Committee (2nd Day)
20: After Clause 9, insert the following new Clause—
“Reporting provisionsReport on partnership deal: timetable and process
(1) The Secretary of State shall, within one month of this Act being passed, lay before Parliament the expected timetable and procedure of the tendering process to establish a partnership between a Royal Mail company and a private sector operator.
(2) If, at any date between the laying before Parliament of the report and the conclusion of a partnership deal, the Secretary of State believes that any of the details within the report are likely to be significantly different in practice, he shall inform Parliament of the changes.”
Our amendments in this group seek to ensure something that people from every point on the political spectrum agree is missing from these discussions: a clear idea of what sort of partnership we are dealing with. The Bill does not give any indication at all but merely opens up a number of possibilities. The Government’s policy paper is not much better; indeed, paragraph 4.6 specifically mentions several of the possible sorts of partnership that might be established. It lists swapping equity, merging businesses or taking on direct equity interests all as possible avenues to be kept open.
We do not necessarily disagree with there being flexibility at this stage. The Government have taken great pains to reassure stakeholders that there is, as yet, no deal. It is no doubt reassuring that the Government have not yet committed us to a slap-dash deal that does not provide value for the taxpayer or improvement in Royal Mail, but there is no guarantee that this comfortable position will last.
Amendment 20 seeks to establish just how the Government are managing the tendering process. The Government have spoken of this summer being the expected date of any deal, so I presume that they have at least got that far with their policy. I cannot imagine that any possible commercial confidentiality would be breached by reporting to Parliament on how far along the negotiations were or whether there had been any significant delay to the timetable. With so much hanging on the establishment of a deal, both Parliament and the public should be given fair warning, not only about when the reorganisation will take place but also when the pension fund liabilities will be taken over and when Ofcom are to get fully involved.
Amendment 21 goes a little further. It would ensure independent scrutiny of any deal to ensure value for money as well as effectiveness. The criteria set out in subsection (2) of the proposed new clause are taken from the Government’s policy paper, in which are set out the criteria against which a potential partner’s suitability is expected to be assessed. Those criteria are all very well, but their inclusion in a policy document does not ensure that they will be met. Recent history has not given us great confidence that the Government are always successful at negotiating the best possible deal. I cannot think of anything more damaging to Royal Mail than a botched agreement that fails to achieve the objectives laid out in the amendment. There have always been worrying news stories about the ethics of one company that has been rumoured to be interested in being involved in Royal Mail.
The assessment of a deal in these terms will go deep into commercially confidential matters, so the amendment would not require anything to be made public until after the deal was concluded and even then would allow the removal of commercially sensitive information. However, it would ensure independent assessment of the deal and some parliamentary scrutiny after the fact.
I hope that the Secretary of State will have no difficulty in accepting the third amendment in the group, Amendment 22. The Government have accepted at paragraph 4.18 of their policy paper parliamentary scrutiny of the amount and distribution of any money received for a minority stake. Despite the promise in that paper, I could find no such requirement anywhere in the Bill.
I hope that the Secretary of State will accept the amendments. They are the bare minimum that we can expect in terms of the transparency of the deal. I beg to move.
I start as I did last week by declaring an interest as a former postman, a former union official, and as having a great love for the British Post Office. I wish that I had thought of the amendments. I did think of one or two, which will appear later on, but the positive feature of Amendment 20 is that it assumes that the legislation must be carried before any agreement is secured with a private partner.
This is very important. As well as deciding whether to endorse privatisation, Parliament should be entitled to see what such a deal means. Parliament is surely entitled to a clear view of what a suitable partner may be. Can the Secretary of State explain what discussions are under way with potential partners? My own inquiries and those of union officials—as I used to be—in the Communication Workers Union show that the likely suitors for this bonanza are TNT and CVC. Is the Minister aware of any other companies expressing an active interest? Would he care to explain the criteria that the Government believe are relevant in judging the partner as suitable? The Hooper report suggests that it would probably be another postal operator, or at least a firm with experience of network transformation. Do the Government regard those criteria as essential?
The Secretary of State previously suggested that the Hooper recommendations must be taken in total, which was an unusual response from the Government, given that the Statement was made the same day on which the report was published and they can hardly have had much time to consider the recommendations. That being the case, I draw the Secretary of State’s attention to a series of press reports, all appertaining to TNT, one of the potential partners to come up in government statements. On Sunday 8 March, the Sunday Telegraph carried a story concerning illegal acts undertaken by TNT. Those acts involved the falsification and backdating of documents and were of an extensive character. The company was forced to pay back £48 million to the Inland Revenue; that money involved unpaid tax, penalties and interest. Apparently, TNT also had to carry out a similar inquiry into its tax affairs in other EU countries, including Germany, Belgium and Holland, although the company will not say whether these investigations have resulted in further payments or disciplinary action. That remains a void area. The current chief executive of TNT, Mr Peter Bakker, was in post at the company at the time when those illegal acts were undertaken. Does the Secretary of State regard such actions as examples of the expertise that the Government want to introduce into the Royal Mail?
Amendment 21 has its own value; it says that any deal involving the Royal Mail would not simply be agreed behind closed doors and that there must be some element of parliamentary scrutiny. The amendment suggests that there would be an independent report, which the Secretary of State would lay before Parliament. Of course, there would be problems with such a report in so far as not all the information would be made available due to commercial confidentiality. It is a strange fact that, since 2001, our understanding of what goes on in the Royal Mail is less complete now than at the time of the passing of the Postal Services Act 2000—sad but true. Commercial confidentiality has been used to hide away information that was previously available in every year that Post Office annual reports were published, up until that time. You could look at such an annual report and get the information that you wanted. Today the Royal Mail’s annual reports shed less light on the economics of the company than we obtained 10 years ago.
Be that as it may, I wish to draw attention to proposed subsection (2)(d) in Amendment 21, which refers to,
“the capacity of the private sector operator to manage stakeholder issues successfully, including relations with trade unions”.
I am confident that the Secretary of State is already aware of the concern expressed in the Hooper report about industrial relations. The report made it clear that the existing industrial relations in the Royal Mail were poor—and I could go on a long while explaining why they are so poor, but I shall not do so today. The report suggests, too, that one of the criteria on which a new partnership would be measured is the ability to transform industrial relations positively. I am sure that the Secretary of State will agree that management needs to be able to carry the workforce with it through major changes; they need to work together. That can be done only if the rationale of the change is made clear to the workforce. If the workforce achieves some benefit from the change, it has to be able to see it. After all, without the co-operation of the workforce, there can be no future for the company, in my view.
I believe that the Minister will agree with my general comments on industrial relations so far, but will he comment on the current problem that TNT—this possible suitor or predator, as one of my noble friends called it in our debates last week—faces with its workforce in Holland? There was a report on this issue in the Guardian on 10 March, from which we learnt that TNT wanted to cut the wages of workers by 5 per cent. Since that time, I can confirm that further information shows that TNT aims to cut the wages of postal workers in the Netherlands by between 5 per cent and 15 per cent depending on status. Does the Minister believe that it is acceptable for a profitable firm to cut the living standard of its workforce in that manner? Does the Minister believe that cutting wages is a necessary part of transforming industrial relations in Royal Mail? After all, we are entitled to ask whether this is the expertise that is lacking in Royal Mail. Is this what the Government are looking for—a company with such a record? Certainly, we cannot say that TNT would bring to Royal Mail better skills at raising profits. After all, a comparison of the final-quarter results in 2008 showed that Royal Mail’s profits are standing up to the recession better than those of TNT.
Nor can we say that TNT would bring an extra element of mail security to Royal Mail. After all, TNT famously lost the data on disks entrusted to it by the Department for Work and Pensions. It must be something unique about TNT's approach to industrial relations that makes it attractive to the Government. Surely not; after all, the Government are committed in their manifesto and the Warwick 2 agreement to securing “rewarding employment” for postal workers. Does the Minister agree that cutting wages by 5 per cent to 15 per cent is not the route for securing rewarding employment in Royal Mail?
Amendment 22 also has value. It allows Parliament to examine the intentions of the Government on the disposal of any money paid to the,
“Treasury, the Secretary of State or any nominee of either of them”.
That is important as we have heard so much loose talk about what the strategic partner is supposed to bring to the assistance of Royal Mail in the way of finance. I very much doubt whether the aim of any strategic partner is to assist the finances of Royal Mail. Certainly, that would not seem to be the case with TNT.
On 9 March, a number of newspapers including the Guardian covered a story about the conflict between TNT and Royal Mail. In that story, the Royal Mail's chief executive, Adam Crozier, accused TNT of trying to poach customers from Royal Mail's profitable European parcel subsidiary, General Logistics Systems. Some Members of the Committee who were present last week will recall the exchange that we had about GLS. I know that the Government are aware of the problem. The papers reported that Adam Crozier had sent an e-mail to the Government about it. Will the Minister confirm that the Government have read the correspondence with Royal Mail's chief executive officer? If so, will the Minister explain what the response was?
Perhaps, too, the Minister can now understand why my noble friend Lord Hoyle and I raised questions of the noble Lord, Lord Tunnicliffe, in last week's Committee. After all, it appeared that TNT has been trying to get its hands on GLS outside the process that we have been discussing on privatisation. Indeed, the Royal Mail's chief executive officer claimed that TNT has been trying to damage the Royal Mail's current business. Does the Minister believe that damaging the business of Royal Mail is a sign of a suitable potential partner for Royal Mail? Does the Minister believe that TNT's interest in Royal Mail will result in its further fragmentation? After all, if TNT wants to siphon GLS off now, would it not be likely that TNT would want to strip down other Royal Mail operations? I look forward to the reply from the Secretary of State.
I will not address what my noble friend Lord Clarke has just said because I agree with every point he made; many of them went over points I made last week. I want to look at Amendment 22 because it raises other issues that I hope my noble friend will reply to when he gets up. It talks about the report on the partnership deal and the disposal of revenue. One of the things that has not been quantified is the amount of investment that Royal Mail will need. The Hooper report talks about hundreds of millions of pounds. My noble friend the Secretary of State has talked about the need for hundreds of millions of pounds, but could that be quantified a little more? Does it mean £400 million or £500 million? Whatever does it mean?
The amendment talks about the disposal of any money paid to the Treasury or any nominee. I am suspicious about what might happen to any money that comes from a private partnership. Will all of it go to Royal Mail? Will it go into investment and the modernisation of Royal Mail, or will part of it be swallowed by the Treasury? I am rather suspicious that the Treasury will want to get its hands on some of the money that is coming back. I would like, first, the required level of investment to be quantified and, secondly, an assurance that all of the money raised will go into the investment and modernisation that, we have been told, is needed. Will part of it go to the Treasury coffers? I await my noble friend’s reply on these points.
Will my noble friend clear my mind on a specific aspect of the future? The amendments largely deal with the Bill as it is. Assuming that it becomes an Act, what nature of company does my noble friend envisage? Will it be a quoted or limited company? There will be two shareholders: the Crown—the Government—and whoever wins a contract. On the face of it, a strange valuation issue will arise from those shares. Will they be marketed? Could they be sold? What does the Minister see happening?
While I have sympathy with the objectives of my noble friend’s amendments, we must be cautious about the appropriate role of Parliament versus the Executive here. There is a point at which the role of Parliament is to define objectives and give the Government permission to take a course of action, but Parliament should then let the Executive get on with it while holding them to account. I have a slight concern that, in some of the things that we are asking to be brought back to Parliament, such as negotiation details and choice of partner—whether they are the best partner to add value or successfully manage stakeholder issues—we might be crossing the line by getting Parliament too involved in executive matters of judgment and discussions. It would potentially be difficult to have commercial information shared in a way that would allow Parliament to participate in that decision properly. I want to ensure that we consider the precedent of what role Parliament should properly play.
This group of amendments would introduce requirements for the Government to provide a number of reports setting out detail on various aspects of the partnership process. I should say at the outset that I entirely recognise and support the need for appropriate transparency on an important transaction; I want to be fully open about that. The noble Lord, Lord De Mauley, observed that we might follow a number of avenues to create a suitable partnership. As he said, he does not agree with the need for flexibility—I thank him for that observation. I will come back and respond more directly to his points.
In the mean time, I shall respond to a couple of my noble friends’ points. To my noble friend Lord Christopher, I say that, after partnership, the Royal Mail will continue to be, as it is now, a limited company. It will not be listed on any stock exchange for all the reasons that we have previously rehearsed in our debate. In response to the points of my noble friend Lord Clarke about a particular postal operator, TNT, and stories associated with that company about tax and employment rights, it would not be appropriate for me to comment on the media—I was going to say “reporting”; that would be too rich a word for the quality of stories that we have seen. I do not represent in this House those or any other commercial interests; I represent the Government. Therefore, I will not comment further on particular companies. However, TNT has publicly declared its interest, but we are undertaking a fair competition to identify a suitable partner for Royal Mail. It would be invidious for me to comment on one as opposed to another at this stage. The process of looking for a partner is not only about the price being offered by a potential partner. We are not just going to sell to the highest bidder, but I shall come back to that when I talk about the criteria.
My noble friend also suggested that the board of Royal Mail is at loggerheads with TNT. The Royal Mail board is very supportive of this legislation. It wants a partner holding a minority stake to come in to help transform the company. The Royal Mail board is also supportive of the other proposals on pensions and regulation as a package. Any debate about GLS at this stage is simply a distraction.
Amendment 20 seeks a report about the timetable and process after Royal Assent. In fact, the process to find a partner is already under way in parallel with the passage of the Bill prior to Royal Assent. The Government hope to have reached agreement with a suitable partner before the summer. The Government’s timetable is driven by the need to introduce a partner into the business quickly, so that that partner can bring its transformation experience, expertise and confidence into Royal Mail Group with the minimum of delay. Negotiations are challenging and we must get the best terms for the company and for taxpayers. That is why we will not do a deal on any terms but will negotiate them, and also why we need to avoid a fixed timetable that would give an advantage to the bidder. I do not want to be boxed in; that would benefit only the potential partner with whom the Government are carrying out the negotiation.
Nevertheless, I shall explain the timetable we are following in broad terms. Since January we have actively sought expressions of interest from potential partners with experience of transforming a postal or network business. On 26 February, we set out in our policy document the main criteria against which we will judge a potential partner’s suitability. It might help noble Lords if I rehearse those criteria, which are highlighted in Amendment 21: the price offered for a minority stake or partnership, and the ability of a partner to finance the investment; the ability of the partner to add value to Royal Mail as a whole, including by assisting in the transformation of Royal Mail’s letters business and the modernisation of its network; and the partner’s capacity to manage stakeholder issues successfully, including relations with the workforce and trade unions. I regard this as indispensable and I agree with my noble friend Lord Clarke on this point.
In March, we invited shortlisted companies to present a detailed bid on the basis of the published criteria. The process will be phased, with firm offers sought by early June, and with a view to negotiating an initial agreement on the partnership by the summer, as I have said. As I also said at Second Reading, we will ensure that the House is informed of any important developments on the commercial negotiations as discussions continue and as the Bill goes through all its stages. Having given this undertaking, I will fulfil it. The current intention is then to complete the partnership either later this year or early in 2010. If there is any significant delay to this timetable, I will come back to the House to explain the position and the reasons for the delay and to allow noble Lords the opportunity to question me.
