Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Tuesday 23rd April 2013 Lords Chamber

[Lord Whitty]

My Lords, I join the noble Baroness in congratulating the Minister on his change of heart. He has in effect very graciously recognised not only the justice of the case that we on this side of the House, and the noble Baroness, Lady Harris, put in Committee, but that it is pretty absurd for the Government simply to claim financial privilege to resist an amendment that manifestly will bring justice and equity to an extremely special group of workers, putting them on the same basis as people who are doing almost exactly the same job but who are employed by other public sector employers.

I suspect the Minister had some difficulty with the Treasury and the Ministry of Defence in reaching this conclusion. I therefore doubly congratulate him on seeing it through and at least recognising the very difficult position we all find ourselves in. We cannot really resist the Commons claiming financial privilege, but we can ensure by my noble friend’s amendment that the Government think again about this and address the real issues.

I do hope, however, that the Government do not make a habit of using financial privilege to resist a principled amendment from this House that has a minimal cost even in the Government’s terms and, as my noble friend has said, that is probably actuarially inaccurate in any case. If the Government continue to do this, this House has some serious thinking to do about how seriously our amendments and our scrutiny are taken. However, I return to my congratulations to the Minister on seeing sense over this. I hope it is a precedent that will be followed by some of his other colleagues in future.

[Lord Newby]

My Lord, I am grateful to the noble Lord, Lord Eatwell, and other noble Lords who have spoken in this debate. I would just like to deal with the issue of financial privilege, because there is a widespread misunderstanding of how financial privilege works. Privilege is not determined by the Government. Privilege is determined by the Speaker in advance of debate. In this case, the classification of your Lordships’ amendment as being subject to the Commons financial privilege has been known for a month. Once an amendment has been classified by the Speaker as being subject to financial privilege, obviously the Commons considers whether to agree or disagree with each Lords amendment. If it disagrees, it must offer a reason. The only reason it can give is privilege. The Clerk of the Commons explains this as follows:

“If an amendment infringes privilege, that is the only reason that will be given. This is because giving another reason suggests either that the Commons haven't noticed the financial implications, or that they are somehow not attaching importance to their financial primacy”.

I strongly recommend that all noble Lords who seek enlightenment on this matter look up the Hansard of 14 February last year, when the Leader of the House gave a little tutorial on financial privilege before your Lordships discussed a number of issues relating to a Bill. There is a long-established pattern of financial privilege that has in essence been unchanged for several centuries, and it is not for the Government to decide whether an amendment is covered by it. The Speaker does that.

[Lord Whitty]

My Lords, I fully accept that it is for the Speaker to designate financial privilege, but the debate last year to which the noble Lord referred related to expenditure of several hundred million pounds of the welfare budget. During that debate, several Members referred to the fact that there must be a threshold beyond which a Lords amendment was considered an issue of financial privilege. The only point I am making is that the Commons, or whoever jogs the Speaker’s elbow in these matters, needs to take into account the issue that a relatively small amount of financial expenditure and alteration in either direction should not be taken as an issue for claiming financial privilege. I do not want to labour the issue, but there would be a danger of the two Houses coming into conflict if this position were to be adopted by the Commons on a regular basis in relation to relatively small amounts of money.

[Lord Newby]

My Lords, I hope that the Speaker in another place is listening to your Lordships’ debate and taking note.

The noble Lord, Lord Eatwell, asked whether we had sought the views of the heads of the Ministry of Defence fire and police services. The Government are routinely in contact with all their employers and discuss a number of issues with them. We are accepting the idea of a formal review, and the heads of those workforces will be consulted as part of that process. The noble Lord also asked me how many times the Civil Service Compensation Scheme had been used. I simply do not have the answer, but I will seek it out and write to him about it.

I realise that although the Government are accepting the opposition amendment, a number of noble Lords would like us to go further today. In urging patience on noble Lords, I end simply by reminding them of the words of that well known hymn, “Lead, kindly light”, which says,

“I do not ask to see the distant scene.

One step enough for me”.

I hope that we have taken a positive step today.

Motion A1 agreed.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Tuesday 12th February 2013 Lords Chamber

[Lord Newby]

My Lords, I am pleased that I am moving in the right direction, at least as far as the noble Lord, Lord Whitty, is concerned.

On the amendments of the noble Lord, Lord Eatwell, there are two differences between the Alex Ferguson situation and the one that we are discussing. First, while he could of course be relied upon to act impartially in every circumstance, he is not given that freedom. There are a referee and various other officials on the pitch, taking decisions on a second-by-second basis. There is an authority; it is just not him. The noble Lord is concerned about what happens if that authority then acts improperly or unreasonably—if, say, the referee blatantly misses a series of handballs in the penalty area. The answer is that if there is a sense that the authority is behaving improperly, it has an oversight body: the courts. The authorities cannot just make arbitrary decisions, let alone unfair ones, without acting in good faith. If they do act unreasonably, they are also acting unlawfully. It is right that the responsibility lies with them, as they operate the schemes. Somebody has to make an initial decision. The underlying implication of what the noble Lord is saying is that the authorities will act in a malevolent way to do down scheme members. I do not believe that they will, or that that is the history.

[Lord Whitty]

My Lords, on a point of information, in the LGPS we make a clear distinction between an employing authority and an administering authority, the latter being the equivalent of a quasi-trustee body, whereas this seems to imply the employing authority— that is, the local authority. If it were the administering authority, I think that we would be slightly more reassured.

[Lord Newby]

My Lords, I simply do not know the answer to that question. I will have to write to the noble Lord. I hope that, in doing so, I will be able to reassure him.

I turn to the amendment of the noble Lord, Lord Eatwell, on the cost cap. Its operation has been extensively discussed here and I hope that noble Lords were reassured that we will not seek to use it to reduce accrued benefits. If noble Lords have not been reassured, I hope I can reassure them now by setting out the Government’s own detailed amendments on retrospective provisions and protections.

As I have stated, the new clause on retrospective protections will require that retrospective changes to pension benefits with significant adverse effects be subject to the consent of members or their representatives. This would include changes made as a result of the operation of the cost cap. I have already made clear that adjustments to benefits or contributions under the cost cap would not be retrospective. The new clause, set out in Amendment 36, also provides protections to this effect. First, there would be the procedure set out in Clause 12(6) for reaching agreement on changes that are contingent on the operation of that mechanism. Then, when scheme regulations were made to give effect to those agreed changes, those regulations would require consent for any provisions that were retrospective and had significant adverse effects on pensions.

Given this, I hope that noble Lords are convinced that Amendment 23 is not necessary either. As the noble Lord, Lord Eatwell, himself said in previous debates, this would be a belt-and-braces provision to provide further protection to members in the event that the cost cap is triggered. There is no need for this additional protection because the response to the cost cap calls for the approval of the members themselves. If that response were to involve a retrospective change with a serious adverse effect, the implementing provisions in scheme regulations would also require consent. So the belt and braces are already in the Bill, were that extremely unlikely scenario ever to happen. In these circumstances and with these reassurances, I hope noble Lords will not press their amendments.

