Official Report Of The Grand Committee On The
Industrial Training Levy
(Construction Board) Order 2005
Pension Protection Fund
(PPF Ombudsman) Order 2005
Pension Protection Fund
(Pension Compensation Cap) Order 2005
Occupational Pension Schemes
(Modification of Pension Protection Provisions) Regulations 2005
Occupational Pension Schemes
(Levies) Regulations 2005
HM Customs and Excise:
Heavy Goods Vehicles
Tuesday, 1 March 2005.
The Committee Met At Half Past Three Of The Clock
[The Deputy Chairman of Committees (Lord Elton) in the Chair.]
Before the Minister moves that the first order be considered, it may be helpful for me to say a word about the procedure for today's Grand Committee. Our proceedings are essentially the same as those in the House. Noble Lords will speak standing. All noble Lords are free to attend and participate and the proceedings will be reported in Hansard.As there is more than one item of business today, each item will be called on by the Clerk. So far as the regulations and orders which are to be debated today are concerned, I should perhaps make it clear to noble Lords that this Committee is charged only to consider these items, not to approve or not approve them. The Motions to approve will in due course be moved in the Chamber in the usual way. I remind the Committee that a time limit of one and a half hours applies to Unstarred Questions taken in Grand Committee. The digital Clock will operate as in the Chamber, and I think that all noble Lords can see it.
Industrial Training Levy (Construction Board) Order 2005
rose to move, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Construction Board) Order 2005 [5th Report from the Joint Committee].The noble Lord said: The proposals before us seek authority for the Construction Industry Training Board to impose a levy on employers in the industry it covers. We recognised from the day that we came into office that skills are vital to succeeding in an increasingly competitive global economy. We have made, and we continue to make, major investments in training. This year the Learning and Skills Council will support further education and training to the value of £6.9 billion. We have also established a network of 22 industry-led sector skills councils, with three more in development. This will ensure that we have a clear and strong voice from employers informing the provision of education and training. The new skills White Paper that we are publishing very shortly will set out our detailed strategy for the continued improvement in the skills levels of the country, which still lag behind many of our key competitors. We said in our last election manifesto that where both sides of industry in a sector agree, we will help to set up a statutory framework for training. The CITB is a model for such a framework. Earlier I mentioned that the sector skills councils have a very impressive network. and I am pleased to say that the CITB, in partnership with CITB Northern Ireland and the Construction Industry Council, was licensed as ConstructionSkills, the sector skills council for construction. That took place in the autumn of 2003. ConstructionSkills is a pathfinder SSC, developing one of the first sector skills agreements. We proposed these agreements in our last skills White Paper. They will be an important lever in raising our national performance as employers will articulate clearly what their training needs are and make a tangible commitment to meet them, both financially and in other ways. For our part, we will ensure that some of our support for training is directed toward those needs identified by employers. The construction industry benefits from government funding in the same way as other sectors of the economy. However, the main source of income for the CITB is from construction employers. The Industrial Training Act contains provision for a levy on employers to finance an ITB's activities and to share the cost of training more evenly between companies in an industry. It is for the employer members of a board to make proposals for the rate of a levy for the industry that it covers and for the Secretary of State to make an order giving effect to the proposals. That is the purpose of the order before us. It gives effect to proposals submitted to us for a levy to be collected by the CITB in 2005. The levy is based on employers' payrolls and their use of sub-contract labour and, as it involves a levy in excess of 1 per cent of payroll on some classes of employer, the order must be approved by an affirmative resolution of both Houses. Also, as the levy exceeds 0.2 per cent with no exemption other than for small firms, the order can be made only if the proposals are necessary to encourage adequate training in the industry and one of three conditions is satisfied. I should add that these are the requirements of Section 11 of the Industrial Training Act 1982. The first condition is that the proposals have the support of organisations representing more than half of the employers who together are likely to pay the majority of the levy. That condition has been met. In the order before noble Lords, the CITB proposes that both its levy rates should stay the same as those approved by the House last year; that is, 0.5 per cent of payroll for direct employees and 1.5 per cent of net expenditure on sub-contract labour. Employers whose combined payroll and net expenditure on sub-contract labour is less than £64,000 will not have to pay the levy. That has been increased from £61,000 last year and equates to an employer who employs three people full time throughout the year. Some 39 per cent of employers come into this category. The Act requires ITBs to exclude small firms from the levy, but does not set a minimum size threshold. The figure of £64,000 is the level that the CITB itself, in consultation with the industry, considers to be appropriate. A further 25 per cent or so of employers will not be assessed for or will not pay the levy for other reasons. For example, they are in their first year of registration with the CITB or have ceased trading. This means that around 60 per cent of the total number of registered employers will not actually have to pay the levy. The higher levy rate on sub-contract labour is due to the fact that, according to the industry itself, the vast majority of training is carried out by employers with a directly employed labour force. It is also worth pointing out that in the main these tend to be small and medium-sized employers. Employers who opt to use sub-contractor labour are not normally involved in their training. However, it is encouraging to see that the large contractors, who use significant amounts of sub-contract labour, are recognising their responsibility to contribute more than cash to tackle skills shortages in the industry. They have agreed to encourage firms in their supply chains to recruit and train apprentices. These proposals are expected to raise between £126 and £130 million and it is important to point out that for every £1 levy received in 2003, the CITB returned £1.69 to the industry in total benefits. Of this, £1.02 was paid out directly in training grants, allowances and college fees. Noble Lords will know from our annual debates that the CITB exists because of wide support from construction employers and their interest groups. There is a firm belief that without it there would be a serious deterioration in training in the industry, leading to a real fear that its skills needs would not be met. This was confirmed by the review carried out by the Government in 2003. The review found that the principle of the levy is still strongly supported in this industry, and a recent independent survey showed that non-federated employers who are liable to pay the levy also agree that it should continue. The order will enable the CITB to carry out its vital training responsibilities in 2005 and I believe that it would be right for the House to agree to approve it. I commend the order to the Committee. Moved, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Construction Board) Order 2005 [5th Report from the Joint Committee].—(Lord Triesman.)
I thank the Minister for introducing the order to the Committee and for his thorough explanation. It is in all our interests, as consumers and as a competitive economy, that we have a highly skilled workforce. The encouragement of training and development in the construction industry is welcome and we congratulate the CITB on the support it enjoys from its members and on the detailed consultation it undertakes with them.We support the order, although we do have some concerns. As technologies, skills and working practices change, we hope that the CITB will reflect this and look carefully at the range of organisations which come within the scope of the levy. My honourable friend Mark Hoban in another place raised the concerns of the British Exhibition Contractors Association, which feels that because of changes in the industry, it should no longer pay the levy. On the other side of the argument, there may well be new industries that should be included. Can the Minister tell the Committee when the CITB last reviewed these issues?
We too welcome the order, in particular the emphasis it places on safety—both the safety of workers themselves and the safety of the practices carried out to meet the interests of their final customers. However, we have one or two questions for the Minister.First, we notice that the threshold of £64,000, raised last year from £61,000, is not to be increased. That is an effective reduction, given the rate of inflation. How can he be sure that the levy is not an unwarranted burden, in particular on companies operating in London? A wage bill of £64,000 could represent just one relatively small contract. I am thinking of small contractors in London where building costs are very high. Perhaps the Minister can give us a reassurance that it is not an unwarranted burden. Secondly, I understand that diversity is an issue within the industry. Many are concerned that not enough members of the ethnic minorities and women are being attracted into construction work. That is particularly worrying given the increased number of workers that will be required over the next few years. Can the Minister comment on what the board is doing about that? Finally, no doubt the Minister will want to ensure that the provision of training in the construction industry is seamless from the youngest entrant through to older workers who need upskilling with new technologies. To what extent are the new apprenticeship scheme and the advanced scheme covered by the levy? Does a certain proportion of the money have to be allocated to training young people at that level? Also, how is training within the industry to be linked with the Government's agenda on vocational skills and training in schools? That is a changing area at the moment. Have the Government thought through the issue in detail so that it is dealt with as seamlessly as possible?