Amendment 21 requires the Government, before any deal is concluded, to commission an independent report on the extent to which the partnership proposed meets the criteria that I have outlined and to lay this before Parliament as soon as possible after the deal is concluded, together with any government response. I do not believe that the amendment is necessary, given the robust process, the independent advice and the subsequent scrutiny which are already attached to transactions of this nature. It will be of interest to noble Lords for me to set out exactly what robust process accompanies transactions of this nature.
The process sets out the criteria against which all bids will be judged. At all times, the bids will be assessed with the criteria in mind by my department’s shareholder executive, a body with a wide variety of commercial and Civil Service expertise and with a track record in securing value for money for the taxpayer in transactions of this kind. The assessment will be undertaken with the close involvement and independent advice of fully qualified external legal, commercial and accounting experts; it is not a cheap process. In addition, the Royal Mail board has its own external legal, commercial and accountancy advisers and will want to satisfy itself that the partnership deal is in the interests of the company.
I have no doubt that this process, once completed, will be thoroughly examined by the National Audit Office and that it will publish a report on the transaction. It is the usual practice in deals of this nature for the NAO to employ its own independent advisers to scrutinise the transaction; there is a lot of work available. The NAO is the correct authority to provide an independent account reporting directly to Parliament. This is the normal process of reaching and subsequently reviewing a partnership deal in the interests of Royal Mail and the taxpayer. I hope, therefore, that noble Lords will agree that appointing yet another—a fourth—set of independent experts is really unnecessary before a deal is completed. It would delay the process at a time when it is important to secure the future of Royal Mail. It would also have a significant impact on the ability of a deal to go forward as, frankly, it would be unlikely that a private sector partner would agree to such a time-consuming and expensive additional stage in the process.
I understand that noble Lords opposite are interested to have more detail on the future relationship between the Government and a partner. Clearly, this is subject to negotiation. It might be helpful if I provided more detail on our current expectations in relation to the shareholders’ agreement. This will be a legally binding contract between the Government as seller through Royal Mail Holdings and the buyer. That document will make clear what the buyer can do, for example, on a board of appointments and what it cannot do, for example, by placing restrictions on the sale of its shares. The shareholder agreement will reflect that this is a partnership. The Government will have greater control rights than the partner, as is appropriate for the majority shareholder.
However, the Government are keen to ensure that, in certain areas, there will be shared responsibility with the partner. This will give the partner sufficient rights to enable it to influence the decision-making process in the company. There is no point in having such a partner without their having the influence needed to play a strong, positive role in transforming the business: that is exactly what we are looking to a partner to help us to do. For example, we expect to agree equal rights with the partner in adopting the company’s business plan. In order to deliver the required transformation of the business, it will be essential that, in particular, on operational matters, including modernisation of working methods, introduction of technology and product innovation, the partner has a meaningful say in the running of the business.
The shareholder agreement would also set out the structure of the board for Royal Mail Group. The structure will reflect that this is a partnership in which the Government will retain ultimate control. Our current expectation is that the Government will appoint the chairman and the majority of the non-executive directors. The partner would be able to appoint a minority of non-executive directors. The Government and the partner will have shared responsibility over the appointment of the chief executive.
While negotiations with potential partners are ongoing, it would be damaging, both to value for money and to the achievability of a deal, to publish a running commentary on the proposed agreements. The details of such transactions are properly a confidential matter between the parties concerned during the course of the negotiation. It would be commercially unprecedented for the related documentation to be published. I am sure that noble Lords will agree that the appropriate place for commercial negotiations to take place is not on the Floor of the House. However, I entirely recognise the legitimate interest of noble Lords in this deal. You will wish to be assured, and rightly so, that the Government are meeting the objectives set for the transaction. Clearly, therefore, we will need to report to both Houses on the deal. Having listened carefully to all noble Lords’ comments, I would like to consider further what, if any, amendments to the Bill are required to meet their concerns. I am prepared to discuss this with noble Lords opposite before Report. I hope that this suggestion is acceptable.
Amendment 22 would require the Government to lay a report before Parliament, setting out what will happen to the proceeds resulting from the disposal of shares in Royal Mail Group Ltd. I fully appreciate that what happens to the proceeds of any disposal will be of high interest to noble Lords and in the other place. As outlined in our policy document, the Government intend to use the money received from the minority share sale to benefit Royal Mail Group, including Post Office Ltd. Obviously, there is a case for partially offsetting the cost to Government of taking on the pension deficit; and of course, anything that tackles the pension deficit releases Royal Mail revenues to invest in modernisation. However, as I and indeed the Prime Minister have made clear, it will also make available capital for Royal Mail to increase the investment available for modernisation and diversification. We will inform both Houses of the payment for the shares, and how it will be distributed, when the consideration is received.
Having given that undertaking, I do not believe that it is necessary to include such a provision in the Bill. In the light of the further detail and suggestions that I have provided, and the undertakings that I have made, I ask the noble Lord, Lord De Mauley, to withdraw the amendment.
Before the Secretary of State sits down, I would like to ask one question. When it is said that the Royal Mail board supports privatisation, is that a fact, or is it not the case that the Royal Mail board welcomes investment and the removal of the pension deficit yoke from its neck?
The investment requirement depends on the extent to which the company is able and willing to modernise and innovate its products. I hope that that will be extensive. However, I cannot correlate, before any negotiation has taken place, the company’s needs for investment and what we would be able to attract from a potential partner.
I am sorry to come back on this again. Regarding the Secretary of State’s last comment, is it not a fact that the modernisation programme envisaged by Royal Mail has a total cost of £2 billion? That has been stated publicly. Is it also not the case that some of the money that the Government have already allocated for Royal Mail in the form of borrowing has not been used? Will the figures be within the parameters of what is already in the public domain, or is there something that we do not know about?
Estimates of what the company requires in cash to modernise will vary from source to source. I would say only two things. Modernisation is not a once-off. Modernisation of a company or business has to be ongoing to meet the changing market needs and demands in which the company is undertaking its business. One of the problems for Royal Mail is not only that it has not modernised in terms of the mechanisation of its business, the introduction of new technology and in its working methods; it has also not innovated sufficiently in terms of new products. As I say, modernisation needs to take place on a continuing basis. My noble friend is right to point out that the Government have previously made sums of money available for investment and modernisation, and it is true that Royal Mail has not been able to take up all the resources available. However, I invite noble Lords to ask themselves why the company and its management have not been able, to the extent that is desirable, to take up and use all those resources for modernisation.
I am sorry but the modernisation issue brings into focus the Secretary of State’s comments to this House on Second Reading regarding two major machines which, other than assistance for delivery, have been talked about in relation to modernisation. The two machines are an enhanced optical character-recognition machine and what is described as a walk sequencing machine. We were told on Second Reading that they are here in wraps. I have made exhaustive inquiries but no one can tell me where these machines are. Perhaps they are still with the manufacturer, SOLYSTIC. We could get a much better idea of what is required if we knew the cost of one of these machines. Perhaps the Secretary of State can tell us the cost of a walk sequencing machine.
I am a member of the Government, not the management of Royal Mail, and it is not my job or the job of any other Minister to be responsible for the introduction of such machinery or to put a price tag on it. That is what the management of Royal Mail is there to do. As shareholders, however, we would like the management to be able to manage in a way that allows it to progressively introduce this machinery and mechanisation in a way that transforms the business of the Royal Mail and its ability to compete properly in the market.
My noble friend mentioned that the money raised would go back into investment in Royal Mail and I mentioned overheads that the Treasury may have incurred. I was asking what share of the money raised will go to the Treasury and what share will go to Royal Mail. Can he perhaps be more specific on that?
No, because we do not know what the sum of money is that will constitute the proceeds from the sale. Until we know that—or indeed until we have a partner in place from whom to get proceeds—I do not think that it would be a very satisfactory discussion between myself and the Chancellor.
We keep hearing about modernisation—new products and what have you. We have been hearing about this for a very long time. The Postal Services Act was supposed to put things very right but, since then, the postal services, far from getting better, have got worse. Never mind about the Royal Mail for the moment; what are the Government’s objectives? What exactly do the Government see as the job of the Post Office? What is it supposed to do? Where is it going? Are we going to have a resumption of early-morning postal services, for example? Are we going to have a second post, which we used to have? Are those objectives of the Government, or are they content, probably because of shortages of staff, to have mail in this country delivered to many areas not by 12 noon, which is the new and worse objective, but sometimes by five o’clock in the afternoon? Indeed, I had my post delivered one evening at 6.20 pm.
So what exactly are the objectives of the Government? I think we want to know about those objectives. After all, the first postal service in this country was introduced by Charles I, I think it was, in 1635, and we have had a publicly owned postal service ever since then. Now, we find that it is going to be part-privatised, but the Government do not tell us how much better it is going to be under the new system. Perhaps they can tell us how the service is going to be improved, and how they will ensure that the workers in the industry are protected and the customers are not overcharged for an inferior service.
With respect, I refer the noble Lord to Part 3 of the Bill, which describes the duty to secure the provision of a universal postal service. To do that, you need a Royal Mail that is efficient, competitive and dependable. It is precisely that objective that motivates the Government in introducing this legislation. When the noble Lord talks about failed attempts in the past to turn round the Royal Mail, he eloquently makes the case for the legislation.
I thank all noble Lords for their contributions in what has been a very helpful debate. I thank in particular the noble Lords, Lord Clarke and Lord Hoyle, for their supportive and incisive comments. The noble Lords, Lord Christopher and Lord Stoddart, asked some interesting and important questions. The comments of my noble friend Lord Blackwell are well taken. Our intention was entirely about reporting to Parliament, not interference in the deal, but I take his point. I am happy, if on deliberation we consider it necessary, to look at the wording again. I thank the Secretary of State for his positive response. I thank him in particular for his report on progress towards a deal so far and also for his comments on independent reporting and the fact that Parliament will have an opportunity to discuss the deal in due course. That was all very helpful. I will read his remarks with care and, while of course reserving our right to return to these matters later, for now I beg leave to withdraw the amendment.
Amendment 20 withdrawn.
Amendments 21 and 22 not moved.
Schedule 2 agreed.
Amendment 23 had been withdrawn from the Marshalled List.
Clause 10 : Meaning of "owned in its entirety by the Crown" and "publicly owned"
Amendments 24 to 26 not moved.
Clause 10 agreed.
Clause 11 : Indirect ownership of companies
Amendment 27 not moved.
Clause 11 agreed.
Clause 12 : Ownership of a company
28: Clause 12, page 6 , line 2, leave out “or any other person”
Amendments 28 and 29 simply propose drafting improvements to a part of the Bill that by my reading does not quite make sense. Clause 12 deals with the calculation of the proportion of a company owned by the Crown or any other person. I am assuming that this clause will establish whether or not the requirement that only a minority stake in Royal Mail is to be sold has been met. Subsection (1) sets out four methods of calculating the relevant proportion, of which the smallest is to be used. This more or less makes sense until you realise that different paragraphs will undoubtedly apply when looking at the Crown than when looking at the private partner.
For example, let us say that a deal is established which gives the private partner 20 per cent of distributable profits but 30 per cent of voting rights, the remainder of both staying with the Crown. Under subsection (1) the Crown would be held to own 70 per cent of the company while the private partner would own 20 per cent. That would clearly be nonsense. The amendment would ensure that the Crown’s percentage was, as is currently drafted, the smallest percentage under subsection (1), which the Government seem to agree with, and any other person’s would simply be derived from that.
We are in technical territory and I hope that I have read the clause right. If I am mistaken about its intent, I apologise and hope that the noble Lord will provide us with more detail. I found the Explanatory Notes somewhat unhelpful as they merely quote parts of the clause verbatim rather than adding further explanation. I beg to move.
I have sympathy with the noble Lord, Lord De Mauley, and his reading of the clause. Amendment 28 would significantly reduce the scope of Clause 12 so that it would apply to companies directly owned by the Crown. In this instance, that would be only Royal Mail Holdings plc. The reference to “any other person” in Clause 12 does not refer to a partner or any other third party. In fact, nothing in the clause, or indeed in the Bill, relates to a prospective partner. Part 1 deals solely with the Crown ownership and related controls. Clause 12 sets out how to determine the Crown’s ownership of a Post Office or Royal Mail company. It does not and cannot relate to any third party such as a partner. Rather, the wording “any other person” has been included in Clause 12(1) because the Government’s shareholding in a company may be indirect. This is the case now in relation to both Royal Mail Group Ltd and Post Office Ltd. The Government’s stake in both companies is held through their 100 per cent ownership of Royal Mail Holdings plc.
When Clause 12 refers to a,
“proportion of a company owned by the Crown or any other person”,
it means the proportion owned by the Crown or Royal Mail Holdings plc. If the words “any other person” are not included in Clause 12, the ownership provisions set out in it will not apply to Royal Mail Group Ltd or Post Office Ltd, they will apply only to Royal Mail Holdings plc. I do not believe that that can be the effect that the noble Lord seeks to achieve.
As I understand it, Amendment 29 is intended to introduce a definition of the proportion of a company owned by a third party. In this case, that would be that strategic partner. As I explained earlier, Part 1 focuses purely on Crown ownership of Royal Mail and Post Office companies. Part 1 puts in place protection on the ownership of those companies once the current restrictions in the Postal Services Act are repealed. Those ownership protections ensure that Post Office companies are entirely owned by the Crown and that Royal Mail companies remain publicly owned. We have approached the Bill from the perspective of Crown ownership and believe that we should be consistent on that throughout the Bill. In the light of the further clarification that I have provided, I hope that the noble Lord will see that neither of his amendments are necessary and will not press them.
I thank the Minister for the sympathy that he expressed with the amendments. I also thank him for the clarification that the provision does not apply to the prospective partners’ percentage interest. I am not sure that I am much the wiser, but I will go away to give it further thought. In the mean time, I beg leave to withdraw the amendment.
Amendment 28 withdrawn.
Amendment 29 not moved.
30: Clause 12, page 6, line 16, leave out “on all or substantially all matters”
This is a fairly small amendment seeking some clarification of Clause 12. I hope that the Minister will be able to explain why certain voting rights are to be ignored when calculating the proportion of ownership. What voting rights may safely be dismissed as not important enough to count? I beg to move.
Clause 12 requires the Crown to own all or the majority of the voting rights in a Post Office company or a Royal Mail company respectively. Voting rights are defined in Clause 12(3) as the rights conferred on members to vote at general meetings of the company on all or substantial matters. That provision is based on the definition of a subsidiary in Section 1159 of the Companies Act 2006. For the purpose of that section, a company must hold a majority of the voting rights in another company to be considered that company’s holding company. Voting rights are defined in that section in the same way as they are for Clause 12. Given that that is a standard definition of voting rights used in the Companies Act 2006, it is the most appropriate definition to use for these purposes and I see no purpose in amending it. That would weaken the Crown’s control. I know of no voting rights that the provision in any way allows to be excluded, but I will check that with my team and write to the noble Lord if that assurance is not complete. On those grounds, I hope that the noble Lord will withdraw the amendment.
Amendment 30 withdrawn.
Clause 12 agreed.
Clause 13 agreed.
Clause 14: Interpretation of Part 1
31: Clause 14, page 7, leave out lines 3 to 5
Amendments 31 and 32 are probing amendments to ensure that the definition of “post office” is properly matched to the situation on the ground.
My first amendment, probing the entire definition, is tabled to raise concerns that the definition could be stretched to cover a great number of premises which are not what one would automatically think of as a post office. Many different places provide government services directly to the public. Although we certainly support the idea that government departments should try to pass business through the post office network, they certainly do not use it exclusively—nor, I imagine, will they in future. Surely that definition goes too widely.
