The Future of Work

Jon Cruddas Excerpts

Thursday 19th November 2020 Westminster Hall

[Jon Cruddas (Dagenham and Rainham) (Lab)]

I welcome today’s debate and the recent establishment of an all-party group on the future of work, which will be helped by the Institute for the Future of Work.

I want to emphasise a couple of points that have already been made and talk about some of the assumptions that form much of the debate about the future of work. Even before the pandemic took grip, the future of work was attracting widespread attention, reflecting a widespread belief that the robots were coming. McAfee and Brynjolfsson of the Massachusetts Institute of Technology have suggested that automation and artificial intelligence are powering a second machine age that is equivalent to the first industrial revolution. Writers such as Martin Ford have confirmed these technological shifts, and such books shape a narrative of epic technological change, often described as the fourth industrial revolution.

Numerous tabloid headlines have reported the likely displaced jobs through automation. Many of the most threatening estimates can be traced back to a single source: a 2013 article by Carl Frey and Michael Osborne that suggested that nearly half of all jobs classified by the US Bureau of Labor are vulnerable to automation. This has been used to suggest the demise of many millions of blue-collar jobs. Alongside that, in “The Future of the Professions”, Richard and Daniel Susskind suggest that technological forces will dramatically rework white-collar jobs—lawyers, consultants, accountants and health professionals. Reading these pieces makes one feel that almost no job is safe, but can we be so certain?

The approach to automation also corresponds, as has been said, with renewed interest in universal basic income. On the right, Milton Friedman, Hayek, Charles Murray and Richard Nixon have all embraced it to roll back the welfare state and replace it with an individualised transaction between state and consumer. The left-wing case tends to focus on the basic human right to a level of subsistence to shield against work poverty or job loss. Historically, Tom Paine, Bertrand Russell, JK Galbraith and Lyndon Johnson and many others have supported it. The policy is also embraced by many silicon valley titans, presumably to offset their personal responsibilities for structural unemployment. We have seen an upsurge in interest in basic income initiatives such as the Alaskan oil dividend and the UBI pilots in Finland, Scotland, Canada, Oakland, the Netherlands and New Zealand.

Much of this appears to be fuelled by the belief that the robots are coming soon. Work is ending with the wholesale replacement of humans by machines. That begs the obvious question: what do we really know about the future of work? How reliable is the data? My basic point is that technology is not destiny. Assertions of technological disruption have always been around. In the 1930s, Keynes argued that by 2030 the average working week would be 15 hours long as new methods of economising on labour exceeded its use.

[Mr Philip Hollobone in the Chair.]

We should be cautious about headlines on the future of work that often derive from a single contested source. The Frey and Osborne analysis estimated that up to half of British jobs were threatened by automation. That was famously used by the Bank of England two years later to assert that 15 million jobs were at risk. How confident should we be about such assertions, not least because wildly different estimates co-exist? For instance, McKinsey Global has suggested that only 5% of jobs are candidates for full automation. Clearly, as has been mentioned, jobs will be created by automation, not just destroyed. For example, Frey and Osborne’s projections do not consider new jobs created in health and social care, the creative industries, leisure, in sectors that require interpersonal human skills, and in the technology and telecommunications sectors. Moreover, many of these studies on the effects of automation do not contain any timelines. I read this morning about a McKinsey report based on an analysis of 800 occupations, which estimated that half of all work activities could be automated by 2055, but then said

“this could happen up to 20 years earlier or later”.

So the data is pretty unreliable.

Many of these studies also underplay patterns of labour regulation that can help or hinder automation. The classic example is one of de-automation, literally, through the resurgence of thousands of hand car washes and the disappearance of the automated alternative, driven by the exploitation of migrant labour in the deregulated British labour market. These are questions of politics, not technological destiny.

To return to the statistics briefly, the Organisation for Economic Co-operation and Development estimates that 9% of jobs are automatable, yet it also suggests that that is an overestimate, given the likely political and social constraints, redeployment and future job generation. It concludes that

“automation and digitalisation are unlikely to destroy large numbers of jobs.”

A TUC paper estimates between 10% and 30% of jobs to be at risk, yet concludes that the likelihood is that those jobs could be replaced by new occupations and professions. The evidence is at best inconclusive. The UK Government do not appear excessively worried. Their industrial strategy White Paper suggests a growing demand for high-skilled jobs and anticipates an extra 1.8 million new jobs in the next 10 years. That was before the pandemic, obviously.

In a thorough review of the literature, Phil Brown and his colleagues at Cardiff University concluded that technology is not destiny and that human decisions will determine the future of work. Their study states:

“Most studies focus on the potential for automation, without incorporating into their models economic and social factors that may stimulate or deter the replacement of workers by technology.”

In other words, politics. So the future is far from certain; it depends on the policy and political choices that we make.

In recent years, UK labour markets have seen a significant increase in atypical work, including elements of the gig economy. Prior to the pandemic there were some 5 million self-employed, 1 million workers on zero-hours contracts and 800,000 agency workers—since 2008, there have been rises of 24%, 450% and 46% respectively. Those comparatively high numbers are the product of our labour law and policy choices, resulting in work that is less regulated and protected and contributes to sluggish wage and productivity growth.

I will conclude with a few points. First, there is little consensus about future technological disruption. Secondly, the research is contested and, at best, unclear. Thirdly, it is prone to speculation and contains serious methodological flaws. This suggests that a more cautious approach is required, with an emphasis on our political choices rather than reverting to conjecture fuelled by technological determinism. There is nothing inevitable about the future of work. There are political choices about creating and rewarding good work and in upholding the dignity of labour, cruelly exposed by the pandemic. That is why it is so good that we are discussing the subject in Parliament this afternoon. I congratulate the hon. Member for East Renfrewshire (Kirsten Oswald) on securing the debate.

