces schemes with deferred pensions in those schemes.

There are two reasons why the Government have not extended the exemption from the state pension age link for these workforces to apply to the deferred as well as their normal pension ages. First, it would not be fair to other former public servants whose deferred benefits would not be payable until state pension age. We have been clear that exceptions to normal pension age have been made for police officers, firefighters, and members of the Armed Forces because of the unique nature of the work they do, which we value very much. Once police, firefighters and Armed Forces personnel leave their jobs and no longer carry out those unique duties, there is, in our view, no justification for them to be able to take their deferred benefits earlier than anyone else.

Secondly, there would be cost implications. As we are all aware, increases in—

[Lord Eatwell]

Perhaps I may deal with that first point about leaving the scheme. I accept that in the case of somebody becoming a police officer at the age of 20 or 21 and leaving at 25 the noble Lord has a good case. But let us suppose that the police officer leaves at the age of 55. Is the case the same? Here is someone who has worked in a physically onerous profession for all that time—34 years, let us say. He has moved to another job because an opportunity has come up but he has performed that physically onerous task for a considerable time, which will have had an effect on his overall well-being. Would it not therefore be reasonable in that case for the deferred pension age to be the same as for those who stay on for just a few years more?

[Lord Newby]

My Lords, the noble Lord gives an example. I was literally just about to give another example. I will come back to his example. My example concerns a former police officer who leaves service aged 35 to work as an office-based local government worker for the rest of their career. It is by no means an unusual or impossible example. Should their police pension still be available, unreduced, at 60? That is the question, particularly when a local government colleague sitting at a nearby desk must wait until the state pension age to take his or her full pension. Surely the answer can only be no. The strength of that argument is greatest if someone left the police after a year aged 22 and is weakest if they left it aged 59. I agree with that. The argument is not exactly the same at every age.

However, in looking at this, the noble Lord, Lord Hutton, recommended that we should go to the provision that we have indeed gone to, which is that all deferred pensions are payable in full from the state pension age. If we were to move towards what the noble Lord suggests, we would have an extremely complicated position where there were grades of deferment, if you like. We wanted first of all to have a relatively simple approach. We have followed the recommendations of the noble Lord, Lord Hutton, and we think that we have come up with a sensible, practical solution. We understand the argument, but we have deliberatively taken the view that deferred pension age should be the same as normal pension age.

On Amendment 53 in the name of the noble Lord, Lord Kennedy, the noble Lord was asking about the position of firefighters and the Williams review, and where we had got to with that. The starting point, as we know, is that firefighters continue to have their normal pension age at 60, as set out in the new Firefighters’ Pension Scheme in 2006. The Williams review of the normal pension age recognised that, as long as firefighters maintain their physical activity levels and adopt a healthy lifestyle, there is no reason why they cannot maintain operational fitness levels until the age of 60. The report does not call for a change in the normal pension age. However, as the report recommends, firefighters who wish to retire early will continue to be able to do so from 55, with an actuarial adjustment to their pensions. There were other detailed recommendations within the Williams review and the Government are still considering them.

[Lord Kennedy of Southwark]

I thank the noble Lord. I will not press him further on this. He is right: the review has just come out and we are in the middle of debating the Bill. However, would the Minister agree to meet with representatives of the Fire Brigades Union and me between now and Report? The Williams report raises a number of issues that have a direct bearing on this, and further discussion is important.

[Lord Newby]

My Lords, I am always willing to meet the noble Lord. However, I will do so on the basis that we are not reopening the whole of the scheme. The Williams review has made it clear that there is no reason why the retirement age should not be 60. That, certainly, is not up for discussion. If there are other issues around it we can discuss those, although my initial view is that it is highly unlikely that anything else he is discussing would require amendments to primary legislation, although it may require amendments to the scheme rules. On that basis, I am very happy to have a meeting.

The next amendment in this group is Amendment 54, tabled by the noble Baroness, Lady Donaghy. It looks at further exemptions from the state pension link. We have set the current exemptions in line with historical precedent and the Hutton review. There are no other groups that are currently recognised in such a way through their normal pension age provisions as the three set out in the Bill. In fact, as a result of the previous Administration’s reforms, new employees in all other groups of public servants already have a normal pension age of 65. This includes ambulance service staff under the most recent changes to the NHS scheme, which were agreed to by unions.

As we are all aware, this Bill seeks to rationalise provisions across the public services, not to add further diversity. We are trying to move away from the general inconsistencies in the current schemes, which lead only to unfairness for subsections of particular workforces. That is not to say that we do not recognise the physical nature of the work that is carried out by groups such as ambulance service staff, or the risks attached to that work. The schemes introduced under Clause 1 have been developed very carefully with this in mind. They follow extensive discussions with members, trade unions and other member representatives to ensure that they best meet the needs of all members of each scheme. This includes ambulance service staff in the development of the NHS scheme. It would be wrong to reopen those negotiations—not least because, as my noble friend Lord Sharkey alluded to, there are many groups with degrees of stress in their job that are greater than those in others. We could spend a vast amount of time assessing afresh all those groups. Over the years that work has been done and it has led to the schemes we have now. It was also looked at again by Hutton. I am therefore extremely unwilling to start a long process of looking at a raft of groups when they have been considered before. I understand only too well the stresses and strains faced by 999 responders, but other groups face stresses and strains as well. As I say, we have decided that the three groups which are already exempt from the normal retirement age provisions are the only ones that we believe are in a distinctly different category from any others.

Amendment 56 also relates to this issue, but the difference from this amendment is that it would allow any group to be exempted from the state pension age link should a capability review recommend it. Presumably that would mean that the pension ages for these groups would be set out in secondary legislation. I have just explained why I do not agree with the spirit of the amendment. The link was a key feature of the Hutton report and was a cornerstone of the constructive discussions we held with unions and member representatives over the course of 18 months. The outcome of those discussions was the proposed final scheme designs, including the universal retirement age link which the Bill honours in full. We have no plans to reopen those designs, although we have made it clear that we will review the link to the state pension age as and when future changes to the state pension age are announced. The DWP White Paper published yesterday says that we intend to hold a review every five years, so the link will be reviewed when a review is announced.

The Bill as it stands takes a sensible future-proof approach to review the provisions when it is most appropriate to do so; that is, when there are other pension age changes that affect public servants. Naturally, those reviews will take into account any evidence submitted by interested parties—

[Lord Eatwell]

I understand what the noble Lord is saying, but can he tell us what the status of the working longer review in the NHS is?

[Lord Newby]

The noble Lord has an uncanny ability to ask me a question as I am getting to the relevant paragraph. I was about to say that the capability reviews are not reviewing the pension age link. They are considering the implications of working longer in the light of increased longevity and looking at how people are deployed as they move towards retirement. There is no question of these capability reviews reaching the conclusion that people should retire earlier as a block; rather they say, “If there are professions which have a significant physical component, how can we make sure that, as people move towards retirement age, the proportion of their work which has a significant physical element is reduced?”. A simplistic approach is to say, “Why can we not have firemen doing desk jobs from the age of 55?”. It is not as simple as that because there are not enough of those jobs, but that is the basic thought process we are going through in the reviews.

This is a challenge not just for public sector workers, but for the whole of society. People are living longer and the pension age is going up. Some people who are doing physical work will not be able to maintain the same degree of intensity at the age of 67 as they could at 47 or 27. As a society, how do we deal with this? What sort of mechanisms can we put in place to enable people to work towards a later retirement age in a way that avoids their facing undue stress?

To take an extreme example that does not cover the public services, I have a number of lawyer friends in their early 60s. Traditionally, solicitors in big firms would be forced out at that age because they were not earning as much as they did when they were 40. A very welcome development is that partners, with the encouragement of their firms, are thinking about what they can do that does not necessarily mean that they are expected to generate the profits and income that they did 20 years before, and in this way they can keep their expertise. That is at a different level from the public sector but it is still entirely welcome. The working longer reviews, about which we are talking here, look at exactly that kind of thing for people in the public sector. It is not about pension age but about how to ensure that we manage people who, as they move into their 60s, may not be able to work at the same intensity as they did when younger.

Finally, I turn to Amendment 59 regarding the reviews of the pension age provisions in the Bill. The Government have made a clear commitment to undertake these as and when future changes to the state pension age are announced. These reviews will look at, among other things, whether the provisions remain appropriate in light of scheme members’ longevity. This will ensure a consistent cross-government approach to all pension age policy and follows the recommendation by the noble Lord, Lord Hutton, that the provisions should be kept under review.

The state pension age review process that I have mentioned should mean that the core principle of this amendment, to ensure the public service pension age provisions continue to track appropriately changes in members’ longevity, will happen automatically. The work on state pension age reviews is still in its early stages. Yesterday the DWP published a White Paper that proposed a review every five years. We are still at a consultation stage and it may be that we move on from that but I do not know.

It would be premature at this point to seek to lock down the details of the reviews for public service pension ages. The state pension age reviews will obviously apply to more than just the pensions established in the Bill. It is therefore important that the Bill does not restrict the flexibility to design those reviews. Even though the reviews are not in the Bill, this does not restrict the powers to change the pension age provisions. Changes to state pension age will require primary legislation, so any consequent changes to this Bill could be made in at the same time.

Furthermore, it would be misleading to put reviews in the Bill and give the impression that these provisions may be continually changed when that is not the intention. The Government believe that we have appropriate provisions at the moment and we do not plan to change them. It is important that these are made clear to members so that they can plan for their retirement. I therefore urge the noble Lord to withdraw the amendment.