I was also interested in the specification that services are provided directly to the public. Much of the Post Office’s work is, as we have already discussed, carried out for the Royal Mail rather than for the public directly. As the Bill raises the possibility of post offices expanding their remit into private postal providers, it is not inconceivable that they might develop more services that are not directly for the public. Does this definition not unduly restrict what post offices can and cannot do in future? The post office network primarily ensures public access to services but, as much as that should—and I am sure will—remain post offices’ primary function, it need not be all their work. I beg to move.
Amendments 31 and 32 seek to remove or alter the protections that are provided by the definition of “post office” in Clause 14. Post offices deliver a wide range of services, particularly postal and government services, across the country. They play a vital social and economic role in the communities they serve.
As I mentioned last week, the Government have no intention of supporting any further programme of post office closures. We are committed to ensuring the continued sustainability of the post office network. That is why we decided to award the substantial new contract for the Post Office card account to the Post Office. It is why just last week the DVLA and the Post Office announced a landmark contract for the Post Office to provide the face-to-face service for the 10-year renewal of driving licences, and why we are providing £1.7 billion for it up to 2011, including £150 million a year specifically to support non-commercial branches. To cement this commitment, government will maintain the Post Office entirely in government ownership—a commitment which I note the noble Lord, Lord Hunt, who spoke for one of the opposition parties, was unable to join the Government in making during last week’s debate.
On the amendments, the words “post office” are relevant in this part of the Bill only for the purpose of defining a Post Office company under Clause 2. A Post Office company must be engaged in the provision of post offices. Under Clause 1, a Post Office company must be owned in its entirety by the Crown, so the significance of the definition is that if a company is not engaged in the provision of post offices, it will not be caught by the ownership protections of Clause 1. The definition in Clause 14 is therefore purposefully drafted to be quite broad, but also to make Parliament certain of its meaning. This ensures that the protections provided by the ownership restrictions in Clauses 1 and 2 apply in all appropriate circumstances. At the same time, we do not want the legislation to be silent, leaving the public and the Post Office uncertain about the scope of these protections.
Trying to encapsulate the varied and vital role of a post office in legislation is not an easy task. However, its social role encompasses the provision directly to the public of both mail services and government services. The Government’s ownership controls should therefore remain in force whenever the company is engaged in providing those services directly to the public via its unrivalled network of approximately 12,000 post offices.
We would not want the removal of the stipulation that a post office must provide services from premises directly to the public, operating from post offices as noble Lords and I recognise them rather than simply providing an internet or telephone service. This face-to-face contact is the fundamental basis of the critical role that post offices play in the communities that they serve. In the light of what I have said, I ask the noble Lord to withdraw the amendment.
Does this mean that a privately owned Post Office would have to seek the permission of the Government or one of their agents—Post Office Counters under its new name—before it enters into any agreement with a body other than the Government? For example, if it wanted to enter an agreement with a financial services company, would it have to get the permission of the Government? If so, it would somewhat restrict the ability of the individual small post office, as distinct from the national one, to find new partners when in its retailing financial services role, which already has expanded considerably.
I thank the Secretary of State for his response and the noble Lord, Lord O’Neill, for his interesting intervention. I am sure that many Members of the Committee will be grateful for the Secretary of State repeating his assurance that the Government do not intend any further post office closures. I am also grateful for his explanation of definitions, which we will look at again carefully. For the moment, I beg leave to withdraw the amendment.
Amendment 31 withdrawn.
Amendments 32 and 33 not moved.
Clause 14 agreed.
Clause 15: Introduction
34: Clause 15, page 7, line 31, leave out from “person” to end of line 33 and insert “who, immediately before the qualifying time, is entitled or contingently or prospectively entitled to benefits under the RMPP,”
I shall speak also to Amendments 36 and 38. I expect all Members of the Committee have read the summary and background to Part 2 in the Explanatory Notes. It explains that this part gives power to the Secretary of State to remove the historic pension liabilities of the Royal Mail pension plan from the Royal Mail and take them into government. In plain and simple terms it proposes that the deficit will become the responsibility of the Government. People like me think that it was always the responsibility of the Government, as the employer in the final stage. No doubt much will be made of what this means and I hope during the passage of this Bill to ask noble Lords to consider a number of points to which reference should be made and placed on the record of the House about the pension deficit. But that perhaps is for another day. I shall also ask a number of questions that require responses from the Secretary of State before we reach final decisions on this part. In my view, it is essential that the problems of the deficit are not laid at the door of the women and men who are members of the present superannuation arrangements; that is, post men and women, and others who work for Royal Mail. It is no fault of theirs that the pension scheme is in the state that it is and the deficit is so high.
At the same time as proposing that responsibility for the deficit is transferred from the employer to the Government, this part of the proposed legislation seeks to establish a new statutory scheme, which may be used to provide benefits to certain members of the Royal Mail pension plan. It suggests that it transfers rights and removes liabilities from the Royal Mail pension plan. It provides the means for transferring Royal Mail pension plan assets to the Government, to divide the Royal Mail pension plan into sections and to allocate assets and liabilities between those sections. My amendments concern mainly the definitions that deal with issues such as “qualifying members” of the Royal Mail pension plan, qualifying time, qualifying accrued rights and survivors’ benefits.
As regards the qualifying member, Amendment 34 proposes that from “person” in line 31 to the end of line 33 should be left out and replaced with,
“who, immediately before the qualifying time, is entitled or contingently or prospectively entitled to benefits under the RMPP”.
There are two issues here. The first is that of picking and choosing. All potential beneficiaries of the Royal Mail pension plan should be covered—I repeat, all of them. That includes beneficiaries who are not members and employees who could join but have not yet done so. As the Bill is drafted, the Secretary of State could include some but exclude others.
The other issue is that of timing. In Amendment 36 I suggest that the words from “before” to the end of line 35 be left out. The time for the division of assets and liabilities can be retrospective or prospective. If the order is retrospective, members who join the Royal Mail pension plan between the effective date of the order and the date when the order is actually made must be included. If it is prospective, members who transfer out between the date when the order is made, and lump sum death benefits paid between the date that the order takes effect and the date when it is made, should be excluded. It follows that the qualifying time should therefore be defined at the moment when the order dividing the assets of the Royal Mail pension plan is made. Amendment 38 concerns survivors’ benefits, and seeks to delete paragraph (c). This is covered in the definition of a qualifying member.
I conclude these remarks with a question. Can I ask the Secretary of State what advantages for the company or its staff are achieved by deleting these lines? I am sure everyone agrees that these benefits are very precious to people, and I should like an answer to that question. I beg to move.
I should like briefly to support my noble friend in his amendments. They deal with qualifying members, which is a very important point. People need to know clearly whether they are qualifying members. As my noble friend has indicated, we must ensure that all the appropriate people are covered, and they should include beneficiaries who are not members and those employees who could join but have not yet done so. As the Bill is drafted, the Secretary of State could include some but exclude others. My noble friend has also pointed out that timing is important. The qualifying time should be defined as the moment when an order dividing the assets of the RMPP is made. This needs to be set out clearly in the Bill so that people who qualify understand that this is their situation and are able to pursue it accordingly. I support the amendments and hope that the Minister will feel inclined to accept them.
I have tabled Amendments 35 and 37 in this group. Not having spoken on the Bill before, I must declare an interest as the director of a mail order firm dispatching some 50,000 items a year—not that I believe that that in itself has anything to do with Part 2, which I like to think of by way of a quid pro quo for the inevitable angst of the Post Office union members. It is, as the noble Lord, Lord Clarke, has said, the part of the Bill which covers the taking over by the Government of the historic deficit in the Royal Mail pension scheme. I will also do my best not to make the Second Reading speech I would have made had I been able to remain to the end of that debate. That said, love and marriage go together like a horse and carriage.
My two amendments in this group try to probe some of the definitions of the clause a little further. The Government have indicated in several policy papers and press releases that the qualifying time shall be set in reference to 16 December 2008, the day when the Hooper review was published. Unusually, that review was accepted on publication; the Government normally take two or three days at the very least to come to a decision on these matters—not that I am suggesting that the Secretary of State has done anything wrong in that. But 16 December was the day on which the Hooper review was published and therefore the day when it became clear that the historic pension liabilities of the RMPP were to be taken over by the taxpayer. However, nowhere is the vagueness indicated by the words,
“the time immediately before such date as may be prescribed”,
in Clause 15 explained. We have not a clue—I do not think the Secretary of State has a clue—what that means and what timing he can give to those words.
The Government’s memorandum to the Delegated Powers and Regulatory Reform Committee explains this flexibility as necessary because of the possibility of EU state aid restrictions. I understand that, but I hope the Secretary of State will be able to give more detail about what requirements might have to be met to comply with EU state aid provisions and when these requirements might be known. Indeed, have the Government warned the Commission that they wish to give what might well be described in Brussels as state aid to Post Office Ltd? It seems to me that any state aid objection to the provisions in this part will either be so radical as to completely change the Government’s approach, in which case they will be back to square one, or so minor as not to require a change of date, in which case this flexibility will be unnecessary.
Like the noble Lord, Lord Clarke, and the noble Baroness, Lady Turner, I also would like to know how the Government intend to deal with any changes to pension entitlement that might happen between the intended qualifying date and the date of the actual transfer. If an employee currently accruing rights under the defined benefits scheme is promoted this month, and so increases their final pensionable salary, their pre-December 2008 accrued rights will have been increased by a post-qualifying time event. Subsection (3) suggests that these enhanced rights will not be transferred to the new scheme. So who will pay them, or will they be lost to the deferred pensioner? If the latter, the Government will have an even bigger riot on their hands, not least from noble Lords behind the Secretary of State on his far left.
I do not want to be seen as a conspiracy theorist but this lack of detail also opens up some worrying possibilities for the future. By having no meaningful definition of what “qualifying member” refers to, the Bill would make it possible for new members to be added to the pension scheme at some point in the future. Is this deliberate flexibility on the Government’s part, or are they setting up legislation that would allow them to undertake another bail-out of the RMPP at some point in the future once it has accrued new assets and liabilities, without needing to undergo the rigours of parliamentary scrutiny? If the latter, I, for one, believe that new primary legislation should be required.
I note also the point made by the noble Baroness, Lady Turner, about those people who have not yet joined the pension scheme but may well do so before this great event comes into being. I, too, would like to know the answer to those particular problems.
My Lords, these amendments go to the heart of the definition in Clause 15 of the liabilities that the Government propose will be transferred from the Royal Mail pension plan to a new scheme. Two parts of the definition are the subject of these amendments: the qualifying members of the plan—in other words, the members of the scheme who will be affected by the Government’s proposals—and the qualifying time that is the dividing point between the historic liabilities that it is proposed will be transferred to government and the subsequent liabilities that will remain with the company-backed scheme.
Before I address the amendments, perhaps I may respond first to my noble friend Lady Turner, who asked one or two questions about qualifying members. She asked whether, if the order is retrospective, members who join the scheme between the date when the order comes into effect and the date of the order will be included. The Government propose that individuals who were members at 16 December 2008 will be covered. This is not affected by the date on which any order is made or the possibility that the order could have retrospective effect. As for employers who have rights to join the scheme but have yet to do so, the changes introduced to the scheme in April 2008 mean that it is no longer open to new members. If members had accrued rights in the scheme by 16 December 2008, those qualifying accrued rights would be transferred to Government. If an employee had a prospective right to join the scheme but was not a member and had no accrued rights at that date, they would not be affected by the measures proposed here.
The noble Lord, Lord Skelmersdale, asked specifically about the definition of “qualifying time”, which is,
“the time immediately before such date as may be prescribed”.
I think he asked when, if 16 December is the prescribed date, the qualifying time will be. The answer is that if that is the prescribed date, we would expect that the qualifying time would be just before midnight on 15 December. I hope that that is an adequate answer to his question—or an answer, at least.
Together with the other definitions provided for in this clause and the related government policy statement, the definition of these two terms serves to set an important cut-off point that provides certainty for members on the effect of the Government’s proposals and defines and limits the liabilities for which the Government and, ultimately, the taxpayer will take responsibility. Given this importance, the Government cannot support the amendment proposed by the noble Lords, Lord De Mauley and Lord Skelmersdale, the effect of which would be that the taxpayer would be assuming an open-ended commitment to meet the cost not just of historic liabilities but also of liabilities related to current and future service of qualifying members. Not only would that represent poor value for the taxpayer but it would certainly create severe difficulties in obtaining state aid clearance from the European Commission. If the Government were legally obliged to meet the cost of current and future service, it would represent a significant ongoing subsidy to Royal Mail, which would not be attractive to the European Commission.
With regard to the timescales for state aid clearance, on which I was questioned, there is no fixed timescale for that. We expect that the earliest that clearance would be given would be late 2009, but it is equally possible that it may not be until later in 2010. We have not received any indications from the Commission about its likely view. We have had a number of preliminary meetings with the Commission but, as the formal notification has not yet been submitted, it is too early to expect it to give its view.
That is helpful on the question of proceedings in the Commission of the European Union, about which, by definition, the Minister knows considerably more than I do. I am glad to hear that the approaches—to put it mildly—have already started, but, as he just said, these are almost unofficial. When will the definitive approach be made? Will it be after the Bill has gone on to the statute book, or can it be made during that period?
I am not sure precisely when we can approach the Commission formally, but I think that we would, if I can put it this way, ramp up our approaches to and contacts with it, and our exploration of its likely attitude to our formal notification. What route it might take by way of examination of, and response to, our notification, we can start to probe fairly early on, but, at this stage, it would be too early for me to say precisely.
“May” would be a better word.
Both the qualifying time and qualifying members will be specified by order, made in accordance with Clause 24. On both definitions, the Government have made their policy intention clear. They intend that the qualifying members include all members of the Royal Mail pension plan as at 16 December 2008, the date of the publication of the Hooper report. It is intended that the qualifying time be immediately before that date; in other words, as I have said, just before midnight on 15 December.
In setting this date, the Government have had to consider the interests of taxpayers, and the need to secure the universal postal service and protect members of the pension scheme. Our view is that, to achieve this objective, the proposed cut-off point represents the minimum level of liabilities—estimated at £29.5 billion—that can be assumed by the taxpayer, which is also compatible with ensuring that a partner is able to agree commercial terms and ensuring that Royal Mail is not left with a scheme that represents a threat to its financial stability going forward.
The Government recognise the importance of providing clarity and certainty for members of the plan concerning the new arrangements. This is reflected in their recent policy statement, published at First Reading. However, the transfer of liabilities from Royal Mail to the Government is subject to state aid clearance by the European Commission.
Since it is unlikely that state aid clearance will be obtained before late 2009 at the earliest, and in the light of the parallel commercial negotiations with potential partners, it would not be appropriate to specify in the Bill either the qualifying time or qualifying members as proposed in the amendments put forward by my noble friend Lord Clarke. Although the Government are confident that it will be possible for state aid approval to be obtained, they cannot pre-judge the Commission’s detailed decision or rule out the possibility of modification to the proposals. The use of the order-making power represents the best way forward in these circumstances, because it avoids the possibility of new primary legislation being required before the Government’s proposals could be implemented. That possibility would be unwelcome, because it would introduce significant uncertainty for scheme members.