Pension Funds (Fiduciary Duties)

Jon Cruddas Excerpts

Friday 20th January 2012 Commons Chamber

[Jon Cruddas (Dagenham and Rainham) (Lab)]

I wish to make a few comments on the fiduciary duty of pension fund trustees. It is just over a year since the Minister and I stood here to discuss the issue of responsible investment by pension funds, and in that debate we focused particularly on transparency for fund members. So to begin with it is worth taking stock of a few developments that have occurred since we last discussed these issues.

First, in recent weeks, the notion of “responsible capitalism” has risen to the top of the political agenda. A cross-party consensus has emerged that shareholders must do more to tackle irresponsible corporate behaviour such as excessive top pay. Secondly, we have entered 2012, the year of auto-enrolment, a process that will ultimately see millions of workers begin saving for a pension through the capital markets. Thirdly, casting our minds back to the autumn statement, we have seen the Government turning to pension funds as a source of capital to fuel the economic recovery through infrastructure investment.

If we put all that together, it becomes clear that the way pension funds invest is no longer, as the Minister put it in our last discussion, “a minority sport”, but a matter of acute national concern. Although much has been made of the rise of foreign investors, UK pension funds still make up 13% of the UK stock market, with insurance companies that provide pension products making up another 12%. So it is vital that this huge pool of capital is invested responsibly in the long-term interests of pension savers. Unfortunately, as a report published last year by responsible investment charity FairPensions showed, current interpretations of the law may hinder that objective. Fiduciary duties—our main legal mechanism for protecting those who entrust their money to someone else—do not apply consistently across the pensions market. Worse still, they are generally interpreted as forbidding pension funds from raising their sights beyond quarterly returns. Far from protecting savers’ long-term interests, that view may in fact be damaging to them.

Clarification of this seemingly obscure and technical area of the law could unlock positive change in a range of areas: supporting jobs and growth; ensuring decent pensions; and underpinning the shift to a more responsible, resilient capitalism. The Prime Minister has indicated that the Government want to give shareholders more powers to block excessive pay deals. That is obviously welcome, but more searching questions need to be asked about how shareholders are using the rights they already have. Figures released by PIRC—Pensions Investment Research Consultants Ltd—last week showed that since the introduction of the advisory vote on pay 10 years ago just 18 remuneration packages have been voted down, despite the fact that pay has risen out of all proportion to shareholder returns. Why has there been such reluctance to use these powers?

Most pension funds do not exercise voting rights themselves, but delegate to fund managers, whose duties are unclear. FairPensions’ report argues that fund managers have fiduciary duties under common law—a view shared by the Law Commission—but that is not generally accepted by the industry. That means that the strict duty to avoid conflicts of interest is not being applied to the people actually making the decisions. That has real implications for the way in which votes are cast by City fund managers who have business relationships with the companies in which they invest.

A recent article in Butterworths Journal of International Banking and Financial Law cited anecdotal evidence of

“corporate or investment banking staff overtly or subtly pressuring their asset management colleagues to avoid antagonising their clients by voting against the CEO’s pay arrangements.”

Meanwhile, pension funds are often labouring under the misapprehension that their fiduciary duty prohibits them from taking an interest in Bob Diamond’s bonuses, for example, when, of course, properly understood, that is very much part of that duty.

The pervasive myth that fiduciary duty begins and ends with maximising returns leads many funds to neglect intangible factors—excessive pay or poor environmental standards—even though they may well affect the long-term returns that matter most to pension savers. The misconception seems to put some trustees off being active owners of the companies in which they invest, notwithstanding efforts through the UK stewardship code to encourage them to do so. Still less do funds believe that they can take account of the moral outrage felt by their members over excessive pay deals.

Such interpretations continue to hold back pension funds’ potential to play their part in a more responsible capitalism. To put it simply, we cannot have responsible capitalism if the capitalists think that the law prohibits them from acting responsibly.

I want briefly to return to the subject of transparency, which we talked about a year ago. Making companies more accountable to shareholders will not be enough to tackle “crony capitalism”: shareholders must also become accountable to the ordinary savers whose capital they invest. Among other things, that means much greater transparency about what is being done with our money. At the moment, if I want to know how my pension fund voted on Barclays’ remuneration report, for example, it is not obliged to tell me. In his response last year, the Minister promised to raise the issue with the chair of the Pensions Regulator. I would be grateful if he updated the House on the results of their conversation and on any further developments.

Narrow interpretations of fiduciary duty risk holding back not only the responsible capitalism agenda but the economic recovery. Pension savers have a clear interest in the health of the UK economy. It affects not only the growth of their investments but their economic well-being more generally as UK citizens, jobholders and taxpayers. The Treasury has picked up on that and observed that obvious common interest when encouraging pension funds to invest in UK infrastructure. The Financial Secretary to the Treasury said in a recent speech to the National Association of Pension Funds:

“Your investment in the UK economy can drive economic change and that change should generate more stable and sustainable returns, benefitting Britain’s pensioners.”

The same logic can be applied to investment in the small and medium-sized companies that are the engine of future job generation in our economy, but that is not the logic that underpins pension fund decision making in practice. We are back to the mantra of the fiduciary duty to maximise returns, which dictates that return must be sought wherever it is found. Given a direct choice between two competing investments, there is no reason for pension funds to invest in the UK rather than, say, China. Indeed, most funds would say that the law legally obliges them to choose the latter if the risk-return profile is even marginally more attractive.