[Lord Eatwell]

My Lords, I note the comments in general of the noble Lord, Lord Newby, and I am grateful for the support of the noble Lord, Lord Sharkey, for Amendment 56 in particular. This strengthens the position of those administering public service pensions by incorporating the notion of a specific capability review and therefore providing a standardised mechanism across the various sectors in public service. These could be utilised both to include groups in the exemption and, indeed, to confirm that groups should not be included in it.

The examples given by the Minister, of changes in working practices among his lawyer friends, indicate just the sort of thing that a capability review would take into consideration. It is regrettable that he has dismissed this in rather a cavalier manner, by just saying that it would make the thing too complicated. People’s lives are complicated. People lead very different lives, and we need a degree of flexibility to take account of those differences that they encounter. Simply having a one-size-fits-all approach to the public services, which is the case in the Bill—with the exception, of course, of the uniformed services, which we discussed earlier—does not seem to future-proof the Bill, a factor that the Government are so continuously concerned with. What will happen is that some real anomaly will appear; it will become a scandal and suddenly a matter of major press interest. You can just imagine the sort of the thing: for example, some elderly ambulance worker being unable to assist a prominent celebrity in distress. You can imagine how the tabloids would go for that. Or it could be a much more serious scandal. Being able to perform capability reviews would provide a degree of flexibility, which is exactly what future-proofing this sort of legislation really means.

The Government are being a bit blinkered over this. They are standing on the podium of simplicity, but simplicity does not always make for true effectiveness. However, I am sure that the noble Lord, Lord Sharkey, and I will return to this on Report. I beg leave to withdraw the amendment.

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Once again looking at its consideration in another place, the Minister in the Commons said that it was correct to consider changes that will impact people’s lives, and therefore there should be appropriate transitional protections. For example, members who were within 10 years of their normal pension age on 1 April 2012 will see no change, so that is a transitional arrangement where the number of 10 years has been incorporated. Unfortunately, the Minister was not willing to take into account the need to give people adequate time to adjust to changing circumstances by making this a general condition. Possibly that was a mistake, perhaps a slip or omission, which the Government can now take the opportunity to correct with this amendment. I beg to move.

[Lord Newby]

My Lords, we agree with the underlying concept of this amendment that the pension age for those close to it should not change without sufficient notice. When normal and deferred pension ages change, there must be consideration of how such changes will impact on all those who are most affected. However, I hope I have made it clear that a key pillar of the Bill is the clear link that it will provide between the normal pension age and the state pension age. The DWP’s White Paper on state pension reform, published yesterday, sets out that future changes to the state pension age will be subject to a 10-year notice period. It therefore follows that the normal pension age changes will be subject to the same minimum notice period while the link remains in place. Therefore, from the noble Lord’s point of view, fortunately this amendment is unnecessary.

[Lord Eatwell]

I think that the Minister is right.

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Moved by

[Lord Newby]

60: Clause 9, page 6, line 9, leave out from “1995” to end of line 13

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[Baroness Donaghy]

My Lords, I support my noble friend Lord Eatwell on this important amendment. This was a key part of the national agreement between employers’ unions and the Government. In the local government scheme, which is a funded scheme, employers choosing to withdraw from that scheme could leave substantial costs relating to future fund income to be paid by the council tax payer. Information is already coming in that some higher and further education employers, and recently an academy school, are seeking to find ways in which to get around their obligations to provide the local government pension scheme for support staff. We should bear it in mind that those jobs are often low paid and part time. We should also remind ourselves that having an occupational pension will make sure that those people are self-sufficient when they retire and do not become dependent on the state. So it is in all our interest that these schemes are upheld.

The news that we are hearing is that shared services companies are being created, or that people are attempting to create them, as a way of getting round the obligations that they entered into by allowing their staff to remain in the local government pension scheme. I remind the Minister that, as I am sure he is aware, a big drift away by employers could undermine all the schemes.

[Lord Newby]

I thank the noble Lord for moving this amendment on behalf of my colleague, the Chief Secretary. I am sure he will be very pleased when I tell him that he did so. The Government are completely committed to the fair deal policy and to its reform. Commitments have been made, both in this House and in the other place, to ensure that members of the schemes who are compulsorily transferred to independent contractors can retain membership of those schemes.

The noble Lord asked about the provisions in the Bill that are relevant to achieve this. Clause 26 will extend access to the existing civil service pension scheme to allow those members who are compulsorily transferred out to stay in the scheme. Clause 22 will allow scheme regulations to make provisions for pensions for other employees who would not otherwise be members of the scheme. The policy will be delivered via the contracts made with independent providers. This will ensure that members of the schemes will be entitled to accrue future benefits through the scheme after the first tender and any subsequent retendering.

There are specific reasons why the proposed amendment cannot be accepted. The Government are currently considering when and how the new fair deal policy will be implemented. We are also consulting on how the new fair deal should be applied to those who have already been transferred out of the public sector under the old arrangements. It would be premature to put something on the statute book while this work is under way.

The amendment also captures the Local Government Pension Scheme. We have been absolutely clear that the principles of the new fair deal policy should apply to the reformed Local Government Pension Scheme, but the policy has always operated differently in that scheme. The Department for Communities and Local Government will bring forward detailed proposals in due course; again, in our view it would be premature to legislate while this work is under way. However, if the noble Baroness, Lady Donaghy, has some specific instances which she can show us of how the current arrangements might be being subverted, we would obviously look at exactly what is going on and how we might deal with that. My guess is that the most effective way of doing it would not necessarily be via this amendment. Obviously, however, because we are committed to the principle, if that principle is being undermined, we would want to look at how that is happening and what we could do to stop it. With those comments, I hope the noble Lord would feel able to withdraw his amendment.

[Lord Eatwell]

My Lords, I looked carefully at Clauses 22 and 26 and they seem to be enabling clauses. They enable members who are compulsorily transferred to retain their membership of a public sector scheme, but they do not ensure that they will. That is the import of our Amendment 61. It seems to me that it was also the import of the Chief Secretary’s Statement. He said very clearly that following transfers, those members “will retain membership”. He did not say that they “may” or “could”, or that “facilities will be made available for them to”, but that they “will” retain membership. The Bill certainly does not make that provision.

The noble Lord also said that considerations are under way to find a means of implementing the Chief Secretary’s promise in an appropriate manner. I must say that it would have been a jolly good idea if that had been done before we got to this stage of the Bill, but people are busy and I understand that. Let us hope that this is resolved by Report, so that the Government can then bring forward the results of those considerations in the form of an appropriate amendment in order to keep their fair deal promise. They have made the promise, and we want to see that promise in the Bill—as, I presume, do they—in an appropriate form. If those considerations could be expedited over the next couple of weeks, we look forward to considering an appropriate fair deal amendment on Report. In the mean time, I beg leave to withdraw the amendment.

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[Lord Whitty]

My Lords, I strongly support Amendment 62 and the other amendments that have been spoken to. I have a simple amendment in this group—Amendment 64. Clause 10(4) states:

“Treasury directions … variations and revocations … may only be made after the Treasury has consulted the Government Actuary”.

My amendment probably reflects my general suspicion of the Treasury, which is deplorable, as the Minister is indicating. Nevertheless it is shared by many in the pensions industry and beyond. I would have thought that it should be agreed with the Government Actuary’s Department that the Treasury or that department should come to an accommodation on what the basis for the variations, revocations and directions should be.

I accepted the Government’s argument that in relation to other sorts of consultation—for example, consultation with stakeholders—regrettably, agreement, or certainly consensus, is not usually the outcome. However, as regards an issue relating to the basis of valuation between the Treasury and the Government’s own actuary, surely the Bill should state that those provisions are agreed rather than that the Treasury may act after what may be quite a superficial consultation with the GAD. I hope that that was the Government’s intention anyway but I wish to make the position clear through my amendment. I hope that the Government will agree to it.

[Lord Newby]

My Lords, the Bill makes provision for pension scheme valuations across all the public service schemes. These will be carried out in accordance with Treasury directions to ensure that valuations are carried out on a clear and consistent basis.

Amendments 62 and 63 seek to clarify how Clause 10 will apply to the valuation of the individual funds in the local government pension scheme or to disapply the provisions of the clause to those valuations. The Government are well aware of the concerns referred to by the noble Lord, Lord Eatwell, and other noble Lords who have spoken, that this clause will be used by the Treasury to impose inappropriate valuation assumptions on individual LGPS funds. The amendments would ensure that this could not happen by removing these funds’ valuations from the scope of the clause or requiring the Treasury to take account of the nature of individual funds when making directions.

I hope that I can reassure noble Lords that these amendments are not necessary. First, the Government have no intention of making directions relating to the valuations of individual LGPS funds. This commitment has already been made in this House and in the policy paper published by the Treasury in November 2012, copies of which are in the Library. Secondly, Clause 10 needs to be read in the light of the Bill as a whole. It is clearly intended to deal with valuation at the scheme level, as can be seen from Clause 12, which makes provision for valuations at the level of individual pension funds. While that clause would provide for greater oversight of the local fund valuations, it will not mandate how they are to be carried out. Accordingly, we do not think that Amendment 63 is necessary.

In relation to the Local Government Pension Scheme, Clause 10 will be used only—I repeat, only—to set directions of how the model fund, an aggregation of the scheme costs at the national level, will be valued. We need to do that for the operation of the cost-control mechanism at a scheme level in LGPS but it will not directly affect the contributions paid into individual funds.