I thank both noble Baronesses for their contributions to what has been a very short debate. Perhaps we are in competition with a matter that is exercising many of our colleagues quite vigorously. However, I hope that I am able to do justice to the questions that have been put to me. If I miss anything, I shall of course write to both noble Baronesses to correct any omissions.It is right to point out that the CITB is one of a number of organisations. In looking at its relationships with other training bodies, it has been careful not to trespass inappropriately into the terrain occupied by other training bodies. I know that that issue has formed a part of the discussions with regard to training provision in the agricultural sector. Generally speaking, however, concerns about where the proper boundaries lie is a matter of active consideration. I know from reading background papers that talks have also been undertaken with representatives from the Engineering Construction Industry Training Board. That kind of review is essential for precisely the reasons outlined by the noble Baroness, Lady Morris, in her submission; namely that these industries are evolving and technologies bring about changes to where the boundaries lie. We should encourage the continuing review of all those matters and therefore perhaps it is helpful for us to look at it on a year-by-year basis. That allows us to see where we are. I also wholly take the point about the work of the CITB in making sure that safety and safe practice in the industry is an important part of its agenda in training, because it is a dangerous industry where we would not want young entrants to try to work, oblivious to the dangers around them. The CITB has shown itself as a training board to be effective in dealing with those kinds of questions and is getting more effective all the time. I do not believe that in facing those burdens and in looking at training as a whole it could be said that small contractors find this particularly burdensome. There is not a great deal of evidence that they have argued that. Actually, the rate of increase at £3,000 compared with last year's figure is not likely to be a problem in terms of the relative rate of inflation. The critical point is this. Often in industries where there are a number of micro-firms, it is often argued on their behalf—I know that the noble Baroness has not argued this—that they find it a great burden and would therefore prefer that only larger firms undertook all the training in the industry, and that they are somehow removed from that responsibility. One of the reasons that the CITB is such a beacon organisation is that it has made sure that everyone, small or large, shoulders an appropriate burden and that the big firms have helped to provide not just the money, but the training opportunities on their sites to ensure that that money has been effectively spent. That is why I suspect that there is some harmony between the larger and the smaller firms in the supply chain. The issue of diversity is extremely important. We know well, as the noble Baroness said, that there are far too few young people from ethnic minorities and far too few young women coming into the construction industry. There has been an improvement, as we know, but that improvement was from a low base and the specific programmes that have been introduced, particularly in relation to ethnic minority groups, are beginning to show some considerable advances and there has been considerable discussion of training young women. I hope that we are seeing the beginning of a much more dynamic phase. I put it no more strongly than that today, because I acknowledge the extent of the problem. The whole process should be seamless. New apprenticeships and new apprenticeship schemes are involved and there is no doubt that careful thought will be needed about the links with vocational training in schools. The White Paper will cover those issues. Rather than anticipate that, if it is felt that the White Paper does not cover the matter adequately, we will no doubt have a good debate on it. This is precisely the kind of area where a training board has managed to make good links with both schools and further education colleges in particular—and, in a small number of instances, higher education institutions as well. So we could expect to see the seamlessness that is essential if the programme is to be realised. On Question, Motion agreed to.
Pension Protection Fund (Ppf Ombudsman) Order 2005
rose to move that the Grand Committee do report to the House that it has considered the Pension Protection Fund (PPF Ombudsman) Order 2005. [8th Report from the Joint Committee]The noble Baroness said: I hope that it will be for the convenience of the Grand Committee and with the consent of Members opposite that we take all four measures together, rather than seek to make separate speeches on each.
I do not think that the noble Baroness had asked me, but I am prepared to go along with it.
I thought that the Order Paper had indicated that they would be taken together. I was just reiterating that.
The Order Paper does not indicate anything about it.
I had not been asked or given any indication, but, now that the noble Baroness has asked, I accept it. It would perhaps be better, next time, to have been asked.
I apologise if there has been any misunderstanding. I am very grateful for the spontaneity, responsiveness and cooperation that has been exhibited by the Members opposite, as always.These statutory instruments are needed to give detailed effect to some important aspects of the PPF and the Pension Protection Fund Ombudsman. The PPF, now established under the provisions of Part 2 of the Pensions Act 2004, is a major part of the Government's commitment to protect better the defined benefits of occupational pension scheme members. Your Lordships will know—I am sure that it is scarred on the hearts having spent many hours in this committee room together—that the PPF is a non-departmental public body governed by an independent board. Its members have now been appointed. From 6 April this year, if a company with an eligible defined benefit pension scheme becomes insolvent and there is no prospect of a scheme rescue, and its pension fund is insufficiently funded to pay the PPF level of benefits, the PPF will pay compensation to members at the PPF level of benefits. Compensation will be payable at a rate of 100 per cent of the PPF level of benefits for people who have reached their scheme's normal pension age, while people below that age will receive 90 per cent compensation. While it is right to protect members' benefits, the taxpayer should not be asked to foot the bill, particularly as so many taxpayers are not members of occupational pension schemes and will not enjoy the benefit of any such protection. The PPF will instead be funded by levies on occupational schemes whose members are potentially eligible for PPF compensation. We have provided for a disputes process that will enable interested parties to seek a review of certain key decisions by the board. These are set out as reviewable matters in Schedule 9 to the Act. There is also a right of complaint in cases of alleged maladministration by the board. A party will be able to refer unresolved cases onwards to the newly established and independent PPF Ombudsman, who will have the final say on disputes unless a party wishes to appeal to the High Court on a point of law.
As I understood it, the noble Baroness said that the costs of this operation would be borne by a levy on the business and so on. But each of the orders states that:
Does it have an impact on the costs to business or not?"A full regulatory impact assessment has not been produced for this instrument as it has no impact on the costs to business".
These regulations are being laid within six months of completion of the Bill—indeed, virtually within three months. This means that we did not need to go out to consultation. It also means that they come still within the remit of the regulatory impact assessment carried out for the Bill, which examined extensively the levy that had the major impact on business. This was of course the initial levy, which then goes on to be the full levy. We estimate that that will be £150 million in the first phase and £300 million after the phasing-in during the initial period.The other levies—the ombudsman levy, the fraud levy and the administrative levy—are all relatively small sums; £15 million for the administrative levy; nothing for the fraud levy at the moment as it is not necessary; and the ombudsman levy will possibly be a couple of million pounds in due course. That will have no impact on business effectively. The big levy has already been covered in the RIA that we undertook for the Bill at the time we were discussing it.
I understand very well the point that the noble Baroness made about the orders being introduced within the set period after the Bill went through. But, if I understood her correctly, it remains the case that there still will be a cost on business as a result of these orders—or at least some of them.
I do not deny that for a moment. I am saying that where the cost is significant in such a way that it can be calculated in terms of moneys above and beyond the actual cost to the levy, if you think about it, the cost of the levy is made clear in broad terms in the order and in terms of what I am going on to say. It will be a direct charge on industry, whether it is the administration levy or the initial levy. We have discussed this in great detail.The implications for modification have no costs for industry; for the ombudsman levy the costs will be negligible; and for fraud compensation, negligible. The only significant cost is the first one, which is built into the regulations.
I do not know whether £15 million is a negligible sum, but in any event it should be stated that there will be a negligible increase in costs, not that there will be no increase.
Can the noble Lord indicate which regulation he is referring to? I have not reached it yet.
Let us take as an example the Pension Protection Fund (PPF Ombudsman) Order. At the end it states:
That is not consistent with what the noble Baroness just said."A full regulatory impact assessment has not been produced as it has no impact on the costs of business".
What I said was that the first order we are considering, which I have yet to describe, has an impact on business and those were thoroughly and fairly described and assessed in the regulatory impact assessment, which is still valid. The other three orders have little or no impact on business, and therefore that description is correct. Perhaps I am being slow today, but I am not sure what the noble Lord is concerned about.
I do not want to make a meal of this, I am just saying that the Explanatory Memorandum is not correct. I have just quoted from it to the effect that the order has no impact on the costs of business. That is not true.
Will the noble Lord point out the lines he quoted from?
Yes, I have quoted from the back page of the order that relates to the ombudsman. It states:
But the money must come from somewhere."A full regulatory impact assessment has not been produced as it has no impact on the costs of business".
