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Public Bill Committees

Debated on Thursday 9 February 2017

Pension Schemes Bill [ Lords ] (Fourth sitting)

The Committee consisted of the following Members:

Chairs: † Ms Karen Buck, Andrew Rosindell

† Black, Mhairi (Paisley and Renfrewshire South) (SNP)

† Blackford, Ian (Ross, Skye and Lochaber) (SNP)

† Brine, Steve (Winchester) (Con)

† Courts, Robert (Witney) (Con)

† Cunningham, Alex (Stockton North) (Lab)

† Davies, Chris (Brecon and Radnorshire) (Con)

† Elmore, Chris (Ogmore) (Lab/Co-op)

Fovargue, Yvonne (Makerfield) (Lab)

† Greenwood, Margaret (Wirral West) (Lab)

† Harrington, Richard (Parliamentary Under-Secretary of State for Pensions)

† Harris, Carolyn (Swansea East) (Lab)

† Heaton-Jones, Peter (North Devon) (Con)

† Knight, Julian (Solihull) (Con)

† Mackinlay, Craig (South Thanet) (Con)

Mills, Nigel (Amber Valley) (Con)

† Smith, Royston (Southampton, Itchen) (Con)

Ben Williams, Clementine Brown, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 9 February 2017

(Afternoon)

[Ms Karen Buck in the Chair]

Pension Schemes Bill [Lords]

Ordered,

That the Order of the Committee of 7 February be amended as follows: in paragraph (2), leave out “new Clauses” and insert “new Clauses 8, 11, 12 and 13; remaining new Clauses”.—(Steve Brine.)

I understand that following the debate this morning, Mr Blackford no longer wishes to move new clause 8. Is that correct?

That is correct.

New Clause 11

Asset protection for unincorporated businesses

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”—(Ian Blackford.)

Brought up, and read the First time.

With this it will be convenient to discuss the following:

New clause 12—Review of actuarial mechanisms for valuing pension scheme liabilities

“Within six calendar months from the day on which this Act comes into force, the Secretary of State must conduct a review of the actuarial mechanisms used to value pension scheme liabilities under section 75 of the Pensions Act 1995.”

New clause 13—Non-associated multi-employer schemes: orphan debt

“The Secretary of State must, by regulations, exclude from the calculation in section 75 of the Pensions Act 1995 the orphan debt in any non-associated multi-employer scheme.”

It is a pleasure to serve under your chairmanship, Ms Buck. I thank the Committee for its assistance in taking new clauses 11 to 13 earlier than planned.

New clause 11 would help to deal with an issue facing plumbers in Scotland. Plumbing Pensions (UK) Ltd was established in 1975 to provide pensions for the plumbing and heating industry UK-wide. The scheme is managed by a group of trustee directors appointed from nominees of the Association of Plumbing and Heating Contractors in England and Wales, the Scottish and Northern Ireland Plumbing Employers Federation and Unite the union. The scheme has more than 36,000 members and assets in excess of £1.5 billion.

Under section 75 of the Pensions Act 1995, employers may, in certain circumstances, become liable for what is known as a section 75 employer debt. That debt is calculated on a buy-out basis, which tests whether there would be sufficient assets in a scheme to secure all members’ benefits by buying annuity contracts from an insurance company. Legislation specifies that a section 75 employer debt becomes payable when an employer becomes insolvent, winds up, changes its legal status or ceases to have any active members in the scheme. Although we must be mindful that the purpose of those rules is to protect pension benefits, the way they are currently framed creates problems for some stakeholders, and we are sympathetic to SNIPEF’s concerns, which I know it has also raised directly with the Minister.

The solution is not clearcut. There are several options for the Government to consider, but each has complications for pension schemes, employers and scheme members. We urge the Government to balance employers’ interests with the need to protect benefits for scheme members. The previous Pensions Minister, who sits in the House of Lords, indicated that she would look closely at how a solution to this complex issue could be reached. We need the same assurances from the current Minister that the Government will work to find a solution for the industry. They could use the Bill to bring forward such a solution.

SNIPEF aims to achieve an amendment to the section 75 debt legislation. Its main concern is for unincorporated businesses where people risk losing their personal assets, including their homes. It wants the Government to review the actuarial methods that are used to value pension scheme liabilities, as it believes that given the current economic conditions, the calculation of section 75 employer debt on a full annuity buy-out basis is inappropriate and detrimental to non-associated multi-employer schemes.

SNIPEF argues that orphan debt in any non-associated multi-employer scheme should be excluded from the calculation of section 75 employer debt. It also suggests that, provided that schemes are deemed to be prudently funded, the Pension Protection Fund should act as guarantor of last resort for orphan liabilities. SNIPEF believes that any changes in legislation should apply retrospectively to all employers from 2005. It would be helpful to hear the Government’s view on that request.

As I mentioned, SNIPEF recently met the Minister, and it has advised several MPs that he confirmed that those objectives could be incorporated in a Green Paper, but I want to use the opportunity of the Bill to address these matters. We are eager to hear whether the Government intend to include a solution in the Bill, and I look forward to the Minister’s comments.

It is appropriate, given the temperature in which we are working, that plumbers are mentioned. I only wish that some of them were in the Public Gallery to make repairs so that hon. Members would not have to wear their coats.

I joke about that, but I accept that this is a serious matter. When it was brought to my attention, it was my duty and pleasure to meet representatives of not just the plumbers but others. The Government are not ignoring the issue. Although some stakeholders have run an effective public campaign, as is their right, it was the job of the Department for Work and Pensions anyway to get to grips with this, despite the fact that MPs have contacted us individually, such as the hon. Member for Ross, Skye and Lochaber—

Thank you. I have finally got it. I shall provide tuition for other hon. Members.

This issue is important. For the record, I should remind hon. Members who are not as familiar with it as the hon. Member for Ross, Skye and Lochaber why the employer debt legislation is in place. It is to help ensure that members of salary-related occupational pension schemes receive the pensions they worked for and have been promised when their own employer cannot provide them. I think everyone would agree that that is a noble aim. Were that not a rule, it would have led to even more difficulties.

When I see representatives of those in such positions, I try to think about this key question: if they are not responsible for the debt, who is? Someone has to be responsible for it. As hon. Members will have picked up from the hon. Gentleman’s speech, people who have been working quite properly and, typically in this field, running their own businesses find themselves with—I do not know what the legal term is—a contingent liability that could be called upon. It is not as though they have received an invoice or a demand, or people have been banging on the door to repossess something, but it is understandably on their minds that that could and might happen, which is a serious matter.

That is exactly the point. We are talking about often small businesses that have done the right things in making sure their employees are protected and have adequate pension provision, but there is a sword of Damocles hanging over them with the worry and uncertainty, caused purely by this debt, that they may lose their businesses and houses.

I accept the hon. Gentleman’s point. We all agree there is a problem. I do not see how anyone could disagree with that. These people are simply in an unfortunate position, but the Government have to decide, “If not this, what?” and “What are the alternatives?” The hon. Gentleman said, as the groups involved have, that the debt should be passed to the Pension Protection Fund, which everyone would agree has been a very successful mechanism. We mentioned the Maxwell case before lunch. The PPF was intended to deal with failing schemes. It is paid for by the levy payer—by all the successful pension schemes—and I am sure they complain because it is a significant amount of money, but everyone would agree that it has been successful.

In this case, we would place an unfair burden on the PPF, because we are not talking about failing schemes. Many of them are successful and proper. That is why I mentioned a contingent liability. If it is your liability— I do not mean yours, Ms Buck, but anyone’s—it is real to you. It is not quite as real as having an invoice or a demand, but it is there all the time. I do not deny that. However, passing the debt to the PPF would place an unfair burden on the PPF and its levy payers.

Like so many issues facing defined-benefit schemes, the problem is complex and finding a solution is difficult. I accept that it is for the Government to address it. That is what we are elected and paid for. But like everything else in government, there is not an instant, easy solution. It is worth highlighting the fact that the Government have already made significant changes to the legislation in response to representations made by some employers. A number of mechanisms have been made available in employer debt regulations whereby only part of the debt or none may be payable. There are eight such mechanisms in legislation. A wide variety of circumstances can arise, because there are a lot of diverse scheme structures. The best example, which has been discussed with the plumbers and those making similar representations, is flexible apportionment arrangements, which permit an employer debt attributable to the departing employer to be shared among the remaining employers. That sounds attractive, but it is part of a triangle of previous employers, remaining employers and the PPF—it is about which of them gets kicked with this liability. Each group is obviously going to be in favour of the others getting it. I say that not to cast any aspersions or to make a value judgment, but it has to go somewhere, and in the end that is for Government to decide. On the face of it, however, that would be such a solution.

New clause 11 calls specifically for a change by regulations to the employer debt legislation in the Pensions Act 1995. It is aimed at providing protection for the owners of unincorporated businesses. Many of the plumbers who have made representations happen to be self-employed because that is the structure of their business, but they are not self-employed and running a large business. They just happen to be a business owner who is self-employed. A mandatory provision to protect one group of employers from their responsibility for an employer debt, for which there may be personal liability, again boils down to that debt needing to be met in some way by others in order to safeguard members’ pensions. It is true to say that such an approach would also conflict with existing employer debt provision that recognises the wide range of employers who participate in occupational pension schemes. It does not differentiate between different types of business structure in relation to employer debt duties.

Secondary legislation, in the form of the 2005 employer debt regulations, already includes a range of mechanisms to facilitate the management of an employer debt when an employer ceases to employ active members of a pension scheme. The regulations operate so that in some circumstances, only part of the debt or no debt may be payable. Those regulations are currently under review. We had a call for evidence about the operation of employer debt legislation in non-associated multi-employer schemes. We needed to call for evidence because there are losers and winners. It is the role of Government to try to assess interests, and some form of judgment has to be made. This area of legislation is extremely complex, and we have to check and consider things carefully.

I reiterate that we are not kicking the can down the road—it is not that we do not want to make a decision. It is a complex issue, and we are looking to consult on specific proposals in the very near future. In any case, a whole range of new proposals might come about in our Green Paper on defined-benefit schemes. If I say the release of that Green Paper is imminent, that could mean anything from tomorrow onwards, but it will be very soon.

I think the Minister will accept that I am trying to be helpful to the Government in trying to find a resolution to this situation. Let us look at the wording of new clause 11 again:

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”

I would be content if we could get an assurance that the Government are willing to work together with us to solve this problem. The Green Paper will be coming forward, and I appreciate that the Minister has said he is prepared to look at this matter and see whether there is a resolution that can be found that would not have any unintended consequences,. I seek assurance from the Government that that will be the case. I know the Minister cannot be too prescriptive about the Green Paper at this stage, but I hope there is willingness to ensure that these issues of actuarial valuations will be taken into account in it.

Order. I remind hon. Gentleman that he is making an intervention, not a speech.

Sorry, Ms Buck; I will sum up. I am trying to get to a consensus, so that we can work together on this.

I think I understand the hon. Gentleman’s intervention; I accept that he did not mean it to become a speech, but I think it did. He knows, because I have told him privately, that it is the Government’s intention to resolve this issue. I have stated many times that I cannot go into what will be in the Green Paper. I also cannot accept that the new clause should be included in the Bill, because we are not ready for it. We do not have a solution; there is no simple solution.

The hon. Gentleman has been involved, not actually in this issue but in many others to do with asset management and financial services, and knows that everything is more complex than it first appears. I have accepted that there is a problem, I have mentioned that there are different entities that have to deal with it, and I have accepted that we have to try to reach a solution—by consensus, I hope. However, I cannot give him that good news today; I have to resist the new clause being added to the Bill.

It is a pleasure to see you in the Chair and to serve under your chairmanship, Ms Buck. The experience of the hon. Member for Ross, Skye and Lochaber comes through very clearly.

I hope I can offer some help to the Committee. I realise that this is a complex area, but the hon. Gentleman’s new clause does not actually encompass the extent of the problem, which goes further. Under the old rules—extra-statutory concession C16 on the winding-up of companies, which was used widely until 2012—a group of directors or owners could wind up a company using a very informal method, but that did not cease their liabilities to that company. That liability extended for 20 years afterwards. That was then formalised under section 1030A of the Corporation Tax Act 2010, which gave a statutory basis to the informal winding up of companies with assets of less than £25,000. That provision is still used very widely. Directors or owners of such companies being wound up under that statutory method could still face 20 years of future liabilities, so although the hon. Gentleman has identified a problem in the system, it does not just apply to unincorporated associations.

The effect of the section 1030A of the 2010 Act, which came into force on 1 March 2012, is that directors and owners of slightly larger companies are going down the route of a formal liquidation, which terminates their liabilities for ever more. However, hundreds—if not thousands—of old, smaller companies using the old extra-statutory concession will still be caught by a section 75 notice. This is a very wide issue that does not apply only to unincorporated associations, so I do not think the hon. Gentleman’s new clause is enough to close down his concerns on future liabilities. Personally, I accept the Minister’s assurances, but I think this is the start of a wider debate as to how those liabilities can be cut down.

In the hon. Gentleman’s new clause 12, there is a problem with determining the proper value of a pension liability. It is not as sharp as just the transfer value that is often given, and we will need in future to be a little bit cleverer in how we actuarially assess pension liabilities.

On the basis of the Minister’s response, I will certainly not push the new clause to a vote. We have received assurances that the Government will look at these issues; I hope they will not only be addressed in the Green Paper, but that there is the possibility of legislation as a result of that. I think we all recognise—there is a consensus on this—that we have to make sure we can resolve this problem for the benefit or incorporated and unincorporated businesses. On that basis, I will happily leave things as they are for now. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Investment Strategy

“(1) A Master Trust, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the Secretary of State,

(2) The Trust must consult scheme members on—

(a) the Trust’s assessment of the suitability of particular investment and types of investment;

(b) the Trust’s approach to risk, including the ways in which risks are to be assessed and managed;

(c) the Trust’s policy on how social, environmental, and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;

(d) the Trust’s policy on the exercise of the rights (including voting rights) attaching to investments; and

(e) the right of scheme members to consider non-financial issues relating to their investments and be consulted on these issues.

(3) The Trust must review the strategy at least once a year, and revise if appropriate

(4) The Trust must revise the strategy at any time if there is any significant change to the information included in it.

(5) In the event of (4) above, the Trust must consult with scheme members, and the revise the strategy in the light of comments made.

(6) The Secretary of State may make regulations with a view to ensuring that the information disclosed under subsection (1) is provided in a timely and comprehensible manner.”.—(Alex Cunningham.)

A Master Trust must include an investment strategy which outlines what the Master Trust should consult scheme members on in areas of investment.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

Welcome to our walk-in fridge, Ms Buck. I had a discussion with the Government Whip, the hon. Member for Winchester.

On a point of order, Ms Buck. Actually, I do not know whether it is a point of order or a point of clarification. Before we come to the hon. Gentleman’s new clause, am I correct in saying that new clauses 11, 12 and 13 were all withdrawn?

I was talking about the conversation that I had with the Government Whip about whether we should invoke the Factories Act. He reminded me that, unhelpfully, said law does not apply to the Palace of Westminster. The Minister mentioned kicking a can, and I remember playing kick the can in the street as a young boy. Perhaps you can provide us with a can, Ms Buck, and we can have a game after we debate the next new clause to warm ourselves up.

New clause 2 continues our theme of transparency and member engagement. It is designed to improve the way that master trusts consult their members about their investment strategies and ensure that members are aware of the guidelines that trustees establish for the management of members’ assets. The new clause would modernise the approach to fiduciary—I find that word even more difficult to say than “Lochaber”—management of savers’ assets and update the statement of investment principles approach currently required of master trusts. A master trust would have to have an investment strategy and consult scheme members about that strategy and about socially responsible investment—commonly known as environmental, social and governance issues.

Until now, every occupational pension scheme has been legally required to prepare and maintain a statement of investment principles, which is expected to cover the trustees’ plans for securing compliance with their statutory duties, their policies on investments, risks and returns, and how they will exercise their voting rights. In short, it allows trustees to consider factors that they believe will influence the financial performance of their investments and consult members about those issues. As long as pension funds can show that any investment or policy decision was made on a fiduciary basis and members were consulted, they can avoid the charge that they have not considered members’ best interests.