There are further reasons why Amendment 36 cannot be supported by the Government. Setting a cut-off point at a date that is inherently uncertain, as proposed by the amendment, has several adverse consequences; in particular, clarity on the amount of liabilities to be transferred to the Government, which will be necessary for state aid clearance, would be lost. As it would increase the risks carried by the taxpayer, Amendment 36 would also result in significantly less value for money.
Clause 15 also defines the concept of “qualifying accrued rights”. These are the benefit rights and entitlements of members and their dependants resulting from past service in the RMPP that, it is intended, will be transferred to the new public service scheme created under Clause 16. This means that liabilities relating to those rights will be removed from the plan and will no longer be the responsibility of the plan’s trustees. For individuals who, at 16 December 2008, were pensioners or former Royal Mail employees, the effect of this clause, together with Clause 16, is that all of their accrued rights in the pension plan would be transferred to a new public service scheme. Their entitlements will be protected in law, and backed by the Government. For the Royal Mail’s current employees, their rights built up in the scheme before 16 December 2008 would be transferred to the new public service scheme as if they had left service on 16 December 2008. The responsibility for future entitlements relating to service accrued after that date, or relating to salary increases after that date, will continue to rest with the pension plan. The Government propose to amend the rules of the plan so that, immediately following the transfer out of liabilities to the new public service scheme, any disparity in benefit entitlement in respect of service prior to April 2008 arising from the link with final salary will be met from the pension plan.
Given the importance of clarity regarding the qualifying accrued rights, the Government cannot support Amendment 37. Amendment 38 is consequential upon Amendment 34, which I spoke to earlier.
Having explained the Government’s approach to the definitions in Clause 15, and the difficulties with the amendments tabled, I invite the noble Lords, Lord Clarke, Lord De Mauley, and Lord Skelmersdale, to consider the withdrawal of their amendments.
I can hardly withdraw an amendment that I have not moved; I have only spoken to it, technically.
I found the Secretary of State’s remarks extremely helpful, but I still do not understand two points. First, I do not know why no specific date can be put in the Bill, and I shall have to read the Minister’s words extremely carefully before the next stage. Secondly, I could not agree more that it would be totally undesirable to have a second primary piece of legislation to cover a wobble in relationships on this matter between the EU Commission and Her Majesty's Government. However, that is not necessary. We could cope with the situation, if we wanted, by subordinate legislation, but this Bill would have to be amended to take account of that scenario. It is not beyond the wit of man. I agree with the Secretary of State that it would be a mistake to have to go on to a second Bill in those circumstances, but I am not yet convinced that the game is worth the candle to go down the subordinate legislation route to which I referred. That will be part of my thinking between now and the next stage.
Before the noble Lord, Lord Clarke, winds up on his amendment, I have a further question on the role of the European Union in granting permission for the Government to fund the accrued liabilities in the pension fund. I am not at all sure that I understood exactly what the Minister’s reply was on that matter, and I shall tell him why.
In 2007, the European Union allowed the Government to subsidise the postal service by £460 million. The theory is that the subsidy was allowed only on condition that 2,500 post offices were closed down. I do not know whether that was absolutely so, but I would like to know whether the Secretary of State knows whether that happened and whether the £460 million subsidy would have been granted had the Government not agreed to close those post offices.
I do not know whether we can call it a subsidy, but I understand that the last assessment of the accrued liabilities of the Post Office and Royal Mail was a little more than £5.2 billion, a huge amount of money. If the European Union defines it as a subsidy to the Post Office and the Royal Mail rather than the Government taking over an accrued debt for which they are liable, surely the whole project is in jeopardy. If the European Union says that it is a subsidy and that the Government are merely using a device to get around the EU rules contained in Article 87.1 of the EC Treaty, this Bill cannot go ahead.
I am sure that the Secretary of State is knowledgeable about these things. After all, he has been a member of the Commission so he will know even better than I that the Commission takes the question of state subsidy to part-private or private firms very seriously. I hope that he will be able to tell us that the Commission is likely, in his experience, to grant its permission for the Government to take these liabilities, which are well over £5 billion at the present valuation.
The simple response, quite honestly, is that, if the European Commission chose not to give state aid clearance, we would not be able to proceed with the measures in this legislation. It is perfectly clear and straightforward. A bailout of a pension fund on this scale is clearly state aid and is quite a tall order. It requires clearance by the European Commission. We will be in a position to obtain that clearance from the Commission if the measures that we are adopting to tackle the pension fund deficit are accompanied by modernisation, reforms and transformation of the business, which the legislation as a whole, including the introduction of a minority strategic partner, aims to achieve.
If anyone imagines that it would be simple or even possible to go ahead simply with a bailout of the pension fund and nothing else, I am afraid that they are not weighing properly the implications of that for state aid clearance. I do not think that we would get it. Therefore, the idea that we could simply go ahead with the part of the Bill relating to pensions and the changes that we are proposing that affect the regulation and get state aid clearance as a result is fanciful. That is why we have no alternative, even if we wanted one, but to go ahead with the legislation in its entirety and not cherry-pick bits of it.
I cannot resist interjecting that I never thought that I would hear the acronym TINA, invented by my noble friend Lady Thatcher, from such a person as the current Secretary of State. “There is no alternative”; of course, the Minister is quite right. As I said at the beginning of my few words on the last group of amendments:
“Love and marriage, love and marriage”.
I sincerely thank my noble friend Lady Turner for her nicely worded support for the basic principle of people being able to move in and out of pension schemes, and the definition of where they stand within a scheme.
I was slightly amused by the reference of the noble Lord, Lord Skelmersdale, to the haste with which the Government were able to concur with the Hooper report, on the day that it was published. How the Government could say “We agree” within hours has certainly been asked in many places—not necessarily the pubs, clubs and magistrates’ courts. People like me think that the point made by the noble Lord, Lord Skelmersdale, is valid. The Hooper report was predicated on a number of false assumptions. Some of its calculations and findings do not bear scrutiny. We will obviously return to that.
The Secretary of State has made a number of comments, and I am delighted that we will be able to crawl over every word that he says, once we see them published, and work out better amendments for the future. If there are things that we can improve upon, I hope that I and other people with an interest in the Bill will do so.
My friend of many years, the noble Lord, Lord Stoddart, brings in an interesting point about the European Union. I remind the Committee that we would not be in this situation today if it had not been for the Commission’s direction to liberalise our post office in the first place. I tried to expose the indecent haste at that time, as my noble friend Lord Sainsbury tried to defend the Government’s position. We should bear in mind that that nine or 10 years’ loss of revenue, because of the false accounting system of what was Postcomm, has helped to build up the problems that we face now. Just for good measure, we do not know when some of the member states of the European Union are going to start liberalisation. We have had to live with it for all those years because we were told that it was a directive.
I am looking forward to seeing what can be done. Not being a great fan of the Commission or the European Union as a whole, I would be delighted if they could go into their toolbox, find a gigantic spanner and throw it into the works of the Bill. That would achieve what I tried to do at Second Reading. I said that the Bill was ill-timed, ill-conceived, wrong and against Labour Party policy in principle. I will study carefully what the Secretary of State has said, and will be interested to see what comes out of any real examination of the European Union on this.
The Secretary of State mentioned the regulator. Members of the Committee will not find me wanting in my attempts to get a fair and balanced regulator. The House has heard me make clear on a number of occasions that the regulator was rigged from the start. Have a good look at the Hooper report, and see what it says about how Postcomm has worked: worked against the interests of the Royal Mail; worked against the interests of the Post Office; and certainly worked against the interests of the Government, who have been denied funds because of how it has operated. I am pleased that the Secretary of State mentioned the regulator. We will talk about it later, and I, for one, will be the first in the queue to discuss with Ofcom how we can find a system that will assist the consumer—members of the public, who want a better service—in getting a better service. We will come to that in later amendments. I will be there, with Ofcom, if it will have me, to talk about how we can get the best deal for the public, the Post Office and the people who work in the industry. For now, however, I beg leave to withdraw the amendment.
Amendment 34 withdrawn.
Amendments 35 to 38 not moved.
39: Clause 15, page 8, line 5, at end insert “other than additional voluntary contributions paid to acquire money purchase benefits (as defined in section 181 of the Pension Schemes Act 1993 (c. 48))”
Amendment 39 to Clause 15 deals with additional voluntary contributions, commonly described as AVCs. The only purpose of AVCs is to help people have a better retirement. They are provided either through the pension scheme itself or by insurance companies. My Amendment 39 seeks to add to Clause 15(2)(b) the words,
“other than additional voluntary contributions paid to acquire money purchase benefits (as defined in section 181 of the Pension Schemes Act 1993 (c. 48))”.
Additional voluntary contributions under the Royal Mail pension plan can be used to pay for additional periods of service or to buy additional pension on a money purchase basis. The Bill does not differentiate between them. Money purchase AVCs are linked to service and carry a surplus or deficit. The cost of buying an additional period is linked to a member’s age. Once a member agrees to buy the added years, the price is fixed. If a member of the scheme has already entered into an additional voluntary contribution contract, he or she should be permitted to continue with it. The years already purchased will be qualifying accrued rights, and so the right to continue with the contract should pass to the new public scheme, or the public scheme section of a segregated Royal Mail pension plan as it is envisaged that it will be segregated.
As I say, AVCs are a very valuable part of any pension scheme. It would be useful if more attention was paid to this method of enhancing occupational pensions. I hope that the Secretary of State will recognise the value and benefits of this amendment. It is straightforward, quite simple and makes clear that years already paid for by the member will be set out as qualifying accrued rights. Added years, a contract between the member and the pension plan, and money purchase schemes should stay with the Royal Mail pension plan.
The right to transfer these accrued rights is important. I hope that the Secretary of State will agree that this amendment is supportive and helpful to people in the industry. I beg to move.
The noble Lord, Lord Clarke, raises some important points. The Royal Mail pension plan contains a variety of pension entitlements. For a start, there is the basic defined payment scheme which closed to new members last April, and the defined contribution scheme which replaced it. I think I understand that the Government intend to take over only the liabilities relating to the defined payment scheme, which is sensible, since the defined contribution scheme is by definition fully funded. However, I should be grateful if the Secretary of State could confirm that.
However, there are more complications than just the direct contribution scheme. The noble Lord, Lord Clarke, has raised the question of what will happen to additional voluntary contributions. Clarification on these and any other top-up options that exist within the Royal Mail pension plan would be very helpful.
The Government have indicated their intention, with this Bill, to take over many billions of pounds of liabilities. It would be extremely convenient for their balance sheet if they were able to take over more assets now in exchange for more liabilities in the future. However convenient for the Government stretching the taxpayer’s rescue to include all sorts of complications might be, it will be bad news for the taxpayer if anything more than the most pared-down liabilities are taken on. Absorbing fully funded liabilities from the Royal Mail pension plan will not help the pensioners and should not be allowed to happen.
I immediately confirm that the noble Lord, Lord De Mauley, is right that the Government’s intention is to take over the defined benefit scheme but not the defined contribution scheme.
I am grateful to my noble friend for his amendment. It provides a valuable opportunity for me to explain further the Government’s proposals in respect of the treatment of additional voluntary contributions, or AVCs.
At present, the members of the scheme can make additional contributions in order to increase their provision for retirement. They can do this either through the contributions for the purchase of “added years” of reckonable service, which are invested with the pension plan’s main assets, or by investing in a range of pooled investment vehicles as part of a “money purchase” arrangement. Around 5,000 employees are currently purchasing added years of service. They represent just over 3 per cent of current active members. The total value of investments under the money purchase arrangements was £84 million as at March 2008. This comprises some 19,300 individual AVC contracts, of which roughly half relate to active members.
The Government’s intention in proposing subsection (2)(b) has been to provide the flexibility to enable the inclusion of rights that have been accrued through additional voluntary contributions, or AVCs, within the qualifying accrued rights to be transferred to the Government. The amendment raises the question as to the comparative treatment of the two categories of benefit to which AVCs can relate. The Government have been discussing this issue with the pension plan trustees, both in regard to the underlying policy position and the implications in terms of administration.
At this point, the Government are minded to adopt a solution that follows the intention behind this amendment. Where AVCs have been paid prior to the qualifying time for the purchase of added years, it makes sense for the additional service already bought to transfer to the Government with the other qualifying accrued rights. This is because the purchase of added years relates closely to the defined benefit provisions in the main scheme and carries many of the same risks in terms of longevity and investment returns. In contrast, the investments related to the money purchase AVCs do not have these same characteristics and could therefore legitimately remain with the pension plan.
This approach, and indeed the alternatives, has implications for co-ordination between the administration of the new government-backed scheme and the pension plan. Although the numbers of members involved are small, the Government would like further time to conclude consultation with the trustees on these issues before returning to the question of whether a legislative amendment is required. On this basis, the Government will agree to consider the amendment and return to the issue on Report.
I do not know whether I have done something wrong. If the Secretary of State is agreeing with something that I have said, I suppose I ought to be grateful. I will get the words right; I should be grateful, and I am. I hope that we will see the conclusion of the further discussions that are taking place before the Bill goes much further down the road, to the other end of this Building. For now, I am grateful, and I beg leave to withdraw the amendment.
Amendment 39 withdrawn.
40: Clause 15, page 8, line 11, at end insert—
“(4) The amount of any benefit payable to a qualifying member of the RMPP shall be his relevant pensions provision defined in section 19(3).”
Amendment 40 is grouped with a number of other amendments. I shall speak also to Amendments 63, 64, 65, 66, 67 and 68. It might take a while.
Amendment 40 seeks to amend Clause 15. It proposes the insertion, after the word “service” in line 11 on page 8, of a new subsection (4), which would read:
“The amount of any benefit payable to a qualifying member of the RMPP shall be his relevant pensions provision defined in section 19(3)”.
Clause 19(3) states:
“‘The relevant pensions provision’ means the provision for the payment of pensions or other benefits which is contained in the RMPP or in a new public scheme”.
When I read this part of the Bill for the first time, it looked like a mechanism for splitting a member’s rights; that is, splitting past service rights from the salary link and converting them to contingent benefits, such as ill-health, retirement from service and a change from active to deferred status, prior to disposing of the salary link and contingent benefits altogether. Further reading of the clause suggests that this is not the case, and that it could be a mechanism for deciding what assets and liabilities the Secretary of State will take. It could also suggest that the benefits for future service, and the “add-on” salary link and contingent benefit rights, will be carried by the Royal Mail pension plan. The amendment that would create new subsection (4) makes the point that no benefits will be lost. I hope that the Secretary of State will clarify this.
I turn to some other amendments in the group. Amendment 63 is the first of my amendments to Clause 19. It proposes an additional subsection (1A), to be inserted at line 44 on page 9, which would read:
“(1A) In exercising the power, the Secretary of State must ensure that—
(a) in the case of the power to make an order under section 16, the relevant pensions provision in respect of each qualifying member of the RMPP is the same after the exercise of the power as it is immediately before the exercise of that power, and
(b) in the case of the power to make an order under section 17 or 18, the subsisting rights provisions contained in sections 67 to 67I”—
I have got that wrong—
“of the Pensions Act 1995 … are complied with”.
(1B) For the purpose of subsection (1A)—
(a) the RMPP shall be deemed not to be a public service pension scheme,
(b) references to subsisting rights shall be taken to be references to the relevant pensions provision,
(c) references to the trustees shall be taken to include a reference to the Secretary of State”.
It is all very straightforward.
