Pension Schemes Bill [HL]

Viscount Eccles Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Lord Naseby]

My Lords, as a trustee of the Parliamentary Contributory Pension Fund, I see it as my duty to take into account anything that may have an impact on the long-term financial performance of the fund and on Members’ pensions. I expect to communicate that to the membership in our annual report, or alternatively when requested.

I do not wish to comment on any of these amendments in detail, but I particularly warm to Amendment 75 from the Government, which seems entirely appropriate.

[Viscount Eccles (Con)]

My Lords, the noble Baroness, Lady Bennett, opened the debate on this group with a request for more detailed information from collective money purchase schemes, particularly on the environment. That is entirely right and very appropriate when we move on to Clause 124, which is quite another matter. It builds on the 1995 and 2004 Acts, which refer to injunctions on trustees to produce statements of funding. That is a wide request; one can imagine all sorts of matters that trustees would wish to put into their statements.

It is not the same thing at all, however, as focusing on the risk of climate change, which is a much more accurately aimed request. The change risk, of course, is against the background that climate change, as in the use of the English language, is neutral, but I do not think that that is what we have come to mean by climate change. We should be careful not to use language inaccurately. I think that what we really mean is man’s contribution to, or effect on, the climate and what actions the world’s population have taken that affect the climate. That is considered in general to be something about which we should be very concerned. When it comes to considering the environment, who can avoid being incredibly concerned?

In the Government’s approach to how to deal with this matter, climate change is defined in the Bill as relating to Paris, its two-degrees limit on the rise in temperature from pre-industrial periods and other climate change goals. This is potentially a demanding and widely drawn comparison with things that have applied to trustees to date. We have to take care in our expectations of what it is reasonable for trustees to decide as they carry out their role in the interests of their members. They rely very heavily on advice. Their actuaries, who are often rather disregarded figures in the world of pension management and in our debates on pensions, have a wide knowledge of what is going on in pensions as a whole and why it is the way it is.

Trustees have to take very professional investment advice, of course. Like my noble friend Lord Balfe, they may decide that trackers are the best thing for them, but in many schemes, the investment decisions will be very detailed and always based on advice. Those advisers—the investment industry as a whole—can safely be assumed to know that there are huge issues relating to climate change and the environment, so their advice will be shot through with that understanding. Of course, there is also in the life of the trustees the employer, who can also be judged as knowing what is going on and understanding how he would like to see his trustees view these complicated matters.

Noble Lords should rest assured that these are complicated matters. It has been a long time since I was a pension trustee; nevertheless, there was always a huge debate about how to balance your portfolio, what to hold in it and what not to hold. The environment is not a thing for the future, of course; it is a thing for today. It is already part of our life; it affects our daily lives, to the extent that the world is already warmer. Those effects are connected to the temperature that we experience and the environment in which we live. When we come to consider the responsibilities of trustees to their scheme members, however, we need to be a bit cautious about how far down this complicated road we expect trustees to go when their members will be much more focused on their daily lives than on the way in which the powers that be are tackling these very difficult issues.

The Government’s stall is set out in Clause 124 and Amendments 75 to 78, which contain discretionary powers. They leave the opportunity to observe events and gauge responses to the problems we face before taking too much action, and they leave flexibility, as in their reference to other climate policies.

Pension Schemes Bill [HL]

Viscount Eccles Excerpts

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Janke]

My Lords, I support the amendment. My noble friend Lord Sharkey raised this matter at Second Reading and in subsequent briefings. I alluded to transparency earlier; there is also the issue of accountability. We have heard about the recommendations of the DPRRC. I note that the Constitution Committee agrees with the DPRRC that the use of Henry VIII powers is inappropriate in this Bill, regrets the inclusion of skeletal provision and notes that

“complexity is not an excuse for taking powers in lieu of policy development”.

It is an august committee, so we should treat its recommendations seriously. I support the amendments and would like to the hear the Minister’s response to the recommendations of the DPRRC.

[Viscount Eccles (Con)]

My Lords, perhaps I might make a general comment. I support the way in which the noble Lord, Lord Sharkey, introduced his amendment. This is a problem with framework Bills. Why do we have framework Bills? It is because we do not know the answers to the problems posed, in this case by a particular kind of pension scheme. The results, if the Bill goes ahead as it is, will be quite worrying. I would not wish to be a trustee of this pension scheme. Why not? Because I would not have any powers. At any time, my efforts to play a proper role as a trustee of this pension scheme could be upscuttled by the Government changing their mind and introducing another piece of secondary legislation. All the fundamentals of this pension scheme—particularly in Clause 18, which the noble Lord referred to—are entirely in the hands of the Government of the day.

We have talked about all sorts of things that I am also thinking about from the point of view of the trustee. As a trustee, it would be my responsibility to try to ensure I had some sort of capital buffer, if I needed it. I would have to talk to the employer in a way that would give me some chance of success. With the Bill as it is now, the position of trustees is impossible or near to it.

--- Later in debate ---

[Baroness Altmann]

I support my noble friend’s proposed amendment. He has raised an important issue here. Once again, it is about pre-empting a problem that we have seen elsewhere and not importing it into brand-new legislation. The pause order and triggering events that might permit some protection against people transferring out inappropriately will arise only if the scheme is in trouble and the regulator has already picked that up. That will be a number of steps down the line.

I wholeheartedly agree with what my noble friend said. Before transferring out of a defined benefit scheme, one is required to take advice if one is losing a meaningful lifelong potential income—not guaranteed, but potential. That protects members and potentially the scheme. If there are risk margins in transfer values, members should also have somebody talk them through what they might imply for them. Given that the aim of the CDC scheme is to deliver a lifetime pension, having the same requirement for advice as we already have in defined benefit schemes does not seem overly draconian. I am not saying this is necessarily the right wording or optimal route for a CDC scheme, but the aim of this amendment to protect members has merit. I would be grateful if my noble friend and the department might consider introducing it.