Public opinion tends to position the average citizen as a helpless bystander in this drama, but in fact it is their money that underpins the entire system. Anyone with a pension is, indirectly, an owner of Britain’s biggest companies. The new clause seeks to create a world in which people feel that their savings give them a positive stake in the economy and a voice in how the companies in which they invest are run. Although we may hope or even expect that scheme members have a say, the reverse is true: power has become increasingly concentrated in the hands of a relatively small number of opaque and unaccountable financial institutions. As the Kay report showed, those institutions often face systematic pressures to act in ways that may not serve savers’ interests. Direct accountability to savers is a vital component of a healthy economic and financial system. As millions more savers are about to enter the capital markets through pensions auto-enrolment, now is the right time to build a more accountable system.

In June 2011, the Government invited Professor John Kay to conduct a review of UK equity markets and long-term decision making. The Kay review considered how well equity markets were achieving their core purposes—to enhance the performance of UK companies and enable savers to benefit from the activity of those businesses through returns to direct and indirect ownership of shares in UK companies. The review identified that short-termism is a problem in UK equity markets. Professor Kay recommended that company directors, asset managers and asset holders should adopt measures to promote both stewardship and long-term decision making. He stressed in particular:

“Asset managers can contribute more to the performance of British business (and in consequence to overall returns to their savers) through greater involvement with the companies in which they invest.”

He concluded that adopting such responsible investment practices would prove beneficial for investors and markets alike. In practice, responsible investment could involve making long-term investment decisions, as well as playing an active role in corporate governance by exercising shareholder voting rights.

I hope that master trusts will want to consider the Kay review’s findings when developing their proposals, including what governance procedures and mechanisms are needed to facilitate long-term responsible investing and stewardship through the funds that they choose for members to save into. The UK stewardship code published by the Financial Reporting Council also provides master trusts with guidance on good practice in monitoring and engaging with the companies in which they invest. The new clause would ensure sure that trustees are guided by the members of the scheme whose money they invest.

In recent decades, efforts to improve the way companies are run have focused heavily on making directors more accountable to their shareholders—for example, the recent introduction of a binding “say on pay”—but the job is only half done. Ownership rights are exercised largely by institutions that are themselves intermediaries. Accountability to the underlying savers who provide the capital remains weak. The logical next step must be for institutional investors to extend the same accountability they expect from companies to the savers they represent.

The UK stewardship code was introduced in the aftermath of the financial crisis to address concerns that shareholders were behaving as absentee landlords. Rather than being enforced by regulators, it is a voluntary code that relies on scrutiny from below to promote compliance, mirroring the corporate governance code for companies. The investment regulations currently require master trusts to set out within the statement of investment principles the extent to which social, environmental or corporate governance considerations are taken into account in the selection, retention and realisation of investments, but savers are left out of the loop. Just as I have argued for greater engagement with members on other issues, I believe it is needed here too.

In addition, accountability should build trust in the system even among those who do not choose to engage, thus encouraging people to keep saving. That is an important consideration in a market where just 7% of retail investors trust investment firms to do the right thing and consumers cite lack of trust as the No. 1 reason for opting out of private pension saving. Practical objections on the grounds that savers are not interested or not capable of engaging with their money simply perpetuate a vicious circle of disengagement. Savers may be put off by the language of investment, but that does not mean they are not interested in where their money goes. The onus must be on the master trusts and the wider investment sector to communicate with savers in a way they find meaningful. Likewise, savers may lack understanding of the technicalities of investment, but there are many matters on which they are qualified to comment, including the way their scheme behaves as an owner of major companies or its policy on social, environment and governance issues.

Transparency is necessary, but not sufficient for a more accountable investment system. Savers must also have the right to engage directly with decisions about their money, in the same way that shareholders engage with companies. Of course, we are not suggesting that all savers should be consulted on every decision. In our view, engagement with savers has three key elements. Savers should have the right to be consulted about investment policies, particularly those that should be firmly grounded in the views of savers, such as socially responsible investment policies. It is sometimes argued that since savers will inevitably disagree, acting on their views can prove difficult, but that objection can be refuted by example: schemes such as the National Employment Savings Trust demonstrate the possibilities of using face-to-face engagement with savers to inform the development of policy. Savers should be able to subject decisions made on their behalf to healthy scrutiny and challenge. While companies are obliged to hold annual meetings at which the board accounts to their shareholders, no such requirement extends to pension schemes.

Making capital markets more answerable to the individuals whose money they invest offers a potential lever for rebuilding trust in the City and for promoting more responsible and long-termist corporate behaviour. Such accountability must be nurtured over time by institutional investors such as master trusts, other pension savers and civil society in general. As Mark Carney said back in 2013, if it is

“finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.”

We have an opportunity here to change the landscape that sees pension savers as passive uninterested participants by engaging with them on decisions that affect their lives. When I started this speech, I said I was continuing the theme of member engagement. The new clause would extend what currently happens in relation to investment decisions, and I commend it to the Committee.

Before the hon. Gentleman concludes his speech, I wanted to ask about subsections (3) and (4) of the new clause, which state:

“The Trust must review the strategy at least once a year…The Trust must revise the strategy at any time if there is any significant change to the information”.

Can he explain what form that review would take and what role investment advisers would have, if any, in that review?

That is an extremely difficult question to answer. [Interruption.] Everyone can laugh, but the Government talk about regulations and laying down guidance, and I hope that they would be able to provide the necessary guidance.

This is actually a very serious point. The hon. Gentleman’s new clause would require an annual review, so it is pertinent to ask how that would be conducted and what role, if any, investment advisers would have.

There has to be a role for investment advisers, but the crux of my point is that members should have some say in the investment decisions that affect them.

Can I deduce from that that the hon. Gentleman actually has no idea how such reviews should be conducted?

That is not exactly the case. It is clear that we need a set of circumstances in which members are properly engaged, equipped and informed. If they are, they will be able to contribute.

I oppose new clause 2 just as I opposed new clause 1, not least because of practicality. Let us go back to the example of NEST, which could have millions and millions of members—and I envisage that it probably will. How on earth could an investment strategy be decided by 3 million members? That would probably lead to three million and one different investment strategies.

I do not see anything in the Bill that would prevent a scheme such as the one the hon. Gentleman proposes from coming to the market if there was demand for it from several employers and members in those employers. The market could then decide, “I like the look of that scheme, with its huge member involvement.” I see no reason why such a scheme could not evolve if one was called for.

The hon. Gentleman speaks about an ethical investment policy. That is all very well, but I remind him that the Co-op bank took a similar route, and it is not exactly in great shape. I put it to him that when I go to a doctor, I like to see the doctor; I do not particularly want to see the lay members of the NHS trust as well. I feel comfortable leaving this with investment professionals, because they will be judged on their performance. If they do not achieve, employers may look at an alternative master trust.

Surely when picking a pension fund employers interact with funds and many of these issues are raised in those interactions.

As my hon. Friend says quite clearly, the results will speak for themselves. I come back to the principles that I mentioned earlier: the fund has to have good returns and be well run and focused, because it has one function—to deliver good pensions. Again, I do not see that the new clause would achieve any of those principles, and if nothing else, it is unworkable because of the size of funds.

I absolutely agree with my hon. Friend; member engagement and involvement sounds very good—it is a laudable objective—but I have been around for nearly 60 years, of which I was in business for nearly 30, and I do not feel qualified to assess an investment strategy. I say that not to insult the vast majority of people, but because, although independent financial advisers and accountants may be able to do that, it is almost impossible for an individual to do so. We have to look at a way of ensuring that the investment strategy is the correct one for the majority of members, and that the regulatory system, the supervisory system and so on are in place. Hon. Members mentioned NEST, which already has more than 4 million members and 230,000 employers. This idea is very interesting but not at all practical.

I remind hon. Members that trustees play a key role in managing assets. They have overall accountability for the investment strategy. They have a legal duty; the hon. Members for Stockton North and for Ross, Skye and Lochaber—I can just about manage to say that now—used the expression “fiduciary duty,” and the trustees have a fiduciary duty to the members.

Laudable as new clause 2 is, pensions legislation already includes requirements for investment decisions to be transparent and in the best interests of members. The Government fully recognise the possible impact of investment decisions on members’ retirement outcomes. Even without the new clause, the Bill will add to those requirements. Clause 12(4)(d) already sets out that regulations made by the Secretary of State

“may include provision about…processes relating to transactions and investment decisions”,

while clause 12(2) states:

“In deciding whether it is satisfied that the systems and processes used in running the scheme are sufficient…the Pensions Regulator must take into account any matters specified in regulations”.

The new amendment would duplicate the provisions for master trust schemes that already exist under the Occupational Pension Schemes (Investment) Regulations 2005. The regulations require trustees of all schemes with 100 or more members to set out a statement of investment principles for their scheme. That statement must be made available to members on request and

“must cover…their policies in relation to…the kinds of investments to be held…the balance between different kinds of investments…risks, including the ways in which risks are to be measured”

and other key issues. The trustees must ensure

“that the statement of investment principles…is reviewed at least every three years…and without delay after any significant change in investment policy.”

Most people who are automatically enrolled into pension schemes are likely to remain in their scheme’s default fund and will not actively engage themselves in the governance of the scheme. That is why legislation makes requirements about governance and oversight of these matters, and why most schemes, including master trust schemes, need to provide a default strategy that covers similar areas.

Finally, multi-employer schemes have a legal duty under the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to make arrangements to encourage members of the scheme or their representatives to report their views on matters that relate to the scheme, including areas about which the new clause proposes that the trustees should consult scheme members.

I am listening carefully to the Minister, and I broadly agree with him. Obviously there will be ongoing reviews of investment strategy, which should be communicated to members where appropriate. One way in which that could be done, as a matter of best practice for these schemes, would be for a statement of investment principles to be mailed to members as part of the annual report. That would give more clarity on the direction of travel of the fund’s investments.

As usual, the hon. Gentleman makes a very sensible suggestion, which should be considered. However, I believe that everything in the new clause is already included in legislation and that it is therefore unnecessary, so I urge the hon. Member for Stockton North to withdraw it.

Let me first address the point about size and the ability to organise communications in this sort of situation. If Legal & General can do it, so can others.

The Minister described lots of ideas raised today as laudable. Sadly, all the ideas he supports exclude members. He rejects the idea of members being represented among trustees and the idea of member-nominated directors. His position is that everything should be left to professionals and to the marketplace, and that members may not be able to take part in or understand investment decisions. He admitted that he might not understand those decisions, but there are members out there who do, and it would be helpful if at least some of them could represent their fellow members and challenge some of the things that their trustees are doing.

One further point concerns me. An employer may opt for a particular trust but become dissatisfied with it and move. There are a very large number of employers, and I fear that a large number of them are disengaged. I wonder whether they are acting in the best interests of their employees. I will come to that during the debate on a later amendment. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 3

Annual Member Meeting

“(1) The trustees of an authorised Master Trust Scheme must hold an annual meeting open to all members of the scheme.

(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—

(a) scheme members to observe the meeting remotely, and

(b) scheme members to submit questions to trust members remotely.”.—(Alex Cunningham.)

This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

This new clause takes us back to our member engagement theme. It would require master trusts to hold an annual member meeting, and it sets out ways to ensure that members are properly given the opportunity to be involved in that. It is now common practice for pension funds to hold an annual member meeting. Good member communications, provided at the right time and in an accessible format, are vital if members are to engage and make decisions that lead to good outcomes during their retirements. An annual member meeting ensures that trustees and administrators can be made human and accountable.

A Legal & General master trust annual report states:

“In September last year we hosted a Members’ Forum at Legal & General’s office in London. It wasn’t just a first for us, it was the first ever for any scheme like ours. We got a lot out of that meeting, and we hope that those members who attended did so too. Our aim was to get a better understanding of the things that matter most to members, to help inform our plans for the future. We believe we achieved our aim, and the feedback we got from those members was encouraging.”

I am not here to promote Legal & General, but I commend its attitude and its work in this arena.

Trustee boards should regularly review member communications, and when deciding on the format of those communications, should take account of innovations of technology that may be available to them and appropriate for their members. That would allow the more engaged members to hear a presentation from trustees and senior executives about how the scheme has managed their retirement assets over the previous year and what plans the scheme has to deliver a strategy and manage risk into the future on their behalf. If Legal & General can organise such an event, I think others can too—even if they have vast numbers of members.

If others do not do what Legal & General did, how could they have an annual forum? We must not forget that there is no necessity to fill a hall with thousands of people in this technological age. It is possible to reach more people perhaps by combining a live meeting with an online platform, or indeed to hold the whole meeting online. A recording of the meeting could then be made available on the trust’s website, with an opportunity to give feedback.

The Pensions Regulator’s guidance accompanying its new defined-contribution schemes code of practice highlights AMMs as one way that multi-employer schemes can stay close to members. The new clause would bring master trusts into line with the normal practice in the corporate sector and among the growing number of pension schemes.

Again, I find myself having to disagree, not with the hon. Gentleman’s intention, but that this is a practical solution to what he wants to achieve. The new clause would require the trustees of an authorised master trust—it would not be there if it was not authorised—to hold an annual meeting open to all members, even if they cannot attend in person. It is clear what the hon. Gentleman wants.

As I have said—I know it is a bit of standard response, but I reiterate it—we are doing everything in the Bill to encourage member engagement and communication, especially now that the pension freedoms have been implemented. People must have the ability to assess their choice, and part of that is communication with what goes on. As we know, the Bill works alongside the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 and the Financial Conduct Authority rules that set out minimum standards for communication. Those ensure that members have access to appropriate information to make decisions about their pension saving, including an annual benefit statement and, for most people, a statutory money purchase illustration, which gives members a projection of their pension in retirement.

Documents relating to the governance of a scheme, such as the trustees’ annual report, the chair’s statement and the statement of investment principles, have to be provided on request. In addition, the Government have committed to ensuring that the pensions industry builds and launches a pensions dashboard, which is very important and would allow members to see their pension rights with different providers across the pension landscape.

Schemes are also developing their own methods of communicating with members. The hon. Gentleman has mentioned Legal & General several times and I endorse what he said, with the caveat that it is not the only company that communicates with its members. I have seen a big television campaign at the moment that shows people how to assess Aviva, and I have seen Standard Life’s app. Technology has really helped that kind of engagement. Regarding the new clause, I question whether an annual general meeting is the right way to improve matters. We have already established, for example, that NEST has millions of members from 230,000 employers—and will have a lot more in future. The hon. Gentleman also mentioned Legal & General’s members’ forum. Many firms have such a body. NEST has a members’ panel; the name is different, but it is effectively the same thing—a forum for scheme members to give their views on the scheme to trustees. NOW: Pensions, which is one of several competitors to NEST, is embracing digital communication and has a mobile-enabled website, which I have seen.

Some employers, such as Kingfisher and Tesco, are using mobile apps and games to interest members in their scheme. Those are far more interesting than an invitation to an annual general meeting, which apart from the impracticality of organising it for millions of people, is quite dull, I am sure, compared with the modern and user-friendly way of finding out what is going on. In addition to that, the Pensions Regulator provides detailed guidance for trustees about the standards it expects schemes’ communications strategies to meet to ensure that they communicate transparently with their members. The details of that are on the regulator’s website and are quite extensive.

I sympathise with the drive for member engagement and accept that the hon. Gentleman has not tried to turn this debate into a goodie and baddie thing, implying that he is in favour of member engagement and we are not. I think we all agree on the objective; it is a question of how to achieve it. I do not believe that making AGMs mandatory is the answer. Some schemes may want to do that, and that is perfectly acceptable, but complex and expensive logistics will need to be thought out. I agree that some may do it and may use technology very well. It may be that future generations will be able to tap their app and get such a meeting or institution—I do not mean an institution as in a pension fund; I mean the institution of such a meeting. I do not have the technological jargon. That sort of thing would have seemed impossible to do on a screen 10 years ago that we now can.

I want to avoid the situation that the hon. Gentleman wants in which a scheme is obliged to hold an AGM, because the cost will be passed on to the membership and I cannot see that it will achieve the noble objective that the hon. Gentleman wants. I hope the points I have made sufficiently explain why the Government are of the view that the new clause is not appropriate, and I sincerely urge the hon. Gentleman to withdraw it.

I do not have the app jargon either, as the Minister will probably realise. We have talked much about engagement and communication over the past two or three sittings. I remain concerned that there is still no real requirement on the trustees of any of the master trusts to communicate with the people whose money they are responsible for managing. We need to make communications much more practical, and I believe that if member meetings work well for some organisations, they could also work well for master trusts.

