I will start with the procedural statement. Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument, the Motion before the Committee is that the Committee do consider the statutory instrument in question. I make it clear that the Motion to approve the statutory instrument will be moved in the Chamber in the usual way.

That the Grand Committee do report to the House that it has considered the Tax Credits Up-rating Regulations 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

I shall speak also to the Guardian’s Allowance Up-rating Order 2009 and the Guardian’s Allowance Up-rating (Northern Ireland) Order 2009.

Tax credits, together with child benefit, deliver financial support to the vast majority of families with children in the UK and are vital in our commitment to tackle child poverty. I am pleased to introduce these regulations and orders, which increase certain elements and thresholds of tax credits and raise the guardian’s allowance. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

First, I turn to the Tax Credits Up-rating Regulations 2009. Tax credits play a major role in ensuring that work pays and in tackling child poverty. Overall, nearly 6 million families containing nearly 10 million children are benefiting from tax credits. These regulations bring forward the Government’s commitment to increase the child element of the child tax credit by £25 above indexation in April 2010 to April 2009. Added to the existing commitment to uprate the child tax credit, this means that the child element will therefore increase by £75 above indexation to £2,235 from April 2009. Since its introduction in April 2003, this element will have increased by £790, benefiting 7.2 million children. From April 2009, a family with two children, with a single earner working full-time on the minimum wage, will receive around £10 extra in tax credits per week compared to the previous year. Other rates and thresholds are also increased by these regulations. The disabled element of child tax credit and also most of the other WTC elements increase in line with prices.

I turn to the guardian’s allowance orders. These will increase in line with prices to £14.10 per week from April 2009. We normally debate these orders in conjunction with the child benefit orders. However, as the Committee will be aware, we debated these increases before Christmas, as the Government brought forward their commitment to increase child benefit to come into effect in January 2009, rather than in April. A family with two children will gain £24 from bringing forward the increase to child benefit.

With the increases introduced by these instruments, we will be delivering even more support next year. We remain committed to the Government’s goals on child poverty, and tax credits will remain a key part of this. As a result of all changes to the personal tax and benefit system since 1997, families with children in the poorest fifth of the population will be £4,400 a year better off. I commend these regulations and orders to the Committee.

I thank the Minister for introducing the orders, which we look forward to each year. The orders are not themselves controversial, but as the Minister knows, he never gets away with quite an easy ride as finishing at that point. I have three issues to raise with him.

First, there is uprating for inflation. I am well aware that tax credits are not uprated by inflation but there is a requirement for the Treasury to review tax credits each year in line with the general level of prices and to publish the result of that review, which it has done. The Treasury decides which general level of prices to use; I understand that it uses the RPI—at least, it has used 5 per cent in its calculations in the document attached to the Explanatory Memorandum. Perhaps the Minister will confirm that.

With social security benefits that are income related, the Treasury uses the Rossi index; generally, it is lower than the RPI but last year it was higher. Tax credits are in effect income-related benefits. Why does the Treasury use the RPI rather than Rossi as its baseline for general prices; what is the logic of that? Linked to that, will the Minister comment on deflation? Tomorrow, we expect the RPI to go negative; doubtless Rossi will follow in due course. I do not ask the Minister to forecast the path of the RPI. Most commentators believe that when we get round to this autumn’s numbers, which will be used to drive a number of benefits, we will have a fall of as much as 4 or 5 per cent in the level of the RPI. Will the Minister set out the Government’s policy to items such as tax credits when we hit a period of falling prices? Will they leave tax credits the same in nominal terms, which would imply a significant real increase, or will they consider reducing the nominal amount to recognise the fall in price level?

The second issue concerns the impact of tax credits on the Government’s child poverty targets—we have debated that and the Minister referred to it. When the tax credit changes were announced in the last PBR, it was claimed that there was no additional contribution to the child poverty targets because the reduction in the number of children in poverty was measured from the 2007 Budget and did not change between the Budget of 2008 and the PBR of 2008. The PBR was a sort of standstill in terms of child poverty. The Government have reduced the numbers since 1997 but the latest figures for 2006-07 showed an increase in the number of children in poverty and the signs are that the latest statistics will show further rises. The Government’s target was to have lifted 1.7 million children out of poverty by 2010 with an intermediate milestone of 850,000 by 2004. They have lifted to date—or to the latest date for which statistics are available—only 600,000: they missed the 2004 milestone and most people believe that they will miss the 2010 target by a mile.

The latest research from the Joseph Rowntree Foundation and the Institute for Fiscal Studies shows that the number of children in poverty with parents in work has risen as a percentage of all children in poverty and that more than half of all children in poverty are now in families with working parents. That suggests that the tax credit programme as opposed to the benefits system is failing to have any real impact on the child poverty figures. It also shows that the Government have failed to create an environment in which work lifts families out of poverty. We firmly believe that in the long run work is the only viable route out of poverty and we thought that the Government shared that view. However, the statistics suggest that the Government’s policies are running in the opposite direction.

Will the Minister update the Committee on the Government’s approach to halving child poverty by 2010? That target does not look achievable. The Joseph Rowntree Foundation and the Institute for Fiscal Studies calculated recently that, using benefits or tax credits alone, it will cost £4.2 billion to achieve the 2010 target. I do not think we will be kidding ourselves that, in the context of the shaky finances we find in our country, the Government could even contemplate that scale of redistribution. So what will they do?

My third topic is the role of the Social Security Advisory Committee. I was pleased to see that during last year, the Treasury gave up its obstinate refusal to allow the SSAC to report publicly on its work on tax credits. Doubtless, that has something to do with the change of Chancellor, but, whatever the reason, the decision is welcome. Somewhat later than expected, a revised memorandum of understanding was entered into in January of this year. The SSAC’s reports on tax credits should now be made publicly, but we do not have a report before us to assist in our consideration of these orders. Was the SSAC given those draft orders for comment and has it raised any issues? If so, why is there no report in the public domain?

Like those of the noble Baroness, Lady Noakes, our questions and comments focus on the appropriate index for uprating and the outlook for inflation on the one hand and the affordability and complexity of child credits on the other. On the indices, people perhaps do not realise that retail prices are already clearly falling. Because we are mesmerised in this country by looking just at the 12-month rate, unlike a lot of professionals in the market who look at all sorts of indices including three-month rolling figures, the retail price index has already fallen by 3.8 per cent over the past four months and clearly has a good deal further to fall. Deflation has well and truly arrived.

In particular, what will happen next year to these upratings? For what it is worth, my central forecast is that money GDP over the next year will fall by 10 per cent; that is, a 5 per cent real fall in economic activity and a 5 per cent fall in prices. As the noble Baroness said, it is very much common ground among all serious commentators that we are looking at a period of falling prices. Can we have a categorical assurance that however fast prices fall over the next year, benefits will not be cut?

As regards whether or not the policy instrument is working, do the Government not see that tax credits are not getting through to the people who need them? They are far too complex, and there is too much error and fraud. In addition, too much is going to people who do not need them at all, particularly to those who are well up the income scale with family incomes of as much as £50,000 a year. Is that really a priority for public expenditure in today’s recession and these difficult economic times?

Clearly, the Government are failing abysmally on the child poverty target. Does the Minister recognise—the noble Baroness did not mention this—that this is a relative target? The Government have failed partly because of the rapid increase, under them, of incomes at the top end of the income scale. When will the Government do something about excessive greed and rapidly rising incomes at the top? Unlike the Conservatives, we on these Benches do not think that giving tax breaks for dead double millionaires through inheritance tax is either affordable or sensible in a recession. That sort of policy will only make the achievement of the child poverty target much harder. It is a relative target, which depends on relative incomes. Do the Government recognise and will they face up to that fact?

I thank my noble friend for his cogent and helpful explanation of the regulations. Hard-pressed families really do need every possible help. The Government have done good things for families and I should like them to have greater credit. Paragraph 10.2 of the Explanatory Memorandum refers to a considerable sum, which must be important to families in a time of serious recession and domestic financial strain. So today’s news has to be welcomed. Can the Minister indicate by how much cash the payment has been increased since the payments were introduced some years ago?

In paragraph 7.2 of the Explanatory Memorandum on the guardian’s allowance, the uprating is indicated. Again, will the Minister state what the original first-time payment was? This allowance seems to be very helpful indeed to families, particularly to children. I am looking to see by how much Her Majesty’s Government have increased the benefit since it was introduced, because the credit and the allowances are very important in today’s circumstances.

I am grateful to noble Lords who have spoken on the order for the succinct way in which they presented their enormous questions. I shall be involved in a rather less succinct reply if I am not careful, although I am not sure that the noble Baroness is really inviting me to range over the full philosophy behind tax credits and cover every issue since their introduction. I seek to concentrate primarily on the very interesting questions which were raised. At the same time, I hope to be sufficiently broad in my answer to meet both her points and those made by the noble Lord, Lord Oakeshott. If I might say so, he invited me to embark on even wider consideration. I am not sure that this is the place to debate the proposals on inheritance tax, but a passing reference might be in order. I hope that at the end of that I will have convinced my noble friend Lord Jones of the value of what we sought to achieve.

On the question of which index we use, tax credits are part of the tax system, and we use the same indexation measure as other parts of the tax system, namely the RPI. Income tax allowances and rate bands are increased every September by the September RPI each year, unless Parliament determines otherwise. Child benefit uses this RPI because that is the uprating used for other non-income related social security benefits. There is a problem with Rossi because, as the noble Baroness says, it would produce rather different figures. At present and in the immediate future, Rossi excludes housing elements, which is appropriate for benefits such as housing benefit and council tax benefit, which are aimed to support housing costs. It is not appropriate for tax credits, which is a further reason why we should use RPI. There is nothing new in that.

The noble Baroness suggested that we have been very limited in our onslaught on the challenging issue of child poverty, as did the noble Lord, Lord Oakeshott, who was not overly complimentary about the Government’s progress thus far. I understand that it is the function of the opposition parties to indicate their ambitions, should office ever arrive for the Liberal party or, even less likely, for the Conservative Party, when they would have to translate such ambitions into action and face up to issues in somewhat different terms than merely asking questions.

It is clear that in the PBR 2008 we recognise the need for help now, as far as low-income families are concerned. Low-income families and children will benefit not only from these upratings but from wider measures on personal taxation and VAT. I know that the party of the noble Baroness in particular—I am not sure that the Liberal party was that far behind—was somewhat scathing about the 5 per cent reduction in VAT.

Actually, we were the first to be scathing.

In which case I withdraw that remark and offer the noble Lord my apologies. It is nice to know that he is on the side of the angels—

Could the Minister remind me of when the Government reduced VAT by 5 per cent?

What I seek to emphasise is that we had been concerned to introduce the lower VAT rate because we are all well aware that VAT disproportionately affects lower income families. They will have benefited from our position on VAT. We are going to introduce a range of changes over the next few months, but the noble Baroness is right to say that we need to take stock of the very significantly changed financial and economic position. Where I think she is seeking a great deal of the Committee is in asking me to speculate on the implications of a negative retail price index. Not that I am not tempted to do so, but time is a wonderful thing and we do not have it in unlimited quantities. My noble friend is sitting eagerly beside me, ready to introduce the next debate. There are other items on the agenda today, and not just the Treasury is to have the chance to display its constructive wares on behalf of the Government.