The PPF ombudsman cost is relatively trivial; we think it may be a couple of million pounds a year. Therefore, we cannot assess this against schemes such as those in the DB sector, with 5 million or 7 million people. I suppose we could say that it might cost 2p, 3p or 5p per member, but I regard those figures as effectively negligible.There is a real issue, one that I had expected the noble Lord to raise, about the levy—the insurance one set out in the first set of orders. Those were considered thoroughly adequate in the regulatory impact assessment. The rest of the costs are either non-existent—for example, modifications—as far as we can tell, or negligible, as is the case with the ombudsman, because the costs are so small. Perhaps, I may now turn to the individual statutory instruments, which I am content are compatible with the European Convention on Human Rights. I will start with the Occupational Pension Schemes (Levies) Regulations 2005. These provide for the calculation, collection and recovery of the administration levy and the initial PPF levy which are to be paid by the trustees or managers of schemes whose members are eligible for the PPF. The administration levy is raised by the Secretary of State to recoup his costs in providing grants to fund the administrative costs of the PPF board. These regulations provide for the administrative levy to be charged at a rate per member, and the rate will be banded according to scheme size. The initial, substantive £150 million levy will be raised from 6 April 2005 and, together with the assets of schemes that are taken into the PPF, will make sure that there are funds in place to meet any obligation on the board to pay pension compensation. In the case of multi-employer schemes, hybrid schemes and schemes with a partial Crown guarantee, levies will be charged only in respect of those members who may become entitled to PPF compensation. From April 2006, the Secretary of State expects to raise a levy to recover his expenditure in respect of the new office of the Pension Protection Fund Ombudsman. The provisions for the PPF ombudsman levy will be similar to those for the administration levy. I now turn to the Pension Protection Fund (Compensation Cap) Order 2005 which places a limit on the amount of compensation that certain members may receive from the PPF. Paragraph 26 of Schedule 7 provides the Secretary of State with the power, by order, to specify the amount of the cap, which is £27,777.78 for 2005–06. The cap applies to the combined entitlement to periodic and lump sum compensation and is applied before calculating the 90 per cent compensation level. This effectively brings the cap under the PPF to £25,000. The compensation cap protects the interests of levy payers by controlling costs while ensuring a sufficient level of compensation for scheme members. 4 p.m. I turn now to the most complex of the regulations, the draft Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005. I hope noble Lords have received a copy of a background briefing paper, which I think will be helpful. It looks as though we are seeking cover for people who transgress the rules, if you like, and it will be helpful for Members of the Committee if I explain how the PPF assessment period will work. They will, of course, have recourse to the briefing document which I circulated in the past couple of days. The assessment period is the period when the PPF determines whether it should assume responsibility for a scheme. During the assessment period there are two tests: first, the board must determine whether or not the scheme can be rescued—that is, whether it can remain as an ongoing scheme with an ongoing sponsoring employer; and, secondly, the board must obtain a PPF valuation to establish whether or not the assets of the scheme are sufficient to cover the PPF level of liabilities. If a scheme rescue is not possible and the assets of the scheme are not sufficient to cover or to meet the PPF level of liabilities, then the PPF will assume responsibility for the scheme. During the assessment period, in order to protect the assets and cap the liabilities of the scheme, the scheme is effectively "frozen"—Members of the Committee will recall our discussions on this issue—and a number of restrictions are placed on the trustees. For example, during this period trustees are obliged to pay benefits at the PPF level of compensation and they may not accept new members. We discussed this issue very fully during the course of the Bill. These restrictions also include preventing the trustees from discharging any of their liabilities to provide pensions or other benefits. In other words, during that period the situation is frozen while an assessment is being calculated. However, regulations under Section 135(4) will prescribe the specific circumstances where trustees can discharge some of their liabilities during the period when the scheme is frozen. In addition, and subject to specific conditions, the board may validate a trustee action where the trustees have contravened the restrictions on them not to discharge any liabilities. It may be helpful if I give an example of where the board might use the power. A new employer may take on the liabilities of the active members only of the scheme as part of the sale of the business of the old sponsoring employer. The trustees would therefore be discharging their liability to provide pensions and benefits in respect of these members where they transfer to the new employer's pension scheme. Provided that as a result of the transfer there is no decrease in the proportion of assets to the proportion of the PPF liabilities remaining in the scheme, the board can then validate retrospectively this action. In other words, where the active members go across and the pro rata share of the pension contributions go across, but no more than that, the board can validate it. In practice—this is the key—we would expect the board and the trustees to agree that such a transfer would be in the best interest of all members of the scheme before it was finalised. I have outlined the circumstances where, despite the scheme being effectively frozen, trustees may discharge some of their liabilities during the assessment period. But obviously, in my view, it would be extremely unwise of them to take any such action without having consulted the regulator first to ensure that all parties agree that it is in the best interests of the scheme and its members. These affirmative regulations provide for this situation in two very important ways. First, they enable the PPF valuation to take into consideration any change to the assets and protected liabilities of the scheme as a result of the trustees discharging a liability or, as I say, a partial liability during the assessment period. Secondly, they enable the amount of compensation payable to a member to be adjusted to take into consideration any liability which has been discharged either during the assessment period or on the assessment date but before the start of the assessment period. Broadly speaking, they ensure a member is not paid compensation in respect of a benefit which has already been discharged from the scheme. We will need such powers in order that the trustees do not immediately stop the clock ticking on sanctions on their behaviour. I turn, finally, to the Pension Protection Fund (PPF Ombudsman) Order 2005 which makes further provision for the PPF Ombudsman and any Deputy PPF Ombudsman. The order provides, for example, for remuneration and the reimbursement of expenses of the PPF Ombudsman. It further enables the PPF Ombudsman to appoint the necessary staff. While allowing the PPF Ombudsman to delegate some functions to his staff, the order does not allow him to delegate key functions such as the determination of reviewable matters and complaints referred to him. These are rightly reserved for him and any deputy. Article 6 enables the PPF Ombudsman to require the provision of information and documents relevant to his investigations. As a counterweight, Article 7 restricts the PPF Ombudsman's disclosure of information he obtains. Together, these regulations and orders ensure that the PPF is properly funded; they protect levy payers by ensuring that there is a limit to the compensation payable; they allow for accurate calculations for valuations and compensation, normally where there is a contravention of the freezing period; and they establish the framework for the PPF Ombudsman to fulfil his remit of providing an independent means of reviewing the PPF's decisions. I commend these regulations and orders to your Lordships. Moved, That the Grand Committee do report to the House that it has considered the Pension Protection Fund (PPF Ombudsman) Order 2005 [8th report from the Joint Committee].—(Baroness Hollis of Heigham.)
These are, no doubt, the first of dozens, if not hundreds, of orders to be made under the Pensions Act which we in this room spent something like 90 hours discussing.
Following an informal conversation with the noble Lord, Lord Skelmersdale, perhaps I should say that the chickens have come home to roost. We were very happy to see negative become positive throughout the course of the Bill and the noble Lord, Lord Higgins, will now enjoy the glory of his conquests.
That having been said, it is right that we should debate them. However, we were probably wrong to agree to taking the orders together because they raise separate issues. It would have been more focused—if that is the "in" expression—to have taken them separately rather than together.Rather strangely, the noble Baroness said that it was clear from the Order Paper that they were going to be taken together. That certainly was not the case—it would be very strange if it was—but, at all events, she then proceeded not to take them even in the order in which they are on the Order Paper. She jumped around from one order to another in a different sequence, which made it rather difficult to focus on them. However, we must do our best. I shall take them in the order in which they are on the Order Paper. The first is the Pension Protection Fund (PPF Ombudsman) Order, which reflects some of the matters we debated in the course of the passage of the Bill. It makes provision for the Secretary of State to make payments to the ombudsman or the deputy ombudsman by way of remuneration, compensation, pensions and allowances. The noble Baroness will remember that there was some discussion at the time as to what the appropriate pension arrangements would be for the ombudsman and other officials and, in particular, whether it was appropriate in the present circumstances, given the attrition among final salary schemes, for the officials operating under the Bill to be in a final salary index-linked scheme. Perhaps the noble Baroness will tell the Committee whether under the order it is proposed to give such a pension arrangement to the ombudsman, the deputy and others. Can the noble Baroness indicate the number of people the ombudsman is likely to employ? We need to be clear that it will be sufficient. We know only too well from the experience of the Parliamentary Ombudsman, particularly in relation to the Equitable Life affair, that the staff levels were clearly inadequate to carry out the job. Even now, many years after it happened, they are only just beginning to do so. Can the noble Baroness say how many staff are likely to be employed, over time, by the PPF Ombudsman? The order also deals with restrictions on the disclosure of documents and information which is obtained under the powers in the order from those who may have information helpful to the ombudsman. I am glad to see that there are some restrictions on the disclosure of information. So far as concerns confidential information—for example, between lawyers and their clients; we agreed that it was not true of accountants—can the Minister say whether that information will be passed on to the people who appear in the list in subsection (7)? Those are the main points on that order. I turn now to the next one on the Order Paper, which is the Pension Protection Fund (Pension Compensation Cap) Order 2005. This refers, of course, to paragraph 26 of Schedule 7. While the noble Baroness was speaking I looked at that and remembered the ghastly amount of algebra which appears in it. But, surprisingly, the Minister now seems to have quantified it and in her opening remarks she mentioned the sum of £25,000. I am not clear about the basis for that calculation. Perhaps she will let us know how the figure has been arrived at. It is obviously rather important to those who are hoping to benefit and to those who are operating these schemes. The next item on the Order Paper is the Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005. I am not clear how it modifies the regulations because, as far as I know, we have not had any regulations up to now. Some of the grammar in it is fairly ropey anyway.
It is a matter of where the brackets fall. 1 agree.
I think the brackets are probably in the wrong place. At all events, perhaps the noble Baroness will confirm that we have not so far approved any regulations under the Bill, so we cannot now be modifying those regulations by this regulation.The provisions raise the question that, if we are modifying something, why are we doing it so soon after the passage of the Act? We thought, perhaps misguidedly, that we had examined every conceivable aspect of the measure and reached agreement on what it should contain, and suddenly we find that there are to be modifications. I find this aspect of the Bill slightly puzzling and I am grateful to the noble Baroness for providing me with an explanatory note—which, to some extent, she repeated in her opening remarks—concerned with the assessment period and so on. When I first looked at the regulations I was not quite clear whether they had anything to do with the change in policy which the Government appear to have made to the scheme since we debated the Bill. I am looking at Pensions Week—I find it rather helpful in some respects and it keeps one up to date—which reports that the NAPF chairman has sent an open letter to the Secretary of State attacking the Government's shifting policy over PPF, which has now become retrospective, allowing schemes which were not yet wound-up to be eligible for the fund. He continued:
I was not clear whether the regulations in relation to the assessment period, calculations and so on, were in some way related to that change in policy, which certainly creates a scenario different from the one we envisaged when the Bill was passed. We now find that those we thought would come under the financial assistance scheme may actually get into the PPF. That may be an advantage from the point of view not only of the trustees but also of the Government because the costs will then fall on the pension industry rather than on the Chancellor of the Exchequer's financial assistance scheme. 4.15 p.m. If I am totally mistaken, as I may be, in thinking that the order has anything to do with that, could we be told when we are likely to have an order that deals with the matter? The noble Baroness's note was helpful in elucidating the situation. Again, the grammar is a bit shaky. It states:"The inclusion of schemes which have not yet begun to wind-up, but whose sponsors have become insolvent … threatens to swamp the PPF with claims immediately as it begins operations".
