Ford UK (Duty of Care to Visteon Pensioners)

Hywel Francis Excerpts

Tuesday 4th December 2012 Westminster Hall

[Mike Freer]

The hon. Gentleman makes a good point. A company being transferred away from its parent as a loss maker is, in itself, not the issue, but it is whether the management, on both sides of the spin-off, genuinely believed that the business recovery plan was viable. I shall go on to refer to a comment made by the then chief executive of Visteon about the viability of the business post spin-off. The comment suggests that they knew exactly what they were doing, and that this was simply an exercise of dumping a liability while cleaning up the main Ford balance sheet.

[Dr Hywel Francis (Aberavon) (Lab)]

I congratulate the hon. Gentleman on securing the debate. One key point that was made to me by trade unions at the time, 10 years ago, was that there was no serious engagement with the unions and the work force in new product development. The company was continually reminded of the need to do so, but refused.

[Mike Freer]

The hon. Gentleman makes a very good point, but it is worse than just that there was no engagement. All the evidence suggests that Ford Motor Company was engaged in underhand sourcing of new products from other suppliers at cheaper rates. Indeed, those new suppliers were asked—nay, forced—to sign confidentiality agreements. Therefore, although Ford knew that Visteon was not in a position to develop new products, it was actively sourcing new products from other, cheaper suppliers without telling Visteon or certainly without telling the work force of Visteon. I think that that is duplicitous. Visteon was immediately at a competitive disadvantage compared with other suppliers, not least in relation to securing new business from Ford. Of course, as it was a spin-off, one hope would have been that it would secure new business, but having inherited the overhead of the Ford system, it was unable to do so. As the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) pointed out, Visteon’s trading losses were close to $1 billion before it went into administration in March 2009. It made a loss every single year.

The key issue is this: did Ford know what it was doing? This is where I want to refer to a comment made by Tim Leuliette, the chief executive of Visteon Corporation. He was interviewed by the Detroit Free Press in November 2012. He was asked:

“Did…Visteon…have a chance”

when it was spun off? He said quite clearly:

“No…The labor cost issues, and the burden and the overhead was…so out of line with reality that it was almost comical. It just wasn’t going to work. And it didn’t work.”

If the chief executive of Visteon knew that its business plan could not recover the company, I doubt that Ford did not know that as well.

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[Geraint Davies (Swansea West) (Lab/Co-op)]

I, too, congratulate the hon. Member for Finchley and Golders Green (Mike Freer) on securing the debate. I know that you, Mr Caton, have a great knowledge and awareness of this business because some of your constituents have been directly affected. Against the backcloth of news reports about global companies having to take responsibility for tax, we are here to talk specifically about Ford and its responsibilities to its former workers and employees, whose pension funds have been asset-stripped by what is basically sleight of hand.

As you will know, Mr Caton, the background in a nutshell is that Ford set up Visteon in 2000, seemingly as part of a strategy to reduce input costs and increase profits. By creating an arm’s length company that it had control of in terms of the prices that it was giving that company, it was then able to set up a pension fund that in the first instance was underfunded by some £49 million. It controlled and pressed down the prices paid to Visteon, with the net outcome that Visteon made losses in each of the 10 years of its existence, in the order of $100 million a year. The net outcome of that was that the pension fund was further suppressed, and pensioners and workers who spent decades working for Ford in good faith now find themselves short-changed.

I am glad to be accompanied by hon. Members from both sides of the House in calling on Ford to do the right thing, as part of a wider debate to bring global companies to account where they employ people and make profits, so that they provide decent products and are also decent to their work force.

[Dr Francis]

On the point that there is broad cross-party support in relation to this issue, will my hon. Friend join me in congratulating the all-party group that was set up several years ago to ensure justice for Visteon pensioners and in congratulating our hon. Friend the Member for Swansea East (Mrs James) on the sterling work that she undertook in the early stages? I also thank him for the work that he has done, because although the Visteon plant is located in my constituency, the vast majority of the workers or former employees are located in Swansea. I have constituents from Baglan, Briton Ferry, Skewen and Cwmafan, but the vast majority are in his constituency and hers.

