House of Lords
Monday, 23 June 2008.
The House met at half-past two: the LORD SPEAKER on the Woolsack.
Prayers—Read by the Lord Bishop of Exeter.
Alcohol Harm Reduction Strategy
asked Her Majesty’s Government:
What further adjustments they will make to their alcohol harm reduction strategy following the publication of NHS Statistics on Alcohol: England, 2008.
My Lords, the best way of reducing the kind of everyday drinking that leads to ill health and other problems is to put into action our policy of identifying higher-risk drinkers earlier and providing advice and support. Our actions are guided by the best up-to-date evidence. We hope that the “Know Your Limits” and binge-drinking campaigns launched last week along with unit and health information on labels will help people to take responsibility for their actions and to make informed decisions.
My Lords, considering that the number of children and pregnant women who drink, the number of prescriptions and hospital admissions for alcohol-related disease and the level of violent attacks by people who have consumed alcohol have all increased sharply since the alcohol harm reduction strategy was first published in March 2004, do not the Government think that further action is necessary with a view to achieving specific reductions in these indices of harm? Will they publish a detailed response to the BMA’s recommendations in Alcohol Misuse: Tackling the UK Epidemic, in particular its advice on using the levers of price and availability?
My Lords, we expect retailers to behave responsibly and to uphold the law. We also expect the alcohol industry to label and to advertise responsibly. We have commissioned an independent review of the relationship between pricing, promotion and harm to provide us with the best evidence on which to make decisions. We are also monitoring our voluntary agreement with the alcohol industry. If we are not satisfied that the industry is behaving responsibly, we will take further action.
My Lords, has my noble friend considered the Scottish Government’s recent initiative to disallow supermarkets and off-licences to sell alcohol after a certain hour of the night?
My Lords, I thank my noble friend for that question. He will not be surprised to hear that we shall follow the Scottish consultation with great interest. We will shortly report on the results of independent reviews on alcohol and price promotion, as I mentioned. We have no proposals to raise the legal age at which alcohol can be purchased. The Government’s approach in England is strictly to enforce underage sales work with the alcohol industry to crack down on irresponsible promotions and to provide comprehensive information about alcohol to adults, young people and parents.
My Lords, what figures does the Minister have on the number of children whose welfare is adversely impacted by parental misuse of alcohol? Can she provide further information on the impact on child welfare of parental alcohol misuse?
My Lords, clearly, parental misuse of alcohol has a great impact on children. I do not have those figures to hand, but I will be happy to provide them for the noble Earl, because they are extremely important.
My Lords, is the Minister satisfied that the alcohol industry is acting “responsibly”? I use my noble friend’s word.
My Lords, we are at this precise moment monitoring the effectiveness of the voluntary agreement that we have with the alcohol industry. As I said in your Lordships’ House when we debated the Alcohol Labelling Bill, if we are not satisfied that it is working we have every intention of taking legislative action.
My Lords, is the Minister aware that there is great disappointment in the Prison Service because, although drug rehabilitation has taken a great step forward recently, not much help has been forthcoming for the many people with alcohol problems?
My Lords, the noble Baroness raises an important point and the House is aware of her interest in prisoners. This is a local spending decision. PCTs’ choices on spending on specialised treatment for drugs or alcohol are their decision, taken in line with locally identified needs and priorities.
My Lords, I urge my noble friend to be wary of following the Scottish example. Is it not much better to enforce our existing laws effectively than to penalise 18 to 21 year-olds for the actions of 13 to 15 year-olds who drink excessively? Surely it is stupid to suggest that by penalising students you will stop young teenagers drinking.
My Lords, my noble friend makes a valid point. We want to send a clear message through youth alcohol action programmes to the minority of young people who drink in public places that it is unacceptable to get drunk on our streets or in our parks and to behave in ways that make other people feel unsafe. I recommend that noble Lords look at the adverts that are on between 9 pm and 10 pm, during programmes such as “Big Brother”. They are hard-hitting adverts aimed at that age group. We are informed that they are having some effect.
My Lords, is the Minister aware of the World Health Organisation report that shows that, in Europe and North America, Wales is the worst place for underage drinking, followed by Scotland, with England in fourth place? What overall UK-wide strategy does the Minister have in mind to tackle this problem seriously?
My Lords, the noble Lord will be aware that we take this extremely seriously. The good news is that the number of young people who have tried a drink is falling; it fell from 62 per cent in 2001 to 54 per cent in 2006. The proportion of 11 to 15 year-olds in that category is also falling, but the bad news is that those who are drinking are drinking more. We have to raise public concern and it is absolutely right that the public are concerned about this. The issue is not just young people buying alcohol illegally; it is more broadly about young people’s access to alcohol. We need the industry to refuse to sell to young people. We need to be clear that unsupervised drinking by young people is unacceptable. We need to work closely with parents, schools, health services and the police.
My Lords, we have had three speakers from each side—the Cross Benches and the government side—but in strict rotational terms it is the turn of the Cross Benches.
My Lords, is it the Government’s duty to deal with underage drinking? Is it not the parents’ responsibility to know where their children are, what they are doing and how much money they have so that they cannot go out drinking? Is it not time that we enforced this with the parents rather than the children?
My Lords, the noble Countess makes exactly the right point. Young people, with their parents, are best suited to take action, but the Government’s role is to make sure that the information is right. There is a lot of confusion about units of alcohol, for example, so it is important that we make it clear. Young people need to grow up learning how to drink sensibly and to know their limits. Parents know at what age people may drink, and the noble Countess is correct that they have to take responsibility.
Energy: Electricity Supplies
asked Her Majesty’s Government:
Why electricity supplies were disrupted on 27 May, in consequence of which the National Grid issued a “demand control imminent” warning.
My Lords, the precise causes of the disruption are being investigated by National Grid. The immediate causes were near-simultaneous, unscheduled outages at Sizewell B and Long Gannet power plants. The resulting disturbances to the supply/demand balance triggered an automatic response designed to cut demand and preserve the integrity of the system as a whole. The action was sufficient to stabilise the system, but supplies to about half a million customers were cut off. Most were restored within an hour.
My Lords, I thank the noble Baroness for her reply. With the enormous rise in energy prices, coupled with our need to buy from abroad because of our short supply of gas storage and the imminent loss of nearly 90 per cent of our nuclear capability, will she explain how we can avoid such a thing ever happening again? When will the Government proactively consider and encourage new nuclear build so that we never again have to go abroad with a begging bowl because we are short of supplies in this country?
My Lords, perhaps I should explain that the outages were not related to generating capacity. The generating margin, which is the capacity over peak demand at any time, is currently 26 per cent, which is historically very high. It was 19 per cent in 1997. The outages were caused by system and other outages and errors that are currently being investigated. Nevertheless, the noble Baroness makes a valid point about the need to ensure that we can have new nuclear on stream effectively and efficiently. I assume that the noble Baroness and her noble friends will be supporting the Planning Bill, which is essential to ensure that we can get planning support.
My Lords, does not my noble friend welcome the Question asked by the noble Baroness, Lady Miller? It is the first time that I have heard a prominent speaker from the Conservative Benches asking us to go forward with nuclear as quickly as we can.
My Lords, I was delighted to hear the unequivocal support for nuclear, which the Leader of the Opposition is unable to provide.
My Lords, from these Benches we do not give unequivocal support for nuclear. Was it not the outages in the nuclear power stations that led to the problems in May? Considering the problems with new build on nuclear, is it not unlikely that a significant amount of general electricity will be generated by new nuclear build until the 2020s? If so, what are the Government’s plans for meeting the shortfall?
My Lords, new nuclear is anticipated to come on stream by 2017 to 2020—not the 2020s. The shortage was caused by two plants having an outage within two minutes of each other, which has never occurred before, and which has a probability rate of 0.01 per cent. Sizewell B was one of them but that plant has been running for three and a half years without any unanticipated outages, and no generating technology is immune to outages.
My Lords, will my noble friend explain to the House what is an outage? Is it the same as a power cut?
My Lords, as many noble Lords will learn, outage is a generating plant going offline.
My Lords, why on earth cannot the noble Baroness speak English and say “power cut” so that we can all understand?
My Lords, I apologise if I was not speaking English. I was using the technically correct language.
My Lords, is that not an outrage?
Very witty, my Lords.
My Lords, if, as the Minister tells us, there is 26 per cent surplus capacity, why did it not cut in when the two power stations broke down?
My Lords, at any point in time a reserve is held. As the event had never previously occurred, the capacity held in reserve was not sufficient for two plants going down at the same time. Furthermore, as it takes between four and 12 hours for new plants to come online, it was not possible to deal with that amount of generation capacity going offline at that time.
My Lords, is not the real criticism of the Government that they took 10 years to make up their mind about nuclear power?
My Lords, this issue has troubled all sides of every party. It has been a courageous decision to ensure that we now have a nuclear programme that will be one of the first in the world in the new generation of nuclear. We are fully supportive and are doing everything that we can to ensure that it comes on line in time.
My Lords, have the Government had discussions with the National Grid about its policy of building thousands of wind turbines? Is not the National Grid concerned about the connection of these wind turbines and will it not require additional conventional capacity to be built to cover the time when the wind is not turning them?
My Lords, my noble friend makes a valid point. In answer to the question that was asked earlier, wind generation is intermittent and therefore needs—may I use a technical term?—base-load capacity, which means we need to build for coal and gas to back up the wind. That is why it is not the most effective source in terms of energy security of supply, but it is very effective for climate change.
Digital Technology
asked Her Majesty’s Government:
What measures they are taking to maximise the use of digital technologies to improve the individual social and economic well-being of children and the elderly whilst minimising the potential risks.
My Lords, the Minister with responsibility for digital inclusion, the right honourable Paul Murphy, leads a new cross-government Cabinet committee to co-ordinate and promote policies that will ensure that all citizens, especially disadvantaged people, will benefit from the use of digital technologies. A digital equality action plan is due to be published shortly.
My Lords, I am grateful to the Minister for that reply. Is she aware that almost one-third of adults in Britain have never been online through any platform? Does she agree that the Government’s current strategy for digital inclusion, to which she referred, has made no discernable difference to the take-up of digital technology? Will she explain why the headline statistics for the use of digital technology, recently published by the ONS, have remained virtually unchanged, at around 65 per cent for individuals and 45 per cent for households, over the past two years?
My Lords, I agree that one-third of people are not accessing the internet. It is very serious because they are the people least likely not to benefit. By and large, they are in the lower income strata. For example, the figure includes half of people with an income under £10,400. That is serious. I do not agree with the noble Lord that nothing has happened. For example, over the past few years, we have seen a significant expansion of UK online centres. We have put £580 million into 6,000 centres, which can be accessed anywhere by people who have no knowledge of computing. We are working to develop in the new strategy a coherent equality programme for hard-to-reach people, including some young people.
My Lords, I must declare an interest as having a brother-in-law who is severely partially sighted. Is the Minister aware of the frustration felt by blind and partially sighted people who have heard, and sometimes seen in part, advertisements on the television for audio description but find that only 10 per cent of programmes actually have it? What do the Government intend to do about that?
My Lords, the target is certainly 10 per cent, but I understand that most channels are programming for a higher figure. I take the point very seriously. In addition, Digital UK is distributing the Good Neighbours Guide to charities and community groups, which can then inform their clients about what help is available to users with particular needs when they switch over to digital TV. The Digital Switchover Help Scheme will also assist people with disabilities. I hope that they will be able to access that.
My Lords, I declare an interest as chairman of Age Concern Surrey, which runs a computer drop-in centre. Is the Minister aware that increasingly such things as booking tickets have to be done online? Does she think that the library service in this country provides enough help to those who do not know how to access online information and make such bookings?
My Lords, I agree with the noble Baroness. It is interesting that 35 per cent of people over 65 use the internet—they are among the most intensive users. I suspect that many in your Lordships’ House qualify as silver surfers; in fact, seeing the e-mail traffic, I am sure of that. As everything is online these days, it is precisely people with leisure time who could get most benefit from internet access. It helps to reduce the isolation of older people and, critically, connects them via e-mail with their friends and services such as doctors. We have a big job to do.
My Lords, in view of the speed with which things have moved on since the Communications Act 2003, does the Minister think that Ofcom has enough responsibilities, interests and power in this area?
My Lords, as far as I am aware, it has. Given, for example, the risks that children are exposed to through access to the internet, we need to challenge the industry to do more. One outcome of the Byron report on child safety on the internet was the setting up of a UK council, including people from the industry, to address these issues.
My Lords, the Government are to be praised for increasing computer involvement among the community. However, the fact remains that they have a very unfortunate record on computer security. Computer communication is a two-way system. Can the Minister assure the House that nobody who communicates with the Government increases the risk of their computer identity being moved elsewhere and possibly abused as a result of that contact?
My Lords, there are strict protocols for handling government data and security. I refer the noble Lord to the Statement made in December last year by the Minister for the Cabinet Office, announcing the data handling review, about which we will inform the House when we can.
My Lords, what is being done to ensure that every young person receives training in digital literacy? Is the Minister aware of the CBI survey which found that 50 per cent of employers interviewed thought that their young employees’ digital literacy was very poor?
My Lords, we tend to think that all young people are computer literate, but they are not. The UK online centres and the myguide introduction to computer literacy are extremely helpful and targeted at young people as well. The noble Earl will also be interested to know that, between 2006 and 2008, Computers for Pupils put computers into the homes of 100,000 of the poorest families, so that children who did not have a computer could access one. That is the answer to the question. It is also important to share skills. We have lots of marvellous examples, particularly in the third sector, where young people have helped older people to understand and use their mobile phones and computers. It can work the other way round as well.
Health: Diabetes
asked Her Majesty’s Government:
What was the scientific basis for the National Health Service’s recent announcement that self-testing of blood sugar levels by type 2 diabetes patients is unnecessary.
My Lords, as the noble Viscount may now be aware, the National Health Service has not made an announcement advising people with type 2 diabetes to stop self-monitoring their blood glucose, although media reports were ambiguous. In May 2008, the National Institute for Health and Clinical Excellence—NICE—issued guidance on the management of type 2 diabetes, which includes advice on the self-monitoring of blood glucose. NICE guidelines continue to advise that, as part of an integrated package that includes patient education, the self-monitoring of blood glucose can have benefits for some patients.
My Lords, I thank the noble Baroness for her Answer. Diabetics such as me will be reassured that NICE has come out with the decision that she has announced. NICE is not known for making hasty decisions. The decision is certainly in conflict with what was reported in the press. I am sure she is aware that diabetics have a difficult job combining exercise, diet, medication and monitoring, which is absolutely essential, to see that what they are doing is correct. Are we not seeing here a cost-benefit exercise, where the costs are too well known and the benefits not truly understood?
My Lords, as I said in my Answer, we have not advised people with type 2 diabetes to stop self-monitoring. However, the recent publication of two blood-glucose monitoring trials in the British Medical Journal has given rise to a debate about the benefits of self-monitoring. This is a useful addition to the debate, but the key point about self-monitoring is that it should be suggested on a patient-by-patient basis. It should include structured patient education so that the patient understands what to do with the information that they are collecting. I think the noble Viscount will agree that that is absolutely the key point. However, prescribing decisions about blood-testing strips are for local determination. Primary care trusts should not impose a blanket policy on testing strips for people with type 2 diabetes. Healthcare professionals should work with people with diabetes to make joint decisions about the value of self-monitoring blood glucose and prescribe accordingly.
My Lords, like the noble Viscount, Lord Falkland, I declare an interest in that I have type 2 diabetes, as no doubt do many other noble Lords. Is my noble friend aware that I am terrified of blood and machines? However, when I started testing, I persevered, and like the noble Viscount I now find blood testing an invaluable guide. This morning, my test was high. I realised that I had eaten too many boiled potatoes last night and will not do so again. Will my noble friend do all she can to publicise—I do not think that she stressed this point—the potential benefits of blood testing to type 2 diabetes sufferers?
My Lords, I am very sorry to hear that my noble friend ate too many potatoes.
Boiled, my Lords.
Boiled or whatever, my Lords, I am glad to hear that my noble friend is aware of that. He makes the point about the programme that he is part of. It was set up by the Department of Health and is called DESMOND—Diabetes Education and Self-Management for Ongoing and Newly Diagnosed—and it is vital for supporting people to manage their condition. It is about people with type 2 diabetes getting the right kind of education to ensure that they can self-monitor in the way that my noble friend referred to. The department recently issued further guidance to PCTs to the effect that they should use this as part of their ongoing programmes to support diabetes sufferers.
Nevertheless, my Lords, there is some confusion here. NICE has said that self-monitoring blood glucose should be available to all on the basis of individual need and not on the ability to pay. Yet PCTs in some areas, as we have just heard, are restricting or denying access to that test for type 2 diabetics. Will the Minister therefore tell us whether the next stage will be to deny NHS treatment for diabetes to people using private means to monitor their own blood glucose?
My Lords, the noble Baroness is stretching the points of various debates but the point is well made about local decision-making, which indeed is the point. Blood-testing strips are costly and make up a significant proportion of the total number of diabetes items prescribed. However, notwithstanding my noble friend’s squeamishness, for some people with type 2 diabetes the use of blood-testing strips for self-monitoring will help them to understand how diet, exercise and medication can impact on their glucose levels. Primary care trusts should ensure that where people with type 2 diabetes are self-monitoring they fully understand those results. They do form a part of the free overall care package which includes structured education in this matter.
My Lords, is the Minister aware that high blood sugar can be exceedingly dangerous and trigger a stroke? Can she say why these testing strips are so expensive? My late husband had diabetes, so I know a lot about it. The condition is extremely complicated.
My Lords, I cannot say why they are so expensive, but I will endeavour to find out. They are very important. They are not only about identifying glucose levels but about the whole health of the person with diabetes and all the related ailments that might go with it. The noble Baroness is perfectly right.
My Lords, I declare an interest as having just recently completed my first 40 years as a type 1 diabetic. Does my noble friend take with alarm the report in today’s Times about the high incidence of diabetes in children? Does she further recognise the important role of specialist diabetic nurses who advise on the regime that we diabetics observe and who can give advice on monitoring systems? Given the news that diabetic specialist nurses have on average some 300 patients when the ideal number is 70, is she not worried about advice for diabetics on maintaining good, healthy regimes?
My Lords, given my noble friend’s youth, he will know that managing diabetes in children is much more complex than it is for adults. The role of specialist nurses is important. We have urged PCTs to recognise the importance of specialist diabetes teams, including specialist nurses, and the role that they play in reducing hospitalisation and improving outcomes and the support that they can give to young people and their families and carers in enabling them to handle the complex juggling act that is required to manage their condition.
Business
My Lords, with the leave of the House, we will have two Statements repeated this afternoon. The first is entitled “European Council” and will be repeated by my noble friend the Lord President at a convenient point after 3.30 pm. The second is entitled “Zimbabwe: Elections” and will be repeated, immediately after the first Statement, by my noble friend Lord Malloch-Brown.
Economic Affairs Committee
My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That Baroness Hamwee be appointed a member of the Select Committee in place of Lord Oakeshott of Seagrove Bay, resigned.—(The Chairman of Committees.)
On Question, Motion agreed to.
Rail Vehicle Accessibility (Interoperable Rail System) Regulations 2008
My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft regulations laid before the House on 21 May be approved. 21st report from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 17 June.—(Lord Bassam of Brighton.)
On Question, Motion agreed to.
Proceeds of Crime Act 2002 (Disclosure of Information) Order 2008
Serious Organised Crime and Police Act 2005 (Disclosure of Information by SOCA) Order 2008
Immigration and Nationality (Fees) (Amendment No. 2) Regulations 2008
My Lords, I beg to move the three Motions standing in the name of my noble friend on the Order Paper.
Moved, That the draft orders laid before the House on 12 and 14 May be approved. 20th and 21st reports from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 17 June.—(Lord Davies of Oldham.)
On Question, Motion agreed to.
Climate Change and Sustainable Energy Act 2006 (Sources of Energy and Technologies) Order 2008
My Lords, I beg to move the Motion standing in the name of my noble friend on the Order Paper.
Moved, That the draft order laid before the House on 15 May be approved. 21st report from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 17 June.—(Lord Davies of Oldham.)
On Question, Motion agreed to.
Ministerial and other Salaries Order 2008
My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft order laid before the House on 2 June be approved. 21st Report from the Joint Committee on Statutory Instruments, Considered in Grand Committee on 17 June.—(Lord Davies of Oldham.)
On Question, Motion agreed to.
Pensions Bill
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved accordingly, and, on Question, Motion agreed to.
House in Committee accordingly.
[The LORD SPEAKER in the Chair.]
Clause 13 [Review of qualifying earnings band]:
moved Amendment No. 43A:
43A: Clause 13, page 7, line 7, at beginning insert “In addition to fulfilling the duties under section 5 of the Pensions Act 2007 (c. 22),”
The noble Lord said: This is a paving amendment, and quite deliberately so. Restoring the broken link between national average earnings and the basic state pension is at the heart of the Bill and must be the bedrock of any national consensus on pensions after the Turner report. It is so easy to get lost in the trees of detail on the Bill, but the basic state pension really is the wood.
Amendment No. 43A is a paving amendment for the substantive one, Amendment No. 136, which ensures that the earnings-link section from last year’s Pensions Act comes into force no later than 1 April 2012. That section requires the Secretary of State to review the basic state pension, the standard minimum guarantee in state pension credit, and widow’s pension and widower’s pension in industrial death benefit to determine whether they have kept their value in relation to the general level of earnings; and, when he considers that the level of earnings has increased during the review period, to lay a draft of an uprating order before Parliament increasing the amounts by a percentage that is not less than the relevant increase in earnings over the review period.
The basic state pension has fallen in value so far over the past 30 years that pensioners have been forced into a means-test maze that destroys incentives to save for old age. We all agree that we must stop that rot. The Government want to bring in personal accounts and automatic enrolment for millions of pension savers in April 2012, but refuse to make a commitment to keep their side of the pension bargain. They say that the earnings link will be restored between April 2012 and April 2015,
“subject to affordability and the fiscal position”.
If you are one of the 1.25 million pensioners in the UK living officially in severe poverty, the 2.25 million pensioners in poverty or the 1.5 million pensioners in fuel poverty, you cannot say that you will pay your gas bill or buy your next half a dozen eggs or pint of milk,
“subject to affordability and the fiscal position”.
You need the money to survive now. The Government must stop hiding behind weasel words to wriggle out of making a firm commitment even to bring back the link in four years’ time.
Of course, that is in the far from certain event that this Government will then be in power, so the attitude of the Conservatives to the amendment is of more than academic interest. In the Commons, and again in this place, they have tabled an amendment asking the Government effectively to say where they stand. That is fine so far as it goes and we will support it, but is it not the height of hypocrisy for a party that seeks to be taken seriously as the next Government to challenge this Government on when they will restore the earnings link without answering the same question themselves? Even if their Front Bench feels unable to support our simple amendment, I hope that Conservative Back-Bench Peers—I do not see many of them at the moment—and Peers from all round the Committee will feel able to join us, as they did last year on the amendments tabled by the noble Baroness, Lady Hollis, to give pensions justice to women.
It is no surprise that Help the Aged, in its excellent Spotlight report on pensioner poverty, points out that lack of money bars a large minority of the population from enjoying many of life’s pleasures. Nearly one in seven pensioners in the UK has not had a meal out for more than one year; about one-third of pensioners have not had a holiday in the past five years; and more than half believe that an extra £5 a week could make a real difference to their lives. Pensioner poverty is getting worse. Means-tested benefits are not getting through to about two in five pensioners who are entitled to them. It is high time for us to set a firm date to protect the basic state pension. I beg to move.
I am not one to resist a challenge, especially from the noble Lord, Lord Oakeshott. My first reaction to this amendment is that it is starred; in other words, it was put down at the last moment before the Marshalled List was assembled. Although I have a complaint on the amendment, it is not for that reason. I can hardly object to starred amendments when my noble friend Lady Noakes and I have put down some ourselves, which we hope will be debated today. We will see how the day pans out with the Statements and anything else that may occur. I note too that the Minister has littered today’s Marshalled List with amendments over and above those on the first Marshalled List, although, admittedly, none of those appeared to be starred when I glanced through them this morning.
My complaint is that this is a totally unnecessary paving amendment for Amendment No. 136. The noble Lord, Lord Oakeshott, might have said, although I do not think that he did, that the reason for this amendment is that Amendment No. 136 will come so late in the Bill that he would not be able to divide on it successfully at what may well be late at night. I do not know whether he intends to go to a vote now, although as a former Whip I am more than suspicious. The Government have said that they fully intend personal accounts to come into operation in 2012, which I assume means at the beginning of the financial year 2012-13. I should be grateful if the noble Lord could confirm that this is a correct interpretation of events to come.
This Committee can be in no doubt that two things are inextricably entwined with personal accounts. The first is the freezing of the second state pension; the second is to uprate the state basic pension by earnings rather than the RPI. Last year, in our debates, the Minister said that the latter would be done during the next Parliament. But the noble Lord, Lord Oakeshott, is right. No date was set and, although he and I tried to firm this up, we failed for the very good reason that no one could know when in the next Parliament such a commitment would be affordable. I was eventually, and am now firmly, persuaded of this.
Since last July when the 2007 Bill arrived on the statute book, the nation’s finances have gone from bad to worse. Not only have the Government had to bail out Northern Rock, we have also seen the fiasco of them seeking to remove the 10 per cent income tax band. They have had to increase the upper earnings limit of national insurance and have brought forward the freezing of the second state pension, which, I might remind the Committee, was supposed to help pay for the uprating of the basic state pension by earnings.
Not only that, but in order to do anything extra—equipment for our troops in Afghanistan, more money for local authorities and housing associations’ social housing schemes or the National Health Service—the Government’s only recourse seems to be to borrow yet more money. Why do Labour Governments—there have been two while I have been in your Lordships' House—always finish their term in government with huge borrowings, which then take many years for a Conservative Government to get down again to a realistic level? That is exactly the case today, but we must wait for perhaps as long as two years for a general election before we can start to repair the damage that has been done to the British economy. I defy the Minister to repeat the words of the late Lord Callaghan, “Crisis, what crisis?”.
Having got that off my chest, it is a fact that no one in any party or none—even the noble Lord, Lord Oakeshott—knows when it will be possible to afford to uprate the basic state pension by earnings. Somehow, though, by hook or by crook, there is a commitment by this Government, in the rather unlikely event that they are still in power, to do it by the end of the next Parliament. I have to say to the noble Lord, Lord Oakeshott, that to put a date on it that may possibly be even in this Parliament is just not on.
The noble Lord challenged me to give a commitment on behalf of my party that we would uprate by earnings. I have to remind him that in the last Conservative manifesto we did indeed give that commitment. I cannot say exactly when that will be—that is the whole point of my complaint about the noble Lord’s amendment—for the simple reason that it will be some time before we are allowed by the conventions to look at the full Treasury figures. At that point we will be able to make a decision and I am sure it will be announced then.
For all these reasons, I cannot support this paving amendment or Amendment No. 136.
As my noble friend the Minister will be aware, I have long supported the idea that the basic state pension should be increased via the wages index. I and a number of other colleagues raised the issue at Second Reading. We received a fairly firm assurance from our Front Bench that the Government were committed to paying the increase via the wages index with effect from 2012. I would have liked it paid immediately but nevertheless we did have an assurance from the Front Bench and I was prepared to accept that in the prevailing circumstances and I am prepared to accept it again. I want the wages index to be used as soon as possible. We did have that assurance, however, and I am prepared to accept that.
No one doubts the Government’s intention to restore the link with earnings. Indeed it is enshrined in statute already, as my noble friend has said. However, a legitimate question for Parliament and the public to ask is “When has a Government promise been fulfilled?” Is it when the promise is enshrined in statute? Is it when the relevant section of an Act has been triggered by the publication of a statutory instrument bringing the promise into operation? Or is it when the Government have announced a firm starting date? In the other place the Minister said that the Government’s objective was,
“subject to affordability and the fiscal position”,
to restore the link in 2012 or by the end of the next Parliament at the latest. However, this still leaves pensioners, current and future, in the dark. I urge the Government to take this opportunity to put the matter unequivocally beyond doubt.
I should like to support my noble friend Lord Oakeshott. Amendment No. 136 and the paving amendment that stands with it in this group relate to one of the most important aspects of the Bill—the long-term incomes of pensioners. More than any other group in the country, pensioners are affected by uprating policy because they are exposed to it for longer. I have often felt that the ramifications of upratings policies across the benefits field are not given the degree of care and attention that they should be given by the House of Commons and by your Lordships’ House. From year to year, although the changes may be apparently slight in terms of the figures of the annual increases, over periods of time they have profound effects on policy. The most important thing Mrs Thatcher’s Conservative Government did in relation to benefits was to de-link the pensions uprating from earnings in 1981. By a margin, it was the most important thing done by that Government.
I want to clothe my noble friend’s robust and sound arguments with one or two examples of what can happen over a spread of years. For example, if the 25 pence age addition that 330,000 pensioners who reach the age of 80 each year are blessed with—the 25 pence that was first introduced in 1971—had been uprated in terms of earnings since 1971 it would now be worth nearly £5 per week. As my noble friend rightly pointed out, the evidence is that £5 a week would be worth having if you were 80 and reliant on benefits; in that case, people would welcome such a pension addition.