More important is that the noble Baroness’s question is fundamentally important. It involves Budget judgments for which we have to wait only a matter of three to four weeks before they are delivered. Those judgments will need to evaluate a situation which has been transformed since last year, and of course will set out the Government’s forecasts and plans on uprating. However, she will rejoice in one factor, and that is that a negative RPI means that even if uprating did not take place, a negative RPI would be an advantage for families because of the consequent drop in the cost of living. Although we have a range of monumental problems around the credit crunch and the recession to which the Budget must be addressed, one of the plus factors for families is that a move towards negative inflation—which the noble Lord, Lord Oakeshott, also predicted with finality and, I am sure, great accuracy—may change the lengths to which their existing incomes will actually stretch. However, the noble Baroness will be the first to recognise that a debate on the financial situation and macroeconomic policy is a little beyond the range of this Committee and marginally above the pay grade of the Minister replying to this debate on child benefits.

In response to the more general points, I recognise the anxieties expressed about the 2010 target. The noble Lord, Lord Oakeshott, followed the noble Baroness in upbraiding the Government on it. The target was always an ambitious one and in difficult times it will prove to be even more so, but since 2007 we are expecting to have lifted around a further 500,000 children out of poverty, while before that year we had lifted 600,000. We recognise that the target we set for 2010 is yet to be attained and that there are real challenges attached to it, but I am absolutely confident that my noble friend Lord Jones will give the Government full credit for their achievements thus far in lifting children out of poverty through child tax credits and other related measures.

There has been substantial investment in tackling this issue, which we are sustaining. Prevention is at least as important as cure in the form of support. The problem with prevention is that in a period of savage decline in the global economy and the increase in unemployment in all advanced countries, including the United Kingdom, extra burdens will be placed on the Government in terms of giving help to those in very real need. Changes will be introduced over the coming months. We have proven our commitment thus far to achieving our ambition of removing child poverty and to the targets for 2010 and 2020. However, in these difficult economic circumstances, I do not underestimate the fact that those targets will become even more difficult to achieve. However, on the broader strategy, the Committee awaits with keen interest, as undoubtedly do all noble Lords, the Government’s strategy as outlined in the Budget, for which we have to wait only three or four weeks.

As regards the rise in tax credits over time, the guaranteed minimum income—my noble friend asked about this—for a working couple without children has risen by 52 per cent in real terms since 1999 from £117 per week to £232 per week as a result of consistent increases to the national minimum wage and to the working tax credit. I am sure that my noble friend will recognise the value of those changes.

I am grateful to my noble friend for those comments. The record and the increase are very good. However, I should like the appropriate arm of Government to promulgate these successes a little more effectively than has been the case previously—not that I direct that friendly criticism at my noble friend.

That is kind of my noble friend. He interrupted me as I was in full flow, extolling the virtues of the Government’s achievements. As a result of all changes to direct tax and benefit since 1997, by October of this year, families will be on average £2,100 a year better off in real terms, and families with children in the poorest fifth of the population will be on average £4,400 a year better off, which shows where we have directed our priorities in terms of tackling child poverty and helping poorer-off families. I accept my noble friend’s congratulations on behalf of the Government. I am with him on the necessity of sustaining this progress as far as we can. I beg to move.

I am sorry if I missed this point in the noble Lord’s reply, but will he answer my simple question on whether benefits such as these will be cut if inflation is negative over the next year? If he cannot give that assurance, it will be very worrying for many people who rely on these benefits.

As I indicated, we shall have to wait a month to hear the Chancellor set out in the Budget the Government’s broader strategy on managing the economy. The noble Lord would be the first to emphasise that we live in greatly changed times. However, he will appreciate that it is clear from the regulations that we are committed to this year’s increases, but that decisions have not yet been taken for the future. I emphasise that a falling index is an unparalleled feature in his and my lifetime. I am a few years older than the noble Lord and I cannot remember a falling index.

I think that there was one briefly in 1961.

Certainly this one will be more protracted. It is expected that the Government and wider society will have to respond to it in very different ways than was the case with the incident to which the noble Lord refers. In fact, we have to go back to the 1930s before we see parallel circumstances. However, that debate is a little wide of today’s regulations and I shall resist the temptation to enter it, although the noble Baroness might provoke me to do so.

I was merely going to ask the Minister if he had any comments on the Social Security Advisory Committee. I welcomed its involvement on a non-confidential basis and asked why we did not have anything before us to assist the Committee in consideration of the orders.

I apologise to the noble Baroness; she asked that specific question and I failed to answer it although I had a note on it. We do not consult the SSAC on uprating orders because they are an annual occurrence. That allows both Houses to debate these increases in detail, as we have the opportunity to do today. That is a standard convention, which all Governments have followed. We have not consulted on this; after all, we consult the bodies that matter—the two Houses of Parliament.

Motion agreed.

That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating Order 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating (Northern Ireland) Order 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

That the Grand Committee do report to the House that it has considered the Renewable Transport Fuel Obligations (Amendment) Order 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments and the 7th Report from the Merits Committee.

The order will give legal effect to changes to an existing scheme that requires suppliers of fossil fuel for road transport to ensure that a proportion of the fuel they supply is renewable.

The legislation before us is of key importance in our efforts to tackle climate change. Biofuels are the most readily available technological alternative to fossil fuels. They will play a key role in meeting our European renewable energy targets and keeping within our forthcoming carbon budgets. It is of both environmental and economic importance that we amend the order today.

The Renewable Transport Fuel Obligation was introduced in April 2008 by the Renewable Transport Fuel Obligations Order 2007, made under powers contained in the Energy Act 2004. The RTFO obligates suppliers of fossil-based road transport fuels to source a certain percentage of their fuels in the United Kingdom from renewable sources. If they do not supply enough renewable fuel themselves, they can buy renewable transport fuel certificates from renewable fuel suppliers or pay a buyout price.

The RTFO is administered by the Renewable Fuels Agency, which operates an internationally acclaimed carbon and sustainability reporting system. In the year from April 2008 to April 2009 the RTFO obligation level is 2.5 per cent of total fuel supplied. “Total fuel” means the total amount of renewable fuel and relevant hydrocarbon oil. In other words, suppliers have to produce certificates for an amount of renewable fuel equivalent to 2.5 per cent of the total fuel that they supply. Under the 2007 order the obligation level increases each obligation year until it reaches 5 per cent in 2010-11.

I take this opportunity to refer to the helpful consideration of this draft amendment order by the Merits Committee. In response to its seventh report, I wrote to the committee on 27 February and provided some additional information about our biofuel policies. I hope that that response has been helpful, and I would be happy to answer any further questions on the points raised in their report.

Three important changes will be made to the RTFO as a result of the draft amendment order. First, it will slow down the rate of increase of the annual RTFO obligation levels. The obligation level will reach 5 per cent of total fuel supplied by 2013-14, instead of by 2010-11. This slow-down is in response to concerns about the current sustainability of existing biofuel production, following the publication of the Gallagher review in July 2008.

The Gallagher review concluded that biofuels have the potential to deliver approximately 338 million to 371 million tonnes of global carbon dioxide savings every year. However, because of sustainability concerns, Gallagher proposed a slower rate of increase for our obligation levels than that set out in the 2007 order. That is why we are amending the RTFO order today: to give effect to the Gallagher recommendations.

Secondly, the draft order will correct a significant problem that we have identified with the definition of “relevant hydrocarbon oil” in the 2007 order. The definition determines whether a supplier is obligated, and, if so, how many certificates the supplier must produce. In short, this means that obligated suppliers have the opportunity to supply lower volumes of biofuels than we intended when we made the 2007 order. Clearly this would have an undesirable effect on the demand for biofuel products.

The order in front of the Committee today corrects this problem, with effect from 15 April this year. It also proposes a higher obligation level than we originally consulted on for the next obligation year, which commences next month. This is to help make up for any shortfall in the levels of biofuel supplied over the past year as a result of the problem to which I have just referred. Accordingly, the obligation level for 2009-10 will be 3.25 per cent of total fuel supplied, instead of the 3 per cent level recommended by the Gallagher review. This problem needs to be corrected now if we are to prevent it continuing into the next obligation year and to avoid any unwanted consequences for the UK biofuels industry. However, we do not have powers under the Energy Act to legislate retrospectively.

Thirdly, we are adding two new fuels to the renewable fuels eligible for certificates under the scheme: namely, biobutanol and renewable diesel. This increases the flexibility for obligated suppliers to meet their obligation in the future.

The changes before the Committee today are intended to balance the environmental concerns about the impacts of biofuel production with the need for greater investor certainty in renewable energy. If left unresolved, the problem with the definition of relevant hydrocarbon oil in the 2007 order could depress demand for biofuels and threaten the future of the UK biofuels industry. It would also be a step backwards in our plans to meet our climate change goals. I therefore commend the order to the Committee.

I am grateful for the Minister’s explanation of the order. I propose to make a few initial observations, and then look forward to hearing other noble Lords. With the leave of the Committee, I may make some winding-up comments.

It is, to say the least, extremely unfortunate that the definition of “relevant hydrocarbon oil” in the original RTFO order was defective. Worse still was the difficulty in rectifying the problems which the Minister described. This is despite all the care that is taken when drafting statutory instruments. I was on the JCSI for a while, and it surprised me how many drafting errors slipped into secondary legislation.

When we agreed the principle of a renewable transport fuel obligation, if we are honest, we must admit that we all thought that it would work just as well as the non-fossil fuel obligation for generating electricity. However, the reality is rather different. We are now suffering under the law of unintended consequences. When I pressed the print button to print one of the department’s publications, little did I realise that I would be printing 71 pages of detailed analysis: a sure sign of serious problems.

I welcome the instigation of the Gallagher review—it is important to be sure that we are taking the right steps to tackle climate change—but, thinking aloud, I have a concern about targeting transport fuels. Given the high proportion of our CO₂ emissions arising from road transport operations, it is an obvious thing to do. However, our overall objective must be to reduce our global CO₂ emissions. To do that, we need to substitute renewable fuels and power for fossil fuels. The problem is that road transport fuels, principally petrol and diesel, have to be produced to a very tight specification, otherwise engine damage or poor fuel economy or performance will result. On the other hand, a thermal steam-raising power station is relatively insensitive to fuel quality; thus the biofuel, or waste carboniferous fuel, being burnt in a thermal power station would not need much processing, so the fuel economy would be much higher. Is there not a horrible possibility that while renewable transport fuels are desirable, it might be better to concentrate our carboniferous fuel substitution efforts on power stations, for all the reasons given in the Gallagher review? Gallagher did not necessarily propose that; I am merely asking whether we are going in the right direction.

Although not all noble Lords may agree, it may be right to slow the rate of increase on renewable transport fuels, but it is very much work in progress and the jury is out.

It has been a busy weekend for rugby but little did I think that, between three orders as Treasury spokesman and four orders as pension spokesman, I was going to get a hospital pass from my noble friend Lord Bradshaw a few minutes ago—he sends his apologies; he has to be at another Committee meeting at four o’clock—to ask if I would also take on this order. I will do my best.

The Minister talked about the helpful report from the Merits of Statutory Instruments Committee. He said he had written a letter about it, although I am afraid I have not seen it. Will he say a little more about the question that the committee properly raised—that is, that Professor Gallagher’s review indicated that it is doubtful whether biofuels will actually reduce greenhouse gases? It commended the Department for Transport on taking a more cautious approach but said that,

“due to the minimal evidence provided”,

the committee,

“can only continue to question whether the commitment under the European Directive of requiring road transport to use 10 per cent of renewable fuels by 2020 is either achievable or desirable”.

The Gallagher committee made the point that the case for biofuel use is not fully proven. I ask the Minister, as that committee did, for more information about how much feedstock is produced domestically and how much is imported. Obviously it is a heavy item that affects the carbon footprint. Where do the Government now stand on the 2020 target?