[Geraint Davies]

I am glad to have had that intervention. It is very important to remember that this issue has been bubbling for 10 years. My hon. Friend the Member for Swansea East (Mrs James) has done an enormous amount of work, and obviously my hon. Friend the Member for Aberavon (Dr Francis), who has just intervened, had the original factory in his backyard. As this situation has gone on so long, Ford may be under the misapprehension that the issue will go away. It has been mentioned that some of the pensioners may in fact die and nobody will take much notice of it. However, what we see here, on the foundation of the work that has been done in the past, is the coming together of a new all-party group. I pay my respects to the previous all-party group for keeping the issue moving, but we now have a new sense of energy.

The significance of this debate, of course, is that it will put it not just on the UK airwaves but on the US airwaves that Ford is not just a whiter-than-white company. It needs to take responsibility for its employees around the world, not least the British cousins of the US workers, who have worked so hard for Ford throughout their lives in good faith and now feel that they have been shoddily treated. We all know that the matter will be carefully argued in court by very rich lawyers, but what we are saying here, and what the Ford directorship in the US needs to understand, is that a cross-party group of parliamentarians in Britain will focus on it and keep it on the agenda, and ultimately that will have an impact on the brand values that Ford relies on for its profitability. We are saying not only that this is a moral obligation, but that Ford must financially do the right thing; otherwise, it will pay the price one way or another.

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[The Minister of State, Department for Work and Pensions (Steve Webb)]

It is a pleasure to take part in this debate, and I congratulate the hon. Member for Finchley and Golders Green (Mike Freer) on securing it. It is clear that hon. Members from throughout the House were keen for the subject to be debated. This occasion is Parliament at its best, with hon. Members from all parts of the country and both sides of the House standing up for their constituents, who have clearly had a raw deal. That is what we are sent here to do, and I congratulate all hon. Members who have taken part, and the all-party group on Visteon pensioners, which I have been aware of, together with the Visteon pension action group. The action group’s members have been known to stand outside pension conferences, but the first time I attended one fortunately no one knew who I was, so I got in okay. I met members in July and they told me their personal stories and explained some of the detail of the case, some of which we have heard today.

I am constrained in what I can say with a court case pending. I understand that next week, on 12 December, a judge will rule on whether a group litigation order can be made, and I should not say anything to prejudice the continuing proceedings to the detriment of those bringing the claims; but as a personal observation I think any reasonable person who has heard our proceedings today would feel that the Ford Motor Company has some serious questions to answer.

I want to comment on two relevant organisations for which I have ministerial responsibility—the Pensions Regulator and the Pension Protection Fund—and their role in relation to the Visteon pensioners. As the House will know, the powers of the Pensions Regulator came into force in 2004. One of the problems in the present case is that the spinning-off of Visteon happened in 2000. Several hon. Members have said in the debate that, after meetings, they inferred what the regulator might have done had it been in existence at that time, but unfortunately the regulator’s powers cannot be applied retrospectively. Although the Pensions Regulator does indeed have powers to take action where employers have acted to avoid supporting a pension scheme—whether UK or overseas-based—the salient events in the Visteon case happened before the regulator was established.

When Visteon went to the wall in 2009 the regulator immediately launched a thorough and meticulous investigation, taking about two years, to see whether anything could be done. The possibility of using anti-avoidance powers against Visteon group entities and/or Ford was examined. Those are, specifically, financial support directions and contribution notices. However, the key question was whether the legal tests in the Pensions Act 2004 with respect to securing additional funds and financial support for the scheme were met. Unfortunately they were not, principally because the key material actions took place before the regulator had its powers, and also because of the way Visteon was set up independently—in a technical, legal sense—of Ford. I have heard the descriptions in the debate of how close the relationship was in practice, but clearly Visteon was set up so as to be sufficiently arm’s length from Ford to make it difficult or impossible for the regulator’s powers to be used. It is right and proper that the regulator considered the matter long and hard and was not constrained by the fact that the parent company was not UK-based, but in the end there appeared not to be a legal power to enable it to take action.