Let me give two other figures at random to illustrate how big an impact this would have. Between 1997, when the Labour Government first came into office, and 2008—roughly 10 years—the retail prices index went up by 37 per cent. Over that same period, the pension level went up by 45 per cent, but the increase in average earnings was 54 per cent. Translated into a single pension, that is £5.60 per week—again, an increase of £5 per week had uprating been linked to earnings during that period. That is £290 per year. The Prime Minister would need to go about the United Kingdom making special one-off payments of £200 a year for fuel and £200 for health checks for young people if there were consistent benefit policies that uprated the benefits available to people in relation to the increase in earnings and not, as happens currently, to the RPI.
Let us look at the broader sweep. If the basic pension had kept pace with average earnings since 1980, it would have amounted to £137 per week for a single pensioner. That is nearly at pensioner credit levels. We could deal with all the means-testing difficulties that we have rehearsed over many debates. That sum is calculated in a recent publication by the Joseph Rowntree Foundation called The Impact of Benefit and Tax Uprating on Incomes and Poverty, which I commend to the department and the Minister as making instructive reading.
For the reasons I have outlined, the uprating policy can, over a period, have a dramatic impact on pensioner poverty and across the whole benefits structure. The noble Lord, Lord Skelmersdale, is right to be careful about the cost of such a change; it would not be cheap and would involve making a principled decision about whether to allow pensioners to share in the increasing prosperity of the nation. The Rowntree Foundation report makes the very positive suggestion that we should be looking at some of the increases that fiscal drag brings into the Treasury over these periods; where the tax thresholds are not indexed to the same extent and more people are brought into taxation, the Exchequer benefits. The report makes some compelling calculations which demonstrate that there is some comfort for the noble Lord, Lord Skelmersdale, and others who rightly think that this has to be paid for and that the money cannot just be conjured out of thin air.
This is one of the most important amendments to the Bill and one of the most important debates. I encourage my noble friend to seek what comfort he can from all sides of the Committee, but I would press the amendment to a Division at some stage in our proceedings; it is a core issue which needs to be decided. People need to be asked on which side of the divide they stand. I do not think it is fair to do anything other than attach the uprating to average earnings in April 2012—nothing less will do.
Earnings uprating was a key issue of discussion on the last Bill and is essential to the reforms to state pensions made in the Pensions Act 2007. The reforms already made, to which earnings uprating of the basic state pension is fundamental—we agree on that—will provide a more solid foundation on which to make private pension saving. I am not surprised, therefore, that this subject remains an area of interest in this Bill.
The two amendments under discussion relate to earnings uprating and the annual review of the qualifying earnings band. Amendment No. 43A would tie the annual review of the qualifying earnings band set out in Clause 13 with the annual review of the basic state pension and other amounts once earnings uprating is introduced. Amendment No. 136 would ensure that earnings uprating of the basic state pension happened no later than April 2012, as we have heard.
The amendments provide me with a further opportunity to set out the Government’s commitment on earnings uprating and how that will be carried out. My honourable friend the Minister of State for Pension Reform said in the other place:
“Let me put beyond doubt our commitment to reinstate the link. That is not just my guarantee; there is a legal obligation, and we will stick to it”.—[Official Report, Commons, 22/4/08; col. 1252.]
We have legislated to restore the earnings link to the basic state pension in the Pensions Act 2007. In fact, Section 5 was brought into force by Section 33 of that Act. During the next Parliament, we will link the uprating of the basic state pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do that in 2012, but in any event by the end of the next Parliament at the latest. Let me make it clear: our aim is to restore the link in 2012. That timing strikes a balance between making reforms that are affordable in the long term and tackling the problems identified by the Pensions Commission. The commission’s view is that a short delay in introduction, from 2010 or 2011 as originally suggested, would not unduly affect outcomes or undermine the overall thrust of our reforms.
The current arrangements allow for some flexibility on timing. If, for example, economic conditions prove uncertain, we have some flexibility to consider timing and affordability in light of the circumstances. That is nothing more than a sensible safeguard. Understandably, noble Lords, like many others, are keen to find out the timing of the earnings link as soon as possible. To that end, we will make an announcement, as we have said before, on the precise date at the beginning of the next Parliament.
On the process for earnings uprating, Section 5 of the Pensions Act 2007 sets out the arrangements to be followed in determining whether pension amounts have retained their value in relation to the general level of earnings. That requirement and the subsequent arrangements for uprating these amounts will be carried out as part of the annual process for uprating pensions and benefits. Those arrangements were debated in depth during our consideration of the previous Bill.
The amendments are not needed to strengthen the commitment on earnings uprating or the arrangements in place to carry it out. We have been clear in setting out our commitment on earnings uprating as part of a complementary package of reforms that follow the thrust of the Pensions Commission’s proposals to develop a solution for the future. Earnings uprating of the basic state pension will happen by the end of the next Parliament at the latest. However, our objective remains for the link to start in 2012 and we continue to plan on that basis.
The noble Lords, Lord Oakeshott and Lord Kirkwood, suggested that we have not done anything to support pensioners since 1997, but our strategy since 1997 has been to target help on the poorest pensioners while providing a solid foundation of support for all. In fact, we are spending around £12 billion more on pensioners in 2008-09 than we would have been had the 1997 policy continued. Around half of that extra spending is going to the poorest third of pensioners. Today, no single pensioner has to get by on less than £124 a week, compared with just £69 in 1997, which is a rise of over a third in real terms. Pension credit has been upgraded in line with earnings since it was introduced in October 2003. In April 2008, it increased by more than earnings. Since 1996-97 all pensioners have seen similar rates of income growth. Net pension incomes have increased by 29 per cent since 1997 and all pensioners have seen similar rates of income growth. That is in contrast to 1996-97, when the incomes of the richest pensioners grew much faster than the incomes of the poorest. We have put in resources, particularly in seeking to protect the poorest pensioners.
The noble Lord, Lord Skelmersdale, asked about the introduction of personal accounts in 2012. We debated that point last week. I confirmed that 2012 is still the year in which we are planning for their introduction. We have not given a precise date within that year, as there is clearly a great deal of work to be done. As we discussed, Tim Jones did an update on the timing and his report was put in the Libraries of both Houses.
The noble Lord said that we had brought forward the flat rating of S2P. We have not. The changes that we are making via the National Insurance Contributions Bill are to make sure that the flat rating of S2P keeps on track to where it was designed to finish and to take place when the pensions proposals were put together. The noble Lord berated this Government for their borrowing, but I believe that this Government’s economic record bears strong comparison with that of their predecessor. My noble friend Lady Turner gave her support to linking the basic state pension with earnings as quickly as possible. I acknowledge that she has been a long-standing campaigner on this issue.
We could debate endlessly the challenge that the economy faces and the Government’s record, of which I am proud. However, we do not need the amendments because we have already set down clearly in legislation our determination to relink the basic state pension with earnings. The amendments are unnecessary and I ask noble Lords not to press them.
I thank all Members of the Committee who have spoken in this short but crucial debate. I accept that legislation has been passed to restore the earnings link, but how do we ensure that that happens and when? The Minister says that we may have to wait seven years, but that is far too long. Millions of pensioners do not have flexibility on that because they will not still be alive when that day comes.
The noble Lord should know better. It is not fair to say that my noble friend Lord Kirkwood and I were saying that the Government have done nothing for pensioner poverty. We accept that they have done a great deal. We were pointing out that, despite all the money that has been spent, many pensioners are still falling through the means-test net and many are still in poverty. That was the substantive point that we were trying to make. As long as the basic state pension continues not to be linked to earnings, that situation will grow worse. As we all know, pensioner poverty on the Government’s official figures grew worse last year, so the policy is not working.
In response to the points made by the noble Lord, Lord Skelmersdale, I say that we have moved this paving amendment today because we do not want an issue of this importance to be considered late at night with few Peers here. We want to have the debate now. On the question of commitments, when George Osborne became shadow Chancellor, the first tax pledge that he made was to abolish stamp duty on share dealing in the City. Pensioners will notice that the Conservatives have the money to pledge a £4 billion a year handout on share dealing but are not prepared to pledge a penny to give a firm date for restoring the earnings link.
I thank my noble friend Lord Kirkwood for his encouragement to test the Committee’s opinion, which I had every intention of doing. I should like to do so now.
[*See col. 1264]
I beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
European Council: 19-20 June 2008
My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Prime Minister. The Statement is as follows:
“With permission, Mr Speaker, I would like to make a Statement about the European Council held in Brussels that I attended with my right honourable friend the Foreign Secretary on 19 and 20 June.
“The main business of the Council on Thursday and Friday evening was to focus on the economic challenges ahead: the triple challenge of rising oil prices; rising food prices; and, because of the credit crunch, the rising cost of money; and in the wake of the US downturn, measures to keep the European economy moving forward. Important conclusions were also reached on the Irish referendum, climate change, the millennium development goals and the European response to the deteriorating situation in Zimbabwe.
“On Thursday evening in the discussion on the Irish referendum vote, the Irish Taoiseach, Brian Cowen, offered to the Council meeting in October a report on the next stage for Ireland. The Council agreed that other member states should continue with their ratification process, and I was able to report for the UK that, as with 18 other countries, the Lisbon treaty had completed its parliamentary process and that the Bill had received Royal Assent on Thursday. Once we have received the judgment in an ongoing legal case, we will move to ratification.
“This time last year, the price of oil was around $65 dollars a barrel. At the previous EU Council in March, it stood at $107 dollars a barrel, and at the June Council, the oil price had risen further still to more than $135 dollars a barrel. The global challenge that we face is a rising demand for oil, particularly from China and the other emerging economies now and into the future, which has so far been only partly met by an increase in supply, driving up fuel bills for families across the whole of Europe. Governments are taking action domestically to help, but we know that these are ultimately global problems requiring global solutions. The shared European view is that we must take action to reduce our dependence on oil and to improve our energy efficiency.
“The new technology of carbon capture and storage will help us continue to use coal, oil and gas in a way that avoids harmful carbon emissions. So earlier this year we reiterated our commitment to move forward with up to 12 commercial-scale carbon capture and storage plants in place by 2015, and last week, accepting UK arguments about the importance and urgency of this, the Council called on the Commission to bring forward an incentive mechanism to achieve this goal.
“Transport will account for two-thirds of future increases in oil demand, so improving fuel efficiency and exploring alternatives to petrol and diesel is essential. To incentivise innovation among car manufacturers, the UK will continue to push for a definitive commitment to an EU-wide car emissions target of 100 grams per kilometre by 2020, down from 160 grams, and a 40 per cent reduction on levels today, saving the typical British family around £500 a year in fuel costs.
“At Britain's urging, the Council also agreed to explore the scope to accelerate the introduction of commercially viable electric vehicles, and the infrastructure that their widespread use would require, in the European Union. Generating the electricity needed for electric cars is significantly less carbon- intensive than using oil. With almost all major car manufacturers, including UK-based ones, now close to developing commercially viable hybrid and electric vehicles, they have the potential not only to reduce our oil dependency and carbon emissions but to create thousands of jobs in Britain's automotive industry as well.
“All these measures will help to meet our overall EU target of reducing carbon emissions by 20 per cent by 2020, or by 30 per cent as part of a wider international agreement, but these decisions are made in the context of a dialogue between oil producers and consumers where both commit to greater transparency and a better balance between supply and demand.
“The Council welcomed Saudi Arabia's high-level meeting between oil producing and consuming states that I attended in Jeddah this weekend, and I am today writing to all European leaders informing them of the results of the Jeddah process, which will lead to a follow-up summit in London later this year.
“I can tell the House today that the Jeddah summit discussed measures to deliver a more sustainable global oil price, reduce the risks and uncertainties that can increase prices and ensure greater investment in new oil production, as well as in energy efficiency and alternatives to oil.
“I proposed that Britain and other oil consumers should open up our markets to new investment from oil producers in all forms of energy, including renewables and nuclear, providing oil producers with a long-term future in non-oil energy. In return, oil producers should be open to increasing funding and expertise in oil exploration and development, through co-operation with external investors and providing increased oil supply in the medium term, while growing economies adjust to a less oil-intense long-term future.
“I turn now to the related problem, also discussed by the Council, of high global food prices and the need to do more to combat price inflation. The prices of rice and wheat are now double what they were only a year ago. Higher food prices cause concern to many of us here at home, but in poor countries, where food often accounts for more than half a family’s spending, they can be even more devastating.
“So to tackle rising prices both here and overseas, and to help boost agricultural production, the Council agreed to implement the conclusions of the Rome food summit earlier this month. The EU also agreed to assess the evidence on the indirect impacts of biofuels. The UK’s Gallagher review of the indirect impacts of biofuels, which is due to report shortly, will be part of this process.
“We committed to work towards a successful outcome to the Doha trade round, where eliminating trade-distorting subsidies and import restrictions could increase global GDP by as much as $300 billion a year by 2015. This is something that I have discussed with President Bush, President Lula, Chancellor Merkel, President Barroso, other world leaders and trade commissioner Peter Mandelson in recent days, and I believe that, while we are at the eleventh hour, a deal is within our grasp.
“The EU must also take tough action on elements of the common agricultural policy that raise the cost of food for consumers across Europe. Removing incentives for taking arable land out of production, for example, could reduce EU cereal prices by up to 5 per cent. The Council agreed to re-examine the issues of fair competition and sustainable agriculture.
“As part of this year of action on the millennium development goals, and ahead of the G8 in July and the United Nations meeting in September, the European Council signed up to an agenda for action that reaffirms EU aid targets and sets specific milestones to be achieved by 2010. On education, there will be increased EU investment of €4.3 billion to recruit 6 million more teachers globally. On health, there will be an extra €8 billion to help to save another 4 million children’s lives and to provide for 75 million more bed nets in Africa. I will be pushing the G8 in July to ensure we have the 120 million nets that we need so that every child and family in the world is able to sleep safely at night.
“The Commission has also agreed to establish pioneering millennium development goal contracts, linking EU spending on aid to specific outcomes by developing countries. I am pleased to announce a British contribution of £200 million to be channelled through this new mechanism.
“The Council also discussed the deteriorating political and humanitarian situation in Zimbabwe. In recent weeks, under Robert Mugabe’s increasingly desperate and criminal regime, Zimbabwe has seen at least 84 killings, 2,700 beatings, the displacement of 34,000 people and the arrest and detention of opposition leaders, including Tendai Biti and Morgan Tsvangirai.
“In the face of this unacceptable situation, the European Council reiterated its readiness to take further measures against those responsible for the violence. We will seek to impose travel and financial sanctions on those in the inner circle of the criminal cabal running the regime. The House knows that since the Council met last week the situation has deteriorated further still. As a number of African presidents and prime ministers have already stated, the regime has made it impossible to hold free and fair elections in Zimbabwe, and state-sponsored terror and intimidation have put the opposition in an untenable position.
“Our thoughts are with the people of Zimbabwe, who are facing an unprecedented level of violence and intimidation from this regime. The world is of one view; that the status quo cannot continue. The African Union commission has called for violence to end. The current Government—with no parliamentary majority, having lost the first round of the presidential elections and holding power only because of violence and intimidation—are a regime that should not be recognised by anyone. The UN Security Council will meet today, and the Foreign Secretary will make a detailed Statement in a few minutes, after discussions he, I and the Minister for Africa held with African leaders today.
“SADC and the African Union leadership should meet to discuss the emergency. We understand that there are plans for SADC to meet very soon and we support the plans for that happening quickly. We urge that SADC’s observers’ evaluations of the seriousness of the situation on the ground be made public. We urge that the UN and the African Union work together with SADC to send envoys and a mission to Zimbabwe to discuss the situation on the ground and the way forward. We believe that the UN envoy should be allowed to return. The international community must send a powerful and united message; that we will not recognise the fraudulent election rigging and the violence and intimidation of a criminal and discredited cabal, and that we are ready to offer help to the reconstruction of Zimbabwe once democracy has been restored.
“The Council also expressed its ongoing concern about the humanitarian situation in Burma in the aftermath of Cyclone Nargis, and called for a return to democracy and the immediate release of Aung San Suu Kyi and all other political prisoners. We made clear our continued determination to play a leading role in ensuring peace and stability in Kosovo. Our national interest remains a strong Britain in a strong European Union, and we will continue to focus on an outward-looking European agenda that tackles effectively the issues that affect us all: the global financial crisis; the rising cost of food and fuel; combating climate change; and supporting people in the poorest countries in the world. That is what the Council did at its June meeting, and that is what this Government will be doing in the run-up to the French presidency in July. I commend the Statement to the House”.
My Lords, that concludes the Statement.
My Lords, I thank the noble Baroness the Leader of the House for repeating the Statement.
When the Prime Minister arrived at the summit he was greeted as saviour of a treaty that he was ashamed to sign with others only a few months earlier. No doubt on this occasion he enjoyed being popular; but how can we possibly expect any clarity or consistency of purpose against such a background? It was clear in your Lordships’ House last week the course that the Government have set. They have ruled out declaring the Lisbon treaty dead. They have ruled out the referendum they once promised, even now that the only people in Europe allowed to vote have rejected the treaty. The Government have lined up with those pressing for an unchanged treaty, thereby bullying and cajoling the Irish people to change their vote. They have ruled out Parliament having any lock on what may now be cooked up in the EU to get round the Irish vote. Those are four critical choices, and four wrong choices. The Government are stubbornly clinging to a European past, when what we need is to chart out a new course for a more open, less regulatory European Union.
We were told in this Chamber last Wednesday by the noble Baroness that we had to sign away our freedom of manoeuvre and ratify the treaty in order to secure more influence in last weekend’s talks. That sounded then like an insider illusion, and now it is shown to have been an insider illusion. Not a single change is signalled in 25 pages of conclusions. Instead the communiqué talks arrogantly of,
“continuing to deliver concrete results in the various policy areas of concern to the citizens”.
That, of course, does not include the citizens of Ireland.
So, work goes on—on the European External Action Service, on the borders agency, on a common European asylum system, and so on. But perhaps the noble Baroness can tell us the legal basis for such work. Is there one? Can she give us one feature of the Lisbon treaty that she would like to see modified in the negotiations following the Irish vote?
When will the Government and those in Brussels see that nothing divides the European elite from its people more than the repeated evidence that whenever they vote no, they are treated as having said yes? Did the Prime Minister by any chance have a bilateral discussion with the Prime Ministers of the Czech Republic and Ireland during the summit? If so, what was his message to the Czech Republic and Ireland?
Can the noble Baroness also explain a number of resolutions in the communiqué? In paragraph 10, it says:
“Modern technologies must be harnessed to improve the management of external borders”.
It talks of,
“legislative proposals on an electronic system for travel authorisation”.
In paragraph 15, it invites the Commission,
“to present possible solutions for the long-term management of large-scale IT systems in the areas of Freedom, Security and Justice”.
What technologies are those? Is it the taking of DNA? Is it mass fingerprinting, or iris records? Are the Government seriously proposing that UK citizens should get EU computer authorisation before being allowed to travel? If it does not mean that, what on earth does it mean? What is the large-scale IT system proposed? Perhaps it is a Euro-ID card. Should not the Government sort out the handling of top secret data on al-Qaeda before they even contemplate European-wide databases on our own citizens?
The Government invited the EU Commission, or so it appears, to work on family law and an EU proposal on inheritance and wills. The English law of property succession is substantially different from that of most European countries. What benefit for us can come from a common approach here? Can the noble Baroness assure the House that the Government will veto any proposal—that is, if we still can—for a common EU policy on inheritance tax?
There are fine words about the troubling rise in food prices. But is not the truth that there has been a dismal failure to act on free trade or reform of the CAP, something for which the Government gave away £7 billion of British taxpayers’ money and got nothing in return? Can the noble Baroness tell the House of one reform in the CAP, however modest, that was agreed last weekend?
The EU has been one of the prime cheerleaders of the race into biofuels, an acknowledged factor leading to food price increases, disastrous rain forest destruction and food shortages. Last weekend, the summit said that there is now a need “rapidly” to reassess this. What is the UK Government’s policy on this? Should more biofuels be planted, or less? Can the noble Baroness tell us?
We welcome the fine words on the problems of rising energy prices, and indeed the Prime Minister’s efforts in Saudi Arabia, but is not the truth that the UK Government and the EU have wasted the past 10 years in ensuring future energy security? What is the Government's best forecast for the price of oil and gas six months out as a result of the weekend's initiatives? If it helps the noble Baroness—she is, I know, no great expert on this—I would settle for an answer saying whether it will be up or down. If they acted a bit faster, we would not be in the state we are in.
Finally, although I know that we are awaiting another Statement after this one, I must comment on the shocking situation in Zimbabwe. It shames our Government, shames the EU and shames the dismally weak leadership given by the UN bureaucracy, even before the red-carpet treatment lately given to Mugabe at a UN conference in Rome. It also tarnishes the name of President Mbeki of South Africa, who has walked by on the other side and watched tyranny thrive.
At long last—but when it is far too late, with Mugabe reducing his country to a desert of hopelessness, starvation and torture—we see this subject placed on the agenda for the EU summit. Time and again, we have demanded at this Dispatch Box action on Zimbabwe. Time and again, the noble Baroness and her predecessor, the noble Baroness, Lady Amos, have said that any action would be counterproductive and that there has to be an African solution. Is it not now obvious that wringing our hands in that way has been a political and humanitarian disaster? I welcome the belated words in this Statement but they cannot bring back homes for the exiled, food for the starving, dignity for the beaten or fathers to the orphaned.
The bureaucratic pap of last weekend’s presidency conclusions is dismally behind the game. It is long on regrets and loud on calls but silent on action. Pathetically, 250 fine words boil down to the EU saying it,
“reiterates its readiness to take additional measures against those responsible for violence”.
I bet that that had Mugabe and his thugs shivering in their palaces. Can the noble Baroness tell us one concrete EU step against Mugabe that was agreed at the summit? When will the Government apologise to this House, which has been so tireless in its efforts in the cause of Zimbabwe’s suffering people, for the failure of the UK and the failure of the EU to act earlier and far more firmly than it has done to date? We await the next Statement and hope that it will answer some of those questions.
My Lords, I think that our responsibility today is to discuss what happened at the European Council at the weekend, not to carry on debates that we have had at considerable length over recent weeks.
On the loss of the Lisbon treaty—if it is lost, though we are still a long way from that—we on these Benches hold to our position that it would remove a number of useful improvements to the European Union’s current structures, certainly in foreign policy; in a number of issues in justice and home affairs, such as migration and crime; and in parliamentary scrutiny. Can the Leader of the House say how far some of the discussions we have had on improving national parliamentary scrutiny could, at least as far as the UK Parliament is concerned, be put into operation by this Parliament because they are valuable in their own right? It would be a gesture of confidence in strengthening the role of national Parliaments if the British Government were willing to put into effect some of those improvements in parliamentary scrutiny and to work more closely with other national Parliaments, even while we are waiting to see what may or may not happen with the current amending treaty.
We also recognise that the European Council had to discuss a number of urgent policy issues, whatever the institutional setback. I note with interest that those on the Conservative Benches alternate between discussing how appalling the European Union is and complaining that it has not been effective enough on a range of subjects. On the subject of future oil and energy prices, I read the Financial Times every day and note the range of predictions. Of course, we all expect the British Prime Minister to be far more of a guru than bankers and others who predict prices, and I look forward to hearing what the Government will say.
The Statement said a certain amount about climate change and foreign policy. I was rather puzzled that it did not refer to the eastern neighbourhood policy, on which there is a great deal of work to be done, or to relations with the Mediterranean countries, on which the French have put up some rather badly thought-through proposals. There are real issues at stake with the Mediterranean countries.
I was also disappointed that the Statement does not stress the important work that the European Union is attempting to undertake on migration policy and border management, where there clearly are active British interests at stake since so many migrants who enter the European Union are trying to get to the United Kingdom. The idea of a closer dialogue with sending and transit states is therefore actively in Britain’s interest. As for the issue of family breakdown, divorce law and inheritance law, I am conscious that a number of people, including Lady Meyer, have actively argued that in a world where cross-border marriage and cross-border living are increasingly common, we need more active European negotiations on access to children, divorce law and the like.
We welcome the comments on Doha. One of the things that we on these Benches would like from Her Majesty’s Government from now on is more straight-talking, not only to the British public but to some of the member states, about where interests lie in closer European co-operation. The remarks of President Sarkozy on the Doha round and the role of Commissioner Mandelson were extremely unhelpful. They played to populist French politics rather than constructive European co-operation. The recent remarks of the German Foreign Minister on why we need the European army and why he also wants to cut German defence spending also show the huge gap between the illusions in the debates of other nations as well as our own.
We on these Benches want a Government who not only play an active and constructive role in Europe but explain to their own domestic public the role that they are playing in Europe and to other member Governments the objectives that they think should be European priorities.
My Lords, I am grateful for the detailed questions that both noble Lords have put to me. The noble Lord, Lord Strathclyde, talked in his opening remarks about referendums and the bullying and cajoling of Ireland. All I can do, rather than taking the time of the House now, is refer him to the many, many answers that I gave earlier to these questions. I have done that bit.
It was important to finish our parliamentary process. Noble Lords who had, as I did, the privilege of being part of the debates last Wednesday will know that the House agreed that it was important that our Prime Minister should go into the discussions aware of the British parliamentary view and able to continue some of the detailed discussions to which the noble Lords, Lord Strathclyde and Lord Wallace of Saltaire, have referred today. My right honourable friend did indeed have bilateral meetings with both the Irish and the Czech Prime Ministers to talk about the current European situation and other issues on the European Council agenda. I hope that the noble Lord, Lord Strathclyde, is pleased that he did so.
The noble Lord, Lord Strathclyde, kindly went through a number of issues that were of particular concern. I will try to cover as many of them as possible in the time allotted to me. We have had many discussions both in the committees of your Lordships’ House and on the Floor of your Lordships’ House about data sharing and its relevance and importance to tackling serious organised crime, people trafficking, terrorism and so on, and I will not repeat them. I will say, however, that it is right that the European Union should continue to discuss with its member states how best to ensure that we share information appropriately and with safeguards—this concerns the noble Lord, Lord Strathclyde, as it does us all—to enable us to continue to tackle these important issues.
On property and wills, a relevant issue is understanding that members of our country who choose to own properties in other countries will be subject to the conditions on properties and wills of those countries. Noble Lords who have looked into this will know that there is quite a difference between the property laws and inheritance laws of France and those of the UK. It is therefore right and proper that, without suggesting in any way that we give up anything, we should have dialogue and discussion about how that might work as more and more people from this country choose to buy properties not only in France and Germany but further afield—for example, increasingly in Estonia.
I can tell the noble Lord, Lord Wallace, that we did not opt in to the divorce proposals. As he will know, after extensive consultation with the judiciary, we felt that it was not appropriate to do so because of our unique and distinct system. However, there are issues that we need to discuss, particularly when it comes to children and maintenance. We have signed up to the Hague process, which is very important. We can also veto any inheritance tax suggestions, as the noble Lord says. That, too, is important.
I said in the Statement and I have said before in your Lordships’ House that we have invited Professor Gallagher to review biofuels. I also alluded to this in my answer to questions about the results of the EULAC conference in Peru, which I was privileged to attend on behalf of my right honourable friend. It is important that we look sensibly and sensitively at food and fuel needs. As soon as we have the results of that review, I am sure that we will bring them to your Lordships’ House and another place to discuss them properly.
I will say little on Zimbabwe, as there will be a full Statement by my noble friend, who has led and discussed these issues right the way through the process that we are engaged in. I understand that he has been in discussion with other leaders today. I do not accept the tone of the suggestion made by the noble Lord, Lord Strathclyde, that somehow this Government have not done enough. I hesitate to ask but I am interested to know exactly what the noble Lord thinks that we should have been doing. To solve this problem, we have to work in partnership with the European Union. I take the point made by the noble Lord, Lord Wallace, about the number of times that opposition Members in both Houses have said, “We don’t like the European Union that much but, when it comes to these issues, why are you not doing more together?”. The action that we are seeking to take is the most effective that we can find. However, we all recognise how desperate the situation is. My right honourable friend the Prime Minister has done everything that he can think of. He continues on a daily basis to concern himself with trying to find ways of tackling these issues and—with support from the European Union and other world leaders—to put pressure on Zimbabwe to try to resolve this as peacefully as possible.
The Council conclusion makes it clear that we need further reform of the common agricultural policy to continue to improve the market orientation of agriculture. The budget review will also look at the CAP. The noble Lord, Lord Strathclyde, is right that there is more to be done. We need to make sure that there is pressure to do that, but it is clear from our perspective that we wish that to happen.
There is—I address this point to the noble Lord, Lord Wallace, in particular—a reinvigoration of what is called the Barcelona process for a union of the Mediterranean. I hope that we will see that work continue. We are pleased that the proposals on the eastern partnership are included in the conclusions. We are in favour of improvements to partnerships with all our European neighbours. This will help to balance the outreach south through the French-proposed Mediterranean union. I hope that the noble Lord will welcome that and see it as a greater benefit.
Finally, I agree with the noble Lord, Lord Wallace. We talked quite a lot during the passage of the Bill about the fact that it is important to explain properly the work of the European Union, particularly where concerted action can play an important role. I am thinking not only about issues that affect us all across the European Union, such as those that I have already discussed, including serious and organised crime and so on, but about those areas that enable our citizens to live, work, travel and study in the European Union and enjoy the benefits of so doing.