Amendments 64 and 65 seek to separate Section 16, 17 and 18 orders. Amendment 64 refers to line 1 on page 10 and proposes that subsection (2) be omitted. Amendment 65 refers to line 5 on the same page and proposes that subsection (3) be replaced by:
“( ) The relevant pensions provision means the provision for the payment of pensions or other benefits immediately before the exercise of the power—
(a) as of right,
(b) in the event of death,
(c) in the event of early retirement on the grounds of ill-health or otherwise,
(d) on the happening of a contingency, or
(e) on the exercise of a discretion by the trustee of the RMPP, where the payment is made by the trustee of the RMPP or under a new public scheme or both.
( ) If the amount of a pension or other benefit is calculated by reference to a person’s remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), his remuneration for the purpose of establishing relevant pensions provision shall be taken to be his remuneration at the date of leaving the RMPP (by reason of death, retirement or otherwise), and not his remuneration at the date of the exercise of the power to make an order”.
The heading of Clause 19 is “Protection against adverse treatment”. As drafted, it covers benefits paid by the Royal Mail pension plan and the new public scheme. The fact that all benefits are currently paid through the Royal Mail pension plan means at the outset that Royal Mail pension plan benefits are protected. The amendment seeks to spell that out by ensuring protection for contingent benefits—for example, benefits payable in the event of death in service, ill health or early retirement; or discretionary benefits—for example, the trustees’ right to grant a discretionary benefit that cannot be removed and which refers to the salary link.
Amendment 66, in the names of the noble Lords, Lord Skelmersdale and Lord De Mauley, and in my name, would delete subsection (4), on line 8 of page 10. The clause permits the Secretary of State to opt out of any form of protection if it would contravene European law. Can he inform the House which European legislation he is referring to? This needs to be clarified. Is he referring to legislation dealing with discrimination? If he is, is he not satisfied that the Royal Mail pension plan is not already compliant? If the trustee of the RMPP is operating lawfully, then that should be sufficient. I do not believe that the Secretary of State needs to have an opt-out that allows him to second-guess the trustee.
Amendment 67 would delete paragraphs (a) to (c) of subsection (5), which deals with the powers of the Secretary of State. The amendment is quite simple; it links paragraph (d) with the opening words of the subsection, which would read:
“Nothing in those subsections is to be read as affecting any power of any person to amend the RMPP or a new public scheme”.
This is a consequential amendment. Amendment 68 would delete, at line 20 of page 10, subsections (6) and (7). Subsection (6) states:
“The power of the Secretary of State to amend a new public scheme may not be exercised in any manner which would or might adversely affect any provision of the scheme made in respect of qualifying accrued rights unless—
(a) the consent requirements are satisfied in respect of the exercise of the power in that manner, or
(b) the scheme is amended in the prescribed manner”.
Subsection (7) states:
“The consent requirements are those prescribed for the purpose of obtaining the consent of members of the scheme to its amendment”.
This is also a consequential amendment. I beg to move.
The amendments of the noble Lord, Lord Clarke, propose some interesting alternative drafting for the adverse-effect safeguard in Clause 19. I am not quite sure why many of those safeguards appear in Clause 16; but be that as it may, I have tabled further amendments to Clause 19 on which I intend to raise some questions about the extent of the safeguard and the apparent loopholes that have been drafted into the Bill. For now, I shall concentrate on the amendments of the noble Lord, Lord Clarke. The most substantive change that his amendments suggest is the extension of the safeguard to the RMPP. I would welcome some assurances from the noble Lord, Lord McKenzie, that any transfer or future amendment to the RMPP by the Secretary of State will not be to the detriment of members remaining in that scheme. The noble Lord, Lord Clarke, is absolutely right to table amendments to ensure that no detrimental effect will result from the change from the existing DB scheme to the new scheme proposed in the Bill.
Amendment 62A would close one of the loopholes that appear to have been drafted into this legislation. In Clause 19 the protection, such as it is, that is extended to members of the RMPP applies only to certain order-making powers under Clause 16. Again, the noble Lord, Lord Clarke, is quite right to question this. Certainly it applies to the chief of the Clause 16 powers, the power to set up a new public scheme and transfer rights to it, but the deliberate exclusion of the other powers in subsections (3) to (7) suggests that they might be applied in a way that would indeed cause detriment to members. Can the Minister explain why the other powers also do not have to meet the test of not causing material detriment to the members? It seems that the two things do not balance out at all. Is it because they absolutely cannot be applied in a way that would be detrimental to pensioners, or is it because the Secretary of State would prefer not to have to meet the test when considering future alterations—my brief uses the extraordinary word “tweaks”—to the new public pensions scheme?
Amendment 64B attempts to put the safeguard on a more objective footing. The question of whether the safeguard has been met is, I suggest, highly subjective. It depends on many different factors. The valuations used to assess how good the rights are before the exercise of the power will, of course, affect the final judgment, as will the assessment of any risk that has been added to or removed from those rights. The current drafting appears to give the Secretary of State a great deal of leeway to change the figures—even to fudge them—and sign off on any exercise of the relevant powers. I quote from page 10 of the blue-covered pamphlet, published so helpfully by the department, which says “as good as” without any independent scrutiny. How can one judge whether they are “as good as” or “not as good as”?
I recommend my amendment not only for the additional security that it would offer pension members but also because of the possibility of reducing any future judicial reviews on this matter. It would be extremely damaging for members’ confidence in their pensions if there were any uncertainty about whether the safeguard had been met. I hope the Minister will seriously consider bringing some proper scrutiny into this clause.
There is, of course, a distinct danger of proceeding on overly optimistic figures that do not tell the whole story. We need only to look at the figures for local government pension schemes to see just how much deficit can be hidden away in the footnotes. The official deficit on these schemes is about £23 billion based on a March 2007 valuation. The Minister is by background an accountant and will know that, when the required standards of private sector schemes are applied, FRS 17 creates a totally new deficit, which is shown to be around £43 billion—nearly twice as much. This, of course, is based on figures taken from before the recent economic crisis. The Government appear to be hiding their heads in the sand about the local government scheme deficit, refusing to even contemplate my party’s suggestion of a proper review of the situation.
Amendment 66 seeks to probe how previous enactments or Community obligations might prevent the Secretary of State from fulfilling the requirements in subsection (2). I find it absolutely inconceivable that any responsible Government—and I include all Governments of this country—should knowingly put themselves at risk of an EU court judgment. Of course, we have had a discussion even today on the necessary permissions around state aid, which clearly have not been received—indeed, they have not yet been definitively applied for. Can the Minister therefore confirm that the Government are prepared to press on with this part of the Bill, even if that permission is denied? For example, do they have enough money in the kitty, given the vast amount of money that is being spread around the economy at the moment? Do they consider taking over the liabilities, even if it causes material damage to the members, a possible second option? If not, then why is this loophole in here? When would they consider using it? My Amendment 64A seeks to ensure that the assessment of adverse effect applies not only to the individual members of the RMPP but also to any dependants who have accrued rights—a subject very dear to the heart of the noble Baroness, Lady Turner. It has become very clear to me over the past few years when debating legislation establishing private sector pension protection under the PPF and the FAS that the Government consider these secondary benefits to be of much less value than the direct pension rights that the member accrues. This is very unfair to the families, whether we are talking about the surviving partner or the children of the member, who have as much right to their derived benefits as the member. I hope that the Minister will reassure me that the Bill does not intend to exclude these ancillary benefits as unimportant. If he cannot do that, I hope that he will accept my amendment in one form or another.
Clause 19(6) seems to establish yet another loophole in the safeguard. As the Explanatory Notes make clear, subsection (6) governs any future changes to the new public scheme and ensures that any detrimental change will be subject to the consent of the members or—this is the more worrying bit—in some prescribed manner, whatever that may mean. What does it mean? As drafted, subsection (6)(b) would allow the Secretary of State to prescribe a simpler procedure by which he could bypass not only the consent of the members but all the safeguards established in the earlier subsections of the clause. Why? When will the Secretary of State use that power?
If the Secretary of State is minded to reduce the pension rights of members, and they have not given their consent, surely the reduction should not be made. The only application of a similar power is in the Armed Forces (Pensions and Compensation) Act 2004, which has been used either to allow the consent of Parliament to be waived when a member cannot be tracked down or to make adjustments in the application of inflation to benefits. The first example is already covered in existing provisions about what signifies consent, and the second is made redundant by the uprating of benefits remaining completely at the Secretary of State’s discretion in Clause 16(3)(a), as we will debate on Amendment 42.
I realise that this is an enormous group, and I sympathise with the Minister for having to take it on, but the noble Lord, Lord Clarke, and I have asked reasonable questions on this part of the Bill and we would like to hear the Minister’s definitive reply.
This group of amendments is focused on the protection that members of the RMPP are afforded in Part 2 of the Bill. It is an important group, if somewhat extensive. I assure the Committee that member protection is at the core of the Government’s proposals. In responding to the points raised it would be helpful if I were to give an overview of Clause 19 and the protection that it provides for scheme members. I shall then go on to address the specific amendments.
Clause 19 limits the Secretary of State’s powers under Part 2 in two ways to protect members of the Royal Mail pension plan from being detrimentally affected by the Government’s proposals. The first layer of protection is in subsection (2), which limits the Secretary of State’s key powers to establish a new scheme or transfer rights to a new scheme under Clause 16, to divide the RMPP into different sections under Clause 17, or to amend the RMPP under Clause 18. The Secretary of State must ensure that in exercising these key powers he does not negatively affect the pension position of members of the RMPP.
The test in subsection (2) is designed to ensure that a member’s relevant pension provision is no worse immediately after the exercise of the power than immediately before. The relevant pension provision, which is protected, is defined in subsection (3), which includes pensions already in payment to RMPP members and their dependants as well as benefits that will become payable when the member leaves service, retires or dies. It will include benefits payable in the event of a contingency, such as ill health, early retirement or following the exercise of discretion. Because the RMPP is set up under trust, while the new scheme will be a statutory arrangement we expect that it may require some differences in the way that benefits are determined or provided. For example, decisions about the scheme will be taken by the Secretary of State or persons to whom he delegates the scheme administration, rather than by trustees.
However, we intend that the value of members’ accrued benefits will be no different. The Secretary of State cannot exercise his powers to establish a new scheme, transfer benefits to the new scheme or make changes to the RMPP in a way that decreases the value of members' benefits. Let me be clear: the test does not restrict the powers of Royal Mail or the trustees in relation to the ongoing operation of the Royal Mail pension plan.
The second layer of protection for members is in subsection (6). It limits the Government’s ability to amend the new public service scheme, in order to protect the accrued benefits of members transferred across from the RMPP. The new scheme can be amended in a way that would or might adversely affect accrued rights only if prescribed steps are taken to obtain the consent of members, or if the scheme is amended “in the prescribed way”. That was the point pressed by the noble Lord, Lord Skelmersdale.
That provision is intended to protect members in a similar way to the protection that they currently have under Section 67 of the Pensions Act 1995. It is not appropriate to apply Section 67 directly to the new government scheme—that is the import of one of the amendments tabled by my noble friend Lord Clarke—because it is not a trust-based scheme. However, like Section 67, subsection (6) prohibits amendments unless they either meet consent requirements or are of another description prescribed in secondary legislation. As the noble Lord, Lord Skelmersdale, recognised, subsection (6) is based on Section 3(1) of the Armed Forces (Pensions and Compensation Act) 2004, which is intended to provide similar protection to that under Section 67 for members of the Armed Forces pension scheme—a non-trust-based scheme similar in structure to the new government scheme for Royal Mail employees.
The method for obtaining consent from members of the new government scheme to amendments that might affect their accrued rights will be spelled out in more detail in secondary legislation. However, I can say that our intention is to follow a similar approach to the consent requirements that already apply to changes made to the RMPP, as provided for under Section 67 of the Pensions Act 1995.
Clause 19(6)(b) reflects the fact that certain prescribed amendments may be made to occupational pension schemes under Sections 67 and 68 of the Pensions Act 1995. It would enable existing prescribed circumstances under those sections to apply to the new scheme. That power may also be needed to ensure that the rules of the new scheme properly reflect members’ actual entitlements under the RMPP and that any technical discrepancies can be resolved.
In future, it may be appropriate as unforeseen circumstances arise to prescribe other exceptions for pension schemes under Sections 67 or 68. If that happens, there may be a need to enable similar changes to be made to the new public service scheme. The new scheme should not be in a fundamentally different position from occupational pension schemes, but instead should be able to make changes that trustees and employers are permitted to make.
Turning to the detail of the amendments, as I mentioned earlier, the first layer of protection for members, in subsection (2), is designed to ensure that a member’s pension provision is no worse immediately after the exercise of the power than it was immediately before. A second layer of protection for members is contained in subsection (6). It limits the Government’s ability to amend the new public service scheme, in order to protect the accrued benefits of members transferred across from the RMPP. The Government recognise the importance of protecting members’ benefits when the initial transfer to the new scheme takes place. That is why the initial use of government powers under Clause 16 requires the Secretary of State to ensure that relevant pension provision for members of the RMPP is in all material respects at least as good immediately after the transfer as it was immediately before. In other words, the Government cannot exercise the power to transfer qualifying accrued rights to the new scheme in a way that reduces members’ pension entitlements.
Amendment 64B would require an appropriate qualified actuary to certify that the test set out in subsection (2) had been met. In assessing whether that test is met—in other words, the members are in a position at least as good in all material respects—the Secretary of State will take appropriate expert advice, as required, which is likely to include both actuarial advice and legal advice. However, certification from an actuary would not be appropriate because, immediately following the establishment of the new public scheme, the members’ total benefits would in all material respects be the same as immediately before the change. Our intention is to write the rules of the new scheme and adjust the rules of the RMPP so that, immediately after the transfer out of liabilities, in aggregate they provide the same benefit to which members are currently entitled from the RMPP. I think that that was the particular assurance that my noble friend Lord Clarke was seeking.
Yes, indeed. I touched on that point in part, and I will come to it again in due course.
At the same time as establishing the new public service scheme, we intend to amend the RMPP rules so that the benefits that are provided are reduced by the benefits that will now be payable from the new public scheme. The change for members with benefits in both the new scheme and the RMPP is that total benefits will be provided from two different schemes, and the type and level of benefits that will be payable in different circumstances will not be changed by the exercise of these powers. An actuarial certificate will be appropriate only when comparing two schemes with different terms and benefits, and as there is no intention of making the benefits more generous in some circumstances or less generous in others, certification by an actuary is not necessary or appropriate in this case.
Once the qualifying accrued rights have been transferred, the new scheme should have the flexibility to make amendments to meet changing circumstances on the same basis as currently applies to the RMPP and to other occupational pension schemes. That is why future amendments to the new scheme are permitted, subject to restrictions to amendments that would or might adversely affect qualifying accrued rights. This is comparable to the protection that members currently have under Section 67 of the Pensions Act 1995. As I mentioned earlier, it is not appropriate to apply Section 67 directly, because the new scheme is not a trust-based scheme. However, like Section 67, subsection (6) prohibits amendments unless they either meet consent requirements or are of another description prescribed in secondary legislation.
We want the government scheme to be able to reflect unforeseen developments in the future, and the new scheme should not be in a fundamentally different position from that of occupational pension schemes. Instead, it should be able to make changes that trustees and employers are permitted to make. Amendments 62A and 69 would prevent the Government from being able to react to future circumstances, and therefore cannot be accepted. However, I hope that this more detailed explanation of how Clause 19 operates has reassured noble Lords that protecting members is a key objective for the Government in Part 2. That is why I ask noble Lords to consider not pressing their amendments.