[Viscount Eccles]

My Lords, I say in support that, if I were a trustee of a pension scheme, and one, two or more people wanted to transfer out, I would be extremely unhappy if they had not taken independent financial advice. I would see that as a necessary condition of coming to the deal that we were possibly coming to.

[Lord McKenzie of Luton]

My Lords, we should thank the noble Lord, Lord Young, for bringing this amendment which, as he said, mirrors other aspects of pensions legislation. I was unclear whether this sits alongside the pause and triggering events or would supersede it. I hope the former, as it would be the quickest and easiest way to deal with it. Intrinsic to the wording are challenges that have been met in other pension environments about how to deal with or define “advice”, “adequate” and all that, but it is not beyond the wit of noble Lords to cover that off.

Pension Schemes Bill [HL]

Viscount Eccles Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Viscount Eccles (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Flight. He mentioned equity release, and about 20 years ago he assisted me with a major chunk of equity release when I moved from a house into a flat. I am very grateful; it certainly eased my way to comparatively old age.

Of course, I come from the defined benefit era. I would have had an interest to declare, being trustee and chairman at various times of several pension schemes, and I have a SIPP—probably about the purest money purchase scheme you can possibly have. There are no contributions from anybody else except the Chancellor of the Exchequer and the taxpayer, and those contributions were immensely welcome.

I will concentrate on Part 1, which is welcome. The pooling of assets has a very long history, all the way back to tontines. It is a framework Bill; I suppose we have become quite used to framework Bills. Yes, there are a lot of regulations—about 30 in Part 1. Only one of them has a “must”—most have a “may” and some are silent—so I suppose we can take some guidance from the master trusts Act, which was on a similar scheme, and from my noble friend, whom I welcome on the Front Bench. She has just arranged to send a 120-page document to the Delegated Powers Committee setting out all the proposed regulations and the reasons for them, so I am sure we will return to that and find out more about how this part of the Bill will be implemented and over what time.

There seem to be a lot of people involved: predominantly the employers in this case; the union; the trustees; the members; the Secretary of State with his many powers, some of which I suspect are to be held in reserve—sort of “if it happens” powers—the Pensions Regulator; the Financial Reporting Council; the Institute and Faculty of Actuaries; the Money and Pensions Service; and potentially the Prudential Regulation Authority. I hope these bodies do not trip over each other. I rather agree with the noble Lord, Lord Hutton, that there is quite a possibility that they will.

I will concentrate on the actuary, a shadowy body not much mentioned in the Bill and not much referred to in this debate. I have a memory; of course, as my noble friend Lord Young of Cookham may find out, memories are quite risky. I recall an actuary saying to a board of trustees, which then informed the employer: “You don’t have to make any more contributions for a considerable number of years.” This was in a defined benefit scheme, and its investment experience had been very good. However, some short period afterwards, the same actuary came and said: “Things have changed. Not only do we need to continue with contributions, but I want a one-off special contribution from the employer.” The reason was that outside intervention had entirely altered the business plan of that organisation and put it in a completely different position. If it had not been for the professionalism and strong-mindedness of the actuary, the correction might never have been made.

Of course, in those days and perhaps—I do not know —even now, sometimes employers agitate for positive changes. It may be that they would like the rules of the scheme improved because they see it as a recruiting tool. They go to the trustees, who go to the actuary, and the actuary says: “I hope you all realise how much this will cost and what this might mean to the contribution rate.” That applies in defined benefit schemes.

As has been much referred to today, all sorts of negative things may happen that the actuary has to assess and report on. The actuary’s job is complex, important and difficult. In the Bill, the two phrases he has to bear in mind as he gives his advice to trustees are

“the available assets of the scheme”

and “the required amount”. In those few words, you have what he has to try to do—and, of course, he is doing it over a very long timescale.

I admit that I have been a member of a pension scheme for 65 years—not the state pension scheme but a private one. I have no intention of doing so, but if I were—rather belatedly—to marry somebody 30 years younger than me, I suppose the timeframe would become 100 years in today’s circumstances. That is a very difficult period of time for anybody to deal with when they sit down to work out

“the available assets of the scheme”

against the rules of the scheme, and “the required amount”. In that period, there are huge social changes, enormous economic changes and all sorts of unexpected events.

Although sometimes things can be done positively with the rules of a scheme, sometimes you run into negative circumstances such as a market disappearing. Let me cite deep-mined coal as an example. All the firms that used to supply a lot of equipment to the deep coal mines of this country no longer have a market in this country. In these circumstances of rapid and complicated change, there is always tension between the employer, the trustees and the actuary. The actuary is in the most difficult position of the three, because he is a paid servant of the trustees and has to nerve himself on some occasions, I suspect, to convey some of the news that he needs to convey as he does his professional calculations.

Recently, there has been much comment and criticism of the present arrangements for actuaries. Following a report written by Sir Derek Morris in 2005, action was taken and a memorandum of understanding entered into between the Institute and Faculty of Actuaries and the FCA. That is coming on for 15 years ago, and in 2018, a powerful report was produced by Kingman, who said that the memorandum of understanding is not going well. He made radical proposals for reform, in the sixth chapter of his report, entitled “Other Matters”. It is quite short, but he thinks that the system for regulating the actuaries and for taking responsibility for measuring their performance should be moved from where it is now to part of the Bank of England. In response to Kingman, the Government said—motherhood and apple pie—that they would reflect on these recommendations and bring forward proposals in due course. Will my noble friend on the Front Bench tell me where this is getting to?

My experience, as a trustee of pension schemes, is that the actuary was the most important person, and the one with whom I spent most time to assess whether or not our scheme really was in a circumstance with which we could be content for the time being—and only for the time being. It seems to me that there is a strong argument for saying that the actuaries are unlikely to be in the best place at the moment to discharge their complicated responsibilities and ensure accountability for performance. I look forward to hearing why this has not been included in this current pensions legislation—2018 is a fair time ago. What is the Government’s intention?

Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018

Viscount Eccles Excerpts

Tuesday 15th January 2019 Lords Chamber

[Viscount Eccles (Con)]

Over how many weeks would the noble Lord suggest that the consultation should take place?

[Lord Deben]

My noble friend is right to say that the problem with all this legislation is that it takes time. If you are going to make fundamental changes, you have to face it: it is better to have short consultation periods in which everyone is told that there is a consultation, rather than this egregious kind of concept where you say, “We have had a bit of a consultation and we have ongoing talks”. We cannot get up in this House and say that we have had a consultation that shows that we have covered everything. I agree with my noble friend that you have to have a short consultation but it must be public and clear. It is frankly not our fault that we have lost a lot of time. It is because the Government did not start two years ago to prepare for what might be a no-deal exit.

Pensions Bill

Viscount Eccles Excerpts

Wednesday 26th February 2014 Lords Chamber

[Lord Turner of Ecchinswell]

My Lords, I will speak in favour both of transparency as per the amendment from the noble Lord, Lord Lawson, and the Government’s amendment and also in favour of a clear commitment to a clear cap on scheme charges in line with Amendment 29 which also bears my name.

As I have already said this afternoon, the issue of total charges is fundamental to what we are trying to achieve with this Bill. The Government’s paper on charges makes it clear how important they are. Figure 2 says that if you are a saver throughout your life and you pay a charge of 0.5% when you get to retirement you will have given up 13% of your pot in charges. If the charge is 1.5%—which to the ordinary person might not seem all that much higher—you give up 34%. The difference between paying charges of 0.5% and 1.5% is that you will be 20% worse off throughout the whole of your retirement. This is not minor, but absolutely fundamental to how we achieve good provision for people in retirement.

[Viscount Eccles (Con)]

Could the noble Lord be very kind and help me? Is he saying that the pot is a fixed figure and that therefore the percentage of charges has always to be related to the same end figure of the pot?

--- Later in debate ---

[Baroness Drake]

I do not intend to make my contribution because I do not think there is anything I can add to what the noble Lord, Lord Turner, has said. However, as I have never been a Minister I am not familiar with the dark art of crafting ministerial syntax, so perhaps I could take this opportunity to ask the Minister a question before he responds.

I have before me the Written Ministerial Statement, which says:

“Last year, we consulted on whether to cap charges in the default funds of schemes used for automatic enrolment, and the Government remains committed to seeing this policy through during the life of this Parliament”.—[Official Report, Commons, 24/2/14; col. 11WS.]

My simple question is: does the phrase,

“seeing this policy through during the life of this Parliament”,

mean that the Government will introduce a charge cap before the election in 2015? A simple yes or no answer would be helpful.

[Viscount Eccles]

My Lords, I had not really intended to intervene. I have not played any part in this Bill since Second Reading, but I just want to draw attention to the fact that there is a difference, in my opinion, between price control and transparency.

I am 100% in favour of transparency. Perhaps I should declare that I have a very complicated pension situation. I have been in defined benefit schemes and money purchase schemes and I have a SIPP. I have also been the trustee of probably half a dozen pension schemes. I have done transfers of people under TUPE in the Local Government Pension Scheme. So I have had a lot of reasons to worry about the amount of somebody’s pension fund that is absorbed by costs. I am totally on board with complete transparency on that issue.

However, that is a different matter from price control. The problems in this market, which I fully agree has very considerable aspects of dysfunctionality, are created, in part at least, by the incredibly complicated structure of pensions that we have created, in both the public and private sectors, over many years. It is a very complicated subject and of course there are people who take advantage of that complexity, I completely agree. There are also people who are so frightened by the complexity that they do not know when they are getting value for money and when they are not.

That is my point: there is a great difference between a market which by its transparency enables people to see whether or not they are getting value for money and a market in which there is price control. Picking a figure for the price control would be a very foolish thing for any Government to do.

Pensions Bill

Viscount Eccles Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Viscount Eccles (Con)]

My Lords, as we consider the detail of the Bill—many of those who have spoken have made very good points about the detail—I hope we will remember two things. First, a great deal of what actually happens will depend on secondary legislation. In essence, this is a framework Bill, and much will emerge as the regulations are produced. Secondly, as we go through the Bill, I want, from long private sector experience, to think a bit about other things that come on top of state provision.

Along with all other noble Lords, I fully welcome the move to a single-tier pension, which is an excellent thing to do. If I may venture an opinion, I would do it, in the end, with the smallest possible consideration of the difference between people and their experiences. I would eliminate, if I could, the idea that certain things should be taken into account, so that it would be a well established and very simple “that is what we are going to get” pension. As has been said before, pension legislation is a dense thicket, into which we venture sometimes but probably as little as we need to. We do not get very far and come out all scratched without really understanding the detail. Anything that simplifies what is going on out there must be welcome.

The departmental brief took us back to Beveridge and 1942. I remember the excitement when that report was produced. The terminology in Beveridge is very different from the terminology we use today. He referred to want, a subsistence minimum, savings on top and the avoidance of an intolerable financial burden. On that last point, we are probably in some form of denial, in that there is nothing which could be rightly described as an intolerable financial burden. Beveridge also said that we should do nothing that discourages the individual from doing the best he can for himself and his family. He was determined, in what he wrote, to make his progressive, reforming recommendations but, he hoped, without perverse incentives being contained in what was done.

Of course, between 1942 and today, very great changes have taken place. The brief refers, as all noble Lords have, to demography. In Beveridge’s time, 10 years of retirement would have been a pretty long time. I fully admit that this is a very theoretical point, but if we were, 10 years from now, to put up the retirement age to 70, we would probably be looking at more like 15 or maybe 20 years of retirement, which is a very big change. Because life is very uneven and unfair, that is only an average. I fully concede that averages can be very deceptive.