My Lords, the Statement covers many issues but I will just ask my noble friend about oil. I will not, unlike the noble Lord, Lord Strathclyde, ask her what she thinks the price will be in six months or even six days, because I doubt whether she, or anybody else, really knows at the moment. However, I gather that at Jeddah there was some difference of opinion about whether at least an element of the huge increase in the price of oil was caused by speculation. I understand that the Government themselves are not of the view that there has been speculation. While I doubt whether it would have been wholly the cause, does my noble friend have any evidence on whether speculation has or has not been part of the cause of the increase in the price?
My Lords, the critical issue is that we stay vigilant in this country and have the right approach to ensure that financial investment takes place with the right level of transparency. That is critical to the point that my noble friend is making. Across Europe there is an issue of looking at the regulatory approach to the commodities and derivatives markets, which again may have an impact on the issue that my noble friend raises.
My Lords, I want to ask about the aid programme. In the announcement that the noble Baroness made about the agenda for action, her first paragraph on education can be read in two ways. The phrase,
“increased EU investment of €4.3 billion”,
can be read as increased by €4.3 billion or increased to €4.3 billion. That is a significant difference and I would like to know which is the case. Secondly, we come to health and the €8 billion. Is the investment programme as a whole a net grant, or are we, as has happened in the past, being given figures that include soft loans that have to be repaid or grants that can be made only if they are spent in the donor community or country? Are the figures that she gave inclusive of what is intended for Zimbabwe or in addition to it? On the question of net grant or soft loan, how will the British contribution of £200 million be denoted? Will it be a straight grant or some other form of money? Perhaps she will write to me.
My Lords, inevitably the noble Lord has asked some detailed questions, to which I do not have all the facts at my fingertips. I shall write to him, particularly on how our additional £200 million is used, as I suspect that it may still be the subject of discussion to see how it would be most effective. My understanding is that the totals include Zimbabwe. However, depending on what happens, there is an additional commitment in the Statement to look further at what might be done. I will wait for my noble friend to talk further about that in the context of his Statement.
My Lords, I declare an interest as the secretary of the All-Party Group on Croatia, because I will ask a question about enlargement. The presidency conclusions contain four and a half pages devoted to the western Balkans, including a detailed two-page declaration as the only annexe to the conclusions. However, there is no mention of Croatia. Before the Council met, the Commissioner in charge of enlargement, Olli Rehn, said that the result of the Irish referendum would have no effect on progress towards further enlargement. However, it appears that both France and Germany contest that and say that there can be no further enlargement until the necessary institutional reforms have been put in place to accommodate it.
Croatia has made significant progress in its negotiations towards accession and is now close to it. It is far ahead of any of the other western Balkan states. Would it not send a negative message to the whole region if Croatia’s progress to accession were put into cold storage or blocked at this stage? The Government may have taken a position on that; I wonder whether they have. Do they agree with France and Germany or feel that the negotiations should stay on course now that Croatia has come so close to accession? Maybe the noble Baroness the Lord President would prefer to write to me if she does not have the answer, but it is an issue on which we would like clarification.
My Lords, I shall be as clear as I can. As the noble Lord says, the Irish voting no should have no impact on the progress on technical negotiations for Croatia or for anybody else. Croatia set a target to complete negotiations in 2009; that target has been acknowledged by Commission President Barroso. I think—it is also the Government’s view—that enlargement is the greatest success of the European Union. We all know that it is an effective lever for peace and prosperity in the western Balkans and for a Turkey that is a partner in reform and positive regional influence. I hope that that says enough for the noble Lord to be in no doubt of the UK Government’s position on the issue.
My Lords, the penultimate paragraph of the Statement states that the European agenda,
“tackles effectively the issues that affect us all: the global financial crisis; the rising cost of food and fuel; combating climate change; and supporting people in the poorest countries in the world”.
Are not all those issues real ones for real people, whether in Ireland or in Burton upon Trent? However, it is difficult to get people to understand why the EU is relevant. If one could take party politics out of this, would there not be a strong case for doing more to explain to people why this is true? We have not succeeded in doing that. I do not think that this should be a party-political matter, but is it not incumbent on us to say why that statement is very true?
My Lords, my noble friend is absolutely right. One of the issues that arose during the discussions on the treaty was how best we could make sure that people understand the benefits of our membership of Europe and the benefits of being able, as 27 countries—and, we hope, eventually more—to work collaboratively together, whether that be around issues such as trade and development or around issues of justice and security.
My Lords, I was interested in the mention of the CAP and the sweeping away of all the restrictions that have been imposed for the past 20 years. That would be easy to do, but the CAP could be extremely useful and could do a very good job for something else. If it rains over the great plains of Australia, China or wherever, there will be surpluses of grain. Under the CAP, there is a lot of storage. To buy in times of surplus and to release in times of shortage would be a good function to promote.
My Lords, the noble Lord puts forward an interesting idea, of which I shall make sure that my colleagues in Defra are aware.
My Lords, I refer the noble Baroness to one sentence in the Statement. She said that the Government have not yet received a judgment in Mr Stuart Wheeler’s ongoing case and that when they have received it they will proceed to ratification. Let us suppose that the judgment is in Mr Wheeler’s favour and that his legitimate expectation of a referendum on the Lisbon treaty has not been met by the Government. How will the Government react? Will they proceed to ratification or will they grant a referendum? Secondly, on environmental policy, let us suppose that it becomes clear that, as many scientists believe, global warming has been caused almost wholly by the activity of the sun and hardly at all by human CO2 emissions and that, therefore, the planet may now be cooling down. What effect would that have on our environmental policy and that of the EU? The noble Baroness looks at me askance, but there are thousands of scientists who believe that now.
My Lords, in answer to the noble Lord’s first question, I will not venture into hypothetical questions about a court judgment that we have not yet formally received. The noble Lord must forgive me, but I certainly will not do that in your Lordships’ House. On his second question, he raises the point that he thinks that the greatest bulk of scientific evidence is in one direction, although there may be evidence or views in another direction. Part of the purpose of working across the European Union is to keep a careful watch on what is happening to the planet and to make judgments on what we do about climate change in that context.
My Lords, on the revised EU reform treaty, which people are working on at the moment, have the Governments of the member states been informed that, in accordance with Article 6, our constitution means that our participation, if we participate, is subject to ratification in Parliament? It is not the same qualification as the Irish vote, but it is the same concept. Are the member states aware that that is our position in law?
My Lords, I think that I understand the noble Lord to say that, should there be any kind of amendment to the European treaty as it currently stands, that would be subject to parliamentary processes. We discussed in some detail on Wednesday that, if there were a new amended treaty, it would indeed have to come before your Lordships’ House and another place. I hope that that clarifies the position.
My Lords, the second page of the presidency’s conclusion refers to the area of freedom, security and justice. Presumably justice means obeying the law, even laws that you do not like. Is it just that there should be any doubt at all, following the Irish referendum, which said no to the Lisbon treaty, that the treaty should continue to be ratified instead of being declared dead? That surely is not justice. Various reports in the newspapers, both yesterday and today, suggest that the Irish are being put under great pressure from the various countries of the EU, particularly France and Germany. Apparently, the Irish are being threatened with expulsion from the EU unless they go back and reverse their decision to say no to the Lisbon treaty. I would like the noble Baroness to tell me, and I am sorry to take a little bit of time about this—
There is not time, my Lords.
My Lords, there is time, as no one else was standing. The noble Lord, Lord Richard, was not standing when I got up and he is only wasting time by heckling me. He ought to know better. Let me come back to the question that I was going to ask the noble Baroness. Will she assure me that the British Government are not involved in any pressure being put on the Irish people to reverse their decision about the Lisbon treaty?
My Lords, my right honourable friend attended the two days with my right honourable friend the Foreign Secretary and there is no report that I have been given of any possible bullying. There was a great deal of discussion and understanding from member states in talking with the Irish Taoiseach and with the Irish Foreign Minister. I understand that the Irish asked for some time—in other words, until the October Council—to come back with their views and that that request was surely granted. I do not accept, therefore, that there was any bullying. I made it perfectly clear that, as far as the UK position is concerned, we are absolutely and totally against any idea of any bullying of the Irish, but there is no evidence to suggest that it is happening. On justice, we discussed this issue at great length and I am very clear that it is right and proper for each member state to determine its own position on this treaty and not be bullied by anybody else into stopping or starting or not continuing a process that is well advanced, which was the position that we were in last week.
My Lords, I wonder whether my noble friend the Leader of the House shares my amazement at the fact that the one thing that the representative of UKIP sitting on the Back Bench over there and, indeed, the representative of UKIP sitting on the Bench behind me—
My Lords, I am not a member of UKIP.
My Lords, I can only say that that puts me in mind of an old American professor whom I used to know, who said, “If he is not a member, he is cheating them of their dues”. Does my noble friend share my amazement at the fact that various people in this House who are critical of the British position on the treaty seem to be saying that we should take a position different from that which the Irish Government are taking? The Irish Government seem to be getting set on a clear policy. If that is their policy, surely we should allow them to do it.
My Lords, my noble friend is right. It is for the Irish to determine the Irish position and it is for the British Government to determine the British position, and so on across 27 member states. I could not agree more. For the record, I should add that the noble Lord, Lord Stoddart, is not formally a member of UKIP.
My Lords, the opinion that I have heard this weekend from some very considerable experts, not necessarily in this House, is that in practice the EU is likely to chug along without the Lisbon treaty. When Croatia is ready to accede, there will be some cherry picking from the treaty; things will be put into the Croatian accession treaty that will enable the Union to operate more effectively. Would an alternative not be for the Government to advocate one change in the Lisbon treaty that would remove a lot of the worry and concern: the removal of the self-amending provisions? People do not want their sovereignty to be able to be decided without further treaty change by unanimity merely in the Council of Ministers. If the passerelle clause were removed, would we not be able to make progress? Will the Government at least consider that possibility?
My Lords, the Government’s position is clear; we have debated it at great length in your Lordships’ House. It remains exactly the same as it was last Wednesday night, Thursday morning, over the weekend and today. We believe that the treaty is a good deal for the European Union and a good deal for this country. The noble Lord may not like what he describes as the self-amending provisions or the passerelle—the footbridge. There are other noble Lords across the House who have not liked parts of the treaty and no doubt parliamentarians in other member states do not like parts of it. The treaty was a good deal; we stand by the fact that this House supported it, with a good majority at every Division. Our objective now is to see what the Irish position will be and then to consider our position. When Croatia is ready, and if the EU expands from 27 to 28 member states, there will need to be some routine changes in the institution’s arrangements with regard to the number of MEPs and so on. We will have to look at that situation then.
Zimbabwe: Elections
My Lords, with the leave of the House, I shall now repeat a Statement made in another place on the situation in Zimbabwe. The Statement is as follows:
“I am sure that the whole House will unite in its condemnation of the depravity of the Mugabe regime; in grieving at the needless loss of life; in wanting to send a clear message of support and solidarity to the people of Zimbabwe at this time; and in supporting new African efforts to find a resolution to the crisis. We share both their demand for a democratic future and their belief that they should not be denied this by violence or intimidation. Our primary concern has always been for them.
“Since 29 March and the extraordinary scenes of courage shown then by those ordinary people who put their faith in democracy and the ballot box, we have seen a regime that has reverted to type. President Mugabe and his key generals use changes to the law as a means of identifying people who chose to vote for change. From then onwards, a campaign of violence was inflicted on those people, intend to punish them for having the temerity to say no to Robert Mugabe and no to ZANU-PF. We know that 34,000 people have been displaced, 2,700 injured and 84 murdered since that day. Two thousand of those people are sheltering in Harare, in MDC headquarters.
“This is not British propaganda. NGOs have documented the existence of torture camps. Independent media have published the names of those who have directed and orchestrated that violence. African election observers have seen the violence with their own eyes. Thousands of teachers and public servants had volunteered as presiding officers in the first round but have withdrawn their names for fear of violence and intimidation.
“By Sunday, only 84 local election observers had been accredited when more than 10,000 had applied. It is a matter of public record that Morgan Tsvangirai has been detained five times in the past 10 days and that MDC Secretary-General Tendai Biti has been in prison and charged with a trumped-up treason offence since arriving back in Harare. The stage was set for the most rigged election in African history.
“Robert Mugabe and his thugs have made an election impossible. It is clear that the only people with democratic legitimacy are those who won the parliamentary majority on 29 March and took most votes in the first round of the presidential election—the Opposition. Zimbabwe needs a Government who are broad-based and command the confidence of the majority of Zimbabweans. In addition to stopping the violence, that must be the focus of regional and international efforts. Since the announcement yesterday, the Prime Minister, Lord Malloch-Brown and I have spoken to Foreign Ministers and key figures in southern Africa and around the world. This is a crucial moment for Africa and the region. Ahead of the election, 40 senior Africans underlined their concern at the conditions in Zimbabwe.
“The AU Commission has called for violence to end. The head of the Pan African Parliament Observer Mission said that violence was now at the top of the agenda of this electoral process. Zambian President Levy Mwanawasa, who is currently chair of the Southern African Development Community, has said that,
“the current political environment in Zimbabwe falls far short of (SADC's) ... principles and guidelines”.
He said yesterday that the situation was scandalous and that what was happening in Zimbabwe was embarrassing to all Africans in the region. It is now for SADC and AU leaders to convene in early session and to establish a clear basis for regional engagement on the issue.
“At the European Council last week, the Prime Minister and other leaders underlined their readiness to take further measures should President Mugabe attempt to steal the election. On behalf of the EU, the Slovenian Foreign Minister has issued a clear statement condemning the violence and the conditions which forced Morgan Tsvangirai to withdraw from the election. I spoke to Foreign Minister Rupel last night to welcome that statement and to discuss with him now the need to consider urgently how we can put further pressure—a widening and deepening of the EU visa ban and targeted financial measures—on Robert Mugabe and his elite which can be actioned at the next meeting of EU Foreign Ministers. Javier Solana and Commissioner Michel have both now issued statements condemning the violence and supporting Morgan Tsvangirai's decision.
“I have spoken to UN Secretary-General Ban Ki-Moon and I welcome his statement yesterday. Later today, the Security Council will discuss Zimbabwe. I am sure that our permanent representative will speak for the whole House when he says that the UN must contribute to the resolution of this crisis before the entire region is destabilised further. It is right and it is necessary that the Security Council, the African Union and SADC work together on this. The UN agencies have prepared for the many more refugees who may now flee Zimbabwe.
The UN Secretary-General’s envoy remains in the region and should be allowed to return to Zimbabwe. But the burden will still be borne by the region and by Zimbabwe's neighbours, and the role of their leaders is vital. Britain has long and historical links with Zimbabwe. I have never believed that the rights and wrongs of history should prevent us from speaking clearly and frankly about the situation today. Robert Mugabe's misrule does not invalidate the struggle for independence: our colonial history does not mean we cannot denounce that which is wrong. The test at all times should be whether our commitment and action can help the people of Zimbabwe.
“The cynical decision to suspend NGOs delivering vital aid shows how far Mugabe has gone in abandoning Zimbabwe's people. Our foremost duty is still to press for humanitarian space to be re-opened and for those NGOs to be allowed to restart operations. One and a half million people have been affected by the ban. As the second largest bilateral donor, we will continue to provide aid and assistance as we can. The Secretary of State for International Development has chaired a meeting this morning to consider what more we can do to support urgently those in Zimbabwe. I have spoken to our ambassador and he and his staff are working hard to maintain a full suite of diplomatic amenities. Travel advice remains under review and recommends against all but essential travel.
“We will continue our efforts publicly and privately press for a solution to this crisis that reflects the will of the people in Zimbabwe. I am sure that honourable Members will agree with me that such a solution cannot come quickly enough. Mr Mugabe says that only God can remove him from office. Let us hope that the people of Zimbabwe get there first”.
My Lords, that concludes the Statement.
My Lords, I am grateful to the Minister for repeating the Statement on Zimbabwe, a subject on which we touched a few moments ago in the earlier Statement.
I hope that the Minister will forgive me if I say that, having listened to the Statement and recalling the long list of Statements by his predecessors over the past seven or eight years, I am visited by an overwhelming feeling of it all being too little and too late. Have we not now reached the point at which quiet diplomacy is finally at an end and where the UN and/or the democracies working together should finally move decisively? Is not the terrorising and murder of MDC members, of which the abduction, torture and murder of the young wife of the mayor of Harare is perhaps a hideous apogee, the ultimate call for more decisive collective action? Have we suggested, for instance, that the UN set up a commission of inquiry into the atrocities of Mugabe’s criminal regime? Can there be a referral to the International Criminal Court for crimes against humanity? Was not that the purpose, among others, of setting up the court?
Is the Minister aware that South African lawyers have now pointed out that under Zimbabwe’s own laws, since there is no run-off election within 21 days of the previous presidential elections, Robert Mugabe is holding office unlawfully, having not had a voting majority first time round? By this clear law the first round winner, the courageous Mr Tsvangirai, who is now sheltering, I understand, in the Dutch embassy in Harare, and whose life is in danger from the ZANU-PF mobs, should now be declared president. Is the noble Lord aware that the clear illegitimacy of the Mugabe regime requires SADC by its own rules to disbar Zimbabwe from membership? Has that point been discussed with the President of Zambia, who is chairman of SADC? Should not the UK now consider, first, the withdrawal of recognition from what is clearly a gangster regime? Secondly, should not the UK urge much tougher sanctions and a tougher application of existing EU sanctions against Zimbabwe and individuals and extend the visa ban to families and relatives of regime leaders, as we have repeatedly urged? That seems to have been ignored the other day when Mugabe turned up at the FAO meeting in Rome and where a UN official had the temerity to say that Mr Mugabe stood “in good stead” with the UN? Thirdly, should we not start putting together clearly and visibly the post-Mugabe programme of rescue and support for recovery which the people of Zimbabwe—it was once a prosperous country and could be again—will urgently need?
No one pretends that any of those moves is easy or can be undertaken unilaterally—that would be absurd. Is it not essential to ensure that China, which is also involved in the area, faces its responsibilities in southern Africa and that Beijing, Moscow and Tokyo are just as necessary a part of the collective action needed as Washington or Brussels? I hope that our diplomats and policy makers have grasped that point at least and that we shall go forward from here in a positive direction to prevent an even greater tragedy.
My Lords, I thank the Minister for repeating the Statement made in another place. Before I comment on the remarks of the noble Lord, Lord Howell of Guildford, perhaps I may say that the noble Lord, Lord Malloch-Brown, has gone to the limits of his endurance and capacity in trying to find some answer to Zimbabwe’s problems. When I speak about the limits of his capacity, I have to say that that is very great indeed. I do not believe that any single individual could have done more. Having said that, I agree with the noble Lord, Lord Howell, that there is a case for declaring loudly and clearly the election of Mr Mugabe when it happens, which will be soon—in the next few days—to be unlawful and to consider withdrawing our recognition of Zimbabwe in the light of that illegal position.
We could and should take further the issue of freezing the bank accounts of families and relatives of the regime and of making it clear that we will not help them in obtaining educational positions for their children in the universities of the western world. It is not unusual—I say this in my capacity as a professor emerita—to find the sons and daughters of some very disagreeable international figures benefiting from their parents’ position in order to obtain what one might call plum situations in the best-known universities of the world. The universities have a certain responsibility in that regard.
I have two other points. First, we might consider whether there is room for a Commonwealth meeting with SADC. It is striking that, of those African countries which have clearly spoken out about the dreadful situation in Zimbabwe—such as Tanzania, Zambia and Botswana—all but Angola are members of the Commonwealth, which has not had the kind of problem that the UN has had with Russia, China, and South Africa defying attempts to debate the situation. South Africa would undoubtedly be isolated in the Commonwealth, but that might currently be no bad thing.
Secondly, it is easy for us to be eloquent without always following actions we might take. I plead once more for the Minister and the Leader of the House to consider whether we should not look again at the absolute ban on Zimbabwean refugees being allowed to work in this country other than in the most exceptional situations. We now know that they cannot be sent back for some time to come; I wish that I could say that it will be next week but, as realists, we recognise that it will be at least several, perhaps many, months before Zimbabwean refugees in this country can be safely returned to a country that will otherwise undoubtedly torture and kill them if they are. In those circumstances, we cannot continue to refuse to allow Zimbabwean refugees to find some way to sustain their livelihoods and families. In the light of the Prime Minister’s statement, I ask that the refugee situation be considered case by case and that such people, many of whom have been persecuted and tortured, should be allowed to work in this country and to return to their own in some better future to give the benefit of their education and experience in this country to their long-suffering people.
My Lords, I thank the noble Baroness for her first remarks. I say to her and to the noble Lord, Lord Howell, that we all share the frustration that we have not been able to do more. This unites us; it is not a matter of pride that we should still be discussing President Mugabe as an individual in office, despite all that has happened. Use though he does the word “decisively”, I suspect that the noble Lord, Lord Howell, does not envisage military action. No parties in Zimbabwe have asked for military action. There is a full understanding that at this time that would be counterproductive for all sorts of reasons. We are discussing the most effective way to bring pressure on a rogue regime, the illegitimacy of which is quite beyond doubt. In that regard, we are probably in much the same place and can learn from each other what we might do to enhance those pressures.
First, during the end of last week and the weekend, Zimbabwe’s neighbours in southern Africa went to the press one after the other and said that the intimidation level was making open and free elections all but impossible. That has created a potential coalition of SADC, the AU and the UN to allow us to take action against Mugabe on a scale that was previously impossible. For all his talk of sanctions, they were, as the noble Lord, Lord Howell, says, actually quite limited, against a handful of 130 individuals, and not particularly deep and wide. We now have the opportunity, first in the European Union, to dramatically deepen those sanctions and target bank accounts held not just in Europe, but globally, and look at the possibility of preventing the families of those who have committed these crimes being able to enjoy scholarships or travel aboard.
Each individual who has had a hand in this illegitimate second round must realise that they are open to the possibility of European and other international arrest warrants. None of them can travel easily without the possibility, at a customs point somewhere, of the hand of the law coming down on their shoulder and their being told that a European or other arrest warrant has been issued for them. Their actions are making them isolated criminals who have very few places to go outside Zimbabwe.
I reassure the noble Lord that this is an illegitimate regime in the view of this Government. As I said to the press this morning without the benefit of knowing what the South African lawyers said, by going beyond the constitutional requirement for a second round within 21 days because of efforts to manipulate the result, President Mugabe was governing on borrowed time and no longer within the bounds of his own constitution. He now faces the fact that the African Union does not under its own rules allow presidents who are not elected by democratic means to take their seat. President Mugabe faces the fact that most of his SADC neighbours have confirmed that his conduct of this election has not been within its own principles. We therefore face a different context, where the possibility of new pressure is real.
There remains the prospect of Commonwealth discussion of this matter. I have been in repeated contact with the Secretary-General of the Commonwealth, but as I have said previously, we are a little impaired by the fact that Zimbabwe is not suspended from the Commonwealth, as are, for example, Pakistan or Fiji, but has resigned from it. African countries hesitate to bring the Commonwealth back into something that they think is better solved by SADC, the AU and the UN.
We are looking at the support that we may need to give Zimbabweans in this country, particularly at the ban on refugees taking up work.
My Lords, does the Minister not agree that, although we speak of Mugabe as the author of this outrage, he may be little more than a front for the joint operations council—the military junta—that may effectively be in power in Zimbabwe? Does he not agree that, although exasperating difficulties are involved in international intervention, be it by way of blocking electricity supplies, the restriction on foreign currency flowing into Zimbabwe, or the indictment of Mugabe or others before the International Court of Justice, the very worst consequence of this tragedy could be that the world took away the message that tyranny and murder had succeeded in Zimbabwe? I echo the Minister in asking whether, as the former colonial power in that country, we do not have a massive moral responsibility to do whatever we can within justice and reason to help those people who are so oppressed and enslaved.
My Lords, I affirm that everyone in Britain feels that sense of moral responsibility and desire to see the people of Zimbabwe able to choose their own Government, live in peace and recover the prosperity that was previously theirs. On whether power resides in the hands of President Mugabe or the members of the joint operations centre, our suspicion is both. We look at President Mugabe as still very much responsible for the actions taken in his name, but it is undoubtedly the case that it is the joint operations centre, rather than the ZANU-PF party apparatus, that has run the second round of this election in such a brutal and militarised way.
My Lords, I join the noble Baroness, Lady Williams, in congratulating the Minister on his forceful leadership on this issue. We are looking for that kind of leadership across the whole of southern Africa. Would it not be helpful if ex-president Nelson Mandela, who is in London this week to celebrate his 90th birthday—for which I am sure the whole House will send its good wishes—could speak out about the appalling situation in Zimbabwe? His authority would surely carry some weight, even with the dreadful regime there.
My Lords, I thank my noble friend for her kind remarks. I am sure she has noticed that Mr Mandela’s wife, Graca Machel, was one of the signatories to the open letter published last week. We need to be very careful not to appear to put pressure on Mr Mandela to come out publicly while he is here for his 90th birthday celebrations. He must be fully conscious of how powerful his words would be if uttered at the right time. Despite his extreme reluctance to involve himself in political issues at this stage in his life and career, I have no doubt that he must be weighing the pros and cons of this. However, were he to deliver a statement in London, apparently as a result of pressure from us, I think that it would lose a lot of the force that it might otherwise have.
My Lords, on the radio this morning, the Minister said that Australia had expelled the children of one of Mr Mugabe’s henchmen and confiscated money. Will we follow suit?
My Lords, one of the proposals we shall make to the EU is that we should adopt a similar regime of sanctions against not just individuals but their families.
My Lords, last week we heard about election observers who were lined up to be sent to Zimbabwe, and we discussed their paucity. It seems to me that observance should still take place. Does the Minister have any insight about whether those election observers will now observe what is happening, or will they be banished?
My Lords, more than 200 international observers have arrived in the country. Some of them are expected to report on what they see to a meeting of SADC leaders later this week and possibly to the AU summit at the weekend. It is important to keep as large an international observer presence in the country as possible because this violence is not at an end, as is clearly demonstrated by the fact that Morgan Tsvangirai had to seek asylum in the Dutch embassy this afternoon.
My Lords, I add my compliments to those offered by the noble Baroness, Lady Williams of Crosby, and my noble friend Lady Jay of Paddington, to my noble friend, who has proved such a great asset in regard to Zimbabwe since he came to this House and to government. He pointed out how crucial SADC is in the present situation. I have already described him as a great asset; I cannot do better than that. Will he consider visiting South Africa in person—not forthwith, because that is a dangerous word, but very soon—and as many other SADC countries as possible to co-ordinate policy and to use his own standing with SADC to achieve something better from South Africa?
My Lords, I am grateful to my noble friend. Rarely has a Minister received so many congratulations when his policy has failed to deliver results. I hope that my noble friends will be as generous when we finally bring this terrible regime to an end and Zimbabwe gets the Government it deserves. As I reported in the Statement, I, the Foreign Secretary and the Prime Minister are in frequent touch by telephone with all the leaders of southern Africa. It is our judgment at this point that that discreet, private contact is more effective than a formal trip to the region, but I will certainly keep it in mind. My noble friend has my word that, the moment it seems opportune and unlikely to backfire, I will be on the plane.
My Lords, there is one person who, by virtue of his position in his own country and its geographical situation, could have prevented this whole terrible saga if he had acted decisively and with determination years ago, and that is President Mbeki of South Africa. He could have prevented the whole thing happening. Why did he not do it? It was he who said that Africa’s problems should be solved by Africans, so the rest of the world backed off. I remember it happening a few years back; we did what he suggested.
The role that he has played has not been helpful in any way. His quiet diplomacy became a sort of mirage behind which a lot of things were suggested to be happening, when not very much was actually happening. If people agree, we should bear that in mind, and we should in some way show that this is our belief; it is certainly my belief. The G8 is about to hold a conference, to which he has probably been invited. If that is the case, could not the invitation be withdrawn?
My Lords, the noble Lord, Lord Blaker, deserves some of the commendations that I have received today, because he has been at least as dedicated a supporter of change in Zimbabwe. I hope that there will be a further opportunity one day to exchange compliments when our policy has succeeded.
Obviously, here in this House and elsewhere, we have expressed our frustrations with the lack of results from President Mbeki’s mediation, but this is probably not the moment to go further than that. He has once more inserted himself into the dialogue in Zimbabwe, and he is part of various proposals that are being made. We have to see how that goes. We are very determined to see fuller involvement by the AU and the UN to make sure that a fuller set of players is engaged in trying to bring change in the country.
My Lords, may I take the Minister back to two questions that the noble Lord, Lord Howell of Guildford, put to him earlier? The reports that said that Morgan Tsvangirai has been taken into refuge in the Dutch embassy in Harare also said that more than 60 people, including women and children, had been arrested at the MDC headquarters today. What do we know about their safety and about the events that occurred earlier? Can the Minister tell us more about that?
The noble Lord, Lord Howell, also asked about a referral to the International Criminal Court. Is the evidence that is already available being systematically compiled with that view in mind? The noble Lord will recall the example—he mentioned it earlier—of the six year-old boy who was incinerated only a week ago because he was in the home of his father, who was an opposition politician. Since then, there have been appalling reports of the systematic mutilation of members of the opposition, with many atrocities occurring. Surely, enough evidence is there already for a referral to the ICC, as the noble Lord intimated.