Turning to Amendment 64, Clause 10 already requires that the Government consult with the Government Actuary before making directions on scheme valuations. That amendment would add an additional requirement that the Government Actuary agrees the directions rather than just being consulted. The intention is to ensure that these directions form a sound basis for the scheme valuations and the Government, of course, support this aim. However, the Government cannot accept this amendment, as it does not achieve this aim and has unwelcome consequences.

The aim of the Government Actuary’s Department is to be,

“a highly valued principal provider of actuarial analysis and advice to all parts of the UK Government and other relevant UK and overseas public bodies”.

The highly valuable, actuarial advice that it provides is independent and professional and this aim would be compromised by the amendment. If this change were made, the Government Actuary’s decisions would inevitably influence the policy on valuations and he could come under pressure to determine elements of the directions themselves. This would fundamentally compromise his position as a truly independent adviser. This is not an outcome which anyone, including the Government Actuary, wants to see.

Amendment 65 highlights the importance of Treasury directions that will be made under Clause 10. These directions will set out the detail of how valuations of public service pension schemes should be carried out. Everybody has agreed that these valuations are of vital importance given their implications on both employer contributions and the employer cost cap. As such, all scheme stakeholders will need to be involved as the valuations are developed. However, the statutory consultation requirement that would be imposed by this amendment is unnecessary. I can reassure the Committee that we will seek to discuss these directions as they are developed. All stakeholders, including scheme managers, their actuaries, pension boards, and member representatives, will be given the opportunity to participate in this process.

I hope this reassures the noble Baroness that the consultation of scheme managers and pension boards that she has proposed will be carried out without the need for Amendment 65 and that she will feel able to withdraw the amendment.

[Baroness Donaghy]

I thank noble Lords who have participated in this debate. There is a certain irony, particularly on Amendment 65. This was a very mild response to the Minister’s reply at Second Reading when I, like the noble Lord, Lord Whitty, asked for the agreement of the Government Actuary’s Department. He commented then that it did not wish to participate in what would be seen to be a political event, but wanted to maintain its independence. Amendment 65 was an attempt to recognise the reality of that and write in the involvement of scheme managers and scheme boards as a mild substitute. I am still sorry that the Minister is not willing to include that. However, until I have had a chance to study the official record of the Minister’s reply, I beg leave to withdraw the amendment.

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[Lord Whitty]

My Lords, Amendments 66 and 70 propose the exclusion of LGPS funds from the aspects of the Bill covered by Clauses 10 and 11 because those aspects are primarily related to the unfunded schemes. Clause 10 attempts to impose criteria commonly determined by the Treasury on valuations of all schemes covered by the Bill. Amendment 66 will clarify that Clause 10 is intended to apply to scheme level valuations only, thus preventing future misunderstandings, particularly in relation to the 89 different local government schemes. Without the amendment, there is a lack of clarity around the impact of fund valuations which are included in the Treasury’s scope within Clause 10. This lack of clarity surrounds the apparent inclusion of both local fund valuations and the national, notional model fund valuation under the control of Treasury regulations.

Individual fund valuations are currently undertaken by fund actuaries under parameters set out in different scheme regulations and assumptions are agreed with the individual fund. It would be a marked change if such valuations were to come directly under Treasury control. If it is intended to include only the notional model fund in the Treasury’s scope, this clause will need to be amended to prevent any further misunderstandings. There are concerns that the assumptions, data and models to be used as directed by the Treasury would not reflect what is currently being used at fund level, thus also undermining the validity of national modelling of costs. The easiest way out of this dilemma is to exclude the LGPS from the operation of those aspects of Clause 10.

Clause 11, which we will discuss later, covers the employment cost cap. The LGA and the trade unions involved in local government believe that this clause should be amended so that we again embed the agreement, reached by employers, unions and Governments, for a separate cost-management process. That agreement ensures that the principal stakeholders of the scheme are responsible for the control of cost management. There is concern that, as it stands, Clause 11 gives the Treasury discretion over how the cost cap is set. This could mean that there would be nothing to prevent the Treasury setting the cap in such a way that it would be easily exceeded, resulting in an increase of employee—and probably employer—contributions or a decrease in benefits. Amendment 70 would make this clear because it would exclude the funded local government pension schemes and funds from the effects of this clause and would better reflect the agreement, supported by the Government, that exists within the LGPS scheme. I beg to move.

[Lord Newby]

My Lords, I will start with Amendment 66. As previously discussed, the Bill makes provision for pension scheme valuations to be carried out in accordance with Treasury directions. This amendment seeks to clarify that the clause does not apply to valuations of the Local Government Pension Scheme. It would ensure that Treasury directions on valuations would not affect these valuations, which are carried out at the local level. In that respect, it would have a very similar effect to Amendment 62.

The arguments discussed under that amendment also apply here and Amendment 66 is unnecessary. I hope that the Government’s previous commitments, which I have just repeated, have made that clear. The Government simply do not intend to make directions affecting the valuations of individual LGPS funds. Alternative provisions for oversight of these valuations are made elsewhere in the Bill. The amendment is not needed.

Amendment 70 seeks to provide a specific exclusion for the LGPS from the employer cost-cap provisions in Clause 11. A robust cost-control mechanism, on a statutory basis, is still required for the LGPS, even though it is a funded scheme. Clause 11 should apply to the LGPS, as with any other scheme. The Government have had extensive discussions with the Local Government Association and the local government trade unions on this issue. As a result of these discussions, and to reflect the unique position of the LGPS as a funded scheme, the Government will give additional flexibility to the LGA and the trade unions in the management of scheme costs. The full details of these additional flexibilities will be finalised in consultation with key stakeholders and then enacted via the Treasury directions made under this clause and in the scheme regulations.

However, it is vital that the Government maintain a statutory backstop to provide reassurance to the taxpayer that action will always be taken if the cost of the scheme becomes unsustainable. This backstop, which will sit behind the cost-control arrangements that I have described, will apply in the same way as in other schemes. If the costs of accruing LGPS benefits, as measured at a national level by the GAD’s model fund, rise or fall by more than two percentage points, action will be required to bring costs back to the level of the cap, as in any other scheme. The requirement to consult on the action to be taken, with a view to reaching agreement, will apply as in any other scheme. If agreement cannot be reached, scheme regulations will set out a default action to be taken, as in any other scheme.

The cost-control mechanism is a key part of delivering good and sustainable pensions that will last for a generation. Without it, there is a risk that costs will once again spiral out of control and leave us with the choice of looking for higher contributions from, and lower benefits for, members or shunting the extra costs unfairly onto the taxpayer. Given these considerations, I hope that the noble Lord will feel able to withdraw or not move both amendments.

[Lord Whitty]

My Lords, as regards Amendment 66, I am pleased that the Government are prepared to be explicit in their assurances that they do not intend to set directions in relation to individual local government funds. If I understood the Minister clearly, the situation is to some extent similar to that in Amendment 62. A statement that “the Government do not intend” is not a copper-bottomed guarantee, as we know. Nevertheless, I suspect that it is as far as we will get in our consideration of the Bill, and I therefore thank him for that.

As regards Clause 11 on the employer cap, it is clear that in whatever circumstances there needs to be cost control. The point that I am making is that within the local government schemes it is the responsibility of their governance to ensure that cost control applies. There is a Treasury engagement with the national notional scheme and other provisions oblige the Treasury to ensure that the schemes do not get out of control, as the Minister indicated. In fact, the local government scheme has not got out of control. There have been occasions when individual funds’ investment policies have been less than ideal, which have led to short-term problems, but in no period has the local government scheme, which has operated for decades, got out of control.

Given the ongoing governance of individual schemes and the new provisions that we have just agreed in relation to the national scheme, there is little likelihood of the scheme getting out of control in any case. It is therefore otiose for the Treasury to be able to impose individual employer contribution caps in the crude way in which it may need to do so in relation to unfunded schemes that have historically—on the odd occasion and possibly now—got out of control. I regret that the Government do not recognise that. We will discuss employer caps in more general terms in a moment, but I should have thought that it would be less trouble to the Treasury, and would make it clearer that the responsibility to ensure that cost controls operate rests fairly and squarely on the shoulders of the stakeholders in the local government schemes, if they were exempted from the ability of the Treasury to impose its own cost controls.

However, that is clearly not the road that the Government are prepared to go down. I will therefore not press Amendment 70 and beg leave to withdraw Amendment 66.

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[Lord Newby]

My Lords, we absolutely share the intention of the noble Lord, Lord Eatwell, behind this amendment. As I hope I can demonstrate, we have already made adequate provision in the Bill and in the way we are behaving to reassure him.

The first general point is that the Government set out general principles of consultation which will apply to Treasury directions, as to any another legislation. We have discussed these pension reforms extensively with all stakeholders and we will make clear commitments to do so in the future. These consultations will cover the cost cap and the details will be discussed with representatives of all the schemes via the normal scheme governance rules.

The key point is the existing provision in the Bill for consultation on the level of the cap in each scheme as part of the consultation on scheme regulations. The details of the cap will be set out in the scheme regulations, which will be subject to the consultation requirements contained in Clause 19, which states:

“Before making scheme regulations the responsible authority must consult such persons (or representatives of such persons) as appear to the authority likely to be affected by them”.

As with any other scheme changes, we are required by the Bill to consult on the cost cap.