Leaving the split infinitive aside, it seems to me that it ought to read: "In order to explain the draft occupational pension scheme". The whole thing is getting a bit slack around here. We shall run into problems if we are not careful and start agreeing to Statutory Instruments that are not defined as closely as they might be. The Occupational Pension Schemes (Levies) Regulations 2005 relate to the initial levy. Apparently someone will have to pay the initial levy even if they cease to be eligible during the initial period. That seems a strange arrangement. Perhaps the noble Baroness could justify it. That raises the matter of the levy itself. We would be grateful to know to what extent the Government are now in a position to indicate how they think the levy will operate and at what sort of level. It will obviously depend to a large extent on the way in which those that might have been covered by the FAS will now be covered by the PPF. Those are the main points at issue. No doubt we will have many more orders on this Bill. I do not think that I can reasonably say that we will look forward to debating them at an appropriate time in the future, but it is important that we should because we agreed to affirmative resolution for what we thought were important issues."In order to fully understand the draft occupational pension schemes it is necessary to give details of the assessment period".
I do not have any substantive further questions on the first and third of the four instruments, other than one or two already asked by the noble Lord, Lord Higgins. I do not propose to detain the Committee on those, except to say that, although I hesitate to exchange "bracket positions", I would have thought that the bracket on the third instrument was in the right place. However, I shall not push the point.I wish to ask questions on the more substantive points of the second and fourth instruments. On the Pension Protection Fund (Pension Compensation Cap) Order 2005, I have a question about how indexation of pensions in payment under the PPF will work and how it will be applied. I was surprised to read in Commons Hansard that yesterday the Secretary of State told the House that many members of schemes likely to be covered by the FAS did not offer index-linking of pensions in payment to their members. Obviously, we are discussing the PPF and not the FAS today, but what proportion of schemes liable to contribute and be covered by the PPF are in that same position of not offering index-linking to pensions in payment? I appreciate that the noble Baroness may not have the figure at her fingertips, but I would be grateful if she could tell me that in writing, given that we had that interesting answer from her right honourable friend yesterday. That is my main question on that. Having read carefully the Occupation Pension Schemes (Levies) Regulations 2005, I think that I am right in saying that they apply only to the initial levies. I would be grateful if the noble Baroness could confirm that. The regulatory impact assessment that we have with it refers at length to the effect of moving over to a risk-based levy. That would be a major further step and we will wish to examine the matter in detail when it comes. It is only fair to put the Government on notice now, as we did clearly during the Bill, that it will be extremely important for us on these Benches that the move to an 80 per cent risk-based levy takes place after the first year of the initial levy and is not drawn out any further than that. I have been very encouraged by what I have heard so far about the progress made by the PPF in commissioning professional work from PWC to assess the basis on which a risk-based levy should take place. I know that that report has been delivered and is being carefully considered by the PPF. We are very keen that that momentum should be kept up. Will the noble Baroness bring us up to date on when she expects the consultation on that report and the risk-based levy to start? I have one further question on the detail of the initial levy. On what date is it expected that the bills will be sent out? When will funds have to pay? As has been suggested to me, will the larger schemes get their bills first? What sort of period will it be over? I know that these are not large bills but none the less it is important that the system for collection is set up fairly. Also, what sanctions will there be on late payers or non-payers?
My Lords, I shall do my best to answer those questions. I apologise if there was any misunderstanding about taking all the statutory instruments together. Certainly, our forward business note said that they were to be debated together. I think that the noble Lord, Lord Skelmersdale, will confirm that it is on the forward business note. It is not on the minute paper but on the business managers' forward business note.
The only place that I have seen it is on the Labour Party whip.
I am terribly sorry to say that we do not get that.
We can do something about that if you wish. It is in your hands.
Thank you very much, we would love to. We wish to see it, not take it.
I might be wrong, but I believe that it was an agreed position that was referred to in our whip. If not, I apologise. However, I cannot promise to send our whip to everyone else.
I will check whether that information was on the business managers' forward business note that goes out to the Front-Benchers of all parties. I understood that it did. If I am wrong on that I shall apologise. But we derived our whip from that, and that is why I had assumed that that approach was simply for the convenience of all Members of your Lordships' House.I shall now respond to the specific questions on the PPF ombudsman. The noble Lord, Lord Higgins, pressed me about costings, staff, whether there would be enough money and so on. At the moment we have a pensions ombudsman. In the Act there is a proposal for a separate PPF ombudsman. We agreed at the time that it was sensible that Sir David Laverick, the existing pensions ombudsman, should take on that additional function, and he is doing so. Therefore he is already a member of the Civil Service scheme and so on. At the moment the pension ombudsman's costs are running at about £1.5 million a year. We would therefore expect the PPF ombudsman's costs to be very much smaller. We do not expect the first levy for that until 2006–07. If it is any guidance, although we cannot predict how many queries we may get under the PPF ombudsman hat, he currently gets some 3,000 enquiries a year under his general pensions ombudsman hat. Although we have appointed him to carry on that function, as well as a deputy, we do not yet know whether we will need additional staff, and, if so, how many. It will depend on the amount of business. As Members of the Committee will see, it is not great so far. On the point about the cap, the noble Lord was absolutely right to refer to the calculation as algebra. I am sure that we made it clear when we discussed the issue that there would be a £25,000 cap on eligible payments at the age of 65. If you retire earlier than that, the cap is proportionately reduced; if you retire later, it is proportionately increased for actuarial equivalents. The algebra comes in determining the actuarial equivalents. Our position on that has not changed at any stage. A series of questions was asked on the modification regulations. The noble Lord, Lord Oakeshott, is correct: the syntax in the title is correct. The regulations on the modification of the cap are negative and have not yet been laid. There has been no change in policy but, because we are changing those, they need to come by the affirmative procedure to your Lordships' House. The instrument is necessary in that form because it modifies the Act: Section 143, on evaluations, and Schedule 7, on compensation. The noble Lord quoted extensively from NAPF. I was disappointed in NAPF's response. The quick response is that that has absolutely nothing to do with the issue of whether the PPF is retrospective. Perhaps I may put on the record, first, that the PPF is not retrospective. Schemes go into the PPF only if an insolvency event starts after 5 April 2005. That is why we very carefully, perfectly properly, under pressure from Members opposite, made sure that there was no missing year between when FAS ended and the PPF started. Any suggestion from NAPF that the PPF is retrospective is incorrect. Secondly, NAPF's statement that it will swamp us again is incorrect. We are not buying annuities which will swamp the scheme; we will be meeting pension liabilities as pension ages fall in, therefore it will happen over time. So, contrary to the suggestion that the PPF will be swamped, we spent time in Committee trying to suggest that in its opening years the PPF would be cash-rich rather than cash-poor because it will be dealing with assets coming in well in advance of timed liabilities having to be paid out. So NAPF is incorrect on that.
Has there been any change in the line between those eligible for the FAS and those eligible for the PPF?
No, not since we made the changes towards the end of the Bill and the following statements. The noble Lord will remember that noble Lords quite rightly pressed me very hard that there should be no missing year between the two. As a result, if an insolvency event has occurred before April 2005 and a scheme has been wound up—in other words, if the employer is insolvent and the assets cannot meet the liabilities of the scheme—the scheme may get compensation from FAS. If that happens after 2005 the compensation comes from the PPF. That has not changed. What has changed is some ambiguity about what happens between 2004—the change of the winding-up procedure—and when the PPF comes into being. I courteously suggest that NAPF is wrong on all those points.The noble Lord, Lord Higgins, asked why we did not have regulations—I have forgotten which regulations he thought there should be. They are not there because the powers are covered in the primary legislation. The noble Lord, Lord Oakeshott, asked me whether I knew about the figures for what schemes currently have indexation and those that do not. I do not have those figures; I am not sure that they exist. If they do, I shall ensure that the noble Lord is informed about them.
Why, then, is it possible for the Secretary of State to make that assertion about the financial assistance scheme, and what is he basing that on if those figures do not exist for PPF schemes?
I shall write to the noble Lord on that. First, with FAS, we are to some extent dealing with schemes that have already collapsed. We know what the conditions were of the 300 or so schemes listed in the document put before the House. Of course the noble Lord does not know any more than I do which schemes will fall within the PPF, so we cannot possibly tell what their terms are—what their arrangements are for partners, unmarried partners, civil partners, indexation and so on. If the noble Lord can tell me which schemes are going to collapse in 2010 and so on, I might then be able to tell what the implications are for the PPF. By definition, the PPF is forward-looking: we cannot tell what schemes will come in and therefore we do not know what conditions they will carry.
No, I was careful in how I phrased my question. I said: "to be eligible for the PPF to be contributors". We are talking about the universe of DB schemes here—roughly what proportion there are. I would appreciate it if the noble Baroness could let me know the basis on which that calculation was made on the FAS. It would be interesting to see whether there is a read-across to the PPF.
