(2 years, 6 months ago)
Lords ChamberMy Lords, I will speak briefly to all the amendments in the group. They are in my name and variously in the names of the noble Lord, Lord Vaux, and my noble friend Lady Kramer. I am very grateful for their support.
Amendment 28 would remove from Clause 2 the two Henry VIII subsections, subsections (6) and (7). These subsections allow subsections (4) and (5) to be amended without constraint and without meaningful parliamentary scrutiny.
Subsections (4) and (5) are at the heart of the Bill. The first sets out what the bank’s activities are to be; the second sets a non-exhaustive list of infrastructure for the purposes of the Bill. It is entirely proper that these two elements should be in the Bill. Taken together with the bank’s objectives, they set out government policy. Parliament is invited to debate and scrutinise these elements to consider modifying or otherwise amending them, which is what we are in the process of doing now. But we might be wasting our time: no matter what we say, resolve, add, subtract or amend, the Government can override all of it by using the Henry VIII powers in subsections (6) and (7).
The Government can change any the activities in any way and at any time they choose. They can change the meaning of “infrastructure” in any way and at any time they choose. They can do all this without meaningful parliamentary scrutiny. The suggested use of the affirmative procedure is emphatically not meaningful parliamentary scrutiny, and it is self-serving and disingenuous of the Government to pretend it is. Parliament almost never votes down affirmative SIs; it has done so four times in the last 50 years. It obviously cannot amend them. The plain fact is that the policy or policies embodied in the Bill can be changed by the two Henry VIII powers without constraint and without scrutiny by Parliament.
The Treasury’s delegated powers memorandum offers a kind of explanation for the inclusion of these powers, as it is obliged to do. The lead justification is:
“These powers will allow for the possibility that a future government may wish to change the emphasis of the Bank’s activities for policy reasons and may desire to alter the definitions to support this change”,
which is an unprecedentedly generous legislative text. The final justification for the inclusion of the powers is that it is “considered appropriate”—we heard “appropriate” used earlier in the debate—
“for the powers to take this form, as their whole purpose is to enable change to be made to the relevant aspects of the primary legislation for future policy reasons”.
That is exactly why these powers should not be in the Bill. Once again, they attempt to give the Executive power to make policy before they have decided what that policy is.
The memorandum makes it explicit that unspecified, unscrutinised and unscrutinisable changes to critical areas of policy can be made by the Executive. What is the point of discussing the bank’s activities and infrastructure if these can be changed without constraint and without any meaningful parliamentary scrutiny?
In three reports of the 2017-19 Session, the DPRRC considered the test of “appropriateness” for the use of Henry VIII powers. As I just said, the notion of “appropriateness” is the final justification given by the Treasury for the use of these powers. The Hansard Society, which I had the privilege of chairing for some years, summarised the relevant findings of the three DPRRC reports in its April 2022 Compendium of Legislative Standards for Delegating Powers in Primary Legislation. In paragraph 3.11 on page 18, it notes:
“Loosely drawn powers based on the subjective judgement of Ministers, such as the ‘appropriateness’ test, should be circumscribed in favour of a test based on ‘necessity’.”
There is no necessity here and the Government have advanced none.
In his contribution to the debate on the Queen’s Speech, the noble and learned Lord, Lord Judge, spoke forcefully about the need to address the balance of power between the legislature and the Executive, particularly in the use of Henry VIII powers. He concluded his speech by asking
“what is the point of us being here if, when we identify a serious constitutional problem, we never do anything about it except talk? We cannot keep doing that. I just want us to consider the possibility that the next time we have a Henry VIII clause in a Bill that has not been given careful explanation in advance, we chuck it out.”—[Official Report, 12/5/22; col. 130.]
The next line in Hansard reads: “Hear, hear!” This Bill is the next time. Our Amendment 28 would chuck out the Henry VIII powers.