The noble Lord asked whether the cost-cap regulations would apply to Scotland. The answer is yes, it would. The cost cap is clearly a reserved matter and the details about how it would work, which are covered by the scheme regulations, are in exactly the same position as all the other provisions of the regulations that will apply to Scotland as they do to the rest of Great Britain, but not Northern Ireland.

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[Lord Whitty]

Just so, my Lords, but the legitimacy of the Government being able to lay down the detailed criteria which his other amendments and indeed many of the Government’s stipulations in the Bill provide in relation to the local government scheme relies on the fact that everybody assumes that the local government scheme has the Government as its underwriter of last resort and that therefore that underwriter has the right to intervene in what is otherwise the equivalent of a private scheme between private institutions; namely, local government and private trade unions. They are not central government creatures. They have certain statutory responsibilities but they are separate entities. Therefore, the legitimacy of the Treasury in any sense making directions, stipulations and interventions, as the Bill provides and as the noble Lord’s other amendments would consolidate or take further, depends, so far as concerns the local government scheme, on that implicit underwriting. It is hoped that it would never be called upon. Nevertheless, it is there in the background. The situation in relation to the other schemes is different, but Amendment 71A relates specifically to the local government scheme and I think that it is contradictory to everything else that the noble Lord was advocating and much of what the Minister is advocating.

[Lord Newby]

My Lords, I agree with the noble Lord, Lord Flight, about the need to keep the ballooning cost of public sector pension schemes under control. That is one of the key features of this Bill. The challenge, which I will come to in a minute, is that it is not straightforward, or indeed possible, to turn the tap off in pensions as you can in some other areas of expenditure.

I think everybody agrees that the cost cap is one of the key elements of these reforms and in order for it to be credible and robust we must ensure that costs will always be adjusted if the cap is breached. This can be done in a number of ways. While it would be preferable if all stakeholders were agreed on the way to do it, we have to allow for the possibility that agreement might not be reached. Clause 11 therefore specifies that scheme regulations must set out the steps to be taken to achieve the target cost if there is no agreement; there simply has to be a default adjustment.

The amendment seeks to strengthen this requirement by specifying that this element of scheme regulations must be in accordance with guidelines provided by the Treasury. This would ensure that the default action mandated in scheme regulations would be more consistent across schemes. I understand my noble friend’s intention in this amendment but it is simply unnecessary. Clause 3 sets out that the majority of scheme regulations made under the Bill require the consent of the Treasury before they are made. This requirement for Treasury approval will provide the assurances my noble friend is seeking because it covers the cost cap. He said in relation more generally to the cap that, for all the schemes, cash flow was more important than theoretical deficits and surpluses. At one level it is, but valuations of the theoretical surpluses or deficits are needed in the unfunded schemes because we have to plan how the Government will meet the cash-flow costs of the schemes over a long period going forward.

The intention behind Amendments 67B, 69B and 118A is to allow pensions already in payment to be altered, should action to adjust the costs of the pension schemes be required as a result of the employer cost-cap mechanism. In theory, this is one of the ways in which you constrain the costs. Unfortunately for the noble Lord, the Government cannot accept these amendments. Amendment 67B would allow pensioners’ accrued benefits to be reduced to reduce the cost of the scheme. As the Government have made clear, both in this House and in the other place, we are committed to protecting accrued benefits. Indeed, I hope to bring forward amendments on Report which entrench that view.

There are also significant legal hurdles to altering pensions in payment. In law, pensions in payment are owned by pensioners in exactly the same way as other possessions. Article 1 of Protocol 1 of the European Convention on Human Rights protects these possessions from any interference by the Government that is not only lawful but proportionate. We agree with that provision. Any Government attempting to alter pensions in payment would face a serious risk of legal challenge from pensioners arguing that their possessions should not be taken away in favour of protecting active members in employment from cost control. This would make it very hard for this amendment to work in practice even if we thought it was a good idea, which, sadly for the noble Lord, we do not.

Legal difficulties aside, it is right that those benefits that have already been paid for cannot be reduced. The ability to provide retrospective changes of this nature would mean significant uncertainty for all members of the schemes and potentially destroy any trust in them.

[Baroness Noakes]

Can the Minister clarify what he is referring to when he says that not being able to adjust existing accrued rights would also affect increases in pensions that were already in payment? One way of using the amendment proposed by my noble friend would be to constrain future increases through whatever indexation is in use at the time. Would it not be sensible for the Government to have that available to them for getting cost control? It is different from saying that you reduce the number of years accrued or the absolute amount of an accrued pension.

[Lord Newby]

It is, but I think that the same considerations apply. The employee or former employee in effect has a pension contract, which says that he or she is making a payment into a scheme; the employer is making a payment into a scheme and certain payments flow from that. Whether we are talking about rates of accrual or any other component of an agreed pension scheme, my understanding is that retrospective reductions—however they are done; even if we are not talking about a reduction but a freeze, it is a reduction of the implied or explicit rights already in the scheme—would fall foul of the legal issues I raised as much as any other component of the scheme.

I think that I had just about got to the end of what I was going to say on that amendment. Turning to Amendment 70A, I understand my noble friend’s intention in providing for an independent assessment of the operation of the cost-cap mechanism, and for transparency around the cost of public service pensions. However, the Government cannot accept this amendment. The role of the OBR is to improve the accountability of the Government by examining the state of the public finances and the long-term impact of government decisions. While it has a clear remit to analyse the long-term sustainability of the public finances, it has full independence in determining how to fulfil this obligation. The Government cannot specify that the OBR provides any specific data or analysis.

However, as my noble friend alluded to, much of the data that would be required under this amendment is already provided by the OBR. The OBR’s economic and fiscal forecasts, produced twice a year, have included a forecast of public sector pension payments and contributions over a five-year period. Indeed, the noble Lord referred to some of the figures it produced in November. For noble Lords who have not had the opportunity to look at them, I refer them to page 146 of the OBR’s Economic and Fiscal Outlook produced in December.

My noble friend’s amendments would also include provision for the OBR to pass judgment on the effectiveness of the cost-cap mechanism. This would change the role of the OBR. It is not a policy-based organisation and must be seen as impartial and independent. For the OBR to be seen to advocate or arbitrate on policies would draw it into political debate and could undermine this independence. If you allow the OBR to start giving advice or arbitrating on policies across the piece, that would completely undermine the role set for it. For that reason, policy on the cost cap, and public service pensions more broadly, must remain the responsibility of the Government.

Amendment 71A seeks to prevent the pension liabilities of local authorities falling to the Government. I should start by highlighting that the Secretary of State for Communities and Local Government is not a trustee of the pension scheme. Rather, the Secretary of State is the person who may make regulations to establish the scheme. Local authorities are responsible for managing and administering both their own budgets and the Local Government Pension Scheme. The authorities, not the Minister, are responsible for their liabilities under the scheme. Legislation requires local authorities to establish and manage pension funds and then set the appropriate level of employer contribution rates to ensure that those funds are able to meet the liabilities of the scheme. In addition, the new requirements in Clause 12 of the Bill will provide additional scrutiny of LGPS fund valuations. There are, of course, safeguards in place.

[Baroness Noakes]

What the Minister is saying is very helpful. Can he say explicitly that what the noble Lord, Lord Whitty, said—about there being a broad assumption that the Government stood behind local authority pension schemes—is wrong?

[Lord Newby]

My Lords, I shall write to the noble Baroness if I get this wrong—and the noble Lord, Lord Whitty, will shake his head or nod depending on whether or not I get it right—but I think that the responsibility for meeting obligations under local authority pension schemes falls to taxpayers within the local authority areas covered by the schemes.

[Baroness Noakes]

The point that the noble Lord, Lord Whitty, was making was not to dispute the basic legal position but to say if that were defaulted upon, there is an assumption underpinning these schemes that the Government stand behind them. That is why I asked the Minister to clarify his view of that.

[Lord Newby]

I will be very happy to write to the noble Baroness about it but the whole purpose of the cost cap is to ensure that we do not get into that mess. Given the experience of the noble Lord, Lord Whitty, in this area, I am very reassured by his confidence that the local government schemes will not get into this mess. The reason why the cost cap covers local government schemes is that, however unlikely it is, we feel that we need a method of dealing with them in this extremely unlikely eventuality.

[Lord Whitty]

My Lords, I think we all hope that it is an extremely unlikely eventuality and I genuinely believe that it is an extremely unlikely eventuality. Standing behind this is a slightly theological but nevertheless psychologically important matter. I suspect you cannot find it anywhere in statute but, as the noble Lord, Lord Newby, says, the ultimate responsibility of any failure of a local government scheme would rest, in some context or other, on taxpayers, and it therefore becomes the Government’s responsibility. I hope that the noble Lord can write to me as well, and perhaps to other colleagues in the House. I expect it will be quite a difficult letter to write.

[Lord Newby]

We look forward to that intellectual exercise. I think that I had just about dealt with Amendment 71A. Amendment 118A, to my mind, is grouped with Amendments 67B and 69A. They all relate to the same point about being able to constrain payments. All the considerations that apply to Amendment 67B and 69A apply to Amendment 118A as well.

[Lord Flight]

My Lords, the Minister has done a pretty effective job in removing the practicality of my amendment. I will just make the point about pensions in payment. I accept the argument that a contract is a contract, but for new people joining the public sector, a term of their employment could be that their pension right includes the possibility that, if their pension arrangements were in a mess, their pension could be reduced. In the case of an existing contract, I grant that it cannot be removed.