My Lords, on the first point, we are trying to follow the fast-changing developments in Harare. I cannot comment on people being removed from the MDC headquarters, because I do not know the facts. We do know that Mr Tsvangirai is secure in the Dutch embassy. Both events make clear that the violence has not stopped but is continuing, and the need for monitoring and documenting it for later action remains as important as ever.
On the second point about the ICC, I did not answer that point earlier only because it is a complicated and long answer. Because Zimbabwe is a non-signatory, it would require a referral by the Security Council. My view is that that is by no means impossible, but it is likely to come only at the end of a process where the Security Council despairs of an early, speedy political resolution of the issue and feels obliged to move to an ICC indictment. Even without an ICC indictment, the possibility of European arrest warrants and other legal proceedings internationally against the regime grows closer by the day. Let me reassure the noble Lord that there are many NGOs and others, including our embassy, that are documenting abuses as they occur.
My Lords, on the last point, about the relationship between the Security Council and the various members—China, Russia, and so on—does my noble friend recall that in the African Union-European Union communiqué from Lisbon at the end of last year, there was a lot of strong language about governance and criminality? There was much less of such language in the communiqué from the African Union and the Chinese. Would not a campaign to take this to the Security Council, with a view to a reference to the ICC, be a way of engaging with the Chinese on this question? When the vice-premier was here, he said he thought that that would be a useful way of establishing a better dialogue on Africa between the European Union and China.
My Lords, let us be clear: in the case of Darfur and Sudan a similar path had to be followed for ICC indictments, and it happened. It is not an impossible path to proceed down. There is a possibility of winning Chinese acquiescence as well as Russian acquiescence—to take the two countries which have at times shown diffidence and resistance to these approaches. We have had success with China on Zimbabwe. As noble Lords may remember, I was able to secure a commitment from the Chinese last year in Beijing to cease development assistance to Zimbabwe. This year we received a commitment from the Chinese that the arms on the Chinese arms shipment provided by a state company would not be unloaded but would instead be returned to China rather than used for internal repression in Zimbabwe. So this is not a dialogue of the deaf; it is a dialogue where we are making progress. But my noble friend is correct. We need to make a lot more progress to try and align China with our vision of good governance and human rights in Africa.
My Lords, earlier today the Prime Minister said that no one should recognise the regime in Zimbabwe. If the European Union acts in unity on that policy, would it mean the closure of the Dutch embassy, and thus put at risk the leader of the opposition?
My Lords, the noble Lord makes an extremely good point. It is a reason why—as noble Lords may remember from the case of Kenya at the beginning of this year—we do not recognise Governments, we recognise states. When there is a Government whose legitimacy we do not accept, we make it clear that we do not accept that Government as representative of the people of the country and therefore that we will not do business with them. That is the formula that we are seeking here. I would just ask whether, in addition to the case of Mr Tsvangirai and the Dutch embassy, we would really want to close our embassy and leave the 14,000 British nationals in Zimbabwe unprotected?
My Lords, first, can the Minister confirm that there are now more Chinese than British nationals in Zimbabwe? Secondly, he said that the heavy arm of the law may very well pick up the people in Mr Mugabe’s regime when they come to Europe. Some of us heard that with a little cynicism, because Mr Mugabe seems to go to the rest of Europe with impunity. He has been there recently and has been welcomed.
My Lords, I am sure that the noble Earl is right: there are certainly more Chinese than British citizens in Africa. I therefore suspect that there are more Chinese in Zimbabwe. There are 1 million Chinese in Africa today.
On the second point, it is worth saying that President Mugabe was not in Europe on a state visit to a European capital; he was there under the same provision which has allowed Fidel Castro, Yasser Arafat and President Ahmadinejad to go to UN headquarters in New York at a time when they were not on good terms with the United States. It is just part of the terms and conditions—the agrément—of UN offices. As a membership organisation available to all countries, the heads or official representatives of those countries can travel through the national territory of the country where the UN headquarters is located to attend a meeting. So please do not believe that there was support in that case. At the EU Lisbon meeting at the end of last year, there was a judgment that letting him come was a lower profile way of handling the situation than having a confrontation around it. It was not necessarily a judgment we shared, which is why our Prime Minister did not attend the meeting.
My Lords, I, too, join noble Lords in welcoming the Statement. I also wish to record my recognition of the Minister’s work over a long period on finding some sort of solution and a degree of international support.
In the light of the MDC’s decision not to contest what will be a bogus election, the thoughts of this House are not so much on the Government of Zimbabwe as for the people of Zimbabwe. The current situation is damaging not just the people of Zimbabwe but the reputation of the international community, which is seen as impotent and over-reliant on South Africa, for example. However, we have drawn some strength from the way in which we as a country have dealt with African dictators in the past. When Idi Amin evicted the Ugandan Asians this country gave support and, in many instances, shelter to those who lost their homes, their community and their citizenship.
As we celebrate this week—
My Lords, I am sorry to interrupt my noble friend, but I wonder whether he could come to his question.
My Lords, I will do so. I want particularly, as we celebrate refugee week, to commend the statement of the noble Baroness, Lady Williams, that we should afford to Zimbabwean refugees at least the right to have a job and to support their families.
My Lords, I confirm to my noble friend Lord Morris that we will look into this to see what can be done. I thank him for his long and hard work on this same issue of Zimbabwe and particularly on workers’ rights.
My Lords, from these Benches—
I am sorry, my Lords, but questions have to end now. The 20 minutes are up.
Pensions Bill
House again in Committee on Clause 13.
Before calling the first amendment, I have to announce an amendment to the figures announced for the Division earlier today. The number of noble Lords voting Content was 53, not 55.
moved Amendment No. 44:
44: Clause 13, page 7, line 8, at end insert “or any other changes warrant a review”
The noble Baroness said: I shall speak also to Amendments Nos. 46 and 49, which are also in this group and cover much the same point.
Clause 13, which Amendment No. 44 seeks to amend, provides for a review of the qualifying earnings band. It is right that the band is reviewed, but the clause appears to restrict revaluation to considerations of whether the bands have kept their value. I would like to see a wider power to vary the bands that would allow changes to be made for any reason. This would allow other issues to be considered, such as whether the new system band was properly serving the low paid or those with higher pay. There also needs to be periodic reviews of whether the proposed contribution levels are good enough to provide an adequate pension. Experts consider a lifetime 15 per cent contribution as necessary for most people to meet their preferred retirement income. While the proposed contribution levels have been carefully struck as a compromise between different interest groups in the debate, it should not be forgotten that the objective must always be to provide a decent retirement income. Pension provision is about the future. It is about provision for our children, our grandchildren and even our great-grandchildren. Nobody knows what the future may hold. It therefore seems right and proper that there should be a degree of flexibility to cope with unforeseen events.
Perhaps I should declare an interest. As noble Lords will know, I am a former member of the TUC General Council. This amendment was suggested to me by the TUC. As my noble friend the Minister knows, the TUC supports the Bill and wants to see it on the statute book as soon as possible. Nevertheless, as far as this clause is concerned, it is felt that there is a case for rather more flexibility. I therefore beg to move.
I shall make just a couple of brief comments. It is important to recognise that the band of earnings represents part of the compromise and the consensus on the whole pensions settlement and that any radical departure from that may undermine the consensus. The limits, particularly the upper limit, have the effect of controlling employers’ costs as well as ensuring that the personal accounts scheme stays on the target market and does not compete unduly with alternative pension provisions. We completely understand that the band may need to be changed occasionally, but I am not sure that the noble Baroness’s amendment, which does not even have the affirmative procedure attached to it, is the right way of going about things. As such changes could be quite significant, we see primary legislation as perhaps the right way of realigning the scheme.
We are probably a little more sympathetic to the noble Baroness’s amendment, but I would like to hear the Minister’s reply before committing myself any more firmly.
I thank my noble friend for this amendment. The reforms that we have discussed have been structured to set a median earner with a solid state entitlement on course to achieve an income in retirement of around 45 per cent of their working life earnings, in line with the recommendation of the Pensions Commission. The qualifying earnings band establishes the link between working life earnings and pension saving. As the noble Baroness, Lady Noakes, said, this is part of the consensus that was reached. Having made this important link, we need to maintain it. We will do this by reviewing the limits of the band every year to see whether they have maintained their value. Depending on the outcome of that review, we expect to uprate the limits in line with changes to average earnings.
Ensuring that the limits of the qualifying earnings band keep pace with changes to average earnings will ensure that the contributions of jobholders also keep pace. This is important if we are to maintain the balance between working life income and income in retirement. Uprating the lower limit of the qualifying earnings band in line with changes to average earnings will also avoid enrolling increasing numbers of workers on very low earnings, for whom state provision already offers high income-replacement rates. It is crucial that we retain the flexibility necessary to ensure that the earnings band is uprated appropriately. As my noble friend said, pensions are a long-term issue. However, the clause as drafted already provides that flexibility. I do not believe that these amendments would provide any additional flexibility when it comes to reviewing and uprating the limits of the qualifying earnings band. Accordingly, I ask my noble friend to withdraw her amendment.
I thank my noble friend the Minister for that response and I note his reference to flexibility, which is what the amendment is all about. I am also appreciative of the fact that this is part of the general consensus—something that the TUC also understands. Consensus is necessary if we want the new legislation to have viability for the future, with everybody agreed that this is what should happen. However, in view of what he says, I do not intend to press the amendment to a vote this evening. I shall look carefully at what he said in Hansard to see whether it should be pursued further, but I am grateful for the assurance that flexibility is within the sights of the Government so far as this is concerned. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 45:
45: Clause 13, page 7, line 9, leave out subsection (2)
The noble Baroness said: In moving Amendment No. 45, I shall also speak to Amendments Nos. 47 and 48. The previous group of amendments in the name of the noble Baroness, Lady Turner, sought to give the Secretary of State power to amend at will the thresholds around the earnings band. My amendments are much more modest and are designed to ensure that the Secretary of State does not let the value of the earnings threshold fall behind any increases in the level of earnings.
The Minister has explained that it is the Government’s policy to uprate the earnings band in line with earnings; he said it on a previous day in Committee and he said it a moment ago. It would have been fairly easy to have provided that in the Bill, but the Bill does not do that; it gives the Secretary of State carte blanche to decide how to revalue the band, whether or not in line with earnings.
Amendment No. 45 would delete subsection (2), which allows the Secretary of State to use whatever value assessment procedure he likes. He does not need this power; he has the procedure referred to in subsection (3) under the Social Security Administration Act 1992. Amendment No. 47, which is one of our usual “‘may’ to ‘shall’” amendments, would therefore mandate the use of the procedure in the 1992 Act.
Lastly, Amendment No. 48 is another “‘may’ to ‘must’” amendment—this time to subsection (4)—so that if the Secretary of State is determined that the qualifying earnings band has not maintained its value, he must lay an order substituting the revalued amounts.
We always worry when the Government translate what appears to be a straightforward policy, such as earnings uprating, into legislation that allows the Secretary of State to do pretty much what he wants. We shall therefore take some persuading that the amendments should not be made. I beg to move.
I should point out that if the amendment is agreed to, I cannot call Amendment No. 46.
I just explained in response to the amendments from my noble friend Lady Turner our approach to uprating the earnings bands, and in particular the importance of maintaining flexibility. However, these amendments would do away with that flexibility by removing the possibility of uprating by any method other than earnings bands. We must remember that these reforms are for the long term. While we fully expect to uprate the limits of the earnings band in line with changes to average earnings, we do not have 20/20 foresight. The clause avoids tying the hands of future Governments when it comes to ensuring that the earnings bands maintain their value. It is crucial that this remains the case.
We always have this dilemma where we have a clear policy and objective and believe that uprating by earnings is the right way forward. However, given that we are setting down reforms for decades to come, there must be a strong argument in favour of flexibility. That is why the clause is structured as it is, as I explained in response to the previous amendments. I hope that, on that basis, the noble Baroness will feel able not to press her amendment to a vote.
I am not quite sure what this flexibility is all about. We have earnings bands, and we have to ensure at least that they maintain their value over time. We accept that they might have to be realigned, which was the purport of the amendment of the noble Baroness, Lady Turner, although there should be a special procedure if that is to be the case. However, the flexibility that the Minister wants is merely to say what kind of revaluation it is, because Clause 13 talks only of the Secretary of State determining whether the earnings band has maintained its value. As this is in essence about earnings leading to replacement income in retirement, I cannot see any other logical basis on which to determine value, and I struggle to see what kind of flexibility the Government seek.
It is by definition almost impossible to be specific when providing flexibility that might be needed over the long term. The noble Baroness may recall our debates during consideration of the Pensions Act 2007 on upratings and the factors that would be taken into account, such as which earnings index would be the appropriate one and whether the current indices would still be in place in 20 or 30 years in their current format. We are simply creating a little space to have flexibility. It is not unreasonable for government to ask for that. I know that the noble Baroness always sees the most horrendous plots when the Government seek flexibility, but it is not that. We have made very clear our intention to maintain the link between lifetime earnings and replacement income and the proposition that the bands are set to get that replacement rate of 45 per cent at the start. We expect to uprate them by earnings, and we hope and believe that this regime will remain in place for 20, 30 or 40 years with the consensus that has been built, but we cannot be absolutely certain. That is the reason.
Will the Minister make it quite clear that he is asking for flexibility only in the definition of the word “earnings” over a long period, or is he asking for something else?
The Bill is not specific. Again, we simply do not have 20/20 foresight over the long term, and we cannot predict quite what will crop up over the long term. Therefore we need to have a little space rather than to have to come back with primary legislation again. That is an entirely reasonable proposition, and I do not see why it is creating so much difficulty.
No one has 20/20 foresight. I was simply asking which way it is looking. Is it looking at the definition of earnings or at something else?
The clause is entitled “Review of qualifying earnings band”. That is the thrust of the provision and how we go about it. That is the subject of the detail.
I thank the noble Lord, Lord Oakeshott, for attempting to get a little more clarity. We received none; all we got was one of the Minister’s favourite mantras for the Bill—he wants flexibility. This is when the Government either do not know the answer or do not want to tell us what they are going to do with the Bill. It has been relatively clear from the outset. The Pensions Commission recommended that the bands be uprated in line with earnings. The Government, in their White Paper, accepted that recommendation. The Minister has said that he accepts it on more than one occasion at the Dispatch Box. However, when we seek to get that reflected in the Bill we are confronted with complete obduracy for reasons that have not been articulated, except to say that it is for flexibility. That is not satisfactory, and I seek to test the opinion of the Committee.
[Amendment No. 46 not moved.]
moved Amendments Nos. 47 and 48:
47: Clause 13, page 7, line 11, leave out “may” and insert “shall”
48: Clause 13, page 7, line 17, leave out “may” and insert “must”
On Question, amendments agreed to.
[Amendment No. 49 not moved.]
Clause 13, as amended, agreed to.
Clause 14 agreed to.
Clause 15 [Qualifying schemes]:
moved Amendment No. 50:
50: Clause 15, page 7, line 36, at end insert—
“(1A) The Secretary of State may by regulations provide that subsection (1)(b) does not apply in relation to a scheme to which section 24 or (Quality requirement: other personal pension schemes) applies, if prescribed requirements are satisfied.”
The noble Lord said: I shall also speak to the other amendments in this group. Clause 15 is the first in a series of clauses setting out the minimum requirements for pension schemes that can be used to comply with the new employer duties. As it stands, the clause requires qualifying schemes to be UK tax registered, so as to enable scheme members and their employers to benefit from UK tax relief on their contributions. For scheme members, this is equivalent to a contribution from the Government, through a lower tax deduction, to their retirement savings.
However, we recognise that individuals may be seconded to the UK from abroad for short periods of employment and that, prior to their arrival, some would have joined a pension scheme set up in their home countries, outside the UK tax registration regime. Government Amendment No. 50 will enable us to accommodate individuals in such circumstances. It contains a regulation-making power to allow the Secretary of State to specify in legislation that non-UK schemes can be qualifying schemes under the employer duty where they are not UK tax registered in prescribed circumstances, which are likely to be those in which their members are able to receive UK tax relief on their contributions made from UK earnings, as is permitted in certain circumstances by HMRC.
The amendment and others in the group are concerned with ensuring that we support and encourage existing good-quality pension provision. We want to encourage employers to retain their existing pension arrangements, where those arrangements satisfy our minimum standards, by providing as much flexibility as possible for multinational employers with a multinational workforce.
We also want to ensure that the widest range of schemes can be offered as qualifying schemes, but with the necessary safeguards to protect members’ interests. Schemes operated outside the UK could provide high-quality benefits and we do not want to prevent employers from offering them. However, such schemes are not subject to FSA regulation of their operations. Therefore, it is important to ensure a robust regulatory regime for non-UK-based schemes if they are to be used under the employer duty.
With that in mind, Amendment No. 76 limits the application of the quality requirements set out in Clause 25 to UK-operated personal pension schemes whose operation is regulated by the Financial Services Authority. Amendment No. 81, meanwhile, brings in a new clause containing the power to prescribe in regulations the quality requirements for personal pension schemes whose operation falls outside the FSA’s regulatory remit. That is the case for non-UK-operated personal pensions.
Taken together, Amendments Nos. 76 and 81 seek to future-proof our policy by being clear what the quality criteria are for schemes whose operations are regulated by the FSA, while enabling us to cater for schemes subject to a regulatory regime outside the UK or schemes with features not common to UK schemes where that might be appropriate. That will allow the Secretary of State to respond flexibly to the widest range of schemes and enable employers to retain diverse, high-quality pension provision.
As a consequence of Amendments Nos. 50, 76 and 81, we are introducing a number of technical amendments to Clauses 18, 25 and 86, which make up the remaining amendments in the group. I hope that the Committee is in agreement with the proposals to support and encourage good-quality existing provision. I beg to move.
Not being a tax expert like the Minister or my noble friend Lady Noakes, I am afraid that I have a few questions. I readily understand that there should be minimum requirements for pension schemes to be tax registered where they are indeed tax registered, but he said towards the end of our proceedings last week that the Government were interested in the total amount of money going into the schemes as a primary test. I think that that was at col. 1018; I am speaking from memory. I shall go into that in a bit more detail in a minute or two. Given that, it does not particularly matter whether you have a tax-registered scheme, so long as the total amount of money is at least equal to the minimum that the Government have set out in the Bill.
Another point occurred to me in listening to the noble Lord. I understand that the schemes that he is interested in under the amendments are not regulated by the Financial Services Authority. However, the regulatory part of the Bill is all about the Pensions Regulator. To what extent, if any, might they be regulated by the Pensions Regulator?
The noble Lord raises two points about whether it matters if tax relief is available to a scheme. The starting point for having qualifying schemes is that they are registered under the Finance Act 2004. The getting of tax relief is not the only important thing, obviously; that tax relief is available only if the structure of the scheme fits certain criteria. That is why the provision is there.
When we are talking about satisfying the quality requirements of money purchase schemes, the noble Lord is right in one respect. We are interested in the amount that goes in, not the basis on which it is calculated. However, that is a separate point. We are providing for schemes that expats might routinely be signed up to when they come into the UK. They are not registrable under the Finance Act 2004. Typically, there might be arrangements if there are corresponding schemes under which UK tax relief can still be available on contributions, but the provision that a qualifying scheme should be registered under Part 4 of the Finance Act 2004 is an important building block in the definition of qualifying schemes generally.
We are simply taking out and enabling a further qualifying arrangement by taking the power to look at circumstances of specific schemes that would not fit the criteria. If we do not do that, we could end up with a situation in which, when an expat was seconded into the UK to work and remained a member of their home-country scheme but that scheme could not be a qualifying scheme, there would be an auto-enrolment duty on the employer. That would not make much sense if the scheme that they were in were good quality. We are carving out an opportunity through regulation to be able to bring forward other criteria to facilitate that. It is no more or less than that.
The noble Lord also asked what, if the schemes were FSA registered or came within the FSA’s ambit, the powers of the Pensions Regulator would be. The new clause is wide enough if necessary to safeguard members’ interests by including regulatory requirements as part of the qualifying requirements. Those might include requirements relating to the regulatory jurisdiction that a scheme falls under. It is a process by which one can seek to ensure effective regulation, even if it is not regulation under FSA and UK arrangements. That is the purpose. I hope that that deals with matters satisfactorily for him.
I am grateful to the noble Lord for answering questions that I sprung on him. I confess that I sprung them on myself, because I thought of them as he was speaking.
On Question, amendment agreed to.
[Amendments Nos. 51 and 52 not moved.]
Clause 15, as amended, agreed to.
moved Amendment No. 53:
53: After Clause 15, insert the following new Clause—
“Right to access tax free lump sums
The Secretary of State shall by regulations provide that a qualifying scheme or an automatic enrolment scheme shall allow a jobholder or worker to withdraw a tax free lump sum or sums during his or her working life.”
The noble Baroness said: Obviously this is a probing amendment; almost equally certainly it is a technically deficient amendment. I would like to restart the debate launched by the party opposite—by Mr Willetts and Mr Rifkind in the other place—for a lifetime savings account. I was persuaded by their arguments, if not the technicalities. The point of raising it today is that it is appropriate to see whether there is any support among the political parties, business and industry for such a scheme, because unless there is it is obviously not going to go anywhere.
Why might such a scheme be necessary? As they grow older, men on above median earnings will usually have some savings beyond their pensions. As mortgage pressures, for example, ease, they may have an ISA or two. Those people on below median earnings, especially women who may be well below, seldom have savings. There is abundant research to show why. Scottish Widows has always flown the flag for women’s pension issues, as did the former EOC, which did good work on this, the DWP and the former DSS. Some of these points are fairly obvious but perhaps bear repeating.
Women will not have rainy-day savings because, clearly, there is not enough disposable money. Their earnings may be part-time, low and intermittent; in some sense, they may be regarded as temporary. What money there is may generate difficulties of management and, more likely, problems of debt, rather than problems of savings. On top of that, for younger women especially, there is still the utopian view that a Prince Charming at best, or husband if not, will see to it that there is almost a financial division of labour within the family. He will do the long-term pension stuff, while she does the short-term household budget stuff. His pension, therefore, is for them both. The idea that the pension was for both of them was one of the reasons why your Lordships time and again were behind pension sharing after divorce.
Despite what we know about family breakdown, the belief that it is for the man to provide for both of them persists. The woman may therefore feel that to save in a pension, rather like having a pre-nuptual agreement, somehow indicates a lack of trust. If money is tight and if the man saves into a pension, the woman, in turn, is more likely to view household spending as her priority. The trainers for the children and school trips are her contribution to family financial circumstances and she will tend to put other people’s financial needs, especially those of the children, ahead of her own.
The woman sees saving in a pension as being selfish—research has shown that women use that word—and women are hard-wired to think that that is the worst of all social sins. Even if she does not think that she is being selfish, she could be put off by complexity, obscurity, worries about mis-selling and concerns about the impact of means-tested benefits whereby, allegedly, Tracey’s mum who saved is no better off than her aunt down the road who did not. Above all, pension savings are locked away for 40 years. Therefore, if there is a crisis around the corner, they are untouchable, even though the need now may be far greater than the need in 20 years’ time because of, for example, divorce, disability, repossession or the husband’s unemployment.
I believe that the policy makers are making a mistake. At retirement, men and women are, for the most part, in similar financial situations with a steady but low income and steady but predictable expenditure. Because men are none the less worse off in retirement than when they are in work, that is projected somehow on to women’s working lives. Because they share a common retirement life, it is almost like a retrospective fallacy. It is presumed that they share a common financial situation in their working lives and that, therefore, the job of pension savings is for men and women alike, primarily to smooth the way from work to non-work worlds.
However, just because the experience in retirement may be broadly similar, that does not mean that there will be a similar experience in work patterns and that, therefore, income should be relocated from working life to pensions in the same way. It does not mean that it makes equally good sense for women as it usually does for men to smooth incomes from working life to non-working life. Whereas men probably will work throughout and build a pension throughout, women face much more of a rollercoaster of risk, to which men are never exposed, which will result in intermittent connection with the labour market.
We need to help women to smooth their incomes during their working lives—something that we do not normally need to do for men—just as we need to smooth for both genders their income from their working lives into retirement. More than most men, a woman will need a rainy-day savings account—£5,000, £10,000 or £15,000 probably—because of the risks that she will face, which will be higher than those of most men, and because, as a low earner, she is much less likely to have any protection against those risks. Her need for a rainy-day account is greater, but her likelihood of having one is less. You would expect her instead to save in a pensions account. I suggest that those poorer women simply cannot afford to have both a rainy-day account and a pension, even if they were minded to. Faced with an impossible choice, women may choose to do neither and will remain at the edge of financial risk.
How do we help such poorer women? We are very good at helping better-off men who need our help least. For example, the movement of ISAs to pensions is permitted, even if the man probably has both and can afford both. The woman needs the reverse—that is, pensions to ISAs. But ISAs alone will not do, as they do not have the tax attraction or the employer’s contribution. As far as I am aware, there is no one simple and affordable product on the market that allows women to combine short-term rainy-day savings and long-term pension savings. Would a LiSA do that?
The Tory proposals originally were probably fiscally too complex, because of the tax relief that comes into a pension pot, which would not normally be available for spending purposes, and because the American example—401(k)—was probably too loose. But we have a ready-made vehicle: the 25 per cent tax-free lump sum is available at the age of 50 now, rising to 55 in April 2010. It is often used to pay off the mortgage, the university costs of children or even to help children on the housing ladder. That lump sum can be drawn ahead of drawing one’s pension by 15 or even 25 years if one chooses to continue to work, provided that the money goes into an income drawdown fund. So you can draw your lump sum at the age of 50, although you may not need to draw your pension until you are 75.
I propose that, subject to a floor and ceiling, individuals—obviously this would be most helpful to women—could access that lump sum over their working life. The floor might be £20,000, so that there has to be something like 10 years of savings already in the pension pot. The ceiling might be £80,000 or £100,000, so that it is not distorted by clever accountants as a wheeze to pay school fees, for example. It would mean that the woman could access £5,000, £20,000 or £25,000 during her working life if she needed to, but it would have to be rebuilt before she could draw any more. For example, if she took £10,000 from a £40,000 pot, she would not be allowed any more until she had rebuilt beyond that £40,000 to, say, £60,000. She could then take 25 per cent of the difference between the £40,000 and £60,000—that is, a further £5,000.
No tax adjustments would be necessary because that sum comes tax free. It is simple. Obviously, depending on when it is drawn down, it would have investment return implications and would need to be tracked in order to consider whether, for example, there should be a limit on the number of times it could be accessed. I believe that such a proposition or something similar would, if the Government and the industry were so minded, overcome what to me is the deepest risk of mis-selling, which is not that you are not better off in retirement than if you had not saved, which is how it is usually presented, but that you are worse off in your working life because you have saved and you cannot rescind that decision or touch those savings when your need in your working life may, especially for some women, be more desperate.
We are hooked on the false assumption that you are always better off under the age of 65 and worse off over the age of 65. That is what pensions are all about. For some women that is simply not true. Yet that assumption is seldom questioned because we still think in gender terms. I certainly advise younger people with non-conventional careers or no employers’ contributions not to think of a pension but instead to go into an ISA. Poorer women do not have that luxury. However, with personal accounts and compulsory employer contributions, it is wise for a woman to go into a pension, but only if she has some rainy-day protection.
To summarise and to conclude, I cannot do, and I do not think that any of us can, the counter-factual as to how many women might save who otherwise would not or, equally important, how many—I feel that there will be a growing number—would continue saving who otherwise would be tempted to give up when it gets difficult. We know that half of all women give up when they have children. When the going gets tough, the women get out. I believe that some women face far harder financial pressure during their working lives than at retirement, but this is seldom mentioned because it is not true for the men and we still continue to model pensions on assumptions about men’s working lives.
I suggest to your Lordships that poorer women cannot afford both rainy-day savings and a pension. We may be giving them bad advice to go for a pension if through financial pressure they need access to that money earlier. That 25 per cent tax-free lump sum could allow us to bridge the risk that they face. As constructed, pensions are not an appropriate vehicle for some women. However, if there was support within government and the industry to provide a simple combined product—a LiSA—I think that that could be a win-win situation for us all. I beg to move.
I shall not detain the Committee for too long in lending my support to what is a probing amendment. As my noble friend was speaking, my mind went back some years to a time when people could draw the whole amount out of their pension funds and pay for it at the end of their lives. They could draw the whole amount out of the occupational funds. It was mainly women who did this simply because of crises during their lives—they drew it out for their children or for whatever purpose. If we want to have a saving culture that covers both men and women, this idea is certainly worth looking at. It is a probing amendment but it is something we need to pause and think about. It may or may not work but I certainly think it is worth examination. That is why I lend my support to the amendment.
I congratulate the noble Baroness, Lady Hollis. This is an interesting idea and potentially a rather valuable one. From memory, in the United States there was a similar scheme a few years back. It had both advantages and disadvantages. It illustrated the scope of what people might require and how they might be helped in this way.