What, then, is the position of the Visteon pensioners on becoming part of the Pension Protection Fund? I understand that when the scheme was wound up the deficit was £355 million—obviously that had grown substantially over the years—and that as at February 2012 there were just over 1,500 pensioner members of the Visteon scheme in the PPF and just over 1,000 deferred members. The hon. Member for South Basildon and East Thurrock (Stephen Metcalfe), who I know has taken a leading role in the matter, mentioned the issues that had arisen about contacting some deferred scheme members. The Department operates a pensions tracing service to try to track people down. We cover our costs for doing it, but if we can assist we shall be happy to do that.

What will Visteon scheme members get out of the Pension Protection Fund? I want to make a slight correction to the impression that might have been given that someone in the PPF can lose half their pension. The vast majority of people in the PPF will not experience anything like that, although I shall say a bit in a moment about those who potentially would lose half their pension. I want to give some figures that I am not sure have previously been in the public domain: as at March 2011, of the pensioners who are not getting 100% of the pension they would have got, about 530 get between 90% and 100%; 665 get between 80% and 90%; 30 get between 70% and 80%; 15 get between 60% and 70%; and fewer than 10 get less than 60%.

Frankly, it is wrong, and a problem, if anyone does not get their pension. I do not diminish that fact. However, I stress that the Pension Protection Fund is a significant source of provision for those whose companies have gone into liquidation. The headline figures that the fund provides are 100% and 90%. In principle someone would get 100% as a pensioner, and 90% as a deferred member; but that is 100% of a fairly standardised set of entitlements. Rather than mirror the exact scheme rules, which would be incredibly complicated because of the number of pension schemes going into the PPF, the fund has a standard set of pension scheme rules. One, in particular, which is probably to the detriment of some Visteon pensioners, is to pay indexation on a statutory basis—that is in respect of service after 1997. Where a pension scheme had indexation for pre-1997 service it is not indexed under the PPF. That is how even people who are “100%” or “90%” pensioners can find over time that they get less indexation than they would have, and their pension progressively becomes somewhat less than it would have been.

At the meeting that I had with Visteon pensioners in my office, in July, we discussed the issue of people whose pension falls far short of what it would have been. As I said, as at March 2011, 55 people were getting less than 80%. Our latest estimate is that about 75 people are affected by the cap in the Pension Protection Fund. I know that that is a matter of concern to the action group. The Pension Protection Fund cap was introduced under the previous Government. The view was taken that the scheme was essentially an insurance scheme and there should be a cap, just as with a bank account—the figure used to be £50,000 but it may be higher now—so that the bulk of what people had would be covered by compensation, but there was a limit and very large amounts would not be covered.

Parliament took the view that there should be such a cap so that the largest pensions would not be paid in full. I think that the thinking at the time was partly to do with what was called moral hazard. The idea was that people at the top of the company would not have an incentive to take it to the wall and then go to the PPF and find that their very large pensions were covered anyway. It was a sort of anti-moral hazard provision. However, there are of course two sorts of people who would get large pensions from the PPF. One sort is what one might loosely call fat cats: people who had very high earnings but not necessarily long service. They might be people who knew that the company was going to the wall—not in the case before us today, necessarily, but in general—so some moral hazard provision might make sense.

The other sort of people, however—this is relevant to the Visteon workers—have a relatively large pension because they worked for the company all their life. The hon. Member for South Basildon and East Thurrock mentioned someone who had worked for Ford for 30 years, and then a few months for Visteon, who suddenly found their pension substantially cut.

A number of hon. Members have come to see me about the Pension Protection Fund cap, in relation to Visteon and other cases. It is the early-retired workers, or the people who have not reached scheme pension age but are drawing their pensions, for whom the cap bites, and the bite comes not just from the cap itself but from the actuarial reduction in it. People have described it as a double cap, and because of the further complication with lump sums, Visteon pensioners have even called it a triple cap.