On Amendment 63, I hope that I have assured my noble friend Lord Clarke of the significant protection for members of the RMPP that is already set out in the Bill. The amendment would not give members any additional protection. Furthermore, it could prevent any changes being made to the new public service scheme, even where such changes might be for the benefit of members. As a result, the Government cannot support the amendment.
On Amendment 64A, the test in Clause 19(2) applies to each person who is or has been a member of the RMPP. It therefore covers current and former members of the RMPP, including deceased members. Clause 19(2) protects the relevant pension provision of each person who is or has been a member of the RMPP. In other words, it protects benefits that are payable in respect of a deceased member of the RMPP as well as of a member who is still alive. It is therefore the Government’s view that Clause 19(2) already applies to protect the benefits payable to a dependant of a deceased member of the RMPP. The noble Lord, Lord Skelmersdale, was seeking reassurance on that. As the Bill already extends the protection set out in Clause 19 to dependants, I would ask the noble Lord to withdraw his amendment.
Amendment 65, in the name of my noble friend Lord Clarke, proposes a more detailed definition of the “relevant pensions provision”. I reassure my noble friend that the definition of “relevant pensions provision” as set out in subsection (3) would in practice cover all the benefits set out in his amendment. The definition in subsection (3) includes the payment of pensions and other benefits to which members are entitled, such as ill health benefits. I also assure my noble friend that the definition of “relevant pensions provision” also covers the link between accrued benefits and final salary.
I have already explained the Government’s intention to amend the rules of the RMPP so that, immediately following the transfer out of liabilities to the new public scheme, any disparity in benefit entitlement arising in relation to the link with final salary will be met from the continuing company-backed scheme. We do not want to risk narrowing the definition of relevant pensions provision set out in the Bill. As a result the Government are not able to support this amendment.
The noble Lords, Lord Skelmersdale and Lord De Mauley, and my noble friend Lord Clarke have proposed an amendment which would remove subsection (4). This subsection makes it clear that Clause 19 does not require the Secretary of State to include any provisions in the new government scheme which would be incompatible with any obligations under UK or EU law, such as tax requirements or EU anti-discrimination requirements. Clearly it is important that the Government act lawfully in setting up the new government scheme, but as we work through the detailed drafting of the secondary legislation setting up the new scheme it is possible that some provisions may not be strictly compatible with, for example, the requirements for registration of a new scheme for tax purposes under the Finance Act 2004. In order to reassure my noble friend, I should stress that we expect any such issues to be of a technical nature rather than to have an impact on members’ benefits. Nevertheless, we will need to maintain sufficient flexibility to ensure that the new scheme complies with UK and EU legislation. I would therefore ask noble Lords not to press this amendment.
Amendment 67, proposed by my noble friend Lord Clarke, relates to Clause 19(5). Subsection (5) makes it clear that although Clause 19 is designed to protect the accrued rights of members, it is not intended to require the new government scheme to be set up or run in any particular way. For example, the new government scheme will be set up under legislation and not under trust deed. Any decisions that would be made by the Royal Mail Group under the rules of the RMPP would be made by the Secretary of State or the administrator to whom the Secretary of State delegates responsibility under the new scheme. Nor is it designed to constrain the future operation of the ongoing Royal Mail plan, which is a matter for the company and for RMPP trustees going forward, and is already governed by existing pensions legislation. Amendment 67 would constrain how the new government scheme would be set up and operated. As a result, this would limit the Government’s ability to balance their objectives of protecting the universal postal service, protecting members of the pension scheme and protecting the interests of taxpayers, for example, from the investment risk in the funded scheme. As a result, I would again ask noble Lords not to press the amendment.
I note that my noble friend Lord Clarke has proposed an amendment to delete subsection (2). I understand that this is intended to be considered as part of a broader package of amendments. I hope that the comments I have already made on Clause 19 will assure him that we are offering significant protection to members as part of this Bill. Similarly, in Amendment 68, he has proposed the deletion of subsections (6) and (7), which would delete protection for members from amendments being made to the new public scheme that would or might adversely affect accrued rights. This is an important safeguard for members which reflects the existing safeguards that, as I said, apply to them as members of the RMPP. It is not appropriate to apply the test proposed in Amendment 63, which would require benefits to stay the same in the new scheme going forward. This would even preclude changes being made that would be beneficial to members, for example to reflect future changes in law.
Amendment 40, in the name of my noble friend Lord Clarke, appears to reinforce the effect of the amendments discussed in relation to Clause 19. I hope that I have dealt with that. The amendment risks adding real uncertainty about the fundamental basis on which members’ benefits will be calculated. I therefore do not believe that it can be recommended. I am conscious that this has been a fairly detailed explanation on a whole raft of complex amendments which touch in particular on the provisions of Section 67, which pensions lawyers tell me is the most impenetrable part of pensions legislation. I hope that putting those issues on the record has enabled noble Lords to decide not to press their amendments.
The noble Lord, Lord Skelmersdale, referred to FRS 17 and local government pension schemes. The new scheme that we are discussing would not be a funded scheme, for reasons that I think the noble Lord is aware of. He referred to the size of the deficit that we are dealing with. We have made clear in the RIA that the deficit has been calculated based upon the March 2008 criteria, which has been projected forward to March 2010. We have also said that those figures would be updated when the next evaluation is due for, I think, March 2009.
The noble Lord also asked what would happen if state aid is not forthcoming. My noble friend the Secretary of State has made clear the linkage of these propositions. If the provisions in the Bill cannot be taken forward then the next evaluation would have to be undertaken and the trustees would need to engage with the sponsoring employer in setting out a recovery plan consistent with the regulator’s directions and guidance on these issues. That would clearly be a challenging prospect but I hope that it is not one that we would face. I also hope that that has answered all the queries raised.
My reaction to the Minister’s speech is, phew—if I may be allowed in this Chamber to use a four-letter word. He, as he said, covered an enormous number of points. In retrospect, it was a mistake for the noble Lord, Lord Clarke, my noble friend Lord De Mauley and me to agree to such an enormous grouping. I do not know about the noble Lord, Lord Clarke, but, as a result, I certainly cannot make a point-by-point, justified response to the Minister.
I should like to refer to just two points on this question of the deficit. The Government are working on a brought-forward deficit which I think was actually done in March 2006. That has been revalued as far as possible to March 2008. But the next—what was the word that the Secretary of State and I just used?—“definitive” uprating is to be the March 2009 revision. My question was about the basis on which that revision will be made. Will it be made on exactly the same criteria as the March 2006 calculation or will it use FRS 17, which I accept does not apply to public sector finances? I have yet to be told any good reason why it should not. I suspect that the deficits we are talking about are very much larger than we are led to believe at any particular moment. That is probably a subject for one of the noble Lord’s letters. Not being an accountant, I shall be totally incapable of understanding— on my feet, as it were—what the Minister is itching to say. However, since he is itching, I might as well give him the opportunity.
I am grateful to the noble Lord. It is unfair to ask me a question and then deny me the chance to answer it. He referred to FRS 17. I should make it clear that actuarial valuations are made on what is broadly known as a technical provisions basis, and that was the basis of the 2006 valuation updated to 2008. It uses broadly the same criterion basis that is reflected in the numbers produced for the March 2010 figures set out in the various reports. When the triennial valuation is undertaken it will be for the trustees, in discussion with their professional advisers, to look at the factors deployed and to produce the figures on that basis. FRS 17 is in this context a bit of a separate issue in that the bases of producing the provisions are not the same; there is divergence between the two. However, in the current climate it is generally seen as being particularly important to commercial transactions, so the technical provisions basis is the appropriate one to adopt.
I am not sure whether that has helped or enlightened the noble Lord, and I am willing to write to him once he has looked at the record. Perhaps I may also say, in relation to the fairly complex issues we have been going through, that if any noble Lord thinks it would be beneficial to have a session before the Report stage, I am happy to accommodate that as well.
I would certainly take up that offer with the very opposite of reluctance—I cannot think of the word at the moment. I think I am right in saying that in March 2006, FRS 17 was an idea in the mind of God and perhaps the odd accountant; it certainly had not come into general use at that point. I will take ready advantage of a meeting with either the Minister or his officials or perhaps, on a red letter day, both.
I also picked up from what the Minister said that the provision to which we both referred—the power to prescribe the simple procedure by which one could bypass the consent of the members—was similar to that for the Armed Forces scheme. I do not have that Act in my pile of papers but I am sure that the Minister will have an extract of it. If memory serves me right, this formulation and the one set out in the previous Act are not pari passu, and therefore the words “based on” could have a slightly different meaning. Again, this is something that I can ask the officials in due course, unless the Minister would like to respond now.
I am happy to write to the noble Lord to set out the precise provisions in the Act to see how close they are. The point I want to stress is that we are trying to replicate the facilities available to occupational trust-based schemes provided by Section 67 of the 1995 Act. The starting point is a general prohibition on impairment of accrued rights, which is what Section 67 is about. It says that you can do that if certain things are in place, in particular a consent process. However, there is a further provision which states that if things are set down in a prescribed manner, possibly in regulation, that can be done in addition.
I stress that this provision should not be read as assuming that the Secretary of State can arbitrarily assume a directed, prescribed manner relating just to this scheme. That is not the intent of it. It is meant simply to replicate what would be available continually for the RMPP. Indeed, I believe that these provisions have been used by the scheme in fairly recent times.
None the less, since this is not a trust-based scheme, does not the Secretary of State in a sense replace the trustees? I agree with the Minister that this should not be a trust-based scheme and indeed it is right that the Secretary of State should take full responsibility in this area. Here, I suspect, our opinions diverge substantially from those of the noble Lord, Lord Clarke, who no doubt has the opportunity right now to tell us just that.
I was not responsible for the size of this group of amendments. The noble Lord, Lord Skelmersdale, made the point, and perhaps we should both have been quicker on our feet to ensure that we could give proper, individual attention to some of these issues.
I am delighted to hear a confession although I am not ordained to receive it. More seriously, this grouping was far too big to start with. I made some changes to the groupings as they came out last night. The Whips’ Office was quite accommodating and able to separate some amendments, in particular the new clause I suggest later in Amendment 70.
My interpretation of this whole thing is that it is headed, “The protection of members’ interests and benefits”. I must say in all humility that it is a pleasure to hear an expert such as my noble friend Lord McKenzie, who is clearly on top of his brief. But he is not relying on it: he is using experience and knowledge of the pensions industry. That is valuable to the Committee and I am sure will be of even more value as we proceed through the Bill. I would have liked to separate the protection of past service rights in Amendment 63 from some of the others.
We have heard quite a bit this afternoon, but I am an old-fashioned person and I want to read exactly what has been said. I have only been here for just over 10 years, but I have heard too often that it is not necessary to put something on to the face of the Bill. Speaking as a former trustee of the Post Office pension scheme and as a negotiating officer to introduce amendments to schemes, I know how valuable it is to get the words right and how the ambiguity of certain things has to be avoided, although I recognise the expertise that has been demonstrated by my noble friend Lord McKenzie in this debate. I am tempted to pick up on some points that would probably put me in bad odour with the Whips, such as the references made to the universal postal service. I hope that we will get a chance to discuss that in detail later.
I want to see these thing in the Bill, but for today I shall take away what has been said, and I heard the Minister’s offer on consultation—which makes a change from last week when consultation was not seen as the proper or appropriate word. However, I give notice that this response is going to be scrutinised because I want those who can help me with their expertise to see if there is not a way to get what we all want: the protection of members’ rights, members’ benefits, the rights of those who succeed them in the case of death, and all the issues I mentioned when moving this welter of amendments earlier. For now, I beg leave to withdraw the amendment.
Amendment 40 withdrawn.
Clause 15 agreed.
Clause 16: Transfer of qualifying accrued rights to new public scheme
40A: Clause 16, page 8, line 14, leave out “Secretary of State” and insert “Treasury”
I was brought up, parliamentarily speaking, to believe that when the words “the Secretary of State” appear in legislation, they apply to any political departmental head. This is a very simple probing amendment to discover which Secretary of State it is anticipated will be responsible for the decisions made under this part. I have tabled only one amendment to Clause 16, but intend to speak as well to the various places where the words “the Secretary of State” appear throughout these provisions.
This Bill has already been defended and clarified by the Secretary of State and more recently by the noble Lord, Lord McKenzie of Luton. Who knows, when we move on to Part 3, we might have a Minister from the Department for Culture, Media and Sport, which after all is the sponsoring department for Ofcom, which is to be the regulator under the new scheme of things, and thus we shall add a third. The question of which department will exercise some of the powers in the Bill is therefore not nearly as clear as normal.
Given that, in part, a Minister from the DWP has spoken for the Government on this part of the Bill, it is likely that that department expects to handle the pension provisions, but is that the case? I would be happier if the greater expertise in that department, which was referred to by the noble Lord, Lord Clarke, in respect of the noble Lord, Lord McKenzie, decided what the new pension scheme will look like, how many assets and liabilities will be transferred and how the ongoing RMPP will be handled. I hope the Minister will reassure me that his department will do all these things.
The noble Lord, Lord McKenzie, will remember that I have spoken before about the mishmash of responsibilities that the Government have divided between the Treasury and the DWP for what I still regard as social security matters. I cannot believe that the Treasury will be willing to give up all control in the area of the Royal Mail pension plan. Indeed, there are occasions in the Bill where the Secretary of State, whichever Secretary of State it may be, can act only with the consent of the Treasury. The transferred assets under Clause 20 will obviously be very attractive to the Treasury. Can the Minister give some clarity on who will have the final say on what will happen to the money resulting from the eventual sale of those assets?
The taxation provisions in Clause 22 will also, presumably, fall under the Treasury rather than the DWP. We would be rather wary about that given the example of a previous time when the Chancellor amended the tax provisions relating to pension pots and executed the £5 billion a year tax raid on occupational pensions. I shall not go into detail, I am sure to the Minister’s relief.
I know that it is not customary to specify departments on the face of primary legislation. Governments are generally too fond of reshuffling and rebranding departments of state for any name to survive the length of time we hope the Act will last. Indeed, I remember that under the Thatcher Government various Secretaries of State took bits of their own departments with them because they felt an affinity with those particular pieces of their former departments. I remember that the subject of tourism whistled round Whitehall like a rather weak gale. I hope the Minister will give a little more insight into how the Government intend to handle the tensions between departments that will no doubt arise from these provisions. That is the important point. Forget all the joshing I have just executed.
The short answer, of course, to the noble Lord, Lord Skelmersdale, is that his characterisation of the Government is not one that I begin to recognise. I do not know where the tensions that he talks of exist or what possible diversion there could be between the views and interests of the head of one department and another, even the Treasury.
Having come to the end of those short remarks, let me make a direct response to the questions put to me by the noble Lord. I should start by clarifying the relationship between the powers of the Secretary of State and the role of the Treasury as set out in Part 2. The Government propose that the power to establish a new public service scheme should rest with the Secretary of State. This is consistent with the precedent set by other legislation under which new public service schemes have been established, such as the Armed Forces (Pensions and Compensation) Act 2004, and on which these provisions are modelled. It is also consistent with the position in relation to the other powers provided for in Part 2 where these rest with the Secretary of State. The Government do not see the justification for a different approach in relation to the powers provided in Clause 16(1).