It seems to me that it makes the whole concept more attractive. That is important because if we are going to have more people covered by pension saving we have to make it as obviously attractive as we can. It also means that the tax-free sum could help women in particular at particularly difficult and crucial times of their lives. The noble Baroness, Lady Hollis, said that this does not mean that your pension savings are simply locked away for life. That is a rather important point to hang on to. It recognises that many women are not able both to have a pension and to save in addition to that pension. That is the crucial point. I should have thought that anything that could be done to help in that regard should be done and is obviously of particular importance to women. This is an imaginative idea that deserves study and I hope that the Government will give an assurance that they will at least think about it and examine its potential.
I share the view of the noble Lord, Lord Fowler, that the concept is a good one. The analysis is understood and shared and the objectives are laudable and fine. This may sound like a bureaucratic point of view from the Opposition Benches, but anybody who has listened to Mr Tim Jones of the Personal Accounts Delivery Authority will know that he is absolutely fixed with the notion that this has to be a quintessentially simple scheme without any kind of embellishments—I do not mean that in a derogatory way as I think this is a fundamentally important idea.
The Personal Accounts Delivery Authority is trying to keep the administrative costs to a minimum—I understand that the tax regime would not be that different because the provision for the lump sum is already there—and I cannot help thinking that this idea would make personal accounts more expensive to deliver. If this provision were as seductive as the noble Baroness sets out, lots of people might take advantage of it. Notwithstanding that I agree with the concept, might we not find that it would be so seductive that a lot of people would go for this and we might end up with a level of expenditure and administration behind the personal accounts that would put the whole scheme in jeopardy?
I do not want to base my case on the notion that I am against this idea because I think it would cost too much but I certainly think that, if it is a probing amendment, we should be very careful in looking at the background to the costs if we pursue this idea, as I hope we will, in further proceedings on the Bill.
Having listened to the noble Baroness, I am very attracted by this concept. As a probing amendment, it has that flexibility, which anyhow is reflected throughout the Bill and, indeed, throughout the Turner report, that makes life so much easier, particularly for women, who have this rather different lifestyle. I hope that it will be looked at very sympathetically.
I have a query as to how often this could happen for one person because presumably it would be tax free. If you went out and, if you were lucky enough to be earning enough, came back into the scheme and opted out again for another crisis, how often would this be allowable? If those queries can be answered, and with the support one hopes it would get from industry and commerce, it would indeed be a very interesting concept to float and to try to get some answers for.
In welcoming the opportunity that this amendment has given for a wider ranging debate than just the element of PADA, I once again declare my interest as a partner in the national commercial law firm of Beachcroft. I also have the honour this year to be president of the Chartered Insurance Institute.
I congratulate the noble Baronesses, Lady Hollis of Heigham and Lady Dean of Thornton-le-Fylde, on giving us an opportunity to debate this issue. Pensions have always been a poor fit for the risk and realities that women face. I very much welcome their support for what was an initiative by David Willetts in launching four years ago a consultation on the paper Towards a Lifetime of Saving written by the Conservative Research and Development Policy Unit. LiSA—the lifetime savings and pension account—is a new approach which is extremely simple, clear and flexible and supports both life cycle and retirement saving. It is very much a wrapper not a product in itself and, after the consultation last August, John Redwood’s Economic Competitiveness Policy Group report endorsed the idea of a flexible lifetime savings account.
I agree with my noble friend Lord Fowler that this in an interesting and valuable notion. His reference and the reference by the noble Baroness to the Section 401 scheme in the United States gives us an example of how one can turn the cycle of what has now become a system in which it is very easy to borrow but very difficult to save. That is one of the problems the Government are now facing in bringing forward the Bill. I agree, however, with the noble Lord, Lord Kirkwood of Kirkhope, that although the concept is good, we are a little concerned that it might make the objective of PADA and Mr Tim Jones more complicated. Although it is a very good idea, attaching what one might describe as bells and whistles to the concept might make it a little more difficult to introduce and delay its implementation. However, it is important to know where the Government stand on the idea. There is no doubt that the noble Baroness is right—something needs to be done to meet the particular circumstances faced by women as well as a number of other groups in society. It is easy to regard investment in a home as the opportunity to build up resources for retirement. Indeed, we have seen a shift towards greater emphasis on property investment in the main home rather than in a more flexible savings account.
We shall be dealing with the right to access tax-free lump sums when we come to the amendments on annuities. I do not really want to go down that road although John Redwood said in his Economic Competitiveness Policy Group report that it was essential to abolish the age requirement of 75.
The noble Baroness has given us an excellent opportunity to reflect on how we can ensure that the particular circumstances of certain groups, especially women, are met much more adequately and positively by new concepts and by moving forward in a way that will positively encourage the sort of saving that we would all like to see. I hope that the Minister will come forward with some constructive proposals in response to this most interesting debate.
This has been an interesting debate; the noble Baroness has done us all a service by raising this issue. The more I listen, the more I think about it. When she introduced this probing amendment she, very fairly, asked where the Conservatives stood on this. They are not exactly progressing very fast. I remember the major initiative by David Willetts four years ago—that is quite a long consultation. I was not quite sure, listening to the noble Lord, Lord Hunt, where the Conservatives stand, even though they are keen to hear where the Government stand.
I am a bit sceptical, to be honest. The noble Baroness has rightly highlighted the problem of poorer women in particular, but whether this is the right way to solve it I do not know. It raises the question of whether a revolving pension pot, which is what she is talking about, should enjoy tax relief. In principle, it also raises the question of whether the tax-free lump sum is ultimately defensible and is the best way of dealing with pensioner poverty. It is very interesting that this debate has highlighted that possibility; the noble Baroness might say that as long as you have the tax-free lump sum, you should be able to withdraw it.
The point made by the noble Baroness, Lady Howe, about amounts going in and out and complications arising is important. I agree with my noble friend Lord Kirkwood that anything that would complicate personal accounts or make them more difficult or costly to administer at this stage is not the right way to go. I am sorry to sound a bit ministerial, but I look forward to hearing whether the Minister will be more ministerial than me.
I congratulate the noble Baroness on raising this issue. There is a government interest in this in that the more they can extend the will to save and to provide for the future more widely than at present, the less in the long term will be the cost of supporting people later on.
I am all in favour of this savings initiative that will spread the breadth and practice of saving. The Minister should not be shy about the Government encouraging such things. Long ago, when the poor did not save, a government department, called the Post Office, introduced insurance for the poor and the Post Office Savings Bank. It had a good run and provided a useful service. Regrettably, on insurance, when the private sector showed far more enterprise than the Post Office, and did good work for the poor thereby, the secretary to the Post Office, when encouraged by colleagues to employ salesmen to promote his product, wrote:
“To recruit an army of ingratiating salesmen would not be compatible with the traditions and dignity of the Post Office”.
I say to the Minister, don’t have dignity—do the business.
I thank my noble friend for a typically thought-provoking contribution; I also thank all other noble Lords who have spoken in this short debate. I understand the basis on which the amendment has been moved; it is a probing amendment to get reaction to the concept, and I will seek to set out as clearly as I can the Government’s position.
As my noble friend explained, the amendment proposes to allow individuals to access their pension savings, as a tax-free lump sum, at any point before they retire in order to encourage more individuals to participate in pension saving. I am sympathetic to my noble friend’s concern that some individuals, particularly the low paid and women, may be reluctant to commit to saving in a pension because their money would be “locked away” until their retirement. I was interested in what my noble friend said about less emphasis on smoothing income from women who are in work to retirement, and should like to reflect further on that component of her contribution. However, from a policy perspective and an operational viewpoint, this proposal goes against the underlying principles of reform at a time when it is paramount that we make pensions simpler and clearer.
Pension saving in the UK is privileged through the tax system. Tax relief is worth up to £17.5 billion per annum. The Government provide generous tax relief to support pension saving and are able to do so because pensions are less flexible than other saving products. Tax relief in pension saving is not provided to support pre-retirement income, asset accumulation or inheritance. The trade-off for individuals making pension contributions is that from the age of 50—or 55 from 2010—they can get a tax-free cash lump sum of 25 per cent of their pension fund as well as an income in retirement. That is the deal—saving for retirement is a long-term investment. I acknowledge my noble friend’s point that access to the tax-free lump sum does not have to be accompanied by retirement or indeed by a pension at that time, but I suggest that it is the start of the decumulation process. The age has been changed from 50 to 55 because at age 55 it was increasingly difficult, given longevity, to sustain pensions. Given the demographic pressures facing the UK and a tendency by individuals to underestimate their longevity, increasing retirement incomes is very important. It is the central objective of all our reforms.
Allowing individuals to withdraw some of their funds prematurely could not only undermine the purpose of providing tax relief for pension saving but reduce individuals’ income in retirement. It may also increase the risk of reliance on means-tested benefits in retirement.
In addition to this fundamental objection to the proposal, I am concerned about the practical implications and repeat what others have said. Any pension schemes used under the employer duty would have to absorb the costs of this extra functionality, particularly if access were to be restricted to prescribed circumstances. That might involve costly changes to scheme rules and there would be additional processes around transactions, payback periods, deciding on the reasons for access, verifying those reasons for access, pursuing outstanding funds, and so on. This would lead to greater costs for employers or scheme members depending on how the scheme administration was paid for. This is not just an issue for personal accounts. If you had this facility, you could not just focus it on personal accounts, and how it would work for a defined benefit scheme would be a particular challenge.
Of course we recognise that there are times when people need to access funds for emergencies, but to cope with the complexities of life, individuals have the option of saving for the long term in a pension and of putting something away in a shorter-term tax-free savings product, such as an ISA, for rainy days. I accept the comment that it might be a struggle for everyone to save in two different pots, but from 2010 the savings gateway will provide stronger savings incentives. Through a matched contribution the scheme aims to kick-start a saving habit among people on lower incomes, enabling them to plan for the future and cope with financial pressures. The savings gateway will provide a better way to target those who want to access liquid saving, rather than allowing everyone to have early access to their pensions.
I remind noble Lords of the changes that have been made to help women in particular achieve a decent income in retirement. There have been transformational changes to the basic state pension, which we passed last year. There have been changes to S2P, and there is the whole concept of auto-enrolment and the scheme that we are discussing in this Bill, focused on people with low to medium earnings—the group, regrettably, within which women are overrepresented—to help them into saving.
My noble friend referred to research. We believe that there is little evidence to support the assertion that low-paid individuals are unlikely to commit to pension saving because their money is locked in until retirement. Several sources, including DWP and international evidence, suggest that there is little demand for a facility that allows individuals to access their pension savings before retirement. DWP qualitative research in 2006 found that individuals felt strongly negative about the option of allowing people to access their pension funds for reasons other than their retirement. They felt that it was incongruous with the scheme’s aim of encouraging people to save. I believe that the US experience in the 401(k) accounts is that there was only 18 per cent take-up of the drawback facilities and no strong evidence to suggest an attraction to increased saving through that facility.
Finally, we should not forget that from 2012 all individuals will retain the choice as to whether to save in a qualifying scheme or whether a more liquid product might better suit their needs. There is a range of pension and tax-efficient savings products to suit individuals in all circumstances. Trying to address all of life's potential future complexities in one financial product would make schemes administratively burdensome and costly. There are substantial downsides as well. People who get into financial difficulties and have the facility to access scheme funds earlier could put those funds in the hands of creditors whereas they would otherwise be protected through the pension scheme.
It is paramount that our pension reforms focus on the key goal of increasing pension savings by providing simple and appropriate products. The amendment would undermine that. As I am sure my noble friend is well aware, it would be impossible to have a qualifying scheme if we adopted this proposal as it stands because you could not have a scheme that was registered under the Finance Act 2004 and that had these provisions. I know that she is aware of that. If we were ever to go down this route, the other place would have to change the tax rules to enable lump sums to be withdrawn from a pension scheme earlier. I am sure that she is aware that there is no great appetite for that.
I know that my noble friend will withdraw her amendment, because it is a probing amendment. I have no doubt that she will not see this as the end of the debate and that she will continue to develop and articulate this issue. However, I earnestly say to her that wherever that debate leads, there is no great appetite for this within the industry that we can discern. I have raised it anecdotally with a few people, though other people's experience may be different. But whatever the appetite, I do not believe that this is a matter for this legislation. I do not doubt that my noble friend will continue to develop and campaign around the concept. Nevertheless, I would ask her to withdraw the amendment in the interim.
“Campaign” may be putting things too strongly. First, I thank noble Lords. I am grateful for the range of contributions; they were thoughtful and helpful. Perhaps I may comment on the concerns that people raised over and beyond the support from the noble Lord, Lord Fowler, and my noble friend Lady Dean. The noble Lord, Lord Kirkwood, said that PADA offered essentially a simple product, a point reinforced by my noble friend the Minister, and that this amendment might add bells and whistles that would make it more expensive to deliver. I accept that it would make what is currently a simple product more complicated. My argument is that it would make it more attractive and would produce greater staying power and robustness in the longer term as a result.
Much of my noble friend’s speech seemed to miss the point: “Pensions are for retirement; therefore retirement savings are for retirement”. Yes, we know that. The problem arises when people feel that they cannot afford retirement savings because they may face a higher risk in their pre-retirement age. How do you manage to persuade them not only to auto-enrol, which I think they will do, but to continue to save at points of crisis? The alternative may be to go for high rates of debt, rates of 15 per cent or 20 per cent, when the CAB will say, “Stop making your pension contribution”. My noble friend has not begun to think about how we keep women in auto-enrolled schemes when the first financial crisis begins to hit. They will auto-enrol—inertia will see to that—but they will not necessarily stay in. Currently, half of all women drop out of a pension scheme on the birth of their first child. It will be even higher with auto-enrolment because they did not make a conscious choice to join in the first place, unlike today's schemes.
I heard what the noble Lord, Lord Hunt, said, and I thought that his words were very elegantly phrased. He said that pensions were “a poor fit for the risks and realities that women face”. One of those risks and realities is the rollercoaster of risk through lone parenthood and financial problems. A product such as this would simply add a top slice of liquidity to a pension pot. That is all that it is doing. We have that top slice of liquidity now and it is called the tax-free lump sum. It is already divorced from pensions and payment. You can take it at 50 though you may not take your pension until you are 75. All I am trying to do is to remove the age bar.
I accept that that complicates the product and that PADA would therefore not want it now. I accept that without industry support it will not go anywhere, and I accept this may be an appropriate subject to return to in the 2017 review if, as I hope, industry and Governments of any and all persuasions follow this through. But I think that we will have a problem of staying power with auto-enrolment when women hit their first financial crisis and cannot access their savings. This product might help to keep them in when otherwise they would opt out. As for how often, I would not put a limit on the circumstances in which you could access the funds. That would be unnecessarily intrusive, as my noble friend suggested. You might wish to limit the number of times you could access them in order to keep the tracking mechanism simple, but I would not want to prescribe the circumstances.
As I say, I think that my noble friend missed the point. He talked about how much we have done for women’s income in terms of the changes in pensions in retirement. That is precisely my point. Women will do relatively much better in retirement as a result of all the changes that the Government have made. But we have not helped them fully to address the risks pre-retirement. If we do not, that may damage the very agenda that my noble friend has for post-retirement issues. There is still a failure of mindset to engage in the risks and realities for women which the noble Lord, Lord Hunt, described.
This may not be the right solution and I do not expect industry to be enthusiastic. Why would it be? This would be a product sold to very poor women, with poor returns. The Government should realise that, if women have to choose between current rainy-day savings or money in an emergency and longer-term pensions, most women—and there is plenty of DWP research to support this hypothesis—will cut back on pension saving. They, and we, will be the poorer as a result.
I have said enough. I am grateful for noble Lords’ contributions to this short debate. I hope that my noble friend will take this away. I would like to see the department beginning to carry out some research on this, possibly on an all-party basis, to see whether there is a market and a need and whether it is structurally viable. Some time down the road—and I take the point about DC schemes, DB schemes and all the rest, so it is a longer-term haul—if the Government are so minded, when we come to the review in 2017, perhaps such a project could be added to the Bill that will be winding its way through your Lordships’ House. Under those circumstances, and again with gratitude for the contributions, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 [Automatic enrolment schemes]:
moved Amendments Nos. 54 and 55:
54: Clause 16, page 8, line 9, leave out “the scheme is an occupational pension scheme which” and insert “it”
55: Clause 16, page 8, line 11, leave out “the scheme” and insert “it”
On Question, amendments agreed to.
moved Amendment No. 56:
56: Clause 16, page 8, line 11, at end insert “, and
(c) it satisfies any further conditions prescribed.”
The noble Lord said: I shall speak also to the amendments grouped with Amendment No. 56. Qualifying schemes used for automatic enrolment will need to meet minimum standards beyond those set by the existing regulatory framework. This is the case for both workplace personal schemes and occupational schemes. The Bill already provides for certain minimum standards for schemes used under the employer duty; for example, the minimum contributions required for money purchase schemes at Clauses 19 and 25. It also contains powers in Clause 15 to prevent qualifying schemes requiring excessive charges or contributions from active members.
We recognise, however, that it may be appropriate to introduce further safeguards specifically for automatically enrolled members. The market will undoubtedly develop up to 2012 and beyond. We therefore need to future-proof our policy, and may need to introduce additional qualifying criteria for schemes used for automatic enrolment. Amendment No. 56 will give the Secretary of State the flexibility to allow additional qualifying criteria for schemes used for automatic enrolment to be specified in secondary legislation if necessary. This power will be subject to the affirmative procedure to allow both Houses an opportunity to scrutinise any such requirements. Amendment No. 57 is a technical amendment to clarify the language in Clause 16 following Amendment No. 56.
The noble Lord, Lord Oakeshott, and the noble Baronesses, Lady Thomas and Lady Greengross, are concerned about the level of charges in qualifying schemes. Our current evidence suggests that most occupational schemes have charges that enable individuals to accrue meaningful savings. The Pensions Commission found that charges in DC occupational schemes tend to be under 0.6 per cent, depending on the size of the employer. Similarly, we do not presently have reason to believe that charges to active members in workplace personal pensions are currently excessive. Although there are no comprehensive data, our understanding is that most large WPPs have charges of around 0.4 to 0.8 per cent annual management charge. Charges in group stakeholder pensions are capped at 1.5 per cent annual management charge for the first 10 years, and 1 per cent thereafter.
We are commissioning research to help us understand more fully some aspects of the overall pensions market, the products within it and practices. As part of this we are exploring current practices in the WPP market, such as charging and the investment options provided. This research will inform our considerations on the need for additional qualifying criteria and our planned consultation with stakeholders. We will, of course, be seeking both the views of the industry around best practice in areas such as charging and approaches to default investments, and those of consumer representatives about what further safeguards, if any, are needed to ensure that individuals have the right level of protection in these schemes. Given these assurances I ask the noble Lord and the noble Baronesses not to press their amendments. I beg to move.
Notwithstanding what the Minister said I should like to speak briefly to Amendment No. 60 in this group in the name of my noble friend Lord Oakeshott and myself and Amendment No. 78 in the name of the noble Baroness, Lady Greengross. As the Minister said, the amendment continues the debate about the quality criteria for workplace pension schemes, both money purchase schemes and personal pension schemes. In particular, it is important that workplace pension schemes should be low-cost, have no transfer penalties and have an appropriate choice of funds, including a good default option. The amendment would ensure that total employee and employer contributions in workplace pension schemes, net of all costs and fees, will be at least equal to the level of default contributions in personal accounts. It is worth noting that the Pensions Commission’s second report recommended that auto-enrolment into an employer DC scheme—I think that the Minister alluded to this—should be permitted if,
“the employer's contribution is at least the same level or greater than the minimum compulsory match in ... Personal Accounts, or if the combined employer and employee contribution exceeds the combined level in the scheme, taking into account the level of charges”.
This amendment is supported by, among other groups, Which? and the Equality and Human Rights Commission. I look forward to further comments from the Minister.
I support this amendment, to which my name is added, and would also like to speak briefly to Amendment No. 78. As we know, the amendments seek to ensure that auto-enrolled pension schemes meet additional quality criteria beyond the 3 per cent. I am pleased that the Minister has brought forward his own amendments on this important issue. Much of what I want to say has been covered in the debate, so I welcome the Government’s recognition that they must take account of the quality of workplace pension schemes if workers are auto-enrolled into them. Now that the European Commission has provided reassurance that auto-enrolment does not break the distance marketing and unfair commercial practices directives, the Bill has already been amended to enable this to happen.
Before I turn to the other amendment, perhaps I may briefly say something about levelling down. We have read quite a lot in the media over the past few days that personal accounts could represent a threat to existing pension provision. I do not think that that will be the case. It would be very serious if it were the case. It is certainly an unfortunate and bad message to be promoted. It could mean that employees—the very people we are trying to help to improve their pension provision—lose confidence in personal accounts before they have begun because of negative media coverage.
It is suggested that employers will level down their contributions to 3 per cent, the minimum required by personal accounts, or, even worse, stop providing pensions for their employees altogether. I am not sure why they would do that as a result of this Bill. I cannot understand that. My view is that the threat of levelling down could be one that we have to face in any event. But the threat is not created by this Bill or personal accounts, because employers can reduce pension benefits. As we know, regrettably, some have done so. It is one of the reasons why my noble friend Lord Turner was asked to chair his review and why he recommended what have become personal accounts. It would be a strange unintended consequence if the very thing that the commission recommended was the cause of declining pension provision. I very much hope that rather than levelling down, employers will increase pension benefits for all the reasons that we are debating the Bill, such as taking into account rising longevity.
Just prior to Second Reading I hosted a briefing session on the Bill on behalf of the People’s Pension Coalition which was attended by all the major stakeholders and many noble Lords, including the Minister. I recall that my noble friend Lord Turner—I send him my congratulations on his new role—argued that personal accounts were carefully targeted at those who make little or no pension saving or have no access to a good employer scheme. We know that this is the group that is currently not well served by the pensions industry. I therefore see personal accounts as an add-on to existing provision, not a threat.
That is relevant to my other amendment because the threat, if any exists at all, may turn out to be to personal accounts rather than to existing schemes. I assume that auto-enrolment into workplace pension schemes will reduce the number of people who would otherwise have become members of personal accounts. That is a debate for another time, but can the Minister tell me what impact it may have on PADA’s planning assumptions? This matters because auto-enrolment into workplace pensions means that the existing non-occupational contract-based providers are likely to get many new members without much, if any, effort at all—probably at zero marketing cost. I support that, as have all the main stakeholders; they all recognise that this should increase pensions saving.
As Members of the Committee will know, the stakeholders wrote to the European Commission to support auto-enrolment and the broad thrust of the Government’s pension settlement following the Turner commission. I have seen a copy of that letter, which said:
“It is important to ensure savers get a fair deal. The legislation currently being discussed by the UK Parliament (the Pensions Bill) gives the UK Government wide powers to establish a quality threshold that can effectively protect consumers. The Government has committed to consult and seek consensus from all the stakeholders, including the Financial Services Authority, about this”.
The amendments with my name to them were tabled to ensure that this happens and that the other schemes into which consumers may be auto-enrolled are at least as good as personal accounts. We do not want employees enrolled into high-charging schemes with poor investment choice and unfair transfer penalties.
The wording of my Amendment No. 80 is carefully chosen. The words are used by the Pensions Commission itself. On page 306 of its second report, it recommended that auto-enrolment into an employer DC scheme should be permitted if,
“the combined employer and employee contribution exceeds the combined level in the scheme, taking into account the level of charges”.
The “scheme” now means “personal accounts”. This was an implicit acknowledgment of the negative impact of charges. Yet the Bill is silent on what additional quality criteria there should be, although I know that the Minister has spoken on that. We do not want to go back to the bad old days of high-charging, poorly performing and ineffectively governed private pensions, especially if workers have not really chosen to join them but have been auto-enrolled.
I know that the Minister will be unable to accept the amendment, but I hope that he will accept the principle. The reassurance that we sought was that a comprehensive survey of existing workplace personal pensions will take place—the Minister has said that there is one—and that they will be monitored by the Government in the run-up to 2012, with the involvement of the FSA and the Pensions Regulator. The Minister has indicated that the Bill will allow the Government to make regulations to set additional quality criteria if that is necessary, as I think it may well be.
I support both Amendments Nos. 60 and 78 and the arguments put forward by my noble friend Lady Thomas and the noble Baroness, Lady Greengross. In confirming the noble Baroness’s fears over some of the levelling down, the important PricewaterhouseCoopers report, reported in the financial pages of today’s Guardian, is significantly worrying to me. Although colleagues across the Committee are accustomed to the trend of closing defined benefit schemes to new employees, the report clearly demonstrates that 16 per cent of participants have closed their DB schemes to future accrual by existing members and that another 11 per cent expect to do so. That is a worrying degree of change in a short time and I hope that the Government are actively considering it. It supports the argument and adds detail to the important points made by the noble Baroness. I hope that the Government have something to say on that trend, which, if sustained, will be extremely worrying.
However, having listened to what the Minister said, I am particularly concerned about the impact of Amendments Nos. 60 and 78 on small—I mean small—enterprises: the kind of businesses that are the mainstay of the economy of my home region of south-east Scotland, in the Borders. If the Government are doing this work—I am glad that they are—can we have some assurance that specific parts of it will address micro-businesses and not just small enterprises in the normal sense of the phrase? The Minister was reassuring in that he said that this work is being done. My worry is that most of his approach addressed much bigger enterprises and companies of a scale that are more realistically able to limit administration costs. I am thinking of family businesses with five or six employees, maybe 12 at most. I hope that, in any work that the department does in investigating these important matters, it has a special section that satisfies itself that the condition applying in those circumstances will be adequately addressed, as well as the conditions for the bigger, more professional schemes with teams of accountants who can more easily deal with these things administratively.
I shall make a brief response. The noble Baroness, Lady Greengross, hopes that levelling down will not occur. We will return to that as we go through our Committee stage. Certainly, some of the evidence that is starting to come from organisations such as the ABI shows that employers are increasingly concerned about how compliance with the personal accounts scheme—we will come to this again, probably later this evening—and how definitions work in the current scheme are pushing them towards levelling down, because it is too much like hard work to comply. We will return to that theme. We cannot regard it as an idle threat. It is a real problem, which we must bear in mind.
The Minister prayed in aid his friend flexibility when he introduced his amendments. I hope that flexibility will not accompany him to the Dispatch Box for every amendment that he moves today, but we shall see.
I have one comment on the amendments on charges that the Liberal Democrat Benches and the noble Baroness, Lady Greengross, have spoken to. When the Pensions Commission report came out, there was a great focus on charges. A criticism of the report was that charges are just one side of the equation and that the report did not look at returns. If we simply concentrate on whether charges are higher or lower than the eventual level in the personal accounts scheme—we do not know what that is, or whether we will achieve the aspiration of 0.3 per cent—and do not look at returns, we will mislead ourselves. Looking only at the charging levels is a narrow approach to comparability. I accept that charging can have a big impact on net returns if gross returns are equal between investment opportunities, but they are not. I therefore hope that that will be taken into account when those who have tabled these amendments consider what to do with them.
The noble Baroness, Lady Noakes, should accept that charges are exceptionally important in the case of personal accounts. Almost by definition, personal accounts will be a simple—I expect an index-tracker—type of product. Uniquely—this applies more for personal accounts than for any other form of investment medium—charges are critical. Returns obviously matter, but charges are particularly important for personal accounts.
I thank all noble Lords who have contributed to the discussion around the amendments. I think that we agree that the level of charges is an important component in making sure that auto-enrolment and personal accounts work. I confirm to the noble Baroness, Lady Greengross, that the power that we are taking in our amendment will provide the flexibility to address that issue if our research shows something untoward or difficult in how charging is undertaken in workplace personal pensions. The issue has not reared its head as a problem thus far, but we need to do the research in relation not only to that but also to how default investments work. We need to address that, which is the purpose of the government amendment.
The noble Lord, Lord Kirkwood, said that he hoped that we would focus particularly on micro-businesses. The research is focused on industry practice around these products and opportunities, although I take the point that the issue of how industry practice relates to different sizes of business should be covered.
The noble Baronesses, Lady Greengross and Lady Noakes, and the noble Lord, Lord Kirkwood, referred to levelling down. That is an important issue. Our reforms are designed to complement and not to replace existing employer provision. A number of key measures will help to focus the personal accounts scheme on those without access to existing pension provision and to discourage levelling down. These will include a ban on transfers between existing pension schemes and personal accounts, as well as an annual contribution limit for the personal accounts scheme, which was set at £3,600 in 2005 earnings terms. Employers with existing good schemes will be encouraged to continue offering them via a straightforward qualification test, which we will discuss shortly. New minimum contribution requirements will be phased in over three years. PADA must have regard to the impact on existing qualifying provision.
Our research shows that most employers with good schemes support our reforms and that the majority, particularly the larger employers, plan to maintain their schemes at current levels. However, we are not complacent and we need to continue to track employer attitudes and likely reactions to the reforms as we move towards 2012. There is a worldwide decline of DB schemes for reasons that we have discussed on a number of occasions. We have taken care to ensure that qualifying tests for DB schemes are workable. We have also put in place phase-in arrangements.
It is too early to say precisely what the charging structure will be for personal accounts and what levels can be achieved. PADA does not yet have the full authority—I hope that it will do as a result of the Bill—to complete its work in designing the scheme to engage with providers of various services. It has launched consultation on how charging might take place, so that is very much work in progress. Personal accounts were predicated on low charges, because over the lifetime of a pension scheme they can make a significant contribution to the end result, as can investment policy. I hope that noble Lords will feel reassured and not press their amendments, because we are taking a power to deal with the issues on which we have focused.