That reduces fiduciary duty to a mathematical calculation that obliges trustees to chase the best return and ignore all other considerations, rather than enabling a more common-sense approach, using their discretion to determine how their capital can best be put to work for the benefit of pension savers. Given the choice, many pension savers might well want to see their savings invested in British industry or green infrastructure but, under conventional interpretations of the law, their views are irrelevant. Fiduciary duty, which exists to protect savers, risks becoming a missing link when it comes to translating our savings into productive investment activity.

This is emphatically not about hijacking pension funds’ capital to serve government ends; that could be a dangerous road to go down. It is all about allowing them the discretion to take a broad and enlightened view of what is in the beneficiaries’ interests, rather than prescribing an approach that might not serve savers in the long run. Let us not forget that it was today’s interpretation of the law that saw pension funds pile into triple-A-rated shares in banks whose risky activities ultimately decimated pension fund value. If funds had been encouraged to think about the sustainability of those returns, rather than just the share price, their beneficiaries might have been better served in the long-run.

That brings me to the third area in which policy makers ignore debates about fiduciary duty at their peril—auto-enrolment. The Pensions Regulator estimates that between 5 million and 8 million people will be newly saving, or saving more, as a result of the 2012 reforms. Many of those people will be low-paid workers and there is a huge responsibility on the Government to ensure that their savings are responsibly stewarded and deliver a decent retirement income. This means ensuring that fiduciary standards of care can be applied across the pensions market.

In Committee on the Pensions Bill, the Minister rightly noted the importance of taking a “holistic approach” and not creating “unevenness” by putting

“conditions that are not imposed on other investment vehicles on pension schemes”.––[Official Report, Pensions Public Bill Committee, 14 July 2011; c. 330.]

However, there is already unevenness between trust-based pension schemes and contract-based pension arrangements, as the latter are not subject to fiduciary duties and the governance requirements that go with them. The average saver may struggle to see the difference between those two types of arrangements, but the legal niceties mean that savers are subject to completely different legal protections depending on the type of scheme their employer chooses. Last year the Minister’s Department consulted on “regulatory differences” between trust and contract-based pension arrangements and I hope he will look at this issue of governance because it is the single biggest regulatory difference and carries the biggest danger of regulatory arbitrage.

A struggling employer could be forgiven for wondering why they would want to set up a trust-based scheme with all the governance implications that would entail when they could simply choose an off-the-shelf product from an insurance firm. However, there are obvious reasons for thinking that such a decision might not serve the best interests of their employees. This is not merely a theoretical objection. I understand that FairPensions is due shortly to publish research showing that the absence of clear obligations does indeed create a “governance gap”. Can the Minister indicate whether his Department is looking into this issue and, if so, what might be done to ensure that a level playing field for all pension savers can be established?

The overall point is that the misapplication of fiduciary duty is clearly a significant challenge to the Government’s vision for a strong, responsible economy and a generation with a savings culture. Conversely, a renewed understanding of fiduciary duty offers an exciting opportunity to reshape our economy for the better. The FairPensions report recommends there should be statutory clarification of fiduciary duties along the lines of directors’ duties under the Companies Act 2006 to make it clear that pension funds can consider a range of factors beyond quarterly returns such as the impact of their investments on the wider economy, environmental and social issues and their members’ ethical views. It also recommends that the Department for Work and Pensions should produce guidance for pension fund trustees on the interpretation of their fiduciary duties.

When those recommendations were debated through a probing amendment to the Pensions Bill, the Minister helpfully put on record his view that

“it is not the duty of trustees simply to maximise short-term returns.”––[Official Report, Pensions Public Bill Committee, 14 July 2011; c. 329.]

In other words, the measures proposed by FairPensions that I have talked about would amount to clarification rather than a radical departure from existing legal principles in terms of trustees’ duties. This might prompt some to ask whether statutory definition is really needed if the underlying legal principles are sound.

Some pension funds already take an enlightened approach to their fiduciary responsibilities. The National Employment Savings Trust —NEST—is emerging as a beacon of best practice when it comes to responsible investment, viewing it as part of its responsibility to undertake shareholder engagement and to integrate environmental and social issues into its investment analysis. Similarly, the Strathclyde pension fund offers an excellent example of how pension funds can make investments that add genuine, sustainable economic value for their members. It recently announced a £100 million new opportunities fund to invest in job creation in Glasgow with the proviso that it will invest only in businesses that pay the living wage. However, those examples are very much the exception rather than the rule. The conventional interpretation of the law is highly conservative, and this is reflected in the legal advice received by the vast majority of pension funds. It is difficult in practice to see how this problem with the interpretation of the law can be overcome other than with an explicit clarification of the law.

It is also worth noting that even pension funds that take an enlightened view of their fiduciary duties still appear to believe that the law restricts their room for manoeuvre in this area. For instance, one investment officer recalls asking for legal advice on whether, when voting on a hostile takeover bid, they could consider the fact that some of their beneficiaries might lose their jobs. The answer was no; they could consider only the price that they would be paid for selling their shares. In other words, far from being a counterweight to predatory activities, even the most enlightened pension fund may feel legally obliged to be complicit in these predatory activities. For all these reasons, express clarification does seem to be necessary.

To be clear, this is not a question of diluting the fiduciary duty to seek the best outcome for beneficiaries. Nothing in these proposals would change the fundamental principle that fiduciaries must act wholly in the best interests of their beneficiaries. Rather, it is about making fiduciary duty work better in today’s complex financial markets. Indeed, we must seriously ask whether fiduciary duty as currently understood is doing its job properly.

From 2002 to 2007, pension fund payments to intermediaries rose by some 50%, while returns collapsed to an average of 1.1% per year. If the main purpose of fiduciary duties is to make sure that savers come first and that agents do not profit at their expense, these figures suggest that something is badly wrong. It is not a question of imposing new regulatory burdens on pension funds, but rather the opposite: clearing away perceived legal barriers and restoring common sense to the law.