I am perfectly happy to share the information I have with the noble Lord. It was a perfectly reasonable request.Finally, the noble Lord made a general point about his concern to scrutinise the introduction of a risk-based levy. He went on to suggest—I want to correct this; I would not wish any misapprehension on it—that the risk-based levy would come into effect after the initial period of one year. No; there is a transitional period which runs for four years. I think that the noble Lords, Lord Oakeshott and Lord Higgins, and I have had discussions on this before. By the end of the fourth year, all schemes, unless there is a de minimis, will be within the risk-based levy, at which point there is the 80/20 apportionment rule. In the transitional period, schemes may voluntarily bring themselves in before the four-year period. Whether they choose to do so will depend, I suspect, on when their three-year valuation cycle is due and their own assessment of whether they stand financially to gain. So I would not wish there to be any misunderstanding between year 1 and year 4. There will be a phased-in introduction of the risk-based levy. From the fourth year on, all schemes will be within that. As I said, most of the questions were quite detailed and specific. If I have overlooked any question, I should be very happy to be reminded of it and will do my best to answer it. If your Lordships think I have answered the questions, then I hope you will allow me to refer the order to the House.
On that point, I asked the noble Baroness to confirm—I hope that I have it right—that this is not referring to risk-based levies in any way. My understanding of the position is not quite the same as the one she has given about the transitional period, but obviously that is a matter for us to look at. I do not want to debate that now. Could she just confirm that this order does not in any way affect risk-based levies?
This order is about the initial period of the 150 levy and the method of apportionment. It is therefore based on scheme size, as is laid out. The noble Lord is correct on that.On Question, Motion agreed to.
Pension Protection Fund (Pension Compensation Cap) Order 2005
rose to move, That the Grand Committee do report to the House that it has considered the Pension Protection Fund (Pension Compensation Cap) Order 2005 [8th Report from the Joint Committee].The noble Baroness said: I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Pension Protection Fund (Pension Compensation Cap) Order 2005 [8th Report from the Joint Committee].—(Baroness Hollis of Heigham.) On Question, Motion agreed to.
Occupational Pension Schemes (Modification Of Pension Protection Provisions) Regulations 2005
rose to move, That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005 [9th Report from the Joint Committee].The noble Baroness said: I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005 [9th Report from the Joint Committee].—(Baroness Hollis of Heigham.) On Question, Motion agreed to.
Occupational Pension Schemes (Levies) Regulations 2005
rose to move, That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Levies) Regulations 2005 [9th Report from the Joint Committee].The noble Baroness said: I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Levies) Regulations 2005 [9th Report from the Joint Committee].—(Baroness Hollis of Heigham.) On Question, Motion agreed to.
Hm Customs And Excise: Heavy Goods Vehicles
rose to ask Her Majesty's Government whether, in order to reduce tax and duty evasion, HM Customs and Excise have determined the feasibility of requiring all heavy goods vehicles leaving Great Britain to do so with a nearly full tank of fuel.The noble Earl said: Before introducing my Unstarred Question, I should point out that, as your Lordships will be aware, we are acting as guinea pigs because we are the first to use the Grand Committee for an Unstarred Question. It may be an honour, but to be honest, I do not approve of this development. However, I have agreed to do so because my objective is to ask what progress the Government have made in assessing the feasibility of my fuel policy idea. In doing so, I shall try to explain in greater detail how it might work. I am not really trying to hold the Executive to account; I think that that process should take place only in the Chamber. However, I am grateful for the opportunity to ask my Question this evening. Before saying anything substantive, I remind the Committee that I am the president of the Heavy Transport Association. For many years, the fuel price on the Continent has been considerably lower than in the UK. Realistically, that is not likely to change even if there were a change in government. Some goods vehicles operators suggest that fuel tax and duty should be slashed. That is naïve. The amount of duty paid by motorists or goods vehicles operators is in proportion to the size of the vehicle and the distance travelled. Road fuel tax for goods vehicles is not a particularly regressive means of taxation. Additionally, it encourages efficient use of road fuel. The problem is that operators, both United Kingdom and foreign-based, are using cheap continental fuel in heavy goods vehicles within the United Kingdom. Foreign operators now dominate the cross-Channel traffic. Noble Lords should be aware that foreign trucks now cover about 900 million kilometres per annum on UK roads. Additionally, some operators in Kent are sending solo tractor units across to Belgium or France at unsocial hours at very cheap ferry crossing prices, refuelling the vehicles and bringing them back. If they use that vehicle for haulage in the UK, that is undesirable but legal; but if the fuel is cross-loaded into another vehicle, that is illegal but hard to detect. The availability of low-cost foreign operators depresses the market rate for haulage in the UK, even if in actual fact cabotage is a very small proportion of the UK haulage markets. Very low-cost road haulage operators adversely affect the market for road haulage; and no doubt road haulage not only in the UK but on the Continent as well. No doubt the noble Lord, Lord Berkeley, will have something to say on that. Some time ago, the Germans experienced a similar problem with adjacent states having much lower fuel costs than the German fuel cost price. Their solution was to measure the quantity of fuel in the tank and if it was in excess of 150 litres they would tax it. But it was very complicated, caused significant delays and would now probably fall foul of EU competition law. The Government are proposing their lorry road user charging scheme, and no doubt the Minister will be extolling the virtues of that scheme. But I expect that my noble friend Lord Luke will have some searching questions for the Minister about the LRUC. The Government are proposing fitting satellite tracking equipment to all 400,000 trucks operating in the United Kingdom. Operators will be charged per mile travelled, but the charge will be modulated according to the time of day and the particular type of road used. It might be quite expensive to use the M25 at nine o'clock on a weekday morning. There are some who believe that lorry road user charging is inevitable. However, in order to deal with the problem of cheap foreign fuel and cheap continental operators, operators will also receive a rebate on the price of the fuel used. There will therefore be a balance between the fuel rebate, on the one hand, and the mileage charge on the other. Operators will pay the balance of the two to the Customs and Excise. A desired end-state must be that all heavy goods vehicle mileage covered in the United Kingdom should be done with fuel that has had UK tax and duty paid on it. My idea is very simple. All heavy goods vehicles leaving Great Britain should do so with a nearly full tank of fuel. Clearly, operators will bring in their vehicles with a full tank of fuel in order to minimise their costs. They will run round within the United Kingdom and refuel, or maybe not. But before leaving Great Britain, they will refuel. Now, if all vehicles had to leave with a completely full tank, this would cause mayhem at the port of Dover. However, because they will have to be only nearly full, they could refuel their vehicles at Clacketts Lane or Thurrock services and on arrival at Dover or the Channel Tunnel, they would still have a nearly full tank. Enforcement would be simple. A civilian customs auxiliary would take a quick look inside the tank to see if it is nearly full. If there is thought to be a problem, an official Customs officer would take over. The principle would be that a heavy goods vehicle would not get on to the ferry or enter the tunnel if it did not have a nearly full tank of fuel. Since heavy goods vehicle drivers and operators hate delay, particularly missing a ferry, they will ensure that they are compliant by filling up late enough in their journey. It should be possible for a continental operator to deliver, say, to the East End of London and return to Dover without needing to refuel at all. But noble Lords will be aware that a serious problem exists in Northern Ireland, both with laundered fuel—on which Customs and Excise do tremendous work to try to detect—and with legal cross-border purchases and DERV smuggled in from the south. Since the Good Friday agreement, DERV sales in Northern Ireland have fallen by well over 100 million litres a year. My proposal will not work with respect to between the north and south of Ireland because the border is open and there are too many road movements. But that does not matter too much because under my policy, HGVs leaving Great Britain—which does not include Northern Ireland—for Northern Ireland would have to leave with a nearly full tank of fuel. As a further and rather more controversial proposal, consideration could be given to harmonising tax and duty on fuel between the north and the south of Ireland. There would then be no point in purchasing fuel in the south because it would not be any cheaper, and if a haulage company or garage was offered a tanker-load of cheap fuel, it must be laundered. It could not smuggled, which in Northern Ireland is probably seen as being reasonably respectable. However, no haulage company would want knowingly to purchase a load of laundered fuel because it would damage its vehicles. To be honest, the object and motivation behind devising my idea was to torpedo the LRUC, but in this respect my policy may be a miserable failure. I may have done quite the opposite. A weakness of the LRUC is the complexity of any rebate scheme. Moreover, the LRUC is not expected to come into operation until at least 2008. My idea could be implemented fairly quickly, but it would drastically simplify the LRUC by eliminating entirely any need for the rebate scheme. It would also eliminate the need to employ at least 1,000 civil servants or contracted staff to administer the scheme. However, I accept that that might be a little disappointing for senior officials in Customs and Excise. I have one anxiety about my idea that might possibly be shared by the Minister. My plan envisages refuelling all heavy goods vehicles within about 50 miles of the port of Dover or the Channel Tunnel. However, there may not be sufficient refuelling capacity in south-east England, especially in Kent. Extending the radius to include South Mimms services on the junction between the A1 and the M25 would not help since that motorway service area for trucks is already grossly overloaded. We know also that provision for rest facilities for HGV drivers in the UK is dismal, to say the least. A possible solution might be to create refuelling points exclusively for heavy goods vehicles. They could be designed to cope with a very high throughput with no rest or refreshment facilities. They would exist purely for refuelling HGVs. The gain would be very significant increases in Treasury revenue. I am thinking along the lines of the German rastplatz halt on autobahns where there are no facilities, but you can pull off the motorway. They might not be much more than super lay-bys, so they would not take up a huge amount of land, but trucks could be refuelled quickly. However, it may be that the Minister has identified another show-stopper. I hope that he is in a position to explain any such proposal to us. I first proposed this scheme on 17 January during Starred Questions and I was extremely grateful to the Minister for his response at the time. I now look forward to his careful and considered response to my idea.