On Question, amendment agreed to.
moved Amendment No. 57:
57: Clause 16, page 8, line 12, after “conditions” insert “mentioned in subsection (1)(b)”
On Question, amendment agreed to.
Clause 16, as amended, agreed to.
Clause 17 agreed to.
Clause 18 [Personal pension schemes]:
moved Amendment No. 58:
58: Clause 18, page 8, line 33, leave out from “scheme” to end of line 35
On Question, amendment agreed to.
Clause 18, as amended, agreed to.
Clause 19 [Quality requirement: UK money purchase schemes]:
moved Amendment No. 59:
59: Clause 19, page 8, line 38, leave out from “scheme” to “satisfies” in line 39
The noble Lord said: We have been told several times that, in order to be deemed a qualifying scheme, a United Kingdom occupational money purchase scheme must have rules that assure an employer contribution of at least 3 per cent of qualifying earnings and total contributions paid by the employer and jobholder of at least 8 per cent, including tax relief. In other words, it must be as good as or better than a personal account.
However, I am confused, because the Pensions Act 2007 legislates for the repeal of contracting-out arrangements for money purchase schemes currently provided for under the Pension Schemes Act 1993. The Explanatory Notes state:
“However, in the event that this has not occurred when the employer duties commence, subsection (2) enables regulations to be made to modify the contributions required for money purchase schemes that are contracted out … It will not be possible to increase the minimum contributions required for money purchase schemes, including the scheme established at Clause 58, without amending these sections”.
Why can this not be done under the procedures in the 2007 Act? There is plenty of time before 2012, when the Government are adamant that personal accounts will roll out.
As I understand it from government amendments, a hybrid scheme, no matter where it is owned, can be a qualifying scheme as long as it is managed in the United Kingdom, but if it is both owned and managed overseas, it cannot qualify except in certain circumstances. Government Amendments Nos. 76, 77, 79 and 80 to Clause 25—I except Amendment No. 78 in the name of the noble Baroness, Lady Greengross—make provision for non-UK-based schemes potentially to qualify if they are properly regulated. My noble friend Lady Noakes will speak about them. What does that mean for schemes that have their being in the European Union or the EEA? I should know the answer to this, but could schemes operating in and under the regulating powers of, for example, France or Germany still qualify? It seems from Clause 17 that they could. However, just because it is an occupational retirement provision within the meaning of the IORP directive does not help me very much. The definition of the IORP directive in Clause 86, while technically correct, is not exactly clear. IORP should be set out in full—“institutions for occupational retirement provision”—and not as an abbreviation, especially as I am told that is so called by practitioners. I hope that these schemes are to be regulated to the standards that we have in the United Kingdom. What, therefore, are the differences, if any, between the IORP regulations and our own Pensions Regulator?
Although I have not put down a specific amendment to this effect, I would also like to probe paragraph (c) of Clause 17, which allows the Secretary of State to prescribe a pension scheme that has its main administration in jurisdictions that are not in an EEA state. Will the Minister give me an undertaking that such schemes will not be prescribed unless their regulation is at least as stringent as ours? After all, by definition, they are not covered by the IORP directive. I beg to move.
Clauses 19 and 20 set out the quality requirements for UK-administered money purchase and defined benefits schemes acting as qualifying and auto-enrolment provision under the employer duty.
Amendments Nos. 59 and 66, spoken to by the noble Lord, Lord Skelmersdale, would extend the scheme quality provisions to include qualifying money purchase and contracted-out defined benefit pension schemes administered anywhere in the world. It is very much our intention to enable employers who wish to use occupational schemes based outside the UK to do so under the duty, provided they meet the necessary regulatory and quality standards.
However, while we are confident that all UK schemes fall within the categories of defined contribution, defined benefit or hybrid schemes, we cannot make the same assumption about schemes based elsewhere. It is possible that overseas schemes will have different benefit structures that will not be assessable against the quality requirements we have put in the Bill. Given the potential diversity of occupational pensions arrangements around the world, it is not possible to set out global standards in the Bill. That is why we have taken regulation-making powers, at Clauses 16 and 24, to set out additional regulatory and quality requirements for overseas schemes and to respond should new types of scheme emerge in the future.
The noble Lord asked about contracting out. The commitment to abolish contracting out is to be introduced by the end of the next Parliament. In the event this did not happen before the duties came into effect, we need to ensure that contributions in contracted-out money schemes are appropriate. However, there is no intention to change contributions through primary legislation. I may need to come back to that point after reading the record. As regards the point the noble Lord raised on Clause 17 and occupational pension schemes, he is right that an occupational pension scheme is defined under paragraphs (a), (b) and (c) of that clause. Paragraphs (b) and (c) concern those administered elsewhere than in the EEA and those that come within the IORP directive. Incidentally, as regards the point about drafting and the terminology, we shall wish to consider whether this is appropriately described.
I direct the noble Lord to Clause 24, which states:
“The Secretary of State may by regulations make provision as to the quality requirement to be satisfied in the case of an occupational pension scheme within section 17(b) or (c)”.
Therefore, we are dealing with occupational schemes here, not personal pensions. Clause 24 picks up the point about schemes that fall within Clause 17(b) and (c).
I should like to reflect on the issue that was raised about contracting out and what that means in terms of contributions and write to the noble Lord as I am not sure that my explanation was particularly coherent. I hope that that enables the noble Lord to withdraw the amendment at this juncture, but if he is not satisfied he can return to it at a later stage.
I am very grateful to the Minister. He will be relieved to hear that this is one occasion when I approve of flexibility. Therefore, I do not intend to seek the Committee’s opinion on the various matters that I set out.
The Minister said that he would write to me. I am very willing to accept a letter, which may result in a little chat with some of his advisers. I have no doubt that as we go through the Bill other matters will arise on which a little chat will be desirable and save a lot of time. He said that the commitment given during the passage of the 2007 Bill, now the Pensions Act 2007, concerned the alterations to be made to contracting out by the end of this Parliament. This Parliament probably has another two years to run. As the Government are determined to do this, I can see no good reason why they should not do it in that time, but perhaps the Minister’s letter will answer that point. I rather hope that it will.
The other matter concerns the regulatory requirements for those schemes registered in jurisdictions that are not in an EEA state. I hope that the Minister’s letter will also respond to that point. I cannot take this matter any further tonight and the Minister is devoid of ideas in that regard. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 60 not moved.]
moved Amendment No. 60A:
60A: Clause 19, page 9, line 2, leave out “jobholder’s qualifying earnings” and insert “aggregate qualifying earnings of all jobholders in the scheme”
The noble Baroness said: I shall move Amendment No. 60A and speak also to the other eight amendments in this group.
These are, for today's debate, probing amendments, dealing with the difference between qualifying earnings as proposed in the Bill and earnings definitions widely used in existing pensions provision. We had a first canter round the course on this at the very end of our first Committee day when my noble friend Lord Skelmersdale moved Amendment No. 42. The Minister said that this was work-in-progress, but he gave no hint of what the finished product might look like and so I shall use this group of amendments to test him a little further.
I apologise in advance for the length of my remarks but this is an important topic. It raises complex issues for which the solutions that my amendments explore are, in turn, not easy. I have tabled these amendments to the quality requirements for money purchase schemes in Clause 19, but the issues apply equally to personal pension schemes in Clause 25. When we return to these issues on Report—I think it is fairly certain that we shall—our amendments will cover Clause 25 as well.
There is also the issue of whether the definition of qualifying earnings in Clause 12, which is the definition which drives both Clauses 19 and 25, ought also to be amended because of its impact on defined benefit schemes, and I shall be asking the Minister about that as well.
There is a basic question behind these amendments: how much disruption to existing pensions provision are the Government seeking to make and, linked to that, how much levelling down are they prepared to risk? The Committee will be aware that the approach to contributions in this Bill is not in line with pension practice at present. The use of an upper and lower limit, while understandable in the context of the default personal accounts scheme, is not used in private sector money purchase schemes. Typically, they have no such limits or bands. However, the most significant difference is the definition of earnings. The Bill uses a definition which includes commission, bonuses and overtime. Definitions vary in private sector schemes, but the practice now is overwhelmingly to focus on a definition of basic earnings. Sometimes some elements of variable pay are included, but these are increasingly rare.
So the problem is that the way private pensions work at present does not fit easily into the Bill's view of qualifying earnings. Because the private sector schemes do not have lower or upper thresholds, contributions will generally be calculated on a higher amount than the Bill requires, but there will be exceptions, particularly among lower paid employees with a large element of variable pay such as commission.
The problem is exacerbated by the pay reference period which we expect the Government to set in line with the payroll periods used by employers; that is, weekly or monthly. Where an individual has a variable element of pay in one or two pay reference periods, the calculations under the Bill may well produce a spike in required contributions which, in that pay period, and that pay period alone, are higher than the amounts that the employer calculates under his existing pension scheme. Taken over a whole year, the employer's scheme may produce a higher amount of contributions, but it would fail the test set out in Clause 19 because of its focus on the pay reference period.
I am sure that noble Lords will have seen the rather complicated calculations that produced that result, and a number of submissions from outside organisations have exemplified the problem. I hope that the Committee will not ask me to make mathematical proof of the issue. There is a consensus among both employer groups and those associated with pension provision that there is a real problem here. My amendments in this group set out a number of ways of tackling the problem, and I shall spend a few minutes of the Committee’s time explaining the amendments and the solutions that they offer.
Amendments Nos. 61, 62 and 63 are the ideal solution from the employers’ perspective. They allow the quality requirements to be met by reference to the definition of “earnings” as used in the employer’s own scheme. I expect that the Minister’s answer will be along the lines of, “We must not let employers manipulate the definition of earnings in order to evade the obligations that the Bill sets out”. Of course, the vast majority of employers would not even think about doing that. In any event, the compliance regime in Chapter 2 could easily be expanded to cover the case of deliberate manipulation of earnings components to avoid the basic intent of the Bill, if that were the only objection to using the employer’s definitions of earnings.
My other definitions are less than ideal but try to preserve the employer’s ability to operate schemes with different definitions on a modified basis. Amendments Nos. 60A, 61A, 61B and 62A propose that an aggregate test be adopted, so that if the employer could satisfy the tests over the whole of its workforce, the quality requirement would be met. In effect, swings and roundabouts between employees would be tolerated. That might well mean that some employees ended up getting less than others in terms of individual contributions allocated to them, but the employer would at least be meeting the overall 3 per cent limit.
The Minister cannot accuse employers of cheating with this group of amendments, but he may respond to them, as well as to those for basic earnings, that a definition that resulted in less saving for some jobholders would be unacceptable, and that the implementation of the Bill in terms of producing replacement income in retirement must be tested at the most granular level of each employee. It has been put to me that the Government’s approach is nothing like the usual 80-20, where you try to get 80 per cent of the benefit for 20 per cent of the effort or the cost. It is not even based on getting 99 per cent of the benefit, but it seems to be based on an absolute need to avoid disbenefit to some infinitesimally small fraction of employees overall; at least that is what we understand the Government’s position at the moment to be. I warned on Second Reading about the best being the enemy of the good, and I hope that the Minister is mindful of that when he responds.
Amendments Nos. 64 and 65 attempt other ways of solving the problem. Amendment No. 64 says that the Secretary of State could fix the pay reference period for the purposes of the quality requirement in Clause 19 as a different period, so that the quality requirement for the employer schemes could be tested, say, annually, instead of by reference to the individual pay reference period linked to payroll. That is not the same as the aggregate test, as it would still require the test to be met at the level of the individual employee, but it would be established over a longer period, which would allow employers to get the benefit of not having their schemes ruled out because of the spike effect of particular variable pay in certain pay reference periods. Amendment No. 65 is a last-ditch attempt to preserve existing schemes and says that if, when calculated over a longer period, there is still a shortfall in contributions, the employer can make up the difference within three months.
It is far from clear that employer-based schemes will be preserved if we cannot use employer-specific definitions. The NAPF has pointed out that there are big legal and actuarial costs involved in changing scheme rules to meet the Bill’s definitions and that the monthly calculations will add administrative costs. If employers adopt the Bill’s definitions to replace their own, the DWP will have forced employers onto a path that leads inexorably to levelling down. It will not be surprising if employers decide that if they have to change the definition of earnings, they might just as well change the bands as well and, if they go that far, why not just use the minimum percentages or the personal accounts scheme? Levelling down is a big danger and, whatever the DWP’s surveys from last year show, now that employers are confronting the detail, the NAPF and the ABI are reporting that levelling down is now the most likely path. Currently, employers pay an average of 6 per cent into DC schemes, which is double what the Bill requires; that is what is at stake.
The issue is not just one of the complexity and cost of handling pension contributions on a different basis than current practice, though that is certainly important. We also have to add the cost and complexity that will be caused for the compliance regime, especially for small and medium-sized employers. Employers are concerned that the Government have not appreciated the real burdens that build up under the Bill.
I said at the outset that I would be asking the Minister about the definitions of qualifying earnings and defined benefit schemes. My initial thought was that the issue of qualifying earnings had no relevance to defined benefit schemes because, unlike DC schemes, the calculation of contributions does not drive benefits, but Clause 22, which sets out the criteria for a DB test scheme, also defines the accrual rate of pensions by reference to qualifying earnings, which is simply not in line with how DB schemes work in practice. Why on earth is the DB test scheme standard phrased in a way that is alien to the workings of DB schemes currently in existence? Are the Government really set on the destruction of the vestiges of private sector DB provision?
My amendments seek to amend the Bill to give flexibility for both existing and future occupational pension schemes. We on these Benches want employers to own the concept of retirement provision for their employees. There is another route, which is based on protecting existing schemes, but forcing new ones into the Bill’s straitjacket; grandfathering. The Minister expressed concerns at our last Committee day that grandfathering has its own problems for sustainability and complexity over time, but it is another possible route and it should be carefully considered. I hope that the Minister will agree that we need to amend the Bill and that he will have something positive to say in response to my amendments. I beg to move.
I indicated where we stand in general on these amendments in my comments on Amendment No. 42 on the previous Committee day, so I do not propose to say much more at this stage. I reiterate how grateful I have been for the representations and meetings that we have had with people such as the EEF and the NAPF and providers such as Norwich Union, Scottish Widows and Standard Life. They make a fair point. I quote the Norwich Union, saying that accepting fluctuating contributions, including bonuses and overtime,
“is not standard industry practice and would therefore increase the costs of running pension schemes by tens of millions of pounds, reduce returns for savers and add complexity to employers’ decision making and administration”.
The response that we heard at the end of the previous Committee day did not encourage me that the Government were thinking hard enough about how they could deal with these points and ensure that unnecessary costs were not imposed on good quality existing schemes.
I do not share the rather extreme concern of the noble Baroness, Lady Noakes, who asked whether the Government were set on the destruction of the remaining vestiges of defined benefit pension schemes. That is rather alarmist, and if the Government are having that effect it is by not really thinking things through properly. I do not think that it is deliberate. This is a genuinely difficult problem on which we all need to work together to find a solution. Again, I stress that I thought the People’s Pensions Coalition had some good points when it was concerned to maximise the effective employer contribution in schemes, particularly for lower earning employees who are obviously most at risk. If they do not build up their pension enough, they will fall into the means-test trap.
I am sorry if I sound rather on the one hand and then on the other, but these are genuine points. Grandfathering is a possibility but I am afraid—this is where we are lucky that there will be several months between the Committee stage and Report—it is incumbent on the Government to think long and hard, and to come up with some limits themselves. We would much rather that they did that. I do not know the answer but I know that the Government do not have it right yet.
I also share some of the concerns. Like the noble Lord, Lord Oakeshott, I do not want to repeat the comments I made briefly at the end of the previous Committee day. Clearly, there are concerns about investment behaviour, burdens on industry and trying to establish what the appropriate contribution rate would be on short-term payments of earnings when overtime in the retail trade, for example, might fluctuate each week by two or three hours, requiring adjustments to be made.
I do not have a solution, but I understand that the industry and the Government are seeking ways though it. They may need more time. The noble Baroness seemed to suggest that she would come back on Report, which is likely to be in October, and that discussions would take place over the summer. My noble friend should be in no doubt that concern is widespread and that the Government will have to address these issues.
Amendments Nos. 63 or 64, which will allow annual terms of reference so that calculations can be done just once during the year, may be the very least that the Government should be moving towards. We all want to ensure that an individual ends up in the best-buy outcome. We all want to build in checks against perverse behaviour by employers, which can perhaps be seen by regulation by the TPF. We also want to ensure that there are no other hassle inducements for employers to desert their existing schemes. Clearly the advantage is both higher rates of contribution and not having that first £5,000 basic excluded because of the problems of calculating weekly or monthly contributions that both employer and employee have to make.
I hope that my noble friend will bear in mind the serious concern that has been expressed around the Committee and that over the summer he will work towards a more satisfying and satisfactory solution than we currently have on the table.
I rise to support my noble friend. She highlighted a number of problems that have also been mentioned by the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Hollis.
I have been made aware of the research on this issue, which shows that the cost of levelling down in the insurance-based pensions market alone could witness a fall in annual contributions of £900 million. If someone on average earnings of £24,000 a year is switched from a typical DC scheme to personal accounts at the minimum statutory level, they could be £5,000 a year worse off in retirement.
That is why I was very pleased to hear that a group comprising the Association of British Insurers, the National Association of Pension Funds, the Institute of Chartered Accountants in England and Wales and the Society of Pension Consultants has united to seek to provide a workable version of the proposed qualifying earnings definition. I understand that discussions are being held and I strongly urge the Minister to work closely with those important organisations in finding a way through the problem, which has been so ably outlined by my noble friend.
My Lords, I thank all noble Lords who have spoken on this issue, and the noble Baroness, Lady Noakes, for the manner in which she moved the amendment. I fully understand that this is airing issues with a view to getting the right outcome.
Clause 19 confirms that contributions into qualifying occupational money purchase schemes need to be at least 8 per cent on a band of earnings. The minimum contribution is based on the Pension Commission’s recommendations that an overall contribution of 8 per cent of qualifying earnings could set a median earner with solid state entitlement on course to achieve an income in retirement of around 45 per cent.
Amendment No. 60A would alter the basis of this contribution-based test by enabling the scheme to require an average employer contribution of 3 per cent of qualifying earnings. Amendment No. 61B has a similar effect. It would enable a scheme to require an average total contribution of 8 per cent of qualifying earnings. We understand that some of our stakeholders perceive the quality requirements for money purchase schemes to be complex because most existing schemes use basic pay as the definition of pensionable pay rather than qualifying earnings.
However, the amendments tabled do not simplify the quality test. If anything, they potentially complicate it. Employers and schemes would still be required to track the aggregate qualifying earnings for all jobholders to ensure that the correct contribution was deducted in each pay period. Furthermore, if there were a shortfall, it would be unclear to which members a top-up payment was owed. That could lead to greater complexity. What is more, these amendments would expose some jobholders to the risk of consistently saving well below the minimum proposed by the Pensions Commission. The noble Baroness acknowledged that.
We are listening to stakeholders and understand their concerns about the application of the test. We will work with them to explore practical ways to make the test as workable as possible without undermining the minimum level of saving required by the reform. If we are serious about addressing undersaving this must remain sacrosanct.
Amendment No. 61A would ensure that no more than 10 per cent of members receive a contribution below 3 per cent of qualifying earnings. Amendment No. 62A similarly requires that no more than 10 per cent of members receive less than the total contribution of 8 per cent required under the test. Taken alone, these amendments change the basis of the quality test in Clause 19. The test ensures that each individual in the scheme receives at least the default contribution required under the employer duty. A 10 per cent tolerance would mean that certain jobholders would not—or may not—be saving at the minimum level required under the reforms. This could make all the difference, for those at the margins who receive only the default minimum contribution, as they might not be able to save to achieve the income in retirement that these reforms aim to provide.
Taken together, Amendments Nos. 60A, 61A, 61B, and 62A have a different impact. They would ensure that under a scheme-average test no more than 10 per cent of members could fall below the minimum level. While this would provide some protection against significant inequalities between members, it would nevertheless leave vulnerable members exposed to the risks of undersaving I have just outlined.
As I explained during the debate on Clause 12, the definition of qualifying earnings is a core element of the Pension Commission’s proposition to set a median earner with solid state entitlement on course to achieve an income in retirement of around 45 per cent. Any measure that undermined this would put the outcome of the entire reform at risk. Amendments Nos. 61, 62 and 63 together could do exactly that by enabling employers and trustees to define earnings within their scheme rules.
We recognise that many employers already provide generous contributions on basic earnings and would be likely to continue to do so in good faith. However, these amendments would leave members vulnerable to changes in pay structures occurring for perfectly legitimate business reasons, which could reduce the value of the contribution below the level proposed by the Pensions Commission. Even if such an amendment were limited to apply to existing schemes only, under grandfathering arrangements, there would always be a risk that future changes to the scheme or the employer’s pay structures would reduce the value of the contributions. We cannot legislate to leave people vulnerable to saving below the minimum in this way. Not only would it put the outcome of reform in jeopardy, but by permitting the minimum standard for contributions to vary across employers, it could also potentially lead to discrimination against vulnerable groups.
Amendments Nos. 64 and 65 operate in a different way. Taken together, they could provide for an easement to the application of the quality test for occupational schemes. Amendment No. 64 permits a pay period of, for example, 12 months to be set for the purposes of the quality standard. That would mean that a scheme could be assessed over a longer period to allow some smoothing of contributions where they might otherwise fluctuate above and below the minimum level, the spike to which the noble Baroness referred. Amendment No. 65 relaxes the requirement that scheme rules provide for 8 per cent of qualifying earnings over the pay reference period provided the employer makes up any shortfall in contributions himself so that the 8 per cent is met.
We have been engaging with stakeholders on this issue and understand their concerns about the application of the test for existing schemes. We remain of the view that the quality standards laid out in the Bill will work for the majority of schemes on most occasions without the need for scheme rule changes. We expect that payroll software will support employers in monitoring that this is the case. Where it is clear that a scheme will not qualify for all its members, we are proposing an amendment to Clause 28 to assist employers in increasing contributions or the basis on which they are calculated.
Amendments Nos. 64 and 65 do not fully address the issues stakeholders have raised. They would not apply evenly across occupational and personal pension schemes. Furthermore, Amendment No. 64 is already achievable by virtue of the powers in Clauses 14 and 116, which enable us to set a longer pay period for the purposes of assessing money purchase schemes. Amendment No. 65 raises additional questions about how compliance against the employer’s duty to make shortfall payments would be monitored and enforced because it could cause confusion about whether the scheme itself fell below the qualifying standards or whether it was a matter of a failed payment by the employer.
We recognise that employers and schemes still have concerns and that these amendments represent genuine attempts to address them. We are keen to minimise any disruption to current arrangements, which is why the qualifying test must be designed in the simplest way. As noble Lords know, the Government are determined to ensure that all savers receive at least the new minimum level of pension contributions. For this reason, we have not been persuaded that grandfathering is the right answer.
We do not want to disrupt the smooth administration of existing arrangements that offer good pension outcomes for many savers. Therefore, if it were possible to perform the test in a way that reduced employer administration, perhaps by enabling the use of a range of assessment periods, that is something we would seriously want to consider, provided that it also preserved the new minimum level of pension saving.
The noble Baroness asked specific questions in moving the amendment. She asked how much disruption we want. We want minimum disruption to existing schemes. These proposals are designed to achieve that and to do all we can to prevent it. We are mindful of the risks of that, which is why we need to address the issues that she identified.
In all of this, we should be mindful that personal accounts would be a money purchase occupational scheme and the qualifying test will apply. If the qualifying test were to be changed to enable minimum contributions on aggregate earnings where only 10 per cent of individuals could fall below the minimum, that could seriously affect the scheme. First, as drafted, the minimum contributions into personal accounts would be considered across the membership as a whole. Given that the scheme is expected to be used by many thousands of employers, it would be complex to do that, and it would raise problems in identifying where an employer had failed to make sufficient contributions. Secondly, we estimate that 4 to 7 million people will be saving in personal accounts under the reform, and a system that would permit up to 10 per cent of those people to be saving at very low levels below the minimum would expose up to 700,000 people to the risk of undersaving in personal accounts alone.
The noble Baroness also asked about defined benefits schemes and qualifying earnings. Employers with a contracting-out certificate have met the scheme standard and will not have to do anything further. Employers will need to look at a jobholder’s qualifying earnings in assessing the scheme against the test scheme standard. However, given the generosity of existing DB schemes, we expect the vast majority to meet the standards. What is more, we expect that the test will be conducted on a one-off basis for DB schemes and will be reviewed as an exception when circumstances change.
We acknowledge the challenges in making sure we get the right answer to all this. I think the noble Baroness will acknowledge that the specific proposals put forward do not do that, although I do not think there was an expectation that they would be received in those terms. We are determined to work with stakeholders to make sure that we can get through this. There are ways that we might do it. We have some time before we get to Report. On that basis, I hope the noble Baroness will not press her amendment. We acknowledge there is more work to do on this to see whether we can reach a proper outcome. We are aware of concerns in the industry. I am sure there is a way through this.
Before I decide what to do with my amendment, I shall ask the Minister a couple of specific questions. First, are the Government insistent that the new scheme must be satisfied for every employee in the land who comes within its scope? Are they unwilling to accept any form of averaging? Throughout the Bill, I have constantly said that the best is the enemy of the good. We are talking about getting millions of people into pension saving. Is it not good enough to have 99.5 per cent meeting the standard? I keep hearing from the Minister that we have to do this at the level of every single employee.
Secondly, in relation to the possibility that employers might manipulate their earning patterns or their pay structures in order to get some apparent advantage from the rules, does the Minister not accept that the compliance regime could be amended to work perfectly well to deal with that? The compliance regime could underpin, just as it will be able to deal with employers who induce their employees to opt out and things like that. It would be relatively easy to define a test that could be used by the Pensions Regulator in cases of employer actions or omissions for some deliberate purpose. I should be grateful if the Minister could answer those questions.
I shall do my best. On the first question, that is done on a collective basis for defined benefit schemes, not on an individual basis. For money purchase schemes and defined contributions schemes, it has to be on an individual basis. We need to be clear that we are not asking for existing schemes to replicate the earnings band. What matters is that the amount that goes into the scheme at least equals what would go into the scheme if the 8 per cent of the band on the definition of earnings that is adopted were applied. We are not asking for that to be adopted in every scheme, simply that the contribution that goes into the scheme under the existing scheme’s rules produces at least that outcome. If there is a way of doing that on some other basis that protects each individual, the answer may be yes, but we do not see that there is a way.
In relation to manipulation of earnings, I entirely accept that most employers would act honourably in this and seek to do the right thing. Indeed, they would see the benefit of good quality pension provision. However, to rely on the compliance regime to avoid avoidance in this area would be quite difficult because one can envisage circumstances where an employer might quite legitimately restructure the pay structure and have a range of choices. One way of doing it might have the benefit of reduced contributions under these arrangements. There might be a perfectly possible commercial—
Will the Minister explain what is wrong with rearranging pay structures for good commercial reasons?
There is nothing wrong with it. The noble Baroness was advancing the proposition that, if people manipulated their pay structures to reduce their contributions, the compliance regime would pick that up. However, it would be difficult to rely on the compliance regime to distinguish those situations from situations where there was a genuine commercial reason to restructure pay or a dual reason to restructure pay. That is why we do not see that as a route forward. It is a similar situation with grandfathering arrangements. You might identify up-front schemes that were okay, but there might be legitimate commercial reasons for restructuring pay down the line. I stress that I believe that there is a way through this, using mechanisms other than those that the noble Baroness has identified. We need to make sure that we achieve that.
Those were illuminating remarks, which I look forward to reading carefully in Hansard. I made it clear when I moved the amendments that I was not proposing to divide the Committee this evening, because the issue is too important for it not to be clear that we have got the right answer. I hope that the Minister, if he was in any doubt, is now fully apprised of the fact that there is a problem and that the problem needs a solution. I hope that the Government will work hard with the industry during the summer. It is fortunate that the Recess will give everybody time to pause for reflection.
I hope that the Government will also look again at some of the assumptions that they are taking into the negotiating room about what they have to achieve. It seems that the Minister still reflects a dogmatism that will not be helpful in achieving a solution. The solution is one that helps to preserve existing good pension provision and avoids levelling down. That is something that we all want to achieve. I hope that, on Report, the Government will table agreed amendments. However, I say to the Minister that, if that does not look possible, we shall seek the least bad solution—the solution that best meets the concerns of those who have impressed on us the need to get this right. At that stage, I will seek to test the opinion of the House. So I say that it is over to the Minister, and I hope that the Government will find the solution. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 61 to 65 not moved.]
Clause 19 agreed to.
Clause 20 [Quality requirement: UK defined benefits schemes]:
[Amendment No. 66 not moved.]
Clause 20 agreed to.
I beg to move that the House be resumed. In moving this Motion, I suggest that the Committee stage begin again not before 8.53 pm.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
Terrorism Act 2000 (Proscribed Organisations) (Amendment) Order 2008
rose to move, that the draft Order laid before the House on 21 May be approved. 21st Report from the Joint Committee on Statutory Instruments.