FairPensions’ proposals are aimed at creating an enabling environment, freeing trustees from the fear that they may face legal liability if they depart from received wisdom about how they must invest. This is true of both the recommendation for statutory clarification, and the recommendation for DWP guidance.

In relation to guidance, I tentatively suggest that the Charity Commission’s recent update of its investment guidance for charitable trustees might prove a useful departure point. It has helped to clarify that fiduciary duty is not a set of handcuffs that prevent trustees from considering anything but financial return. In particular, it has sought to give comfort by stating that

“if trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy.”

I understand that the Minister’s officials have been engaging with FairPensions since the publication of their report about the possibility of guidance, and I wonder whether the Minister might update the House on any progress that his Department has made on this recommendation.

Of course, I understand that the Government might wish to wait for the results of the Kay review of UK equity markets before making firm commitments. I understand that fiduciary duty forms part of Professor Kay’s remit, and that it has been discussed extensively during his first phase of consultation. If Professor Kay does make recommendations on this issue, the Government will clearly need to consider those alongside the recommendations already made in the FairPensions report.

Overall, therefore, it would be helpful if the Minister gave some general indication of whether there is enthusiasm in Government for reform of fiduciary duty, and whether, if it proves to be consistent with the findings of Professor Kay’s inquiry, he will work with colleagues in the Department for Business, Innovation and Skills to take forward this agenda.

Housing Benefit

Jon Cruddas Excerpts

Thursday 17th February 2011 Commons Chamber

[Jon Cruddas (Dagenham and Rainham) (Lab)]

I think that I now have two hours and eight minutes in which to speak on the single room rate—only joking. This debate dovetails with the last debate on benefits uprating, as often happens with Adjournment debates, purely by accident. Today, we have also seen one of the most dramatic overhauls of welfare reform in this country. I want to make a few comments on the likely consequences of changes to the shared room rate, sometimes known as the single room rate, proposed by the Government. I do not do so simply to make party political points, but because I am concerned about specific, substantive consequences that might emerge for many young people in this country. My comments echo those contained in a letter dated 2 November to the Minister for Housing and Local Government from 16 of the country’s leading organisations providing housing and support services to homeless people.

Today we have seen a significant change in the Government’s proposed housing benefit reforms, with the removal, supposedly, of the 10% reduction for those on housing benefit after one year on jobseeker’s allowance. I suggest to the Minister that he might like to signal another change on the proposed benefit regulations. I doubt that that will happen, but I know that he will give thorough consideration to my points.

The shared room rate currently applies to single people under 25 on housing benefit in the private rented sector. Local housing allowance claimants who are single, under 25 and without dependants are currently eligible only for sufficient LHA to cover the rent of a single room in a shared house, rather than self-contained accommodation. Under measures announced in the comprehensive spending review, the threshold for the shared room rate will be increased to 35 years of age from April 2012. All single, childless adults under 35 will see their LHA cut from the current one-bedroom rate to the SRR. The Government estimate that 88,000 people will be affected by this change.

The Department for Work and Pensions housing benefit statistics show, however, that in August 2010 120,000 single people aged 25 to 35 years old were claiming LHA. The Minister might want to comment on that in his response, because it means that if the proposal goes ahead an additional 120,000 people will be competing for shared accommodation. That will be an issue not just in inner London, as we often hear in the House during debates about housing benefit changes, or even in outer London; the evidence suggests that it will affect tens of thousands of young—actually, not that young—people up to the age of 35 across the length and breadth of this country.

We know that the SRR causes considerable problems for young people, with many unable to secure or sustain affordable accommodation and left facing shortfalls, arrears and homelessness under the current regime. According to the housing charity, Crisis, the average loss will be £47 per week, with some people seeing their benefit entitlement literally halved.

Even at current LHA rates, the difference between the one-bedroom rate and the SRR rate can be substantial. For example, according to Shelter, the shared room rate stands at £71 per week on average, while the rate for a one-bedroom flat is £137 per week. In the east Thames valley, it is £88 versus £150 per week; in inner east London, it is £103 compared with an average of £235; and in Oxford, the figures are £80 and £150. In more than half of all areas, shared accommodation rates are about one third or more lower than one-bedroom LHA rates.

Everyone will admit that those are very high losses from a very low baseline. Currently, the maximum award of local housing allowance—housing benefit in the private rented sector—is only £107 per week for a one-bedroom property, and that falls to just £69 for SRR claimants. Obviously, that is before other cuts to housing benefits kick in, which will reduce those rates even further. LHA rates will drop from the 50th to the 30th percentile of local market rents from April, and many 25 to 34-year-olds will therefore suffer a double wave of cuts and, arguably, have no choice but to move.

For example, a 33-year-old on the Wirral is currently eligible for the one-bedroom rate and will receive £91 a week in LHA. The LHA cut will bring the one-bedroom rate down to £86 per week, but from that point they will be eligible only for the SRR, which is expected to be £56 a week, meaning a accumulative overall cut in the local housing allowance of some £35 a week. Cuts at that level will be replicated throughout the country and leave single adult households with unaffordable shortfalls in their rent. Many will have no choice but to move to cheaper accommodation. Crucially, however, owing to a lack of shared accommodation, many will be unable to find a single room and be forced to remain in more expensive self-contained accommodation, creating further shortfalls, the risk of eviction and, possibly, homelessness.

[Steve Rotheram (Liverpool, Walton) (Lab)]

Does my hon. Friend agree that the proposed changes will have a subsequent impact, increasing homelessness especially in areas where people already find it difficult to get accommodation?

