Local Government Pension Scheme

Edward Leigh Excerpts

Monday 24th October 2016 Westminster Hall

[Sir Alan Meale (Mansfield) (Lab)]

First, I congratulate the hon. Gentleman on the fine way in which he has approached this important debate and got it going. This is an important question. In the 1960s, an ex-Prime Minister, Harold Wilson, forced through a report on the financial institutions, which revealed that over 70%—I think it was 74% at the time—of the FT share index was owned by pension funds. That shows how important this issue is.

To go back to the hon. Gentleman’s earlier point, there is a question about the value of gilts and bonds. I do not think it is just about that—it is also about the violation of the rights of individual pension-holders. The Government pay the money over in the first place, then take it back and say, “We’ll allow you to have this, but only if we decide how it’s spent”. That has got to be stopped.

[Sir Edward Leigh (in the Chair)]

Order. We are having a lot of interventions. This is a three-hour debate, so if people want to make long interventions, I would love to hear them give a speech instead. There is no need for long interventions, Sir Alan.

[Ian Blackford]

Thank you, Sir Edward. Again, I find myself in agreement with the hon. Member for Mansfield (Sir Alan Meale), because, as I mentioned, the funds belong to the scheme-owners—those who are working in local authorities that are engaged in that way. It rather ill behoves the Government to seek to interfere in the governance of the funds if they are acting in the best interests of their members—that is the test. That is why it is important for the Government listen to the debate, reflect and perhaps come back with some new thinking.

The whole infrastructure issue is important. I think we all recognise that we have to build capacity in our economies. We have all heard the debate about being left behind. It is absolutely necessary that local authority pension funds in the north of England, the midlands and my own country of Scotland play their part. Each local authority area must make its own determination as to what is right and invest in local schemes—social housing, perhaps—for the benefit of the community. At the same time, they should invest for the benefit of the pension schemes. It is about democratic accountability and investment opportunities. It should not be too complicated.

I urge the Government carefully to consider what has been done in Ontario and Quebec. They have been able to build consensus because they have not had the same compulsion and the Government in Canada cannot use the big stick against local authorities.

I commend the Library on a first-class briefing. On the legal framework, it states:

“Although the rules are set nationally by the Secretary of State,”

the scheme

“is administered at local level by ‘administering authorities’, which broadly correspond to county councils and London Boroughs. These administering authorities are responsible for managing scheme investments, within the statutory framework. The Local Government Association (LGA) explains that this means decisions are ‘taken by democratically elected local councillors working within the restraints of local authority budgets.’”

That local democratic accountability, which many right hon. and hon. Members have mentioned, is the nub of the matter.

The briefing continues:

“When making decisions on investment, the primary responsibilities of administering authorities are to deliver the returns needed to pay scheme members’ pensions, and to protect local taxpayers and employers from high pension costs. In this context, there have been questions about the extent to which investments can be made with other objectives in mind – for example, a desire to invest in infrastructure or avoid certain investments on ethical grounds. Legal advice published by the LGA in April 2014 said that the power of investment must be exercised for investment purposes and not for wider purposes. However, as long as this remained true, the precise choice of investment could be influenced by wider considerations.”

The briefing also states that the Department for Communities and Local Government has been considering how to “achieve economies of scale” and, as has been mentioned, pooling can lead to reduced costs and enhanced returns. The principle is fine and is to be lauded. However, it has become clear that the Government are going to use the stick approach as well as that of the carrot. If subtle inducement does not work, the Government could intervene by directing local authorities to invest in a certain way or by the Secretary of State exercising control. If we are to support local democracy throughout the United Kingdom, that cannot be right, and I can understand why local authorities might be alarmed.

--- Later in debate ---

[Sir Edward Leigh (in the Chair)]

Order. This is a very interesting debate on local government pensions and I know that Mr Blackford, who is a consummate parliamentary performer, will want to get straight back to the point, and away from Mr Maxwell, won’t he?

[Ian Blackford]

I am grateful for that advice, Sir Edward, and will move on. I was trying to put across the point that, regarding the Government interfering in local government pension schemes, their track record on pensions is not something I would see as commendable.

Unison has argued that investment decisions should be made by their funds and their members. I agree. Let us remember that the pension funds we are talking about are members’ funds. The Local Government Association has also said that there is even the risk of the regulations and the Secretary of State infringing European law on Government intervention in pension fund investment—a point that was made earlier. I find myself, not for the first time, on the side of European law and against the Government.

The Local Government Association has welcomed some of the changes, stating:

“Under the previous LGPS investment regulations there were express limits and thresholds on the assets that LGPS funds could invest in. The new framework moves the LPGS to a ‘prudent person’ approach as exists in the private sector. Under this approach outright limits and thresholds are replaced with a system that gives LGPS administrating authorities more flexibility and requires them to have their own policies on asset allocation, risk and diversification.”

I do not think anyone here would object to that but, having given local authorities that clear mandate, we need to see them investing under the conditions set for them and in the best interests of the members, without interference from Government.

On the Government reforms, the Pensions and Lifetime Savings Association states:

“We agree with the Governments proposals for pooling and the need to ensure that fund are committed to delivering these pools. However, there is a risk that such broad powers, combined with the lack of an explicit fiduciary duty, could ultimately be used by a future government to direct what funds invest in, with limited regard on the impact to the payment of members benefits and the costs to employers and members.”

--- Later in debate ---

[Mr Jones]

I would like to reassure the hon. Lady that the changes are in no way intended to diminish the role of individual pension funds or the people who represent members. [Interruption.] She is commenting from a sedentary position, but we will have to agree to disagree on that point, bearing in mind what I have said previously.

[Sir Edward Leigh (in the Chair)]

Apparently, you can wind up, Mr Blackford. We would not want to miss your dulcet tones.