Economic Activity of Public Bodies (Overseas Matters) Bill

Lord Warner Excerpts

Committee stage
Tuesday 14th May 2024 Lords Chamber

[Lord Warner (CB)]

My Lords, I intervene very briefly as a person who benefits very considerably from a local government pension scheme; indeed, pretty much my whole income comes from one. One thing that always concerned me and colleagues who were in these schemes was that they were well run, that their management was good, that they were reliable and that our deferred income—which is what a pension scheme is using—was being looked after well. What I hear from these amendments that are being spoken to in this group is that we need to strengthen the Bill if we are to continue with well-run pension schemes.

I also rather agree with the point made by the noble Lord, Lord Davies of Brixton, that it is very difficult to see what the case is for treating public authority schemes separately from private schemes—but that is a debate for another part of the Bill.

Here we should really be accepting technical amendments endorsed by the noble and learned Lord, Lord Thomas, the noble Lord, Lord Willetts, and in particular the noble Baroness, Lady Drake, which it seems to me would improve the confidence of beneficiaries of these schemes that the reliable management of the schemes would not be damaged.

[Lord Wallace of Saltaire (LD)]

My Lords, I should declare an interest as a beneficiary of the university superannuation scheme. Can the Minister remind us how many times any local government pension fund has taken decisions on political and ethical grounds towards investment in particular foreign countries? The Explanatory Notes to the Bill give us a very small number of examples of where local government pension funds have discussed whether they should. We will come later to the question of whether we should ban discussions of these sorts in a free country, but that is different. I worry about whether we are having an enormous debate about something which has not happened in this country and is unlikely to happen in this country. It happens in the United States, and the American debate filters into this country. Particularly on the right in British politics we have an awful tendency to pick up American partisan politics and try to apply them over here, which I am deeply unhappy about. Is this a real problem or a manufactured, confected problem? If so, could we possibly leave it aside until some future date when it perhaps becomes a problem?

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[The Minister of State, Cabinet Office (Baroness Neville- Rolfe) (Con)]

My Lords, I thank noble Lords for their thoughtful contributions today and for their engagement. I particularly thank the noble Baronesses, Lady Drake, Lady Janke and Lady Blackstone, and the noble Lords, Lord Shipley, Lord Willetts and Lord Hannay, who met me and officials to discuss the amendments a couple of weeks ago. During that meeting, noble Lords expressed their concerns regarding the financial and practical matters exception and the application of the Bill to the administering authorities of local government pension schemes. I sympathise with their ask for clarity in this area and I have taken some time to reflect on their comments. I will set out why, on balance, I think the Government’s drafting is sound on these points.

Before I address the amendments, I will set out why it is so important that the administering authorities of LGPSs are captured by the Bill. It is not a manufactured problem, as suggested by the noble Lord, Lord Wallace. Administering authorities come under frequent pressure from external pressure groups such as the Palestine Solidarity Campaign and the BDS movement to engage in BDS campaigns. We saw a notable example in 2021, when a UN special rapporteur wrote to the administering authorities of LGPSs demanding divestment from a number of Israeli companies. My noble friend Lady Noakes referred to this. The demands cited the LGPSs’ ability to play a transformational role.

We have also seen the BDS campaigners take credit for some decisions by administering authorities of LGPSs to divest from Israeli companies. For example, campaigners took credit for a decision by East Sussex Pension Fund to divest from an Israeli company.

Amendment 27, tabled by the noble Baroness, Lady Drake, would ensure that the ban does not hinder the ability of public authorities to consider financial risk and impact in their investments in a way that is influenced by moral or political disapproval of foreign state conduct. The Government agree with the policy intention of the noble Baroness’s amendment, and I acknowledge her expertise in this area.

However, having looked into the matter, we remain of the view that the Bill as drafted does not prevent public authorities being able to assess the financial and political risk of investments. The exception for considerations reasonably relevant to financial value and practical utility ensures that public authorities, including the administering authorities of LGPSs, will be able to make commercially viable decisions. This includes decisions to exclude investments if an assessment of the political and economic risks of an investment’s location could reasonably have an impact on the financial return of the investment.

I am grateful for the contributions of my noble friends Lady Altmann and Lady Noakes, and I confirm to the noble Baroness, Lady Drake, that

“financial value or practical utility”

captures considerations relevant to an investment’s long-term value and financial risk, not just its current value. I hope that my clarifying this on the Floor of the House provides the noble Baroness with reassurance.

[Lord Warner (CB)]

I want to clarify something that the Minister just said. Does this mean that, if my local authority pension scheme, from which I benefit, decided that an investment in Israel was risky and put the members’ money at risk, it could disinvest because it was risky, but not for any other moral grounds? Is that still permitted under this legislation?

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[Baroness Neville-Rolfe (Con)]

As I was trying to explain, the important point is that it depends on the motivation for the decision. The Bill would prohibit only investment and procurement decisions that would appear to a reasonable observer to be influenced by moral or political disapproval of foreign state conduct, and have a territorial element. It would not prevent public authorities making any other kind of territorial or practical business considerations. I have been trying to clarify this.

As I am conscious of time, perhaps we could turn finally to—

[Lord Warner (CB)]

I am sorry, we are getting very confused, certainly at this end of the House, as to what is the issue of risk. If a country—let us forget the names of the countries in the Bill—has a reputation for unrest and uncertainty, the cautious trustees of a local government pension scheme are highly unlikely to want to put their members’ money at risk. Where we have a situation in, say, a number of Middle Eastern countries where that is the position, they would, quite reasonably, in pursuit of their fiduciary responsibilities, not invest in those countries. So they would presumably be documenting that the reason they were not investing in those countries was the risk at which it would put their members’ money. Is that the position? As long as they show that that the reason they have made investment decisions to disinvest from, let us say, Israel or the Occupied Territories, is because it puts at risk their members’ money, is that okay under this legislation?

[Baroness Neville-Rolfe (Con)]

To confirm, I think that is what I said a couple of minutes ago. The sole reason must be that it is financially risky—that it is business risk guidance, not boycotts. My own feeling is that that is a helpful clarification. I am sure that noble Lords will look in Hansard at what I have already said.

If I might now finish, I would very much like to—