Enterprise Bill [HL]

Lord Stoneham of Droxford Excerpts

Monday 30th November 2015 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I rise to support the Minister’s amendment. The Green Investment Bank is a great success. It is the first of its kind, and it probably has the largest specialist team of green investment experts in Europe. The Government did the right thing in starting it up and are now doing the right thing in allowing private investors to assess whether it is credible and whether it will produce a proper return but keep to its core principles of staying as an investor in green ideas and businesses. Clearly, investors will not invest in it unless they are assured that it will remain a green investment bank that does what it says on the tin. There is enormous private sector appetite looking for investments of this type, so the Government should press ahead and not rely on taxpayers’ money to support it.

With respect, I disagree with the noble Lord, Lord O’Neill. Surely the whole purpose of this is to encourage foreign direct investment into the United Kingdom. Will the Minister assure us that foreign investors will be encouraged to take a stake in the Green Investment Bank? This country has done exceptionally well in FDI. I think that we are second in the world after the United States. We have sent a very clear message to overseas investors that this is a great country to invest in, for all sorts of reasons. Let us hope that the GIB continues this path.

[Lord Stoneham of Droxford (LD)]

My Lords, I am reluctant to take too much of the time of the House given the excellent speech of my noble friend Lord Teverson, but I want to thank the Minister for coming forward with her amendments because, as she knows, I was very concerned at the slight lack of detail in the amendment initially put forward. I accept that the efforts to ensure that Parliament will have oversight over the process of sale and its mechanisms are important.

On this side of the House, we accept that it is perfectly right and proper that this organisation is going to be privatised and that it is important to get private capital in. If we were judging where we are, we would probably say that this is being done a little too quickly. Given the success of the bank so far, it would have been right to ensure that the state gets its fair share of the proceeds once the bank has a bit more of a track record. The fact is, though, that the Government are going to do this. We also accept that if we do not do it, the Green Investment Bank will run out of funds and resources—so clearly it has to be done.

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[Baroness Wheatcroft (Con)]

My Lords, the background to this short debate is that pubs around the country are closing at an unprecedented rate. There are many communities in which the pub is the hub. The one thing we can be clear about is that these amendments will not do anything to halt that trend and may—indeed, almost certainly will—exacerbate it.

On the detail, I bow to the knowledge of my noble friend Lord Hodgson of Astley Abbotts. However, on the first amendment, it seems quite wrong to try to make such a change when a consultation process is already under way on the related secondary legislation. Surely we should allow that process to go through before attempting to change the situation. Equally, the pub adjudicator, the result of very recent legislation, has not been seen at work in practice. As my noble friend Lord Hodgson pointed out, the pub adjudicator has great power to intervene when there are complaints. Again, surely we should allow that situation to at least be tested before trying to change the legislation.

[Lord Stoneham of Droxford]

My Lords, I think we established in Committee that the current, ongoing consultation has departed from the objective of the enterprise Bill we were looking at in January, which was to introduce the PRA, the parallel rent assessment. The Minister told us in Committee that there were two reasons for this change. One was the cost to the sector of £600,000, and the second was about trying to do away with complexity. However, there was also the slight suggestion, as the discussion developed, that there had been some oversight here, and I would just like it clarified that this was intentional and that the Government have gone back on the previous legislation.

My former colleague, the noble Baroness, Lady Wheatcroft, said that we should continue the consultation now it has started, but the consultation started on a basis which the legislation did not provide for. The intention of the legislation we looked at in January was to have a parallel rent assessment, which was part of the further protection for tenants in this whole process. I would like some confirmation on that, but we remain sympathetic to this amendment because it basically restores what we agreed in January.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Mendelsohn, for his amendments, and the noble Lord, Lord Snape, for bringing his knowledge of the industry to our debates yet again. I also thank my noble friend Lord Hodgson for his contribution. As always, his knowledge of the pub industry is helpful to our consideration, and I am grateful for his considered analysis of the amendments. My noble friend Lady Wheatcroft was right to say that consultations are ongoing—lively ones, I understand—and that we should allow them to continue, although I will discuss that in a bit more detail.