I congratulate the noble Earl, Lord Attlee, on achieving this Unstarred Question in the Moses Room. I rather like this room because the five of us might have rattled about a bit in the Chamber. The important thing is that we are able to have this debate. Whether it attracts any more publicity is open to question, but I think that the Moses Room is a good place.I declare an interest as chairman of the Rail Freight Group. I shall not talk much about rail freight, except as it affects issues of competitiveness and to say only that there is a need for fair competition. I certainly favour road user charging for freight and I have not yet been persuaded that I should not. It will provide a chance for us to see how it works before a scheme is introduced for cars and other vehicles, which I am sure will come eventually. The key to all this is to ensure that payment is made at the point of use. Charges should be variable depending on where you are and when you are there. That is a good concept which will have to be introduced, probably for all vehicles, as soon as the technology is in place. I do not think that it is yet working properly in Germany, but it most likely will do so quite soon. The proposal put forward by the noble Earl is very interesting. As he has said, it has the advantage of simplicity. We must take great care to ensure that we do not go into a kind of "foreigner bashing" mode. I do not suggest that the noble Earl has done that and I am not going to because I believe that, if they operate legally, continental drivers have as much right to be here as anyone else. This is not about foreigner bashing, even though people do talk about that at times. However, as the noble Earl said, there are clearly problems at the moment. I am in frequent communication with a couple of trucking companies based in Kent—perhaps for historical reasons, although it does not matter. They tell me about the frequency with which lorries arrive over here with one of their six axles missing. That sounds a little Heath Robinson. although I do not think that the work is carried out in a blacksmith's. One axle is replaced with an enormous fuel tank containing a very large amount of fuel. Such lorries can do their cabotage in the UK for what may be many weeks, but the disadvantage is that five axles have to take the weight that should be carried by six, resulting in extra damage to the roads. That, I think, is quite significant. Over the past few months I have tabled one or two Questions for Written Answer about enforcement. I have been told that the Vehicle Inspectorate does not, cannot and will not undertake enforcement in the vicinity of ports because of complaints that if such inspections took place outside their port—I include the Channel Tunnel in these comments—drivers would find out and make for another port where there was no enforcement. That is only hearsay evidence, but I suspect that it could be true. Indeed, if the inspections were undertaken too often, someone might make a complaint about foreign drivers, although in fact this is done by drivers coming in from the Continent rather than foreign drivers, who are being unfairly targeted. However, the situation is bad and it is true to say that a number of UK haulage companies are in severe financial difficulties or are going bust as a result of the problem so well described by the noble Earl, Lord Attlee. His proposal provides a very easy way of levelling the playing field. Looking at whether it can be done, I worry about the definition of "nearly full". It is a point about which lawyers would love to argue: how "nearly" is nearly?
My proposal envisages regulations which would mean that the number of litres allowed in the tank of, say, a maximum-weight artic would enable a driver to get from Clacketts Lane services to Dover with nearly enough fuel in the tank, even if his vehicle does six miles to the gallon. However, if a maximum-weight artic does six miles per gallon, it is a seriously sick vehicle. The allowance would depend on the configuration of the vehicle. A little four-wheeler would have a smaller allowance because its fuel consumption would be lighter.
I accept what the noble Earl says. I am sure that there is a way of doing it, but I still worry slightly. I hope that that is not the reason that Ministers will say it is not possible—that is my concern. The noble Earl says that there is a problem with filling stations in Kent. I spent 10 years working on the Channel Tunnel in Kent, so I know it pretty well. There are not that many, but there probably could be a lot more. I would not rule out the Channel Tunnel or the port of Dover, which are the two biggest ports in Kent. However, there are ports in other counties, including Southampton and all the way up in Humberside. We must look at the whole of the country when considering getting to the Continent, leaving Ireland aside.The Channel Tunnel has a refuelling point but it is on the incoming side, although there may be a way of sorting that out. It may not be big enough. I do not think that many people use it because only a fool would fill up in the United Kingdom having just come from France. That is a possibility. I would have thought that Dover would have found some way of providing for refuelling if it could make some money. Let us face it: if the other tunnel made enough money on fuel, it might save its financial bacon, so it might be quite a good idea. Rastplatzen sound fine. I trust that there are toilets in the German ones; it would be pretty horrible if there were not. Again, I am sure that there are places in Kent where you could fill up. The issue certainly is not insuperable and it has the advantage of real simplicity. The noble Earl, Lord Attlee, said that it would take 1,000 officials to administer the rebate scheme. It sounds very complicated; I do not know whether it involves 500, 1,500 or more. It compares unfavourably with half a dozen people going around with dipsticks if that is required. The noble Earl's idea is very attractive. I hope that the Minister will develop the positive answer he gave in response to the Starred Question tabled by the noble Earl. I will be interested to see how the matter can be taken forward as it is well worth looking at.
The problem of foreign lorries is huge because they do not pay any tax in the United Kingdom and they buy little or no fuel here. They also flout our laws by overloading. They probably do not take account of drivers' hours regulations and they block our roads. Like noble Lords who have spoken earlier said, this is not an anti-foreign rant, but it is a plea for equity and fairness.The Channel Tunnel is no solution unless radical steps are taken to make freight access competitive with ferries and to overcome French railway resistance to "throughout operation", which we have not overcome. I believe that the Channel Tunnel is heading for financial disaster unless some sort of reconstruction can be arranged. It will result, I am told, in lots of banks spending lots of money in France, trying to get their money out. The proposal of the noble Earl, Lord Attlee, is elegant in its simplicity. I do not believe that it is safe to encourage increasingly large quantities of fuel to be carried on ferries. Lorries are big vehicles, and when a ferry is full of them it carries a lot of fuel. I am not sure whether that is a good idea, but I will be interested to hear what the Minister has to say.
Does my noble friend agree that many safety experts believe that it is safer to have a tank full of fuel than one with a little bit in the bottom which is full of fuel vapour and so on?
Further to that, there would be little point in losing load capacity in a heavy goods vehicle by having a big tank. Drivers would not be able to run around in the United Kingdom using cheap continental fuel prices, so they might as well have just a standard-size tank. My policy would, to an extent, address the noble Lord's concerns.
Yes, it would, to some extent, and I take the point that a nearly-empty tank is more explosive. However, if a ferry tips over, those considerations go by the board.That brings us back to the issue of road pricing, to which the noble Earl, Lord Attlee, referred. We all know what has happened in Edinburgh recently. I must ask the Minister, because it is an opportunity to raise the issue, whether a referendum is the best way of determining such an issue.
Democracy is bad!
I am not saying that democracy is bad; I am saying that the way in which referenda have recently been conducted in this country shows that there is enormous influence exercised by people who have money to spend. They may be editors of local papers and people who run local radio stations. They are not what I call the electorate but the influencers of the electorate. We must be careful to ensure that people decide as a result of careful consideration rather than blatant misrepresentation. What does the high turnout in Edinburgh tell us? What were the people voting for? Were they voting to pay less tax? Were they voting for more congestion? Were they voting against better public transport? Were they informed voters or was it a manifestation of sheer prejudice?Congestion charging can work. Twenty years ago I was in Oslo, where the system worked perfectly well. At the time the department said that it was considering introducing the charge but that there were technical studies still to do. Two weeks ago I saw the system working perfectly in Singapore, where it has worked perfectly for 20 or 25 years. It represents a scheme that would allow all lorries, British and foreign, to pay a fair price for the use of the highway, which is, after all, what all of us are concerned about. Some heavy users of cars and lorries, such as those who use the busiest motorways at the busiest times and those who insist on going into city centres at peak hours, would pay more. But—here is the main "but"—most motorists and road users would pay less, and some of them would pay a great deal less. We would get rid of the unfairness that we exhibit towards some motorists such as the old-age pensioner and many others. What is the Government's policy and can we expect something to happen? We can always wait for some grand, all-singing, all-dancing type of scheme, which will take in Europe and perhaps the rest of the world. But all electronic schemes—I am very aware of them from my experience in the police—have a very short life. It takes only eight or 10 years before technology has moved along so quickly that you are on to the next scheme. For a relatively quick and dirty scheme that could be implemented quickly, I ask the Government not to put the matter on the referendum list. If you put things to referenda, given the influences that are brought to bear on voters the scheme will not materialise and neither will many other things. The Government should have the courage to put something in the manifesto for the election—which, I expect, will take place at some time in the future, although I do not expect the Minister to tell us when—and actually say that they are going to do something. In summary, what are we going to do about road pricing? That may not be what the noble Earl wanted.