The noble Lord, Lord Flight, asked a couple of questions about whether the changes relating to restricting retrospection would reduce the Government’s ability retrospectively to reduce provisions and thus make it easier, in his view, to get the costs under control. The problem about that from a legal point of view—leaving aside whether it is desirable in practice—is that tinkering with accrued rights falls foul of human rights legislation and the Government have made it absolutely clear that they have no intention of going down that road. On the question of figures in Michael Johnson’s report, the Government simply do not recognise them. The House should be reassured that the costings for these reforms and the single tier have been fully worked through. If, at some stage in the future, the schemes appear unfinanceable, we have the cost cap; that is the whole purpose of having a cost cap. If his worse fears were borne out—and, as I say, we do not recognise the figures that Michael Johnson has produced—

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Tuesday 12th February 2013 Lords Chamber

[Lord Eatwell]

My Lords, I fully support the arguments put forward by my noble friend Lord Whitty, particularly on the complications that would arise with respect to the Local Government Pension Scheme. The amendment in my name and that of my noble and learned friend Lord Davidson refers to the general proposition in Clause 9(3) that,

“the Treasury may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate”.

The Treasury has a completely free hand to determine the change in prices or earnings to be applied to the structure of the pension scheme. It seems to us on this side that this is really a step too far, so we have proposed that it should be subject not to a negative Commons procedure but to the affirmative procedure so that there can be a truly substantive debate on any particular proposal that might be unreasonable.

In Committee the Minister said:

“Any attempt to exercise this discretion in such a way that did not produce accurate and appropriate estimates”—

I must say as an economist that there is no such thing; there are estimates, but “accurate and appropriate” is something different—

“with reference to a reasonable index of prices or earnings”—

there is no such thing as that either—

“could be challenged by scheme members. Any decision which is not reasonable”—

that is fine—

“even without this amendment … could be challenged by judicial review and struck down by the High Court”.—[Official Report, 15/1/13; col. 608.]

What a cumbersome procedure. The affirmative procedure may be seen as taking somewhat more time and requiring more effort than the negative procedure, but how much better than saying, “Well, if this goes wrong, you’ve got to take it to the High Court”? That really is truly unsatisfactory.

Introducing this very minor amendment will provide an environment for the discussion of changes in the chosen index that can be deemed to be reasonable and to have the confidence of members of the schemes. I feel that this approach, perhaps allied with that suggested by my noble friend, would provide the confidence in the process of revaluation that from time to time can be enormously important in maintaining standards of living, particularly of more elderly pensioners.

[Lord Newby]

My Lords, as we are debating a group that started with an amendment moved by the noble Lord, Lord Whitty, I shall take this opportunity to answer the question he asked me earlier about whether the administering authority or the employing authority would determine whether an effect is significant. I am extremely pleased that I did not try to reply at the time because the answer is neither. It will be the “responsible authority”, because that is the authority that will be making the scheme regulations. In the local authority scheme, it would be not the employer but the Secretary of State. I hope that answers that question.

We have debated the amendments in this group before, so I shall try to be relatively brief in explaining why I do not believe it would be fair to restrict the revaluation of accruals from directly tracking growth, including when it is negative. Even though negative changes in prices or earnings are exceptionally rare, the Government firmly believe that if there is no revaluation ceiling, it would be unfair to have a revaluation floor to the benefit of members.

This is the sort of unbalanced risk-sharing between members and the taxpayer that the measures in this Bill seek to remove. The report by the noble Lord, Lord Hutton, specifically criticised this “asymmetric sharing of risk”. In addition, such a revaluation floor could lead to the cost cap being breached, to the detriment of future members who simply end up paying for past members’ accruals growing faster than the scheme revaluation rate. For those reasons, I will not be able to support the amendment of the noble Lord, Lord Whitty.

I am also unable to support the amendment of the noble Lord, Lord Eatwell, which would make the annual Treasury revaluation order affirmative rather than negative. As we have said before, this would not be an efficient use of parliamentary time and would be counter to the long-standing convention with other public service pension indexation. The order will be a run of the mill piece of legislation, and it would be incongruous for it to be subject to the affirmative procedure in each and every year.

However, I hope that I can go some way to meeting noble Lords’ concerns. In the years when the values in the order are negative, there will be a strong expectation that the Government of the day should ensure that there is a full parliamentary debate on the changes, not least because they would be so rare. Perhaps we can go further than that general statement and look at whether to require the affirmative procedure when, as unlikely as these events will be, the order sets out a negative figure. It seems that this would strike the appropriate balance between parliamentary scrutiny and sensible regulation-making.

I would therefore be willing, if the noble Lords were able not to press their amendments, to take this away to consider it further, with a view to returning to the matter at Third Reading with an amendment that would require any annual order to come before the House for affirmative procedure if the CPI index slipped into negative territory. I therefore hope that the noble Lord, Lord Whitty, will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I thank the Minister for at least part of that response. I also thank him for the clarification of “authority”, although it alarmed me somewhat more than I thought it would. The only more alarming thing would have been if he had said that it was the Treasury. It is clearly not within the bounds of the scheme to assess it, so my noble friend’s point in a previous debate is rather more valid than I was hoping it was. We will perhaps return to that at a later stage, at least informally.

On the amendments in this group, I read the Hutton report fairly thoroughly at the time. I do not recall the noble Lord, Lord Hutton, advocating that we should have negative adjustment. Clearly there is a balance of risk, which is reflected in the changes to the substance of the scheme that has been proposed by the Government and, in the case of the LGPS, has been accepted in the negotiations between the employers and unions. If the noble Lord seeks further rebalancing of the risk over and above what is already reflected in a scheme, which, I remind him, has been endorsed by the sponsoring department and, however grudgingly, by the Treasury, that reopens a can of worms.

Were I in the Minister’s shoes, which thank the Lord I am not, I would probably have said, “I will not accept the amendment of the noble Lord, Lord Whitty, but I will accept the amendment of the noble Lord, Lord Eatwell”. In that case, I would clearly have deferred to the amendment of the noble Lord, Lord Eatwell, and I and the rest of us could go home reasonably satisfied. As it is, the Minister on the one hand has said explicitly that he is going to reject that amendment, but on the other has described a process that did not seem a million miles from my noble friend’s advocacy of the affirmative procedure.

The Minister said that if there is a negative movement in the index, Parliament should have a full and thorough debate, having a couple of paragraphs earlier said that it was run of the mill legislation. It is clearly not run of the mill if it has not happened for 30 years. That full and thorough debate would normally be accompanied by an affirmative procedure, or something very like it. I am therefore not feeling quite so negative towards the Minister as I thought I would at the beginning of his remarks. He has said that he will go away and look at this. I think that if he looks at it carefully, he will come back and accept, or propose something equivalent to, my noble friend Lord Eatwell’s proposition. In that case, although I will not be completely satisfied, it gives a serious safeguard for the members of these schemes, and for the coherent administration of and trust in them, which are so important to tens of thousands of local authority workers and dozens of local authority employees.