I hope that master trusts out there will learn from NEST and from Legal & General, and will understand that member meetings can happen and that they can derive tremendous benefits from their members being much more engaged. I would prefer to see a situation in which it is enshrined in the law and there is a compulsion for people to build on what is already happening out there, to repeat some of it and to see a level of engagement that we have so far not seen, but I do not intend to press the clause to vote at this stage. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 4

Master Trust Schemes: Review of Participation

‘(1) The Secretary of State must, before the end of the period of 12 months from the day on which this Act receives Royal Assent, establish a review of participation in Master Trust Schemes.

(2) The review must consider what steps can be taken to increase the participation in Master Trusts Schemes by the following groups—

(a) carers;

(b) self-employed;

(c) workers with multiple employees; and

(d) workers with annual earnings below £10,000.”

(3) One of the options considered by the review to improve participation must be changes to the terms of auto-enrolment.’. —(Alex Cunningham.)

This new clause reviews options for widening participation in Master Trust Schemes for groups currently facing barriers, in particular groups not currently covered by auto-enrolment.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

I was pleased to table this vital new clause, which attempts to widen access to master trust saving for those whom this Government have left excluded for too long. As it stands, the Bill does little to build on the success of Labour’s auto-enrolment policy and ensure that saving into master trusts is accessible and encouraged for the number of groups that evidence suggests are not saving adequately for their retirement.

I recognise that the Government have announced a review of the operation of auto-enrolment into master trust saving, but its scope is broad, with few specifics in the terms of reference published yesterday. It is vital that the review specifically addresses the question of how we can improve master trust saving among the groups specified in the new clause. That will ensure that the Bill delivers plans that strengthen security and dignity in retirement. The Minister may already be wondering why I am pursuing the new clause when it appears he has the matter in hand. He may have it in hand, but there is merit in naming some of the very specific groups who most need change and in implementing the recommended changes.

It is a testament to the last Labour Government that 10 million additional workers are estimated to be newly saving or saving more as a result of auto-enrolment into master trusts. It has led to an additional £17 billion of pension saving being put away, mostly by low-income workers. Nevertheless, many excluded groups remain, in part due to the actions of this Government, who increased the triggering threshold at which workers were automatically enrolled into a master trust saving scheme. According to the latest Department for Work and Pensions statistics, 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment. Critically, those groups are over-represented among low earners, the self-employed, those with multiple jobs and carers—the areas we believe that the Government should focus on in their review, as set out in the new clause. I hope they will.

At the end of last year, the Pensions Policy Institute published a report assessing future trends in defined-contribution pension saving. It is worth quoting the following section of the report in full, as it clarifies the current situation. It states that

“the evidence so far suggests that many households will be unable to maintain their current standard of living when they reach retirement. The advent of auto-enrolment has increased the number of workers saving for retirement, with more active savers now in defined contribution (DC) pension schemes rather than defined benefit (DB). This rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve in order for them to provide savers with an adequate pension.”

The report goes on to find that the median saving of DC scheme members could yield £3,000 a year as an annuity, which is not a lot of money.

More work needs to be done to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges, as we have tried to do throughout our consideration of the Bill. Nevertheless, the top-up provided from access to master trust saving through the auto-enrolment scheme is a valuable addition to state pension provision, so it is worth while to ensure that as many low-income groups as possible have access to master trust saving.

I will start with how master trust saving for low-income groups could be improved through the Bill. Taking carers first, while those who leave or reduce their hours of employment to care for loved ones are rightly supported through the social security system, it seems unjust that they will probably miss out on the fuller benefits enjoyed by those who are able to save more into occupational pensions as a result of being able to remain in employment, in spite of the fact that carers engage in valuable labour—work that would otherwise have to be picked up by the state. It is my strong belief that the Government should try to improve the retirement prospects of carers, and master trusts, which have been set up to service large numbers of low-income savers, may be an avenue worth exploring. We would include carers as part of a wider review of groups that are excluded from pension saving.

The same is true of the self-employed. I was personally heartened by the amendment tabled by the hon. Member for Amber Valley. After more than a decade of expansion in that part of the labour market, self-employed people now make up 15% of the workforce. Vast numbers of them are at the very bottom end of the income scale, and there is much evidence to suggest that they are not saving as much as those in other sections of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people do not have a pension. The New Policy Institute found that the self-employed are not only less likely to participate in pension saving but tend to save less as a whole when they do.

Despite that worrying evidence, there are few obvious means by which the self-employed can begin to build up a savings pot in a master trust. That is just one way in which Britain’s entrepreneurs have been let down and ignored. There is no mechanism to manage the enrolment of self-employed people in master trust schemes. Of course, the fact that there is no employer means that, like informal carers, self-employed people’s contributions cannot currently be topped up. I do not believe that it is beyond the bounds of possibility for an expert review to look into that conundrum. The Labour party remains the party of working people, including the self-employed, and we are keen to explore how they might be encouraged to save into defined-contribution master trust schemes to ensure that they have the dignified and secure retirement that we believe everyone has the right to.

Perhaps moving closer to the existing system of saving into master trust schemes, there is also the urgent question of people with multiple jobs. Under the current system, those whose earnings exceed the earnings threshold but result from multiple jobs are unable to access auto-enrolment into a master trust scheme. It seems that the only logic preventing that group from accessing savings is the administrative barrier posed by their having more than one employer. In other words, there is no mechanism either to establish total earnings to trigger access to auto-enrolment, or to determine the sponsoring employer of a person working multiple jobs. Although that issue may seem overwhelming to the Government, we believe that it warrants further attention—especially given the way the labour market is changing, with as many as 3 million people estimated to be working multiple jobs just to make ends meet.

I turn finally to access to master trust savings for low-income savers. Under the auto-enrolment policy developed by the Labour party, working people would have been automatically enrolled into a master trust scheme once their earnings had crossed the trigger level of just over £5,000, the logic being that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. However, the coalition Government increased the earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust.

The last annual review of auto-enrolment into master trust savings concluded that the lower earnings threshold will be £5,876 and the trigger threshold will be frozen at £10,000. Although that freeze will bring a few more workers into the scheme through inflation, we do not believe that that is happening quickly enough. Given the generational crisis that is developing in our pensions system, more needs to be done to include low earners in savings provision and encourage retirement planning.

In conclusion, we recognise that the upcoming 2017 review of auto-enrolment presents the Government with an opportunity to take seriously the problem that certain groups are excluded from master trust savings. The new clause would guarantee that the Government engaged with these vital issues and those groups in the full and proper way. To be clear, we are not trying to force the Government to implement specific policy proposals after the Bill’s passage, although in the view of our colleagues on the Constitution Committee, that would not be out of step with much of the rest of the Bill. We merely wish to place a statutory requirement on the Government fully and properly to consider as part of their planned review what steps could be taken to widen participation for some of the most vulnerable groups.

I have one very specific question about the implementation of the review’s recommendations once it is completed. We talked about this earlier in relation to another matter. Will the Minister have powers under regulations to implement those recommendations, or will we have to wait for another pensions Bill, which is unlikely during this Parliament? The new clause would help to increase the security and dignity of retirement for groups on the lowest incomes. How can the Minister possibly refuse to guarantee that the review will address these important issues and groups?

I compliment the hon. Member for Stockton North on his speech. He has quite clearly listened to all the speeches I have made since being appointed to this job. I will point out one or two facts to respectfully disagree with him—and, for once, his style, which I have not done up to now. To make this into a political matter by saying that auto-enrolment was Labour’s idea is not really fair. I may be correct in saying that Lord Turner, who chaired the Pensions Commission, was offered a peerage by three political parties and took one from the Liberal Democrats. The other commissioners were Labour and Conservative. I am not being flippant, but the spirit of our debate has generally not been party political at all.

I accept that—okay, we are making a few political points. It was a Labour Government who brought in auto-enrolment, but this Government have successfully encouraged more and more people to invest more and more, which is a very positive thing. I place that on the record.

That is very reasonable. The hon. Gentleman’s general approach—and mine, I hope—has been not to bring party politics into the debate, because we all have exactly the same objectives.

I have one or two further points to make. The hon. Gentleman mentioned women being excluded from auto-enrolment—not by law but in practice—for different reasons. Actually, the number of women being enrolled is very impressive, although I do not have it to hand. I am pleased to say that I do not think that this is a gender equality issue.

The fundamental point is that the issues that the hon. Gentleman mentioned and that his new clause would address were mostly covered by the Secretary of State in yesterday’s announcement about the extent of the auto-enrolment review. That was not timed to happen just before this Committee sitting; it is just how things worked out. The review will look at the self-employed, who are excluded from the current system, which has gone from nought to a lot very quickly, after all. It will also look at people with multiple earnings under the £10,000 mark from different sources. Incidentally, people paid less than that—I cannot remember the exact figure, but it is just under £6,000—are allowed to enrol, and they get help from their employer and the tax system, although at that level they would not necessarily pay tax. All these things are being looked at. The review will be very comprehensive and will go far beyond what the statute calls for. I will be very pleased to look at its results.

The hon. Gentleman asked whether implementing the review’s recommendations would involve another pensions Bill, which he and Her Majesty have decided we will not be having in this Session. I cannot say, because I do not know what the recommendations are, but some things will need primary legislation and others will not.

Unless the hon. Gentleman has an urgent intervention to make, I will conclude. I have listened carefully to what he said and am glad to have included it all in my speeches, and I am glad that it will all be included in the review.

My final intervention is to raise the very specific issue of carers. Will carers be included in the review?

The review is generally worded. It could include carers—they are not specifically mentioned, but I believe that it will include them, and I would encourage it to include them. However, to include them as a category would be a little unfair on others who may be in a similar financial position.

The hon. Gentleman’s sentiments are absolutely right, as were most things he said in his speech, but I do not think it is appropriate for the new clause to go into the Bill. It is far too early; we have been doing auto-enrolment for only a short time, and we are doing a comprehensive review. Despite his sentiments, I ask him to withdraw the motion.

I am pleased to have those commitments on the record, particularly those relating to some of the more vulnerable groups. I appreciate that there are other groups apart from carers, as the Minister said, but carers provide a tremendous service that is probably worth billions of pounds to our country every year, so it is important that we have some form of provision for them. The new clause was always going to be a probing clause. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 7

Enrolment in Master Trust scheme: duty on employers

“Before an employer enrols in a Master Trust scheme they must—

(a) take reasonable steps to ensure themselves that the scheme is financially viable;

(b) ensure the scheme is on the list of authorised Master Trust schemes maintained by the Pensions Regulator (section 14); and

(c) take reasonable steps to ensure themselves that the scheme will meet the needs of their employees.”.—(Alex Cunningham.)

This new clause would require employers to conduct basic checks before signing up to the Master Trust scheme.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

It is almost as if I am doing an aerobics class; I have already warmed up, even in this cold Committee Room.

New clause 7 would provide employers with a fiduciary duty and a duty of care to members to ensure that the master trust of their choice meets the needs of their staff. The auto-enrolment process in the UK rests on the employer making the choice of scheme for those purposes. The new clause would ensure that, before authorisation, the employer is duty-bound to ensure that the master trust is fit for purpose and has all the necessary information for that choice to have a sound footing.

We need to ensure that the employer has a defined duty to carry out due diligence when choosing a workplace pension. Otherwise, many employers—through expediency or otherwise—will continue to make choices that may not be in the best interests of the scheme’s beneficiaries.

The past 20 years has seen us lurch from one mis-selling scandal to another. Pension transfers, endowments, payment protection insurance and interest rate swaps have all been subject to class actions, and to massive retrospective penalties being imposed on those found wanting in due diligence.

In the US, the employer has a fiduciary responsibility to their staff and chooses their scheme in their best interests. That means that if employers do not take due care in the choice and governance of the plan that they set up for their staff, they are liable to civil prosecution. Employers in the US take fiduciary obligations seriously, not least because scheme members are now taking and winning class actions if they do not.

A class action can focus on the choice of scheme provider, failure to establish suitable investment options and failure to monitor how funds perform as the scheme progresses. Some advisers in the UK, such as Pension PlayPen, think that the information given to employers to choose a workplace pension is insufficient, and that there is little supervision of the due diligence process by regulators, which is in sharp contrast to what happens in America.

The other day, Pension PlayPen stated on its blog:

“The common law includes the concept of an employer’s duty of care to staff, not just for their health and safety but for their financial welfare. This duty of care forms part of a social contract, the implicit responsibilities held by individuals towards others within society. It is not a requirement that a duty of care be defined by law.

An additional worry is that employers do not see this as their choice. Too often we get answers from employers ‘we did what our accountants told us to’. It is as much in the interests of accountants to ensure the employer states why they have chosen their pension as it is the employer’s.”

So what happens when the duty of care and fiduciary obligations go wrong? The only option is the courts. According to a Financial Times article last November, there has been an “explosion” of class actions in the USA on the issue of financial detriment to scheme members. These suits have not yet gained much public attention, due to the reputation of the US legal system, but it is also partly because the legal action is fragmented and spread between different courts, and cases are often settled in private with binding confidentiality clauses. What is more, pensions have the unfortunate reputation of being rather dull, even though the sums involved dwarf those of the multibillion dollar settlements seen in banking since 2008.

However, the basis of the complaints are sound and echo a warning that we have been making about the lack of transparency and engagement for members of schemes. Members may have been charged excessively high fees, the most noticeable or important point being that the investment process may be used to extract wealth.

As in other financial suits, such as PPI suits, the cases claim that financial organisations have used opaque structures, so that transactions extract money that ought to go to members of schemes. In one case, JP Morgan has been sued by a participant for allegedly causing employees to pay millions of dollars in excessive fees, through a scheme motivated by “self-interest”. The plaintiff claims that JP Morgan, as well as various board and committee members, breached its fiduciary duties by, among other things, retaining proprietary mutual funds from the bank and affiliated companies for several years, despite the availability of nearly identical, lower-cost and better performing funds.

Not all of these cases are just related to charges in the investment chain; some are also about administrative processes. A website—401khelpcenter.com—highlights that members of Essentia Health in Minnesota filed a class action lawsuit against the sponsor, claiming that the organisation paid excessive fees to their record keepers.

The hon. Gentleman has mentioned many times the potential for class action, particularly in the US, on various issues. Does he not believe that having the word “reasonable” twice in the new clause that he has tabled actually becomes a licence for class action, rather than closing it down?

I certainly do not. I am not a lawyer, but I believe that the new clause is sufficient and does not open the way for such action. What I am trying to do is provide a protection for employers within the scheme, and therefore also for members.

The latest complaint was filed in January against Aon Hewitt Financial Advisors, accusing the company of breaching the Employee Retirement Income Security Act 1974, or ERISA. That is the fourth lawsuit to target the fee arrangement for services provided by a computer-based investment advice programme.

Order. May I ask the hon. Gentleman to move away from discussing court cases in his comments?

I am doing that now. We have a clear warning that if a company fails in its fiduciary obligation, litigation may be an option. We know from the FCA report that implicit costs are opaque and likely to be much higher than those that have been explicitly presented. We believe that it will not be long before legal teams from the US alert their operations in the UK of potential opportunities for litigation. I can see the adverts on TV now: “Problems with your pension fund? Have you been subject to high fees and transaction costs that you never knew were there?”

The most important “don’t” must be, “don’t assign a low priority to your employees’ auto-enrolment choices.” The big lesson of the litigation—albeit US litigation—is that employers must assume that they have that fiduciary duty, as do trustees, and that they always need to have auto-enrolment choices on their radar screens. It is a lesson once again that the lack of transparency in the governance process, the administration process, the investment process and the advice process will lead to the detriment of the member.

To ensure that we can help build citizens’ trust in the system, we must have transparency for employers and members. We must have the information in front of the employer choosing the scheme to protect them and their employees. I commend new clause 7 to the Committee.

I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment. So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.

The employers’ duty is met by scheme choice, because that is what auto-enrolment is. It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.

It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers. Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.

I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process. It is well-meaning, but it is unnecessary and should not be part of the Bill. I sympathise with the intent. The hon. Gentleman is trying to protect members from people acting in a fraudulent way.

Perhaps the Minister can address this very simple question: is he satisfied that employers could not be subject to legal action against them if they end up making a bad choice on behalf of their employees?

As I have explained, their choice on auto-enrolment is restricted to choosing a regulated, authorised scheme. I am not a Government lawyer, or any other type of lawyer, although perhaps I should disclose to my chagrin that I did a law degree 40 years ago.

Is it not true that many of the auto-enrolment schemes are vanilla in their investment outlook? Many of them—or a high proportion—are based around direct savings accounts and passive investment funds. They are not the high-risk, high-octane investments that would perhaps need the approach in the new clause.