To the extent that it is possible, there ought to be broad similarity between what happens in the private sector and what happens in the public sector. Obviously, in the private sector, if a final salary scheme gets into a mess and the employer cannot finance the deficit, even though it goes to the Pension Protection Fund, people will not necessarily continue to get their full pensions with inflation increases and so forth. I think it is worth looking at seeking to design a scheme that is reasonably fair on both sides. I beg leave to withdraw the amendment.

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[Baroness Donaghy]

I will speak briefly in support of my noble friend Lord Eatwell. I think I said at Second Reading that the issue of accrued benefits is a deal-breaker as far as the negotiations are concerned. It is about keeping one’s word. Enshrining this in the Bill would do a huge amount to reassure public servants, particularly those in Scotland who have not yet been properly consulted. I believe that if a public servant sat down and did an audit of all the discussions that we have had on Committee days one and two, they would see the Government’s unwillingness to put in the Bill all the areas in those agreements, saying, “No, we do not think that this, this or this needs to go in” and so on. I realise that this Bill is a legal framework but we are talking about the confidence that people can have in their pensions in the future.

We should not forget that it is not only Governments that can opt out of these things; individuals will make assessments about their own benefits and welfare and future, and it is very important for all our sakes that we maintain some kind of stability in this turmoil. If I can use a pun, the accrued failure of the Government to put any real assurances in the Bill might be viewed in a negative light by a lot of people who are very involved in this debate.

[Lord Newby]

My Lords, I will respond first to the noble Baroness, Lady Donaghy, before returning to the specific issue raised by the amendment. The vast bulk of the provisions that will affect people are not in the Bill; they are under the schemes. I have circulated the draft Civil Service scheme, an extremely long and detailed document that has in it most of the things—the headlines—that people will look at in determining whether they think the pensions they will get are fair and reasonable. I hope that those who worry that the Bill does not cover a lot of the things that they want covered can be reassured, as I have sought to reassure the House, that in the vast bulk of cases these points will be in the regulations, which obviously have the same force as the Bill.

With regard to Amendment 68, I will not repeat at great length that we have no intention to do what the amendment seeks to prevent. I do not need to refer the noble Lord, Lord Eatwell, to the Treasury paper because he has read it. I do not need to remind people about the UK and European legislation that would limit the Government’s freedom to do what the amendment prevents because I have already done so. What I will say is that we are committed to giving further consideration to the protection of accrued benefits, of all sorts, in all circumstances. I plan to have amendments to that effect ready for Report; they will cover this point along with accrued benefits, so I hope that is a reassurance to the noble Lord.

[Lord Eatwell]

My Lords, I am grateful to the Minister for that. Of course, he made that commitment at the previous day of Committee when we were discussing the whole issue of retrospection. I am delighted to hear that the amendments he will bring forward—relatively soon, I hope, so that we will have the opportunity to examine them carefully before we discuss them on the first day of Report—will also cover this particular eventuality. On the basis of that assurance I beg leave to withdraw the amendment.

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Moved by

[Lord Newby]

71: Clause 12, page 8, line 20, leave out subsection (8)

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Moved by

[Lord Newby]

72: Before Clause 13, insert the following new Clause—
“Information about benefits
(1) Scheme regulations must require the scheme manager for a scheme under section 1 which is a defined benefits scheme to provide benefit information statements to each person in pensionable service under the scheme in accordance with this section.
(2) A benefit information statement must include—
(a) a description of the benefits earned by the person in respect of his or her pensionable service, and(b) such other information as Treasury directions may specify.(3) The information included in a benefit information statement must comply with such requirements as Treasury directions may specify.
(4) A benefit information statement must be provided—
(a) no later than the relevant date, and(b) at least once in each year ending with the anniversary of that date. (5) The relevant date is the last day of the period of 17 months beginning with the day on which scheme regulations establishing the scheme come into force.
(6) A benefit information statement must be provided in such manner as Treasury directions may specify.”

[Lord Newby]

My Lords, Amendment 72 delivers on the Government’s commitment to come forward with an amendment to require scheme members to be provided with information about their pension benefits. Amendment 83, in the name of the noble Lord, Lord Eatwell, is also in this group and is based on an amendment, tabled in another place, which we believe is not quite right for a number of reasons. I hope the noble Lord will be satisfied that Amendment 72 is an appropriate alternative.

The new clause will apply to each public service pension scheme made under Clause 1 of the Bill and, by virtue of Amendment 137, all new public body pension schemes. It requires that every active member of the schemes must be regularly provided with information about the pension benefits they have earned. The clause allows for this to be done in a number of ways, including via electronic media. The first statement must be provided within 17 months of the new schemes coming into effect and at least annually thereafter. Like me, noble Lords may wonder why 17 months has been chosen as the period in the amendment. The reason is that 17 months would take us to September of next year, which would mean that scheme members would have this information before they needed to submit their tax return. This is relevant only to high- end earners, who may need to take account of the contributions going into their schemes for tax purposes. This period will ensure that the schemes have the correct infrastructure in place to carry out this commitment. They can, of course, provide statements earlier where they are ready.

In developing the clause we have been mindful of the obligations that already apply to all occupational pension schemes, including the public service schemes. Regulations made under Section 113 of the Pension Schemes Act 1993 set out various information requirements. These are known as the disclosure regulations and include requirements to provide deferred members with information about the benefits they have earned up to the point at which they leave the scheme. As this legislation already requires information to be provided to those members, it would not be appropriate for our amendment to address them. The disclosure regulations also require defined benefit pension schemes to provide information to active members, but only upon request. The effect of our amendments will be to require each of the public service pension schemes to go further than this. Once they are up and running, information will automatically be provided to all active members at least once a year.

The disclosure regulations specify the information that all schemes must provide on request, how it may be provided and certain detailed points about how it must be calculated. Our policy is for the new benefit statements provided under this clause to be produced to the same standards. Rather than mirror the requirements of the disclosure regulations in the Bill, our amendment provides for Treasury directions to specify the information that must be provided to members. We have taken this approach because we are mindful that the disclosure regulations themselves may change over time and we will want the public schemes to keep in step. In fact, the regulations governing the disclosure of information in occupational pension schemes are currently under review. We have set out a commitment to consult on those provisions later this year.

We propose to retain parity between the Bill provisions and the disclosure regulations wherever appropriate. It is important that members are given consistent and complementary information about their pension scheme benefits. This approach is also consistent with that we have taken elsewhere in the Bill in extending the role of the Pensions Regulator to the public schemes. The Pensions Regulator will also have a role in overseeing the provision of benefit information to members of the public schemes.

Amendment 86 adds annual benefit information to the list of matters that the regulator will issue guidance on. Amendments 84 and 87 also include the new clause in the areas that the regulator will oversee and on which they can take enforcement action should schemes fail to comply with their duties. The amendments meet the commitment that we made on making information available and I hope that noble Lords will agree with them.

[Lord Eatwell]

My Lords, I listened carefully to what the noble Lord had to say and I am cognisant that this is a response to the arguments made in another place by my honourable friend about the disclosure and availability of information. My Amendment 83, which is in this group, also seeks to enhance communication to members. I will not go into in any great detail the argument about why that should be done because the noble Lord has already said why it should be done. But I would be grateful if he could set out what are deemed to be the deficiencies of Amendment 83 so that I have the opportunity to study his arguments between now and Report.

[Lord Newby]

My Lords, the main difference between the two is that the noble Lord’s amendment sets out what information would be included in the benefit statement. We are saying that we wish the information to mirror the disclosure regulations that apply to private sector schemes. These will change from time to time. They have improved over the years and become less opaque. They may change again and we want the information that people under public sector schemes receive to keep up with what is, if not the gold standard, the best practice under those regulations.

We will provide information that mirrors the regulations, which may change. The noble Lord’s amendment is very prescriptive about what the information is. I have not gone through it to see what it misses, if anything, beyond what we are planning, but I hope that when he reads what I have said he will find that we are covering rather more than he wants covered and enabling a certain amount of flexibility to meet best practice.

Amendment 72 agreed.

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[Lord Newby]

My Lords, as the noble and learned Lord, Lord Davidson of Glen Clova, has said, in his final report the noble Lord, Lord Hutton, set out the need for improved transparency of information concerning the public service pension schemes. His report highlighted the range of information that is currently published, including data published by the Office for National Statistics, the OBR, the Treasury and the schemes themselves. However, as he explained, despite this range of data there is no centrally collated information that allows the total impact of the schemes to be readily assessed. Also, differences in the presentation and underlying methodologies and assumptions hamper comparisons between the schemes and, for local government, the funds within them.

Amendments 73 to 75 seek to ensure that Treasury directions require scheme information to be published and specify what that information must include. This is distinct from the current permissive drafting of Clause 13. Greater transparency is absolutely essential if we are to invite analysis and debate on the performance of the schemes. I can reassure the noble and learned Lord that we are committed to improving the information that is made available. It is our intention to use a central direction to ensure that such publications are helpful and consistent across the schemes, and to set out what information will be available—which I think goes a long way towards what the noble and learned Lord is seeking to achieve.

Amendment 74 seeks to require that all information set out in Clause 13(3) is published. However, that list is not intended to be a fixed or exhaustive list of the matters that schemes will be required to publish. Rather, it is intended to set out the core areas of scheme information that the detailed requirements will be built around. The list provides a starting point. The Government are committed to greater transparency, but it is fair to say that there is more work to be done to identify what information should be published, what common methodologies and assumptions should underpin it, and how best to collate or co-ordinate its publication. Once we are doing it on a more systematic basis, we will also want to change or amend the information that is published in the light of comments that are made. I do not necessarily think that even the Treasury will get it absolutely right first time so it would not be helpful to determine a mandatory list now, when information requirements will undoubtedly change as a result of comments made on our first attempts, and over time.