I do not regard the Minister’s reply as satisfactory, but rather than press my amendment to the vote or encourage my noble friend so to do, we have to grab hold of the Minister’s offer of further consideration and see what he comes up with at this rather late stage of the Bill. Nevertheless, an important consideration now faces him. I am grateful for his commitment thus far, and therefore beg leave to withdraw the amendment on that understanding.

--- Later in debate ---

[Lord Whitty]

My Lords, I speak now according to the convention, although it may be more logical for the Government to explain their amendments. My Amendment 49 is also in this group. It is another one of these whereby what appears to be the implication of this Bill, if nothing else is done, is that it would unravel what has been agreed between the LGA and the trade unions on the Local Government Pension Scheme.

Pensions payable by the LGPS are revalued using the Pensions (Increase) Act 1971. The amendment is required to enable the same methodology to be used for revaluation during service to continue once a scheme member is in receipt of their pensions. But there is a snag. The current situation, under Section 1 of the Local Government Act 2003, is that the Best Value Authorities Staff Transfers (Pensions) Direction 2007 requires this to be applied to those in the best value authorities. So under the existing scheme and direction the provisions relate only to those who are in best value authorities. It does not apply to those members of the LGPS who are employed by other local authorities and other members of the LGPS.

The agreement reached on the position beyond 2014 would provide for all LGPS members who are compulsorily transferred to be able to retain their membership of the scheme subject to the valuations provided in the scheme. I thought that the easiest thing to help the Government out of this one would be to tack on to the back end of the repeals process at the end of the Bill, when everybody is packing their bags to go home, something that simply says that we repeal the direction order. I am informed that it is not possible to do so in that form, but that one way or the other the Government intend to repeal the directions order. If the Minister could tell me how he proposes to do that, and preferably when, my particular concern about this group of amendments might be met.

The measure I am discussing is essentially part of the fair play aspects although the directions order covers slightly wider issues. However, the repeal is essential to achieve what I think most of us are agreed should apply beyond 2014 in the case of the local government scheme. I am really asking the Government to tell us how they are going to do the tidying up. If we cannot do it by repealing that order, how can we do it, and how can we do it so that there is no differentiation between LGPS members who happen to be employed by different member funds of the LGPS scheme? I would be grateful if the Minister could tell me that when he winds up. I hope that that will satisfy me.

[Lord Newby]

My Lords, I start with the amendment of the noble Lord, Lord Whitty. As he says, the LGPS differs from the unfunded schemes in several respects. While the current fair deal does not technically apply to that scheme, a similar principle is contained in the Local Government Act 2003. That Act requires the Secretary of State to make a direction to specify how pension issues are to be dealt with when staff are transferred out from a best value authority.

The noble Lord is understandably concerned to understand how the Government intend to implement the new fair deal policy for the LGPS, given this existing provision. The Department for Communities and Local Government is currently considering how best to do it. Should it prove necessary to amend the 2003 Act to implement the new fair deal policy, I can assure the noble Lord that the Government will do so at the earliest possible opportunity. I hope that I have given him the answers that he was seeking.

As regards the amendment of the noble and learned Lord, Lord Davidson, the Government have stated a number of times—both in this House and the other place—that we are committed to reforming the fair deal. There are provisions in the Bill to facilitate this. Indeed, the government amendments in this group are concerned with fair deal, which I shall come to in a minute, and work is under way to determine how this commitment will be implemented.

However, consultation closed only yesterday on some of the final policy details of fair deal. We are in the final stages of planning for its implementation. Therefore, in our view there is no need to refer to fair deal in the Bill in the way proposed and we believe that the amendment has serious flaws. As drafted, it would commit the Government to bringing forward proposals for ensuring that compulsorily transferred members of public service schemes can remain in those schemes. It would also seem to commit the Government to bring forward the proposals for the purpose of ensuring that compulsorily transferred staff can remain in their schemes, effectively committing government to implementing the proposals. However, it would not be appropriate to give any member of the scheme an unconditional right to remain an active member if their contract of employment was transferred to an independent contractor. While, of course, it is the Government’s aim that transferred employees would have a right to remain in the scheme when transferred out of the public sector, this right cannot be unconditional. While in the vast majority of circumstances it will be appropriate for fair deal to apply, there may be some cases when it would not.

There have been examples in the past, notably during the financial crisis, of highly paid specialist financial staff who have been brought into government for a time-limited period, and then transferred to independent employers. Although it may have been right to offer these staff access to the schemes while working in government, it would not be appropriate to allow them to retain access to the schemes when they leave, especially as the taxpayer is ultimately responsible for paying these pensions.

Similarly, on the wording of this amendment, a member of staff who was transferred out and then voluntarily moved off the public service contract to do purely private work could remain a member of the public service scheme. Again, this would not be right. The public service pension schemes are in place for those doing public service work, not for everyone who was once engaged in public service work at some point in their career.

These examples demonstrate that the implementation of the fair deal is complex. The Government are carefully considering these complexities to ensure there are no unintended consequences when the policy comes into force. Given this, it is the Government’s view that the fair deal commitment should not be on the face of the Bill. However, I can assure noble Lords that the fair deal will be implemented when we have done all the necessary work.

I hope that I can explain why government Amendment 42 is necessary. This amendment is concerned with people who are admitted to a public service pension scheme but who are not part of the main public service workforces listed in Clause 1. For example, it could apply to staff employed by a hospice who are offering services under a contract to the NHS and whose employer would like them to have the advantage of the NHS Pension Scheme. It is important to note that this amendment does not affect any of the main workforces in Clause 1. It can apply only to other people who are admitted into the scheme under the extension power in Clause 24.

Under the proposed new fair deal, a range of private and third sector bodies will be able to participate in these schemes in future. The amendment is concerned with ensuring that the schemes can be appropriately modified to reflect differences in the structure and nature of those diverse bodies. First, the amendment clarifies that scheme regulations may make special provisions in respect of people who are allowed to participate in the public schemes. The health and local government pension schemes already have a wealth of experience in providing for admitted bodies. The special provisions that are currently applied to those schemes include requirements for indemnities, guarantees, additional record-keeping, et cetera. These provisions are needed to ensure that the body meets the costs of participating in the scheme. The amendment would also allow for modifications that have already been made in respect of admitted bodies in the National Health scheme to be carried forward to the new schemes. Such modifications currently relate to about 60,000 scheme members and it is important that these can be maintained.

Secondly, the amendment allows for modifications to be made where bodies are admitted to the schemes in the future. Where scheme regulations provide for it, the responsible authority will be able to issue a direction to modify how the scheme applies to the staff of a body that is brought into the scheme. The NHS Pension Scheme currently makes between 100 and 150 such directions every year. Allowing for modifications to be made via an administrative direction will ensure that the scheme is applied appropriately in each case without the need to legislate for every single one or the delays that that would cause.