I absolutely agree. In fact, such schemes are often criticised for precisely that reason. They are criticised for being too conservative—in the investment sense, not the political sense—and for missing out a lot of good possible investment decisions, and the thought of that being reviewed by every single employer. I mentioned NEST and its 230,000 employers. I cannot believe that it would be fair to place such a regulatory burden on them when they are choosing from an approved list. The whole purpose of the regulation is that the schemes are approved, proper and regulated.

I am trying to see where the hon. Gentleman is coming from. I hope that he can see where the Government and I are coming from, and why I am not of the view that the new clause would be appropriate. I respectfully invite him to withdraw it.

I accept the explanation that the Minister has provided about the employer making a choice from a regulated scheme and the protections included within that. If he is satisfied that employers will not face legal challenge as a result of the choices that they make within a regime where they must choose a scheme on behalf of their employees, and has placed that on record, I am content. I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

Bill, as amended, to be reported.

Committee rose.

Written evidence reported to the House

PSB 02 Robert Hodge, Chairman of the Trustee of Citrus Pension Plan

PSB 03 The Society of Pension Professionals

PSB 04 Welplan Pensions master trust (the Scheme) by the Scheme Sponsor, the BESA Group

PSB 05 James Jones-Tinsley

PSB 06 Smart Pension Limited

Local Government Finance Bill (Seventh sitting)

The Committee consisted of the following Members:

Chairs: † Sir David Amess, Mike Gapes

Aldous, Peter (Waveney) (Con)

† Double, Steve (St Austell and Newquay) (Con)

† Doyle-Price, Jackie (Thurrock) (Con)

† Efford, Clive (Eltham) (Lab)

† Foster, Kevin (Torbay) (Con)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

† Hollinrake, Kevin (Thirsk and Malton) (Con)

† Jones, Mr Marcus (Parliamentary Under-Secretary of State for Communities and Local Government)

† McMahon, Jim (Oldham West and Royton) (Lab)

† Mackintosh, David (Northampton South) (Con)

† Marris, Rob (Wolverhampton South West) (Lab)

Pow, Rebecca (Taunton Deane) (Con)

† Thomas, Mr Gareth (Harrow West) (Lab/Co-op)

† Tomlinson, Justin (North Swindon) (Con)

Turley, Anna (Redcar) (Lab/Co-op)

† Warburton, David (Somerton and Frome) (Con)

Colin Lee, Katy Stout, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 9 February 2017

(Morning)

[Sir David Amess in the Chair]

Local Government Finance Bill

On a point of order, Sir David. On Tuesday afternoon, when I asked the Minister whether he had been privy to conversations in the Department or across Whitehall more generally about Surrey County Council’s proposed referendum on a 15% council tax increase, and what the Government might have said to the leader of the county council, he said:

“I think that the hon. Gentleman is presupposing the discussions that happened and the outcome of the situation.”––[Official Report, Local Government Finance Public Bill Committee, 7 February 2017; c. 208-09.]

In the light of the sweetheart deal agreed with Surrey County Council, I wonder whether the Minister would like to take the opportunity to correct the record.

I have listened very carefully to the point of order. No doubt the Minister and the Government Whip have, too, but I sense that they are not very keen to comment on it. It is there for the record.

Further to that point of order, Sir David. The hon. Member for Harrow West knows that a sweetheart deal has not been done with Surrey. I refer him to today’s written ministerial statement, and indeed to the statement made by Surrey County Council.

On a point of order, Sir David. You may not be aware that there has been some discussion in Committee about the fact that the Government have not yet published their summary, let alone the full details, of the 400-plus responses to their consultation document, which is pertinent to consideration of the Bill. Have you had any indication that the Minister might finally have got around to releasing the consultation responses, so as to better inform our scrutiny of the Bill?

Neither I nor the Clerk has had notification. Does the Minister wish to share the position with the Committee?

Further to that point of order, Sir David. It has almost become a custom for the hon. Member for Harrow West to ask that question in our sittings. I reassure him, as I have done a number of times, that we intend to publish the responses to the initial consultation. We are also looking to publish a further consultation, and we expect it to be released next week.

I am very grateful to the Minister; that is helpful.

Clause 6

Power to reduce non-domestic rating multipliers

I beg to move amendment 30, in clause 6, page 9, line 40, at end insert—

‘(2) Before an authority reduces non-domestic rating multipliers in its area it must consult with any neighbouring authority.’

This amendment would require an authority that intends to reduce its non-domestic rating multiplier to consult any neighbouring authority before doing so.

With this it will be convenient to discuss the following:

Amendment 48, in schedule 2, page 44, line 7, at end insert—

‘(1A) A relevant authority shall determine that the multiplier discount shall apply—

(a) to all hereditaments in its area, or

(b) only to some hereditaments in its area (defined by reference to their location, rateable value, class of hereditament or such other factors that the relevant authority determines when specifying the multiplier discount).’

See explanatory statement for amendment 49.

Amendment 49, in schedule 2, page 44, line 17, after ‘area’ insert—

‘, in accordance with that relevant authority’s determination under subsection (1A).’

This amendment, together with amendment 48, would mean that a billing authority, a county council or the Greater London Authority could apply a discount to the whole of its area or could apply to particular areas, above or below a particular rateable value threshold or to particular categories or sub-categories of hereditament.

It is a pleasure to serve under your chairmanship, Sir David. The amendment would require a local authority to consult neighbouring authorities when it wished to change its business rate base. The principle behind that has to do with not only being a good neighbour, but ensuring that local authorities cannot be played off against each other. For example, an investor or developer might come to an area with a significant end user, and set one local authority off against another to get a preferential deal; preferential deals, done in the background, are all the rage at the moment.

I hear the school of thought that the hon. Gentleman is adopting, but does he not accept that the Bill proposes reducing the multiplier across a local authority area, not in one particular place in the area, or for one particular industry? Is not the line he is pursuing therefore pretty flawed?

Amendment 30 is linked to amendments 48 and 49, which would allow local authorities to set the multiplier at different levels in all or part of the area, so potentially that could happen. I will come to the reasons why those amendments were tabled, but if all the amendments were accepted—the Government may well choose to do that; we would be happy with that—there would be that provision.

A local authority could reduce the multiplier in an area. Take the example of a large warehousing, distribution, office-type business relocated to an area; say Google did not want to relocate to London, but thought Oldham was the place to be. That £1 billion of investment could make Oldham Council consider whether it was worth reducing the multiplier across the whole borough—unless, of course, Google said, “We have this agreement in Oldham, but let’s see what Rochdale, Tameside or Manchester can do for us.” It would not make sense to have that artificial competition in local areas.

My hon. Friend gives a number of examples, and we now know that Surrey has a sweetheart deal to be a business rates pilot in 2018-19. One could imagine a scenario in which Surrey County Council wanted to reduce business rates; amendment 30 not having been made, it would not have to talk to neighbouring areas, which might be a bit put out by that.

I take that point completely, but we may need to take Surry out of the equation, because there are rules for everybody and then there are separate rules for Surrey; we will need to account for that in future legislation. Obviously, if an elderly relative needs social care, Surrey is the place to be, but we must make laws for the whole country. This is about restricting artificial competition, where possible. One area may not be aware of discussions in the area next door because they may be covered by commercial sensitivity considerations. The risk of that information being released as a result of a random text message being mis-sent is very unlikely—I am sure it almost never happens—but local authorities could be set up artificially against each another.

I hear what the shadow Minister is saying, but his amendment 30 refers to consulting, not securing agreement. By his own logic, if an authority is not aware of something and then gets a letter, it may decide to do the very thing he is talking about.

Local authorities are independent units of government. They cannot be at the beck and call of their neighbour. Their working together constructively is important for local relationships and the local economy, and that is exactly what the amendment would provide for. “Consultation” includes an assumption that local authorities will reach out, be inclusive and share in a constructive and mature way with their neighbouring authorities. I cannot see why this small change would be contentious. Surely it is in the interests of all local government, as a family, and as a unit, that people work together to the same end. Of course we welcome investment from the private sector when it moves to an area, but that should not be used to create an artificial divide between neighbouring authorities. That is the point of the amendment.

Amendments 48 and 49 are simply about expanding the power available to some bodies to change the multiplier, so that it is available to all billing authorities, the Greater London Authority and county councils. Through these amendments, we are trying to say, “We respect every unit of local government, whether it is a combined authority with a Mayor, a metropolitan authority, a London authority, a district council or a county.” Every unit of government should have the right to affect the economy in its area.

Taken as a package, these amendments would expand the freedoms that the Government are trying to progress—freedoms that local government has largely welcomed—and make them available to all local government, in the way that it is proposed they be made available to some. The amendments would enable local authorities to act in a mature way, consult their near neighbours and, hopefully, get agreement on the best way to administer a scheme, in tune with neighbouring authorities, rather than acting against them.

I do not propose to spend any more time on this matter, although we could go on at length about it for the sake of it. These are quite minor amendments in the scheme of things. They are certainly not contentious; they are more about tidying up the offer, and expanding it to a wider group of people. The consultation required with neighbouring authorities would be similar in spirit to the way in which local plans under development involve consultation with neighbouring authorities, so it would bring the Bill into line with other legislation affecting local government.

I am grateful for this opportunity to comment on the amendments. Amendment 30 is sensible, and is made all the more so by the new context that Surrey County Council has created for our deliberations. The deal that David Hodge, the leader of Surrey County Council, has done with Nick seems to have been a particularly interesting piece of negotiation. I am told that Surrey County Council met on Tuesday to consider whether to go ahead with the referendum, and that at the beginning of the meeting, David Hodge was determined to go ahead with it. It appears that a message—perhaps a text message from Nick or somebody else—was sent to him, and the meeting was suspended. He rushed out, and there was a sudden change in approach—

Order. This is a very interesting fleshing out of the details of the linked email, but I do not think it is entirely relevant to the amendment that the hon. Gentleman is supporting. I draw his attention to that. Not so much about Surrey.

Once again, Sir David, your timing in putting me straight is impeccable. Having given the context, I turn to why that is immediately relevant.

Let us assume that Surrey County Council wants to take advantage of the opportunity that it will have, as we now know, from 2018-19 to reduce business rates. Who might be affected by that decision? A number of neighbouring authorities close by, some within the Greater London Authority area. One thinks of Hillingdon and Hounslow. Surrey County Council might think, “We know that a third runway will be built at Heathrow. It’s a bit further away than Hillingdon, so businesses might not be immediately interested in moving to Surrey. They might be more interested in focusing on the attractions of Maidenhead or Hillingdon, which are much closer to that third runway. But if we were to reduce business rates a little, ahead of any other authority’s ability to do so from 2020-21, we might be able to get in first and attract those businesses to Surrey, rather than to Hounslow, Hillingdon, Ealing, Maidenhead or beyond.”

We are all interested in the success of Surrey County Council’s leader in bypassing the Minister with responsibility for local government finance, who is here with us, finding the really powerful person in the Department—Nick—and doing the deal, but it seems to the Opposition that although it is perfectly reasonable for the leader of Surrey County Council to want to do the right thing for his residents, if it will have a potentially adverse impact on nearby local authorities, surely Surrey County Council should have to talk to them and at least warn them of its intention.

Let us take amendment 30 with amendments 48 and 49. If I may, I will indulge the Committee by taking it on a visit to an area in my constituency. It is a shopping district called Sudbury, half of which is in the best constituency in Britain, Harrow West, and half of which is in the next-door constituency of Ealing North. Clearly, if that district centre was suffering because it needed regeneration, Harrow Council, which is extremely well led by Labour, with a strong pro-business agenda, might consider taking advantage of the provisions in the Bill and reducing business rates, if amendments 48 and 49 were accepted, in its part of Sudbury. That would make sense up to a point, but if one wants the whole shopping district to feel regenerated and revitalised, it would clearly make sense to work with Ealing Council to ensure that it, too, was thinking about the impact of regeneration of Sudbury district centre.

Let us take amendments 30, 48 and 49 as a package—you, Sir David, and Mr Speaker have sensibly grouped them. One can see how a slightly more sophisticated drafting of the Bill to allow business rates to be reduced not necessarily across the whole billing authority area—I am talking about the billing authority also having scope to reduce rates in particular areas—plus the requirement for consultation, might help to generate discussion about how to regenerate or encourage businesses into an area that crosses billing authority boundaries. Given the decision on the third runway at Heathrow, which we have spent a little time thinking about, and which Ministers have not yet given a convincing reply on, surely there is all the more reason to allow amendment 30 to be added to the Bill.

The purpose of amendments 48 and 49 is to allow

“a billing authority, a county council or the Greater London Authority”

to

“apply a discount to the whole of its area or…to particular areas, above or below a particular rateable value threshold or to particular categories or sub-categories of hereditament.”

I have been unusually inspired by the contributions of the hon. Members for Northampton South and for Thirsk and Malton. Sadly, the hon. Member for Thirsk and Malton is not present, but we are fortunate enough to have the hon. Member for Northampton South with us. Why should those two Members of Parliament have inspired me in the context of these two amendments? They contributed to the consideration by the Select Committee on Communities and Local Government of what 100% business rates devolution might mean for local government. The Select Committee recommended the power to vary the reduction in business rates “according to business type”. It said that that might be

“an effective lever to stimulate and foster local economic growth.”

It went on to recommend that the Government and local authorities

“should together consider introducing these powers”,

albeit with the caveat that rises in rates should be

“limited to the increase in the average council tax.”

I want to come on to whether billing authorities should be allowed to raise business rates, but it is interesting that the two hon. Gentlemen signed up to a recommendation to allow billing authorities to vary business rates. It is, in effect, their amendment that I have offered up to the Committee for consideration. I look forward to the hon. Member for Northampton South commenting on this provision. [Interruption.] I think I heard him say that he was looking forward to catching your eye, Sir David.

Interestingly, the hon. Members for Thirsk and Malton and for Northampton South are not the only ones to think, along with Opposition Members, that it is a good idea to have the power to vary business rates so they affect particular categories or areas, rather than the whole of a billing authority. The cross-party Local Government Association, which championed Surrey County Council—indeed, it championed all councils in the light of the current funding crisis—also thinks that the gist of amendments 48 and 49 makes sense. It told me that, in June, during the business interest group meeting —for your benefit, Sir David, and that of Government Members, who may not know what the business interest group is, let me explain that it is one of the technical working groups that Ministers have set up to consider how 100% business rates devolution will work in practice, given that this Bill is just one part of a triptych of processes that are in place to determine that—it was agreed that the power to reduce business rates across the whole of a billing authority

“might be unlikely to be used as the reductions local authorities could offer would realistically be too small to influence substantial decisions from businesses, and the incentive for local authorities to do this would be diluted as they approached a reset period.”

That is what Ministers were told by their officials, so it will be interesting to hear whether the Minister, having seen amendments 48 and 49, now recognises and accepts what his officials were told in that meeting, or whether what the business interest group was told was wrong.

Counties currently do not have the power to grant Localism Act business rates discounts. They will have the power to make multiplier reductions to the bill on the basis that they will pay for the reduction themselves, but they might not be able to afford it, particularly given that 40% of the revenue support grant for local authorities has been axed since 2010, and that there are many more substantial cuts to funding to come. They might therefore welcome the power to better target the business rate reduction. One county apparently informed the Local Government Association that many local authorities, particularly the counties, would welcome the opportunity to offer, within various constraints, discretionary rates relief as a possible incentive to new investment by inward investors or to grow local businesses.

Allow me again to take Government Members on a journey to one particular area of Britain’s greatest constituency, which I had the privilege to live in until recently—Rayners Lane. Later this year, as a result of a merger between two very big businesses, a very substantial business in that area will sadly close. It is moving out of the area, and there will be a substantial reduction in business rates income for the London Borough of Harrow, and a substantial gap in the business community in Rayners Lane, as a result. The landlord intends to convert the property into flats, with all the benefits of increased council tax income and all the additional costs that having more residents in Rayners Lane will bring. Had the power existed in statute, as amendments 48 and 49 propose, it might have been possible for the London Borough of Harrow, if it could have afforded it, to have targeted a reduction in business rates purely at the Rayners Lane community to try to attract a major business back into the heart of Rayners Lane to replace the one that is going.