The brief referred to the much increased employment of women, something that has been completely transformed from what applied before the Second World War. However, other things are not in the brief which I think are very important and go to the point on confidence and trust, which has also been referred to many times this afternoon. There is the relative prosperity—real incomes today are probably three times what they were in 1942—but of course, alongside that, financial services have become immensely more sophisticated and much more difficult to understand.

Then there have been the rapid changes to the economy, including the disappearance of enormous industries. I come from the north-east of England, where there is not a deep coal mine left, which is almost unthinkable. ICI has disappeared, which is, again, almost unthinkable. Some of these changes have been created by the incredibly rapid progress of technology. Completely unimaginable things have happened, even in stable, long-running companies. British Telecom, for example, suffered the split from Royal Mail and the Post Office. When we were younger, all the equipment was electro-mechanical, but of course it is now digital and a completely different employment pattern is involved in looking after all the equipment in that business. Even in long-running and apparently very stable businesses, there have been enormous changes in the pattern of employment.

There has also been social change, with people wanting different types of career. The idea was certainly prevalent in the days of Beveridge that you joined a company and there you were: that was your life from coming out of school or university until you retired. That now is the exception and not the rule. In trying to deal with all these changes, we have tended to muddle the distinction between provision by the state and the top-up that Beveridge referred to, which is acquired privately. We have not thought carefully about the limits of state intervention or carefully enough about doing nothing that discourages individuals from doing the best they can for themselves and their family. Instead, we have got into a situation where there is an impenetrable thicket, which is not understood by many people and in which, therefore, very few people have confidence and trust. We desperately need to simplify wherever we can—not only in state provision but in private provision.

I turn to one or two examples. The linchpin of private provision was always the defined benefit system, which related to salary and service. Such schemes are dying on their feet. Company after company has gone out of defined benefit schemes after finding them impossible to retain. The promises made in those schemes were so long that the actuaries were unable to match their view of contributions and assets to the potential liabilities, and they kept getting the sums wrong. That is not at all surprising if you set that against the differences that have occurred in society and in business and commerce.

My own experience is of working for 27 years for an engineering company in the north-east, which was taken over, in a deal brokered by the Government of the day, by another engineering company in the north-east. That was in turn taken over by a big construction company, which was then taken over by a big shipbuilding company based in Norway with lots of other engineering industries. That company went bust. I am a pensioner—I should declare that as an interest—of a closed scheme where there are problems. There is now a separate, independent, ring-fenced company with all the funds that came from those different companies. If I told you all the companies that were in the current ring-fenced scheme, you would be amazed. It is nothing like four, and probably closer to 20. It is very difficult to maintain trust and confidence in schemes that are very long-term, if they are subject to such enormous change.

Moving from defined benefit to money purchase schemes, which of course is the solution in many cases, has also proved very difficult, because of the same sort of considerations. Promises have been made to the people in the defined benefit scheme, which is closed, under the contracts entered into with them, but newly employed people are put into a different mode. That creates two classes of employee. Many people have thought about some of these difficulties, and there are many others.

Just the other day, I was asked by quite a young self-employed person, “Why is it wise for me to have a pension?”. I said, “Is anybody else going to contribute to it or are you going to do it all on your own?”. That is the first question you should ask yourself. The second is: what are the tax advantages of putting whatever you save into a pension scheme, personal or otherwise? If you really think about it, the two reasons why we are so keen on pensions as a method of saving are: first, somebody else is going to contribute as well as myself; and secondly, it gives me tax capacity. For a lot of people, other forms of saving, provided that they have the tax capacity, may well be a better way of going about it than joining schemes.

Finally, I have a thought about fees. Of course, if a system is extremely complicated, I am afraid the fees will be high. They become high for two reasons: first, the complexity means that they will be high; and secondly, if you do not think through your own position as a member of a scheme, you contract it out to somebody else and do not pay close interest. In addition, there could be many regulations and rules. It was no surprise to get a letter from somebody involved in my self-invested pension plan saying, “Given everything that is happening now, you should expect fees of 2.5% per year”. I can tell your Lordships that I have been trying to ensure that that did not happen and it is not going to.

Enterprise and Regulatory Reform Bill

Viscount Eccles Excerpts

Wednesday 12th December 2012 Grand Committee

Debate on whether Clause 20 should stand part of the Bill.

[Viscount Eccles]

I have found it pretty difficult to be sure that I understand exactly what the Bill is trying to do. You practically need a trolley for the papers. It is built on previous Bills, and is still extremely dependent on the 2002 and 1998 Acts. My position on the previous debate would be that if I cannot find it anywhere else it must still be in one of those Acts, and that must be the law of the land.

My interest is in Parts 3 and 4 doing different things. Part 3, in Clause 20, introduces institutional change, whereas Part 4 modifies the competition regime and, in doing so, has a very large number of schedules and is almost completely dependent on previous Acts. It does very little that is not an amendment to an existing Act. The question that I want to probe is why the Government have chosen this particular step of institutional change. There is to be a body corporate known as the Competition and Markets Authority. I thank the Bill team and the Minister very much for trying to settle some of my misunderstandings and doubts in a long correspondence, but I am not entirely reassured.

I go back to the Public Bodies Act, which is quite a recent Act—passed in 2011. Section 2 says:

“A Minister may by order merge any group of bodies or offices specified in Schedule 2 … In this section, to ‘merge’ a group means … to abolish all the bodies or offices in the group, create a new body corporate or office and transfer some or all of the functions of the abolished bodies or offices to the new one, or … to abolish all but one of the bodies or offices in the group and to transfer some or all of the functions of the abolished bodies or offices to the remaining one”.