[Jon Cruddas]

That is one of the points that I want to address in the long time that I have to develop my arguments.

Some 75,000 people claim SRR, so the change will more than double the number of claimants, placing significant further pressure on the limited existing pool of shared properties. According to housing charities that deal with the homeless, the vast majority of people affected by the change will lose their current accommodation; and they will have to go somewhere. It is unlikely that landlords will accept such significant reductions in rent, or that someone on a limited income will be able to make up such shortfalls. To confirm what my colleague just said, tens of thousands of people currently in self-contained flats will therefore be forced to seek shared accommodation, or they will arguably become homeless.

There is simply not enough shared accommodation available. Current claimants already struggle to find an affordable property, with DWP figures showing that some 67% face a shortfall between their benefit and their rent, averaging out at £29 per week, compared with 49% of all LHA claimants. On anyone’s account, that is a significant amount for people on a low income, and it will cause problems such as debt, arrears and homelessness, which all MPs will undoubtedly witness every week.

This change, as my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) said, is likely to cause more homelessness, including, in the worst instances, rough sleeping. Apart from the impact on individuals, it is extremely costly to the public purse. Crisis estimates that the annual cost of homelessness per person is between £9,000 and £41,000 per year.

For vulnerable people who have been homeless or are leaving supported accommodation, care or prison, sharing is particularly inappropriate and can be extremely detrimental to their well-being. Currently, the only exemptions from the SRR are young care leavers aged under 22 and those who receive the middle or higher-rate care component of disability living allowance for people who are severely disabled and need a carer. Other people with serious disabilities or illnesses, mental health or behavioural problems, or who are vulnerable in other ways, will not be exempt and will be expected to share accommodation—a situation which, in many instances, will be inappropriate, as professional advisers argue.

As regards homeless people and those leaving an institution, 20 to 35-year-olds are already disproportionately likely to end up sleeping on the streets, while 27% of rough sleepers in London are aged between 26 and 35, and 36% of Crisis’s clients are in the age group affected by this change. The change will place significant barriers in the way of breaking out of the cycle of homelessness and undo progress that has been made by formerly homeless people who have now secured private accommodation. Charities working with young homeless people are often unable to move them into appropriate accommodation because of the SRR, and this problem must increase, all else being equal, as more people are restricted to the lower rate. A Crisis survey of schemes that help people to find private rented accommodation found that the low level of the SRR was the biggest policy concern.

There are consequences for hostels, too, as costly beds will become blocked with people unable to move on. For offenders leaving prison, sharing can be particularly inappropriate. There is already a problem with individuals under 25 bed-blocking probation hostel places because of the SRR, and that problem is likely to increase under the current proposals. It should also be noted that those convicted of serious offences are disproportionately likely to be in the same cohort of those aged about 25 to 34, and, for many, sharing with others poses particular risks. Reoffending costs the economy £13.5 billion annually, but stable accommodation reduces the risk of reoffending by some 20%.

What about people with mental and physical health problems or dependency issues? For these groups, sharing can cause particular problems, as they may have particular needs in relation to the type of accommodation that they can occupy or find it very difficult to get on with other people. There are fears that other difficulties such as bullying could result. People with dependency problems may have a negative effect on others in a shared property.

Moreover, we should consider parents or expectant mothers. Non-resident parents who want to maintain a good relationship with their children can have them to stay in a self-contained flat, but this is unlikely to be possible or appropriate in shared accommodation. When parents live some distance away, that could mean that they are unable to maintain contact with their children. Pregnant single women may have to return to a shared property with their newborn, precisely at the point when moving can be financially and physically unrealistic.

At a time of rising youth unemployment, this change risks penalising young people even further. Those under 25 already face a lower rate of jobseeker’s allowance and are therefore likely to struggle to make up even small shortfalls between the benefit and their rent. Competing with older tenants will make it even more difficult for them to secure affordable accommodation.

What about the impact on communities and houses in multiple occupation? This policy may increase the number of HMOs in deprived areas at a time when some local authorities are using recently introduced powers actively to tackle the prevalence of HMOs, which are often poor-quality properties run by unscrupulous landlords.

We should also consider the problems facing benefit recipients when searching for housing. Claimants can struggle to access shared accommodation, even where it does exist. Adverts for shared property are the most likely explicitly to bar benefit claimants. Research by Shelter suggests that as few as 7% of tenants in shared accommodation would let a spare room to a benefit claimant. Many house-shares are reluctant to let to benefit claimants because of real or perceived problems with the benefits system, such as delays in processing payments and the practice of paying benefit in arrears when rent is payable in advance.

The arguments that I have put forward have been technical, but it is useful to demonstrate the possible consequences in human terms, so I will report a number of case studies of single, homeless men that have been brought to my attention this week by various housing charities. The first is the case of a man with trust and gambling issues who moved from supported accommodation to a self-contained flat:

“He is working with a Tenancy Sustainment Team. He has always tried his best to work and LHA has supported him a little due to the low pay he is receiving. Moving him into shared accommodation would place him in severe hardship.”

Another case study is of

“A man with mental health issues, trust issues and who suffered from abuse as a child. He struggles to be around people.”

He, too, moved from supported accommodation to a self-contained flat and is supported by a tenancy sustainment team. The case study continues:

“To move him into shared accommodation would no doubt place him in either a homeless situation…or end up in prison.”

That is the advice of the professionals.

Another case is that of a young man who was moved on from supported accommodation:

“His main goal was to get accommodation so that he could bond with his child. He has anger issues and works with a Tenancy Sustainment Team worker. His child can now come and stay with him at his home from time to time. To move him to shared accommodation would affect the arrangements with his child that he waited so long for and could well place him back on the streets or lead him to abandon his accommodation. He struggles to support his child with the little money he has at present.”