I hope that I can assure the noble and learned Lord that Amendment 75 is not necessary. Clause 13 already allows for Treasury directions to require information to be provided in a particular format. That is the key. Further, Clause 13(3) is not exhaustive, and already allows for schemes to be required to provide or publish full scheme valuation reports.

Finally, I turn to Amendment 76. The OBR already includes the impact of public service pensions in its spring and autumn Economic and Fiscal Outlook reports and in its July Fiscal Sustainability Report. The OBR’s role is established by the Budget Responsibility and National Audit Act 2011. Section 4 of that Act places a duty on the OBR to consider and report on the fiscal sustainability of the public finances, of which the public service pension schemes clearly form a significant part. As we discussed on an earlier amendment, the OBR has already started doing this. The report it produced at the time of the Pre-Budget Report in December does exactly, I think, what the noble and learned Lord is seeking to achieve. The OBR clearly intends to carry on doing that, so that amendment is not necessary either. I urge the noble and learned Lord to withdraw this amendment.

[Lord Davidson of Glen Clova]

I am grateful to the Minister for his clarification on a broad number of areas. One is gratified to discover that we are ad idem in terms of our objectives. I will consider what has been said by the noble Lord and I congratulate him, again, on the openness of Her Majesty’s Treasury to change, which is always useful. I will reflect on what has been said and will seek to withdraw this amendment.

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Moved by

[Lord Newby]

77: Clause 14, page 9, line 5, leave out from “State” to end of line 8

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Moved by

[Lord Newby]

78: Clause 15, page 9, line 15, leave out “Part 1 of”

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[Lord Davidson of Glen Clova]

This amendment would require Her Majesty’s Treasury to commission an independent review into the standards of administration in public service pension schemes. I refer again to my noble friend Lord Hutton’s report, recommendation 22 of which expresses the desire that:

“Government should set what good standards of administration should consist of in the public service pension schemes based on independent expert advice. The Pensions Regulator might have a role, building on its objective to promote good administration. A benchmarking exercise should then be conducted across all the schemes to assist in the raising of standards where appropriate”.

The proposed new clause implements this recommendation by ensuring that the Government will receive independent advice on how standards of administration can be improved in public sector schemes. It also ensures that independent review will be publicly accessible, so that its implementation may be scrutinised and the recommendations easily accessed and implemented by schemes that wish to do so.

The Bill makes provision for the regulator to issue codes of practice at paragraph 14 of Schedule 4, but we say that this provision does not require the regulator or another independent expert to carry out, first, a review and then set out clear principles regarding good administration in public sector pension schemes. Were that to be done, it would, of course, enable these codes to be informed. An independent review would identify areas for improvement in the inevitable drive for better administration. As well as identifying best practice, it could inform future codes of practice and look at the possibility of streamlining and combining the administrative functions of schemes. In his report, my noble friend Lord Hutton observed that the commission,

“received suggestions and evidence from a number of commentators that public service pension schemes offer scope for streamlining and combining of their administrative functions”.

It is suggested that via this amendment one could examine ways in which the Local Government Pension Scheme in particular might benefit from economies of scale. It follows, therefore, that there is potential for sharing administrative costs and services, and creating broad contracts. I beg to move.

[Lord Newby]

My Lords, we have already taken steps in the Bill to ensure the effective and efficient administration of public service pension schemes. Until now, the schemes have been exempt from much of the legislation that applies to the governance and administration of other occupational pension schemes, but through Schedule 4 we are significantly extending the administration requirements on public service pension schemes. I would not necessarily commend Schedule 4 as it is extremely detailed, but to this extent I would do so because it sets out how we are changing the current arrangements by extending the administration requirements.

The schedule also extends the role of the independent Pensions Regulator in regulating the governance and administration of public service schemes, bringing it into line with the regulator’s role in regulating all other occupational pension schemes. As the noble and learned Lord has pointed out, the regulator will issue codes of practice relating to the responsibilities of public service schemes and be able to enforce compliance where schemes do not meet the requirements of the legislation. We are also taking steps to improve the transparency of the schemes and their governance by introducing pension boards, as we have discussed, as well as scheme advisory boards. Taken together, our changes will deliver the commitment to establish and monitor standards of administration in the public schemes.

The burden of the noble and learned Lord’s amendment is that before the codes can be introduced you need to have a review, and indeed he talked about an independent review. We think that we have dealt with the point about independence by the fact that the regulator is independent. Further, you cannot produce codes without reviewing what is already there. You do not simply sit down with a blank sheet of paper and not look at what already exists in terms of best practice elsewhere in the industry. Our expectation is that the Pensions Regulator will of necessity have to review existing best practice before it can produce its own codes. For those reasons, we think that the amendment is unnecessary. We think that we are going to do what the noble and learned Lord is seeking to achieve, but we do not need a belt-and-braces approach in the form of further cover in the Bill to ensure that it actually happens.

[Lord Davidson of Glen Clova]

Again, I am obliged to the Minister for his clarification. However, if this side has a prejudice it is that it is always better to be better informed. I will reflect on the Minister’s words to see whether what he has said matches our common objective. Once again, I respectfully seek leave to withdraw the amendment.

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Moved by

[Lord Newby]

84: Schedule 4, page 27, line 15, after “information)” insert “, (Information about benefits) (information about benefits)”

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[Lord Newby]

My Lords, it would be an interesting little exercise to look at how many hours of your Lordships’ time is spent debating across the Floor of the House whether to use “may” or “shall”, and vice versa. In my view, they are certainly too many.

As we have just debated, Schedule 4 sets out the new role for the Pensions Regulator in providing regulatory oversight of the administration and governance of public service schemes. A key part of that new role is to issue codes of practice. These codes set out in more detail the legal requirements on schemes and how to fulfil them. The regulator already issues codes of practice for private sector schemes and the drafting in this Bill closely mirrors the drafting in the Pensions Act 2004. These amendments would turn the overarching power for the regulator to issue codes of practice into a duty.

Proposed new Section 90A(2), set out in paragraph 14 of Schedule 4, already imposes a duty on the regulator to issue codes of practice in relation to the 11 matters listed in that provision. This sits under the broader power in proposed new Section 90A(1) to issue codes of practice in relation to the exercise of functions under pensions legislation and the standards of conduct of those exercising these functions. The result is that as currently drafted, the regulator will already be under an obligation to issue codes in relation to certain areas of pensions legislation. The power in new Section 90A(1) allows the regulator to issue codes on other areas in addition to those already required by new Section 90A(2).

New Section 90A(2)(j) provides, as does existing Section 90 of the Pensions Act 2004 on which this provision is based, for the Secretary of State for Work and Pensions to add to the list of matters in relation to which codes of practice must be issued. I can therefore assure noble Lords that the regulator will be obliged to issue codes of practice for the public service schemes. These are a key part of implementing the independent oversight and regulation of public service schemes, as recommended by the noble Lord, Lord Hutton.

Amendment 91 in this group relates to codes of practice in Northern Ireland. However, those provisions are all proposed for deletion by Amendment 90, which has already been debated. However, on the main point, I hope that with the reassurances I have given, the noble and learned Lord will feel able to withdraw the amendment.

[Lord Davidson of Glen Clova]

If the Minister is surprised at the amount of time spent by this Chamber in debate on the potential differences between “may” and “shall”, perhaps he should reflect on the decades that are spent in court having to consider and implement what this House and the other place have actually traduced. I am endeavouring to reduce by a few decades debate in the pensions area on the use of “must” or “shall” instead of “may”.

It is clear that the Government accept that there is a duty for the codes of practice and we welcome that. The difference between us is how far these codes of practice must go. The Minister takes the private sector as the comparator. Sometimes it might be an idea for the public sector to aspire to a slightly higher standard. However, given that no doubt difficult proposition for the coalition Government, I beg leave to withdraw this amendment.

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Moved by

[Lord Newby]

86: Schedule 4, page 30, line 27, at end insert—
“( ) the discharge of duties imposed under section (Information about benefits) of that Act (information about benefits);”

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[Lord Davidson of Glen Clova]

Amendment 91A and the other amendments in the group are designed to address the concerns with Clause 16, in particular relating to the Local Government Pension Scheme, as it allows for the closure of each of the 89 funds that make up the LGPS.

Our concern is that allowing closure could have a number of unintended consequences. It was mentioned in Committee that local government schemes are exempt from Section 75 of the Pensions Act 1995, so “closure” would therefore not trigger debts under that section. But that is by no means the only risk of the use of the operative word, “closure”.

There are thousands of employers in local government pension funds, each of which has individual admission agreements governing the terms of the employer’s participation in the fund. Those agreements are not necessarily in standard form, meaning that there are potentially thousands of different admission contracts. It is likely that at least some of these agreements will set out various powers for the local authority in the event of closure, including the power to collect a debt from the employer equal to its share of the scheme’s deficit. This could put a massive strain on participating employers and has the potential to put some of them out of business.

The Minister in the other place assured the House that the Government will not close the Local Government Pension Schemes but, respectfully, this misses the point that the Bill allows local authorities to close their funds and the Government cannot prevent them doing so. For their own reasons, local authorities may wish to close schemes in order to crystallise debts from certain employers. The Government have insisted that the word “closure” be used in Clause 16 but this does not in fact mean closure. We suggest that this might be approached differently, to avoid this explanation.