The Bill provides that a direction may be made only for permitted purposes. Those are that the modification is necessary to protect the public purse from costs arising from that body participating in the scheme, where additional information requirements are needed to allow the scheme and the risks to be managed properly by the scheme manager or to reflect the nature of the employment or the structure of the employer. This is not a new or novel power. The Secretary of State for Health has had broader powers to modify the health pension schemes since 1967. For those who wish to study the details, those powers are to be found in Section 7 of the Superannuation (Miscellaneous Provisions) Act 1967. The power explicitly set out by this amendment is more restrictive in scope than this existing power, which provides unfettered scope to modify the existing health schemes. The important safeguards set out in our amendment will ensure that any modifications are appropriate. Allowing bodies to participate in the schemes under Clause 24 will usually be as a result of fair deal. In such circumstances it would not be appropriate for modifications to alter members’ benefits in any way. Modifications that relate to fair deal transfers will, therefore, be limited to ensuring that employers meet their liabilities in full or provide the information necessary to run the schemes properly. I hope I have succeeded in explaining why we think that that amendment is necessary.

Amendment 43 relates to the locally administered public service pension schemes. Under Clause 24(3), scheme regulations may specify bodies or persons that may be permitted to participate in the scheme. It is anticipated that the regulations will prescribe the types of body that may be permitted: for example, a body that is providing services related to the main scheme workforce or a body that staff are transferred to under fair deal. Clause 24(5) then provides for an administrative determination to be made to extend the scheme to persons employed by such a body. Clause 24(8) requires an up-to-date list of persons to whom the scheme has been extended.

All these functions sit with the responsible authority. Our amendment allows for the functions in Clause 28(5) and (8) to be delegated to the scheme manager in a locally administered scheme. This is subject to any condition that the responsible authority considers appropriate. This reflects current practice in the local government scheme, in which it is the local authority that determines to admit a body to its pension fund. There are more than 5,000 admitted bodies in the local government scheme, and local authorities are best placed to determine their eligibility to participate in the scheme and to assist in administering the list of those who participate. They will do so within the limits of the scheme regulations set by the responsible authority. In turn, it is the local authorities that will be responsible for managing and administering the scheme for that body. They will collect data, contributions and provide benefit information and pensions to members.

I commend Amendments 42 and 43 to the House.

--- Later in debate ---

[Lord Whitty]

My Lords, I am sorry if this amendment appears to be another bit of LGPS exceptionalism but I hope that it can actually clarify the situation. There is a bit of confusion between Clauses 12 and 13. On my interpretation, Clause 12 applies to all schemes, whereas Clause 13, to which I have little objection, provides for funded schemes. However, if Clause 12 indeed applies to funded and unfunded schemes, it will cause some difficulty for the agreement that has been reached on the new cost-management system for the LGPS. As the clause stands, it does not reflect the dual process required by the LGPS and the separate cost management that was negotiated.

We have received some relatively friendly indications from the Treasury that it recognises this problem and we would like assurances from the Minister that the Government recognise the dual process. The other implication for the LGPS is that it is ahead of the other schemes in terms of the 2014 start date. I would therefore welcome reassurance from the Minister that the ability of the Treasury, at various points that are set out, to override a funded scheme—in this case, the LGPS—would not be applied to a scheme that had its own government-endorsed cost-management process in place. If I can have that confirmation, or something like it, I would not press the amendment. Clarification would also be useful on whether the whole of Clause 12 is indeed intended to apply to funded schemes. I beg to move.

[Lord Newby]

I hope that I can go at least some way in giving the noble Lord the reassurances that he seeks. The Government recognise the unique nature of the LGPS and that the cost-control mechanism for that scheme must reflect it. We have therefore developed a dual process to which the noble Lord referred, which will give scheme stakeholders additional flexibility to manage costs, while allowing the Government to retain final control over the costs and design of the scheme.

Clause 12 will provide for the Government to retain this overall control. They will use these provisions to put in place an automatic backstop which will apply if the scheme costs become unsustainable. The additional flexibilities that we will give to scheme stakeholders in their management of costs will operate alongside this backstop. As the noble Lord knows, this mechanism has been developed after extensive discussions with the LGA and the trade unions. We are confident that it will work and that the process envisaged is not inconsistent with the provisions in the Bill.

I know that this is not the noble Lord’s intention, but the effect of the amendment would be to remove the backstop that is part of the agreed mechanism. Given the importance of the cost-cap mechanism in ensuring the future sustainability of all the schemes, it is vital that the LGPS is covered by these statutory provisions in exactly the same way as the other schemes. All schemes need this mechanism to ensure that they are a sustainable way to provide good pensions that last. There is simply no reason to exempt the schemes. I hope that that will help to satisfy the noble Lord.

[Lord Whitty]

My Lords, I am grateful to the Minister, who clearly recognises the cost-management system that was agreed by the stakeholders of the LGPS. That is now on the record. I am not attempting to sabotage a backstop. However, Clause 12 looks to be a rather more interventionist clause than a backstop would imply. Nevertheless, if it is simply a backstop and the noble Lord recognises that the agreed system will work and will have government backing, then I will beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Whitty]

My Lords, this is complicated territory. The way in which the Minister described the implications of my amendment is not the way in which I understand it. The LGA and the unions are concerned that Schedule 7, as it stands, could reintroduce an additional complication —an additional cost—into the LGPS scheme, which was expressly removed by the agreement between the LGA and the unions. That relates not so much to movement between the LGPS employer and different public sector employers but to the situation with people who have been employed by one LGPS employer, who then leave and come back. I do not specifically stand by the wording in the amendment, so I shall withdraw it shortly. However, the Government need to make it clear where the responsibility lies. It seems to us that responsibility for those in pensionable public service could see the original employer being liable rather than the final employer. That would give rise to unknown liabilities lying with the original employer and not with the employer of the individual once they return to LGPS employment.

This could carry on over a substantial number of decades, so the administrative costs of an employer trying to find out where their ex-employees have moved would be quite substantial. It is difficult to estimate, but some actuaries are telling the LGA that it could cost an additional 1% to the scheme. If that were anywhere near an accurate estimate, it would seriously jeopardise the 19.5% cost-management figure that has been built into the LGPS and would increase the overall cost to the LGPS over and above the ceiling.

I understand some of what the Minister says but, having outlined the dilemma, perhaps he could suggest some other way of doing it. At the moment, there is potentially a quite unnecessary cost loaded on to the management of the LGPS. As I say, actuaries are telling us that that could amount to a full 1% of the total cost. Even if it were half that figure, it would be a serious issue. It needs to be solved. My amendment may not solve it, but I would be grateful for more guidance from the Minister. Perhaps he could have some discussions with the LGA on this issue before the passage of this Bill is completed.

[Lord Newby]

My Lords, we realise that there is concern about the potential costs involved in this policy, but we do not believe that it generates unreasonable costs. It is about offering fairness and consistency. The likelihood is that most people who leave local government service for prolonged periods of time to work in different public service employment would not expect to return. It is therefore most likely that they will transfer their final salary benefits to their new employer’s final salary scheme. However, if liabilities for certain local government funds are increased by the risk of a final salary link attaching to future employment with different local government employers, it would be a matter for individual funds to make appropriate financial arrangements, with the help of scheme regulations if required. Undoubtedly, further discussion will be required on exactly how this should be carried forward. However, we do not believe that it is an insuperable problem for a very good feature of the scheme. We hope very much that negotiations and discussions will take place and that some of the fears of local government actuaries will turn out to be unfounded.