I am grateful to my noble friend for introducing the Unstarred Question in such a novel location. I believe that this is the first ever Unstarred Question in the Moses Room and I hope that due note is taken of that fact.I certainly understand why my noble friend has taken this opportunity to follow up his interesting suggestion made on 17 January in his Question to the noble Lord, Lord Davies. As we have heard, he has suggested requiring all heavy vehicles leaving Great Britain to do so with a nearly full tank of fuel. At the time, many noble Lords were somewhat surprised by the encouraging response from the Minister. My noble friend has described his proposals today with his usual succinctness but he omitted to ask how much money might be involved. As we know, fuel purchased from other EU countries carries less tax and duty but it is by no means tax free. So, effectively, it seems that foreign treasuries are receiving tax revenue in respect of road fuel used on our roads over this side of the Channel. Indeed, it might be said that the French, Belgian, Irish and other treasuries are receiving what should be our taxpayers' revenue. It would be extremely helpful if the Minister could indicate roughly how much fuel tax and duty is being lost in the way described by my noble friend and, if it is feasible, by how much my noble friend's proposal could increase Treasury revenue. My noble friend has touched on how his proposal might simplify the lorry road user charging scheme (LRUC). I share his anxiety about HGV refuelling capacity in the south-east. If these problems are held to be insurmountable we will need to take a closer look at the LRUC. For instance, is it designed to level the playing field in respect of cheap fuel for foreign trucks, or is it rather more to do with reducing congestion from HGVs, or both? My noble friend claims that his proposal would eliminate the need for the fuel rebate component of the LRUC. On the face of it, the LRUC appears to be somewhat bureaucratic. There is a claim—I am not sure where it came from but it has already been discussed—that at least 1,000 civil servants or contractors would be required to operate the rebate scheme alone. Some goods vehicle operators, rather unwisely, keep no records of fuel issues against vehicles. Will it be necessary for detailed records of issues to be kept? How does the Minister intend to avoid rebated fuel finding its way into private cars and light goods vehicles? Will the fuel be a different colour? My noble friend has referred to how his scheme might work in respect of Northern Ireland. I think it would be wise to avoid commenting on his proposal to harmonise road fuel taxes in the north and the south. However, there is no doubt that there is a very serious problem and that is not going to go away. As we have heard, we have some 400,000 goods vehicles in the UK and, under the LRUC scheme, every single one will have to have a satellite transponder fitted. I am told that the capital cost of this will be around £2 billion. Is this correct? Does it include the cost of the satellite itself and its dispatch into space—or is it possible to hire satellite space, as it were? Ministers say that the LRUC will be cost—or is it revenue—neutral? For how long will it be revenue neutral and who will fund the initial capital cost of the IT system which will be required? The LRUC is clearly a precursor to satellite tracking for all vehicles, including private cars. It is a little surprising that those strongly concerned with civil liberties have not woken up to the possibility of the state knowing the precise movement of every motorist in the country. Finally, the thrust of my noble friend's Unstarred Question is whether his proposal is feasible. One of the key questions is whether there is enough refuelling capacity in the south-east of England, a point referred to by the noble Lord, Lord Berkeley. Does the Minister have any information on the legality of my noble friend's scheme in this country's laws and in the European Union overall? Could it not possibly be considered as a constraint of trade? We look forward to learning from the Minister's response to this interesting debate where we can go forward, if at all.
Before the noble Lord sits down, can he clarify whether he said it would cost £2 billion to fit this equipment to 400,000 vehicles? I have been working it out while he has been speaking and it comes to £5,000 a vehicle. That does seem rather high. Can he confirm that?
That is the information I received. It may be incorrect—sometimes information is incorrect—but it may be correct. That is why I asked whether it includes the cost of the satellite.
It might well do.
I think it might.
Surely the question is whether it includes the cost of the transponders and the IT system's ground base. I do not think we need to worry about the satellite, as they already exist and are used for tracking commercial vehicles, but rather the cost of the IT system to balance the fuel rebate and the mileage charge, and the provision and fitting of the transponder to each vehicle.
It has been an interesting debate. I probably foresaw that when I gave an encouraging response to the Question of the noble Earl, Lord Attlee, in the Chamber. A slightly extravagant gloss has been put upon that response. Anyone who consults Hansard will see that I am prepared to look at the scheme, which is likely to be subject to the clearest possible evaluation and consideration. Indeed, as the noble Lord, Lord Luke, indicated, one or two issues in regard to the noble Earl's scheme need to be considered further. That is what I undertook to do and I hope to give a response today that reflects that undertaking.However, I shy away from the implication in one or two contributions that I expressed considerable enthusiasm for the scheme. On the whole, I express considerable enthusiasm for very little in the Chamber, largely because challenges come from elsewhere rather than the Government side. I give way to the noble Earl.
As a Front-Bench spokesman, normally the best I can possibly hope for is that the Minister will say, "I shall draw the noble Earl's suggestion to my right honourable friend the Secretary of State".
Exactly so. It was in exactly those terms that I expressed myself on that day. I am delighted that the noble Earl took great solace from that and has followed it up with the debate today. It gives me an opportunity to respond to those issues and to a number of questions that were raised about the lorry road user scheme that we are looking to introduce in the fullness of time. I hope also to give full value to the Committee in covering those issues.I want to deal with the important issue of the evasion of tax and duty, which we need to confront, although the noble Earl will recognise that the LRUC scheme is set to cast its net wider than that particular abuse. The course on which the Government are set will be more fruitful and capable of bringing greater rewards than this particular scheme. I shall come on to that in a moment. I want first to reassure noble Lords that we are, of course, aware of the increasing anxiety of the United Kingdom haulage industry about the sharpness of overseas competition and what is regarded as the unfair aspect of overseas competition—free access to British roads while carrying many litres of fuel in huge tanks which enable them to buy not one litre of fuel in the United Kingdom while plying their important service here. We set up the Road Haulage Forum to investigate and consult on those and other general issues affecting the haulage industry. We have been increasingly constructive on those issues. It is not just a question of the level playing field which is the objective of the noble Earl, Lord Attlee; we also need to enhance our industry, which is an important part of the economic life of the nation. That is why we have been concerned to develop a list of projects to help the industry: further phases of driver training programmes; a Fuel Economy Advisor programme to encourage more efficient fuel operation; and improvements in the skills of lorry driving, which are not to be underestimated. I know that the noble Lord, Lord Bradshaw, was slightly more restrained than he often is about these issues when we can debate them. However, out of deference to his very great interest in this issue, I think he will recognise that we appreciate the fact that improving the skills of UK lorry drivers is a very important part of road safety issues. We are also concerned to develop a careers website for the industry. That should be seen against a background whereby some of the large firms in the industry—I shall mention no names as that would be invidious—are very big operations indeed. One wants to see people in such companies developing their driving skills. We should also be mindful of the fact that able drivers are intelligent men and women who would often wish to see career opportunities developing, not least because a driver's working life can be restricted by the onset of disability through age. It is important that they should be able to play other parts in the road haulage industry. We are concerned to help the industry develop skills and a career pattern in those terms. I want to emphasise, first, that we regard the industry as a very important one which rightly makes calls on the Government to take an interest in the issues and challenges confronting it and in how the Government can help. In our 2001 manifesto we made a commitment to introduce the lorry road user scheme. At that time, we said in rather more general terms that we were concerned that users of our roads should bear a fair cost regardless of their nationality. That was our response to the clearly articulated pressures from the industry. It was also a recognition among all sides of the British people of the need for fairness, not least because we are all aware that lorries make extensive demands on our road structure and the environment more generally. That is why we introduced proposals for the charge in the UK to be offset by fuel duty cuts for those who buy their fuel in the United Kingdom. Customs and Excise, which has been charged with developing this new tax, is well on the way to procuring the systems it will need. We aim to have the scheme up and running in the latter part of 2007–08. The noble Earl, Lord Attlee, indicated that early implementation was one of the positive features of his scheme. However, features of his scheme also would take some time. I will not get into extensive debate on how we would solve the issue of sufficient filling stations and filling opportunities near our ports. The noble Earl concentrated almost overwhelmingly on Dover. He would have to go quite a long way from Dover before there were just one or two alternative filling stations. I appreciate what he says, but Holyhead, for example, the departure point for the Republic of Ireland, makes one begin to realise the expense involved in meeting the costs of a new motorway exit and entry. One should not underestimate the costs of constructing just one filling station with no additional facilities; nor would that happen overnight. One should not think that what the noble Earl is positing in opposition to the scheme that we favour could occur at the flick of a switch or overnight. Any of the big developments that affect an industry require a lead time. So when I quote the date 2007–08, I acknowledge that we all want to achieve the same objective as early as possible, though we would not all follow the same route. But that is what we currently foresee. Our current proposals reflect the conclusions we reached in consultation with the industry on the best way to introduce the charge in the UK. It has taken longer than we would perhaps have liked. However, I think it will be recognised that it is not a simple business to develop a new way of taxing the haulage industry that uses the very latest technologies. We are looking at a range of technologies. It is not right to identify only one conceivable approach.
A moment ago the Minister suggested that he is "well on the way". He is now suggesting that he is looking at a variety of solutions.
Work is under way on these approaches. We have to set up a purchasing structure for them. They require very heavy investment. I am not underestimating the investment, but merely suggesting that we have done a substantial amount of work on it.I should simply like to refute the rather sinister concept that this is about satellite observation of every vehicle movement in Britain, spreading from lorries to cars. I emphasise that we are about distance-measuring, not about tracking where the lorry has gone. In that sense, we do not really care where the lorry has gone as long as it has paid properly for the distance it has covered in the United Kingdom. Perhaps such technology will lend itself to specific motorway charges. As the Germans have done with the autobahn, we could take advantage of the technology for that type of tracking. However, such tracking merely concerns the distance that a vehicle has travelled on the motorway. That is a long way from the rather forbidding future that the noble Lord, Lord Luke, foresaw in which government authorities would know the location of every car in the country. It will be more limited than that. We are out to produce a cost-effective system, whereas the one envisaged would be very costly indeed. All aspects of road charging have to be approached with care because of the enormous costs involved. I say nothing about the civil liberties issues because we are a very long way away from anything that encroaches on those. Certainly this scheme does not lend itself to any fears on that score. When making comparisons with tax levels in other countries it is important to look at all forms of taxation. Although it is inevitable that our industry focuses on the differential that exists between fuel costs, when we looked more carefully at the general operating costs of foreign competitors we discovered that the margin is not as great as a straight analysis of fuel costs would indicate. UK taxpayers pay a lower overall proportion of GDP in total tax than taxpayers in other countries. So, although we may pay a higher tax on fuel, in more general terms matters are a good deal more even. For example, the UK has lower business rates, lower social security contributions and a lower VAT rate on a wide range of essentials than is the case abroad. I give way to my noble friend.