I have one other, less serious question from reading the report. As I have to admit that I did only one term of physics at school and one of chemistry—there was no national curriculum in those far-off days—will the Minister please tell me what an ester is? I am afraid it means nothing to me.

This is rather a sad moment. I think the Minister is aware that I have been involved in biofuels almost since the word was first spoken, but we are now in the most terrible mess and muddle, not least because the biofuel industry straddles four different ministries: Defra, BERR, the Department for Transport and, not least, the Treasury. I was a member of a “gang of four” who persuaded the noble Lord, Lord Whitty, to accept the principle of a renewable transport fuel obligation during the 2004 Energy Act. From early days we were trying to persuade the Government that a tax rebate for biofuels was essential.

We did that because of the benefit to the UK economy in terms of opportunities for agriculture and manufacturing, and the contribution that renewable fuels could make to reducing the UK’s carbon emission. The oil companies were not going to use biofuels unless it was in their commercial interest to do so or they were forced to do so by legislation. Of course, it took European Union legislation in the form of the biofuels directive in 2003 for the Government to act decisively.

I have a great deal of sympathy with some of the wide-ranging points put by the noble Lord, Lord Palmer, and a certain overlap with my noble friend. However, I would like to come at this subject from a different point of view; that is, with a rather sharp critique of the way the order was presented to the Merits Committee, of which I am a member, and where I think its approach was wholly inadequate to this very important subject. Because of the faulty definition and the reactions of the fuel suppliers to it, we are now faced with a new start, and indeed not anywhere in the evidence presented to us have we had a critique of the way the renewable transport fuel certificate system is working. All we know is that the UK made a pretty slow start on biofuels and is still markedly behind the game. In such an important area as climate change, to miss the opportunity of reviewing the wider Government policy towards biofuels and the progress made against it is, I think, not what we would expect from the Department for Transport.

It has been pointed out that there is a difficulty; we keep being told that we have a joined-up Government, but in this instance the joined-up aspect has not been achieved. What did the Explanatory Memorandum tell us? We are due to have a revised one in answer to the point made by the Merits Committee that no reference was made to the impact on the UK biofuels industry, whether the agricultural, processing or distribution parts of it. The memorandum states that we have to conform with the renewable energy directive and that the slowdown mentioned in the opening policy statement is,

“in response to concerns about the sustainability and food impacts of indirect land use change”.

The Minister referred to sustainability, but the EM connects it absolutely to the Gallagher conclusion about the possible impacts of indirect land use change. How does that conclusion affect the United Kingdom? We import 14 per cent of our present biofuels from Brazil in the form of bioethanol, and it all comes from sugar cane. Brazil has been producing bioethanol from sugar cane for the past 30 years, and even 20 years ago a 20 per cent blend was being used in Brazilian motor cars that had nothing to do with climate change, but with substituting for imports. Brazil has no indigenous supplies of oil, so for many years the Brazilians have been interested in producing bioethanol and blending it with petrol. They are also the world’s largest producer of sugar from sugar cane, with Australia coming in second.

I was for a while the chairman of the trustees of Kew Gardens. I heard about deforestation in Brazil for the purposes of cattle and soya, but I am not aware of it having been an issue that has affected the Brazilian sugar cane industry. There is no evidence in the Explanatory Memorandum or the regulatory impact assessment to connect the Gallagher conclusion with Brazil. Secondly, there is a strong conclusion about South-East Asia, Indonesia and Malaysia related to palm oil, which forms 7 per cent of the UK’s consumption of biofuels, in this case biodiesel. It is perfectly true that there are issues about biodiversity and deforestation that relate to the planting of oil palms. However, we have to remember that the oil palm is the most productive vegetable oil plant in the world, and much more productive than soya and oilseed rape. It is much more highly productive than soya oil or oilseed rape. It is dangerous to draw conclusions from the fact that 7 per cent of the UK’s imports relate to oil palm. What about the indirect effects on land use of the rest of the UK’s consumption—75 per cent of it, approximately? That is mainly imported from the United States and produced in Europe, including the UK and, to a degree, in Argentina, which has a temperate climate. There is an analysis in the RFA’s reports about how much of this is from existing cropland. The answer with UK production is that 100 per cent is from cropland. I do not believe that there are any indirect land use effects in the UK. In the Explanatory Memorandum and the RIA, there is absolutely no evidence that there is. I suspect that the issue in the case of the USA is about how much support the US Government should give to their farmers, particularly in relation to soya beans, but that is a different issue—it has nothing to do with the Gallagher conclusion.

We move from the Explanatory Memorandum to the regulatory impact assessment. For the first time, that raises the question of greenhouse gas emissions and gas savings. That is not in the Explanatory Memorandum, although that is the heart of the Government’s policy on biofuels. In the latest RFA report, the savings are calculated at over 40 per cent; so far, so good. It says that if we were able to calculate indirect effects, it might be somewhat lower. I do not think that it would be much lower for the UK. If future calculations show that it is, I hope that we will be presented with it.

Deep in the RIA, after a passage about government intervention, which in essence is a negative intervention—that is to say, “You will pay if you cannot produce certificates”; as the noble Lord, Lord Palmer, said, that is something that people have to live with because of climate change although it is not something that they enjoy—we are told that the 20p duty rollback will disappear at the end of the coming financial year. The government intervention will become all stick and no carrot in April 2010. It is very distressing that throughout this presentation, there is no mention of UK agriculture or UK processors, yet sugar beet provides 16 per cent of our bioethanol usage; it is a UK supply and does not have indirect land-use issues. The hectarage of sugar beet has been going down because although the performance of the beet has been pretty good in terms of yield, the price has been very poor. I do not think that the sugar beet issue has any effect on food supplies in the UK or in the world, where there is—there always has been in my time in tropical agriculture—plenty of sugar.

I turn to the oilseed rape market. The document is silent on the production of diesel from oilseed rape, yet we import 15 per cent of the biodiesel that we use from Germany; we produce only 6 per cent from UK supply. One asks what is going on to make that the situation. I thought that the Common Market was a level playing field and I find it difficult to believe that Germany can produce oilseed rape at a lower cost than the UK.

The UK processors—I will finish very shortly—are basically living on used cooking oil and, to a degree, on tallow and sugar beet as domestic supplies of feedstock. Some of their plants are working at well below capacity. Every now and again we are told that there are great hopes for second generation biofuels, which somehow will put all this right, even though in the Government’s view, the primary agriculture market does not seem able to perform. I am very sceptical about second generation feedstocks. It is freely said that they are waste materials, but the great majority of them do not have no use at present. Do we have a United Kingdom policy on biofuels? If we do, what is it, or are we just waiting to be told by Brussels what to do next?

I am extremely grateful for the contributions of my noble friend Lord Eccles and the noble Lord, Lord Palmer, who obviously know far more about the subject than I do. I have one question for the Minister arising from their contributions. Can he alter the RTFO to discriminate between UK biofuels, when he knows that they are not displacing other food crops or having undesirable effects, and those of overseas suppliers which are known to be producing the fuels unsustainably; or is he precluded from doing that by the free market rules?

Before the Minister gets to his feet, I should also like to ask one more question. Obviously the order corrects a government mistake but what really worries me is that all these producers stand to lose 500 million renewable transport certificates according to the latest figures that I got this morning, which amounts to something in the region of £300 million. Will the Government compensate these growers? I hope that the Minister will give a categorical assurance as regards importing ethanol, particularly from South America. When we originally dreamed this up four years ago, it never crossed our mind that we would be cutting down the rainforest, growing sugar, making ethanol and shipping it half way round the world. It was absolute madness. I also look forward to hearing the answer that the Minister will give to the noble Earl.

I think that only 8 per cent of our usage is domestically produced.

I am grateful to all noble Lords who have spoken. A large number of points have been raised and I may respond to some of them in writing. We have submitted further evidence to the Merits Committee. The noble Viscount, Lord Eccles, may be aware that I wrote to that committee on 27 February, and that we have been revising the impact assessment, which I hope has given him more information.

There is a big question and a number of little questions. I shall deal with a few of the little questions first. I welcome the noble Lord, Lord Oakeshott, to our debates. The proportion of UK biofuel coming from domestic feedstock is about 8 per cent at the moment. The noble Lord asked me what ester is. I am afraid that I am coming to the limits of my knowledge here but I am told that it is a chemical compound that mimics, or substitutes for, diesel. I say to the noble Earl that we cannot discriminate between different biofuels suppliers, which is why it is so important for us to ensure that we have a sustainable basis for production at the European and domestic levels. I again put on the record that I agree it is extremely unfortunate that the definition of “relevant hydrocarbon oil” in the 2007 order was inadequate for the purpose. It was precisely for that reason that we regarded it as our duty to come forward with this amendment as soon as we could in order to give the confidence that the noble Lord, Lord Palmer, and the noble Viscount seek as regards the future of the biofuels industry.

I think that I can respond fairly robustly to the major question that underpins the debate. It is not the case that we do not see a strong future for the biofuels industry: we do. Indeed, I have met the noble Lord, Lord Palmer, to discuss his interest in biofuel production, as well as quite a number of biofuel suppliers, and I know that they are doing good work. However, to balance the support and confidence that we must give to the biofuels industry with concerns about the environmental sustainability of certain biofuels, we asked Professor Ed Gallagher, the chair of the Renewable Fuels Agency, to look at the whole issue last year. He produced a report that runs to 90 pages and looks at a large number of the issues that have been raised in the debate.

I took the noble Viscount, Lord Eccles, to be criticising the Government for not supplying sufficient information to the Merits Committee. We took it for granted that the Gallagher report would be available to the committee; indeed, we supplied it. It is the most substantial and in-depth assessment that has been made of issues such as indirect land use and the sustainability of biofuels. Perhaps the most useful thing that I can do to indicate the Government’s stance is simply to quote from the Gallagher report and its conclusions, which, as I say, were published only last July and formed the basis of government policy on biofuels and the course that we are taking in the ongoing negotiations in Brussels.

In the report’s foreword, Professor Gallagher says:

“We cannot afford to abandon biofuels as part of a low carbon transport future. Equally, we cannot continue producing biofuels”—

“we” means not only UK producers but producers globally—

“which are ultimately more environmentally and socially damaging than the fossil fuels they seek to replace”.

The report concluded:

“This review concludes that it should be possible to establish a genuinely sustainable industry provided that robust, comprehensive and mandatory sustainability standards are developed and implemented. It further concludes that the risks of indirect effects can be significantly reduced by ensuring that the production of feedstock for biofuels takes place on idle and marginal land and by encouraging technologies that utilise appropriate wastes and residues. A framework for such policies is proposed, but significant challenges remain in the detailed design, implementation and enforcement … The RFA judgement, based upon the balance of evidence is that if all subsidies and other support for biofuels were removed entirely, this would reduce the capacity of the industry to respond to the challenges of transforming its supply chain and investing in advanced technologies. However, the rate of introduction of biofuels should be slowed until adequate controls are established”.

That is precisely the Government’s policy. It was precisely in response to those recommendations by Professor Gallagher—a good deal of the points raised by the noble Viscount are, as I say, addressed in the 90-page report—that we announced after careful consideration late last year our intention to slow down the rate of growth in the targets for biofuel, to achieve the 5 per cent target by 2013-14 rather than 2010-11, to remain committed in principle to more ambitious targets for 2020, and to have the EU review in 2013-14: all in the cause of establishing a firm and clear policy base on which we could reassure those who have expressed concerns about the environment and give confidence to biofuel producers that we remain committed to the progressive increase in the supply of biofuels—the present generation of biofuels as well as the second generation to which the noble Viscount referred. In doing that we also give confidence to the investors, who, as I well appreciate, are making significant investments in this area.