My question is: why have the Government chosen subsection (2)(a) and not subsection (2)(b)? There does not seem to be a strong case for going any further than abolishing all but one of the bodies and transferring the functions to the remaining one. That is in effect what is happening. We are not getting a new body. I know that the noble Lord, Lord Whitty, was welcoming the new body and trying to make sure that it has new things to do, but that is not the Government’s intention. This is simply the Office of Fair Trading with its name changed. Following the scheme of the Public Bodies Act, which the Government have done, even though they say they are not depending on it, they have at some stage to take account of the reason, purpose and conditions, as in Section 8. In the exercise of public functions, they must have regard to efficiency, effectiveness, economy—the familiar three Es—and accountability. At the moment, I do not think there has been any attempt to describe to Parliament why the creation of this new body would achieve the purpose and conditions of the Public Bodies Act.

Indeed, that seems quite strange at a time when we have to try to restrain expenditure. We would all agree with that: if we saw a reasonable opportunity for restraining expenditure, we would take it. It is a time when, if we can have minimum disruption and allow as many people as possible to carry on doing the things with which they are familiar without being told that they face great change, we should. It is also a time when it is probably better to have the maximum of reality. The reality is that we are being presented with a beefed-up OFT. I have no objection to that as an idea but do not see why it should be sold as a new body. That does not seem to be what it is. I have a piece of evidence that leads to a question. Am I right that under Part 4 of the Bill—which deals with the modification of the competition regime—if the draftsman was to substitute “OFT” in every instance for “CMA”, the modification would be perfectly installed by Parliament and there would be absolutely nothing wrong with it? That demonstrates that what is happening is a change of name and a beefing up of the powers of the OFT, and not the creation of a new body.

[Lord Razzall]

My Lords, I obviously listened to what my noble friend Lord Eccles said at Second Reading when he made very similar points. I am not clear: does he accept the fundamental need to reform the structure and institutional nature of our competition regime? It is a very straightforward issue, with which—

[Viscount Eccles]

Perhaps I may just answer that question. I do not accept that, no.

[Lord Razzall]

Well, that seems to be the fundamental difference between my noble friend and other members of the coalition. I suspect, having heard the Second Reading remarks of a number of members of the Labour Party, that it is also their view that there is a need for such reform. I will not labour the point because it was made at Second Reading, but it is universally regarded throughout the world that our competition regime has all the attributes that every competition regime should have except for being the slowest. That is the real issue that this part of the Bill attempts to deal with. It does not matter if you call it a beefed-up OFT or a beefed-up Competition Commission. What is being reformed is the necessity for practitioners, companies and people involved in the whole competition process to go through two organisations to get the decision that they are likely to require. That is the purpose of the Bill. I am still puzzled as to whether my noble friend, Lord Eccles, who was a distinguished member of one of the bodies that is being abolished, wants to maintain the system as it was when he was that distinguished member.

--- Later in debate ---

[Viscount Eccles]

Perhaps I may reply to the Minister. I thank everyone who has taken part in the debate. Although there is Clause 21, I was speaking only to Clause 20, which creates a certain difficulty because it is about the creation of the CMA. I asked a specific question: why did the Government choose to form the CMA instead of simply giving additional powers to the OFT? Does this new body amount to anything more than a change in the name of the OFT? With great respect to my noble friend, I did not get an answer to that question.

I quite understand that if you start to debate Clause 20, you are inevitably drawn into the things that are being done by Clause 21 and other parts of the Bill. On the question of whether I am against the structural change, I am here to be convinced—this is Committee. As my noble friend quite correctly said, at Second Reading I cast great doubt over whether this structural change was sensible; I am here to be convinced—or not—and we will see what happens.

One way in which my noble friend tried to convince me—indeed, so did my noble friend on the Front Bench—was through the “slowest” argument. There are plenty of time limits in the 2002 and 1998 Acts. It is not that the existing law does not provide time limits; it is just, it is said, that they have not been kept to. Nobody has explained why they have not been kept to. Understanding that is quite complicated. There are provisions for extensions and there are clever lawyers who are good at arguing for extensions. There is the European competition regime, which quite often can lead you into needing an extension. The regime of time limits is already in existence. I do not see why a statutory change to that regime is going to make any difference to what happens on the ground.

What happens on the ground depends upon the circumstances of each case, the behaviour of the participants in that case and the way in which the case is handled. It may well be that our regime should be quicker, and I would not dissent from that, but it does not need additional legislation. That is one argument that has been put forward as to why we need this institutional change, but I do not accept it. I quite accept that there may have to be competent discussions between professionals—round tables—in the light of the existing legislation and that things should be done in a more expeditious way. Indeed, in the 2002 Act there is a general duty to do everything as expeditiously as possible. I just think that it is another piece of make-believe to say that, if you write it into a law, it is going to happen.

[Lord Razzall]

I am sorry to interrupt the noble Viscount’s flow. What is his answer to the argument that all the major business organisations and the Law Society are in favour of this recommendation?

[Viscount Eccles]

My Lords, I have looked quite carefully at what has been said, and it has been quite qualified. In fact, I have had a bit of dialogue with the CBI over recent weeks, and it seems to have been in the same position as me when it started out: it did not understand the Bill. I am not overimpressed—I am never overimpressed—by what lobby groups are said to have said. One has to try to make up one’s own mind—that is possibly why we are here.

The other point made by my noble friend on the Front Bench concerned the varying workload on the Competition Commission. Of course, I completely take that point on board. It has been referred to that I was a member of the Monopolies and Mergers Commission. At one time, I was on three days’ equivalent and I was there all five days; I was on five inquiries and I was chairing three of them. When we had a heavy load of work, we just worked harder. When we did not have such a heavy load of work, we did not work quite so hard. To be serious, that question comes down to what you do about the cost of the commission at times when it is not so busy.

I have not consulted the commission at all on this; I have done all my own research. It has reduced its costs by 23% since the onset of the crisis. I have no doubt that there are ways in which the costs of the commission, if it really does not have so much work, could be reduced further. It has a board and it tends to have more deputy chairmen than it did in my day, and they are rather better paid than we were in my day, even if you go into real terms. Therefore, there are ways in which the cost could be flexed by both the OFT and the Competition Commission. It does not necessarily follow that putting them under one roof and cutting some back-office expenses—and I do not remember that we had much of a back office in the monopolies commission—will do the trick. So I am not persuaded that the opportunity to reduce the cost of the Competition Commission from £17.7 million net to something else is adequate to match the risk being taken if this regime falls to pieces.