The noble Lord said: My Lords, the People’s Mujaheddin Organisation of Iran—the PMOI, as it is more generally known—is opposed to the Iranian Government. Its stated aim is to replace that regime with a secular democracy. Most of its members are based at Camp Ashraf, which is located in Iraq, and under Saddam’s regime it operated as a de facto wing of the Iraqi military. Although it currently describes itself as a non-violent democratic movement, there can be no doubt that the PMOI was responsible for acts of terrorism over a long period, stretching back some two decades prior to 2001. These acts were not attributed to it by the Iranian authorities: the PMOI expressly admitted responsibility for a number of horrendous crimes carried out against the Iranian people, both civilian and military targets. The PMOI is not widely supported in Iran because of those attacks and because it fought alongside Iraqi forces against Iran in the war between those countries.
The PMOI says that it decided at an internal meeting in 2001 to renounce violence and that it now seeks instead to pursue its objectives by peaceful means. It has not conducted any attacks since then, although it has not made any public statement renouncing violence. Until 2003, it maintained an extensive arsenal at Camp Ashraf, at which point it found itself surrounded by US forces and surrendered its arms.
The PMOI was added to the list of proscribed terrorist organisations in 2001. Proscription is a tough but necessary power, and its effect is that the proscribed organisation is outlawed and is unable to operate in the United Kingdom. The consequence of proscription is that specific criminal offences apply in relation to a proscribed organisation. They include membership of the organisation and the provision of various forms of support, including organising or addressing a meeting and wearing or displaying an article indicating membership of the organisation. Further criminal offences exist in relation to fund raising and various uses of money and property for the purposes of terrorism.
A group of 35 interested parties, comprising noble Lords and honourable Members of another place, disagreed with the PMOI’s proscription. A statutory procedure exists for any proscribed organisation or anyone affected by the proscription of an organisation to apply to the Home Secretary for that organisation to be deproscribed. Members of this group correctly followed this procedure and wrote to the Home Secretary to request that the PMOI be deproscribed. They argued that the PMOI was no longer concerned in terrorism, having renounced violence and disarmed itself, and that their desire to express their legitimate support for the PMOI and its objectives was unlawfully curtailed by its continuing proscription. The then Home Secretary carefully considered this application but continued to believe that the PMOI was concerned in terrorism, which is the statutory test for proscription. He formed that view in the light of the PMOI’s lengthy history of violence, in the absence of any public renunciation of violence and taking into account the fact that it only disarmed two years after the decision to renounce violence, when it had no choice in the face of the overwhelming force of the US military.
While accepting that there had been no attacks since 2001, the then Home Secretary took a cautious approach and was not satisfied that the renunciation of violence was more than a temporary cessation for pragmatic reasons or that the 2003 disarmament would have taken place were it not for the war in Iraq and the artificially restrictive circumstances arising from that. He was concerned that the PMOI might return to terrorism in future as a means of achieving its objectives, if the situation in Iraq were to make it possible and if it became strategically advantageous for it to do so.
Let me make it clear that this decision was not taken lightly. The Government share the desire of those 35 honourable Members and noble Lords to see the advance of democracy and the promotion of human rights around the world. Given the wide-ranging impact of proscription, we are committed to ensuring that proscription decisions are lawful and proportionate. However, the Terrorism Act 2000 sets out the definition of terrorism and the criteria for considering whether an organisation is concerned in terrorism. The Act does not refer to the motivation or political agenda of those who perpetrate acts of terrorism and, as POAC accepted, the Secretary of State is entitled to conclude that there is no right to resort to terrorism, whatever the motivation. We do not condone terrorism anywhere, whatever its justification or its target.
The Home Secretary’s refusal to deproscribe was appealed to POAC, the Proscribed Organisations Appeal Commission, which upheld the appeal and found that the PMOI was no longer an organisation concerned in terrorism. POAC directed that the Government lay an order before the House deproscribing the PMOI. Although POAC considered that the Government were wrong to refuse to deproscribe the PMOI in 2006, it agreed that the original proscription in 2001 was justified and that the PMOI was responsible for many terrorist attacks over an extended period. It also stated that the Government were entitled to give little credibility to public statements made by the PMOI, as their public statements contained spin and the evidence submitted in the course of the hearing was “contradictory and potentially misleading” and demonstrated “a shifting approach”.
Our subsequent application for permission to appeal POAC’s ruling to the Court of Appeal was refused. Naturally, although disappointed by the decision, we have complied with the judgment and have moved quickly to lay the order that the House is debating today. It will give effect to POAC’s order and will remove the PMOI from the list of proscribed organisations.
An article in today’s Times has been drawn to my attention. It comes under the heading, “Labour stands up to judges by backing Tehran on dissidents” and makes certain suggestions about the intentions of the Prime Minister and those of the Home Secretary with regard to an organisation described as the National Resistance Army of Iran. Simply, there is no basis in fact for the conclusions that the article draws or for the headline, and we refute any of the suggestions in the article. There is no intention on the part of the Government to circumvent in any way the effect of the order to deproscribe as the article suggests. I beg to move.
Moved, That the draft order laid before the House on 21 May be approved. 21st Report from the Joint Committee on Statutory Instruments.—(Lord Bassam of Brighton.)
My Lords, I can be unusually brief on this occasion. I have read most of the judgment by the Proscribed Organisations Appeal Commission. Much of it is the background to which the noble Lord has referred. In the circumstances, the Government have no alternative but to put the order before the House and to deproscribe this organisation. In view of the fact that no appeals are allowed to the High Court and the judgment was very clear, there is nothing that we could do or wish to say to stop the order proceeding.
I have only one question about something that is not terribly clear. The order says that it comes into being in accordance with Article 1, which says simply that the order,
“shall come into force on the day after the day on which it is made”.
Perhaps we could have a date on which it will come into effect.
My Lords, after so many years of waiting and campaigning and so many setbacks and frustrations, at last our Government have seen the light. I am therefore extremely grateful to them for this order, despite the fury of the Iranian regime and the threats of dire consequences should the order be passed. I am very proud that we do not listen to threats from such people.
The order could not have come at a better time for the families of those who are still suffering the torments of the invidious regime in Tehran. By deproscribing the PMOI from the terror list, which in all conscience it should never have been on in the first place, this country sends this strong message to the mullahs and despotic rulers in Iran; “You must immediately cease your despicable actions against your own people and your meddling in Iraq or face the consequences of your actions in the future”. Those actions are why I have spoken in support of this organisation for a number of years now.
When I learnt that women were being flogged for not veiling in the way that the mullahs decreed and not wearing socks in public, and that clothing shops and hairdressers for women were being shut down, I despaired. However, worse—so much worse—has been happening in Iran and has been well documented by independent journalists and those who have escaped the regime. Women are denied equal rights with men in marriage, divorce, child custody and inheritance. If a woman goes to court, her evidence is considered to be worth only half that given by a man. A girl under 13 can be forced to marry a much older man if her father permits it.
Women can be stoned for allegedly committing adultery, and that stoning is to be done in a very special way. A woman is buried up to her shoulders. She cannot escape. Interestingly, if a man is being punished by stoning, he is buried only up to his waist, and if he can wriggle free he is spared the stoning. No such luck for a woman. Rules govern the size of the stones that can be used as well. They must not be so small that they do not hurt, but nor must they be too large to be able to kill outright. The execution is public and children may be brought along to watch their mother’s stoning. What kind of people are these?
At last there is hope for the poor people of Iran, who have had so much to endure. The National Council of Resistance of Iran—the campaigning arm of the PMOI—is led by a charismatic woman, Mrs Maryam Rajavi, who insists that there must not be war with Iran, but nor must the mullahs be appeased. She calls for support for the Iranian people in their resistance, and is determined to bring about full democratic change in her country. We can only applaud her for this and tell her that the eyes of the world will be on her and her supporters when that day comes. We should offer our help and support to end, by severe sanctions, the regime that is clinging on to power now.
I thank the Minister for coming to this House tonight and beginning a process that I hope will rapidly see the European Union, too, deproscribing the PMOI and supporting those brave Iranians, especially those in Ashraf city, the enclave of displaced Iranians, who are forced to live under UN protection in Iraqi territory but near the Iranian border, who are fighting for the freedom of their country and who hope, one day soon, to be able to live there in peace.
My Lords, it is plain that Governments have to deal with acts of terrorism. It is no less obvious—if it is not, it should be—that no one should be put on or remain on a proscribed list unless there is clear evidence to establish it. The very strong judgments of the Proscribed Organisations Appeal Commission, the Court of Appeal and indeed the European Court of First Instance made it utterly plain that justice required the PMOI to be taken off the list. There can be no doubt about that.
Secondly, it is of great importance that if, as I trust, this order proposed by the Minister is approved tonight both by your Lordships and by the other place, it will do a great deal to establish and underline the concept of the rule of law. To have two such excellent judgments in this country by eminent judges so clearly stated and not to approve them would be the most dreadful attack on the concept of the rule of law. I am very glad that the Minister was able to come and do this tonight. I strongly endorse his proposal that this order should be made. I would like to thank him for the clarification in his newspaper article this morning which, to me at any rate, came as a bit of a surprise. The Minister has done a great deal to take away my surprise. Therefore, I support this order.
My Lords, people can argue about what the PMOI has done in the past—and the Minister delved into history—but that is not the point. The tests here, in front of both courts, is whether the PMOI is presently—not in the past, distant or near—concerned in terrorism or preparing to be concerned in it. The Government’s argument at both the Proscribed Organisations Appeal Commission and the Court of Appeal can be summed up this way: once a terrorist, always a terrorist. This is a nonsense. Both courts, after considering all of the evidence, open and closed for security reasons, rejected that argument and found no evidence to support assertions that the PMOI was concerned in, or preparing to be concerned in, terrorism. This order rights a great wrong done to the 4,000 members of the PMOI, part of Iran’s resistance coalition. They sit in exile in the deserts of Iraq because the theocratic regime in Tehran has stolen their freedom and slaughtered around 120,000—yes, that is right—of their friends and supporters.
Why was this ban put in place? The then Home Secretary said it was because the mullahs insisted upon it as the price of opening talks with the EU on its nuclear weapons development programme. Ludicrously, in making the ban, the Government said that the PMOI had no presence in the UK and no record of harming British or western interests anywhere in the world. Who are the terrorists? It is not the PMOI which makes and supplies the roadside bombs which slaughter British and coalition troops in Iraq and Afghanistan; that is done by the mullahs' private army, The Revolutionary Guard, itself labelled as a terrorist organisation by the United States.
This resistance revealed two weeks ago that an estimated eight out of every 10 of the roadside bombs slaughtering our British troops come from Iran, smuggled across the border on 51 networks. Details of these networks and those who run them have been given by the resistance to the coalition forces and to our own Ministry of Defence. It is not the PMOI which is seeking to build nuclear weapons; it was the resistance which revealed the secret sites where this work was going on and, last year, corrected a wrong estimate made by the United States intelligence outfits that they had stopped work on these sites, when they had scattered this nuclear development in 12 sites around the country making it harder to monitor and inspect even when the mullahs agree.
It is hard to understand why the Government refused our request to deproscribe the PMOI. When challenged by 35 Members of your Lordships’ House and those in another place, the Proscribed Organisations Appeal Commission ruled that that refusal was,
“perverse … flawed and must be set aside”.
Scathingly, it added that it was,
“in the (perhaps unusual) position of having before it all of the material that is relevant to this decision. In our view, that is a requirement of the 2000 Act”.
In plain English, what the POAC decided was that the Government had got the law wrong, ignored the evidence and asked the wrong questions, which led them to come to this perverse and flawed decision. When the Government appealed to the Court of Appeal, they had their nose rubbed once more in the evidence they had ignored, when the Court of Appeal said,
“Closed material was also available to the applicant"—
that is, to the Government—
“We have considered that material. It has reinforced our conclusion that the applicant could not reasonably have formed the view … that PMOI intended in future to revert to terrorism”.
That is a damning indictment of the way the Government have handled this matter. The Government now have a duty to ask the EU to remove the ban on the PMOI imposed at their request and I want to ask the Minister to tell me tonight how and when and how soon this will be done.
The order will give new hope to those millions inside Iran who cry freedom and want to see their country a respected member of the international community, rather than a pariah—a country which respects human rights, not least the rights of women, and ends its nuclear weapons development and its murderous interference in Iraq, Afghanistan, Lebanon, Gaza and elsewhere. Iran will be free. Freedom may be delayed but it cannot for ever be denied.
My Lords, I am glad that the noble Lord, Lord Corbett of Castle Vale, reminded us of the history of the matter; it is not a happy one. However, there is little point in my repeating it now that it has been given to your Lordships, so I shall briefly touch on another matter. Tonight may be a time less for recrimination and more for thanks to all those who have brought us to the position in which we are today. I would like us all to record our thanks to the noble and learned Lord, Lord Slynn of Hadley. To have such a distinguished lawyer on our side was an enormous bonus, and what he had to say obviously carried enormous weight. The noble Lord, Lord Corbett, should be thanked by all of us for his magnificent leadership as chairman of our committee. Then there were those who represented us in court—they did a marvellous job—and the members of the NCRI in London, who had campaigned tirelessly for years to achieve this result.
One thing is left to be done. It is now surely up to the Government to see that the EU listing, which was based on the then Home Secretary’s original order to proscribe, is also brought to an end. On 12 June the noble Lord, Lord Bassam, said at col. 670 that as the British listing alone underpinned the EU listing it was likely to be reviewed. That is simply not good enough. When a decision no longer has any legal basis—the decision in Europe does not any more, because the legal basis was proscription in this country—it should be reversed forthwith, not reviewed. It is the Government’s job and duty to see that that reversal takes place.
My Lords, as someone who has listened to the debate on the subject for a long time, I want to make a small intervention to compliment the noble Lords, Lord Clarke of Hampstead and Lord Corbett, and all those in the Chamber who have fought so strenuously on behalf of the people and their freedom and rights. I feel proud that, across the Benches in this House, all parties have pulled together in support of justice.
My Lords, it is not on every occasion on which I have followed the noble Lord, Lord Waddington, in debates in this House that I have been able to say that I agree with every word that he said, but on this occasion I can say it without any reservation. I am grateful that my noble friend intervened as one who can judge the matter a little more objectively than some of us, because he has not been involved in all the debates.
This may be technically a debate, but there is really no question for the House to decide. The Government have brought the order before us because they had no alternative; Section 5 of the Terrorism Act 2000 said that they must. Had the Government listened to some of us before the unseemly saga began, the Secretary of State could have come before us tonight with a good grace and claimed the credit. My noble friend on the Front Bench would not have had the task of making the speech that he did; if I may say so, it was hardly a gracious retraction on the part of the Government.
The Government have suffered a humiliating defeat in the courts. Their attitude has been labelled as perverse. The unhappy story is not yet over, as, already, two noble Lords have pointed out. The PMOI is the subject of a decision by the Council of the European Union to include it in the European list of terrorist organisations, so that its assets in the EU territories are frozen and so that Europe sends out a signal that the PMOI is perceived as a terrorist organisation. It is no secret that that was done at the instance of the United Kingdom Government, as my noble friend has said. A ruling by the EU Court of First Instance that it is wrongly included has been evaded by what can be described only as a shameful piece of sophistry.
I believe that the conclusions reached by all three of the distinguished courts will be vindicated by the verdict of history. It is perverse that those who so courageously opposed a regime, which is the very centre and source of a web of terrorism and has been condemned by United Nations’ human rights bodies on more than 54 occasions, and whose families in Iran are suffering persecution for their resistance to terrorism, should ever have been labelled as terrorists.
It is not too late to rectify the injustice or to congratulate the PMOI and the National Council of Resistance on their complete vindication. This is not the end of the ordeal suffered by the Iranian people at the hands of the mullahs, but I believe that it is the beginning of the end and that the people of Iran may look forward at no great distance to the dawn of a new freedom and the restoration of their country to its rightful place in the international community.
My Lords, I have to declare an interest: for more than 25 years I have been a supporter of the National Council of Resistance of Iran. I also have an interest as one of the 35 people who made the application to POAC. Today, we are able to say that a long chapter of shame by the British Government is ending. It has sullied the reputation of our nation, my political party and those who, in their positions of influence, have given sustenance and the appearance of respectability to the murderous and inhumane regime that rules Iran and subjects its citizens to barbaric treatment.
As we welcome the late arrival of this long overdue removal of the NCRI and the PMOI from the proscribed list of terrorist organisations, we should stop and consider just what these wicked people have done. Children have been executed. My thoughts tonight are with the young, mentally handicapped, 16 year-old girl who had the audacity to question the judge at her trial by saying, “You should be trying the man who attempted to rape me, and did rape me, rather than put me on trial for adulterous behaviour”. What was her punishment? It was summary execution. She was taken out and hung publicly. My thoughts are with the memory of that young girl and her family.
Mention has just been made of United Nations resolutions. The mullahs’ regime has cocked a snook at the United Nations time and time again. It cares little about the world’s opinion of its barbaric behaviour. No one in this nation should ignore the rantings of the mullahs. As my noble friend Lord Corbett said, they will continue their evil activities until they are removed from power once and for all. Such a removal will be achieved only when the people of Iran are able to enjoy free and fair elections, unencumbered by the interference of the theocratic guilty men. My thoughts then will be that if the Iranian people get free elections, the brave and courageous Madam Rajavi will take her place on a ballot form. She will subject herself to the democratic process. By her example over these past years, I have no doubt that the people will respond in the way that they should.
I was not going to say much this evening but we have had a little bit of history from the Minister. I also want to provide a bit of history because, when the order was put before the House, and included the PMOI, I and others from this House and the other place, went to see Mr Straw. I reminded Mr Straw that, as a member of the Labour Party and as a chairman, I encouraged people at the conference to welcome Madame Rajavi and people from the resistance. To a person, they rose and applauded this brave lady and the people around her. Do you know what the response was? The response was, “Tony, we are in Government now”. I find that on the offensive side because principles cannot start and finish when elections are taking place. If it was good enough to give support to oppressed people in opposition, we should have the courage to give them support now we are in power and to do something about it.
Mr Straw made a statement on BBC television. The world saw a British Minister saying to the world that it is on the list because the mullahs asked him to put it on the list. Can noble Lords think of anything that is more offensive in a democracy? A seemingly laughing face was seen on our televisions as the same Mr Straw rubbed shoulders with the mullahs. Time is short and many noble Lords will share my joy at the end of this period.
My message to the Government, critical as I am, is a genuine plea. Do not appease despicable people just because of the oil that lies beneath the ground in Iran. Think of the threat to the democratic state of Israel that comes out of the mouth of President Ahmadinejad, who wants to drive the Israeli people into the sea. I ask the Government to show the world that this country is rightly concerned about the export of terrorism from Iran. Bullets and bombs from Iran are killing and maiming brave coalition forces, not just in Iraq but also in other countries. Our former prime minister, Tony Blair, also told the world that Iran was the greatest exporter of terrorism in the world. We should all be concerned about the nuclear ambitions of these despots. I plead with the British Government to speak out against the atrocities and let all of us hold our heads high as we work not just here but within the European Parliament.
Quite recently in Brussels, talking to other people from other nations, it was clear that the lead given by the British Government, which has now been proved to have been unlawful, motivated other countries to put the PMOI on the European list. The Government should work now to redeem themselves. They can do a penance by saying to our friends in Europe “We got it wrong”. Have the courage to say this. Some of those countries can be forgiven for taking an example from this country with its long tradition of democracy. Let us once and for all rid ourselves of the shame of our Government who have used every legal advice to assist the wicked and evil rulers who reside in Teheran.
My Lords, I am delighted that this order is before the House this evening. I first became interested in the PMOI some time ago when I was interested particularly in its campaign for women. I became a member of a group of parliamentarians in both Houses and we have together campaigned to try to get the organisation deproscribed. I never believed it was a terrorist organisation—on the contrary. I could see that it was led by a charismatic woman in the shape of Madame Rajavi and its agenda calls for gender equality for all women. It has the same sort of agenda as a political organisation and I emphasise that it is a political organisation that seeks change by political means and not by terrorism. It has an agenda which we should all be willing and happy to support and I hope that now the organisation is being deproscribed that will be the stance that we take in the future.
The people we have worked with—the Iranian colleagues in this country who have supplied us with briefings and so on—have been very courageous in their fight for deproscription. They should be congratulated, and we should also congratulate ourselves on having succeeded in this campaign.
I hope that the Government will now not pursue proscription via the EU. I support everything that the noble Lord, Lord Waddington, has said. It really is disgraceful that the Government were able to persuade the EU to adopt the line it did—they should not have done so. We can now go forward and I hope that we can work in future with this group of people to ensure that eventually the people of Iran achieve the democratic state that they deserve.
My Lords, I pay tribute to all those who have contributed to this debate. I would be foolish to deny that very strong passions are evoked by the history of the proscription of the PMOI—that much is evident from all sides of your Lordships' House. But we are where we are, and we should proceed.
Our Government—any Government—have to take a longer view when approaching such an issue. It has to be approached with caution and thought. Although noble Lords clearly disagree with the position advanced by the Government in proscribing the PMOI at the outset, it was a position honestly adopted. I refute the suggestion that it was to appease the Iranian regime. The Government’s record in advocating support of a democracy in Iran, expressing their concern about the treatment of juveniles within the justice system there and arguing the human rights case is very strong, which colleagues should recognise. That is not to say that I do not understand the very powerful views that have been expressed in the House this evening and the intention behind them, because I do.
We have now moved to deproscription; we have moved in good time and in good order. We have complied exactly with the POAC ruling, and we will proceed, as we always do in these matters, quite properly. The noble and learned Lord, Lord Slynn, said that he acknowledged and supported our approach. He is right to make the case for the rule of law. That is how we should proceed in these circumstances.
I was asked by the noble Baroness, Lady Hanham, when the order will come into effect. It will do so the day after it is signed by a Minister, which will probably be tomorrow, so it is pretty immediate. My noble friend Lord Corbett, the noble Lord, Lord Waddington, and my noble and learned friend Lord Archer have pressed me for details of when it is expected that Council of Europe Ministers will consider these matters. We have already advised them of the POAC decision and said that we intend deproscribing the PMOI. Because we were the national competent authority making the decision, the PMOI was listed under common position 931. The fact that that decision has now changed and the PMOI has been deproscribed will inform our EU partners, who are on notice. It is now for the Council to consider what action it needs to take in the light of the deproscription. It would be wrong of me to say that deproscription will be automatic but the fact that we were the national competent authority which originally made the decision will be weighing on Council Ministers when they reach their decision. It would be strange if they did not follow our lead. They would need to be advised again and reminded that we have now deproscribed and that that order is in effect.
Although I would like to, I cannot advise the House as to when the Council will make its decision. Its procedures and proceedings are for Council Ministers, but they have been fully advised and kept up to date. They know exactly what the position is within the United Kingdom, as the competent authority. It will be up to them to make their decision based on actions that we have taken.
I am grateful to noble Lords who have participated in this discussion. I understand full well the passions, enthusiasms and urgings to democracy in Iran. I certainly share those views, but we have now deproscribed. We have to move forward and it is my hope that noble Lords will feel happier and freer in their own campaigning activities for a cause that I am sure many of us share.
On Question, Motion agreed to.
My Lords, I beg to move that the House do now adjourn during pleasure until 8.53 pm.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.36 to 8.53 pm.]
Pensions Bill
House again in Committee.
Clause 21 [Test scheme standard]:
moved Amendment No. 67:
67: Clause 21, page 9, line 45, leave out subsection (3)
The noble Lord said: The purpose of the amendment is to find out a little more about how a complicated part of this Bill will work. Rather like the previous amendment tabled by my noble friend Lady Noakes, subsection (3) of Clause 21 allows for a scheme to qualify for auto-enrolment even though some of its members may not meet the test scheme standard as laid out in Clause 22. That allows for a great deal of, in this case, helpful flexibility. Defined benefit schemes are becoming ever rarer and, without that flexibility, the Bill would be another nail in their coffin.
However, this clause will help to keep these schemes open only if that flexibility is properly understood by employers and is clearly and consistently applied by the Government. Can the Minister give us a clearer idea of the Government’s intentions? How many members must fail to meet the test scheme standard before the scheme fails? How bad must the shortfall be before it is considered over the top?
The Under-Secretary of State for Work and Pensions in another place made an accurate point:
“Requiring an individualised calculation in respect of each member of the scheme … would place a significant burden on any employer seeking to meet the test, with a risk that the whole scheme would fail if even one member’s pension did not meet the standard”.—[Official Report, Commons, Pensions Bill Committee, 29/1/08; col. 255.]
However, this argument failed to convince the Government that some flexibility should be applied in the clauses relating to the money purchase schemes that we have just discussed. I seek more clarification on all this. I beg to move.
I thank the noble Lord for his amendment, which I understand is a probing one. Clause 21 sets out the quality requirements for defined benefit schemes with members in employment that is not contracted out of the state second pension scheme—commonly known as non-contracted-out schemes. This test operates in a similar way to the reference scheme test, which is an existing test of overall scheme quality for schemes with members whose employment is contracted out of the state second pension scheme.
We recognise that many employers make generous pension provision through their defined benefit schemes and we want to encourage them to retain these schemes. That is why, when developing the quality test for non-contracted-out DB schemes, as well as ensuring that they deliver the additional private pension saving required under the reforms, we sought to minimise any burdens on business by introducing a simple scheme-wide test. Amendment No. 67 would prevent the test scheme standard from being a scheme-wide assessment. I know that that is not the intention but the amendment could make the application more complex and increase the burdens on business. Undertaking an assessment of the projected benefits for each member of a DB scheme would be more time-consuming and complex for employers.
Amendment No. 68 would remove an important power in Clause 21 allowing the Secretary of State to make secondary legislation relating to the test. Without the regulation-making power in Clause 21(4), the Government’s ability to set the criteria for determining whether the pensions provided by a scheme were equivalent to, or better than, those provided by the test scheme would be severely curtailed. We would also effectively lose the power to specify the detailed application of the test scheme standard in technical guidance, as our ability to issue guidance is, by virtue of subsection (5), dependent on the ability to make regulations. This guidance will be particularly important where actuarial comparisons are being made.
The power in subsection (4) is there to enable us to provide employers with the right assistance. Without it, employers, possibly with advice from their actuary, would have to determine how the test scheme would operate in order to assess whether their own scheme met the standard. The test would no longer be standardised across schemes, because employers and/or their advisers might have to rely on their discretion in making an assessment in relation to their scheme. This is something that they might not feel comfortable doing. We will use the regulation-making power as necessary to prescribe the method of determining whether the test scheme standard has been met, which will ensure that it targets the additional pension saving required under the reforms and is a relevant and effective measure of scheme quality.
I hope that my response has clarified the purpose and importance of this regulation-making power sufficiently for the noble Lord to feel able to withdraw his amendment. How many individuals must fail the test is not relevant to how defined benefit schemes are tested, because it is done on a scheme-wide basis, whereas with defined contribution schemes one is looking at inputs on an individual basis.
I flatter myself that I am a fairly mild man, because nobody else will. However, even my patience snaps sometimes. The noble Lord said that we will give employers the right assistance. What assistance?
I am talking about assistance in determining that they have met the test scheme standard. Broad equivalence has to be determined by reference to the test scheme set out in Clause 22. A whole host of issues might need to be taken into account. Setting them down in guidance will assist employers in making the determination. It is a little like the reference scheme test, which determines whether schemes can be contracted out of the state second pension scheme. It is detailed guidance about a whole range of issues that are likely to be relevant in making that determination.
These debates are starting to become rather repetitive. It is quite extraordinary how little detail the Minister can give us on so many matters. Many people have commented on how the success of auto-enrolment in personal accounts will depend on the detail of the implementation, yet we are discovering that reams of this detail have not in any way been firmed up. Not only is Parliament being asked to sign into law a Bill that makes radical changes to pension provision in this country, but we are being asked to do it with only the haziest outline of what the future holds. To a great extent, we are being asked to buy a pig in a poke. This vagueness goes beyond good parliamentary practice, as important as that is. It means that employers are equally unable to predict the changes in costs that might be imposed on them only a few years hence. Unless the Minister can give me a bit more information, I shall have to seek the opinion of the Committee.
Perhaps I may try to describe what “broadly equivalent” might mean. We use the term to ensure that the widest-possible range of scheme types can be directed to the test scheme standard, because the test scheme does not replicate the benefit structure of all defined benefit schemes. We need to be able to gauge the standard of any scheme in the most appropriate manner to ensure that the wider reform’s objective will be met. Nor do we want to interfere with the benefit structures by requiring them to align with the test scheme.
By requiring that pensions are broadly equivalent, we enable schemes offering pensions on a different basis—for example, on a career-average basis—to be compared with the test scheme. Therefore, the regulations and guidance that will follow under Clauses 21 and 22 will set out how an employer should assess whether they meet the broad equivalence test. This is exactly the approach used under the reference scheme test for contracting out for the same reasons.
I do not understand why the noble Lord is so vexed by this. We know of no defined benefit scheme that we expect to fail the test, but the noble Lord will understand that a whole range of different benefits and calculations is provided in defined benefit schemes—they are not all the same. Therefore, guidance that helps employers in assessing whether any individual scheme meets the test will be needed. I do not see why the noble Lord is so concerned about that.