I used to contemplate the subject of pubs with great enthusiasm, reflecting a very positive consumer experience over many years—with four sons and a husband who likes a pint—but I understand the feeling on the House on this issue, so I will try to explain where I think matters stand and then address in turn the amendments on market rent only, on parallel rent assessment and on gaming the system by company avoidance. Pubs were never part of the Bill, and I, at any rate, was taken aback by the turn of events ahead of our debate in Committee. I have attempted to do what I can to engage with noble Lords about their concerns and get us back on track, and I am very grateful to the noble Lord, Lord Mendelsohn, for his courteous words.

My first point is that we will shortly be issuing a second consultation, which will complement and clarify the one issued on 29 October, which had such a poor reception from the Committee. The Government have listened to concerns about the timing of the consultation. We cannot withdraw Part 1 and reissue the consultation as one document without delaying the whole package beyond the May deadline, which many stakeholders want to meet. Therefore, to meet the concerns expressed, we instead intend to extend the deadline for responses to the first consultation well into the new year. This will give stakeholders more time to look at our proposals in the round and respond to them as a whole. The Government have asked open questions in the consultation document, will ask more in the second consultation document and will carefully consider the material received from all respondents. The results will inform the content of the regulations, which of course will have to be debated in both Houses of Parliament, as we agreed earlier, on the affirmative resolution procedure.

Amendment 70ZC relates to MRO conditions and triggers. I listened carefully in Committee to the noble Lord, Lord Whitty, who I think cannot be here today, and the noble Lords, Lord Snape, Lord Berkeley and Lord Mendelsohn, and have of course heard what has been said today. The Government have heard the strength of feeling from noble Lords and stakeholders in response to our proposal in paragraph 8.12 of the first consultation and draft Regulation 15(b) that the tenant will have access to the MRO option only if the rent review proposal shows an increase in the rent that they are currently paying under the tenancy agreement. This proposal was based on an assumption that the amount payable would be expected to rise at each rent review and so MRO could be triggered in most cases. The Government intended this to be a proportionate intervention—there has never been any expectation on the Government’s part that it could or should defeat the statutory duty to introduce the right to MRO at rent assessment.

Since the publication of the first part of the consultation, we have been told that the effect of existing rent indexing arrangements and current trends in rent settlement figures would be to limit significantly the number of times tenants would, on the basis proposed, be able to exercise the MRO option at the time of their rent assessment. This was never the Government’s intention. We would be greatly concerned if it were to be the practical effect of our draft regulations. The Government believe that it is important to ensure maximum clarity on this issue and to obtain evidence of any and all unintended consequences. We will therefore take the opportunity of the second consultation to ask for consultees’ views on what would be the effect of removing from the draft Pubs Code the condition that there must be a proposal for an increase in the rent at rent assessment before a tenant may exercise the MRO option.

We also note the concerns regarding other MRO option triggers, the concerns of the noble Lord, Lord Mendelsohn, about the definition of price lists and other points. Again, there will be questions in the second part of the consultation that seek stakeholders’ views and allow those issues to be properly considered. It may be worth reflecting on the fact that allowing the current consultation to proceed alongside the first one, rather than passing the amendment today, would avoid the situation where the Pubs Code rests on two separate pieces of primary legislation, one of which would not become law until after the Pubs Code is intended to be in place—which could of course create legal uncertainties. I would also say that, protest apart, Amendment 70ZC is unnecessary, as existing powers in the SBEE Act 2015 permit the change in wording, should that be the outcome of the consultation.

I turn to the second amendment in this group and the issue of the relationship between the parallel rent assessment and the market rent only option. The noble Lord, Lord Mendelsohn, was kind enough to suggest that he thought that we had made progress in that area, and I hope that we can find a way through. The first part of our consultation on the draft Pubs Code set out that we would not be providing for a separate PRA process within the code. It may be helpful for me to explain the Government’s logic.

Before the market rent only option was put in the legislation last November, the PRA was the Government’s key remedy for delivering the principle that tied tenants should be no worse off than free-of-tie tenants. At this time, the supporters of the MRO option, the Fair Deal for Your Local campaign and its constituent groups, were opposed to this approach—understandably, given that they supported MRO as the key remedy for unfairness. They and stakeholders from all sides have also provided detailed comments on the operation of MRO that the Government have taken on board in drafting the regulations setting out the MRO option.