Another case is that of a 24-year-old who has had one custodial sentence for a sexual offence and has breached his licence on more than one occasion:

“He is currently in a hostel having resided there for three and a half years, but due to pressure…he is having to be moved on. Probation are unwilling to allow him to reside in a shared house due to the risk he poses to females. Probation have advised that should he move into a shared house his offences have to be shared with the landlord and fellow tenants, which means this could put his safety at risk.”

Another case brought to me this week is of a 27-year-old client who is a sex offender. He has been living in a probation hostel and is ready to move on. He is vulnerable and requires ongoing, floating support. He needs self-contained accommodation because of sharing issues, particularly if females live at the property, visit it or stay with other tenants.

Another client has bipolar disorder and suffers from periods of extreme depression and paranoia. He is very concerned. He has been sectioned a few times and is worried about it happening again. He is being discharged and is having to return to a shared house. He finds others knowing about his condition very uncomfortable because there is still prejudice and misunderstanding about mental health issues. All those cases are concrete examples of the consequences of the reform that have been brought to my attention in just the last few days.

What is the Government’s rationale for the change? I will anticipate the Minister’s response slightly by offering a few reasons that he is likely to give. First, there appears to be an argument that many young people share houses and that, everything else being equal, many benefit recipients should therefore also share houses—thus the change to the single room rate. The Government will also argue that the age of the first-time buyer has risen. Although that may well be the case, it is not true that large numbers of people share properties. In fact, 2% of people share properties with someone who is not a relative or a partner. If the changes come in, 17% of those on local housing allowance will be in shared accommodation.

People who are not on housing benefit and who do share, such as young professionals in this city, do so largely out of choice so that they can live in a better location, live with friends or have more disposable income to save for a deposit to get into the housing market. It is simply not the case that the same characteristics apply for housing benefit recipients. What is more, people who are not on housing benefit have access to a much greater pool of properties because, as I have said, many landlords will not let to benefit claimants. People who are not on housing benefit generally have a choice about who they live with, which is rarely available to people on lower incomes.

Many who share accommodation by choice in the private rented sector will do so with one or two others. Largely, that will be more expensive, and so unaffordable on the SRR, claimants of which are therefore likely to have to share with larger numbers of people, with a higher turnover of tenants, and with little or no choice over with whom to share. Unlike students or young professionals, who tend to share with people whom they know or who have similar backgrounds, people on housing benefit often share with strangers, which can lead to inappropriate sharing situations, and suitability and security problems, and it can affect the sustainability of a tenancy. Supportive evidence is provided by the Joseph Rowntree Foundation, which has analysed the SRR and the views of claimants. It says that

“the prospect of sharing with strangers was a source of considerable anxiety”

and

“having to share with older people was noted to be particularly daunting, especially for female claimants.”

I tentatively suppose that the Minister will put forward a second argument: that landlords will lower their rents or people can be supported by discretionary housing payments. The Government have argued that people might be able to renegotiate rents, but, given such significant losses in entitlements—some could be halved—that hardly seems likely. With our housing department, I have done a survey of letting agencies and the current state of the housing market in our local borough. In the cheapest housing market in Greater London, there is no evidence of a lack of demand for such properties, and therefore no evidence of a downward flexibility in rents in our communities. I tentatively suggest that that is probably the case around the country.

The Government also make the case that they have increased the discretionary housing payments budget to help local authorities to give additional support where they consider it is needed. However, the amounts are insignificant. Our borough is, I believe, the fastest-changing community in Britain because of the dynamics of the city’s housing market. It is the lowest-cost housing market in Greater London, with the lowest rents, but it has taken the strain of the city’s demographic shifts in past 10 years. In total, I believe that we will receive some £120,000 of that discretionary money, but I tentatively suggest that that will not quite be enough because of the extraordinary flows of people caused by the broader housing benefit changes proposed by the Government.

I therefore suggest that the argument that the discretionary housing payments are significant enough to allow for the system to bed in does not stack up. Indeed, over a four-year period, the total DHP pot is £190 million. That is intended to help both those who currently experience a shortfall and those affected by all of the changes to the housing benefit system. To put that in context, the Budget announced £1.8 billion of cuts to housing benefit, and estimated a further £215 million saving from changes to the SRR.

The third argument that the Minister might come up with goes something like this: some LHA claimants chose to live in shared accommodation, so there cannot be that much of a shortage. Indeed, some housing benefit claimants do choose to share when they are in fact entitled to live in self-contained accommodation. For some people in some areas, sharing is appropriate, particularly if they have friends they can share with or if they were in a shared property before needing recourse to housing benefit. However, it is quite a different proposition to ask 120,000 to leave their current accommodation and try to find a shared property.

In conclusion, I urge the Government to rethink raising the SRR threshold, or at the very least to delay the measure to give local authorities time to ensure that there is sufficient housing stock to meet the increased demand for shared accommodation. I urge the Minister to reflect on what Centrepoint says when he considers the consequences of some of the changes that I have outlined:

“If young people are not supported to access affordable move-on accommodation, they will be forced to access expensive emergency and supported accommodation for longer periods. This failure to progress can lead to young people losing confidence and re-engaging in destructive behaviour patterns”.

While achieving savings in the short term, the proposed changes could lead to greater costs to the taxpayer in the medium to longer term. I urge the Government to rethink.

Pension Funds

Jon Cruddas Excerpts

Tuesday 14th December 2010 Commons Chamber

[Jon Cruddas (Dagenham and Rainham) (Lab)]

Somewhat earlier than I anticipated, I rise to make a few comments about the operation of pension funds and their transparency.

