Economic Activity of Public Bodies (Overseas Matters) Bill

Baroness Altmann Excerpts

Committee stage
Tuesday 14th May 2024 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

My Lords, I support Amendment 27. The Bill has effects that were not thought of in advance. Local government pension schemes and their administrators have one thought in mind, which is to protect the financial interests of the pensioners and of the funds, and this amendment just clarifies the financial aspects of that. The administrators should not be involved in any international political situation, but be there to look after the funds of the pensioners. Amendment 27 does exactly that in clarifying, which is all it is doing, what this aspect of the Bill does. Therefore, I support it from these Benches.

[Baroness Altmann (Con)]

My Lords, I rise briefly to congratulate the noble Baroness, Lady Drake, on her amendment and the others in the group. I understand where they are coming from, but it seems to me that the Government’s argument that this issue is already encompassed in “financial impact” holds some sway. There are concerns that I understand, but I am not sure they are necessary. Indeed, sight should not be lost of the fact that all local government pension schemes are ultimately underwritten by the Government and taxpayers. If the stewardship of these assets were swayed by issues which the Government themselves might not be comfortable with, there are powerful reasons why that stewardship should not be swayed by the kind of considerations that the Bill seeks to ensure does not happen.

Political or moral disapproval is not the same as environmental, social and governance issues. If a board of trustees decided to boycott an investment because of the country in which it is located, based on judgments of that country which do not accord with the views of the elected Government, the duties incumbent on the Government in accordance with this Bill would be at risk. That someone might take legal action against trustees who decide that they do not wish to make certain investments because they make a political or moral judgment that is not in accordance with that of the elected Government could equally be argued the other way. Trustees, certainly local government trustees, should not be taking these decisions.

I believe that was the manifesto commitment. Private pension schemes are not part of government and therefore that is a different decision, but local authority pension assets are ultimately underwritten by government so, should there be concerns about material financial risk and impact, they ultimately rest on the Government’s underpinning them anyway. Given that, as my noble friend said, “financial value” already encompasses these issues, I am relaxed about the current wording of the Bill. I hope that noble Lords across the Committee, especially those who have worked so hard on pension issues and with whom I normally fully agree, will not be too uncomfortable with the explanations that I am trying to put forward for not using pension assets as a disguised tool for political or moral judgments in the way that could happen and which this Bill seeks to deter.

[Baroness Janke (LD)]

My Lords, I support the amendments in this group and will speak to Amendment 45, which I have signed. This amendment would remove “management” from the definition of a fund investment decision, allowing investors to carry out stewardship activities, including engagement and voting, without falling foul of the prohibition and enabling vexatious legal challenges.

Clause 12, on application of prohibitions, applies Clause 1 prohibitions to the LGPS. It includes acquisition, retention, management or disposal of assets in its definition of fund investment decision. However, advice from the LGPS identifies “management” as pension scheme stewardship—engagement with or seeking to influence the companies and sometimes Governments in which it invests and voting at annual general meetings. Without this amendment, local authorities would be open to legal challenge for statements made during engagement with the companies in which they invest or to votes against them at AGMs, should interested parties wish to argue that these were influenced by political or moral disapproval of a foreign state.

I hear the arguments put forward by the noble Baroness, Lady Altmann, but the breadth of the Bill means that there is an opportunity for interested parties to use the moral and political disapproval of a foreign state as a way of challenging decisions that they do not agree with. The concern is that many will choose to take that view—and the Bill allows them so to do—on risks, for example, connected with a company’s purchases from a certain market, such as the use of forced labour in China, or investment in fossil fuels, which are becoming more financially risky. These could all be interpreted as disapproval of a foreign state or moral or political disapproval and thereby attract interested parties to challenge via judicial review and the quasi-judicial review process introduced in Clause 5.

Furthermore, foreign Governments have large stakes in listed companies, so concerns about any aspects of those companies could be litigated on the basis that they were influenced by disapproval of a significant fellow investor. With such a threat of litigation, it is easy to see how advice and full and frank discussion of decisions could be severely restricted. Having been a member of a local government pension scheme, I understand the need for advisers to be able to give frank advice without fearing that their words may be used later in legal action.

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[Lord Davies of Brixton (Lab)]

I have made no secret that this is a bad Bill that is badly drafted, and I spoke against it at Second Reading. In this debate, my suggestion that we should not agree Clause 12 is narrowly focused.