These are highly technical issues. Sometimes an actuary will need to be involved. As I think I said, we broadly expect this test to be looked at once up front and then for employers to keep an eye on any changes occurring to the scheme, but it is fundamentally a one-off calculation. We are not aware of any defined benefit scheme that would fail that test. It seems to me a pretty straightforward issue.
I shall seek to reinforce the point for the noble Lord. If we are looking at defined contribution schemes, we are looking at inputs on an individual basis, as we discussed earlier. When we are evaluating defined benefit schemes, we are broadly looking at outcomes for those schemes and trying to evaluate whether those outcomes are equivalent to what the test scheme would produce. It is a different approach because of the different nature of defined benefit and defined contribution schemes.
I hope that that is sufficient for the noble Lord. It is not really a case of saying that we do not know and will have to fill in these things in due course. Of course, the detailed rules will need to be worked out and new detailed rules will undoubtedly need to be introduced if new defined benefit schemes come along. The whole purpose of this is to help employers to be clearer about how they make their judgment on whether the scheme satisfies the standard.
Clearly, we shall get no further with this tonight. The object of the exercise is to test any scheme, to quote the Minister,
“in the most appropriate manner”.
However, we have no idea what the most appropriate manner might be. As I say, we shall get no further on this tonight. I suppose that this was a semi-probing amendment. Therefore, at this point, I shall withdraw it, but in so doing I suggest that he comes up with very much better answers before Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 68 not moved.]
Clause 21 agreed to.
Clause 22 [Test scheme]:
moved Amendment No. 69:
69: Clause 22, page 10, line 18, leave out “age of 65” and insert “appropriate age”
The noble Lord said: I shall speak also to the other amendments in the group. Clause 22 introduces the test scheme. A scheme that passes the test scheme standard provides for pensions broadly equivalent to, or better than, those under the test scheme. Government Amendments Nos. 69 and 70 enable the pension age in the test scheme to be adjusted upwards in regulations to reflect increases in state pension age. This is to ensure that the scheme test remains an appropriate benchmark of scheme quality. We expect that, following the recent reforms to state pension age, employers will review the pensionable ages in their schemes in the future. These government amendments allow us to consult stakeholders on the most effective way of changing the pension age in the test scheme without imposing additional burdens on employers. I beg to move.
My Amendment No. 71 is an amendment to government Amendment No. 70. I listened with interest to the Minister’s explanation. The government amendments are, of course, very sensible. With the state pension age rising to 68 over a long period, it would be wrong to insist that qualifying DB schemes should maintain their retirement age at 65. However, the Minister’s amendment only allows the Government to ensure that the test scheme benchmark is kept up to date; it does not ensure that it will be done.
My amendment would make certain that no qualifying DB scheme is held to a lower age than the state counts from. Such a situation is, I am sure, not one that the Minister would consider beneficial. DB schemes are already fighting numerous disadvantages compared with money purchase schemes, as the ever falling number remaining open to new members makes clear. My amendment would not prevent a scheme from choosing to allow retirement at an earlier age if it should wish to. It would merely make annual regulations adjusting the prescribed age unnecessary, which I hope the Minister would approve of.
I make it clear that we on these Benches are happy with the government amendments.
I have already spoken to Amendments Nos. 69 and 70. Amendment No. 71 in the name of the noble Lord, Lord Skelmersdale, would require the pension age in the test scheme automatically to track increases in state pension age once they are equalised for men and women. However, linking the pensionable age in the test scheme directly to changes in state pension age could lead to complexity. Over a transitional period, state pension age will increase in gradual steps, until it is 68 for both men and women.
It is unlikely that the pension age of an employer’s pension scheme will exactly match the transitional arrangements for increasing state pension age and we would like to be able to take account of changes to defined benefit pension provision in adjusting the pension age of the test scheme. We believe that simply linking to state pension age could have the unintended consequence of making the qualifying test more complex. That is why we have taken a flexible power enabling us, following consultation, to make changes to the test scheme so that it reflects increases in state pension age without imposing additional burdens on employers. I hope that my explanation of why we have drafted this change in this way has reassured the noble Lord.
As I said, the amendments only allow the Government to ensure it; they do not make provision for it to happen as and when necessary, which is what we need in this situation. I accept that the noble Lord is probably right that state pension age will not be matched exactly but, none the less, there ought to be a provision to do it, not just to enable the Government to do it.
I am not sure that I can add much to what I have said. We want to make sure that the test scheme is relevant to what is happening to defined benefit schemes generally. We expect that there is likely to be an upward movement in retirement dates in those schemes as state pension age increases. It is very unlikely that in aggregate that will mirror the timetable of the state pension age changes. Therefore, if we were to have that equivalence in the test scheme, it would lead to complexity in evaluating whether the test scheme is met in all circumstances.
This should not be a matter of huge controversy. We recognise that the test scheme is likely to need adjustment over time as pension ages change, but to lock it into step in accordance with what is happening with state pension age would be to add unnecessary complexity. We would need to consult stakeholders in any event about how we should pitch the test scheme going forward, in the light of what is happening to state pension ages. I do not see why this should be a matter of controversy.
We believe that the two pension ages should be in step. Again, at this time of night, it is extremely unlikely that we will get anything further from the Minister.
On Question, amendment agreed to.
moved Amendment No. 70:
70: Clause 22, page 10, line 18, at end insert—
“( ) The appropriate age is 65 or any higher age prescribed.”
[Amendment No. 71, as an amendment to Amendment No. 70, not moved.]
On Question, Amendment No. 70 agreed to.
Clause 22, as amended, agreed to.
Clause 23 [Quality requirement: UK hybrid schemes]:
moved Amendment No. 72:
72: Clause 23, page 10, line 25, leave out from beginning to “has” and insert “A hybrid scheme that”
The noble Lord said: I shall speak to the other amendments in the group. Government Amendments Nos. 72, 73 and 74 are intended to clarify the way in which hybrid schemes will qualify. Hybrid schemes are an integral part of the pension landscape. They exist in a variety of forms, some providing the better of a defined benefits or money purchase pension and some combining elements of both.
Clause 23 sets out the quality requirements for UK hybrid pension schemes, which is meeting the money purchase or the defined benefit quality requirements, or in some cases, both of those tests in relation to parts of a hybrid scheme. We want to encourage employers to retain existing high quality pension provision. We know that hybrid schemes can offer employers a way of sharing the balance of risk in pension provision with their employees. We therefore need to ensure that the quality requirements can be applied to a range of schemes and in a way that minimises the burdens on business.
Government Amendments Nos. 73 and 74 will achieve this by ensuring that Clause 23 is workable for a wide variety of hybrid schemes. They enable regulations to modify the quality requirements to accommodate better schemes, such as combination hybrid and cash balance schemes. Amendment No. 72 simply tidies up the drafting of the clause by ensuring that it is consistent with similar provision in the employer duty chapter.
The final government amendment in this group is to Clause 86. Clause 86 defines terms for the purposes of Part 1 of the Bill, including definitions of the occupational pension schemes to which the quality requirements in Clauses 19 to 23 apply. Amendment No. 121 refines the definition of a hybrid scheme as a scheme that is neither a money purchase scheme nor a defined benefit scheme. This refined definition should assist employers in identifying whether their scheme falls into that category and so provides a clearer indication that they should follow the rules under Clause 23 in assessing whether the scheme meets the quality requirement. This is a minor and technical but necessary amendment. We believe that these amendments to the qualifying requirements for hybrid schemes strike the right balance between safeguarding private pension saving and minimising the burdens of business.
The noble Lord, Lord Skelmersdale, has tabled an amendment that would require the Secretary of State to direct employers to the appropriate test for their hybrid scheme by rules made in regulations. Our intention is that rules will direct employers and their advisers to the appropriate test. We are keen to minimise burdens on business. Employers will often set up hybrid pension arrangements that are tailored to suit their workforce. This means that there is a wide range of hybrids and the landscape is ever-changing. We need the quality requirements to respond flexibly to hybrid schemes as they develop, to provide employers with certainty on whether their scheme meets the right quality standard, and to safeguard the interests of members who will be saving in these schemes.
Primary legislation sets out the fundamentals, giving employers certainty about what test a qualifying hybrid scheme will have to meet. Regulations will enable the test to be modified for certain types of hybrid and rules will direct employers to the appropriate test and set out its detailed application. Rules provide for greater flexibility and enable us to respond to future innovations in pension provision quickly and flexibly. The noble Lord’s amendment, by requiring regulations, would remove that flexibility. I beg to move.
As the Minister said, Amendment No. 75, which is tabled in my name, is grouped with Amendments Nos. 72, 73, 74 and 121. I put it down to discover, if I could, how the rules to define a hybrid scheme will be decided. I understand that the arrangement to have rules is to have flexibility as we go along, but rules mean different things in different bits of legislation, so I would like to know what legal effect they will have if they are not made by regulations. Secondly, I do not want to sound racialist or anything like that, but where does a foreign-managed scheme fit into all this and will it have to obey these rules however they are made?
A foreign scheme, or one not administered in the UK or registered under the Finance Act 2004, to be a qualifying scheme, would need to be encompassed within regulations. I believe that is right.
The noble Lord has just said that he does not like the idea of regulations.
I think the noble Lord is confusing two things. I was trying to explain the starting proposition for whether any scheme is a qualifying scheme and an auto-enrolment scheme. There are tests to be met for that. We discussed earlier that special provision would need to be made for non-UK schemes to see whether they are administered and provided in such a way that they can be brought within the ambit of the provisions of the Bill. It would be the same for hybrid schemes as for defined benefit or defined contributions schemes. I hope that deals with that point.
On the impact of rules, they are rules under the hierarchy of arrangements that I explained. Primary legislation sets out the fundamentals for how the test applies to hybrids, then regulations enable them to be fleshed out. More detailed rules are provided within those regulations. I am not sure that that is such an unusual hierarchy of arrangements in pension or other provisions. I believe it would be right that if those rules come out of the regulations or primary legislation, they would have the same legal standing. I think I might take some advice on that, and if I need to qualify it, I will. I hope that sets in context how we are proceeding to deal with hybrid schemes. I am happy to share with the noble Lord a range of different hybrid schemes just to emphasise their complexity and multiplicity. It is only 22 minutes past nine, and I am sure that he could stomach a few of them.
I shall spare noble Lords. It is because of complexity. Hybrid schemes are likely to develop further in future. It is a way of risk sharing, so they are likely to be part of the changing pensions landscape, which is why we cannot set everything in primary legislation.
The letter count today is surely mounting quite significantly. I shall look forward to the letter with great interest, but I am still not entirely sure that my brief questions on Clause 23 have been properly answered. I shall look very carefully at what the Minister said when I get Hansard tomorrow. I await his letter with some eagerness. I should say that like the noble Lord, Lord Oakeshott, I do not require a vast list of the sorts of hybrid schemes that exist. I am sorry to disappoint the Minister.
On Question, amendment agreed to.
moved Amendments Nos. 73 and 74:
73: Clause 23, page 10, line 29, at end insert “, subject to any prescribed modifications”
74: Clause 23, page 10, line 30, leave out “section 20” and insert “sections 20 to 22, subject to any prescribed modifications”
On Question, amendments agreed to.
[Amendment No. 75 not moved.]
Clause 23, as amended, agreed to.
Clause 24 agreed to.
Clause 25 [Quality requirement: personal pension schemes]:
moved Amendments Nos. 76 and 77:
76: Clause 25, page 11, line 2, leave out “A personal pension” and insert—
“( ) This section applies to a personal pension scheme if the operation of the scheme—
(a) is carried on in such a way as to be a regulated activity for the purposes of the Financial Services and Markets Act 2000 (c. 8), and(b) is carried on in the United Kingdom by a person who is in relation to that activity an authorised person or an exempt person under section 19 of that Act.( ) The”
77: Clause 25, page 11, line 7, after “between” insert “the provider of”
On Question, amendments agreed to.
[Amendment No. 78 not moved.]
moved Amendments Nos. 79 to 80A:
79: Clause 25, page 11, line 12, after “jobholder” insert “under the agreement referred to in subsection (3)”
80: Clause 25, page 11, line 15, at end insert “the provider of”
80A: Clause 25, page 11, line 26, leave out “trustees or managers” and insert “provider”
On Question, amendments agreed to.
Clause 25, as amended, agreed to.
moved Amendment No. 81:
81: After Clause 25, insert the following new Clause—
“Quality requirement: other personal pension schemes
The Secretary of State may by regulations make provision as to the quality requirement to be satisfied in the case of a personal pension scheme to which section 25 does not apply.”
On Question, amendment agreed to.
Clause 26 [Transitional periods for money purchase and personal pension schemes]:
On Question, Whether Clause 26 shall stand part of the Bill?
I wish to raise the issue of the burdens that this Bill will impose on employers, in particular on SME employers. The contents of Clause 26 are welcome as far as they go. They allow employer and employee contributions to be phased in over a period of at least three years and possibly longer. I am sure that employee phasing will help to minimise the amount of opting out in the early phase, and will thus give inertia a better chance of succeeding. Employer phasing is an essential part of letting employers adjust slowly to the additional cost burden that this Bill will inevitably impose.
The latest regulatory impact assessment estimates that, once the transitional period has been completed, the central estimate of the extra direct cost will be £2.5 billion each year. However, the cost will fall disproportionately on small and micro-firms, which will bear £1.2 billion of the total, adding around 1 per cent to their labour bill. The relative impact for medium and large firms is much smaller, at around 0.5 per cent of labour cost. Of course, these are averages. Businesses of all sizes vary in their labour intensity. Those that use more staff will bear a higher relative cost burden.
There is also the indirect cost burden. The Government apparently set up a cross-government group of so-called experts to look at administrative costs. I should be interested to hear from the Minister why the Government thought that a group of civil servants alone, with no business representatives, was the right body to carry out this exercise. This group found that the costs were now predicted to be higher than estimated for the December 2006 White Paper; and, in particular, that year one costs had increased by more than 20 per cent to £350 million, while ongoing costs had shaded up to £101 million. The important part of the analysis is that it starts to reflect more accurately the impact on the smaller end of the business community. All of the increase in start-up costs is focused on the small and micro-firms, which now account for £280 million out of the total of £350 million.
These cost estimates produced by the department are not uncontroversial. The British Chambers of Commerce estimates that the ongoing annual cost is more than £300 million, not £101 million as shown in the regulatory impact assessment. Of course, there is a rather weary scepticism among businesses about government estimates of the burdens being placed on them. Real businesses have rarely been able to identify any reality behind the calculations that appear in regulatory impact assessments. That is part of the broader picture of the Government not fully reflecting the reality of regulatory burdens on business.
The Prime Minister, when responding to my honourable friend Sir John Butterfill in a debate on the Queen’s Speech in another place last year, said that there would be special arrangements for small businesses. However, as far as I can see, the Bill has no arrangements for small businesses. The transition arrangements set out in Clause 26, which I have said are welcome, seem to be available to all employers; hence, nothing special has been done for smaller businesses.
The Engineering Employers’ Federation has done a lot of work on a scheme that would compensate smaller businesses for some of the extra costs that they will inevitably incur. This scheme involves payments to the smaller employers to offset some of their costs over a three-year period. I gather that this has had a somewhat dusty response from the Treasury, which does not surprise me as the Treasury does not like spending money and has little or no understanding of the SME sector. Will the Minister say what the view of his department is of the need to provide a mechanism to support smaller employers? What does he think of the EEF’s proposals?
Instead of making payments to smaller employers, another way of dealing with the problem would be to extend the transitional provisions for small and medium-sized employers so that they got a higher amount of relief from the full costs or got it for longer. This might mean that the pension pots of their employees took longer to get going at the full rate, but, as I have already said, we should not let the best be the enemy of the good. The successful implementation of auto-enrolment across all sizes of business would be a very great prize, and it would be a shame to spoil it because of some dogmatic view that every employee or every employer had to be brought along at exactly the same pace.
The Treasury is also said to be wary of relief for SMEs because of the dangers of abuse and of companies fragmenting themselves to take advantage of preferential treatment. In this, it is rather like the DWP, which sees abusive employers lurking in every corner. The EEF has discussed the Treasury’s concerns with RSM Robson Rhodes, a significant accounting firm, which has advised that a combination of the additional burdens on fragmented business entities plus the judicious use of an associated company definition, which is well known in tax law, would overcome those concerns. That is, companies do not have a natural incentive to fragment themselves. In any event, it can be overcome by an associated company definition.
Does the Minister think that the Government can achieve more flexibility in this way? It might need an amendment to the Bill, but we would be happy to support him in this. If this sort of flexibility does not work, what are the Government going to do to ease the burdens on small businesses? They need more than fine words. The Minister will doubtless cite his department’s research, which shows that businesses will be coping with the cost pressures that the Bill will introduce. I remind him that this research was conducted from July to September last year, which was before the credit crunch started to work through the economy. Even then, only 20 per cent thought that they could recover their costs in prices. I doubt that the figure would be anything like that today.
We do not know what the economic environment will be in 2012, but we hope that it will be considerably better than the one that we see in the medium-term outlook. Then again, we could have another two years of this Government and their way with the economy, so we cannot be confident.
I look forward to hearing from the Minister that the Government are fully aware of the cost problems facing businesses as a consequence of the Bill, and indeed the administrative burdens that come with it, and that they have some concrete and constructive proposals to help small and medium-sized businesses.
I have a couple of questions. I absolutely support the case that has been made, for the reasons that I explained when I spoke to an earlier group of amendments. I have real concerns about the impact that the provisions will have on micro-businesses, and nothing that the Minister said earlier about looking at them as an industry-wide group of employers assuaged my fear. As the noble Baroness, Lady Noakes, who so ably opened the debate, said, the economic context has certainly changed. The report carried in the Guardian financial pages suggests very clearly that things are shifting again after a period of relative stability. It would be foolish for us to set up these changes without having some pause for thought about the much less benign economic climate that we are moving to. She is absolutely right to think clearly about that now.
Do the Government have a timetable in mind for these transitional provisions? Obviously the provisions are triggered to some extent by the enactment of Clause 19, but the Government must have a calendar of events which will unfold year by year as the transitional periods are triggered. Can the Minister say more about the cost-sharing scheme? Such a scheme makes perfect sense. A tiny firm may be able to show that the provision it is trying to make will be facilitated by extra time and that it is trying in good faith to work with the grain of government policy, but that two years is not enough. It is not clear exactly where in the clause small businesses are provided with the opportunity to opt in over a transitional period.
Somewhere in the regulations that flow from this primary legislation there should be flexibility that gives scope and room for manoeuvre to tiny family businesses that are acting in good faith, trying to do what they are required to do and willing to deploy their facilities for their job holders and employees, but which will find the costs too high when they implement the provisions in this clause simply because they do not have the time to make adjustments. If the economic circumstances are to be much tougher for small businesses to cope with then it is entirely right that we should think now about those circumstances. It is entirely reasonable to anticipate that that is exactly what might happen in future.
I suppose that I ought to thank noble Lords for the questions they have just pitched at me, but the number is such that I can only do my best to answer some of them.
The first issue is what the staging and phasing will do. The two ideas get, in a sense, mixed up. The phasing will consist of two phases: phase 1, specifically in the defined contributions scheme, will be a 1 per cent year for employer contributions; and phase 2 will be a 2 per cent year. The Bill itself specifies that both will have to be a minimum of a year. There have been conversations about the total of the two, and much of those conversations suggests that the two added together may be three years, but that is to be defined after further conversation with stakeholders.
How does the staging and phasing fit together? Staging will be a process whereby all employers will not be required to meet their duty on day one of phase 1. The staging will divide employers into groups. The Bill is not precise about what those groups are; that will once again be the subject of consultation. The only groupings that have been used so far—they have been used by HMRC and the former DTI to introduce complex regulations, changes of regulations or changes of charging—have essentially been based on size of firm. So the most probable grouping—it does not mean that it will happen; it will be decided after consultation—is by size of firm. Large firms will come in early, some on day one to make the whole process sensible, and smaller and smaller firms will be staged in. This will give special relief to small firms. While small firms will participate in, say, the 1 per cent period for only a short time, in the early part of that period there will be no burden on small firms.
The burden of the questions from the noble Baroness, Lady Noakes, was how we got our sums and who we involved. In the December 2006 impact assessment our estimate of employer administrative costs were £291 million for the first year and £96 million per year in the steady state. In the December 2007 impact assessment, those estimates were revised upwards to £310 million and £101 million. That is an increase of around 20 per cent for the first-year costs and 5 per cent for the ongoing costs. The impact assessment published alongside the Bill included a detailed explanation of the changes to our estimates since 2006. They reflect changes in our methodology rather than additional requirements on employers. In the December 2006 White Paper, the Government announced that they were setting up a cross-government group of experts to improve understanding of the cost impact of the reforms on employers.
As the noble Baroness, Lady Noakes, said, the composition of that group was internal. It included the DWP, the then DTI, the Better Regulation Executive, HMRC and the Small Business Service. The group carried out a robust challenge of DWP assumptions, bearing in mind all the available evidence. It gathered and applied evidence from colleagues at HMRC and from commissioned research by Durham University and Middlesex University’s business schools that sought views directly from employers and payroll providers on likely administrative costs. Some of the changes that resulted from the detailed scrutiny carried out by the group were: updated wage estimates and the inclusion of a 30 per cent non-wage cost of employment; increased estimate of the value of the time of owners and managers for microfirms using new analysis of dividend payment; more robust estimates of the cost of collecting monthly contributions validated by commissioned research; inclusion of the opportunity cost of employees’ time as a cost to the employer; inclusion of extra processes that employers are likely to carry out, such as time spent deciding how to fulfil the employer duty and communicating the change to staff; reflection of the new evidence on the scheme that employers will choose to use; and cost variations between employers using personal accounts and those using other things.
We think that those estimates are now robust. However, there will inevitably be uncertainty this far from the introduction of the reform, and the estimates will be updated as new databases are received. I have given our estimates of administrative costs. For a microfirm—I believe that we have defined that as five or fewer employees, but I will correct that in a letter if I am wrong—there will be costs of £200 for the first year and £70 thereafter, with some £300 and £80 thereafter for small firms, and rather more for the medium and larger firms but in proportion a good deal less, as noble Lords have pointed out.
On the issue of financial help, we recognise that the reforms should impose the fewest possible burdens on employers of all sizes, and small employers in particular. In developing the policy framework for the reforms, we have engaged with employers and their representatives to ensure that we balance our objective of increasing access to pension savings with minimising employer burdens. As I have explained, the phasing policy is explicitly designed to smooth the increased costs for employers as a result of the reform. Our expectation is that it will be of most benefit to those employers who do not currently offer workplace pension contributions. The majority of small employers will fall into this group, so will benefit disproportionately from phasing. In that sense the phasing policy is targeted on the smallest employers and has a cost-reducing effect. Introducing a further support payment would duplicate that effect.
Looking beyond the phasing policy, we recognise that the operational approach taken by the Personal Accounts Delivery Authority and the Pensions Regulator is crucial in minimising burdens. Clause 62 requires the Personal Accounts Delivery Authority to have regard to minimising burdens on employers in implementing the reforms. The delivery authority has already established an employer panel for ongoing consultation on the design of the scheme. That is evidence of how seriously the Personal Accounts Delivery Authority takes that principle.
Of course, we have already produced working estimates of the administrative costs to employers in the cost-benefit analysis in the impact assessment. Those are based on the cost of the activities that we believe employers will undertake and, as I have said, on robust methodology. As is normal with major reforms, they were scrutinised by the Better Regulation Executive and Small Business Service within government.
We recognise that small employers have limited capacity to respond to regulatory change and that fixed administrative costs per firm affect them disproportionately. Our analysis reflects that. This strengthens our resolve to design the reforms with them in mind, but it does not automatically point to a package of compensation. Until operational systems are more fully developed we cannot predict reliably the final costs of potential administrative burdens. There is no evidence at this stage that financial support would be appropriate for small employers. It would therefore be unwise to commit future Governments to spending taxpayers’ money in this way.
I should like to re-emphasise our belief that we have taken and will continue to take the necessary steps to get the design of the reforms and the scheme right. Any decision that financial support for employers was necessary should rightly be left for future Governments to make based on the evidence available at the time.
I asked the Minister what he thought of the EEF scheme. Will he express an opinion?
During the Committee sessions in the other place, employer organisations representing both large and small employers—the EEF—called for a package of financial support. To be fair, we share their concern, but we certainly do not reach a view that there is sufficient evidence for a support package. We will continue to work constructively with these groups to design the system with small employers in mind.
I was disappointed in the Minister’s responses. He gave me quite a lot of information on how the department’s working party, or inter-departmental group, looked at costs and what information it used. But he did not really answer the point about why there were no business representatives on that group. It is one thing to carry out surveys of businesses, but it is another thing to invite business into your deliberations as a part of it. The Minister should not be surprised that the result is disputed by business. He can tell me all he likes that it will cost £70 in administration costs on an ongoing basis. Those figures simply are not recognised by business. That is a big problem because the gap in ongoing costs, as I said earlier, is a three-fold difference. Businesses think that it costs three times as much as the Government suggest. Potentially, this is a very big problem.
Let us put the quantum to one side. The Minister talked about phasing and staging. The burden of what he was saying is that he is not going to tell us how phasing or staging will work in practice because the Government have not made up their mind. The Minister did not even say that the Government would use staging for smaller enterprises. He just said that, in the past, it has been done by size of company, but he did not say that smaller businesses would be the beneficiaries of this scheme.
The totality of what he has said did not satisfy me and I am sure that it does not satisfy the noble Lord, Lord Kirkwood, to whom I am grateful for his support. Between now and Report, we will want to go away and look again at whether this Bill correctly reflects the desire to ensure that the small and medium-sized business community is adequately covered and protected by what are potentially very disruptive changes that could be introduced when personal accounts are first brought forward. We do not want them to be disruptive and I am sure that the Government do not want that either, but I do not think that they can yet give us any confidence that they see the problem and know that it has to be dealt with.
Clause 26 agreed to.
Clause 27 [Transitional period for defined benefits and hybrid schemes]:
[Amendment No. 82 not moved.]
Clause 27 agreed to.
moved Amendment No. 83:
83: Before Clause 28, insert the following new Clause—
“Effect of freezing order or assessment period
(1) Where a jobholder is an active member of a qualifying scheme and a freezing event occurs in relation to the scheme, the jobholder does not, for the purposes of this Chapter, cease to be an active member of the scheme, and the scheme does not, for those purposes, cease to be a qualifying scheme, by virtue of any relevant provision.
(2) Where a worker is an active member of a scheme that satisfies the requirements of section 8 and a freezing event occurs in relation to the scheme, the worker does not, for the purposes of section 8(1)(c), cease to be an active member of the scheme by virtue of any relevant provision.
(3) In this section—
“freezing event” in relation to a scheme means—
(a) the making of a freezing order under section 23 of the Pensions Act 2004 (c. 35) in relation to the scheme, or(b) the beginning of an assessment period within the meaning of section 132 of that Act in relation to the scheme;“relevant provision” means—
(a) in relation to a freezing order, provision contained in the order, or the provision made with respect to the order by section 23 of the Pensions Act 2004 (c. 35);(b) in relation to an assessment period, the provision made with respect to the period by section 133 of that Act.”
The noble Lord said: Clause 2 establishes the right of a jobholder to remain an active participant in workplace pension saving by requiring employers to maintain active qualifying scheme membership. This government amendment enables a scheme to retain its qualifying status under the employer duty when the pension protection fund or the pensions regulator has become involved and the benefit accrual is frozen. A freeze in a scheme is a way of effectively pressing a pause button on the scheme activity so that an assessment can be made about the risk to security of members’ benefits and to the PPF. Amendment No. 83 makes clear that in such cases the jobholders continue to be active members and that the scheme does not cease to qualify. Therefore the employer continues to meet the employer duty in respect of jobholders in that frozen scheme.
Without this protection, the employer would have to designate alternative qualifying provision at least for the duration of the period that the accruals were frozen. This is likely to be a relatively short period and doing so would disrupt scheme membership, increase the administrative costs for the employers who may be already financially vulnerable or, more likely, encourage employers to level down. Once the freezing order is lifted or the PPF assessment ends, the employer duties continue as normal in respect of jobholders who must be enrolled into qualifying pension provision. I beg to move.
I am always extremely suspicious of Governments who put such a new clause into Bills when we have not had much of a chance in this House to discuss the subject line by line, for which we are well known and very often credited. On this occasion, however, I fully understand why it has been necessary to table a new clause on the effect of a freezing order. The new clause, however, which I have read very carefully several times, applies only to freezing orders and what happens during that period. Although the relevant provision in paragraph (b) refers to “an assessment period”, it is not terribly helpful. Before the next stage of the Bill, will the Minister perhaps think about expanding this as it does not appear to me to be particularly clear, despite what he said just now? As I said, I have no complaint as such to the introduction of this new clause, but I do rather wonder about the reason for the assessment period.
I am very sorry to disappoint the noble Lord, Lord Skelmersdale, but I cannot share his suspicion on this amendment.
I am grateful for the support of one noble Lord on an unequivocal basis and on a semi-equivocal basis in the case of the noble Lord, Lord Skelmersdale. I am happy to set up a meeting with officials, if it would help to take the noble Lord through some of the detail. I do not believe it needs amendment; I believe it does the job. I am very happy to spend time, however, to seek to convince him of that.
On Question, amendment agreed to.
I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at 9.55 pm.