Briefly, Amendments 33 and 34 are both probing amendments and deal with the statement of strategic priorities drawn up by the Treasury. It may be helpful if I deal first with Amendment 34, because this directly concerns whether the Treasury statement is meant to be permissive or directive. In Clause 3(5), the Bill says:
“The Bank must secure that its articles of association provide for the Bank”
to do two things: first,
“to publish and act in accordance with strategic plans which reflect the Treasury’s statement”,
and, secondly,
“to update those plans whenever the Treasury revises or replaces its statement.”
The force of the words “provide for” in the text was not immediately clear. Did it mean that the bank must amend its articles so as to allow the publication of strategic plans and to allow the bank to act in accordance with these plans if it so chose, or did “provide for” really mean “require”? In other words, was this provision enabling and permissive, or was it directive?
I discussed this question in a helpful meeting with the Minister yesterday, and she confirmed that “provide for” in this context was intended to mean “require”. This clarification makes the Treasury’s strategic statement extremely important. It imposes strategic choices on the bank. These strategic choices will determine what the bank actually does; for example, they could decide what weight is given to each of the bank’s two objectives and what weight to give to the bank’s four listed activities.
The Bill requires the Treasury’s strategic statement to be laid before Parliament, but that is the extent of Parliament’s involvement. Parliament will have no opportunity to contribute to the construction of the statement and no means of making productive comment on it. Given that the statement of strategic priorities will largely determine what the bank will actually do, this seems to be missing a trick by keeping Parliament at arm’s length.
It would be easy and, I believe, helpful to hear Parliament’s views on any strategic statement. Our Amendment 33 proposes a way of doing that by having the statement come before Parliament as an SI under the affirmative procedure. There may be other and better ways of involving Parliament that do not seem to trespass on the Treasury’s prerogatives and do not add complexity. The amendment aims simply to gauge the Government’s appetite for the closer involvement of Parliament in the strategic statement process. I beg to move Amendment 28.
My Lords, I will be very brief because the noble Lord, Lord Sharkey, has introduced these amendments eloquently, and I am not sure there is a huge amount to add.
This goes back to what we talked about in the previous group: too much power for the Treasury to change things at will. You cannot have meaningful operational independence if the mandate within which the bank works can be changed without scrutiny and safeguard. The noble Lord, Lord Sharkey, eloquently explained the limitations around the affirmative procedure; we all know about them. Something as fundamental as the basic objectives of the bank should be changed only following proper, full scrutiny using primary legislation. That should not be controversial; it should be fairly straightforward.
Amendment 33 adds an element of scrutiny that is currently missing to the statement of strategic priorities given by the Treasury to the bank. Those priorities are very important. I can understand that it is appropriate that there is some level of flexibility to those strategic priorities, but the idea that they can just be changed at will and filed with Parliament but with no scrutiny, discussion or review just seems wrong. Introducing the affirmative procedure for those makes sense to me.
(4 years, 5 months ago)
Lords ChamberMy Lords, I have added my name to Amendment 63 in the name of the noble Baroness, Lady Sherlock. This amendment is very simple. It seeks to ensure a period of a year from the establishment of the publicly operated dashboard before competing commercial dashboards are allowed to operate. This may seem a small point, but it is quite important. Dashboards are a new concept and will include large amounts of sensitive and complex data from many sources. We do not yet know how they will used, whether the current design concepts are suitable in practice and whether changes will need to be made to ensure that they operate well and safely. Therefore, it must make sense for the system to be tried out in one place, with proper controls, and reviewed and reported upon, before we open it up to the commercial world. This period of a year will allow us to see how a dashboard is used and whether any unforeseen problems and consequences arise.
I am grateful to the ABI for its commentary on the amendments to this Bill, but I am afraid that I disagree with it on this matter. The ABI is right that making dashboards as accessible as possible is desirable, but that must be done in a way that ensures that unforeseen consequences are avoided. As I mentioned in an earlier debate today, a bad dashboard is worse than no dashboard. A year’s grace period to ensure that what the noble Lord, Lord Young, called the plumbing is working well, and to make any tweaks, seems a common-sense safeguard.