I also emphasise that Clause 24 requires the Treasury to consent to the exercise of any powers under this part of the Bill. Indeed, the Treasury must consent to all orders other than information requests. This includes, for example, setting up the new scheme and transferring assets and liabilities. Such decisions have a significant public finance impact so it is appropriate for the Treasury to approve this. However, it is not the intention for the Treasury to be involved in the ongoing management of the pension scheme. This will be the responsibility of the Secretary of State and any person nominated by the Secretary of State.
As to which Secretary of State of which department will be responsible, it will be implemented and managed by my department, the Department for Business, Enterprise and Regulatory Reform. Given this fact, there is nothing to be gained from assigning a power directly to the Treasury.
The noble Lord also asked what will happen to the funds from assets sales. The assets transferred to government will be disposed of, over time, as makes most sense for the taxpayer. The proceeds from their disposal will contribute towards meeting the costs of future payments to pensioners.
In the light of that information and clarification, I invite the noble Lord to withdraw his amendment.
I thought it was obvious from what I was saying that this was a probing amendment. However, I have got the answer I wanted. When the Secretary of State started to reply, I immediately thought “Come off it”. He does not recognise the description of Governments that I gave? Of course he does. He knows perfectly well that battles royal go on almost daily between officials—sometimes very senior officials and very often involving their Secretaries of State—where departmental requirements differ diametrically from each other. I have absolutely no doubt that this happens under all Governments of all political persuasions and has done ever since Governments were reinvented. Many years ago, of course, we had only two departments of state but, alas, those days are gone for ever.
I am pleased that the Secretary of State’s department will be in control throughout, although he admitted that it will be with the advice and sometimes the consent of the Treasury. Every now and again, I suspect, he will also find the need for advice from the pension section of the Department for Work and Pensions. Be that as it may, we now know that there will be one person and one department in overall control of the situation and I am very pleased to hear it. I beg leave to withdraw the amendment.
Amendment 40A withdrawn.
40B: Clause 16, page 8, line 17, at end insert—
“( ) No order may be made under subsection (1) until—
(a) after the day specified in an order under section 60 for the commencement of the repeal (by Schedule 10) of sections 65 and 66 of the Postal Services Act 2000 (c. 26) (restrictions on issue or disposal of shares in the original holding company etc.); and(b) Part 3 has come into effect.”
This amendment would ensure that Part 2 of the Bill—concerning the taking over of the assets and liabilities of the RMPP, to a little of which the Secretary of State has just responded—could not happen without the reorganisation, part-privatisation and establishment of new regulatory reform that Hooper specifically tied together in this review. I think, from discussions earlier today with the Secretary of State, that I have already had that confirmation.
As my noble friend Lord Hunt said at Second Reading, we on these Benches accept the Hooper review in principle. Given the appalling size of the RMPP deficit, we agree that, regrettably, it is necessary to take on some of the liabilities. However, we are fully in agreement with Hooper that this rescue is contingent on putting the Royal Mail on a secure footing for the future to prevent the need for any more taxpayer money going to subsidise a company that, to say the least, has failed to keep up with the times.
The Government have accepted that recommendation too. Their policy paper laid out clearly that they accept the review “as a package”. It went on to say:
“Tackling pensions on their own would not be a panacea for Royal Mail’s difficulties”.
Is it not a fact, though, that Royal Mail is now reserving some £283 million a year to fill the hole in its pension deficiencies? That means it will have that amount of money available for investment in its activities. The policy paper goes on to say:
“Indeed, it would be irresponsible for the Government to tackle the pensions alone without the policies in place to ensure that Royal Mail can transform quickly to compete in a fast-changing market”.
I could not agree more.
The Secretary of State elaborated further on that point at Second Reading. He expressed his view that,
“it is inconceivable that the public will accept such a ‘bail-out’ without the Government taking steps to ensure that the company has a transformed future”.—[Official Report, 10/3/09; col. 1067.]
We agree with him, and we certainly agree with Sir Richard, that the Government must do the job properly. It is therefore deeply worrying that the Secretary of State has not seen fit to put that commitment in the Bill.
We have already discussed today several areas of the Bill that could be used for very different purposes from those that Ministers on the Benches opposite say that they intend them for. On the whole they have given reasonable explanations for why the words in the Bill are required. I will study carefully the ones that I am initially suspicious of. The Committee has also heard the serious opposition from many of those on the Government’s Back Benches to Part 1 of the Bill, as opposed to the much more friendly reception they have given to the general principle behind Part 2. I do not want to be thought unduly cynical, but some reassurance from the Government that they will not give in over the coming months and drop the more unpopular part while pushing ahead with Part 2 would be very welcome. I am not sure that I have had that assurance in quite so many words; if the Secretary of State would like to give it to me, we can dispose of this matter immediately. I beg to move.
I could not resist the temptation to comment on the view of the noble Lord, Lord Skelmersdale, about making transformed Post Office business part of the deal. This is a good opportunity to dispel some myths about what goes on at Royal Mail. Until recent years, nothing could be done by management without political interference and direction. The whole question of the deficit has come about as a result of the 12 to 13-year pensions holiday, which the Government endorsed. The first of those years was estimated to have cost Royal Mail, in those days, £100 million. If you are looking at losses like that over a decade, you realise how the pension fund got into this difficult position.
When the noble Lord says that this should be part of a deal for modernisation, I am not sure that he is aware of the strenuous efforts that are being made at this moment to introduce the machines that I mentioned earlier, the enhanced optical character recognition machines and the walk-sequencing machines. The latter will transform post offices so that people can go in and pick up a bundle that has been pre-sorted and is ready to go out because the walk sequencing is working to a plan. I will talk about those machines again later, because I still do not believe that they are in this country—although I have to accept the Secretary of State’s comment at Second Reading that they are in wraps. We will come to that at the appropriate time.
Strenuous efforts are being made to modernise the Post Office. The agreement over the introduction of a change in working methods is now two years old. The workers in the industry received a cash bonus for the agreement they made, and they are honouring it. I am informed that as recently as yesterday 98 per cent of the delivery offices are working under, or have made agreements for, the new plan. It is not my job to defend the Post Office management—I have spent most of my life opposing them—and, as I have said before, I am not here as a sycophantic supporter of the Royal Mail board, but it has to be said that political interference on tariffs, service provision and the cuts in services that have been mentioned today have all been properly addressed.
The excuse that is being used to privatise the Post Office is based on the false premise that our people—I say “our people” because I am a retired postman—are not working as they should. They have honoured their part of the agreement. The management are faced with a big problem over the pension deficit, but that is not a problem of modernisation; the profit that the company is now making, together with the relief from the pensions deficit, could in fact fund the future modernisation that is required. I am talking not just about those two machines but about delivery aids, trolleys—things that were never heard of in my time. There is a willingness on the part of people in the industry to work with management.
This is not the first time I have said this and I will probably say it again: we do not require people from outside to come in and add to the 50,000 jobs that have already been lost. The Post Office and its unions can work together if given the right to do so, and I know for a fact that the union I was once a proud leader of—deputy leader; I should get that right—is up and ready to face the future. When anyone talks about “a transformed company for the future”, please do not run away with the idea that these people are not trying to put their backs into trying to save a wonderful Post Office for the people of this country and provide the service that they need.
I welcome my noble friend’s remarks. He talked about political interference and the pensions holiday; he could also have talked about the money that was taken out by the Treasury prior to that— £2.41 billion from 1988 to 1999. He is right to refer to that.
He is also right to put on the record again, as I tried to do earlier, that the Post Office is modernising, although it is accused of not doing so. It has spent the £1.2 billion that he has referred to, £600 million of it on machines that are already in. Some of the orders for other machines have to be placed early, and it is now awaiting delivery of those. So modernisation is going on.
My noble friend referred to the 50,000 workers who have been made redundant. The Post Office does not need this. The Bill means that we take the pension deficit and the company coming in takes the profit. That is nonsense, and I am glad that he has reiterated that. It is right that we put on record as often as we can what the Post Office has done already and how unnecessary this private investment, or part-privatisation, is.
The Government have made it clear that they accept Richard Hooper’s review’s recommendations as a package in the way that they were originally proposed. I say in response to earlier comments that the reason that we have accepted Mr Hooper’s review and recommendations so promptly is that rarely has such a well researched, analysed and argued report been presented to government. Its competence and compelling case left little room for argument. That is why we are not going to select one recommendation to the exclusion of another. All three principal recommendations, on partnership, pensions and regulation, are required to be implemented if the challenges facing Royal Mail are to be successfully addressed and the universal postal service secured.
It is important for the Royal Mail’s workforce to understand this because it is in danger of being misled by voices in this debate which say that the Government will have to bail out the pension deficit in all circumstances and that it need not be linked to the other recommendations in the Hooper report. That is not the case. I have already highlighted the extremely unattractive scenario in which a pension bail-out was not accompanied by properly managed modernisation and reform. Quite simply in this case, the state clearance powers of the European Commission could be used brutally to require accompaniment of the bail-out by a far reaching, enforced restructuring of the company rather than one readily volunteered by us.
This state aid dimension apart, tackling pensions on their own would not be a panacea for Royal Mail’s difficulties; indeed, it would be irresponsible for the Government to ask the taxpayer to tackle the pensions issue without giving the taxpayer confidence that a plan was in place to ensure that Royal Mail could quickly transform to compete in a fast changing market. In other words, we need both to secure the future of the pension fund and ensure that the company’s finances are not simply eaten away in the future because it has failed to modernise and automate, a challenge which other European postal services have taken on and in which they have succeeded.
I turn to the detail of the amendment. The proposed linkage with the repeal of the provisions in the Postal Services Act 2000 fails adequately to reflect the linkage in that package that the Government believe is essential. The repeal of those measures is an important enabling measure, but it does not in itself achieve the link to the partnership agreement that the Government believe is fundamental to the modernisation of Royal Mail and a precondition for the pension proposals and their implementation.
Similar issues arise in relation to the proposed linkage to Part 3 coming into effect. Although Ofcom will assume its new responsibilities as soon as possible after Royal Assent, there are other measures in Part 3 related to the abolition of Postcomm where accounting and other legal requirements mean that implementation may take a little longer. It would be both artificial and counterproductive to establish a link in legislation between the implementation in full of Part 3 and the implementation of the measures in respect of pensions. It would increase the uncertainty for all parties, not least the scheme members, and introduce delay at a time when the Government must press ahead with the whole package of measures as soon as possible.
Following Hooper’s recommendations, the Government are clear that if the challenges facing Royal Mail and the postal services sector are to be addressed successfully, all the measures in the Bill need to be implemented as a package. I understand the motivation behind the amendment and am sympathetic towards its intention of ensuring that the proposals are treated as a coherent package, but it does not achieve it in a practical manner.
In the light of what I have said in explaining the effect of the amendment, and the Government’s overall intentions in terms of the implementation of their proposals on pensions, I trust that the noble Lord, Lord Skelmersdale, will feel able to withdraw the amendment in this form.
I listened carefully to the Secretary of State. He described the Hooper report as well researched. If you look at how it has researched the cost of the final mile, which is the expensive part of delivery, you might find it wanting. A number of people who are far superior to me in intelligence and their academic ability to analyse things find that the Hooper review is not as solid as some people would pretend. I know why the Government snapped it up: they wanted that embracing comment, which we have just heard, about putting all the things together.
The Secretary of State made a sly remark about a pensions bail-out giving the wrong impression—it might have been meant for me; if I am wrong, I am sorry. In the final analysis, Post Office pensioners are, or were, employed by the Crown. The reason that the long holiday to which my noble friend Lord Hoyle referred took place is clear. Besides being a trustee of the pension fund, I was the negotiating officer for pensions. When it was announced that the 6 per cent paid by the staff would continue but that the management would put nothing into the scheme at first, you could live with it for a year or so. I took the matter to the legal profession and asked how right their action was. The reason that the holiday was enjoyed by the management and, in turn, the Government was that the trustee explicitly said that as the fund—thereby, the Government—had responsibility for deficiencies, it had the right to deal with surpluses. It was game, set and match to the lawyers; I folded up my tent and went home. I could not do anything about it; it was there in black and white.
We are told about modernisation. Would somebody in government say what they are talking about? A fortnight ago, staff and management had two days of very constructive talks. They have agreement on the things that need to be done. There are slippages in a couple of areas which are being addressed. But when someone says “modernisation”, would they please say what they are talking about? Everything that postmen used to do—primary sorting and regional sorting throughout the British Isles and the foreign section—has gone. Postcodes took away that skill of sorting and working out where mail should be directed to. We in the unions have co-operated with the postal-coding of this country. It is another wonderful victory for Britain: we perfected it and got no money for it when other people copied it—the same could be said of Giro and optical character recognition. But that is all in the past, which I have been told off before for living in.
If the Government have got their sums right as they bail out banks and building societies, they expect the tide eventually to turn and the value of the scheme to go up accordingly. It is based on the current values of equity and shares. If they are right, more money is likely to come in, because the pension fund deficit is being addressed with the amounts of money that I have mentioned previously.
It has been said that European postal administrations have done this, that and the other. There was a conference last Saturday in Amsterdam. The Dutch model, crowed about by some people, was condemned by the Germans, the Danes, the French and the Belgians. People are having second thoughts about the way in which the Netherlands postal authority—
My noble friend is of course right. The noble Lord, Lord Sainsbury, stood there telling me that we had to do it, and in haste, because we wanted to be ahead of the game, that we had to be trend-setters for European postal services. He said it more than once—and he said that I had nothing to worry about and that they were doing what the European directive said. I wish somebody had asked the French when they were going to start to liberalise their service, because they have not even thought about it yet. If they have thought about it, they have got rid of the idea, because they know it would cost them.
I know that I am a sensitive person, but before people tell me how good these postal services are in Europe they should think about how much they charge for their service, how much they have had invested in them and how much their Governments have supported them. They should think about the service levels and compare that with the appalling service that we give our customers today. How many Members in this House this evening got their mail before they left home? How many people got their mail even before lunchtime? They probably were on their way in and do not know what time the postman or postwoman called. We give a pretty poor service, and it is all under the name of modernisation. You come in and pick up a bundle of mail and go round the streets. The idea is that, instead of having a postman with a full-time job doing delivery and other duties, the workforce is made casual and part-time so they are like the Washington postmen, who go round with their funny hats on and deliver all day. They call them letter carriers, not postmen. That is what is behind this.
It is about time that people started speaking not, as old John Wayne used to say, with forked tongue, but directly. I will never come to this Chamber and say anything that I do not passionately believe in. If everyone in our Government is in favour of this, and united, as I was told, by the Secretary of State, I think that somebody, somewhere, may have a forked tongue.
Well, what on earth do I say to that? However, the noble Lord, Lord Clarke, in his original explosion, spoke immediately after I had spoken and before the Secretary of State had spoken. His secondary explosion, which was, funnily enough, rather more muted, came after the Secretary of State had spoken. So let us get our very modern history—so modern that it is not even taught in secondary schools in this country—right.
Of course, I was delighted to hear yet again a different formulation of exactly the same theme from the Secretary of State. I go along with that 100 per cent, unlike the noble Lord, Lord Clarke. Perhaps after the noble Lord’s words I should revise my declaration of interest, which I said was not pertinent to this part of the Bill. We have had so many semi-Second Reading speeches this afternoon that I think it probably is pertinent. I only add that when I was engaged I was in this country and my wife was in Zambia; that was in 1971, which I am sure the noble Lord, Lord Clarke, will remember very well indeed, because there was a national postal strike and it made it very difficult indeed to woo my future wife. However, despite the Post Office I did succeed. I hope that the Secretary of State will take some comfort from that.