Everyone knows that the world of pensions is changing fast. With the decline of defined benefit schemes and the shift to defined contribution, pension savers are shouldering more and more of the investment risk to their savings, and with the advent of auto-enrolment in 2012, even more people’s future well-being will be bound up with the capital markets through their pension funds. These trends make greater transparency of pension fund investments an urgent imperative for three reasons. First, if ordinary savers are bearing the risk to their investments, it is only right that they should be in a position to scrutinise how their agents are managing those risks. If we expect individuals to take more responsibility for providing for themselves in old age, they should at least be given the tools to hold accountable those on whom their retirement security depends.

Secondly, the huge—and hugely profitable—industry charged with looking after people’s savings has an extremely poor record. In recent decades, we have seen the growth of an enormous cadre of agents and intermediaries who extract huge fees at the direct expense of ordinary savers at the bottom of the investment chain. For instance, a report published last week by the Royal Society for the encouragement of Arts, Manufactures and Commerce—known as the RSA—found that the total fees charged by pension funds swallow up an astonishing 40% of the end value of the average British pension, which is much more than in our European counterparts. One might at least expect that this is paying for superior skills and therefore higher returns on investment, but pension fund returns are actually declining: between 2000 and 2009, they collapsed to an average of 1.1% per year. Paul Woolley at the London School of Economics has calculated that excessive short-termist trading in shares is likely to erode rather than enhance the long-term value of pension pots. Pension fund investment strategies are a very real issue for any Government who are serious about tackling the looming pensions crisis, which we all acknowledge.

The third reason transparency matters is that pension funds are huge institutional investors with enormous collective influence on the financial markets and the wider economy. If the financial crisis taught us anything, it was the danger of handing over ordinary people’s money to financial institutions and assuming that they will take care of it without the need for further scrutiny. The interests of pension savers are, by definition, long term, yet in the build-up to the financial crisis, many pension funds engaged in the same short-termist strategies and herding behaviour as the rest of the market.

The American academic Keith Johnson has described the influence of these investors as akin to unleashing

“a flock of 900-pound lemmings”

into the economy. There is, therefore, a legitimate public interest in how pension funds behave, including in how they exercise their ownership rights. The financial crisis exposed the dangers of share owners acting like what Lord Myners dubbed “absentee landlords” or, worse still, actively encouraging their investee companies to pursue short-term profit at the expense of the long term. Ultimately, it is millions of ordinary people who provide the capital and suffer the economic consequences when that capital is not used responsibly. The case for greater transparency is compelling.

So what should that mean in practice for the Government? Earlier this year, the Financial Reporting Council published a stewardship code for institutional investors aimed at encouraging responsible ownership. It is far from perfect, but it is a start. In particular, its strong focus on transparency, including transparency in the exercise of voting rights, is welcome. However, there is a danger of the interests of pension savers being forgotten in this process. The code’s provisions on voting disclosure are a tacit recognition that people have the right to know how the voice of shareholders is being used on issues such as executive pay, takeover bids or environmental resolutions. However, the code is largely aimed at asset managers.

Ordinary people cannot be expected to know which asset manager their pension fund uses and proactively to seek out that manager’s disclosures. Improvements in fund manager transparency will give savers the accountability and visibility that they deserve only if pension funds play their part too. Disappointingly, although the FRC has stated that pension funds have an important role to play, the pensions regulator has not yet produced any official guidance for pension funds on how they should apply the stewardship code. The role of pension funds has often been left to the National Association of Pension Funds, which is an industry body—a less-than-ideal situation, I tentatively suggest. Does the Minister agree that it would be appropriate for the pensions regulator to look into the matter? Will he raise it when he next meets the regulator’s newly appointed chair?

Notwithstanding what I have said so far, it is clear that the stewardship code will not be a panacea when it comes to accountability and transparency. FairPensions, the campaign for responsible investment, yesterday published an analysis of fund managers’ performance on transparency, including their reporting under the stewardship code. Although it showed some improvements, almost one in six asset managers surveyed still did not disclose any information about their voting records. One manager justified that by saying that it was up to the clients—that is, the pension funds—to disclose such information. However, recently published guidance from the National Association of Pension Funds makes it clear that it thinks that disclosure is up to the asset manager and is not the pension fund’s responsibility. There is a real danger that such buck passing will result in nobody disclosing and the pension savers at the bottom of the chain remaining in the dark about how their money is being managed.

The Government could avoid that danger by doing two things. First, they could make voting disclosure mandatory for asset managers by exercising their reserve powers under section 1277 of the Companies Act 2006. I understand that this is not within the Minister’s gift, but I hope that it will be considered by his colleague the Secretary of State for Business, Innovation and Skills, as part of his review of economic short-termism. Secondly, the Government could clarify pension funds’ obligations in this area by amending the regulations, which already require pension funds to disclose their voting policy, to make it clear that they should also disclose information about their voting practices. Alternatively, that could be included in the pensions regulator’s guidance.

I do not believe that either approach would impose an unreasonable burden on pension funds. If their fund managers are already required to report on their exercise of voting rights, it should be sufficient in most cases for pension funds simply to provide a link to that information on their websites. That would be a small matter for the fund in question, but a huge improvement in accountability for the pension saver. It would also make information directly accessible to the pension saver—instead of them being expected to go hunting for it—and would help to embed transparency right down the investment chain. In the US, the duty of disclosure is now a recognised part of pension funds’ fiduciary duties towards their beneficiaries. That is right, and I hope that we can move down that road here.