Clause 20 agreed.

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Moved by

[Viscount Eccles]

24A: Schedule 4, page 87, line 22, leave out sub-paragraph (iii)

[Viscount Eccles]

My Lords, this is another attempt to be reassured and comforted. There has been a lot of talk about the continuity of the practice that has been followed by the combination of the OFT and the Competition Commission. It has been described as phase 1 and phase 2. Although these are not in the Bill, and I suspect that they will not find their way into it, there is no doubt that the duty to continue to see whether something should be referred is there, as is the duty to investigate the reference.

The first phase is investigative and the second is quasi-judicial, as has been mentioned by the noble Lord, Lord Stevenson. However, it is proposed that this should be done under one management, and that creates problems. It is not completely dissimilar to our arguments about clearing banking and investment banking. There is on occasion a need for a Chinese wall, but that is difficult if everyone is in one building. I should like to understand more clearly how we are going to keep that feature of the regime in such a way that the new regime is not challenged—or not constantly challenged.

We have a powerful legal profession in the UK. I am now thinking about business and the ease with which it is apparently being reassured that everything will go much more sweetly. We had some very bright QCs in front of the monopolies commission in my day. They were paid to represent the interests of their clients and they were very good at it. Therefore, I think that the Bill is in danger of knocking down a Chinese wall.

I know that my noble friend has already made some references to what I think he is going to tell me are the safeguards. There will not be the contamination of bias and there will not be conflicts of interest, but I am not at all certain about that and I need to be much more reassured than I am at present.

The effect of these two amendments would be to make a start in separating the board from the panel and not having an overlap between the two. They are perhaps just an effort to put one or two bricks in the bottom of the Chinese wall. I beg to move.

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[Viscount Younger of Leckie]

My Lords, these amendments affect the provisions that provide for a partial overlap of the CMA board, which is responsible for the CMA overall and phase 1 decisions in mergers and markets in particular, and the CMA panel, whose members are responsible for phase 2 decisions in mergers and markets and regulatory appeals. The governance and decision-making arrangements in Schedule 4 are designed to establish a single, coherent competition authority while retaining the separation of decision-making between phase 1 and phase 2; in particular, merger and markets cases.

Paragraph 1 of Schedule 4 provides that at least one person be appointed to both the board and the panel. In the Government’s response to the competition reform consultation, we said that we intend to appoint two or three such people to the board and the panel. The membership provisions being debated here are designed to ensure that the board includes members with experience of the phase 2 processes, and so to address any reluctance of the board to have a matter referred to a group of independent panellists whose decisions are, under paragraph 49, to be taken independently of it and over which it will have no direct control. Ensuring that there is a steady flow of appropriate market investigation is one of the key intended benefits of the creation of the CMA, so the provisions will play an important role.

I believe that the provisions in the amendment in the name of the noble Baroness, Lady Hayter, will undermine the separation of decision-making by allowing board members to take phase 2 decisions. I assure her that the Government would also be concerned about the risks resulting from some of the same people involved in a decision to make a referral also being involved in final decisions at phase 2. It is for this reason that paragraph 33 prevents this from happening.

Paragraph 33 works prospectively, so that where the board will be considering whether a matter should be referred to the chair of the CMA for the constitution of a group of panellists who will be responsible for a phase 2 inquiry, the chair must first determine whether a member of the board might be expected to be appointed to a resulting group. In these circumstances, the person so identified must not participate in the board’s consideration of the referral.

Finally, because the Government intend to appoint two or three people who will be board members and panellists, even where one board member is excluded from considering a referral, other panellists—who will not be involved in the group taking on an inquiry if the matter is referred—will still be able to participate in the board discussion. This provision therefore protects independence of decision-making, while also ensuring that the board includes members with responsibilities across the CMA’s range of functions, and is therefore able to act, at a strategic level, as a coherent body. I therefore ask my noble friend to withdraw his amendment.

[Viscount Eccles]

My Lords, I am afraid that I am not comforted by that description, least of all by the even flow of work. If that is going to be continually put forward as a serious reason for the structure we are going into, it is very regrettable.

All businesses have to be prepared to flex, to take on more work at some times and less at others. If things are still as they were, quite a lot of the staff of the Competition Commission are seconded; they can be taken back; there is the possibility of bringing in consultancy advice, or not bringing it in; there is a very considerable ability within the present system to flex the resources. If we are going to be told that this even flow is very important, we need to have something in support of the regulatory impact assessment as to how much money we are actually going to save.

We have dismissed the Public Bodies Act, which was about reducing the number of quangos when we could and saving money. That is where this thing started from—we should not forget that. All the rest of it has been tagged on, no doubt as a result of long-term planning inside BIS, which may indeed have seen the Public Bodies Bill as quite an interesting challenge—“Let us see what we can put forward”.

So I am not comforted, but it gets worse than that. I do not want to go through the whole string; I have drafted a series of amendments to try to reassure myself that it is possible to build a Chinese wall. I have not put them down yet and I am not going to talk about them today, but I am going to talk about the panel. It is becoming a technocratic panel under this Bill. It has 11 members; I expect that there may well be more. The composition of this panel and the way in which its prospective members are appointed is very different from the way in which panels have been appointed to the Competition Commission in the past.

This panel has no one in charge—it cannot have anyone in charge. As my noble friend has said, it cannot have the chairman of the CMA in charge because that would knock down the Chinese wall. So who is in charge? No one is in charge. If there was an away day for the panel, who would sit in the chair, for example, if it wanted to discuss how it is to operate as a Competition and Markets Authority group? The panel does not set any rules for that; the rules are set by the CMA. It does not have any staff, so how does it know that it will get the people that it wants?