I thank the Minister. He may recall that I raised the question of the commitment to the 2020 target. I listened carefully to him, and he said, “We remain committed in principle”. Perhaps he could explain the difference between being committed to a target and being committed to it in principle.

I was coming to that point in a moment with regard to the next steps that we will take.

In June this year we will submit an action plan to the European Commission containing indicative trajectories and plans for using biofuels to meet the 10 per cent target under the renewable energy directive, so we remain committed to that target. We have established a cross-sector stakeholder group to help to advise us on how we go forward, and will publicly consult on more detailed proposals later this year, including, I stress again, indicative trajectories of the growth of supply after 2013-14. Having met representatives of the industry over recent weeks, I know it is a concern of theirs that there should be a clear trajectory beyond 2013-14 for the growth in the supply of biofuels and it is our intention, when we submit our action plan to the Commission, to publish indicative trajectories beyond that year. The cross-sector stakeholder group, which includes leading biofuel suppliers as well as environmental groups, will be meeting from next month. I hope that, again, that will help us to establish a consensus on the way forward.

The development of the action plan that I have referred to should provide an opportunity for future debate, but also for greater investor certainty. With regard to the order we are debating today, however, I stress again to the Committee that if we do not support this amendment to the RTFO now, the discrepancy that has caused so much concern to suppliers will remain uncorrected. In effect, that would give fossil-fuel suppliers the opportunity to avoid the obligation in future through blending small quantities of biofuel with their fossil fuel. That outcome would damage both the biofuel industry and our efforts to tackle climate change. While we accept that we need to establish as soon as we reasonably can a clear trajectory for further development of biofuels beyond 2013-14, the order is necessary. As I say, it is part of a clear government policy for the development of biofuels. We could not have sought to address the underlying concerns and evidence more thoroughly than we did with the work of the Gallagher committee that was published last year; it is a comprehensive analysis that is informing our negotiating position in Brussels and has led to clear statements of policy that I believe give confidence to the industry about the development of biofuels over the next five years, while in the summer we will be publishing our further indicative trajectory for meeting the 10 per cent target. Taking all these factors into account, I think the order deserves the Committee’s support.

Before the Minister sits down, I accept that that is the conclusion that Gallagher came to, but if you look at his terms of reference—which I am sure the Minister has—you see that he was asked to look at the issue on a global basis, and that is what he did. He did not study what was happening with sugar beet in East Anglia or what was happening about oilseed rape in Yorkshire. There was no UK focus. There is a question mark about tallow, which is not related to the same issues as the sustainability criteria for normal agricultural crops, but so far as I know there is no sustainability issue with UK-grown oilseed rape, nor with sugar beet. If there is, we should be told about it. If the Minister and his colleagues spend the next three years looking at the global issues, what will happen to the industry in the United Kingdom?

The point is that we cannot separate out the two because we cannot control where biofuels come from. As the noble Viscount rightly says, there are good and bad biofuels. I have met domestic suppliers of biofuels and I am persuaded that they come into the “good” category, but because we cannot control where those fuels come from and this is an international market, it is incumbent on us to see that, as we develop biofuel targets, they take proper account of sustainability concerns, including those about indirect land use. That is no reflection on the domestic suppliers, simply a statement of the necessity that we face to see that the industry as a whole is put on a sustainable basis if we are going to see the significant increase in biofuels that we want so that they can replace fossil fuels. They must do so on a basis that does not have unacceptable negative environmental impacts.

That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Levy Ceiling) Order 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

In 2002, this Government recognised that members of defined-benefit occupational pension schemes were underprotected if their sponsoring employer failed. That is why we used the Pensions Act 2004 to establish the Pension Protection Fund. It is a statutory fund that protects members of defined-benefit occupational pension schemes and members of the defined-benefit parts of schemes that are a hybrid of defined-benefit and defined-contribution schemes.

The fund pays a statutory level of compensation if the sponsoring employer of the scheme experiences what is called a qualifying insolvency event, such as when a company enters administration; if there is no possibility of a scheme rescue; or if there are insufficient assets in the scheme to pay benefits at PPF compensation levels—broadly, 90 per cent for deferred and active members and 100 per cent for people over normal pension age.

The fund is administered by the board of the Pension Protection Fund, a public corporation. The fund is funded from three sources: the assets of pension schemes that transfer to it, including any recoveries from former employers; a levy charged on the schemes that are protected by it; and investment returns on those assets.

The Pension Protection Fund ensures that members of eligible defined-benefit schemes still receive a meaningful income in place of the pension they worked for and would have received had their employer not experienced a qualifying insolvency event, and the fund of which they are a member is unable to pay benefits at Pension Protection Fund levels.

The “purple book” published by the Pension Protection Fund and the Pensions Regulator in December 2008 estimates that around 7,400 private sector defined-benefit schemes are protected by the Pension Protection Fund. Since 2005, 112 schemes have been assessed by the Pension Protection Fund following an employer insolvency event. A further 295 schemes, with around 134,000 members, are currently being assessed. At the end of February, 8,215 former scheme members were receiving compensation at an average cost of £4,000. A further 21,653 former scheme members are already due to receive compensation when they retire.

The Committee will be aware that when Members in another place considered these instruments last week, they spent some time discussing the impact of current economic conditions on the PPF. All sides recognised the valuable protection that the PPF offers to scheme members, and explored some important questions about what the future might hold with my right honourable friend the Minister for Pensions and the Ageing Society.

We should be vigilant to ensure that the PPF is able to continue to offer protection to members of defined-benefit pension schemes, and that we take steps to deal with threats to the PPF. That is why, for example, the Pensions Act 2008 extended the powers of the Pensions Regulator and, as the Committee will recall, we were concerned that new business models seeking to offer alternatives to insured buyouts of pension scheme liabilities highlighted the disproportionate risk to the PPF that could arise from mechanisms by which shell employers became sponsors of pension schemes. After careful scrutiny, Parliament agreed that powers were needed to deal with such risks.

Vigilance is needed, particularly in difficult economic times such as these when trustees or employers may well hear siren voices suggesting actions such as transferring pension schemes to shell employers as a way of evading liabilities or otherwise bypassing the controls set out in legislation to limit the PPF’s exposure to claims. The Government have made it clear that pension liabilities should generally be backed by substantive employers or by the regulatory capital held by insurance companies. The Committee will no doubt be glad to hear that the regulator is indeed prepared to act if it considers that trustees or employers are seeking to abuse the system.

I now turn to the draft Pension Protection Fund (Pension Compensation Cap) Order 2009, under which a cap on the level of the Pension Protection Fund compensation is applied to scheme members who are below their scheme’s normal pension age at the point immediately before the employer’s insolvency event. These members are entitled to the 90 per cent level of compensation when they retire.

Under the Pensions Act 2004, increases to the compensation cap are linked to increases in the general level of earnings. To increase the compensation cap for 2009-10, we must consider average earnings in Great Britain, as measured by the average earnings index and published by the Office for National Statistics in the 2007-08 tax year, which shows an increase of 3.5 per cent. Such an increase gives a new cap of £31,936.32 for the 2009-10 tax year. This means that the total value of compensation payments for members below normal pension age shall not exceed £28,742.69 for the new tax year. The new cap will apply to members who first became entitled to compensation at the 90 per cent level on or after 1 April 2009. The order ensures that the level of the compensation cap is maintained in line with the increase in earnings, as required under the Pensions Act 2004.

I now turn to the draft Occupational Pension Schemes (Levy Ceiling) Order 2009. The pension protection levy is the responsibility of the board of the Pension Protection Fund. The levy ceiling is one of the statutory controls on the pension protection levy. Rather than set the rate of the levy, it restricts the amount that the board can raise in any one year. The levy ceiling for 2008-09 was set at £833 million.

Under the Pensions Act 2004, the levy ceiling is increased annually in line with increases in the general level of earnings in Great Britain, using the rate for the 12-month period to 31 July in the previous financial year. The order before the Grand Committee uprates the levy ceiling by 3.6 per cent, bringing it to £863,412,967. This does not mean that the pension protection levy will increase to the ceiling. The board of the Pension Protection Fund is responsible for setting the actual levy for any year, but it must not set one that is above the levy ceiling. The board understands the pressures that businesses are under in the current economic climate. In August 2007, the board made a commitment to set a levy estimate of £675 million for the following three years, indexed to earnings, subject to there being no change in long-term risk. The PPF has kept this commitment, and announced that it will increase this year’s levy estimate only by earnings, which means that for 2009-10 the levy estimate will be £700 million. However, the annual increases in the ceiling ensure that, after 2009-10, the board of the PPF could in future increase the levy up to the levy ceiling if it considered it appropriate.

I confirm that I am satisfied that the statutory instruments before us are compatible with the European Convention on Human Rights. They provide that the Pension Protection Fund compensation cap and levy ceiling are uprated in line with increases in average earnings.

The Grand Committee will be grateful for the Minister’s careful explanation of these two orders, especially the background to them. I have nothing to say about the background to these orders, but I might be tempted to say something when we get to the financial assistance scheme regulations.

As for as the compensation cap provision, it is one of those things that come along like trains every year; perhaps, after the last debate and Question Time, trains are not an appropriate metaphor. Anyway, they come every year and they do exactly the same thing; they uprate by the level of earnings in the previous tax year, as the Government are obliged to do by the Pensions Act 2004, as the Minister said. It is one of the many orders that cause the bee in my bonnet to buzz furiously. I have referred to my objective of downgrading affirmative instruments of this sort many times before; indeed I have given evidence to Select Committees from time to time, but I will not labour that point today, except to say that in 2004 we should have made the first order affirmative and subsequent ones negative. Alas, that option was not open to us then, although I am glad to say that the position has now changed, at least as far as the DWP is concerned, and I commend it for that.

All that I would say on that order is that it comes under the horticultural heading that I have referred to before of DDT which, parliamentarily speaking, stands for doing the decent thing. The main subject of this debate, therefore, is the levy ceiling order, as it was in another place last week. I suppose that I should not be surprised that in many cases in his explanation of that order, the Minister has rather shot my fox, but he was speaking so quickly that I did not quite take in the figures that he gave towards the end of his speech. I would be grateful if he would repeat them.

As a rather green participant in the debates on the Pensions Act 2004, I still like to think of the PPF as a statutory insurance scheme for the underfunded pensions schemes whose sponsoring employers go bust. I am aware, of course, that Ministers have always denied this and have said that it is not a pension fund either. It is technically a compensation scheme. To me that is semantics. To all intents and purposes, since it behaves like an insurance scheme, therefore to me it is an insurance scheme. Unusually, it is an insurance scheme with two premiums: one to run the fund and the second a risk-based premium on schemes. We are concerned today with the latter.

This risk premium, or rather the maximum amount that the fund can demand, has gone up by leaps and bounds since we first debated this annual order, and it is right that this is debated every year. For 2005-06, I seem to remember that the levy ceiling was set at £150 million. It has been raised again and again in subsequent years, and now, as the order makes clear, it stands at £863,412,967. I think that that is the exact figure, although the Minister faltered at that point in his speech. This seems to be a very precise sum. Will the Minister confirm that the odd pounds come about because of the increase in the average level of earnings of 3.6 per cent?

Having got that off my chest, this sum of £863-and-a-half-odd million is more than double what was expected when we debated the Bill; that is for the full year after the first year. At that point, it was expected to be some £300 million a year. The Committee will appreciate that that was in the boom years, which of course the then Chancellor of the Exchequer abolished, as he did the bust years. Hubris, we find, has descended on him now that he is Prime Minister.