Local government pension schemes should be treated in exactly the same way as every other funded occupational pension scheme—the point made by my noble friend Lady Blackstone. I agree totally with the amendments tabled by my noble friends, and I certainly support their proposals, but my question is: do we need separate legislation to cover the local government pension schemes? My strong view is that we do not; the schemes should all be treated the same. They should come under the same rules as the fiduciary duties on trustees or committees —whoever is responsible for taking the decisions—and they should be the same across the board.

I tabled my clause stand part notice just to ask what the effect would be of not having this provision. Would it mean that I achieve my objective and that, should the provision be removed from the Bill, the local government pension schemes would be treated like other pension schemes? I suspect not. I suspect that I would need a more detailed amendment that would place local government pension schemes under the same responsibilities and law as occupational pension schemes more generally. That is my objective, and I hope that we can have this debate again on Report so that all pension schemes are treated the same.

I listened carefully to the remarks from the noble Baroness, Lady Altmann, but I think her argument fails. First, there are private employers whose employees are within the local government pension scheme. Equally, there are public bodies whose pension schemes are not covered by this legislation, most obviously the universities superannuation scheme. So the division between the sheep and the goats in this respect is arbitrary. There is no consistency about—

[Baroness Altmann (Con)]

The noble Lord and I usually agree on so many pension issues—in fact, almost all of them. However, would he not agree that the fundamental difference between the local authority pension schemes and private schemes, or indeed the universities super- annuation scheme, is that the local authority pension schemes do not belong to the Pension Protection Fund and do not pay levies to it, and are therefore effectively underwritten by central government, not by local government? If a council goes bust, it is rather difficult to imagine that the burden of paying the pensions promised to local authority workers would not fall on government itself. That is indeed the reason why these schemes are not part of the Pension Protection Fund, and indeed do not pay any kind of levy. For me, that is a powerful reason—I would be grateful to hear the noble Lord’s view—why there should be a differentiation between those schemes and all other schemes. Typically, there is not, but that misses an important part of this debate.

[Lord Davies of Brixton (Lab)]

I am afraid to say that it is not that simple. Technically, the history is that the funds established by local authorities to pay the pensions of their employees were there to protect the ratepayer rather than the members. That is the history of it, but I think we have moved on from that. Certainly, the members of these schemes believe that the money they have paid is there for their benefit. What would happen if a local government pension fund were unable to pay the benefits that were due is actually an open question. There is no explicit government guarantee for the local government pension scheme.

In addition, under the present provisions of the cost-sharing enforced by the Government on the Local Government Pension Scheme, it is the members who are the residual fund source of any shortfall in money. If there is a shortfall in the Local Government Pension Scheme, the contribution from the local authority is capped; it is the members who will lose out by having to pay higher contributions or seeing their benefits reduced. It is not a simple matter of “The Government will always make things good”. Initially, the members have to make things good. If the members cannot afford it, I suspect that it is right that the Government will step in—but that is not in the rules, so there is a contingent possibility there. So the situation is far less clear-cut than the sheep and goats I identified earlier.

Of course, this all comes about because technically, I think, under present law, the administration of the Local Government Pension Scheme comes under the aegis of a public body or public authority. I am not really sure what the difference is between the different terms under the Bill. But that is not how it is perceived by scheme members. They do not see their pension scheme as being a public authority, and we should respect that. As I say, my central thought is that local government pension schemes should be treated like all other occupational pension schemes.

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[Baroness Altmann (Con)]

What is the noble Lord’s view, given this fundamental difference between local authority pension schemes and all other pension schemes except unfunded ones? They do not belong to the Pension Protection Fund, have no protection in that regard whatever and do not pay a levy to the Pension Protection Fund. Therefore, ultimately does he believe that these would not be and are not in any way underwritten by Government and Parliament? Why would they be excluded?

[Lord Collins of Highbury (Lab)]

My noble friend Lord Davies responded to that point. The reality is that there is nothing explicitly guaranteeing them. The Pension Protection Fund is not that old. I remember companies going bust and shareholders and other people getting the money and workers losing their pensions. You have only to look at Mirror Group Newspapers to see what can happen there. We want a common duty and responsibility. This Bill undermines that. That is the point that my noble friend Lord Davies was making. It is also the point that my noble friend Lady Drake is making. There are common principles. We do not want the creation of uncertainty when trying to implement a manifesto decision. I have repeated my plea to the Minister to sit down with us and work out a better way of implementing this manifesto commitment. This Bill is not doing that job and I have yet to meet a member of the Conservative Party who believes that it does. We need to sort this out.