I suspect that, if Government Members were honest, outside the Committee, they could think of similar examples of where such a provision could have existed. Presumably, the hon. Member for Northampton South thought of such examples, when the Select Committee was listening to the evidence in support of the view that it finally arrived at—that local authorities should be able to vary business rates. Presumably, he thought the examples were convincing; perhaps he thought of examples from his own constituency or from across Northamptonshire. Perhaps the hon. Member for Thirsk and Malton, who is sadly not with us today, similarly thought of examples from his area of North Yorkshire, and thought this was a sensible additional tweak that could be made to the legislation to help to deal with particular challenges of regeneration. I would have thought the ability to target such intervention is particularly appealing, based on the criticality of businesses to the local economy, as all sides would accept, in terms of the number and quality of jobs that are created or safeguarded, the benefits to the local supply chain and so on.

One thinks of the terrible threat of the loss of the steel industry from UK shores. Had the power existed to target reductions in business rates, that might have been a further weapon that Ministers and local councils could have deployed together, had they needed to do so.

I remind the hon. Gentleman, who probably knows this but chooses not to say it, that if a particular local authority in an area that was affected by the challenges in the steel industry wanted to reduce and give a discount on the business rate to a steel plant, for example, that option already exists. Will he acknowledge that?

I accept that the option exists in certain places in certain situations. What we are seeking to do is to end the inflexibility of the provisions as they stand at the moment. I gave the example of counties and the particular problems they have in relation to this power. This flexibility would allow local authorities that do not benefit from the presence of an enterprise zone or sites with assisted area status to still offer some form of incentive to business investment.

The hon. Gentleman is being very generous in giving way. He mentions the issues that counties have. Counties can give discounts, but those discounts are dealt with by the billing authority, which is generally the district in a two-tier area. Will he set out exactly what the concerns are and what the county issues are that he mentions?

I am doing my best to do so; the Minister may not be listening as well as he might like to. Let me give some additional background to the concerns that have been put to me.

Schedule 2 gives the power to districts, counties and the Greater London Authority to reduce the business rates multiplier, but as it stands it must be applied to all qualifying properties that pay business rates hereditaments in its area. I am told that authorities would welcome having more flexibility. For example, an authority may wish to reduce business rates in a particular area or to help a particular industry.

There are current powers under section 47(5A) of the Local Government Finance Act 1988, as amended by the Localism Act 2011, to grant discretionary relief to any ratepayer. However, they apply only to billing authorities —so not counties or the Greater London Authority —and are determined on a case-by-case basis, as the authority may grant a discount only if it is satisfied that it would be reasonable for it to do so, having regard to the interests of persons liable to pay council tax.

Amendments 48 and 49 help to clarify the existing flexibilities and put to bed any uncertainty about whether they can be applied in a given situation.

As someone who has worked at granting discretionary rate relief, I ask the hon. Gentleman whether he recognise, that to do this it is necessary in two-tier areas to work across both authorities? Therefore, if the billing authority wants to do it, it will of course talk to the other authority involved.

I welcome the hon. Gentleman’s intervention, but what surprises me is that he did not explain why, having so enthusiastically backed the powers in amendments 48 and 49 when the Select Committee considered the report, he now seems hesitant about following that logic. I take his point that the best local authorities will want to consult each other, but amendment 30 is intended to deal with authorities that were not so respectful of their neighbouring areas, or the economic impact on the neighbouring areas’ residents. The amendment would lock such consultation into law.

It is interesting that apparently the hon. Members for Northampton South and for Thirsk and Malton, and other members of the Select Committee, did not come up on their own with the idea of an ability to vary the multiplier. They received substantial evidence from councils up and down the land about the power. The Local Government Association, the District Councils’ Network and the County Councils Network advocated it. Indeed, the Select Committee noted that its predecessor Committee recommended a similar provision.

On that basis, I suggest that my hon. Friend the Member for Oldham West and Royton was entirely right to table all three amendments. I understand, in the light of Surrey County Council’s decision, that there may not be enthusiasm for amendment 30, but I should be interested to hear why the Minister is rejecting the advice of the Select Committee on amendments 48 and 49.

I shall confine my remarks to amendment 30, which would require consultation on multiplier discounts. I get the impression from the Minister’s demeanour that he is not minded to accept it. He can intervene and tell me whether I am wrong, but until I finish speaking, when I am sure he will have been persuaded, I shall proceed on that basis. It surprises me that he is not so minded, because this sort of provision is already in the Bill.

Schedule 2 to the Bill is to do with amending the Local Government Finance Act 1988, including schedule 7 to that Act. Page 45 of the Bill sets out proposed new paragraph 6C of schedule 7. At lines 13 to 20, there is a nice little table. The new paragraph states that, where a multiplier discount is to be introduced by a specified authority, the neighbouring authorities, or related authorities —perhaps to use a term that is not in the Bill—must be notified. I concede to the Minister that they do not have to be consulted—the verb used in the amendment—and that “notify” is different. To read from the table—it is not a long one—the first “Relevant authority” is:

“A district council for a district in a county for which there is a county council”.

It has to notify, “The county council”. Next:

“A county council for an area for which there is a district council”

has to notify

“The district council for each district in the county”.

“A London borough council” that wants to apply a multiplier discount has to notify “The Greater London Authority”, which, conversely, has to notify “Every London borough council”.

As I said, one verb is “notify” and the one in the amendment is “consult”. They are different—I accept that—but they are not a million miles apart. We already have the concept, or something close to it, in schedule 2 to the Bill in the form of proposed new paragraph 6C, so it seems reasonable to think that the Government ought to accept the amendment, which would simply push the concept out from notification to consultation.

I thank the hon. Members on the Labour Front Bench for their amendments, and for giving me the opportunity to address the issues and talk specifically about multiplier discounts. The hon. Gentlemen seem to have gone into things in some detail, which leads me to believe that today could be a very long day—I might need to ring Mrs Jones a little later to tell her that I will be home later than expected.

I hope that the Committee will agree that the measure on the multiplier discount is an important and positive one, which will give councils further levers to attract and incentivise local investment. The effect of amendment 30 would be to require any local authority considering the introduction of a discount to consult its neighbouring authorities before implementing a reduction. We do not believe that that is the right approach, nor do we believe that the amendment is necessary.

One of the main aims of the clause is to allow local authorities to show that they are willing to work hard and be flexible to attract business. However, local authorities already work closely together on many issues, including economic strategy. The amendment would create an unnecessary and complex additional burden on any local authority seeking to introduce a discount. That is precisely the sort of approach from which we are trying to move away.

The purpose of the power in the Bill is to provide local authorities with the tools to incentivise local growth. In exercising the power and in maximising its effect, we expect local authorities to take steps to publicise widely their intention to introduce a multiplier discount.

Clause 6 and schedule 2 already require that, in two-tier areas, the authority introducing the discount must inform the other authorities and the Secretary of State of its intention to specify a multiplier discount before 31 December in the preceding financial year—I hope that that answers the question of the hon. Member for Wolverhampton South West. Furthermore, in a two-tier area, the Local Government Finance Act 1988 as amended by the Bill and the regulations made under the Act will allow the Government to ensure that the income of a tiered authority will be protected from a discount introduced by another authority.

We consider that there is no need to make unnecessary provisions in the Bill, which is what the amendment would introduce. The Bill already strikes the right balance of providing information to those most directly affected without creating an additional formal burden.

On amendments 48 and 49, it may be helpful to the Committee for me to clarify that clause 6 and schedule 2 already allow an authority to specify a multiplier discount that would apply to all ratepayers in that local authority area. The effect of amendments 48 and 49 would be to allow an authority to apply the multiplier discount only to some properties, for example, on the basis of location, rate or value, or business type.

Although I understand the desire of hon. Members to give local authorities the flexibility to target any reductions in business rates, I do not agree that the amendments are necessary. Billing authorities already have wide-ranging powers to grant discretionary relief to ratepayers in their area. In practice, that already allows authorities to reduce business rate liabilities for a specific sector or area if they wish to do so.

Clause 6 and schedule 2 provide the ability to do something different and to reduce the overall tax rate across the area. I hope that, with the clarifications that I have provided, the Committee is reassured that the amendments are not necessary, that amendment 30 should be withdrawn and that amendments 48 and 49 should not be pressed.

I appreciate the Minister’s response, but there seems to be a conflict in the Government’s view of how local authorities should work together. The Localism Act 2011 includes a duty to co-operate, which provides that local authorities must actively engage and consult with neighbouring authorities when dealing with local plans that are going through in legislation. It seems slightly odd and contradictory that a local authority should not go ahead with a local plan that talks about the development of a place without that engagement, but that that is not a requirement when it is looking at the tax base of the same place, which could have an equal impact on the economy and development of a neighbouring authority. It seems very contradictory.

I am not sure whether the Government’s position has changed and they intend to come back to local plans and change the duty to co-operate with neighbouring authorities. Local government has been asking for consistency. What is the spirit in which local government has to maintain relationships and co-operate with their neighbouring authorities? Does that run through everything that the council does?

I wonder whether the hon. Gentleman agrees that this is taking place all the time in lots of areas with lots of different authorities. In my experience, we had a pooling arrangement, with eight local authorities all looking at business rates. In terms of the enterprise zone in Northampton, there were 11 authorities across the south-east midlands local enterprise partnership area, all of which had to co-operate and talk about business rates together.

I am pleased about that. On a daily basis, there will be council leaders, cabinet members and other councillors and officers who, through the course of their business, will engage with their neighbouring authorities and other authorities in their sub-region. That is entirely appropriate and standard as a matter of course. We are talking about a duty, where the actions of an individual authority can have a fundamental impact on a neighbouring authority. It is there in legislation already for local planning development. When the tax base of a neighbouring authority is proposed to be changed, the same duty to co-operate and consult should be in place.

The hon. Member for Northampton South helpfully gave us an example of good practice in this area. Does my hon. Friend accept that we are seeking to enshrine good practice by adding a legislative duty?

That is exactly the purpose. Consistency is the word that is most appropriate for the amendment. I am not sure why the Government want to be inconsistent. The only thing they are consistent in at the moment is the power grab by the Secretary of State to retain more power—we will come on to some of the Bill’s provisions on that a bit later. What we want is for local authorities to feel empowered, in a clear and understood framework, which provides safeguards for other areas that could be affected by their decisions. That is what amendment 30 would do.

It is interesting—it has been quite a theme throughout the Committee—that the hon. Gentleman keeps talking about this power grab. He will know that the vast majority of delegated powers within this just update existing powers and, where that is not the case, they are subject to the parliamentary process. Does he not accept that he is over-egging the pudding?

I do not accept that point at all, and the reason is that I do not take the headlines from the Minister; I take the wording of the legislation that is coming through, and that wording is crystal clear. We will come on to this later, but even when the infrastructure levy is being designed, central Government will prescribe the exact layout and content of the consultation document—where it should be placed, where it should be published, and how it should be published. In terms of being absolutely prescriptive and micromanaging what local authorities do, this is not central Government letting go and empowering local authorities at all, so let us have a bit of consistency on that.

This is really interesting. The hon. Gentleman seems to be undergoing some sort of conversion. In my albeit short time in local government—I am sure that this was also his experience—it was micromanaged and controlled by a central Labour Government probably more than at any other time in history. Will he accept that he is now talking a completely different language from that which the Labour party talked while in government?

I am pleased that the Minister has made such a good and thoughtful intervention, taking us back to the glory days of councillors being able to operate under a forward-thinking, all-embracing Labour Government. Those were the days when we provided money for new schools and Sure Start centres, embraced culture and the arts, and opened up entry to our museums and galleries. Those glory days seem a long time ago.

Order. Before the Minister responds, I draw the Committee’s attention to precisely what we are debating at the moment.

The hon. Gentleman mentions the halcyon, glory days of local government. Are those the same glory days in which his Government left behind a £150 billion deficit?

Order. Before the hon. Member for Oldham West and Royton responds to the Minister’s point, I draw the Committee’s attention to the amendments that we are debating. Could Members please address their remarks to the amendments?

Sir David, your stewardship of the Committee is to be commended. The Minister abused that intervention by taking us far away from the Bill. Perhaps we can discuss the benefits of a Labour Government supporting active Labour local councils another time. He experienced that before he came to the House, but I am not sure that he learned the right lessons from his time in local government. I am sure that we will come on to that.

Consistency is important. For local government to be able to get on and do the job that it is there to do, it needs to know what the expectations are and what the framework is; and the more consistency, the better. There should not be over-prescription or micromanagement —there should not be 2,000 performance indicators. That is not what we are getting at. We need nice, clean legislation that is easy to understand and to administer and, importantly, local authorities need to be able to manage their development and their relationships with neighbouring authorities. We want to divide the Committee on amendments 48 and 49, which are important because they would create a relationship of equals.

We want to empower local government, which is multi-layered and looks different in different areas. It has the democratic right, because it is elected by local residents, to make changes to enhance the area’s economic circumstances. It is therefore right that we consider extending that power to the Greater London Authority and to county councils. Notwithstanding the natural relationships that exist, whereby district councils, as the billing authorities, will speak to their county councils, this is about ensuring that it is a relationship of equals. I hope, notwithstanding the Minister’s response, that between now and the vote, he will come to acknowledge the logic of those two amendments.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 45, in clause 6, page 9, line 40, at end insert—

“(2) The Secretary of State shall, by regulations, make provision enabling billing authorities and major precepting authorities in England to increase non-domestic rating multipliers in their areas in certain circumstances.

(3) The regulations shall specify the circumstances in which powers under subsection (2) can be exercised.”

This amendment would require the Secretary of State to bring forward provisions that enable billing authorities and major precepting authorities in England to increase business rate multipliers under certain circumstances.

With this it will be convenient to discuss amendment 46, in clause 6, page 9, line 40, at end insert—

“(2) The Secretary of State shall, by regulations, make provision enabling billing authorities and major precepting authorities in England to increase non-domestic rating multipliers for unoccupied hereditaments in their areas, in certain circumstances.

(3) The regulations shall specify the circumstances in which powers under subsection (2) can be exercised.”

This amendment would require the Secretary of State to bring forward provisions that enable billing authorities and major precepting authorities in England to increase business rate multipliers on empty properties under certain circumstances.

The amendments are critical because there is no power without the resources to fulfil that power and responsibility. The clause cannot just be about giving local authorities a business tax break giveaway and enabling them to reduce the multiplier. Local areas must be able to balance that power to reduce with a power to increase business rates in an area of interest, and that is what the amendments seek to do.

I will give an example of how that could be administered. Let us say that Oldham Council has a desire to regenerate the town centre so that it can flourish and empty shop units can be put to acceptable use again. There will be a cost to that, because although there is a £50,000 small business rate relief in place, many units on the high street are above that threshold but nevertheless critical to how the town centre and high street function. It would be legitimate for the council to conclude that the best way to balance that is to increase the multiplier for out-of-town retailers or large supermarkets to reinvest funds back into the town centre.

At what level does the hon. Gentleman think that that increased tax on businesses should be set? What percentage would he advocate?

In many ways the amendments are about understanding what the Government are trying to achieve in giving these powers to those at a local level. Our principle will always be that that is for local determination. That is exactly what localism and local accountability is about and it will be for the local authority, in consultation with its business community and residents, to make the case and find the right balance at a local level.

My hon. Friend will know that the Conservative party—or at least the Conservative party in Surrey—thought that an increase of 15% was acceptable for council tax. I do not know whether it thinks that a 15% increase in business rates is acceptable, but that clearly would not be acceptable to us. That is why we should again praise the contribution of Robert Evans, leader of Surrey County Council, for leading the charge against such an increase.

I should say for the record that David Hodge is the leader of Surrey County Council. He is an influential council leader, and I have thought that for a while. His stewardship as leader of the Conservative group of the LGA is well known. He is forthright and determined and does his research for meetings, and he knows how to build relationships to make progress.

Order. Although I am very interested in hearing about Mr Hodge and his background, I do not think that is relevant to the amendment.

I suppose I went back to my local government roots and felt the need to protect that council leader somewhat, because I fear that in the light of the leaked text messages he will be thrown under a bus by the Government—politically speaking, of course. It would not be surprising for a council leader to fall on his sword to protect a Government Minister—and, of course, Nick, who we are thinking about today. Is Nick still in post? Do we know where Nick is? Has anybody seen Nick? I am concerned for Nick. Sir David, if you could find that out for this afternoon I am sure that the Committee will run much more smoothly. We will be much more settled and calm knowing that Nick is in a safe place and that he has not been thrown under a political bus.

The amendments are about the balance of the base. It could be that any authority—let us use Surrey as an example—decides that increasing its business rate base is the right thing for its area. It would have to have a discussion with the business community affected, similar to the discussion that Surrey had when it floated the idea of a 15% increase in council tax. The Bill provides for that, but it does not provide for every billing authority to have the same power as hand-selected authorities to increase the base. We are again asking for consistency and for every billing authority to have that same power.