Be that as it may, indeed is, the situation now is completely different. Unemployment is growing at the fastest pace ever recorded, and now, as the Minister told us last week, it stands at 2.03 million. Firms seem to be going to the wall almost daily—I hope that I am wrong about that—and I venture to suggest that most of them, if not all, will have underfunded pension schemes.

While I appreciate that the levy ceiling has never yet been breached, will this last, or will we see the ceiling increasing yet again to, say, £1 billion by the end of this decade, which is only 12 months or so away? The Minister made some reference to that in his speech. Or on the other hand, is he as confident as his colleague in another place on Wednesday last, who gave the impression that there was plenty of money in the fund. If so, is the ceiling too high, or is it precautionary? How is it arrived at? That is where the Minister shot my fox on the figures I was going to ask him about. Will he repeat how close to last year’s ceiling the levy has got? How many schemes currently are within the fund and how many are in the queue? He illustrated how they have changed in the past two years, but I wonder whether I am alone in seeing the absolute importance of comparing from year to year. As I said, I expect the situation to get a lot worse over the next few years.

I thank the Minister for the explanation of the changes. This is a timely moment to ask a few serious questions about the grave position in which the Pension Protection Fund finds itself. The most recent figures were that defined benefit pension schemes in this country, the universe which the Pension Protection Fund is set up to protect and the people who are paying the levies that we are discussing today, had a total deficit of £191 billion, which was up from £48.8 billion a year earlier. I remember well the passage of the then Pensions Bill 2004 when we debated these matters. I also remember well, in 2005, two academics, Anthony Neuberger and his colleague, David McCarthy, wrote an excellent and groundbreaking article in Fiscal Studies on the PPF. Their conclusion, with which I agreed at the time, was that there was a significant chance that the claims on the PPF,

“will be so large that the PPF will default on its liabilities, leaving the Government with no option but to bail it out. The cause of this problem is the double impact of a fall in equity prices on the PPF: it makes sponsor firms more likely to default, and it makes defaulting plans more likely to be underfunded”.

It explained that when they go down, the black holes are bigger. In those debates, I challenged the Government—it was laughed off, but I ask them now whether they are equally confident—about whether the PPF would prove to be a leaky lifeboat sailing on uncharted seas. Never, in my darkest nightmares, did I fear that the economy and pension schemes would collapse in the way that they have over the past five years.

In America, the model for the Pension Benefit Guarantee Corporation does not have an explicit government guarantee, but it has the US Secretary of the Treasury and the US Secretary of Labor sitting on its board. Everyone in America knows that that amounts to an American government guarantee. It is really a fiction for the Government to maintain, if they do, that this is an arm’s-length body. The cost of funding by the PPF levy is falling on an ever-smaller number of private sector defined benefit pension schemes, which are shrinking by the day. It is almost like an ever-bigger upturned pyramid resting on an ever-narrower base.

Will the Minister review with his officials one specific and growing problem? In the past few months following the change in insolvency laws, there has been a great flood of pre-pack administrations in this country—phoenix administrations. He mentioned shuffling off pension liabilities. There is a rash of companies calling in the accountants and setting up a clever scheme whereby, in many cases, they shuffle off their pension fund and property liabilities. They then go into administration and come out again 10 minutes later with the same people in charge, having walked away from their pension liabilities. This serious abuse has developed in recent weeks. I have already taken it up in writing with the noble Lords, Lord Myners and Lord Mandelson, but there is a very significant pension involvement here and I hope that the Minister will also take it up with the noble Lord, Lord Mandelson, whose department is responsible. It is a matter of serious concern as it concerns not only getting rid of pension fund liabilities, but also, in the way it is operating in the commercial property market, it is gravely undermining pension funds and life insurance solvency because it undermines the rental income on which property portfolios depend.

I, too, looked at the report of the debate in the Commons on 18 March. A request was made then for the calculations that have been made and to which the Minister, the right honourable Rosie Winterton, referred. The calculations might better be called scenarios as to solvency under different conditions in the PPF. She gave an undertaking to put them in the Library in so far as they were not “commercially confidential”. I find it hard to see how calculations of that sort could be commercially confidential as they do not refer to individual firms. I hope, therefore, that the Minister can confirm that those forward calculations have now been placed in the Library so that we can all see them. This is a matter of great public concern. We need to see what the conditions and the assumptions are in order to hold a proper, open debate.

In the debate in the Commons, Ms Winterton talked about liquidity. That is not the point. No one is suggesting that the Pension Protection Fund or individual pension funds in this country are going to run out of cash in the near term. The issue for pension funds, which are very long term, is not liquidity because they are not going to run out of cash in the near term, but that they go bust when they cannot meet their liabilities over the long term. That is the problem which people are so concerned about, and is why these calculations are so important.

This is a very testing time for the economy, for pension funds and for the Pension Protection Fund. I encourage the Minister to be as open as possible in a debate that is very serious for the country as a whole.

I thank both noble Lords who have spoken. The noble Lord, Lord Oakeshott, is right: these are serious times for pensions provision and important issues need to be addressed. I shall try to answer each of the questions that have been raised.

The noble Lord, Lord Skelmersdale, made a point in passing about the affirmative nature of these orders. He will be aware that to change the current arrangements would need primary legislation, so it looks as though we will meet routinely on this matter.

There has been no lack of pensions legislation in recent years.

Indeed, although I do not think that anything is scheduled to be brought forward in the immediate future. The noble Lord asked me to confirm the numbers, and I am sorry if I went a little quickly earlier. Let me look first at the pension protection levy for 2008-09. It was set at £675 million, part of it as a risk-based assessment and part on a scheme basis at roughly an 80:20 split. In 2009-10, as I indicated, the proposal is for a £700 million levy that is designed to meet the commitment of the PPF to keep the levy in real terms, which is what it does. On the levy ceiling, in 2007-08 it was £804 million, in 2008-09 it was £833 million, and for 2009-10, as we have discussed, it is £863 million. I believe that the odd numbers at the end are derived just from the arithmetic of that percentage increase, but if they are other than that, I shall let the noble Lord know. He also asked about the levy ceiling in 2005-06. No levy ceiling was applied in the first year of the levy.

The noble Lord, Lord Oakeshott, raised important points about recent reports, the 7,800 series, and projections for scheme deficits. As he acknowledged, it is important that we look at those for the long term. Liquidity is the key issue for the Pension Protection Fund. As my colleague said in another place and as was touched on earlier, there is sufficient liquidity in the PPF, even testing it against some quite severe economic scenarios, to continue to pay benefits for many years to come—I think it is about 20 years.

On the request made of the Minister of State, when she said that she would consider what could be done, the data is driven by the PPF and we need to be mindful of its confidentiality, but we are in touch with the PPF to see how that matter might be taken forward.

The noble Lord, Lord Oakeshott, talked about pre-packs and the current trend. It is important to remember that pre-packs require the agreement of all creditors, including the pension scheme, but he is quite right that we need to ensure in all these things that the pension scheme should be treated fairly. He raised an issue that has been raised before: should the Government effectively underwrite the pension protection scheme? We do not believe that it is necessary to do that; we have not been asked to do that by the Pension Protection Fund itself. To underwrite it would be to move us away from the principle that the fund is funded by those who are protected by it. If we went to a government guarantee, we would be drawing other people in to underwrite it.

On the strength of the PPF and the role of the regulator—again, the noble Lord referred to the challenges that schemes and scheme sponsors face—the Pensions Regulator has made clear in a number of pronouncements recently that it is entirely appropriate for trustees to look at reasonable affordability when looking at recovery plans. He subsequently referred more specifically to the opportunities of back-end loading plans and, if necessary, lengthened loading plans, if that is what it takes to ensure that schemes are secure.

I have not dealt specifically with the point made by the noble Lord, Lord Skelmersdale, about the current economic situation, but I think that I have dealt with it in my response to the noble Lord, Lord Oakeshott. Currently, the PPF has about £3 billion in assets and is paying out £3.7 million a month in compensation. It was designed to work in a benign environment as well as in the downturn. On the basis of the analyses that have been undertaken, it has enough cash to continue to pay benefits for at least 25 years. Part of its assessment is to keep its promise that the levy should be kept whole in real terms.

It should be kept what in real terms?

It should be kept whole. Last year, it was £675 million. The Pension Protection Fund said that it would try to keep that level for three years, adjusted for changes in prices only.

Perhaps I may raise one other point that I forgot to cover in my opening remarks. On one high-profile pension, does the Minister share my regret, for this purpose anyway, that the Royal Bank of Scotland did not go bust, unlike so many of its customers, so that Sir Fred Goodwin's pension could be limited to £27,700 a year, as it would have been if he had been in the PPF? Although I do not necessarily expect the Minister to comment on that, does he accept that I believe that there is ample evidence to stop Sir Fred Goodwin's pension now, not least the shocking revelations in the Sunday Times and the Observer at the weekend about misuse of shareholders’ and savers’ funds by Sir Fred and bullying of non-executive directors? That pension should be challenged in the courts and stopped on the grounds of improper authorisation, negligence and, very probably, fraud.

I am sure the noble Lord will understand that that issue is way outside the matter that is before us today, and I am not briefed on all the detail behind it. In common with most people, one is gravely concerned about someone in those circumstances walking away with a pension fund at that level. I am advised that not all of it would come from a scheme that would be eligible for the PPF, so that would be outwith it in any event. The noble Lord is quite right that for a member of a scheme that went into the PPF and who retired early, if their normal retirement age was after the date on which the assessment was made, the cap would certainly kick in.

I told the noble Lord, Lord Skelmersdale, earlier that the levy was increased by reference to price, but it is not; it is increased by reference to earnings. I apologise for that.

That the Grand Committee do report to the House that it has considered the Pension Protection Fund (Pension Compensation Cap) Order 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

That the Grand Committee do report to the House that it has considered the Financial Assistance Scheme and Incapacity Benefit (Miscellaneous Amendments) Regulations 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

The draft regulations were laid on 11 February. The Financial Assistance Scheme—or the FAS, as I shall refer to it hereafter— offers help to certain people whose defined benefit occupational pension schemes have not provided them with the pension that they were expecting.

In December 2007, we announced a significant extension to the scheme, and noble Lords will recall considering two sets of regulations last year that implemented key elements of those changes. They will also recall that we decided to implement the December 2007 announcement in stages to give priority to the elements that offered the most help to FAS members. I am sure noble Lords will be pleased to know that, as a result of those changes, the FAS now makes payment at 90 per cent of a qualifying member’s expected pension, subject to a cap, from the normal retirement age, subject to a lower age limit of 60.

The FAS also allows early reduced payments on grounds of ill-health and includes certain schemes where the employer is still trading and solvent. As a result, a total of more than £50 million has been paid to 10,556 people so far. It is estimated that around 140,000 people will receive assistance from the FAS in the long term. However, we recognise the difficulties experienced by those who lost their pensions through no fault of their own, and the particular difficulties of pensioners who are unable work due to their ill-health.

The FAS currently allows early access to actuarially reduced payments for members who are unable work and will continue to remain unable to work until their normal retirement age. The FAS also provides early unreduced access for members who are terminally ill and likely to die within six months. It should be noted that although the rules of many occupational pension schemes allow members to take their benefits before the normal retirement age where they are in ill-health, this facility is generally not available when a scheme has started to be wound up.

The draft regulations include some significant measures in response to representations that we received when we introduced the existing ill-health provisions that a small number of people with ill health leading to significantly reduced life expectancy could be excluded from early access to the FAS under the current provisions because they are more than five years away from their normal retirement age.