Closing a pension fund means that there are no longer any active members in the scheme but that the scheme continues. However, the Government insist that in the context of Clause 16, “close” does not mean “close”. Rather, it means that no benefits will be provided under the scheme. That is what I understand the position to be.

As Clause 16 is currently drafted, the word “closure” is not given the different meaning that the Government contend. Clause 16(1) provides that,

“no benefits are to be provided under an existing scheme ... after the closing date”.

That is not sufficient to change the word “closure” from its accepted meaning in pensions law.

If the Government want the word “closure” to have this different meaning, they should explicitly define this in the Bill. These amendments would ensure that schemes do not close but that they are amended. It is suggested that “amendment” is by far a better way of proceeding than continuing with the word “closure”. These amendments are designed to achieve the Government’s desired aims, which we share, but prevent what we suspect would be the unintended consequences that could arise if the Bill continues to allow “closure”.

Amendment 91D is new and provides that the closing date for a Scottish scheme is 1 April 2016. This is to address the fact that administration of the scheme in Scotland is more complex and that more time will be needed. The Bill requires that existing schemes are closed on 5 April 2015. This means that Scottish local government pension schemes have to be renegotiated and scheme regulations drafted. There has to be consultation, approval by the Scottish Parliament and then administrative implementation. This may be achievable in England, because negotiations over the schemes have been concluded and significant work has been undertaken on scheme regulations, as we have already heard. Sadly, this is not the case in Scotland as until this Bill there was no necessity to do so.

A new Scottish Local Government Pension Scheme was implemented as recently as April 2009. The focus was to implement the cost sharing and other provisions of that new scheme. This Bill imposes the principle of the English-negotiated solutions, which were not sought in Scotland.

Two years may seem enough time for the Scots to sort themselves out, but the reality is somewhat different. If one works back from April 2015, the timetable is as follows. At least a full year is required to implement the scheme administratively, which includes software changes; that, I gather, is a minimum period. At least a further year is required to undertake the legal process, including the drafting of regulations, public consultation, ministerial approval and the laying of regulations in the Scottish Parliament. This is based on Civil Service estimates, approved by a Scottish Minister. It is not simply a construct by this side of the House.

That timeframe leaves about two months for initial union consultation with members, negotiation with stakeholders, and then consultation with members and other stakeholders—councils, admitted bodies and so on—about heads of agreement. Pension negotiations, as the Minister will immediately accept, are complex and require extensive data that take a long time to produce. Agreements also require an equality impact assessment, which takes time too.

This timetable assumes that stages progress smoothly, with no significant difficulties. However, as in England, not everything in Scotland necessarily proceeds smoothly—in fact, in Scotland it is possibly less so. Making changes to the Scottish Local Government Pension Scheme is significantly different to doing the same to the English scheme. So far it has taken about a year for the Scottish scheme to catch up with its English counterpart. The last major change in England was in 2008 and 2009 in Scotland. An amendment that delayed implementation in Scotland until 5 April 2016 would therefore have the support of the trade unions, of the Scottish local authority body, COSLA, and of Scottish Ministers. I beg to move.

[Lord Newby]

My Lords, before I turn to these amendments I would like to notify the Committee of a development with regard to certain Scottish pension schemes.

The regulations made for local government, police or firefighters’ pension schemes in Scotland must follow the framework set by this Bill. However, Clause 3 does not require the Treasury to consent to them before they are made. This reflects existing devolution arrangements. The Chief Secretary sought to agree a mechanism to ensure that both Governments were kept appropriately informed of any changes to these regulations, or factors affecting them with the Scottish Government. This would have operated via a non-binding memorandum of understanding.

However the Scottish Government have now informed the Treasury that they do not consider there to be a need for such a memorandum. I can assure noble Lords that these schemes will not operate in a vacuum. Existing agreements will continue to apply to these schemes, and we will continue to support the Scottish Government in making these regulations fair and sustainable.

[Lord Davidson of Glen Clova]

Will the Minister briefly elucidate the reasons that the Scottish Government have given for why they do not consider that consent is required? If the Minister cannot do that immediately, I would be happy for him to write to me.

[Lord Newby]

I think I will have to write to the noble and learned Lord. I am very happy to do so.

I shall return to the amendments and start with Amendment 91D regarding the Scottish scheme. I heard what the noble and learned Lord said about the Scottish Government being unable to implement the reformed schemes in the 27 months available, but the Scottish Government have at no stage asked a Minister for a delay to the implementation of the schemes, and we think there are very good reasons for avoiding a delay.

A delay in implementing the reforms would, for example, result in hundreds of millions of pounds of additional liabilities being accrued in the Scottish schemes. These additional costs would have to be met from the Scottish budget at the expense of Scottish jobs and services. Furthermore, a delay would disadvantage Scottish public service workers on lower and middle incomes by prolonging the period that they will continue to subsidise the pensions of high flyers. I am sure that the noble and learned Lord does not think that that is desirable. The only thing I would say by way of general comment is that it has been clear since the point at which this legislation was introduced that it would apply to Scotland and how it would apply to Scotland. My right honourable friend the Chief Secretary has written repeatedly to the Scottish Government about what is going on in England and how we are making progress, and therefore there is no objective reason why the Scottish Government should not be absolutely marching in lockstep with the Government in London in terms of producing the scheme rules. We think that the time has come for the Scottish Government to get their skates on, and we do not believe that there should be a delay in Scotland for the reasons that I have given.

[Baroness Donaghy]

As the Minister knows, I am extremely concerned about equality of consultation on this issue. Can he say objectively if the same applies to local government employers and all public servants in Scotland and that they are equally in step and are fully involved?

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[Lord Newby]

I am afraid I cannot because it is not the responsibility of the London Government. We do not seek to micromanage what is happening in Scotland or to follow every minute of what the Scottish Government are doing in relation to these things, not least because if we did, we would be excoriated by the Scottish Government for interfering in Scottish affairs. These are Scottish affairs and I am afraid we cannot second-guess every bit of discussion that is going on in Scotland. It would make us extremely unpopular for no benefit because we are not responsible for the way those scheme negotiations are progressed.

I shall move to Amendments 92A and 93A. Concerns were raised in another place about the closing dates as originally drafted. Although I am confident that the dates as drafted would have worked as intended, to address the concerns echoed here, and following discussions with each of the schemes about their planned timetable for reform, the Government have tabled Amendments 92 and 93 to revise the closing dates. I hope that noble Lords feel that their concerns have therefore been addressed.

On Amendments 91A, 91C and 93B to 93G, I shall attempt to address noble Lords’ concerns relating to the extent and effect of the closure of the existing schemes. Taken together, these amendments seek to provide for the replacement of the existing regulations in order to make these reforms. This would mean that the new scheme regulations made under Clause 1 would have to provide for both accrued rights prior to reform and new service after reform with different rules pertaining to each. That would be unnecessarily complex and inefficient.

The Bill already enables new and existing arrangements for each workforce to be managed and administered together by virtue of Clauses 4 and 5. The new and existing schemes will have the same scheme manager and the same pension board. From the perspective of a scheme member, their existing and new pension benefits and the administration of their pensions will be seamless. I hope I can also reassure noble Lords that there is no need to place in the Bill any requirement to legislate for the new schemes. The Government have made a number of commitments in this House, in another place and elsewhere to enact the schemes in accordance with the relevant heads of agreement.

I realise that a number of concerns have been raised in another place about the use of the phrase “closing date”. We have given lengthy reassurances that these words have only the meaning that can be attributed to them in the context of the clause; that is, that they close the schemes to future accrual only. This was the subject of the correspondence between the Economic Secretary, the shadow Financial Secretary and the chair of the Local Government Association which I circulated to noble Lords a couple of weeks ago in which we sought to minimise confusion about the use of the word “close”. Government Amendments 111 to 114, to which we will come later, have been drafted to achieve that. I hope that noble Lords can now put their minds at rest on the subject.

We have been clear that our intention is to simplify and consolidate the existing legislation relating to the provision of pensions to public servants. In future, public service pension schemes will be made under the powers in the Bill. These amendments, as drafted, would not allow for such consolidation. Although I know what the noble and learned Lord was seeking to achieve, I hope he will understand why I cannot accept his amendments.

[Lord Davidson of Glen Clova]

I am obliged to the Minister. I remind him that when I referred to Scotland, I said that things do not always seem to move smoothly there. There certainly seems to be a different understanding on this side about what Scottish Ministers, who I take to be the Scottish Government, have expressed by way of a view in relation to timing. As I said, things do not always move smoothly north of the border.

If my learned friend the Minister—he may be learned for all I know and may be my friend—wishes to avoid unpopularity in Scotland, perhaps I may suggest that he refrains from suggesting that the Scottish Government move in lock step with the UK Government and that they get their skates on. In any event, I hear what he says, and we will perhaps return to this in due course when we are both better informed.

In relation to closure, the Minister described possible confusion between the Economic Secretary and his shadow. It may be that this is in effect a difference of approach. I suspect that we will return to this on Report, but at this stage I beg leave to withdraw the amendment.

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Moved by

[Lord Newby]

92: Clause 16, page 10, line 2, leave out “1 April” and insert “31 March”

[Lord Newby]

My Lords, Clause 16 provides that no person may accrue further benefits in the existing pension schemes after a given date. However, while this is referred to as “the closing date”, it is important to note that this does not mean that these schemes will be closed or wound up on that date. They will continue to exist to pay the benefits accrued up until the closing date, and beyond that date for those who are eligible for transitional provisions.