Over the two and a half years that I have been in my current role, I have become increasingly concerned that the cap for those who have not reached scheme pension age acts in a penal way, and not on the people it was intended to affect—the fat cats who might have had a moral hazard issue—but on long-serving workers. Although we might think about capping those who had only a short time in the scheme and earned a huge pension because they had had the rest of their life to have built up other pension rights, it is much harder to justify a cap for people who have worked all their life for one firm, made their financial plans on the basis of the pension and have nowhere to top it up from. For some people who have taken early retirement, it is not simply the fact that they have planned on that basis. Instead, they are receiving the pension when the cap comes in and the pension in payment falls substantially. That can have a knock-on effect on survivors’ rights, with someone thinking that they have provided for a widow in the event of their death only to find that the survivor’s pension is reduced as well, which can come as a jolt.

I have asked my officials to look at options for reforming the PPF cap, and one possibility is for the cap to vary with length of service. For example, there would be a floor cap and then one that increased according to how long the person had been in the scheme. I think that that would be a fairer system, and we are evaluating how it would work in practice.

One issue, as the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said, is that any increase to PPF benefits is paid for by someone, through the levies on the other schemes that still have defined-benefit liabilities. We cannot simply jack up PPF benefits without considering the impact, but because we are talking about relatively small numbers of people I suspect that the impact on the levy would be relatively modest. I flagged this up to the Visteon pensioners when we met in July, and they might well feel that now it is December we ought to have sorted it out, but I can assure them that we have done a good deal of work. I hope that we can come forward with a legislative solution, subject to parliamentary time being available, which would help us to ensure that the cap did not penalise some of the workers who have lost out most through the whole Visteon experience.

It was mentioned that the Select Committee might be invited to investigate the issue. Although it is not the role of the Government to tell the Select Committee what to do—it is probably the other way around—we would certainly welcome any further investigation. I suggest that the all-party group continue its efforts to persuade the Select Committee to do that, and I will certainly make available our Department’s resources, and ensure that the Pension Protection Fund, the Pensions Regulator and my officials work closely with the Select Committee, should it decide to conduct such an investigation.

[Dr Francis]

The Minister would then welcome the Welsh Affairs Committee also having such an inquiry.

[Steve Webb]

Absolutely. This is like trying to grasp something that we cannot quite grasp; we are all trying to see how we can produce a fairer outcome for the Visteon pensioners. We would be happy to engage constructively with any parliamentary process that could assist with that, so I am grateful to the hon. Gentleman for that suggestion.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East raised the interesting question: does the existence of the Pension Protection Fund mean that corporate Britain is tempted, shall we say, to shovel off its pension fund liabilities and hope that someone else will pay for them? Clearly, the anti-avoidance powers of the Pensions Regulator are crucial in that regard. The Pensions Regulator did not exist when the Ford Visteon transaction took place, but it exists now, and central to its remit is protecting the Pension Protection Fund and, indirectly, the levy payers of British industry. The regulator can, and does, therefore, initiate action to require firms that have allowed their deficit to get out of control to put money in and put up collateral against the pension fund.

There is a balancing act to be struck. I hear what the hon. Gentleman says, and clearly we do not want people shovelling off their liabilities on to everyone else, but if the Pensions Regulator goes in too heavily and presses companies, particularly at a difficult time in the economic cycle, to pump more money into the pension fund, which perhaps then precipitates problems for the firm, we get criticised from the other side. It is a delicate balancing act, but what is good about the new regime is that it is scheme-specific. Whereas when the Ford-Visteon transaction took place there was a reactive regulatory regime in place—the Occupational Pensions Regulatory Authority—which reacted to whistleblowers but did not go out proactively, the Pensions Regulator does go out to look at schemes, and acts on a case-by-case and a risk-assessed basis. We can only speculate about what it would have done had it existed in 2000, but in similar cases now the regulator would consider whether a deficit would be properly funded, and if a parent company had tried to pass a liability on to a spin-off company, it would want to take action.