We have also responded to concerns raised by campaigners that the actuarial reduction in payments under the current ill health provisions are inappropriate where a person is likely to have a significantly shorter life expectancy due to their severe ill health. I am therefore pleased to present these draft regulations, which will provide for early unreduced access to FAS payments where a person is aged 55 or over and has a progressive disease from which death might reasonably be expected in five years. These payments will be known as severe ill health payments.

In developing a test to identify the people with severe ill health resulting in reduced life expectancy, we considered how best to focus on the people most in need of early payments of assistance. We concluded that the best way to achieve this is via a test in the form that,

“the member can reasonably be expected to die within five years”.

This is a novel test that is without precedent in legislation, and we needed to check that it would be fair and operable.

During the development of the test, departmental medical advisers advised that it would be impractical to try and apply a test looking more than five years ahead, due to the lack of reliable survivability data and the need to take into account a large range of factors, such as lifestyle, which could influence a person’s longevity. A range of views were expressed in consultation responses. A number of responses urged the Government to set a test looking 10 years ahead, but they did not provide evidence that this test would be operable or fair. Other responses supported the Government’s approach. I thank all the respondents to the consultation, including private individuals, trade union representatives and members of the Pensions Action Group for their input.

I reassure noble Lords that we do not expect the life expectancy condition to set a cut and dried test. This is not a test of whether someone will die in five years, but one of whether their death within that time is a reasonable expectation. This wording does not mean that a doctor would have to confirm that the prognosis for a person was shorter than five years in order for that person to satisfy the test; rather, that the medical condition of the person is such that five years or less would be among the reasonable prognoses that a doctor could give for someone in their situation.

The Government have responded positively to concerns raised by stakeholders and campaigners that a small number of members, who have been severely ill for some time, have been disadvantaged because these provisions have not been a feature of the financial assistance scheme from its commencement. Draft Regulation 7, therefore, makes provisions to put such people back into the position that they would have been in if severe ill health payments had been available since May 2004, when the financial assistance scheme was first announced.

First, severe ill health payments can be paid for periods before the date of application in cases where a person can demonstrate that they would have met the qualifying conditions at an earlier date. This can apply even where a member has now reached their normal retirement age; they will be able to apply for earlier payment of severe ill health payments where they can demonstrate that they would have met the qualifying conditions at that earlier date.

Secondly, provision is made for survivors, or personal representatives, to apply for severe ill health payments for a past period on behalf of any member who would have met the qualifying conditions but who has, unfortunately, died before the regulations came into force.

Thirdly, a scheme member currently receiving reduced ill health payments will be allowed to apply for the new unreduced severe ill health payments where they believe that they would have met the qualifying conditions if the provisions had existed earlier.

I add that the provision to pay for a past period will not be a regular feature of the financial assistance scheme. We have included it solely to allow people to be reinstated into the position they would have been in if the provisions had been a feature of the financial assistance scheme from the outset. Therefore, applications for severe ill health payments for a past period will have to be made within one year of the regulations coming into force.

These regulations also make an amendment to the incapacity benefit regulations. Regulation 2 amends the incapacity benefit regulations to provide that financial assistance scheme payments are treated as pension payments for the purposes of that benefit. This means that half of any FAS payments in excess of £85 per week will be taken into account when calculating entitlement to incapacity benefit. However, this will not affect qualifying members who first became entitled to financial assistance before these regulations came into force.

Finally, noble Lords will be pleased to know that we hope to start making payments to those who qualify by the end of April, subject to the provision of relevant information from members and their medical practitioners. I commend the regulations to the Committee.

I referred earlier to having been gently chided, during a previous debate on the financial assistance scheme, for going into a history of that scheme as I saw it. I am going to resist that temptation today, probably to the Minister’s pleasure. Suffice to say that the substance of the order is not like that of the scheme itself or the orders emanating from it, where the Government had to be led, kicking and screaming, to do anything at all. This order is a different ball game.

Last year’s order improved the financial assistance scheme yet again, that time to make payments available to people with terminal illnesses and those unable to work through illness up to five years before their normal retirement age. Naturally, their payments would be actuarily reduced at the time of first payment, and, presumably, after their retirement date as well—in other words, throughout their life. Perhaps the Minister will be able to confirm that.

It came to light, though, that there was a problem with a few people who would be excluded from that provision, being too young to qualify. I believe that they did not totally fulfil the illness criterion as set out in last year’s order. I would be grateful if the Minister will confirm that when winding up. The order corrects that in cases where people have significantly reduced life expectancy if they have attained the age of 55 and are suffering from an ailment—the Minister used a technical term that I am afraid I did not catch—of which the prognosis is that they will die within five years. Amazingly, such payments are not to be actuarily reduced. Is this not apples and pears? The long-term ill are to have actuarily reduced payments, under last year’s order, while payments to the longer-term terminally ill are to be paid without such a reduction. That raises a question that I hope the Minister will be able to answer: why?

The second question that arises is what happens when the unfortunate sufferer exceeds his life expectancy of five years. Doctors, after all, are not infallible, and medical science is improving all the time. Do the payments remain the same, suddenly become actuarily reduced or what? Will the recipient perhaps have to reapply? Incidentally, in the Minister’s closing words, when he said he hoped that the first payments would be made by the end of April this year, he did not comment on the fact that the individuals have to apply. That raises the question of how they apply and to whom. Given that when the five years is up they are, or will be by then, almost at, or near, death’s door, I hope that the payments will continue unaltered and unreapplied-for—what a horrible word—until death.

I also note the second part of this order, which says that the payments we are discussing are to be treated as pensions. That has two effects. The first is that if the individual has enough income, the FAS payments will be taxable. The other is that they will go to reduce any incapacity benefit that may have been in payment. Will the Minister reassure me that not only will no one be worse off financially as a result of this but in all cases they will have more money to live on in their declining years? If the answers to my questions are positive, as I hope they are, then this order makes beneficial improvements to the financial assistance scheme and deserves our full support.

We welcome these regulations. In previous years, regulations of this kind meant that we felt we had to challenge the Government on the failings of the financial assistance scheme, which was a sorry saga for many years. That would not be appropriate today, now that we are in the mode of rejoicing over a sinner that repenteth. It is now in a good state. This is a welcome change, and I congratulate the Minister on it.

There is one question of detail. I understand that establishing an individual’s life expectancy in these difficult circumstances will be for the department’s medical advisers, so the regulation says, but the final decision rests with the FAS scheme manager. How do those two things square? Are there situations in which the financial assistance scheme manager will overrule the medical advisers? That would be quite difficult to assess. Is there an appeals process? It could be quite a stressful time. Perhaps the Minister would clarify those points. We believe that the provision applies to only a small number of people. Perhaps the Minister could give an estimate of how many people are affected. There has been serious injustice for a small number of people and we are glad that it has been rectified.

I am grateful to both noble Lords for their comments and their support for these proposals. The noble Lord, Lord Skelmersdale, pressed me on actuarially reduced amounts. For someone with ill health, early access to actuarially reduced amounts simply reflects the fact that having access to the arrangements earlier will enable them to have them for a longer period of their life. It is a technique which quite often applies. That is in contrast to someone who has the severe ill health payment, which is predicated on a person having a progressive illness with a life expectancy not exceeding five years. Therefore, not reducing the amount actuarially reflects the fact that they will have it for a shorter period. That is the difference.

The noble Lord, Lord Oakeshott, asked me about the number of people involved, which we think will be small. Something like 61 people in receipt of ill health payments at the moment will be contacted about these new arrangements. We think that a couple of dozen people may be entitled. That is the scale of the issue. The noble Lord also asked me about the process. The individual will need to make a claim to the FAS operational unit. The individual’s GP or consultant would be contacted to provide information. The DWP’s medical advisers will have the opportunity to review that and will clearly advise the scheme manager who will make that decision. Obviously, the scheme manager would be constrained by rules of consistency and fairness, and would be expected to act on the basis of the medical advice given.

The noble Lord, Lord Skelmersdale, asked whether, for someone who lived for longer than five years with an original prognosis of less than that, there would be any adjustment. No, there would not. They would continue to be entitled to the payments at the unreduced levels for the rest of their life. The noble Lord also asked about incapacity benefits.

Before the noble Lord gets on to that, I also asked whether, at the end of the five-year period, the individual who is about to exceed it would have to reapply.

No, he or she would not have to reapply. To supplement the answer I gave to the noble Lord, Lord Oakeshott, there will be a right of appeal and internal review in respect of someone who might be disappointed by a judgment.

Members will be able to make applications as soon as the regulations come into force, which we hope will be by the end of the month. We are already in touch with potential applicants so that we can process their applications speedily. Members will need to make a written application to formally start the process.

As regards incapacity benefits, these regulations simply put people in receipt of FAS benefits in the same position as PPF members or members of pension schemes where they are taken into account to an extent as income when looking at receipt of incapacity benefits. In conclusion, I was remiss not to state earlier that in my view these regulations are compatible with the European Convention on Human Rights.

Before the Minister sits down, I asked him, with regard to the incapacity benefit part of the order, if he could confirm that no one will be worse off than if they had to live on incapacity benefits only. I am sure that the answer is no, but I hope he will be able to confirm that.

I think I can confirm that. FAS payments have to be recognised to an extent, which could lead to a reduction in incapacity benefits, but the FAS payment is not going to eliminate the whole of the incapacity benefit.

I see the Minister got a nod from behind him. I was going to say that perhaps, given the unusual slight shakiness of that answer, he might like to write to me, but it looks as if though that will not be necessary.

I will save the noble Lord another of my letters. I now have the confidence, after that nod from behind me, that what I said was correct.

That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

Before I proceed further, I wish to state that in my view this statutory instrument is compatible with the European Convention on Human Rights.

Before speaking on the content of the regulations, it may be helpful for the Committee if I set the regulations in context and explain a little of the history behind the accrual of guaranteed minimum pensions. Between 1978 and 1997, if a defined-benefit occupational pension scheme wanted to contract out of the state additional pension, the employer had to agree that the scheme would pay at least a statutory minimum level of benefits—the guaranteed minimum pension. When an employer provides a contracted-out pension scheme, both he and his employees pay a lower level of national insurance contributions. Employees who are contracted out into a defined-benefit occupational scheme forgo all or part of their state additional pension entitlement, and instead receive a private pension from their employer’s scheme.

As I explained, the GMP was the minimum benefit that schemes were required to provide. Many schemes offered more generous pension benefits in excess of the GMP; consequently, those schemes have had to record both the GMP and the scheme excess. GMPs ceased to accrue in 1997, and for service beyond 1997 a new standard, the reference scheme test, applies. However, schemes retain liability for GMPs and therefore have to operate two different sets of rules. That has caused complications and extra costs for many schemes.

The provisions of the draft Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009, together with Sections 24A to 24H of the Pension Schemes Act 1993, will permit the trustees of defined-benefit contracted-out occupational schemes to simplify their scheme structure and reduce the regulatory and administrative burdens placed on them. This new legislation will allow the trustees to convert their GMPs into ordinary scheme benefits which are of at least equal actuarial value.

The regulations are technical in nature and complement the detailed provisions for GMP conversion in Sections 24A to 24H of the 1993 Act, which were introduced by Section 14 of the Pensions Act 2007. Those sections set out the conversion conditions that occupational pension schemes must meet in order to convert GMP rights into scheme benefits, provided that the overall actuarial value of the benefit package is maintained.