--- Later in debate ---

[Lord Newby]

My Lords, I turn to two government amendments to Clause 25. Amendment 44 is intended to remove any ambiguity as to the persons to whom Clause 25 applies. It has always been the Government’s intention that this clause should relate to any person who qualifies for a public service pension scheme under Clause 1(2) of the Bill, as well as any other persons to whom a scheme has been extended under Clause 24—that is, all those who are eligible for a public service scheme and not just those who are currently members of such a scheme. Doubts have been expressed about whether the clause has that effect. This amendment sets out the Government’s intentions unambiguously.

Noble Lords will remember that at Third Reading we debated a proposed amendment to Clause 25 moved by the noble Lord, Lord Whitty. Noble Lords were concerned that the clause was too general in its scope and could allow local authority employers to undermine the Local Government Pension Scheme by offering alternative pension arrangements as a matter of course. The noble Lord therefore sought to exempt the Local Government Pension Scheme from Clause 25. I gave assurances in that debate that these powers did not allow eligibility for the main schemes to be overridden, nor did they allow employers to make any alternative arrangements mandatory. I stand by those assurances. In short, Clause 25 does not allow scheme managers or employers to act in the unscrupulous manner that a number of noble Lords feared.

However, I am aware that some people, particularly in the local government sector, still have a lingering nervousness about the clause. The LGA and others have explained that, while they accept that the clause cannot lawfully be used in this way, they remain concerned that some employers will misrepresent it. To put the matter beyond doubt, the Government tabled this amendment, which makes the use of Clause 25 subject to any provisions contained in scheme regulations. It makes it clear that provisions in scheme regulations take priority. Furthermore, it will be open to scheme regulations to restrict how the Clause 25 power is used in the scheme, if that is thought appropriate. My officials discussed the amendment with the LGA and I understand that it is content with this approach. I trust that this provides a further level of reassurance. I beg to move.

[Lord Whitty]

My Lords, I simply thank the Minister for tabling these amendments. Amendment 45 in particular clarifies the position significantly.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Tuesday 15th January 2013 Lords Chamber

[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.

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[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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[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.

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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 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.

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[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.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Wednesday 9th January 2013 Lords Chamber

[Lord Whitty]

My Lords, this is an amendment that reflects some of the anxiety in local government and other circles about what the Treasury’s ultimate intention is in relation to public sector schemes. The Minister may be gratified to know that I do not expect him to accept the amendment wholesale tonight, either in this form or in some other form within this Bill, but I hope that he will give sufficiently reassuring words that the matter dealt with in the amendment is not the intention, and that there will be some way of making sure that it is not.

The anxiety stems from a number of things. We all know that the Treasury likes to control things. We also know that the Treasury does not like to see the possibility of costs that it does not control but that will count against the public borrowing requirement—albeit that that definition is ludicrously wide compared to most other countries. The Treasury also likes to see large sums on the asset balance sheet. On the other hand, the Treasury likes to deal with liabilities on a pay as you go basis rather than on a long-term funded basis. When looking at the attempt to corral the local government scheme into the same box as the unfunded public sector schemes, where the funding has gone up and down significantly over the decades, all these things might suggest the possibility that if any of the 89 different local government schemes were seen episodically to be failing, the Treasury might take the opportunity to step in and take it over, or perhaps to take over large chunks of the local government scheme.

Local government schemes consist of 89 different schemes, mostly local authority. By and large, they are well run, professionally organised and based on very solid professional advice, and generally they take steps to ensure that the income is changed if the long-term prospects alter significantly. But, of course, in the current economic climate there has been some serious turmoil. The local government scheme of which I was recently chair went from a funding position of 114% down to something under 70% and back up again to 90% in the past four years, which was almost entirely due to the way in which the world stock markets have gone down, with the value of equities and other stocks, and also—and I shall return to this in a subsequent amendment—to the way in which liabilities are valued. At times, it looked as if there was danger of those funds not being sustainable even in the short term.

There is a possibility of the Treasury not liking to face the possibility that it is seen as the underwriter of last resort, which currently it is, although I notice that the noble Lord, Lord Flight, who is not in his place, is attempting to remove that position later on in the Committee’s consideration. In reality, there have been no historic examples of default, but nevertheless there could be an opportunity of the Treasury stepping in, saying that the fund is badly run and that it is going to take it over, count the assets against central government assets and push the liabilities into the long grass.

There is a precedent for this situation, and a rather large one—that of the Post Office pension scheme. Both Governments are guilty of this, although the current Government actually implemented it. It was a very large scheme and, because of previous pension holidays taken by the Royal Mail pension fund, it was somewhat underfunded. Somewhat to our surprise, the Treasury agreed to take over the scheme directly. Part of that was to soften people up for privatisation, but another part of it was that it immediately got the Treasury £26 billion on the asset side of their balance sheet, whereas the liabilities, although they are still there legally and contractually and will have to be met, actually disappear from that balance sheet in the general fund.

If that could happen in a scheme as large as the Post Office scheme—and there is the possibility of a predatory Treasury down the line—then it could happen in relation to failing or allegedly failing local government schemes. The reality is that the boards of the local schemes and the national board would need to take steps within the LGPS to ensure that such schemes did not fail, or that if they failed they would merge with other local government schemes. That responsibility to intervene at the first sign of danger rests within the LGPS, not with the Treasury.

There is a serious suspicion that the blurring between an independent local authority-based wholly funded scheme, and this scheme’s provisions for greater Treasury surveillance, could go further, and that it could allow the Treasury to seize control of a local authority fund in the circumstances that I have described, but possibly in other circumstances as well. I have put this amendment down for the resolution of that suspicion. As I have said, I do not necessarily expect the Minister to accept this amendment, but I would like, in the course of either this or the next stage, an unequivocal declaration or a different form of words in the Bill that make it clear that the Treasury would not act in this way in relation to local government schemes. I beg to move.

[Lord Newby]

My Lords, this amendment seeks to provide assurance that the Treasury could not take away the assets of the pension funds or place the liabilities of the local government pension schemes on to the Government’s books. I hope that I can reassure the noble Lord, Lord Whitty, that the Government have no intention of doing so, and for a very good reason.

The noble Lord, Lord Hutton, considered the funded nature of the local government pension schemes and concluded that they should continue on that basis, and we agree. Local authority pension funds allow local government to manage its liabilities efficiently and ensure the solvency of the scheme both at a local level and as a whole. Moving to an unfunded model in the local government schemes would risk greater volatility in the costs, and therefore the demands on local taxpayers. In practice, taking on the assets of local government schemes would also mean taking on the liabilities, which would have a greater cost for central government and would therefore make no economic sense. Neither would winding up any of the existing funds make economic sense. That would cost the Government far more in making provision to secure annuities for rights already built up than it would gain the Government in terms of assets.