My Lords, I have put my name to Amendment 63 because it is vital to allow the MaPS dashboard the best possible chance of reaching a wide public and establishing MaPS as a trusted and independent operator. This amendment would provide the MaPS dashboard with a head start of about 12 months. Without that, I doubt that MaPS would be able to do any of those things very successfully. I doubt that it could establish a wide customer base. If it is competing from the start with rival commercial organisations and their dashboards, those rival dashboards, whose eventual presence I would welcome, would be provided by organisations that have more resources than MaPS does, more consumer-facing expertise and more experience and skill in communications with consumers. Many would also have a very large existing consumer contact base, firmly established brands and loyalty, whereas MaPS would find it very hard to establish itself as a distinct, recognised and trusted independent operator in the clamour of a vigorous competitive marketplace. You need market share, visibility and actual customer experience to do that. That is probably impossible for MaPS in a very busy, very fragmented and possibly very confusing marketplace.
To make the MaPS dashboard work, we need lots of people to know about it and lots of people to use it. If we are to generate trust, we must provide high levels of consumer satisfaction and embed the notion and value of independence in the MaPS brand. The only way to do this is to allow MaPS a head start, to properly fund its launch and its communication campaigns, and to give it time to use what it learns in its first year. That would enable it to offer a very high level of service by the time that the huge marketing expertise of its well-funded and contact-rich competitors arrives on the scene. That is why I support Amendment 63.
(4 years, 10 months ago)
Grand CommitteeMy Lords, this is a probing amendment to allow discussion of the intergenerational fairness of CDC schemes. The Government’s excellent policy brief notes say on page 9 that concern about intergenerational fairness was raised by many respondents to their consultation on collective money purchase schemes. They then say explicitly that they recognise that younger members in CDC schemes
“may get less value from flat-rate contributions … if they decide to”
leave the scheme and transform their credits into a cash equivalent. The Royal Mail CDC scheme proposed here is such a flat-rate contribution scheme.
The Government clearly accept the possibility of less favourable treatment of the young, but both the likely scale of this or proposals for its mitigation are not an obvious feature of the Bill or its associated documents. The Government say that they will ensure that
“both benefits in accrual and pensions in payment”
must be adjusted
“to preserve the collective nature”
of the scheme. They go on to talk about sharing the current effects of investment being out and under-performance. This seems a little vague in a vital area. The details will presumably surface in an unamendable SI generated by Clause 18(4), to which we will return later. It also seems not to address the question directly. The question really resolves into this: “What protection or protective mechanism is there for young members against older members expensively cashing in?” An alternative way of putting this is to say what detriment younger members could suffer, or what limit will be put on such suffering, under the scheme. This is surely vital information for anyone trying to understand the likely risks and returns.
The situation here is that many of those consulted raised concerns about intergenerational fairness and the Government admit that it is a possibility. The Government have chosen to press ahead without either quantification of the possible disbenefits to younger members or a clear mechanism for reducing or limiting any disbenefits. This is not only unsatisfactory in its own right; it runs counter to the Government’s repeated acknowledgement that communicating the key elements of the scheme clearly and understandably is vital to its success.
There is a connection, of course, between intergenerational fairness and capital buffers. We will debate capital buffers later but it is worth noting the actual connection here. In an analysis in late 2018 of the DWP’s proposal for the CDC scheme, AJ Bell noted:
“It’s clear from the DWP’s preference not to allow so-called ‘capital buffers’—where funds are built up in reserve to make payouts more predictable—and the proposed removal of any trustee discretion in adjusting benefit levels that concerns about intergenerational fairness in CDC are front-and-centre of ministerial minds.”
It went on:
“And by suggesting any outperformance or underperformance should be reflected in the benefits paid to all members—including those already receiving their pensions—the DWP leaves us in little doubt it will not allow schemes to be skewed in favour of one cohort of members over another. This fairness will, however, potentially make outcomes in CDC less predictable and raises the spectre of pension cuts should investments consistently underperform over … time. The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this—not just upfront but on an ongoing basis —will be absolutely essential.”