High streets in many areas are struggling with not only vacant units but inappropriate usage. We might want a targeted intervention to encourage the types of uses that would result in our high streets flourishing. The truth is that, given the way retail is going, far more is being spent online. If current trends continue, we will be spending £1 billion a week on online retail. A high street retailer has to pay to exist before it earns £1 over the till—it has to pay to be there—and that is a significant barrier for a lot of people who are trying to make ends meet.

We need to acknowledge that the world is changing. The Bill does not do that, so perhaps we need to have a separate conversation about how we tax business and support the local economy. The measure is at least a start, because it says that there will be an ability within a property-based system to teem and lade resources across a local authority area.

My hon. Friend will remember that some 66% of businesses pay no business rates at all because of small business rate relief. If the Government were minded, as a result of our probing amendment, to grant local authorities the power to raise business rates, that power would be levied on those business giants, such as Amazon, that perhaps struggle to pay tax in other forms. The amendment is not anti-small business, which we all want to encourage; it allows for big business to perhaps be asked to pay a little more.

Let me finish this point and then I will give way. The way in which the rateable value is calculated is generally based on the rental value of the property. For bars and restaurants it is obviously based on turnover, but for retail properties it is based on the rental value. Institutional investors in shopping centres and on high streets know that they have to pay a huge business rate liability when units are unoccupied, so they are establishing leases with a notional rental value—£70,000 to £80,000 a year—and an exhaustive rent-free period in line with that. When the valuation takes place, the headline rent might be £70,000 to £80,000 a year, but when the discounts provided in the lease are taken into account, the amount charged to occupy the space might be far less—possibly just £1. The business rates, however, are based on the headline value in the lease.

There are a number of examples of people investing their life savings into opening a high street shop and starting a business, but when they receive their business rate bill they are not able to hold their heads above water because they are just over the threshold and do not qualify for small business rate relief. That is even the case when they are given preferential rental options through the landlord. We need to look at the situation in a very different way, if we accept that high streets have a role to play in the vitality of our communities.

The hon. Gentleman makes some important points about high streets and town centres, and I share his concern about how retail is shifting quickly. He has talked about consistency many times this morning, but how was it consistent for him to argue against changing the multiplier to a lower indexation rate, which will create lower bills for the town centre businesses that he is talking about? He says that he wants to help those businesses, so why was he against that?

Much of what we are trying to do through these amendments is to tease out from the Minister what the Government are trying to achieve. Some elements of the Bill make complete sense and reflect what local government, the Communities and Local Government Committee and individual councils have been asking for, but other elements are less clear. We are trying to get to the bottom of what the Government are trying to achieve. That might convince us that this is absolutely the right thing to do and that we should get behind it.

In terms of consistency and the situation envisaged, the Minister did not say in his intervention that, while the purpose of the provision is to get rid of using RPI, it does not specify what will take its place. Therefore, far from bills necessarily falling, a different indexation could result in them rising.

That would be delightful. Perhaps he could even say whether a Surrey index could be used. A clarification would be helpful.

The hon. Member for Wolverhampton South West has been diligent on the Bill, but he is clearly off the mark. I am sure that the hon. Member for Oldham West and Royton will recall our debate on indexation and the multiplier, during which I clearly set out the Government’s intention to use the CPI measure of inflation, which is indeed lower than RPI and will save businesses more than £300 million overall in the first year.

My recollection of that response was not as clear as that. I appreciate the direct nature of the Minister’s response today, but from my recollection we were told we were moving away from RPI, and we asked to what. He was unclear about that except to say, “What else is there, but CPI?” Well, a different measure could be created.

As my hon. Friend may remember, the Minister was involved in the Housing and Planning Bill and advocated with great certainty then measures that have now been rejected by other Ministers in the Department. Surely we cannot today take his word as gospel, which is why clarity in the Bill might be more useful than his words of wisdom now.

I often agree with my hon. Friend, but I do not want to paint the Minister as having little influence over his colleagues. I am sure they listened to his sound wisdom, reflected on it and took it on board. The Minister may not be the Minister tomorrow, however, and the legislation that we are creating transcends individuals. It is about having a framework in place to govern the nation.

Getting parity, prescription and consistency is important. I go on about consistency quite a lot because I have been on the other side of the argument when national Government passed legislation that was not clear or consistent. That only leads to confusion at local level.

The difference is that when central Government are confused, local government is confused and hundreds of individual authorities are confused, and that has cost and time implications. The more we can do to create a clear framework where duplication is not required to understand where the Government are trying to get to is to everyone’s benefit.

Given what is going on elsewhere, it is welcome to see some consistency in the shadow Front-Bench Members who have shown up; they have not managed to resign yet.

I listened carefully to the hon. Gentleman’s points. Amendments 45 and 46 are about increasing business rates. Perhaps he would like to spend some time dwelling on why he thinks putting business rates up on things like retail shops in local areas would be a benefit as his amendments allude to.

The point is about making sure that the powers that are being devolved to local billing authorities can be implemented. Critical to implementation is the affordability of the measures being taken. It is okay saying local authorities can take a hit on their tax base by reducing the multiplier, but that money must come from somewhere. We have seen time after time, and we have discussed time after time, the pressures in adult social care and frontline services when local councils just do not have the headroom required to fund the reduction.

The logical thing to do is to give all billing authorities the power to be able to teem and ladle within the business rate tax base, which is what the amendments are trying to get to. Many people would find it reasonable, as we heard in our evidence sessions, that large ratepayers—the big supermarkets and out-of-town warehouses—should probably pay more to fund the vitality of our local high streets and town centres. I think most members of the public would support that.

I have every sympathy on the point about online trading. As the former chair of the all-party group on retail, I am familiar with the issue. I understand that the amendment is a probing one and not to be pressed to a vote, but I would urge a little caution. We must be careful about who is grouped with big business. The vast majority of retailers on the high street would be classed as big business, as they are not eligible for small business rate relief. The high street is struggling. When local authorities, as highlighted in the Portas review, were given discretion on car parking charges they continually hiked them and sped up retail’s rate of decline. I just urge caution.

I appreciate that intervention. I suppose my reflection on the Portas review is similar to the reason for the amendment. It is okay to say that councils can have the power to reduce car parking charges, but fees and charges are a significant part of local government income. At a time when revenue support grant has been snatched away and local authorities are being told they will be self-sufficient, going forward, it is difficult for them to find the headroom to reduce car parking charges. I pay tribute to the local authorities that have done so, particularly when they did it in a targeted way, to support local retail.

I will just finish this line of argument. At the moment the current rules would require consultation to take place in the area where a rates increase was wanted—even for areas that had the power, and notwithstanding that there were areas without it. It would be necessary, let us say, to draw a line around the retail park that the authority might want to look at for an increase in business rates, and then consult people who were affected by the business rate increase. If it wanted to use the money generated to fund another area of town, such as the high street or town centre, that would not involve the same consultees that were involved in the part of the area subject to the increase. I think that that is the issue.

Local authorities must reflect more broadly on their area, and not on a narrow defined area, which the Bill seems geared to. That flexibility would be welcomed by local authorities. As to being consistent, this is not a case of my arguing against myself—it is about providing a framework and allowing local areas to administer it appropriately for their locality.

The way the hon. Gentleman is applying his logic is to say that the more taxes are hiked up, the more revenue is received; but we must be careful with that. A good example from my constituency was when the Labour council hiked up the car parking charges and lost £350,000 in income. Does he think that that is a good example of what he is suggesting? Is that why we should not look to increase taxes in the way he advocates?

I congratulate the Minister on living in a Labour council area. There are 22 million other people in the country living with Labour in control locally, and they get to experience at first hand the benefits of Labour being in government. The Minister should reflect on his fortunate circumstances. Let us hope that other parts of the country benefit from the same thing soon.

I suspect that, with all due respect to my hon. Friend, he was not aware of that example from Nuneaton. Is he, however, as pleasantly surprised as I am that for the first time in debate on the Bill the Minister has actually produced some evidence?

The Minister has provided a certain insight. I would not quite call it evidence, because I have seen nothing produced; there has not been an assessment to back up that claim, as far as I can see. We need a higher bar on what we mean by evidence than the Minister jumping to his feet in a fit of excitement.

As we progress through the Bill and explore where the Government are trying to get to, I hope that the Government will take time to use the probing amendments to reflect. If they really want to achieve localism, if they really want local councils to take responsibility for growing their economic base and their tax base, we need to recognise that within any area there will be micro housing markets and micro business markets, where that local variation and local power to deploy in a very different way in the local authority area is critical to being able to grow the economy from the grassroots up. This is not about an aggressive attack just for attack’s sake; it is about a genuine deal, and the deal would always be that a local authority would say to the public, “We want to do this over here, and it would mean increasing business rates, but we would use that money to support this initiative over here.”

I genuinely believe that many people in this country are witnessing the decline of their town centres and high streets and are in tears, because that is a reflection, a symbol, of how the town is doing more generally. When people go into their town centre, which is the heart of the community, and they see windows boarded up and “To Let” boards where local shops used to thrive, they genuinely feel that part of their identity has been taken away. Our high streets are more symbolic than just a retail space; they are part of our cultural identity. I therefore hope that the Minister will reflect on our suggestions and that, if not during this phase, we may see some of them coming forward in the near future.

I think that this amendment will come to be known as the Mackintosh-Hollinrake amendment part 2. I again draw your attention, Sir David, to the excellent report by the Communities and Local Government Committee on what 100% business rates retention might mean. I can assure you that present when the report was agreed was the hon. Member for Northampton South. The report makes very clear his support for the recommendation that the power to raise the multiplier for business rates should be introduced. He wanted, as did the rest of the Select Committee, rises capped so that they were limited to the increase in the average council tax. I do not know whether at that point he foresaw Surrey County Council wanting to increase council tax by 15%. Clearly, a 15% hike in business rates would be completely unacceptable, but it is interesting that members of the Select Committee propose that local authorities should have the power to raise business rates as

“an effective lever to stimulate and foster local economic growth.”

The reason I supported our tabling these as probing amendments was that it is important, during the passage of the Bill, to consider the sources of revenue that local authorities will have to pay for the vital public services that the people of England get from their councils. Given the huge reduction in revenue support grant that we are all familiar with English local authorities having experienced, the two principal sources of income will be business rates and council tax.

The power does exist in law to increase council tax. If that goes beyond a certain threshold—well, Ministers are varying the threshold up and down at will at the moment. There is the power to increase council tax, however, and one can go higher than the threshold if one can get the consent of one’s local residents. There is no similar power for business rates.

In the new Jerusalem that we heard the hon. Member for North Swindon set out at an earlier sitting—I am sure that by now, Sir David, you have had the chance to read his speech—he foresaw business rates being reduced and, across every local authority area that did that, great big new warehouses, out-of-town shopping centres, large businesses moving in and business rates income rising as a result. Unfortunately, in the course of—

Let me finish this point and then I will happily give way to the hon. Gentleman, whom I am delighted to see I have woken up. I hope that in the course of the consideration of the Bill to date, he and other members of the Committee have begun to understand that there is a whole series of barriers to economic growth taking place in particular local authority areas. Actually, an individual local authority may not have much scope, if any, to increase its business rates income.

I suspect that the hon. Gentleman drifted off during my speech, because the key point I made was about the growth of small businesses to medium-sized businesses. That not only generates business rates income and does not require big out-of-town warehouses, but crucially creates yet more jobs that are vital to local residents.

I was sufficiently shocked by the sight of a Government Back-Bench Member rising that I did pay attention, but it is possible that, as events have moved on, I cannot recollect every aspect of the hon. Gentleman’s contribution. As punishment, I will go back and re-read it. He makes a partially interesting intervention—if he will forgive me for saying so. He is right: the challenge across the country for future businesses and economic growth is to take the entrepreneurial spirit that leads to the establishment of small businesses in the first place and to turn those into medium-sized businesses and, ultimately, bigger businesses.

Increasingly, as my hon. Friend the Member for Oldham West and Royton made clear, we are seeing more of those small businesses that are successfully transitioning into medium-sized and bigger businesses not needing the size of property that would lead to the increase in business rates income in the way that this Bill implies will be the only way for councils to generate increased business rates income in the future. There is that constraint, plus those that the hon. Member for Waveney alluded to and the barriers that I set out when I took the Committee to Allerdale Borough Council in Cumbria, with the mountains and lakes of the Lake district being natural barriers to economic growth.

We are now privileged to have the hon. Member for Thirsk and Malton with us. He will be delighted that, in a spirit of tribute to him and the hon. Member for Northampton South, I am moving a probing amendment that grants—as he and other members of the Select Committee wanted—the power to raise business rates so that that is included in this legislation. I look forward to hearing the case for raising business rates from the hon. Gentlemen.

As my hon. Friend the Member for Oldham West and Royton alluded to, one can foresee the social care crisis being so severe, and the worry about individual families’ circumstances being so great, that council leaders and councillors up and down the country will not want to go beyond a 1%, 2% or even 0% increase in council tax. However, they might want to look at the big businesses based in their area and potentially increase business rates as a source of income to pay for vital public services.

In the evidence given to the Committee by the chairman of the Federation of Small Businesses, we heard of his desire to see local authorities properly funded, so that the range of discretionary services that councils can offer when they have the resources, and that help businesses, can be available. The Minister’s most recent intervention on car parking charges was interesting. The chairman of the FSB noted in his evidence to us that one reason local authorities raise parking charges is that they have few alternative ways of raising revenue.

Given that that we do not wish to put the amendment to a vote, I have not sought support for it.

I return to the contributions made to the Select Committee report by the hon. Members for Thirsk and Malton and for Northampton South, who supported the power to raise business rates. Labour Members do not go as far as those hon. Gentlemen want us to, but their enthusiasm for raising business rates returns us to a broad point: where and how does one increase the quantum of local authority funding, if one wants the people of England to have the good-quality public services that they deserve? We have noted with considerable concern the impact that the decline in revenue support grant has had on rural bus services, public services and policing. If they do not have the power to raise business rates, I suspect that more and more councils will want to increase council tax as a way to fund public services.

The motivation for amendment 46, a probing amendment, is to note the difference between what can happen to empty property rates in Scotland and Wales, and what can happen in England. Councils in England can charge up to 150% on properties that have been unoccupied and substantially unfurnished for more than two years. In Scotland, they can charge up to 200%, and the qualifying period is only a year; Wales has similar powers. It would be interesting to hear from the Minister the reason for the difference. In Britain’s best constituency, Harrow West, the old post office site in the town centre has been empty for the better part of 10 years. Perhaps if empty property rates were set at the same level as those in Scotland, the developers who own the site would have more enthusiasm for accelerating their use of the planning permission that they have for it.

It is sad to hear that the hon. Gentleman’s town centre post office was a victim of Labour’s cuts, but how does he think post offices would be sustained by an increase in their business rates?

I say gently to the hon. Gentleman that the old post office site is not vacant due to the closure of the post office; the post office transferred across to a slightly smaller site immediately opposite under a Labour Government. Sadly, that post office has now closed under a Conservative Government, and the Post Office now operates from a franchise in a small corner of the local WH Smith. Again, as part of the mentoring that we offer, I gently suggest that he might want to check his facts a little more before making interventions that are that easy to rebut.

I took a slightly different emphasis from my hon. Friend’s contribution. It was not about post offices closing and relocating; it was about a site lying vacant for so long. If a more aggressive business rate regime were in place, it might prompt the owner of the site to bring it forward for development. That is what I took from his contribution.

My hon. Friend is absolutely right. We in Harrow are increasingly concerned about the time that it is taking the developer to bring the site back into use. Perhaps the Scots and the Welsh Labour Administration have got the rate of empty property relief right. I would be interested to hear from the Minister on that. These are probing amendments, and in that spirit, I look forward to the Minister’s response.

It is always a pleasure to respond to the hon. Gentleman’s amendments. Clause 6 provides a power for authorities to introduce a multiplier discount, to incentivise businesses to invest in their areas and to stimulate local economic growth. Amendment 45 would introduce a wide-ranging power for the Secretary of State to provide in regulations for a local authority to be able, under certain circumstances, to raise the multiplier for its area. I understand the hon. Gentleman’s intention, but I am afraid that I do not agree that his approach is right, or that there is a justification for giving, or a need to give, local authorities a general, unfettered power to generate additional income by raising taxes on businesses.