Furthermore, there are significant legal barriers. It took explicit powers in primary legislation to move the pension assets of the Royal Mail. There are no such explicit powers in this Bill. For the avoidance of doubt, any suggestion that the Government took on the pension fund of the Royal Mail in order to improve the figures, knowing as they did that they were incurring a very significant liability in the long term, is simply misplaced. It was, as the noble Lord put it—although I would not put it in quite the same terms—part of the necessary process of preparing the Royal Mail for privatisation.

When debating closure we have said in your Lordships’ House, in another place and outside Parliament that we have no intention of winding up the existing schemes. Indeed, we have amended the Bill on a number of occasions to allay these fears. The Government, therefore, have no intention of defunding the local government pension schemes, for the very good reasons that I have set out.

I hope that I have reassured the noble Lord, Lord Whitty, that any fears that he might have about the LGPS funds are entirely unfounded, and that this amendment is therefore not necessary.

[Lord Whitty]

My Lords, I thank the Minister for that reply, which provides a fair degree of assurance. I will read the precise words then consult colleagues in local government as to whether that is sufficient. However, I thank him for his reply. I agree that the Post Office was a bit more complicated, but on the other hand there are suspicions out there, and it is part of the distrust to which reference was made earlier that such fears are around. The Government have to ensure that they pacify those fears. I hope that the Minister’s words will help to do that. Meanwhile, I beg leave to withdraw the amendment.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Wednesday 9th January 2013 Lords Chamber

[Lord Whitty]

I am not referring to what is in this Bill or what the Minister or any of his colleagues have said. I make that clear. I am talking about the campaign that has been run decrying and denigrating public sector workers and their pension schemes, calling them “feather-bedded” and “gold-plated” and trying to divide public opinion against public servants. It is that aspect of the political operation that I object to, not anything in the Bill.

[Lord Newby]

I am very relieved to have that qualification. However, I briefly repeat what I said at Second Reading. The schemes that are now going forward, covered by the legislative framework of this Bill, are, in our view, extremely sensible and generous provisions that reflect the importance that the Government attribute to the work undertaken by all the public servants covered by the schemes.

Having got that out of the way, we quite like the amendment of the noble Lord, Lord Whitty. It has the advantage of simplicity and would allow schemes to make minor and technical changes in the interests of efficiency but restrict changes that were materially detrimental to members. The wording that he has used in the amendment and the sentiments contained in it will certainly form part of our consideration of what we ourselves table on Report.

Amendment 28 deals with member consent locks. I should be clear, as my colleague the Economic Secretary was in the other place, that the Government have significant concerns about the consent locks contained in the amendment. We do not believe that this is the right way forward. I have previously mentioned that there are a number of options in terms of how to facilitate retrospective powers, and in our view consent locks are very much at the extreme end of this spectrum. We do not think that it is appropriate to give members, employers or anyone else the power unreasonably to hold each other or the Government to ransom and to inhibit changes for the greater good. There have been some damaging examples of this in the past. Therefore, the application of universal consent locks is not an avenue that we intend to investigate as we develop our amendment on this subject for Report.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Newby

Wednesday 19th December 2012 Lords Chamber

[Lord Newby]

My Lords, I am very happy to have an early discussion with my noble friend and look forward to debating any amendment that he may wish to bring forward.

As I was saying, we want public pension recipients to be reassured that, as a result of the provisions set out here, the new schemes will be administered and governed as effectively as possible. The new open scheme arrangements will ensure greater accountability and transparency through a common approach, an approach that will be independently overseen by the Pensions Regulator. The Bill builds on the regulator’s existing role and powers in relation to public service schemes and, as far as is appropriate, mirrors the existing approach to other occupational pension schemes. The regulator’s new powers will help public service pension schemes deliver good standards of administration and governance, ensuring that scheme costs and risks are understood and managed effectively.

All these changes demonstrate that the end of the current benefit arrangements and the creation of these fairer, more sustainable pension schemes are the right and proper way forward. It is right that public service pensions continue to set a good-quality benchmark for the private sector, and a race to the bottom in terms of pension quality must be avoided.

A consistent approach across schemes regarding consultation processes and the application of financial directions from the Government will also mean that members see unprecedented certainty about how their pensions are handled. It will no longer be the case that a member in one scheme can look over to another public service workforce and marvel at the myriad different quirks and anomalies within the scheme rules. There is some scope for variation to suit the needs of each workforce but, as the noble Lord, Lord Hutton of Furness, recommended, this is a common framework which brings all these schemes together under one legislative umbrella.

We have said that we hope and expect that the new schemes that will be drawn up under this Bill framework will last for at least 25 years. Of course, no Parliament can bind its successors, but we have included in the Bill enhanced consultation procedures, both with those who would be affected by any significant changes and with Parliament, to ensure that there is a high hurdle to be cleared before any such changes could be made.

The approach we are following will apply across all public service pension schemes, including smaller public body arrangements. We are aiming to reform the pensions in those bodies by spring 2018, and there will be no exceptions. This is why I am pleased that the Northern Ireland Government have indicated their intention to maintain parity with the changes set out in this Bill when they bring forward their legislation. Likewise, I hope our colleagues in Scotland and Wales will follow suit for the handful of schemes where competence for pension legislation sits outside Westminster.

Finally, we have also taken the opportunity of the Bill to reconsider whether certain generous historical entitlements remain appropriate in the modern age. The Great Offices of State pension arrangements, which apply to the Prime Minister, the Lord Chancellor and the Speaker of the House of Commons, give unusually generous pensions to these office holders. The scheme will now be closed to new office holders. Future holders of these positions will be entitled to a scheme that is the equivalent of those available to Ministers, thus ending this historical anomaly.

In conclusion, I believe that the package of measures contained in the Bill will fulfil the legitimate and worthy aim of bringing about long-term structural changes that are in the best interests of members, employers and other taxpayers. This is sound, reforming legislation, which I hope will continue to command cross-party support. We must, however, get the detail—

[Lord Whitty]

My Lords, in everything that the Minister has said, he has failed completely to make a distinction between those public sector pension schemes which are unfunded and those that are funded—principally, the local government scheme. Can he give us a guarantee that he will address that difference during Committee, since the Bill and his speech do not adequately reflect that now?

[Lord Newby]

Of course, my Lords, but at the moment I am explaining the common elements of the framework that we are putting in place. At this point, the key thing we all have to have before us is that we are putting in place a common framework, within which all the schemes will fit. The Local Government Pension Scheme is obviously very different, in that it is funded rather than unfunded. There have been many discussions on it; I have agreed to meet the LGA and hope to do so between now and the first day in Committee. The Government are very conscious of the need to ensure that the benefits of current local government arrangements are not undermined in any way by this scheme. I certainly anticipate that we will be discussing aspects of the local government pension arrangements in some detail in Committee.

Indeed, I was about to say that we are committed to getting the detail right and to giving detailed consideration to all these things in Committee. We have to take this opportunity to set in place a sustainable future public service pension landscape. I look forward to our debates on the legislation, and I commend the Bill to the House. I beg to move.