For example, the Save the Pub group wrote to the Government last year, and I think it would be helpful to read a brief excerpt. It said:

“A parallel rent assessment has been proposed which I believe all parties to this dispute have agreed, for different reasons, is unworkable. The tenant organisations have highlighted that, whilst a useful informative tool in the right hands, the method is time consuming and complex and should only be used in conjunction with the MRO option as a mechanism to calculate which agreement (tied or free of tie) would deliver the most likely sustainable/profitable future for the tenant”.

I could not have put it better. Similar feedback on the potential complexity of PRA was received from pub companies and their representatives.

So when the Government made a commitment, on Report in the Lords on 9 March, to include PRA in the Pubs Code, we went on to say:

“I am always keen to minimise bureaucracy, and as I said earlier it is our intention to streamline and integrate the two processes as far as possible, but we need to do the detailed work and process mapping to understand where and how the processes dovetail. This will benefit from further formal consultation, which will inform how we set this out in secondary legislation”.—[Official Report, 9/3/15; col. 464.]

It is this streamlining and integration that the Government have undertaken to inform their draft proposals in the consultation so that, as was suggested to us at the time, the PRA can be used in conjunction with the MRO option.

We therefore propose that the MRO process should allow the tied tenant to use the MRO offer to make an informed choice between two options—a tied rent figure and a parallel free-of-tie figure. These would both be subject to independent third-party scrutiny and based on evidence prescribed in the Pubs Code. I understand that at least some tenant representatives see no need for a parallel rent assessment as a separate remedy for the no-worse-off principle, as this amendment could require. I can also say today that engagement will continue throughout the consultation period with all sides of the debate. Indeed, Small Business Minister Anna Soubry will continue discussions tomorrow in round-table meetings with tenant groups and pub companies.

The hope is that, under our consultation proposals, the Pubs Code regulations can deliver PRA as part of the MRO process. Our intention is—and we are consulting on this—that the regulations will ensure tenants are provided with a detailed comparison of a tied rent in parallel to a free-of-tie rent, which will deliver the no-worse-off principle. If there are concerns that, in incorporating the key elements of PRA in the MRO procedure, the Government have made the process too “time consuming and complex”, the Government need to hear this through the consultation. If there are views that there is not enough information being required of pub-owning businesses and that PRA needs to be implemented in another way, the Government wish to hear that, too, again through the consultation. To give all sides time to study the proposals, the Government have decided to extend the consultation deadline to after the busy Christmas period.

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[Baroness Donaghy (Lab)]

My Lords, in supporting my noble friend Lady Hayter and speaking to the two amendments in my name, I want to give the Government the opportunity to keep their word and to give peace of mind to thousands of public service workers who will be affected if Clause 26 is enacted. The consultation period for this clause was brief and took place in the height of the summer vacation. The Delegated Powers and Regulatory Reform Committee was extremely critical of all aspects of this clause and the Minister’s assurance that any future changes will be subject to affirmative procedure in no way mitigates the overwhelming centralising powers which the Government are giving themselves.

The first promise was that the exit cap would not apply to the lower paid. As my noble friend Lady Hayter said, the then Treasury Minister, Priti Patel, said in January 2015:

“Crucially”—

I repeat, “crucially”—

“those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants”.

What has happened to this exemption? The purpose of Amendment 70C is to ensure that the figure, and the promise, is contained in the Bill.

The second promise appeared in the Conservative election manifesto, which said:

“We will end taxpayer-funded six-figure payoffs for the best paid public sector workers”.

The key phrase here is “best paid”: not low paid or averagely paid. The fact that this clause proposes to include those on very moderate pay, but with long service, shows that the manifesto statement was misleading. This is why exempting the pension strain payments is so vitally important to these workers, who will not receive a pension lump sum if they are made redundant after long years of service. This is why I support Amendment 70ZG and why I tabled Amendment 70D about long service.