Sections 24B and 24C of the Pension Schemes Act 1993 provide for regulations to be made for the purposes of prescribing the method by which actuarial equivalence is achieved, and for setting out when the scheme receiving the converted GMPs must provide a survivor benefit. These regulations seek to fulfil those requirements.

I turn to the detail. The new sections introduced by the Pensions Act 2007 set out five conversion conditions that must be met in order to convert the GMPs. It is only after these conditions have been met that a scheme can extinguish its liability for paying the GMP. The draft Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009 facilitate conversion conditions one and four, so I will concentrate only on those two.

Conversion condition one requires that the pension a member is entitled to after GMP conversion is actuarially at least equivalent to what it was before conversion. Actuarial equivalence allows the whole structure of benefits already accrued in a pension scheme to be changed while maintaining their actuarial value. It is a concept that has been in existence for some time and is often used for private pension schemes. For the purposes of GMP conversion, it is the scheme trustees who will decide whether the GMPs held in a scheme should be converted into equivalent scheme benefits. If the trustees do decide to convert GMPs, they are required to seek advice from an actuary about the actuarial assumptions to be used. In deciding what assumptions are to be used, the trustees and actuary will need to refer to the provisions set out in the draft Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009.

In order to ensure that actuarial equivalence has been achieved, the scheme trustees must arrange for the actuary to calculate the actuarial values of the pre- and post-conversion benefits. It is only after the actuary is satisfied that actuarial equivalence has been met that the actuary will provide a certificate to certify that condition one has been satisfied; that is, that the post-conversion benefits are actuarially at least equivalent to pre-conversion benefits. The actuary is also required to provide the trustees with a certificate within three months.

I turn to conversion condition four, which seeks to protect the position of the spouse or civil partner post-conversion in the event of a member’s death. Currently, on the death of a member, a contracted-out occupational pension scheme is required to pay a survivor benefit based on the earner’s accrued GMP rights. Section 24D of the Pension Schemes Act 1993 sets out the current survivor benefit requirements, which are that in the relevant circumstances, a widow is entitled to a survivor benefit based on her husband’s accrued GMP from 1978 to 1997. A widower or surviving civil partner is entitled to a survivor benefit based on the earner’s accrued GMP from 1988 to 1997. After conversion, a requirement to provide a survivor benefit is retained based on the scheme pension earned from 1978 to 1997 or from 1988 to 1997 as the case may be. The requirement seeks to protect the position of the beneficiaries whose additional state pension will be subject to a contracted-out deduction following the member’s death.

Section 24C of the 1993 Act requires regulations to be made for the purpose of prescribing the circumstances in which and the periods for which the survivor benefits are payable from the new scheme benefit; that is, after the conversion of the GMP. The circumstances under which a survivor benefit is payable after conversion remain the same as those which apply before conversion, as does the period for which it is payable. The survivor benefit rules are complex, and in their simple terms, the regulations require that the survivor benefit may be withdrawn where the survivor is not in receipt of a relevant benefit such as widowed carer’s allowance, widowed mother’s allowance, widow’s pension or bereavement allowance, or where the survivor is aged over 45 and has remarried, formed a civil partnership, or is living with somebody as husband and wife.

In summary, although the regulations may appear complex, they simply ensure that post-conversion benefits are actuarially at least equivalent to the pre-conversion benefits and that the current rules which specify when and for what period a survivor benefit is payable are retained post-conversion. These regulations are to facilitate GMP conversion and thus enable contracted-out defined benefit occupational pension schemes to simplify their benefit structures by moving to one set of scheme rules. Schemes that undergo a conversion exercise will benefit from no longer having to purchase advice for GMP calculations, no longer having to deal with queries from members on GMPs, simpler awards of benefit where pensions become payable, and a single approach to the annual uprating of pensions in payment.

Finally, I should point out that the facility to convert GMPs is purely an optional one which is being made available to schemes. The requirements of these regulations become mandatory only at the point at which a scheme decides it wishes to convert its GMPs. I commend these regulations to noble Lords.

We have now turned our attention to guaranteed minimum pensions and I, for one, am grateful to the Minister for his attempt to steer us through what this most complicated order is doing. The noble Lord called it complex. If I had a deeper word in my vocabulary to express complexity, I would most certainly use it. I say “complicated” because, although Section 14 of the Pensions Act 2007 is crystal clear in its intent and is referred to in the Explanatory Memorandum, nowhere could I find a reference to it in the order itself. I would not expect it to be in the main guts of the order, but I would expect to find it in a footnote. Footnote (a) on the front page of the order states:

“1993 c.48. Sections 24B and 24C were inserted by section 14(3) of the Pensions Act 2007”.

I did not find that terribly helpful. I therefore had to mount a paper chase to discover that Section 14 actually amends Sections 13 and 17 of the Pension Schemes Act 1993.

I hope that I have understood the order correctly, not being nearly so expert in the field of guaranteed minimum pensions as my noble friend Lady Noakes. Its background, though, is, I think, fairly clear. As the Minister has said, between April 1978 and April 1997 defined-benefit schemes and, I believe, members of the schemes themselves—I stand to be corrected on that—could, and often did, contract out of the second state pension in its various guises. Why we have to have different names for essentially the same thing defies me, but I shall let that pass.

The point is that the schemes themselves had to be as good as, or better than, the state scheme, and provide what came to be known as the guaranteed minimum pension. How many schemes have contracted out, and how many have already converted? As I read the situation, it has taken until now for the Government, through the Pensions Act 2007, to come up with a way to mitigate the fact that schemes have to continue to administer the rights already accrued, even though they ceased accruing as long ago as April 1997. Not only that, but many scheme benefits have already been converted. I have assumed, therefore, that this order is required to convert the rest. However, I am confused by paragraph 8.2 of the Explanatory Memorandum, which ends by stating that schemes would be unlikely to convert “in the near future”. Presumably, that means that more schemes would be unlikely to convert in the near future. I hope that the Minister will be able to tell me the reason for this, as I would have thought that most of the conversion would have been done already, at least in those schemes that have already contracted out. This order might have been in operation had Section 14 of the 2007 Act been in the Child Support, Pensions and Social Security Act 2000 instead. Given that, I would be grateful if the Minister would explain the timing of what this order does. In essence my question is, why now? Why has it taken so long to achieve this?

One usually gets to penetrate the opacity of Department for Work and Pensions orders. However, new Section 69B is more than opaque; I suggest that it is the darkest night just before the dawn. Can the Minister—as the noble Lord, Lord Richard, requested at Question Time—explain in English the two parts of new Section 69B as none of my advisers could translate it to my satisfaction? Unusually, we received no comment on this from the Merits Committee. Therefore, I would be grateful if the Minister could provide me with an answer to that.

Perhaps the Merits Committee did not comment on the provision because it could not understand it. Like the noble Lord, I picked up the Minister’s phrase that the regulations may appear complex. He can certainly say that again. The noble Lord, Lord Skelmersdale, was searching for a deeper expression than “complex”. I suggest “utterly obscure and totally incomprehensible”.

On a point of fact, I see that the regulatory impact assessment suggests that the total initial cost—presumably the one-off cost of making these changes—will be between £11 million and £22 million, and would produce a total annual cost saving of £6 million to £13 million. That is a 50 per cent to 60 per cent annual rate of return of which any pension fund with which I have been associated would have been proud. I just wonder whether those figures can be right. They seem to be particularly hopeful, do they not? That is one question.

More generally, and more seriously, the order shows how totally wrong and unnecessary contracting out the whole state second pension is. I have been in the pensions industry for 33 years and understand how it works, and I just wish that the Government had been bolder and scrapped it rather than slowly phasing it out following the Turner report.

I thank each noble Lord for their contributions. I do not have data to hand on the number of schemes that have been contracted out, but I will dig them out and write to the noble Lord, Lord Skelmersdale. He suggested that the schemes would already have converted GMPs. They could not, however, because it is the legislation that was inserted into the recent Pensions Act and these regulations provide the wherewithal to do that. The GMPs had to be preserved, even though, as he suggested, there are no longer accruals post-1997.

The noble Lord, Lord Oakeshott, asked why this is being done now. I accept what both noble Lords say; this is complex stuff, which is partly to do with simplification. The noble Lord, Lord Oakeshott, is absolutely right that the legislation is impenetrable. That is why we have taken action, certainly so far as DC schemes are concerned. As the noble Lord will be aware, we are going to abolish contracting out for those schemes very shortly. The Turner commission report expanded on the reason for not doing this more immediately for DB schemes. There needed to be a period in which the long-term effects of removing GMPs and removing contracting out had to be reflected in those arrangements. The Turner commission was pretty clear that they could be phased in over time.

As the noble Lord knows, this is due to expire by 2030. As we generally squeeze out the earnings related part of S2P, there will be a diminishing earnings related part to contract out.

I thank the noble Lord for those kind remarks. In the light of what he said, I have decided not to point out that he read out the whole of his brief verbatim. I think that was the first time I have ever seen him or any other Minister do that, but I do not blame him for that in any way.

I always read my brief verbatim; I am a noble servant of the Government. The noble Lord, Lord Skelmersdale, asked me to interpret new Regulation 69B. I will have a go, but the important thing to recognise is its reference to Condition 4 of Section 24B of the 1993 Act. Condition 4 is one of five conditions, and requires that the converted scheme provides certain survivor benefits in circumstances and during periods that are prescribed by regulations. That is the thrust of that condition and the thrust of what new Regulation 69B seeks to address. Rather than test the noble Lord’s patience today, I am happy to have a private word with him or to write him further if he so wishes.

This is such a complicated matter that on this occasion I would much prefer a letter. The first part of new Regulation 69B—that is, paragraphs (1), (2) and (3)(a)—appear to have rather different connotations from (3)(b), (3)(c), (3)(d) and (4). My question was about comparing the two halves of 69B. I would be grateful for an explanation.

In short, the explanation may be that the first part deals with the requirements of provisions for survivors and the second part touches on the time frame in which they have to operate. Because they do not necessarily need to continue for ever, as I touched upon in assiduously reading my brief, there are circumstances that will trigger the cessation of those benefits for survivors—for example, someone remarrying after a certain age. I will be happy to write in more detail to the noble Lord if he thinks that would be helpful.

That the Grand Committee do report to the House that it has considered the European Parliamentary Elections (Northern Ireland) (Amendment) Regulations 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

My Lords, the purpose of these regulations is to ensure that the legislative framework governing European elections in Northern Ireland is fully up to date. The Committee will have noticed that this is a long and complex statutory instrument, and I hope it will be of assistance if I set out the legislative background to these regulations and why they are needed.

The conduct of European elections in Northern Ireland is currently governed by the European Parliamentary Elections (Northern Ireland) Regulations 2004. The regulations apply similar provision to European elections to those that apply to parliamentary elections, with the necessary modifications to take account of the different voting systems. Similar regulations governing the conduct of European elections are in force in Great Britain.

Since 2004, a number of changes have been made to the legislation governing parliamentary elections in the UK, most of which are provided for in the Electoral Administration Act 2006. In the light of those changes, it has been necessary to update the legislation relating to elections to other legislatures. The Committee may recall that we updated the law regarding elections to the Northern Ireland Assembly earlier this year. Regulations updating the law governing European elections in Great Britain and Gibraltar were also recently approved by this House, and the regulations before us today will make the necessary updates for European elections in Northern Ireland.

When we updated the law relating to Northern Ireland Assembly elections earlier this year, the Government also took the opportunity to make a number of possible changes specific to Northern Ireland following a full public consultation last summer. As many of the proposals included in the consultation could also be applied to European elections, we again consulted with key stakeholders on whether such changes should be brought forward for European elections. As a result, a number of changes discussed in the earlier consultations have been included in these regulations, and it will no doubt assist the Committee if I briefly explain these proposed changes.