Local authorities already have a range of more specific powers to raise additional income from businesses where authorities are delivering a specific improvement to the benefit of the local economy, including through business improvement districts and business rate supplements. In addition, the Bill would provide for a new infrastructure supplement for Mayors of combined authorities. These powers rightly include additional measures to ensure the effective engagement of businesses, and the additional income generated goes towards delivering specific improvements to benefit local businesses. Amendments 45 and 46 contain no such assurances or protections for business. Instead, they would allow local authorities to increase business rates without such checks and balances.

Amendment 46 would give the Secretary of State a wide-ranging power to make provision for a local authority, under certain circumstances, to increase the multiplier specifically for unoccupied premises. However, owners of such properties are already subject to full business rates, subject to the exemptions that may apply. The amendments would provide local authorities with powers to add additional costs to owners, who may not be receiving any rental income. That would be unnecessarily punitive and of very limited benefit.

I am therefore certain that the amendments would not be supported by the business community, and Labour Members offered no evidence to suggest that they would be. We need to provide business with the certainty it needs over rates bills, while allowing more flexibility for local government, for example through the new multiplier flexibilities. I hope that Labour Members will recognise the balance that we have struck in the Bill for business and local government. In that spirit, I hope that they will withdraw the amendment.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to consider that schedule 2 be the Second schedule to the Bill.

If local authorities are to move to even greater self-sufficiency, they need the tools to incentivise and stimulate local economic growth. The powers in schedule 2 give councils the flexibility to reduce business rates across their whole area by applying a discount to the multiplier. It provides local authorities with the ability to shape local economic conditions and signal their intent to attract business investment.

Under existing legislation, only the Secretary of State has the power to set the national business rates multiplier that applies in England. This Bill changes that. The purpose of clause 6 is to introduce schedule 2 to the Bill, which amends the Local Government Finance Act 1988 and inserts new paragraphs 6A, 6B and 6C to schedule 7 to that Act.

Ordered, That the debate be now adjourned.—(Jackie Doyle-Price.)

Adjourned till this day at Two o’clock.

Local Government Finance Bill (Eighth sitting)

The Committee consisted of the following Members:

Chairs: † Sir David Amess, Mike Gapes

Aldous, Peter (Waveney) (Con)

† Double, Steve (St Austell and Newquay) (Con)

† Doyle-Price, Jackie (Thurrock) (Con)

† Efford, Clive (Eltham) (Lab)

† Foster, Kevin (Torbay) (Con)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

Hollinrake, Kevin (Thirsk and Malton) (Con)

† Jones, Mr Marcus (Parliamentary Under-Secretary of State for Communities and Local Government)

† McMahon, Jim (Oldham West and Royton) (Lab)

† Mackintosh, David (Northampton South) (Con)

† Marris, Rob (Wolverhampton South West) (Lab)

Pow, Rebecca (Taunton Deane) (Con)

† Thomas, Mr Gareth (Harrow West) (Lab/Co-op)

† Tomlinson, Justin (North Swindon) (Con)

Turley, Anna (Redcar) (Lab/Co-op)

† Warburton, David (Somerton and Frome) (Con)

Colin Lee, Katy Stout, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 9 February 2017

(Afternoon)

[Sir David Amess in the Chair]

Local Government Finance Bill

Clause 6

Power to reduce non-domestic rating multipliers

Question (this day) again proposed, That the clause stand part of the Bill.

I remind the Committee that with this it will be convenient to discuss the following:

That schedule 2 be the Second schedule to the Bill.

The clause allows local authorities to specify a multiplier discount. The effect will be to enable them to reduce the nationally determined business rates in their area.

Schedule 2 provides two delegated powers. The first enables the Secretary of State to add, vary or amend descriptions of local authorities that can exercise this power, so that he or she can respond to changes in the organisation of local government. The second gives the Secretary of State the power to set a maximum multiplier discount that a relevant authority, as defined in schedule 2, may apply. The Local Government Finance Act 1988, as amended by the Bill, and regulations made under that Act, will allow the Government to ensure that the income of a tiered authority in a two-tier area is protected from a discount introduced by another authority.

We encourage two-tier areas to work together when setting a discount. Under paragraph 6C, the authority introducing a discount must inform the Secretary of State and other affected authorities of its intention to do so by 31 December in the preceding financial year. The list of relevant authorities under the schedule is defined in new paragraph 6A(2) and includes lower and upper-tier authorities, as well as unitary authorities and the Greater London Authority, all of which receive a share of business rates. New paragraph 6B(1) sets out how a multiplier discount must be expressed by an authority. Overall, these changes give local authorities the flexibility to attract business investment, while providing businesses with the stability of knowing that business rates will not increase beyond the national level.

My hon. Friends on the Labour Front Bench, whose amendments 45 and 46 would have enabled an increase in rates, will be happy to know that schedule 2 allows that. Paragraph 6 of schedule 2, which starts on line 32 of page 42 of the Bill, amends paragraph 3A of our old friend, schedule 7 of the Local Government Finance Act 1988. Paragraph 6 goes through aspects of multiplier discount and refers, in lines 1 and 2 of page 43, to taking

“the sum of those multiplier discounts.”

I cannot see that the Bill prevents a negative multiplier discount, though I stand to be corrected by the Minister. I look around the room at all the MPs on the Committee; they all studied mathematics far more recently than I did—I make no mention of you, Sir David—but my understanding is that if there is a negative multiplier discount, the result is a positive. That would produce the effect sought unsuccessfully by my hon. Friends through amendments 45 and 46.

For the record, let me clarify that we were not seeking to change Labour party policy in this area, so my hon. Friend is wrong, unusually, to say that we were advocating an increase in business rates. We were merely seeking an opportunity to raise the suggestion made by the Select Committee on Communities and Local Government—and particularly the hon. Members for Thirsk and Malton, and for Northampton South—which advocated in its report a power for local authorities to increase business rates if they wanted to.

I am grateful to my hon. Friend for that clarification. I apologise to the Committee if I mis-expressed myself. I was not advocating one course or the other, because I believe in local control and localism, but on my reading, the amendments made by schedule 2 would allow that increase.

The Minister adverted to new paragraph 6B, which is to be inserted into schedule 7 to the 1988 Act; it starts at line 27 of page 44 of the Bill. Under new paragraph 6B(3), the Secretary of State can, as the Minister said, set a maximum. The Secretary of State spoke this morning about incentivising and stimulating, and about local authorities working hard and being flexible to attract business. He referred to tools to incentivise local growth, without, of course, producing any evidence relating to the incentives, or their prospects of success, but we have already been around the block several times on the subject of the lack of evidence, so I shall leave that.

However, while we are talking about localism, sub-paragraph (3) is another instance of a power being reserved, if not grabbed, by central Government—the power for the Secretary of State to set a maximum for a multiplier discount. That does not seem to me to bolster localism. Broadly speaking, if we go along with what the Minister says—with the idea that 100% retention of business rates and so on will incentivise local authorities to be even more pro-business, whatever the colour of the authority—we should let local authorities act accordingly and make what outside observers and indeed some residents may see as mistakes. That is what localism is about: letting local authorities take decisions and bear the consequences.

It is hard to think of a recent example, but perhaps the Government are trying to prevent a local authority from threatening to increase the rate to such an extent that there is local outcry, forcing the Government to do a back-room deal to resolve the issue.

I cannot think that that could possibly happen in any county in England. However, I wonder whether specifying a maximum multiplier discount, which, as I understand it is, in lay terms, a floor below which a local authority must not go, is to do with a Government attempt to shore up local government finances. The present Government and their coalition predecessor nicked loads of money from local authorities, so local authorities without enough money might still be tempted, in a beggar-my-neighbour way, to use the powers provided generally, were it not for schedule 2, to set a multiplier discount at a very low rate.

Of course Government finances are in a complete mess, and the national debt has gone up nearly two thirds in the past six years. There are real problems with the Government finances. They are not under control, and that is reflected in local authority finances. Some local authorities might be tempted to take action that outside observers and the Secretary of State might regard as foolish. What, therefore, does the Secretary of State do? He reserves powers, under schedule 2, to set a maximum multiplier discount.

That goes against the grain of what the Government are professing to do in the Bill—bolstering localism, and giving local authorities non-evidenced incentives to be business-friendly. A local authority cannot get too business-friendly by setting out too much of a multiplier discount, because then the Secretary of State will say, “You cannot do that.” Again, there are contradictory messages. I do not say that nothing my party says is ever contradictory. On occasions it could be pointed out that things I or my colleagues have said are contradictory; that is the human condition. However, we are dealing with a Bill presented by a Government who talk about local control, and schedule 2 contains an example that shows them going in the opposite direction.

I will respond briefly. The hon. Gentleman’s argument and the intervention by the hon. Member for Harrow West showed how confused the Opposition are about this area of policy. I have clearly set out how the clause would operate, and explained that the intention is to allow local authorities to apply a discount to their multiplier if they wish. To respond to the question of the hon. Member for Wolverhampton South West, the Secretary of State will have the power to stipulate a maximum increase in a business rate supplement, and we are showing some consistency for when things go the other way and an area might want to reduce the multiplier. The clause is therefore not inconsistent with the Bill.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Schedule 2

Power to reduce non-domestic rating multipliers

Amendment proposed: 48, in schedule 2, page 44, line 7, at end insert—

‘(1A) A relevant authority shall determine that the multiplier discount shall apply—

(a) to all hereditaments in its area, or

(b) only to some hereditaments in its area (defined by reference to their location, rateable value, class of hereditament or such other factors that the relevant authority determines when specifying the multiplier discount).’—(Jim McMahon.)

See explanatory statement for amendment 49.

Question put, That the amendment be made.

Schedule 2 agreed to.

Clause 7

Relief for rural shops, etc

I beg to move amendment 37, in clause 7, page 10, line 6, at end insert—

‘( ) In section 67 of that Act (interpretation: other provisions), in subsection (7), for “and (6)” (as inserted by paragraph 6A of Schedule 3) substitute “, (6) and (6B)”.’

Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover section 43(6B) of that Act.

The Government are committed to supporting small businesses across all areas of the country. In rural areas, that will help to ensure that key amenities continue to be available to local communities.

The system of rural rate relief provides 50% mandatory relief to the only village shop, post office, public house or petrol station within a rural settlement, subject to certain rateable value thresholds. In the autumn statement, the Government announced the doubling of rural rate relief to 100%, which increases support for rural businesses. The clause brings that change into effect by amending section 43 of the Local Government Finance Act 1998 so that those businesses that qualify for rural rate relief pay no business rates at all. That will bring the rural rate relief scheme into line with the small business rate relief scheme, which provides 100% relief for eligible businesses.

The Government’s intention is for the qualifying businesses to receive 100% rural rate relief from April 2017. For the 2017-18 financial year, before this legislation is in place, local authorities will be expected to use their discretionary powers under section 47 of the 1988 Act to provide 100% rural relief, and they will receive compensation through a grant from central Government. To ensure that all eligible rural businesses receive the relief, the clause provides that the 100% relief will become mandatory. The Government intend to bring the clause into force from 1 April 2018. This is an important amendment to legislation to protect and support valuable rural businesses.

In the interests of speed, I will take the opportunity to speak to the Government amendments now, rather than in a separate clause stand part debate.

If I understand correctly, a small business in a rural area might quality for 100% business rate relief under small business rate relief, but if it also qualifies for the 50% rural rate relief, it has to be given that 50% relief rather than the 100% relief, because of the hierarchy of rate reliefs that exists. As I understand it, the clause intends to deal with that loophole.

As the Minister hinted, a rural settlements list sets out the types of businesses that would benefit from small business rate relief. Those are a public house or petrol station that is the only such business in a rural settlement and has a rateable value of less than £12,500, a food store or general store that is the only one in the settlement, and post offices with a rateable value of less than £8,500. Local authorities have the discretion to top up the 50% rural rate relief to 100%, but not all do so, presumably because of the difficult financial situation that local authorities face at the moment, regardless of their political leadership, given the cuts to revenue support that the Government have been pushing through.

I intervene in this debate to ask the Minister a number of questions. Why does the rural rate relief scheme not cover a wider range of businesses? I ask that in the context of growing concern in the countryside that rural enterprises will be some of the biggest losers in the business rates revaluation that will come into force after April 2018. There have been real concerns that livery yards and riding schools, for example, will go to the wall because of the expected increase in business rates under the revaluation. There is concern that kennels and catteries, polo grounds, racecourses and racing stables will also be among the worst hit. That is of such concern that the hon. Member for Montgomeryshire (Glyn Davies) has raised concerns. Similarly, Sarah Phillips, the director of participation at the British Horse Society, worried aloud—understandably—through The Times that increases in business rates after April would have a devastating impact on livery yards and riding schools. She went on to point out that rural businesses, which typically occupy more space, were being put at an unfair disadvantage by a bricks-and-mortar tax based on premises, not profitability. That prompts a question of Ministers as to why more rural businesses will not be able to benefit from the changes.

Indeed, the many businesses that want to install solar panels are also asking why rural business rate relief will not similarly help them. They also stand to suffer considerably from the business rates revaluation that will come into force after the next revaluation in April 2017. The problem is that, going forward, solar panels will be judged separately from business premises, and it appears that they will not all qualify for small business rates, which is the other potential opportunity for assistance. Given the solar industry’s potential to create good new jobs, why are Ministers not taking advantage of the extension of rural rate relief, perhaps to help out a number of other businesses?

When we debated clause 5, we talked about whether the retail prices index or the consumer prices index should be used. I know that you read Hansard diligently, Sir David, so you will remember that £78 billion will potentially be gained by businesses and lost by local authorities over the next 20 years as a result of the change. Perhaps if Ministers were to take advantage of the flexibility in clause 5 over whether CPI is used, which my hon. Friend the Member for Wolverhampton South West noted, they might be able to find the resources to help more businesses in our countryside to survive.

Bricks-and-mortar businesses—in urban areas, too, but in this context particularly in rural areas—are under growing pressure from the rise in online businesses. One of the great successes of the previous Labour Government, and of Britain more generally, is that we are such a hub for online technology businesses, but those businesses tend to need less space and are therefore less likely to pay high business rates, whether they are in urban or rural areas. Many businesses are saying, “Hang on a second. We have to pay huge business rates every year, and these online businesses are not being taxed in the same way. Isn’t it time for a bit more equality between these two types of businesses?”

The challenges for businesses in rural areas are sometimes even more acute. In Threlkeld, a small village just outside Keswick in the Allerdale Borough Council area, which the hon. Member for North Swindon always likes to be reminded of, there is a new coffee shop run by the community—it is a social enterprise—and a pub. We know that the pub would qualify for 100% rural rate relief, but we do not know whether the coffee shop would. As the coffee shop is part of a community hall facility, it helps the community of Threlkeld to benefit from the existence of that premise, where lots of different community activities take place. Would it be eligible for 100% rural rate relief or not? It is not a post office, a pub or a petrol station. Perhaps Ministers might listen to the concerns of businesses in the countryside a little more and do more to help them.

If that community centre were classified as a public toilet under clause 9, it might get some relief—as might its users.

The last time I visited that coffee shop, which has fantastic views of Blencathra and Skiddaw—two of the great English mountains—although there were toilets there, that was not what the bulk of the premises were being used for. It would be interesting to probe whether it has the potential to get at least some relief under clause 9, but let me not test Sir David’s patience by being diverted down that particular route.

I would like to ask Ministers why, in their view, rural rate relief is so limited and whether there might not be scope for providing more assistance to businesses in the countryside, more generally and also given the rise in online businesses, which do not require such large premises. In particular, it would be good to hear what the Government will do to help the nascent solar panel industry, particularly those businesses seeking to put up solar panels in rural areas.

Thank you, Sir David, for allowing me the opportunity to respond to the shadow Minister. He mentioned rural rate relief. Clearly, there is a key criterion for eligibility. The idea of rural rate relief is to ensure that key amenities are available in rural areas. He seems to have conflated it—at some length—with the business rate revaluation. As he will know, the revaluation is not a process designed to raise any more or less money for the Exchequer; it is a fiscally neutral exercise meant to ensure that rateable values reflect property rents and changes in those rents over the revaluation period.

In the 2017 revaluation, nearly three quarters of ratepayers will see either no change or a reduction in their bill. The hon. Gentleman seems suddenly to have an interest in rural areas. Most people in rural areas think that the Labour party has generally neglected them when it has been in government, but he now seems to be taking a more significant interest, which perhaps we should welcome. Rural businesses, if their rates have increased, will also be eligible for part of the £3.6 billion transitional relief scheme that we are introducing at the same time. I hope to reassure him that, in its totality, the business rate revaluation will predominantly reduce rate bills in rural areas by an average of 4.4% and in significantly rural areas by an average of 6.4%.