We will turn to that later in our discussions. AJ Bell concluded:
“Simply referring disgruntled members to a complex set of scheme rules they signed up to blindly years ago won’t be good enough. Getting these communications right will arguably be the biggest challenger for employers who choose to go down the CDC route.”
The Government, in their Royal Mail CDC proposals, choose mechanisms for intergenerational fairness over benefit stability. This may well be entirely the right choice but it is very hard to tell, since the mechanism for bringing about this fairness is not explicit and no quantification is yet possible. Equally, it is not clear what benefit variations are likely without the smoothing potential of a capital buffer. More clarity is surely needed before employees are asked to sign up to buffers, or no buffers, and on the optimum position. Is the choice really between intergenerational fairness and stability? Is that not a false dichotomy and is there not a middle position combining elements of both, which is likely to be more appealing than the Government’s decision in this Bill not to allow capital buffers as an aid to benefit stability?
Our amendment tries to push the Government a little into being more explicit and much clearer. It adds one further condition to the list of authorisation criteria in Clause 9(3): that
“the scheme provides for intergenerational fairness among its members”
in specified areas.
The objective of the amendment is, of course, to allow discussion of the whole issue of intergenerational fairness, but also to suggest a non-prescriptive way of ensuring that the issue is properly and explicitly addressed in scheme design and to allow discussion of the right balance between intergenerational fairness and benefit stability.
I very much look forward to Members’ contributions and the Minister’s reply. I beg to move.
My Lords, I rise to support Amendments 2 and 7 and speak to my Amendment 6.
Intergenerational fairness is probably the single biggest issue that is generally raised about CDC schemes. The noble Lord, Lord Sharkey, has set the case out well. As an extreme example, if returns were zero or negative but the trustees wished to continue paying the target level of benefits to existing pensioners, the scheme would become in effect a Ponzi scheme, with payments to existing pensioners wholly dependent on a steady stream of new joiners. That is an extreme example, and to call CDCs Ponzi schemes, as some commentators have done, is overstating the situation. However, at a less extreme level, if we look at what is currently happening in the Netherlands, schemes have recently been able to avoid, temporarily, making cuts in benefits by the Government temporarily lowering the minimum funding requirement. While this has avoided immediate pension cuts, primarily for political reasons, it quite clearly pushes the risk on to the younger generation as benefits are paid out at a higher rate than they should be. That is a real and live example of how intergenerational unfairness can and does arise in CDC schemes. It is therefore essential that this enabling Bill deals explicitly with this issue. CDC schemes will fail if such unfairness is allowed to occur or is seen to be a risk.
I support Amendment 2, which requires schemes to provide for intergenerational fairness among members as a prerequisite for gaining authorisation. I also support Amendment 7, which introduces the concept of intergenerational fairness when transfer values are calculated.
Amendment 6 is very simple. It requires that the scheme must have rules to ensure fairness among all members when setting benefits. I have deliberately left that quite wide. I have not referred only to intergenerational fairness because I would like also to cover fairness within generations. For example, in the event that someone makes a transfer out of the scheme, it could impact intergenerationally and also intragenerationally if the transfer valuation is too high.
Royal Mail kindly contacted me before this debate to explain that its proposed scheme has intergenerational safeguards in place, which is good to hear. However, this Bill relates not just to the Royal Mail scheme, but to other schemes in future. Just because Royal Mail may comply does not remove the need to ensure that fairness is very clearly built into the legislation. It is a critical issue.
It is probably arguable whether Amendment 6 is required if Amendment 2 is accepted, although I see no downside, and considerable merit, in making explicit that a scheme must have rules to ensure fairness when the rate or amount of benefits is determined, along with the other rules already set out in Clause 18.
As an aside, any changes made in this part will need to be reflected in the Northern Ireland part.
The Government have recognised the concerns around intergenerational fairness inherent in CDC schemes, so I hope that the Minister will consider these amendments seriously. This is too important a risk not to be dealt with in the Bill.