Financial Services Bill

Debate between Lord Whitty and Lord Newby

Wednesday 28th November 2012 Lords Chamber

[Lord Whitty]

My Lords, this is a technical amendment to cover a gap which I would have hoped the Government would have covered by now. It is an amendment to the Legal Services Act 2007 and it deals with complaints from consumers about the activities of claims management companies, about which we have heard a fair amount in this House, particularly at the initiative of my noble friend Lord Kennedy of Southwark.

The purpose of the amendment is to enable the Office for Legal Complaints, that is to say the Legal Ombudsman, to receive payments from the Lord Chancellor under Section 172 of that Act for its costs in relation to handling complaints against those claims management companies.

There has been a pretty widespread air of complaint in this House and in wider society about the activities of claims management companies. Citizens Advice has identified a whole range of problems in this area, from the time and resources wasted on invalid claims through to the aggressive, intrusive and often offensive methods of marketing. I suspect most noble Lords have received an odd text within the past few days, offering them untold riches under the PPI arrangements. It is not just consumer groups that want action on this front. The FLA—the Finance and Leasing Association—would look for an improvement to CMC regulation and, in particular, the tens of thousands of unfounded claims received from CMCs in respect of products which, as we all know, were never sold in the first place. This is a huge irritation which is misleading for consumers and diverts activity for providers, so we need a complaints system which is recognised as robust by consumers and providers alike. We want the Legal Ombudsman service to be able to accept complaints against claims management companies that breach the regulation.

Following discussion on several occasions in this House, the Minister has assured us that regulation is being tightened up to stamp out some of the more horrendous practices that we have heard about and, indeed, been subject to. One of these assurances was in relation to access to redress for consumers. The Government announced on 28 August that complaints handling companies would be handled by the Legal Ombudsman, using the powers under the Act to which this is an amendment. That was repeated by the Minister on 20 November in response to a debate introduced by my noble friend Lord Kennedy. However, I now understand that, due to the Government’s decision to leave claims management regulation within the department —as distinct from an outside regulator—the provisions that would have allowed the Legal Services Board to levy the claims management regulator for Legal Ombudsman expenditure are now deemed unworkable.

The amendment therefore seeks to remedy that position. It allows the Lord Chancellor—in other words the Ministry of Justice, which is, effectively, the claims management regulator—to make payments direct to the Legal Ombudsman without any subsidy by existing ombudsman levy-payers, who are lawyers and are not, of course, party to these complaints.

My understanding is that such money would need to come from a levy on claims management companies rather than the general taxpayer—quite right, too—and that the only effect of the amendment would be to allow the only body with authority to levy them, the Ministry of Justice, to pass such funds to the Legal Ombudsman. Despite this being a levy on these firms, the Treasury has stated that, under the Legal Services Act as currently drafted, the Secretary of State as the regulator of claims management services cannot be designated a leviable body for Legal Ombudsman purposes. The levy is technically considered a tax, and thus a public body, the Legal Services Board as the collector of the levy, cannot impose a tax on government.

It is for this reason that primary legislation to amend the Act is needed. I hope that the Minister, who is supportive of action on this front, can support the amendment. The legislative change that is needed to facilitate it must happen immediately, so that consumers are not left without a course of redress. This is necessary so that the ombudsman can handle complaints as well as provide better intelligence to the regulator and the industry to drive better practice.

Amendment 120, which complements the first amendment, would allow the technicalities to come into force immediately on Royal Assent without further, secondary legislation being required. It seeks to cover a gap in the present arrangements. The Minister may have a better way of so doing. If so, it is a pity that he has not come forward with it already. Nevertheless, I am prepared to hear what he says. If he is prepared to bring forward an alternative amendment which covers the same points at Third Reading or ensures that there is provision for the Legal Ombudsman to be financed in this way, I will probably be prepared to withdraw the amendment. However, it is a gap that needs covering. At this relatively late stage of the Bill, a commitment from the Government to do so is necessary. I beg to move.

[Lord Newby]

My Lords, as the noble Lord, Lord Whitty, said, the amendment seeks to amend the Legal Services Act 2007 to facilitate the expansion of the Office for Legal Complaints ombudsman scheme to encompass the handling of complaints about claims management companies, on which we have spent considerable time while discussing the Bill in your Lordships’ House. I understand that its specific aim is to prevent any costs incurred by the OLC in respect of claims management companies being passed on to the wider legal services profession.

The Government have announced that the OLC will assume responsibility for the handling of claims management companies next year. They stand by that commitment. I agree with the noble Lord that it is important for consumers of claims management companies to have greater access to redress when things go wrong. As a result of the Government’s policy, the OLC will be in a position to provide more meaningful forms of redress, including compensation up to £30,000 if appropriate. This compares with the current arrangements, under which the regulator can only direct businesses to apologise, redo work and, in limited circumstances, provide a full or partial refund of fees. In addition, the OLC will be able to use the feedback from complaints that it receives to assist the claims management regulator in driving up standards within the sector.

I understand the desire to implement this change as soon as possible given the proliferation of complaints about the conduct of this sector, but we are very concerned to get it right. That means ensuring that the necessary funding, regulatory and operational arrangements are in place before we commence the provisions in the Legal Services Act 2007. This amendment would not achieve that outcome. For example, it is right that the wider legal profession should not cross-subsidise claims management companies. Conversely, we need to ensure that legal firms do not gain any unintended benefit when the Legal Ombudsman assumes its new powers. Under this amendment, the wider legal profession would benefit because case-fee income generated by the ombudsman in respect of claims management companies would be deducted from the levy they have to pay.

The Government’s position, then, is absolutely clear: the wider legal profession should not bear the cost of dealing with complaints about that sector. On this we are in agreement with the noble Lord and the arrangements we put in place will be consistent with that principle. I reiterate our commitment to implementing the changes in 2013 and I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I appreciate what the Minister said, but I am not quite clear how this then operates. We are at one in believing that the broader legal profession should not be levied for instances which relate to claims management companies—that is clearly a red line and it should be avoided—but in order to avoid it, the Legal Ombudsman, the OLC, will need to have some resources from a levy, or quasi-levy, from the CMC, unless this is to be a matter for general taxation, which would not seem to be appropriate and I do not think is the Government’s intention. Therefore, the Government need powers rapidly in order to have a levy system there, which presumably, as I said in my opening remarks, would have to be via the Ministry of Justice, even though the money would then be passed over to the OLC.

I am not sure what the Minister means when he says that we will sort this out in 2013. Does he mean that, while the other provisions of the Bill will apply, we will need further primary legislation; or does he mean that there will be almost instant secondary legislation under the Bill to ensure that that happens? Because one way or another, for that to be achieved by 2013, which is only about four weeks off—although I guess that he has the whole 12 months to fulfil his intention—a whole pile of complaints that are manifold at the moment will be held up for some months before they can go into the system and the Office for Legal Complaints will be able to deal with them.