The third promise to public sector workers—made after difficult negotiations on changes to public sector pensions—was that the new pension schemes would be a settled issue for 25 years. There is a statement by the then Cabinet Office Minister, now the noble Lord, Lord Maude of Horsham, to that effect. Suddenly, a few months later, over 100 pension schemes, affecting thousands of workers, will be forced to change their rules. People have made life plans on the basis of agreed entitlements. The anguish and stress on the lower paid caused by this clause could be prevented if the Government honoured their promise.

Finally, it is important that the Government are clear about when this clause might be enacted. The headline news is that the clause is intended to control excessive payments at the top end for the “best paid” public service workers. Not many would take issue with this, but the reality is that long-serving, lower-paid workers would also be affected, despite assurances to the contrary. This is a highly centralist measure giving this Government, and future ones, the right to overturn national agreements and increase uncertainty for public service workers who already face redundancy and reorganisation. It is still not too late for the Government to keep their promises.

[Lord Stoneham of Droxford]

My Lords, I said in Committee that there are a number of aspects the Government should be looking at. One was that they should retain some flexibility for dealing with special cases, particularly where value for money was involved. Given all the reforms in the public sector that will be required in the next few years, to miss out on the opportunity to compensate people who will be involved in those, and hit them with caps when they are seeking to co-operate, is not progress in any respect. We pointed out in Committee, as the noble Baroness, Lady Donaghy, did this evening, that these measures are not just aimed at people in the public sector on high pay. They are aimed at quite low earners who, because of long service, could reach the proposed cap. That is unfair. We have also heard that pension arrangements struck only quite recently are being further undermined by imposing this inflexible cap. For these reasons, we hope the Government will show some flexibility on these amendments, to give them the capacity to respond to the injustice they are creating through a commitment they made at the general election without really realising the unintended consequences.

[Baroness Neville-Rolfe]

My Lords, I am grateful to the noble Baronesses, Lady Hayter and Lady Donaghy, for their amendments and their comments. I will begin by setting out why it is important to cap the highest exit payments in the public sector. The Government have taken a range of difficult decisions on public sector pay. Measures to restrain pay growth in the public sector have not been easy or popular, but they have worked. The OBR estimates that the resulting savings will protect the equivalent of 200,000 public sector jobs in this Parliament. The cap is a smaller measure, but it is being taken in the same spirit and for the same reasons. It will not have any impact on the large majority of public sector workers. It is focused on the highest payouts and will affect only the top 5% in value of all exit payments made in the public sector. In those limited cases where the cap will bite on middle-earners with long service, I hope to show why this measure is a fair and proportionate course of action. It will still allow such public sector workers to receive payments of up to £95,000 and retire with guaranteed and index-linked defined benefit pensions, which are likely to be far more generous than those received by counterparts in similar roles in the private sector.

Amendment 70ZG is concerned with appropriateness and value for money, but it is not necessary or desirable. There is already a fundamental duty on the public sector to ensure that exit payments are value for money and that they are made in the most appropriate manner. This is a principle that will run through my comments.

Furthermore, along with fairness and proportionality, appropriateness and value for money will be the starting points for the guidance that this clause and the draft regulations mandate. The guidance, which will be binding, will set out when a decision-maker should exercise the power to relax the restrictions imposed by the cap and in what circumstances. The guidance will do more than simply restate two well-established principles; it will set out how the principles should be applied in practice. This will ensure that proper scrutiny is given to exit payments and that employers act with discipline and proportionality. The draft guidance will be consulted on and will be published alongside the regulations when they are considered by this House. Accordingly, the Government agree with the spirit of the amendment but believe that this clause goes further. It allows for clear and detailed guidance on the policy and will set out how the underlying principles should be applied.

Turning to Amendment 73A, the potential inappropriate use of settlement agreements and exit payments more widely is precisely why our clause requires approval by a Minister of the Crown, rather than the employer, when relaxing the cap. Ministerial or full council approval means that the power will be exercised objectively and only in exceptional circumstances, set down in guidance, to prevent circumvention and misuse. The power will be discretionary to allow for unique and novel situations. Regulations, as opposed to guidance, stipulating what such situations would be would limit flexibility. The multifaceted consideration that would be needed would not lend itself to the structure and prescriptive nature of regulations.