I thank my noble friend for giving way. Whereas I can understand that his arguments would apply to western Europe and Germany, France, Switzerland and Austria, is it not the case that the new accession countries, whose drivers are alleged to be a part of the big influx, have much lower costs both in terms of what they might earn and social security costs? Of course, they are just as capable of coming in with a big fuel tank as anyone else.
Of course, they have a fair bit of Europe to cover before they arrive at our ports. We all recognise them because it is rather unusual and distinctive when one sees a lorry from Bucharest, or Istanbul or wherever. The new accession countries raise particular issues.But, as my noble friend knows, the whole point of the European Community and the framework of the single market is that we recognise that such countries have to engage in strategies which inevitably bring them closer to the European average in regard to overall costs. But the point is well taken. That is why we are determined to have a degree of fairness. It is the whole point behind our proposals. Of course UK hauliers are operating against strong competition, and not only from the international haulage industry. It looks as if it is about 1 per cent of our total operations, so it is easy to exaggerate. However, one recognises that it is an important factor. The UK haulage industry is a very competitive industry in any case and we all know that it is easy for its customers to drive down prices when there are so many entrants into the field. That is also an important part of the issue. One of our objectives for the LRUC is to provide a means to decouple the taxation of the haulage industry from the taxation of other motorists. We want to achieve a position where we are able to tax heavy goods vehicles separately and on a basis which is fair for all, whether domestic or international. We also want to be able to pursue a strategy in relationship to the industry which recognises its significance and how different it is from the private motorist and a whole range of other road users. When the lorry user charge is in place, for the first time the Government will be able to take decisions about taxation levels which affect the industry separately from the decisions they take about general motoring taxes. If we therefore want to give benefits to the haulage industry, once the scheme is in place we will be able to do so. That is a significant virtue which will be recognised. The proposal of the noble Earl, Lord Attlee, has some interesting aspects but it does not relate at all to the question of how we modernise taxation. It would leave only the vehicle excise duty rates as a way of varying taxation levels between different vehicles. I think among the British public the demand is there now—and it will increase—for variations to be effected through taxation in a more extensive way than only through vehicle excise duty. I turn to the specific proposal put forward by the noble Earl. He has created a little history today by initiating the first debate on an Unstarred Question in the Moses Room. Indeed, his family is rather good at creating history. The noble Earl deserves a full response to the issues he has raised. I have discussed the position with regard to filling stations. We should also consider whether facilities for refuelling could be provided at Customs points themselves. However, I must point out that most of our busy ports, and certainly the operation of Customs and Excise at those ports, lead us to think that this might be a somewhat fraught undertaking. I am not talking about measuring the fuel in the tank, which the noble Earl has distilled into quite simple terms, but the question of directing lorries to turn around and fill up at a nearby facility is very difficult. Let us consider the logistics of any of our large Channel ports, and the same can be said of our ports elsewhere. There is a problem of feasibility in those terms. The noble Lords, Lord Luke and Lord Bradshaw, both reflected that there are related European issues which we would have to take on board very carefully. Britain's membership of the European Union brings many benefits to our economy and to our hauliers. We are committed to taking an active lead in Europe in developing the single market. It brings with it great benefits in many different ways to UK businesses, consumers and travellers. We support fair tax competition as a way of building growth in jobs and prosperity. Enhancing the performance of member states improves, by extension, the external competitiveness of the EU and increases its attractiveness to investors. I want to reinforce the point that the UK tax system cannot be compared unfavourably with those of other countries in this respect. However, the single market did not come into being only through the collective will of its members. To make it function properly, rules are needed. The noble Earl will not be surprised to learn that there are rules which we think are quite difficult in relation to his proposal. We must get the lorry road user charging scheme right within those rules; getting it wrong will result either in the waste of much time on something which cannot be implemented or paying people back a lot of money for something that we will not be allowed to do. We have to be very concerned about our own proposals in this area. The proposals put forward by the noble Earl raise issues regarding quantitative restrictions on imports and exports covered by Articles 28 and 29 of the treaty which established the European Community. The restrictions are defined as measures which amount to a total or partial restraint on imports, exports or goods in transit. All trading rules enacted by member states which are capable of hindering intra-Community trade—directly or indirectly, and actually or potentially—are considered to be measures having an effect equivalent to quantitative restrictions. The issue which will arise in the free movement of goods context is whether a requirement to fill up with fuel before leaving Great Britain creates an obstacle to the free movement of goods. The noble Earl has stressed explicitly that the scheme would be non-discriminatory between British nationals and other European members. It would apply to all heavy goods vehicles leaving Great Britain. However, the effect of the scheme would be to require hauliers, particularly overseas hauliers, to buy more fuel in Great Britain at higher prices than otherwise would be the case. It seems likely that this measure would be regarded as having an effect equivalent to quantitative restrictions on imports and exports. I am concerned about this and about the impact of the checks on departing vehicles that would be needed. The noble Earl described that in some detail and I recognise that he set out to show how effectively and efficiently it could be done. However, the proportionality of the enforcement regime would be an important factor. If checks related to the operation of the scheme delayed departing vehicles, that could create a practical as well as an economic obstacle to the free movement of goods. We believe that the noble Earl's scheme would risk incompatibility with those provisions of European law. I say that against a background of being grateful for the enormous amount of work that he has done on his scheme, but our own considerations of something like it in the early days of trying to solve this problem meant that we have for some time taken clear advice on the legal issues involved. Perhaps I should tell the noble Earl that if he intends to do more work on this he will need to address those significant issues. There is another European dimension regarding the question of state aid—whether the requirement to fill up with fuel before leaving Great Britain would represent an aid granted by or through state resources and, if so, whether it favoured certain undertakings over others. Some might be thinking not so much of the aid that it would give to British hauliers as to British fuel retailers. After all, we would have a captive market for British fuel retailers, because foreign lorries would be obliged to use them.
First, on the noble Lord's last point, operators use fuel cards, under contracts that they negotiate, wherever they buy fuel within the EU. Regarding his other point about EU compatibility, why is it in order, under EU law, for the Government to offer a fuel rebate to UK operators, but riot to continental operators?
We are getting into somewhat deep waters. I do not want to cover the whole range of taxation policy, because, while there are certain areas which are important, the fuel rebate is open to everyone. It is not discriminatory. It is not only British road hauliers who benefit from the rebate. So we must be careful about such issues—which do need to be addressed.I wish to say something about Northern Ireland. The noble Earl briefly mentioned Northern Ireland, but he did so in a way which had a slightly cavalier quality. He is a man of cavalier qualities, so he should not take that as anything other than a compliment. Obtaining equality of fuel prices between the Republic and Northern Ireland would certainly solve the problem, and I recognise the neatness of the solution. However, he will recognise, first, that it would require us to use our taxation policy for that objective, which would limit the range of the tax. Secondly, there would be separate taxation, as I understand his proposal, between Northern Ireland and the rest of Great Britain. That raises some very thorny issues. The noble Earl will recognise the cardinal point of our taxation policies is that Great Britain and Northern Ireland, as the United Kingdom, is one entity. The noble Earl's scheme would require us to breach that rule. So there are difficulties with that issue as well. As I mentioned, I have some reservations about the quick-check concept but I do not want to belabour that point too much. Given the ingenuity of government servants when they are directed towards an issue that they need to solve, I have no doubt that they could make considerable inroads to the system that the noble Lord wants of very rapidly checking fuel tanks. I do not think that it is a major issue with regard to this scheme, although it is important. I am again in the position where I congratulate the noble Earl, on the focus not just of this debate but of his work on an interesting scheme. I think that he will recognise that, in the period between his initial Parliamentary Question and this debate, he has occasioned extensive work in a number of departments. The Treasury, the Department for Transport and Customs and Excise have all had a very keen interest in it. He has occasioned considerable interest in the scheme. At the same time we have cross-evaluated his scheme with our own developing proposals to see the relative merits. I shall conclude as the noble Earl would expect me to: what we have in common is a great deal of concern that we should get equity and fairness for the UK haulage industry. In particular, we all want fairness in taxation on the use of British roads. We think that our scheme will do that, against a background of much greater sophistication than just charging the foreign driver and operator for full fuel tanks. It will enable us to operate a proper concept of rewards and will lead to the development of the haulage industry. At the same time it will enable us to get the proper returns that the industry should pay for the use of British roads by lorries. On that basis, I very much welcome this debate. It has clarified minds a great deal. I applaud the noble Earl for his most constructive suggestion and for having introduced the debate.
Committee adjourned at twenty-three minutes before six o'clock.