I accept the Government’s good will and good intent in this respect, but I still think that the precise system on which it operates needs to be spelled out and that we need to be assured that it will be in place pretty much at the same time as the Bill is passed. I hope that the Minister can give that assurance; alternatively, he could come back with something else at Third Reading. I did not think that he went as far as that in his remarks.

[Lord Newby]

My Lords, I did not go as far as that, in terms of amendments at Third Reading, and I am not going to go as far as that now. As I said, the new system will not come into force immediately, but it will come into force during the course of 2013. I will write to the noble Lord if I am wrong about this, but my understanding is that the funding that is required from the claims management company sector, as it were, will come from the levy, which is being increased at the moment. If I am wrong in that, I will write to the noble Lord.

[Lord Whitty]

I appreciate that having it exactly at the point of Royal Assent is not necessarily the point; the point is that when these provisions come into play there will be resources to cover it. I would be grateful to receive a letter from the Minister and, with that, I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Lord Whitty and Lord Newby

Monday 26th November 2012 Lords Chamber

[Lord Newby]

My Lords, we of course accept that consumers, including small to medium-sized enterprises, should have appropriate access to redress in respect of financial services as much as to everything else.

On collective proceedings in the financial services sector, we are as we said in Committee awaiting the outcome of the BIS consultation on private actions in competition law, which considers introducing an opt-out collective actions regime for competition law. We shall see what the implications may be for the financial services sector. The Government are hoping to publish their response to that consultation around the end of the year.

If the Government conclude that it is appropriate to legislate more specifically for financial services, any proposals must be the result of evidence-based analysis, taking into account the conclusions of the consultation into private actions in competition law, and they must also be subject to proper consultation.

On super-complaints more generally, which were covered by the amendment, I remind the House that the Bill already provides for designated consumer bodies to make complaints to the FCA. This may include representatives of business consumers provided that they are not authorised persons. The Government are already consulting on the criteria that the Treasury should apply when designating consumer bodies for this purpose and have made clear their intention to designate bodies which represent primarily the interests of retail consumers or SMEs as super-complainants. There is no further provision to allow this.

The noble Baroness, Lady Hayter, asked when SMEs would be designated, to which the answer is: by 1 April next year. She also asked about dealing with complaints relating to the banks in respect of PRA matters. The FCA is the lead body. One makes one’s representation to the FCA. As we have discussed many times, there is a raft of areas where the FCA and the PRA have joint responsibility, and MoUs will deal with that. It therefore seems much more logical to have just one body which is responsible for this kind of complaint and then deals with it as it would deal with other complaints, working closely with the PRA as necessary.

The Government agree with everything that has been said about the importance of the issue. We do not reject outright the idea of collective proceedings in the financial services sector; what we do reject is the proposal that we should legislate now on this matter without considering fully the evidence as to what the implications of changing the law would be. The Government have already committed to consider the implications of the BIS consultation for the financial services sector and we do not want to pre-empt that. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I am tempted to reflect that in the difficult, dying days of the previous Administration, the Treasury—contrary to its previous history—was prepared to go ahead of the game in relation to consumers’ rights. Under Alistair Darling, it was prepared to propose in the 2010 Bill, which was attenuated in view of the general election, very substantial provision for collective redress. It is a pity that, under new management, the Treasury is being more diffident and unusually deferential to BIS in this respect. Under BIS and its predecessor departments, all of us who have been involved in the consumer movement know that this issue of collective redress has been kicking around for at least 20 years under various guises and that the department has still not yet come up with a very firm proposition.

Nevertheless, I am glad that the Minister is now saying that we will see the result of BIS’s considerations before Christmas. I hope that we will therefore see these if not in the enterprise Bill that is already here, which would be a very convenient vehicle, then in an early Bill from BIS. Also, because of the—if you like—scandals in the financial services area, it might have been better had the financial services and their regulators moved more rapidly.

I will not take this to a vote tonight. However, I suspect that, if they are not careful, Ministers might regret not having these provisions on the statute book at an earlier date. However, if this is the situation, I beg leave to withdraw and, with this one, wish the Government luck.

Financial Services Bill

Debate between Lord Whitty and Lord Newby

Monday 15th October 2012 Lords Chamber

[Lord Newby]

The Government believe that collective proceedings, in the appropriate circumstances, can deliver access to redress and a potential deterrent effect. That is why the Government have been consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law—including whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. The Government are considering the consultation responses and hope to publish their response before the end of the year. We want to take the opportunity to learn from the outcome of that consultation and reflect on the implications for the financial services sector before proceeding to legislation.

The noble Baroness may say that her amendment would provide adequate time for consultation. However, her amendment specifies that small businesses should be able to bring collective proceedings on an opt-out basis. The type of persons who might bring collective actions, whether on an opt-in or opt-out basis, are substantive questions on which BIS has been consulting. We think that it is a lot better to await the outcome of the BIS consultation and reflect on the implications for financial services than to seek to pre-empt that process and require a particular model now. If the Government were to conclude from this exercise that it would be appropriate to bring forward legislation on collective proceedings for the financial services sector, any proposals should then be subject to proper consultation.

As an addendum to the second part of Amendment 189BC, I note that the Bill would not prevent bodies representing small and medium-sized enterprises that fit the relevant definition of “consumers” from making super-complaints. As was explained in another place, the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill.

We have considered this matter carefully, and I can inform the House that the consultation document that the Government will shortly publish covering this issue will include the proposal that the Treasury should be able to designate bodies that primarily represent the interests of small to medium-sized enterprises as super-complainants and that this will be reflected in the draft criteria.

I hope that, with the reassurance that the Government will consider proposals on collective proceedings carefully and that they will shortly consult on allowing SME representatives to make super-complaints, the noble Lord and the noble Baroness will feel able to withdraw their amendments.

[Lord Whitty]

My Lords, I was aware and was of course pleased that BIS is once again consulting on this issue. Given the way in which these amendments are framed, the Bill would simply say that the Treasury had the power to bring forward regulations for collective procedures and collective redress on an opt-in or opt-out basis. They do not specify more than that. They do not, unlike my noble friend’s amendment, actually specify a timescale. Having this in this Act would therefore allow the considerations arising from the more general consultation to be tailored to the financial services arrangements without any new primary legislation. I would therefore have thought the Minister would welcome that.

In the discussions in the run-up to the Financial Services Bill in 2010—noble Lords do not often hear me say this—the Treasury was much more progressive on these issues than was BIS. Of course, we are under new management now and maybe that has changed. There are some very special situations in the financial services sector, and we do not want to wait for another PPI, another pension mis-selling, another sub-prime mortgage crisis or whatever where we have to construct from scratch a new system to protect consumers, both business and individual.

These amendments would allow the Minister to do that, after the general consultation if necessary, so I do not accept the argument that we have to wait for that consultation before they are included here. It is clear to me and, I think, to a lot of people that the financial sector needs such provisions, and I would not like to be in a position 18 months down the line where we had to go back to a new form of primary legislation in order to provide them. I therefore advise the Minister to have another look at these amendments, but for the moment I shall withdraw my amendment.