Pensions: Deepwater Horizon

Lord Freud Excerpts

Wednesday 9th June 2010 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government what assessment they have made of the impact of the Deepwater Horizon oil spill on British pension savers.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, the Deepwater Horizon spill is an environmental and human tragedy. People saving in a pension scheme may be worried by the recent falls in the BP share price and indeed by market speculation about whether BP will pay a dividend this year. However, most pension schemes will be diversified across a range of investments, which will include not only equities but assets such as gilts, property and cash. Those more heavily weighted towards equities should not be too exposed to a single company.

[Lord Harrison]

Given that some one pound in six of the moneys received by pension funds comes from BP, does the Minister accept that these environmental risks can become severe financial risks? In light of that, would his coalition Government consider strengthening the reporting by pension funds to shareholders of these environmental, social and governance risks to ensure that the pension funds are not embarrassed in the way that they could be as a result of the recent tragedy?

[Lord Freud]

My Lords, the noble Lord, Lord Harrison, is right when he says that BP is a major dividend payer. I think that last year it paid approximately 14 per cent of all dividends in the FTSE 100. This raises the question that the noble Lord has just asked: to what extent are pension funds acting responsibly with regard to their ownership responsibilities to companies? There have been improvements in that over the past decade, but the question that we need to consider is whether they have improved enough.

[Lord Lee of Trafford]

Does the noble Lord agree that the question of BP paying a dividend is a decision for the directors of BP and not for the President of the United States?

[Lord Freud]

My Lords, whether to pay a dividend is a decision for BP, which is due to make that decision on 27 July at the appropriate board meeting. Anyone who reads the press will know that the company is coming under enormous pressure in the US not to pay a dividend. Indeed, the political pressure may be greater than the financial pressure, because BP is financially soundly based at this juncture.

[Lord Soley]

Are the Government talking to BP about this, bearing in mind the very real pressures on the company in the United States that could put it under even more pressure? Is not BP in need of help and support from the British Government? Is it being given that?

[Lord Freud]

My Lords, I understand that the Government are in touch with both the US Administration and BP senior management on a regular basis. Clearly, BP is a private company and one would not want to make public any discussions in that area, whether they were or were not happening.

[Lord Richard]

My Lords, do the Government feel that BP is being fairly or unfairly treated by the Americans?

[Lord Freud]

My Lords, that is a deeply political question. Clearly, the emotions raised in the US by this tragedy are enormous. There will be repercussions in the US and in the world as a whole with regard to attitudes towards oil companies. The best that I can say is that we will be watching this space for months to come.

[Lord King of Bridgwater]

My Lords—

--- Later in debate ---

[Lord King of Bridgwater]

My Lords, do not the directors have a duty to the board and the shareholders to meet their correct obligations in full on the serious issues that have arisen in the United States? That must be fully recognised. Having done that, and having made proper assessment of what those are, they also have to recognise the duty to their shareholders in terms of whether to pay a dividend.

[Lord Freud]

My Lords, I thank my noble friend for that question. Clearly, the BP board has to make some complicated decisions, which are a mix of the financial and the political. Market estimates of the cost that the company will have to pay are in the region of £15 billion to £20 billion, although that is purely market speculation and I make no comment about what the Government expect them to be. The company will have to decide in that context whether it is appropriate to pay a dividend.

[Lord Harrison]

I am grateful to the noble Lord for his reply to my first question—