Amendment 70B, on pensions, was discussed both at Second Reading and in some detail in Committee. I appreciate that any discussion of pensions raises concerns and that good pensions are an important part of public sector remuneration. However, the proposal should be put in context. The Government are a strong supporter of public sector pensions. As has been said, strong new defined benefit pension schemes for public sector workers, protected by a 25-year guarantee, were introduced in the last Parliament—and this at a time when most private sector employers have said that defined benefit schemes are unaffordable and are moving away from them.

The noble Baroness, Lady Hayter, asked about the 25-year guarantee. This measure addresses exit payments, not entitlements to pay or pensions. The cap has no impact on an individual’s accrued pension and does not change the protected elements of the 25-year guarantee. A small minority of public sector workers to whom the cap applies will still be eligible for substantial taxpayer-funded increases in their pension entitlement.

There are fundamental reasons why an exclusion of employer-funded pension top-ups would not be desirable, and I should start by being clear that the issue we are debating concerns not retirement but redundancy. Any earned pension that has been accrued is untouched. The pension lump sum that is often paid as part of a public sector pension is outside the cap and does not count towards it. Instead, the pension costs that we are discussing are additional top-ups funded by employers when individuals depart early. The top-up payments, which provide an income stream from the day you leave, can greatly increase the value of pension payments above the level that has been earned through years of service.

In Committee, the noble Baroness gave several examples of public servants who might be caught by the cap. We have looked at these examples using assumptions, including of likely earnings. Of course, I accept that in the world of pensions different assumptions can always be made but, using our assumptions, we have found the following.

In the example of a librarian on £25,000 with 34 years’ service, we have found that an additional £95,000 pension top-up from the employer would in fact be enough to allow that person to retire on an unreduced pension at the age of 52. The same is true of the noble Baroness’s examples of a prison warder, whom we have assumed earns £28,000, retiring at 52 with 25 years’ service, and a school inspector, whom we have assumed earns £70,000, leaving at 56 with 16 years’ experience. In those cases, only if an additional redundancy lump sum were received on top of the pension strain payment could the cap be breached at all. In the cases of the prison warder and the school inspector, the additional cash redundancy payment would have to be more than £37,000 and £50,000 respectively before the cap could be breached.

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[Lord Stoneham of Droxford]

My Lords, I have a specific point for the Minister. These two amendments raise important issues and I am broadly supportive of them. In Committee, the Minister said that, where a whistleblower successfully brings a case to an industrial tribunal, the cap will not apply to the award made. That relates to the point raised by the noble Lord, Lord Low, that if you have the cap lifted only for tribunal cases and awards, it will encourage that process rather than a settlement, which would be quicker, probably cheaper and simpler. I therefore again put to the Minister the point made by the noble Lord, Lord Low: can we have a mechanism that does not confine this only to employment tribunal awards? Will it apply to tribunal conciliation settlements? More importantly, it would be helpful if it could apply to general settlements in cases where whistleblowers are particularly vulnerable. As the noble Lord, Lord Wills, said, often in public cases these people do not work in the sectors in which they have made their sacrifice.

[Baroness Hayter of Kentish Town]

My Lords, the case for the amendments has been made by both my noble friend Lord Wills and the noble Lord, Lord Low. I merely re-emphasise that undermining everyone’s desire to outlaw discrimination or to encourage whistleblowing in the public interest—which is good for patients, consumers and fellow workers—by including any compensatory payment in the cap would be yet another unintended consequence of this clause.

The point raised by the noble Lord, Lord Stoneham—and, in a way, by Amendment 70A, although not formally moved—is the general worry that a court-approved or ordered settlement would be exempted. We support what the Government are trying to do elsewhere to get early settlements, including by ACAS, but we are worried that unless those sorts of settlements are excluded there will be a perverse incentive to go to tribunal or court because, otherwise, the settlement could disappear under the cap. This could be for unfair dismissal, harassment or victimisation in addition to discrimination and whistleblowing.

If the Minister agrees to discussions on this issue and how we can support what the Government are trying to do elsewhere—which is to achieve settlements before going to court and not at the court gate—it would be very helpful.