Those in the investment industry who are unwilling to open themselves up to scrutiny in that way have come up with various arguments over the years to defend their secretive business models. Most such arguments—the idea that such a proposal would be enormously costly, or compromise commercial confidentiality or even damage relationships with the company—have been comprehensively discredited over the years. The latest argument appears to be that it is pointless to require investors to disclose such information because nobody would read it. The Minister should be able to tell us that this argument is nonsense. I understand that in June he received some 1,500 e-mails from supporters of FairPensions asking him to support their right to access such information.

Earlier this year, more than 6,000 people contacted their pension funds to ask how they would be voting on shareholder resolutions about tar sands at BP and Shell’s annual general meetings. As it turned out, those savers’ concerns about the risks of unconventional oil extraction proved well founded, at least in the case of BP. Those pension funds might have found themselves in a better position financially if they had listened to their members a little more. There is clearly a growing movement of people who want to know what is being done with their money—a movement that is being held back by a pervasive lack of transparency and a culture of hostility to the people whose money is at stake having the impertinence to ask questions.

That brings me to the final point that I want to stress. It is vital that any moves towards greater transparency pay enough attention to environmental, social and governance issues—sometimes known as ESG. Survey after survey has shown that savers care about such issues. The rise of socially responsible investment products and the success of campaigns, such as that on the tar sands resolutions, show that people want to act on that concern, but they must be given the information and the tools to do so. The previous Government sought to give them that information some 10 years ago, by introducing regulations requiring pension funds to state the extent to which they take environmental, social and ethical concerns into account in their investment policies.

Since then, the G in ESG—governance—has received a huge amount of attention, after it became obvious that conflicts of interest, excessive pay and poor risk management contributed to the financial crisis. Yet with typical myopia, many investors still neglect the E and S of ESG—the environmental and social. The Deepwater disaster, which forced BP to cancel its dividend for the first time since the second world war, should have been a wake-up call for anyone who still doubted that companies that ignore such issues face serious financial risks. It should also have been a wake-up call for pension funds—for which the BP dividend was a significant source of steady income—to pay attention to such issues as a key part of their fiduciary duty to pension savers, as the legal opinion obtained for the United Nations Environment Programme confirmed some five years ago.

The challenge of climate change makes recognition of that duty even more urgent. Climate change is not only an investment risk, which it clearly is; it also has innumerable ramifications for the retirement security of the next generation of pensioners. A 25-year-old pension saver clearly has a broad interest in ensuring that his or her savings are reducing rather than increasing the risk that they will grow old in a world ravaged by catastrophic climate change.

The Ministers responsible for the 2000 regulations clearly intended to nudge pension funds into taking account of non-financial issues. To some extent they were successful, as the UK Sustainable Investment and Finance Association noted, in marking the 10th anniversary of the regulations. ESG integration is more mainstream than it was 10 years ago, but there is clearly still a long way to go. It would be wrong to say that the objectives of the 2000 regulations have been achieved. A 2009 United Nations report expressed “disappointment” that investment consultants still advise pension funds to include boilerplate statements on environmental, social and ethical issues that

“meet the letter but not the spirit of the law.”

Members who ask about specific voting decisions are often directed to such generic statements, which are of little or no use to them. Indeed, that is exactly what happened to Members of this House who inquired about their own pension fund’s stance on the tar sands resolutions earlier this year.

Research by FairPensions also suggests that such box ticking is often not accompanied by much substantive action. Its 2009 survey of pension funds showed that almost all had a policy stating that they took non-financial issues into account, but around a third did not integrate the policy into their agreements with fund managers or assess their fund managers’ ability to implement it, nor did they require them to report on its implementation. It is reasonable to ask what those funds were doing to implement their stated policies. It is also reasonable to ask how those policies gave any meaningful insight to the curious member wanting to know what their fund was doing about environmental and social issues. As the UN report concluded,

“the time may have come to review how”

the disclosure regulations’

“effectiveness could be improved with additional reporting and disclosure requirements that will supersede mere ‘tick box’ compliance.”

In other words, perhaps we need a further nudge, some 10 years on from the initial regulations.

I understand that the Minister’s official position is that the existing regulations are adequate, but in a recent parliamentary answer, his colleague Lord Freud confirmed that his Department has made no assessment of how the regulations are operating. Given that so many others who have done such analyses have concluded that change is needed, will the Minister commit to exploring how the situation might be improved? Guidance from the pensions regulator on stewardship could provide an opportunity to clarify what constitutes an adequate policy under the 2000 regulations, encouraging pension funds to go further than boilerplate positions.

Perhaps more importantly, the Government could require pension funds to report on a regular basis on how they were implementing that policy. That could be helpful in focusing minds and ensuring that these policies are not, as one fund manager described them, a “dead document” but a genuine commitment that is given full weight in investment decisions. Again, this is not an unreasonable thing to ask. Pension funds are already required to produce an annual report, including an investment report. Under the stewardship code, it is reasonable to assume that this should include a summary of their stewardship activities during the year. It is also reasonable to assume that the report exists to give pension savers meaningful information with which to judge the fund’s performance. Environmental and social issues should be no exception to this. There is popular demand for such information, and that demand should be met.

I hope I have shown that pension funds’ behaviour as responsible investors, including with regard to environmental and social issues, is neither a trivial sideshow nor an issue that concerns only policy makers dealing with corporate governance or financial services. It has real implications for our ability to meet the challenge of providing a decent pension, and a decent standard of living, for all our citizens across the country.

To recap my questions to the Minister: will he discuss these matters with the pensions regulator? Will he encourage the regulator to produce some guidance? And will he look again at the disclosure regulations and explore ways in which they could be updated or supplemented to ensure that pension savers are getting the levels of transparency that they deserve?