The first relates to suspension of the count. Currently at a European election the returning officer may suspend the count between 7 pm and 9 am, but only if the election and counting agents agree. In a PR STV system, counting rarely finishes before 7 pm and agreement can usually be reached to suspend the count until the following day if it appears that it will last long into the night. However, in a number of constituencies in the 2007 Assembly elections, agreement to suspend could not be reached. Counting in an STV system is complex, and it is important both for the welfare of counting staff and the integrity of the count for it to be suspended at a reasonable time. It is for that reason that Parliament recently approved an automatic suspension of the count at Assembly elections at 11 pm unless there is agreement between the agents and the returning officer that it should continue. These regulations would make the same change for counting at European parliamentary elections.

Under the 2004 regulations, candidates for the European Parliament must have their nomination papers subscribed by two electors, as proposer and seconder, and 28 other electors. During the consultation, there was widespread support for the view that this places an undue administrative burden on those seeking to be candidates and on those responsible for verifying that the subscribers are genuine. The regulations before us today would bring Northern Ireland in line with the rest of the UK by removing the requirement that a candidate’s nomination paper at European elections be subscribed.

I thank the noble Baroness for that very clear and concise presentation of what, at first sight, looks like a pretty horrendous provision. As she explained, in fact, it makes a lot of changes to a number of Bills. We have been regularly legislating for elections in Northern Ireland over the past five years, and I believe that now we have probably come ahead of the field in Europe. We have as sound and good a system as anywhere, and it is certainly better than the rest of the United Kingdom on all fronts; that is for sure. I am happy about that.

The recent changes seem to be down to good sense. On removing the 30 people who have to vouch for a candidate, it is understood that the fact that the candidate has to put up £5,000 is probably a big enough deterrent to stop him playing the fool as a candidate and messing up the election. The question of releasing information is probably a concern in Northern Ireland more than in other parts, because there are two, three or four parties, or sometimes eight, and everyone assumes that the officials are biased and are going to help one party more than another, and so on. That certainly happened from time to time in elections in Northern Ireland. The parties wanted to know how many voting papers had been released, and sometimes they were told and sometimes they were not. It may have depended on which party wanted to know and which did not, or on what the presiding officer felt at the time. Now, under the present legislation as a result of this instrument, as I understand it, the senior presiding officer will decree that this information will be released twice during the day, at 11 o’clock in the morning and 4 o’clock in the afternoon, and in all the polling stations at the same time and in the same manner I hope. I am getting nods from behind the Minister. That has to be a plus.

This is a good order. I thank the officials for briefing me beforehand, when I was able to ask a number of questions. This is a long order, and we have had a lot of electoral law recently. Are there any plans to consolidate all the amendments and different electoral legislation for our little province into one statute? It would be very handy for all those concerned with managing elections. I support this statutory instrument.

I, too, thank the noble Baroness the Lord President for introducing this. Our concern about the legislation is about the timing. It is a complicated order, coming quite close to elections. We understood that it was government policy not to make legislative changes for elections within six months prior to a polling day, yet we are being asked to pass this less than two months before the publication of the notice of the election.

Like others, however, we welcome this order, which makes sensible provisions to improve the conduct of European elections in Northern Ireland. We particularly welcome the provisions regulating the release of information by presiding officers on the number of ballot papers issued on election day and by allowing the returning officer to direct how and when that information will be released. This provides clarity to presiding officers, party officials and all those involved in the running of election day in Northern Ireland.

We also welcome the introduction of smart passes and photographic provisional driving licences in the lists of documents to verify a voter’s identity on election day. While it is important to have in place proper protection against electoral fraud in Northern Ireland, we must do all we can to ensure that no one is disenfranchised. The order should be helpful in both those respects.

I, too, thank the noble Baroness the Lord President for introducing this instrument. I welcome the decision to hold the suspension of the count at 11 pm. For Northern Ireland Assembly district council elections, that makes sense. I also agree that it is right to abolish the need for the subscription of nomination papers; the idea that you had to have a proposer, a seconder and 28 others seems to be over-elaborate, and this is a useful change.

The Government have insisted that the broad thrust of this legislation is to bring Northern Ireland’s electoral legislation fully into line with the rest of the United Kingdom. The proposal, which has a lot of common sense behind it, that there should be a regulation for the release of information by presiding officers on the number of ballots issued during the day, and that guidance should come from the chief electoral officer essentially controlling that, in a way takes Northern Ireland away from the UK model. I understand that the Electoral Commission had some concerns on that score, and I would be grateful if the Minister would comment on that point. It is not that I have any serious reservation about the proposal, which seems to be a wise one, but it slightly conflicts with the broader logic of government policy in this respect.

The point has also been made that it is government policy that legislation affecting elections should not be introduced less than six months before an election. This seems to be an exception, even if one accepts that in this case the legislation is basically sound.

I have one final query, which relates to an issue that arose some weeks ago when the Minister was putting through the legislation that she referred to earlier with respect to the Northern Ireland Assembly elections and by-elections. This is slightly outside the remit of the legislation that we are considering today, but it is intimately connected with her answer to me on that day and to a lacuna in this legislation. I asked her to defend the arrangement that by-elections would not be held in the case of Assembly elections. I was enormously convinced by her reply, which is that in the case of Northern Ireland, for a number of reasons, a by-election could produce a distorting outcome.

That is even more so in the case of a European election. Should a nationalist republican—who would in all likely circumstances be elected as one of the three candidates—be run over by the proverbial bus and we had a by-election, which, as I understand it, is the current regulation, it is almost certain that there would then be a unionist victory in the by-election. The sensitivity that the Minister displayed, rightly, in her reply to me in the case of the Assembly elections, for the way in which by-elections could lead to a distorting result and an unfair outcome, is even more marked, potentially, with respect to European elections.

That is outside the scope of these regulations, extensive though they are. I would like to have a sense that the Government are aware of the difficulty; that is really all that I am asking for this afternoon. There is a potential problem on this score. I thank the noble Baroness for introducing the statutory instrument, which is essentially sound and viable.

I thank noble Lords for the broad support that has been expressed. I agree that Northern Ireland is certainly ahead of the field in many aspects of elections, and it is a delight to be associated with being ahead of the field. I am grateful to the noble Lord for explaining the importance of the release of information, especially in a Northern Ireland context. I understand that there is a sort of conflict with logic here, if I might put it like that, because we are bringing Northern Ireland into line with the rest of the United Kingdom, but not in respect of the availability of information. It is best for Northern Ireland; although it is not logical, we cannot always be logical if we want to serve democracy in the best way. In the way in which we are introducing this part of the regulation, we want to best serve democracy in Northern Ireland.

Consolidation of all the orders and regulations that have been introduced over the past five years is a very attractive idea, and I will take it back to the department. I am sure that it will wish to act on that if it is at all possible, but it would be an enormous amount of work. The noble Baroness, Lady Garden, is right to be concerned about timing. We would not wish to have been in a position where we were introducing these regulations so close to the European elections. However, we have been working closely and sharing drafts with the Electoral Commission and the chief electoral officer at a very early stage in the drafting. That has allowed electoral administrators to put together the necessary guidance for the election. I do not think that there will be significant practical implications for the election. It was better for us to take time over ensuring that the regulations were right rather than acting swiftly, so I am glad that we took more time than perhaps might have been expected.

Going back to the point made by the noble Lord, Lord Bew, about the importance of not favouring one side over the other in Northern Ireland, I emphasise that we will review this after the elections with the Electoral Commission, and we will come back to it.

The by-elections and the lacuna are being dealt with, as I understand it, in the Political Parties and Elections Bill, so the noble Lord should express his concerns when that Bill is taken through this House.

With that, I thank noble Lords for their support. This set of regulations is dense but relatively simple. They are extremely important in ensuring that the June elections in Northern Ireland will be administered successfully, so they are an important contribution to nurturing democracy.

That the Grand Committee do report to the House that it has considered the European Parliamentary Elections (Amendment) (No. 2) Regulations 2009.

Relevant Document: 8th Report from the Joint Committee on Statutory Instruments

I am grateful to the Committee for agreeing to consider the draft regulations today. Subject to your approval, this will enable the statutory instrument to be in place in good time ahead of the European parliamentary elections on 4 June.

The background is that the European Parliamentary Elections Regulations 2004 apply the legal framework that is in place for UK parliamentary elections to the conduct of European parliamentary elections, with necessary modifications. The European Parliamentary Elections (Amendment) Regulations 2009 amended the 2004 regulations to take into account changes that have been made to electoral law since the last European parliamentary election in 2004. After being approved by this House and the other place, the 2009 regulations were made on 29 January 2009 and came into force the following day.

The draft regulations before us today are necessary to correct a small number of unintentional errors introduced into the 2004 regulations by amendments made in the 2009 regulations. The 2009 regulations substituted new Schedule 1 to the 2004 regulations, which contain the European parliamentary elections rules. Rule 53(3), as substituted by the 2009 regulations, currently provides that, while counting the votes, a local returning officer must keep the ballot papers with their faces upwards and,

“take all proper precautions for preventing any person from seeing them”.

The amendment in Regulation 2(2) of the draft regulations corrects this rule, in accordance with the original policy intention, to provide that a local returning officer must take all proper precautions for preventing any person from seeing only,

“the numbers or other unique identifying marks printed on the back of the papers”.

Regulation 2(3) of the draft regulations corrects a small number of very minor errors in the absent voting provisions in Schedule 2 to the 2004 regulations, which was substituted by the 2009 regulations. My department has clear procedures in place for checking draft statutory instruments before they are laid. They were adhered to in respect of these regulations, but unfortunately the errors were not picked up. Although in some respects explicable by the length and complexity of the 2009 regulations, it is of course fully recognised that these errors should not have occurred, and I apologise to the Committee. The draft regulations were prepared as soon as the errors were identified, and it is not expected that their timing will create difficulties for electoral administration in the build-up to the European parliamentary elections on 4 June.

A Division has been called in the House. The Committee will resume at 6.28 pm.

Before we were interrupted, I was very close to finishing my opening remarks. As I was telling the Committee, the draft regulations were prepared as soon as the errors were identified and it is not expected that the timing will create difficulties for electoral administrators. As required by statute, the Electoral Commission has been consulted and has confirmed that it is content with the draft regulations. While the corrections made by the draft regulations are relatively minor, they are nevertheless important to ensure the smooth running of the European parliamentary elections in England, Wales, Scotland and Gibraltar on 4 June. That is our objective. I commend the regulations. I beg to move.

I congratulate the noble Lord on managing to speak for four minutes on these four pages when his noble friend the Leader of the House managed to deal with 90 pages of Northern Ireland electoral amendment regulations in six minutes. Perhaps the Ministry of Justice could take a little advice from the Northern Ireland Office and keep things shorter in future.

We are very grateful for the noble Lord’s apologies on behalf of himself and the department for failing to spot the errors. In the true spirit of the times, I apologise on behalf of the Opposition for our not spotting them when the regulations went through. However, the rectification seems perfectly straightforward and is set out in the Explanatory Note, and for that we are grateful. I am also grateful for the noble Lord’s saying that the department’s procedures did not work as they should have done. Should a further measure be required in future, we hope that the department will ensure that the procedures work as they should, and that such mistakes can be spotted earlier. I offer the Opposition’s full support for the regulations.

Although it was obviously unfortunate that the errors crept in, we, too, entirely accept the Minister’s explanation and raise no objection to the regulations.

I thank the noble Lord and the noble Baroness for what they had to say.