I would gently point out that it was not the Labour Government who sought to close hospitals in rural areas, such as the one in Allerdale Borough Council’s area that serves the community of Threlkeld, to which I referred. I suggest that the Minister is being rather complacent about the impact on some rural businesses as a result of the revaluation. Have Ministers considered extending rural rates relief so that other businesses in isolated communities can benefit?

We keep taxes continually under review. As I said to the hon. Gentleman, we are not complacent. We have put in place a significant package of transitional relief in that regard. He has waxed lyrical about Allerdale. Having been up to that part of the country recently, I know how beautiful it is, but I also observed that the local economy is not just about tourism and related activities. It is also heavily based on the nuclear industry. There are many people in that area who depend on the nuclear industry for their livelihoods. I would say to the hon. Gentleman, very gently, that his party’s policy on nuclear is probably the biggest threat to that particular part of the country. [Interruption.]

Order. I would be grateful if the Minister would stick very closely to responding to the points that were made by Mr Thomas.

On a point of order, Sir David. To clarify for the record, because the Minister has made an assertion that is completely inaccurate, Labour party policy is to support nuclear power, in particular Sellafield.

That was a very clever way of continuing the debate. I think it is best if we move on.

I am not sure that the hon. Member for Harrow West has spoken to his leader, but I will not go into any further depth on that. I think I had come to the end of responding to the hon. Gentleman’s point. What I would like to do—

On a point of order, Sir David. I wonder whether there is any way in which you might encourage the Minister to address the concern about the solar panel industry and the potential impact of rural rate relief.

That is obviously not a matter for the Chair. It is a matter for the Minister how he responds to the points that are made, but he heard the point made. It is entirely a matter for him whether or not he wishes to respond.

Thank you, Sir David. There is a concern about whether the point made relates to rural rate relief. I would say to the hon. Member for Harrow West that solar panels quite often form part of a building that might be subject to business rates. There are some situations—I will not go into the details—where those solar panels will be subject to business rating because they are part of plant and equipment, and some occasions where they will not be. I would also say that because that equipment forms quite a small part of the hereditament in question, which would be subject to business rates alongside the solar panels, there are situations where business rate levels have reduced as part of the revaluation, even though the solar panels may be subject to business rates.

If you will allow me, Sir David, in the spirit of trying to move the Committee along, I would like to speak quickly to the amendments tabled to the clause. Amendments 37 and 41 are purely technical amendments, which concern a principle used in business rates known as the end-of-the-day rule. Hon. Members new to the technical details of the business rates system may believe that we are thinking about the end of the day—which could not come soon enough for many of us—but I am afraid this is slightly different. The liability of a ratepayer to business rates arises on a day-to-day basis. That means that business rates are calculated for each day based on the circumstances of the ratepayer and the property on that day. That then gives rise to the question at what point in the day those circumstances are to be taken from. If, for example, a ratepayer moved into the property at 12 noon, are they a ratepayer for half of that day, for the full day or not at all?

The relevant legislation does not leave that point to chance. Section 67 of the 1998 Act contains various provisions dealing with such circumstances. The provision adopted in section 67 is that the circumstances as they may exist before the day ends are taken to have applied for the day, and if conditions necessary to satisfy the requirements of, for example, a mandatory rate relief are met immediately before the day ends, they are taken to have applied for the day. If, for example, a charity started to use its property wholly or mainly for charitable purposes at 12 noon, it is assumed to have used the property for the whole day and is therefore eligible for mandatory relief.

The end-of-the-day principle is a familiar and accepted principle in the business rates system. The amendments will apply that principle to various measures that we are introducing in the Bill and they will clarify that the same principle applies to some existing reliefs.

Amendments 37 and, in part, 38 will ensure for the avoidance of doubt that the end-of-the-day principle is applied for rural relief and small business rate relief. In practice, those reliefs are already operating using the principle, but we want to put that beyond doubt. Amendments 38 and 39 will ensure that the end-of-the-day principle is adopted for the new relief for telecommunications infrastructure introduced under clause 8 and schedule 3. Amendment 40 ensures that the principle is adopted for charitable and empty property relief on the central rating list introduced under clause 10. Finally, amendment 41 will ensure that the end-of-the-day principle is adopted for the new administrative arrangements being introduced for the central rating list under clause 11.

Amendment 37 agreed to.

Clause 7, as amended, ordered to stand part of the Bill.

Clause 8

Relief for telecommunications infrastructure

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

That schedule 3 be the Third schedule to the Bill.

Before I open my remarks on whether the clause should stand part of the Bill, having consulted with the registrar of standards, I need to declare that my partner works for a company that certainly manages and I believe installs mobile telecoms infrastructure.

I intend to explore the Minister’s thinking on the case for the clause. In the 2016 autumn statement, the Chancellor announced that the Government would provide 100% business rates relief for new full-fibre infrastructure over a five-year period from 1 April this year. In the context of the significant concern about BT and the way in which Openreach is working, and about the profits it and other bits of the industry have been able to generate, why is that particular provision needed? I ask it as a probing question.

Clearly, there is an opportunity cost to Ministers’ decision to offer full business rates relief for five years. All of us recognise the need to speed up access to the very best broadband telecoms not only in rural areas, in the context of the previous debate, but for businesses and households in my constituency, which complain about slow access to the newest broadband infrastructure. One wonders whether it is not the money, as full business rates relief for telecoms infrastructure will not offer up huge sums of money to those installing such infrastructure. However, there is clearly an opportunity cost in other areas.

Ministers do not appear to be cracking down enough on Ofcom or BT about the speed at which the broadband is being rolled out. How does the Minister see the clause making a real difference in the context of the considerable profits already being generated by the companies operating in this area?

I hope the Minister can point to this, because I cannot find it, but my hon. Friend referred to the Chancellor’s announcement that mentioned a five-year period. I cannot find a reference to a five-year period in schedule 3. It may be there and I just cannot see it, or it is somewhere else and the Minister can point it out to me.

I see in schedule 3 more than four pages and five formulae. The ever-helpful Library brief cites on page 37 documentation from the autumn statement saying that this measure

“would reduce business rate revenue by £10 million”.

For a company such as BT, £10 million is not a huge amount of money, but for everyone in this room, it is. Nationally and relatively—I stress “relatively”—it is not a huge amount of money, but we get a four-page schedule and five formulae. That strikes me as completely over the top.

We see in schedule 3—on page 46, lines 30 and 31, page 47, lines 37 to 38, and page 48, coincidentally lines 30 and 31 again—the same wording:

“any conditions prescribed by the Secretary of State by regulations are satisfied on that day.”

So here we have the Secretary of State and more regulations. Then when I look at the power to make regulations in paragraph 12 on page 50 of the Bill, it says:

“any power to make regulations conferred by virtue of this Schedule”—

schedule 3—

“includes power to make provision having effect in relation to times before the coming into force of this Schedule”.

I would like the Minister to talk the Committee through that a bit. No doubt he will say something like this happens all the time, but I am a bit uneasy about what seems on the face of it to be a retrospective power in schedule 3, paragraph 12. That is a little worrying. Even though I appreciate it may be a power that would be used or is intended to be used to lessen the tax on a particular business or set of businesses, I still find the retrospection a little troubling.

The Government intend to support the roll-out of a full-fibre telecommunications infrastructure for all. Full-fibre broadband will deliver a step change in the speed, service quality, security and reliability of broadband services. It will provide important support for a more productive economy and boost the prospects for economic growth.

In the 2016 autumn statement, to which the hon. Member for Harrow West referred, the Government announced £1 billion of new funding to boost the UK’s digital infrastructure. That includes investment of £400 million in a new digital infrastructure investment fund to boost commercial finance for emerging fibre broadband providers. Alongside that package, the Chancellor announced 100% rate relief for a new full-fibre infrastructure in England. Clause 8 and schedule 3 will introduce that relief, which will apply for five years, commencing on 1 April 2017. Hence this part of the Bill will have a retrospective effect. I hope that the hon. Member for Wolverhampton South West understands the principle behind the retrospection.

I will come to the cost a little later. The schedule provides powers to award rate relief to telecom networks. Some networks appear on the local rating lists held by local authorities and some appear on the central rating list held by the Secretary of State. The schedule therefore introduces the new relief for both local rating lists and the central rating list.

The powers in the schedule will allow the Secretary of State to set conditions on when the relief will apply. Through these powers, we will target the relief on operators of telecom networks that install new fibre on their networks. That will incentivise and reward those operators who invest in the broadband network.

These are concepts that we have not previously defined for business rates. The powers in the schedule will therefore allow us to develop definitions with experts in the telecoms and business rate sectors. By taking this approach we can ensure that we accurately capture in the relief only those parts of the telecoms networks that comprise new fibre. There is a distinction there because it is important—by definition, this is an incentive—that we incentivise the laying of new fibre cable. We are not looking to fund fibre cable that may have already been laid but not switched on, so to speak. I am absolutely clear that this is for new fibre.

As I understand it—as ever, I am open to correction—the provisions in the clause and accompanying schedule are by nature, to use the Minister’s words, incentives: a financial incentive to encourage, in particular but not only, rural broadband and better internet connections, which we all support. It appears to be—I stress “appears”—a bung for private industry to do something that Ofcom could order it to do. Why are we being asked to do it in the Bill, rather than Ofcom just doing it by mandating companies?

It is clear that the thrust of what we are trying to do, as I said at the outset, is to bring this forward as part of a package—£1 billion of new funding to boost the UK’s digital infrastructure, including £400 million in new digital infrastructure investment and a fund that is dedicated to that—to boost commercial finance for emerging fibre broadband providers. It is important that the hon. Gentleman understands that this measure is designed to widen the market in that sense.

I am grateful for the Minister’s generosity in giving way. The Library briefing gives some figures on what this measure would cost each year, and I know he said he would get on to that. Are the figures for the cost each year included in the £1 billion to which he has referred at least twice, or are they in addition to it?

That is a very good question, which I will write to the hon. Gentleman and the rest of the Committee on. The overall cost, which the hon. Member for Harrow West asked about—he wanted me to go into what the cost was in each of the first five years, but I am not able to do that today so perhaps I can satisfy him in writing—is £60 million over that particular period.

To pick up the thread that I was on, the powers in the schedule will allow the Secretary of State to determine the level of relief to be awarded. As I said, the Government intend to allow telecom operators 100% rate relief, but only for new fibre. That new fibre will of course form part of existing telecoms networks with existing ratings assessments. Through the operation of this scheme, we intend to ensure that relief is only for new fibre, as I have clarified to the Committee. To achieve that, the powers in the schedule will allow us to set, by a formula contained in regulations, the correct level of relief for each property, reflecting the amount of the network that qualifies for the relief. That will be based on a certificate from the valuation office of the amount of rateable value attributable to the new fibre.

Hon. Members will recognise that this is a technical area, but one in which we need desperately to ensure that the provisions are correct. Therefore, my Department will shortly issue draft regulations for consultation on how to implement the relief for new fibre. On that basis, I hope that clause 8 and schedule 3 will stand part of the Bill.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Schedule 3

Relief for telecommunications infrastructure

Amendments made: 38, in schedule 3, page 48, line 16, at end insert—

“6A In section 67 (interpretation: other provisions), in subsection (7), for “43(6)” substitute “43(4B) (so far as relating to England), (4F) and (6), 45(4D)”.”

Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover section 43(4B) of that Act and the new sections 43(4F) and 45(4D) inserted by Schedule 3.

Amendment 39, in schedule 3, page 49, line 29, at end insert—

“10A In section 67 (interpretation: other provisions), in subsection (7), for “47(2)” substitute “54ZA”.”—(Mr Jones.)

Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover the new section 54ZA inserted by Schedule 3.

Schedule 3, as amended, agreed to.

Clause 9

Discretionary relief for public toilets

Question proposed, That the clause stand part of the Bill.

I get all the crap jobs. I have been told that I am not allowed to use foul language, so I am afraid most of the puns have been wiped out.

This is a straightforward clause, which hopefully addresses a long-standing request from a number of local authorities for the facility of public toilets to be recognised as important not just in areas with high levels of tourism but in urban settings. We need to look back on the history of public toilets—not too far; I will go back only to the Romans—and on the establishment of the need for public conveniences.

When people are away from their home setting and need to use a convenience, it makes sense that conveniences are provided in convenient places, which they can get to easily. The truth is, in recent years, we have seen the number of public conveniences reduce significantly. In real terms, in 2010, the spend on public toilets by local authorities was £85 million and, last year, it was only £54 million. We have seen a lot of money taken away from public conveniences, which has had a real impact, with more than 1,700 public toilets having closed down. We know what the impact of that is.

Are those figures just for county and district councils or do they include parish councils? Many parish councils, particularly those in places such as Cornwall, have taken over the running of public toilets.

The figures come from a BBC freedom of information request last year, which went to all main local authorities. The question was not how many toilets they maintained but how many were in their areas of responsibility, so perhaps that includes toilets run by other authorities such as parish, community and town councils. I cannot confirm that from the article.

As I understand it, if the parish council or whatever is a billing authority, it will benefit from the clause.

The parish council will benefit from the clause. The question was whether the data on the number of public toilets included parish councils and I cannot confirm that. Notwithstanding that, it is hard to believe that all 1,700 toilets have been handed over to parish councils. I think we can assume that, given £31 million has been taken out of their provision, a significant number of public conveniences have been taken away.

Some local authorities have recognised the impact that has had on their communities and, although they have faced difficult budget restrictions, they have tried to step up and bring the community together to try to find local solutions. For instance, we know that a number of pubs, cafés, bars and restaurants acting as community toilet providers have been recognised with a small payment from their local authority. That is one way in which there has been some impact, particularly in areas of high footfall such as tourist areas, and my own local authority does that to a good standard. However, there is a world of difference between being able to spot a little sticker displayed in the window of a community toilet provider and the community knowing where to find established facilities.

The other thing is that a number of the conveniences were in isolated locations, such as country parks, and a number of those have closed, too. At the moment, 10 areas have no public toilets, including Newcastle, Merthyr Tydfil and Wandsworth. Given the coming budget cuts, I imagine that councils will have to reflect on whether they look after children who need safeguarding protection, take care of elderly people who need social care, or maintain their toilets. Even if local authorities have a rate reduction, those toilets still have maintenance, staffing and cleaning costs, and I suspect that a number of them will fall foul of the cuts. Although this is a step in the right direction, it does not feel like a holistic strategy for providing that public infrastructure in many areas.

Campaigning organisations have taken this issue on. The British Toilet Association does a lot of work on it. We sometimes dismiss this issue, and people laugh it off because it attracts a sense of humour, but the British Toilet Association makes the case for why these facilities are important. This is about not just the number of toilets, but the quality of provision. The association is leading the way in ensuring that there is a quality standard so that people who use public toilets are not put off by poor cleanliness, antisocial behaviour or poor maintenance—for example, lights that are out. It recognises good practice through its annual awards, which it hopes will drive up standards in the industry.

I ask the Government to at least have a conversation with the British Toilet Association to find out what more can be done to come up with a holistic strategy to deal with this issue and to ensure that we do not lose any more public conveniences. Worse, in a bid to try to retain them but save money, maintenance may be reduced to such an extent that they are not welcoming and people do not feel safe in them. As a result, they may become a venue for antisocial behaviour, and none of us wants to see that.

When talking about money and numbers, at times we miss the human cost. I could have spent 20 minutes making jokes, but we have to be serious about what these public services are there for. I want to reflect on a story from a part of Manchester that my mum lives in, which used to have public toilets and now no longer does. A man called Brian Dean, who suffers from Parkinson’s disease, went out with his wife, Joan, and needed to use the toilet. The toilet they thought would be there was not—it had closed—and they could not find anywhere else to go, so unfortunately he wet himself. For that to happen to an adult who was ill was absolutely distressing for him and his wife, who was proud of her husband and had a sense of responsibility for getting him around. They said that it left them with a feeling of humiliation. We can talk about numbers and finance, and we can crack jokes, but there is a human cost. There is a reason why these conveniences are there in the first place. We have to think about how much we value this type of public service.

I am pleased to see this measure, but I think it exposes a wider issue about how local authority premises are treated in the ratings criteria. Education facilities such as an independent school, an academy or a free school outside the local authority attract the 80% mandatory business rates relief, but local authority schools do not. We see the same thing in the health service: healt