I remember very well someone who was absolutely gripped by cost-benefit analyses and, when I was looking at a proposed merger between a Canadian whisky company and a Scottish whisky company, I said, “For goodness’ sake, do not send me that cost-benefit analysis”. He was a splendid fellow, but not on this merger inquiry. The way this is structured there will be no one on the panel who will be in a position to behave like that. The panel will have no management authority and no executive responsibility; those will be delivered to it by the CMA.

It may be that noble Lords are glad that I am not a lawyer representing someone coming in front of one of these panels, but I assure the Committee that I could make a seamless argument which said, “This panel is not independent”. At least I would get an adjournment, which would upset my noble friend Lord Razzall because the thing would take longer.

For now, I shall withdraw my amendment, as the Committee would expect. However, I shall revert to the subject and there are other amendments in front of the Committee that offer the opportunity to discuss these matters. At the moment, this phase 1/phase 2 is completely unconvincing. I beg leave to withdraw the amendment.

Amendment 24A withdrawn.

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Debate on whether Clause 21 should stand part of the Bill.

[Viscount Eccles]

My Lords, this is a draconian clause. It follows a scheme of the Public Bodies Act in abolishing the Competition Commission and the Office of Fair Trading. It is not an even-handed abolition, because, as I have argued previously, the Office of Fair Trading really continues. It is changing its name to the Competition and Markets Authority, but it is in effect the OFT. I asked about Part 4 and did not get an answer to it. I asked why the Government had made the choice of creating a new body as opposed to continuing with the OFT, and did not get an answer to that either.

At the moment, I am yet to be convinced that these dramatic changes to the structure of the competition regime are justified. That needs to be seen against a background in which the annual cost of the OFT is somewhat over £70 million and the cost of the Competition Commission is somewhat over £15 million. So in the actual money figures, it is 80% the OFT and 20% the Competition Commission. I cannot accept that any argument has been made about money. It is not really claimed in the impact assessment—“ultimately” is the word that is used. I simply do not see that this is an important consideration in the change in structure, and I am conscious of the need to restrain public expenditure. It is said in several places in the Bill that all that this provision is intended to do is to make it somewhat more straightforward for the two organisations to reduce their costs in line with the existing government public spending targets.

We are left with a situation whereby the OFT is taking over the Competition Commission. The commission is disappearing as an executive body and will have no management role—it will not manage itself. It is being turned into panel of mostly, if not all, part-time members—we have not been told—who are part of the Office of Fair Trading. The risk that this will go wrong greatly outweighs any benefits. We have already talked about the need to do things in a more timely fashion. How could I disagree with that? I remember carrying out investigations and coming up with an answer pretty quickly, and it can of course be done under the existing regime. There is nothing wrong with the law.

The money and the timeliness have gone. What else is left? Something is said about the duplication of the provision of information but, unfortunately, I do not see how that holds because if you make a reference, surely the people who will come to some form of judicial judgment have to start from a zero base. They simply cannot rely on what has been done before. Of course they will gather as much information as they can, but that will not stop them needing to obtain self-standing information of their own, in order to come to a semi-judicial decision.

I ask my noble friend: has the department taken legal advice? Has it been to the Attorney-General? The risk that this regime will be challenged is real. I am not just making it up. I cannot see where the benefits outweigh the risk. It seems to me that the risk outweighs the benefits by many times in terms of both time and money. I urge my noble friend to go back and give this another thought because, quite honestly, the game is not worth the candle, the risk is far too great, and the benefits do not exist—and if they do, I have not been told about them. I cannot even imagine what they will be when I am told about them, but I should like to hear them.

I remain unconvinced, as my noble friend Lord Razzall, who is no longer in his place, said. I conclude by saying that I am not in any way casting the smallest of aspersions on the noble Lord, Lord Currie of Marylebone. How could I do that? I was born in the borough of Marylebone. What he has done was done in good faith—being taken on as chairman-designate of something that, at the moment, I believe to be a greatly mistaken structure.

[Baroness Oppenheim-Barnes]

My Lords, the Committee will be delighted to hear that because I have already made a number of points regarding Clause 20, which obviously related to Clause 21 also, I will not repeat them. However, I must continue to express the concern that was not answered, although I made the point, about the period of hiatus between enactment and the appointment of the new board. None of that can take place. I do not know what the housekeeping requirements are regarding new buildings or offices, but the fact remains that it will be a very damaging hiatus. In particular, as I mentioned at the time, is the effect that the Bill will have on the Consumer Credit Act. Appeals that are brought under the Consumer Credit Act will be in some sort of abeyance. Nothing will happen until the new legislation is enacted and all parts of the various appointments to the two bodies that we have been discussing this afternoon have been made. A lot of concern has been expressed by those in the financial sector about this and we deserve some sort of answer at this stage.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

I shall try to resist temptation. As to spectacles, of course it was the consumers who most wanted opticians not to be regulated. It has benefited us all because we have been able to buy much cheaper glasses than we used to.

I would like to ask the Minister, in the complete secrecy of this room, with only a few Hansard writers and television watchers present, that if his Government had not wanted a bonfire of the quangos, would this merger ever have gone ahead? Was it just another number in the bonfire of the quangos or did BIS always want this?

[Viscount Eccles]

Before the Minister replies, I would like to thank the noble Baroness for her comment. There may well be another, very general, explanation. I have worked in the public sector in a number of different bodies. I once received a letter saying that the Minister understood that I did not wish to be reappointed to this body because I was too busy—it was a Department of Trade and Industry body—but that was not the reason. The reason was that I had attended a meeting and voted against a grant to a company because I thought it was not a sound company. However, the grant was passed and paid out and the business went bust. I was too clever because I had got it right and so I had to be removed.