Although the closing dates as originally drafted would have worked as intended, they were a cause of concern in another place. To address these concerns, and following discussions with each of the schemes about their planned timetable for reform, Amendments 92 and 93 will revise the closing dates. Therefore, for local government workers in England and Wales, the closing date is 31 March 2014, and for all other schemes the closing date is 31 March 2015.

Amendments 111 to 114 are designed to minimise the potential for misinterpretation regarding how the Bill will affect the current schemes. Perhaps I may reiterate what was made clear in another place. There will be no subsequent crystallisation of liabilities when the Bill closes the current schemes to future accruals. To provide further clarity on this point, these amendments will remove references to schemes that are closed and instead signpost to the clauses that restrict the build-up of future accruals in the schemes. I beg to move.

[Lord Davidson of Glen Clova]

There was initially a spark of hope that these amendments might have addressed the question of closure. That spark has died. However, I hear what has been said. I will confine myself to saying that we may return to this matter on Report.

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Moved by

[Lord Newby]

93: Clause 16, page 10, line 4, leave out “5 April” and insert “31 March”

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Moved by

[Lord Newby]

94: Clause 16, page 10, line 28, leave out from “Wales” to end of line 30

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Moved by

[Lord Newby]

95: Schedule 5, page 39, line 8, leave out paragraph 2

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Moved by

[Lord Newby]

97: Schedule 5, page 40, line 7, leave out paragraph 18

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Moved by

[Lord Newby]

103: Schedule 6, page 41, line 25, leave out paragraph 2

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Moved by

[Lord Newby]

111: Clause 18, page 10, line 41, leave out “which are closed under section 16” and insert “to which section 16(1) applies”

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Moved by

[Lord Newby]

112: Schedule 7, page 43, line 17, leave out from “scheme” to “(the” in line 18 and insert “to which section 16(1) applies or a scheme to which section 28(2) applies”

Education: English Baccalaureate Certificate

Lord Newby Excerpts

Monday 14th January 2013 Lords Chamber

[The Earl of Clancarty]

My Lords, I very much welcome the opportunity to have this important and timely debate and I thank the Library for its briefing note. I must attach a disclaimer to the terms of this debate, which is: “Will the Government reconsider the omission of arts subjects from the EBacc, if the reforms go ahead?”. A growing number, and I count myself among them, believe that the EBacc is severely flawed and, at the very least, should be postponed pending fuller consultation over all its aspects. However, I will come back to the wider debate later.

This Government continue to underestimate the significance of the arts and creative industries, culturally, socially and economically. It is perhaps no surprise that the ongoing reduction of investment in the arts signals a downgrade now being extended to the arts in school education. School education is so important, not only as a preparation for, but as the template of, the wider world of work including arts, design, manufacturing and so on. Due to this progression from school through to work, the implications of these reforms for the individual, wider society and industry are enormous.

High-profile arts leaders and practitioners have said they believe that in the long term the effect of these reforms could be more significant even than the cuts to public subsidies. Indeed, as the Minister will be aware, there has been a huge barrage of concern and criticism over the omission of arts subjects from the EBacc from both the subsidised and commercial wings of the arts—from film, theatre, the visual arts, including public museums and art dealers, music, dance, craft and design, and tellingly too from others outside the arts.

I am spoilt for choice from the many quotable things people have said in recent weeks, but I will pick out a few. The artist Grayson Perry said:

“If you think about the opening ceremony of the Olympics and all the things that we think of to symbolise modern Britain—from the Beatles to the internet—so many of them are based in creativity … The government is not looking at the country as it actually is: a place that is brilliant at fashion, broadcasting, design, the arts, drama, film”.

Julian Bird, chief executive of the Society of London Theatre and the Theatrical Management Association in an open letter to the Secretary of State said:

“Managers of the UK’s … theatres are concerned that not including the arts in the proposed EBacc will have a negative impact on broader skills development”,

and,

“social mobility … the current proposals threaten the supply of talent needed to maintain one of the few industries where the UK is currently internationally regarded as a world leader”.

Last month, British designers including Jonathan Ive, Stella McCartney and Terence Conran, as well as design companies and universities, wrote to the Secretary of State saying:

“The innovation that fuels UK growth relies on knowledge, the skilled use of materials and the command of ideas. Design and the arts are vital components of an accessible and varied”—

note the word “varied”—

“education system that can provide these skills. The prospect of future generations growing up considering these subjects as unimportant is simply incomprehensible”.

The Secretary of State needs to listen carefully to this criticism, because at present the Government are displaying a blasé attitude that does not reflect reality. They say that pupils are still free to take arts subjects at GCSE level and schools are free to offer them, but the 20% or so left in the school timetable to teach non-EBacc subjects is like being thrown crumbs. Moreover, school governors have told me that once a subject no longer contributes to the league tables, it slips down the priorities for resources.

Further evidence that neglect is already happening comes from research commissioned from Ipsos MORI by the Department for Education, available on its website. The arts are already hardest hit, with 23% of teachers whose schools have withdrawn a subject—about one-quarter of the total polled—saying they can no longer offer drama or performing arts, 17% saying that art has been withdrawn and 14% that design or design technology has been withdrawn, trends confirmed by figures from the Joint Council for Qualifications in a Commons Written Answer to Dan Jarvis on 15 October. If this is already the result of the introduction of the EBacc as a performance measure, then it is not difficult to imagine the deepening of this effect once the formal qualification is in place. Most damning of all, perhaps, is the DfE research stating:

“Sixty-three per cent of teachers surveyed whose schools do not offer the EBacc combination to all pupils say this is because they do not offer it to lower-attaining pupils”,

a crystal-clear expression of the lower-class status that excluded subjects now have. The Government may want to move away from league tables but the effect will remain the same. There will be other serious effects if these reforms go through as they are. Many have pointed out that it will be children from poorer homes who will be disproportionately deprived of exposure to the arts.

The Secretary of State seems to believe that the EBacc is what universities and business leaders want, yet the representative body Universities UK gave this written evidence to the Education Committee’s inquiry into the EBacc in 2010:

“Given that the EBacc emphasises traditionally academic subjects, it has been argued that this could serve to further widen the gap between academic and vocational subjects. There is also concern that the EBacc could encourage a shift away from arts-related subjects … In general … there appears to be a limited appetite to include the award as part of a university’s entry requirements or selection criteria”.

I stress the phrase “a limited appetite”. I therefore wonder how much the Russell Group’s guidance that was set out in 2011, rather than indicating what universities would like, has been a kind of self-fulfilling prophecy, because some universities will quite logically consider less those subjects that are already starting to be marginalised.

The issue of overspecialisation at too early an age is an important one. In its report First Steps: A New Approach to our Schools, the CBI, which is critical of the EBacc in many ways, talks about the need for what it terms a “rounded and grounded” pupil, echoing what those in the arts also say. Rosy Greenlees, executive director of the Crafts Council, tells me that while not wholly against a “techbacc”—and I would welcome some more detail from the Minister on the Government’s plans in this direction—she is worried about the possible reinforcing of what she calls the,

“traditional divide between the practical and the academic which is outmoded”.

On Radio 4’s “Start the Week” last November, which was devoted to art and design, Sarah Teasley, tutor in the history of design at the Royal College of Art, spoke about the need to push regional innovation through connections between research institutes and regions, between art and design colleges and local SMEs. There is a real need to bring arts, sciences and technology into a much more intimate relationship, and this must start in schools. Subjects need to be able to talk to each other within the curriculum much more than they do at present, but to do so they need also to retain equality and integrity. It is not enough to simply say, as the Government have done, that EBacc subjects can be taught “creatively”.

In terms of the larger structure of the EBacc, art and sport—which also feel that they are going to be neglected—need at this stage to see each other as allies in the interests of wider reform, not competitors for a position in what is being increasingly understood as a limiting and unacceptable hierarchy of subjects. What, too, about computer science, itself so crucial to the development of today’s creative industries, business, economics, sociology, and religious studies? The list goes on. There is concern, too, about the effective downgrading of the modular system—a system that many argue favours innovation and creativity—an action, as the National Children’s Bureau and other charities point out, that will also hugely discriminate against disadvantaged children and those with learning and other disabilities. For many of the reasons that I have discussed, Tony Kelly of the Education School at Southampton University says that the EBacc will be a distraction from the fundamental mission of schools to create well-being for students—not solely economic well-being but the development of the ability to turn opportunity into betterment.

The support for withdrawing the EBacc is now backed by teachers, parents, unions, national museums, major charities, the National Governors Association, academics and universities, Peers, MPs and former Education Secretaries, including the noble Lord, Lord Baker of Dorking. Seeing as the consultation for key stage 4 has been held very much in public, I am tempted to say that the Government hardly need to look at the results to see how institutions and many people now feel. The Government must give very careful consideration to the consultation and report back quickly. Although we have had the music plan, we are still awaiting the response of the Government to last year’s Henley report on cultural learning, which backed the inclusion of arts within the EBacc.

One of the frustrating things that so many working in the arts now feel is that we are living through a time when the arts and creative industries have become central to our society, central to our culture and, as I said at the beginning of this debate, hugely significant economically. They could of course be more so, but the arts are in real danger of taking a backward turn at a time when the Government should be seizing the day and capitalising on what is now in place but which might well be lost if the Government do not change tack.

[Lord Newby]

My Lords, for the benefit of the House, I remind noble Lords that this is a time-limited debate and all speeches are limited to three minutes.