There are few of us here but this important general explanation will be reported in Hansard. There is a strong wish in departments—this is a general comment—to reduce the independence of public bodies, to centralise their activities and to get them back as close to the Ministry as they can. The Competition Commission has been an independent body for 60-something years, so how did it get into the Public Bodies Act that these two organisations would be merged? It cannot have got in as a result of the Cabinet Office saying, “Have you got any good ideas?” There must have been somewhere in the purlieus of BIS a document saying, “Would it not be a good idea to reform the competition regime?”

I believe that this merger has not ever been given the proper consideration by the Government that it needs to assess the risk in what is proposed, and to offset that risk against the apparently negligible benefits.

[Baroness Oppenheim-Barnes]

To add to what my noble friend has said—we are fortunate to have him here today—I would like to know whether the Bill ever went through Cabinet. I find it difficult to believe that some of these points would not have been raised at that time, and properly so.

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[Viscount Younger of Leckie]

My Lords, the CMA will be equipped with a wide range of tools to remedy anti-competitive practices and to promote effective competition in markets across the UK economy. It has been somewhat of a challenge today to answer the questions raised by my noble friend Lord Eccles, but I am prepared to have another go.

At the beginning and at the end of the day, my noble friend raised the question: why reform the current institutional structure; why make the change? I reiterate that bringing the Competition Commission and the competition functions of the Office of Fair Trading together in a single body provides the opportunity for greater coherence in competition policy and practice, a more streamlined approach to decision making, a stronger oversight of the end-to-end case management process, as I mentioned earlier, more flexibility in resource utilisation and better incentives to use anti-trust and markets tools to deal efficiently with competition problems.

Furthermore, it provides a single powerful advocate to speak for competition across the economy in Europe and globally. While it is not a central driver for the creation of the new CMA, there will be scope for some long-term savings, in particular in corporate governance, back-office functions and accommodation costs. I reiterate that this process is not solely about saving on costs. Some costs will be saved, and it is fully expected that some synergies will be made, but a vast number of skills will be transferred over to the new CMA. I hope that that helps somewhat to allay my noble friend’s fears.

My noble friend Lady Oppenheim-Barnes also raised some questions about the fundamental concept of setting up the CMA. Ministers consider competitive markets to be vital to the economy. That has been said many times in recent weeks and months. BIS Ministers have consistently made it clear that the main purpose of the exercise is to strengthen the competition regime and to support growth rather than to cut costs. The new CMA will be sufficiently resourced to deliver its functions but will not be immune from wider pressures to help deal with the UK’s massive deficit. Savings delivered by the creation of the CMA will mainly be from streamlining, which I mentioned earlier, and eliminating overlaps between phase 1 and phase 2 of investigations. These savings will help to deliver the Government’s existing spending review targets.

The Government are committed to ensuring a smooth transition process and will work closely with the OFT and the Competition Commission to minimise disruption to the organisations while they continue to carry out their important roles and services. I wish to reassure the noble Baroness, Lady Hayter, that this whole process was looked at most carefully in Cabinet.

In response to a question raised by my noble friend Lady Oppenheim-Barnes on the transition, as we are aware, the Government have appointed the noble Lord, Lord Currie of Marylebone, as chair designate of the new CMA and is in the process of recruiting the chief executive designate. Together they will lead the transition to the new CMA. During our Second Reading debate, the noble Lord, Lord Currie, said that in addition to creating a high-performance organisation he was committed, in transition terms, to ensuring,

“that the casework of both the Office of Fair Trading and the Competition Commission continues unimpeded and that the transition of work in progress to the new authority is entirely seamless”.

He assured noble Lords:

“We will safeguard business as usual.’—[Official Report, 14/11/12; col. 1561.]

Finally, I shall answer a question raised by my noble friend Lord Deben about what will happen to the Financial Services and Markets Act in relation to the OFT oversight of the regulatory regime, if I read him correctly. Consideration of competition must be a central feature of the new financial services regulatory regime so we will therefore retain a regime for scrutiny of the regulation of financial services by the CMA. This will apply to both the Financial Conduct Authority and the Prudential Regulation Authority.

Clause 21 and Schedules 5 and 6 provide for the transfer of relevant tools and functions of the OFT and the functions of the Competition Commission to the CMA. The new authority will operate the anti-trust mergers and markets regimes and will determine regulatory appeals and references made to it in the major regulated sectors. It will carry out various ancillary competition scrutiny functions and provide businesses with advice and guidance to help them to understand and comply with competition law. Schedule 5 also provides that certain functions under the Enterprise Act, in particular phase 2 of the mergers and markets processes, will be the responsibility of groups of independent panellists. I commend Clause 21 to the Committee.

[Viscount Eccles]

Before my noble friend sits down, could I ask that my questions that have not been answered are dealt with in writing? I would appreciate that. As far as I am concerned, this is definitely not the end of the matter. I will review my very real worries about what is being done here and no doubt come back to them at the next stage of the Bill.

[Viscount Younger of Leckie]

I did not necessarily expect to answer all my noble friend’s questions. However, I have attempted to address on many occasions the question that he has put in terms of the fundamentals of setting up the CMA. I hoped that I had answered him. Clearly I have not and I will certainly write to my noble friend to address the questions that he feels are unanswered.

[Viscount Eccles]

For the last time, the fundamental question is: are the Government sure that the supposed benefits outweigh the risks? We have not really coped with that at all today. There is a real risk. When the thing is not broken, why try to mend it? The competition regime has been very good over many years. In my opinion, the Government are taking a quite unjustifiable risk of running that regime into a brick wall. That is the question and that is why I am not satisfied that the Government have really thought this through if they cannot tell me that they have taken proper legal advice about the risk they are running. For a very long time, the whole of business and industry has understood that this was done in two places. There was a reference from here and an investigation and determination over there. Change that and—believe you me—a lot of people, when they find out that that is what has happened, are not going to like it. If their lawyers come with them, there could be real trouble. I feel very strongly that the matter of risk needs to be dealt with. It is not a matter of efficiency or effectiveness—you can imagine all sorts of efficiencies, effectiveness and even economies—but a matter of risk.

Clause 21 agreed.