The fact is that there are many things in the post office—relations between the management past and present and the unions past and present—that are not conducted as speedily or efficiently as they are in other organisations. The noble Lord talked about the sequencing machines; he admitted that it took two years for them to be deployed in 98 per cent of sorting offices.
Walk-sequencing machines are not yet installed. The modernisation agreement that I referred to embraced other things, such as staff revisions and reduction of certain services. I have mentioned them several times, although I am told that they are in wraps in this country. On the website of the German company SOLYSTIC—it is in German, but it is easily translated—it is clear they have orders from others. Even if we were to wave a magic wand now, it could not be done, because those machines are not available. They have been trialled and they work very well, but they were not part of the first two years of the modernisation programme, which was designed to last for four years.
It is not for me to perform the role of the Secretary of State in this debate, so I shall cease forthwith. However, I will offer an olive branch to the noble Lord, Lord Clarke, if between now and the next stage of the Bill he will supply me with, for example, the union briefs which he is clearly using and which I have not yet seen. I shall read them with great interest. As I said, ever since 1981, before I got involved with my mail-order firm, I have been interested in the Post Office. I have spoken for the Government on the Post Office in years gone by, and I shall retain my interest in it and its efficiency for a very long time—probably for as long as the mail continues to arrive. Having said that, of course I beg leave to withdraw the amendment.
Amendment 40B withdrawn.
40C: Clause 16, page 8, line 20, at end insert—
“( ) On making an order under subsection (2) and prior to the transfer of qualifying accrued rights, the Secretary of State must—
(a) inform all members affected that they are to be transferred to a new statutory scheme,(b) inform all active and deferred members of their accrued rights in the new statutory scheme,(c) inform all pensioner members of the details of payments from the new scheme and when they will commence,(d) inform all members of the details of administration of the new scheme.”
Amendment 40C stands in my name and that of my noble friends Lord Clarke and Lord Hoyle. I was persuaded to put down this amendment because I was contacted by Unite, which is the federation looking after occupational pensioners. It wrote to me to say that pensioners in the Royal Mail were extremely concerned about their future. It believed, quite rightly, that any changes in the Royal Mail pension scheme should not reduce the pension rights of current members of the scheme.
The union called Unite therefore believed that there is a need for clarification about what the Government’s proposed changes to the scheme mean for the future rights of members. It points out that the Bill proposes to establish a new statutory scheme run on a pay-as-you-go basis and backed by UK taxpayers, and believes that this represents a significant increase in pension security for the Royal Mail members. However, it tells me that, despite extensive press coverage, many Royal Mail pension plan members are ignorant of the changes potentially causing unnecessary upset and worry, particularly for older pensioners. It has therefore produced this amendment, which is designed to ensure that the people concerned are adequately informed. It wants to ensure that the Secretary of State has to inform all active, deferred and pensioner members of changes. It wants the members affected, if they are to be transferred, to be told about it. It wants all active and deferred members to be told of their accrued rights under the scheme. It wants pensioner members to be informed of details of payments for the new scheme and when they will commence. Quite obviously, it wants members to be informed of the details of the administration of the scheme. It wants to know how the thing works and to ensure that people know all about it so that their worries about the future can be laid to rest.
I was very interested in the debate on the previous set of amendments—all very complicated. I made a note of what my noble friend Lord McKenzie said because I was so impressed. He said that member protection is at the core of the Government’s proposals in the Bill. I was glad to hear it because I am sure that that is the view of many of my noble friends on the Front Bench. They are concerned to ensure that members’ rights are fully protected. However, protecting members’ rights also involves ensuring that they are kept adequately informed. The members must know what those rights are and what is being done to ensure that they are always protected. That is what this amendment is all about. It is highly moderate. It does not break any new ground as far as I can see. It is the kind of information that one would expect providers of pensions to make available to the people whom they are endeavouring to cover. I therefore hope that my noble friend the Minister will be able to accept it or something very similar. I beg to move.
I support the amendment. It is moderate and I hope that the Minister will accept it. All that we are asking for in relation to this is information being given to members to make them aware. My noble friend Lady Turner was right to say that we have heard from Unite and other pension schemes that a lot of the members are still, despite what is being done, ignorant of the changes taking place. We are asking for information to be given to them about what is happening. That would remove a lot of the doubts and fears that many of them have.
It is right that pension schemes are changing, because people’s security for the future is at stake. Anything that can be done to allay those fears and make people aware of what is taking place and whether it will affect them will be a great help. It will put many of their minds at rest in relation to the pension scheme itself. I should be very pleased if my noble friend would accept the amendment.
I see that the noble Lord, Lord Skelmersdale, appears to be retreating, but I should explain to him that we are not talking from a brief from our union Unite—we are speaking about a brief from the pensions organisation. My noble friend is a very reasonable person and I thank him for the explanation that he has given already. I hope that he will accept this modest amendment, which would help a lot of pensioners and would make them aware of what is actually happening to their pensions.
I have a short comment in support of the amendment. I was surprised when the noble Baroness, Lady Turner, said that she had received a letter, and I cannot resist making the same point that I made at Second Reading. It is noticeable that most of the lobbying that we have received for this debate came by e-mail, which demonstrates exactly the problem that the Royal Mail now has. The competition which causes many of the problems that produced this Bill comes not from other postal operators but from the e-mail structure. The huge lobbying that we have received from Unite came by e-mail, which demonstrates the problem. The point made by the noble Baroness and the noble Lord, Lord Hoyle, seems eminently sensible. I will certainly support the amendment and I fail to see why the Government cannot agree it.
I thank noble Lords for tabling this amendment. Like the noble Lord, Lord Razzall, who voiced his support, I agree with the principles behind it. We on these Benches have repeatedly raised our concerns during these debates that the Government’s chosen method of proceeding with their policy seems almost designed to cause as much confusion and uncertainty as possible.
It is no wonder that Royal Mail pension plan pensioners, deferred or otherwise, are concerned about what the Bill means to their pension entitlements. The Government have attempted to tread the impossible line between trying on the one hand to reassure their Back-Benchers that part-privatisation is not, in fact, part-privatisation, while trying to reassure taxpayers on the other that there will be no guarantee of Royal Mail pension plan liabilities without part-privatisation. The whole matter is made worse by the fact that the Bill does not provide much reassurance either. As a later group of our amendments highlights, the safeguard that pensioners will not suffer material adverse effect is buried deep in technical jargon and surrounded by exceptions and omissions. The Government are given enormous powers to do almost anything with remarkably little scrutiny or transparency.
We therefore support the amendment as far as it goes. In fact, I would prefer that it went considerably further to cover the necessary transparency and scrutiny that this part of the Bill requires, but this would go some way to ensuring that those most affected are at least kept informed. We will save our encouragement for more stringent safeguards until we come to later amendments.
I thank my noble friend Lady Turner for introducing this amendment and I thank all noble Lords who spoke on it. It is an important area. I also had the opportunity of meeting Unite—the pensions organisation, not the trade union, although I would be happy to meet representatives of the union as well.
Amendment 40C requires that prior to the transfer of qualifying accrued rights, the Secretary of State must take certain steps to inform members of the new pension scheme about the details. In responding, I hope I do not disappoint my noble friends if I start by saying that the Government agree with the spirit of what is intended behind this amendment. It is quite appropriate that members should be made fully aware of what changes are being made and the effect that they will have on them. I would like to take the opportunity today to give some reassurance on the record.
First, I would like to make it very clear that pensioners currently receiving payments will not see any reduction in their pensions. Their pension entitlement will be the same but will be paid from a different source—the new public scheme. Secondly, for members who have already left service, their accrued rights will be the same as when they left service. At the point they start to draw their pensions they will receive the same amount as they would have under the RMPP. Again, it will be paid from a different source—the new public service scheme. Finally, for active members still employed by Royal Mail, there will be no reduction in the rights that they have already built up. What will be different is that rights accrued up to the cut-off date, 16 December 2008, will become payable from the new public scheme as though the member had left service on the cut-off date, with the remainder being paid by the RMPP. In other words, the total amount of pension payable to a member for service built up prior to the cut-off date will be the same, but it will simply be received from two different sources.
We are absolutely committed to working with the RMPP trustees to ensure that the administrative implications are as smooth as possible—an area of concern raised by Unite—with the minimum disruption for members. Work is already under way with the trustees to discuss this and to develop a proper transition plan in the lead-up to implementation.
The first condition of the amendment would be that the Secretary of State must inform all members that they will be transferred to the new scheme. Before the Government can transfer anyone they must make the order to do so with the detail of what the transfer will entail. Furthermore, under Clause 24, the Government are obliged to consult the RMPP trustees before any order is made. We will discuss this in more detail under Clause 24, but I can reassure Members of the Committee that, as part of this consultation with the trustees, the Government are committed to ensuring that proper communication is undertaken with members leading up to implementation. It is not, however, appropriate to make it a requirement on the Secretary of State. The RMPP trustees already have in place regular and effective communication with scheme members, and we are discussing what they intend to do going forward. I will certainly convey the thoughts of my noble friends on concerns that they have experienced in talking to members of the scheme. So, while the spirit of this subsection is quite appropriate, it is not sensible to put a requirement on the Secretary of State for something that may well result in duplication.
Secondly, the amendment would require the Secretary of State to inform members of their accrued rights and entitlements before the transfer occurs. As I have said, members’ pension entitlements accrued up to the cut-off date are not changing under the proposals. All benefits accrued until the transfer date will remain exactly the same. We will, however, discuss with the trustees what their intentions are with regard to informing members about the transfer and its effects. Again, however, to require this in legislation may actually result in duplication.
Finally, the amendment requires the Secretary of State to inform all members about the administrative consequences. This is clearly important. As I have said, we are working closely with the trustees to develop a detailed transition plan which will include discussion on the most appropriate communication to scheme members. However, I do not accept that this should be a requirement on the Secretary of State before the qualifying accrued rights have been transferred. If members are aware of the changes through communication from the trustees, it would be more sensible for the new scheme administrators to inform members of the detailed administrative mechanisms at the appropriate time, rather than the Secretary of State being required to do so prior to the transfer.
There is a further important reason why I do not think these amendments are strictly necessary. The Occupational Pension Scheme (Disclosure of Information) Regulations 1996, to which my noble friend Lady Turner referred, impose disclosure obligations on the trustees or administrators of an occupational pension scheme. They apply to other public service pension schemes and we expect that they would also apply to the new scheme being set up here. This would require a copy of the documentation establishing the scheme to be available to members on request, which in this case could likely be met by virtue of the details being set out in the secondary legislation. The regulations also require that basic information about the scheme—including, for example, what benefits the scheme provides—be given to all members either before a member joins or, if that is not practical, within two months of the person becoming a member of the scheme.
In conclusion, I very much agree with Members of the Committee that communication with members is critical and, for this reason, the Government have already started engaging with trustees to discuss what is appropriate in these circumstances. However, as I have explained, the amendments are unnecessary and, indeed, could well restrict flexibility and create duplication. On this basis, which I hope has been reassuring to Members of the Committee, I hope that my noble friend will not press her amendment.
Is the Minister really agreeing with the noble Lord, Lord Hoyle, that one of the things wrong with the amendment is that it is far too modest? It is aimed at a particular point in time: before an order is made. As I understand him, the Minister is saying that there should be a continuing duty to ensure that members and former members are kept informed—not just as a one-off, as the amendment says—and that that obligation should be performed under the scheme that he has in mind for exactly the reasons in the paper that I have also received from Unite: a lot of people out there are not currently aware of their rights. A continuing policy of information would be first-class. If the Government undertake to do that, I can see no reason why the amendment would be necessary at all.
The key issue is whether the requirement should be imposed on the Secretary of State, or whether that is a role for the trustees or the administrators of the scheme. The channel we are currently proceeding through is to engage with trustees, who obviously already have lines of communication with members of the scheme, deferred pensioners and active members. On whether—
It is partly a question of where the statutory responsibility lies. As I was explaining, it would not be helpful to impose that on the Secretary of State. They key point is that, in practice, if there is full engagement, which I believe we have, there will be encouragement of the trustees through various means and at various points in time to communicate with those affected. I think that we are in agreement that it is important that those affected by these proposals understand it and can be reassured. That is what they should take from these proposals: it is a significant potential benefit.
I thank my noble friend for that full response, and Members of the Committee who have participated and supported the amendment tabled on behalf of pensioners. I am glad to learn that, as the Minister says, the spirit of the amendment is fully accepted by the Government, and welcome all his assurances on that. I also agree with the noble Lord, Lord Neill, that the amendment is too modest. We should take that on board when we study what has been said in Hansard. It was quite a lot to take in and I would like to study it; I am sure that my noble friends would as well. In the mean time, however, I beg leave to withdraw the amendment.
Amendment 40C withdrawn.
Amendment 41 had been withdrawn from the Marshalled List.
42: Clause 16, page 8, line 21, leave out subsection (3)
My Amendments 42, 45A and 47 in this group probe the Government's intentions in Clause 16 a little further. Subsection (3) contains several powers that I am sure the Minister will protest are perfectly benign and useful, but which could certainly be used to make significant changes to the new pension scheme in the future.
Paragraph (a) will apparently, according to the Government's memorandum to the DPRRC, be used for standard uprating of pension rights in line with the RPI, as the Civil Service and teachers’ pension schemes are. That is, of course, unexceptional. What is more concerning is that the Government have decided not to specify this use in the Bill. Uprating state pension rights in line with earnings rather than with inflation was a significant policy shift and new commitments on what measure to use in uprating various benefits and pensions have been specified in many different pieces of legislation. Does not the Minister think that it would be reassuring to pensioners to have the basis of any uprating specified in the Bill? It would not only give them certainty but add welcome specificity to a widely drawn power.
I am afraid that paragraph (b) is totally beyond my comprehension. I do not understand at all what it is for. A close reading of the Explanatory Notes and the memorandum seems to suggest that by considering a deferred pensioner as an active pensioner, it would be possible in certain cases to pay him more than would otherwise be the case. I do not understand why paragraph (b) would be needed in addition to paragraph (a) if that was all that this provision was required to do. I hope the Minister can explain it further. Paragraph (c) is similarly difficult and is not made any clearer by the reference in the memorandum to a piece of legislation which was repealed a long, long time ago.
My next amendment probes subsection (4). Why have the Government not ensured that a new public scheme will be treated as an occupational pension scheme? Why is the matter being left uncertain once again? The new scheme has not unreasonably been compared with other schemes funded by the taxpayer—teachers and civil servants come to mind—but the legislation governing those is laid out following a set form in previous legislation. If the Minister wants to set up this scheme in such a way, why not say so here?
Finally, on subsection (5), the Minister seems again to be saying in paragraph (a) that he will do something but then ensuring in paragraph (b) that he does not actually have to do it. The memorandum makes it clear that this subsection is to cover the contracted-out element of the Royal Mail pension scheme. Because of the unusual nature of the scheme, it needs to be brought specifically under Part 3 of the Pension Schemes Act 1993. Certain tweaks are known about, but instead of giving us a little more legislative certainty, we are to give the Minister the power to establish a scheme about which very little, or almost nothing, is known.
The noble Lord, Lord Clarke, has tabled some very specific amendments in the following group, setting out an alternative way forward for handling the transferred RMPP liabilities. Without wishing to anticipate that debate, will the Minister, in answering my questions, give the Committee rather more detail about the scheme that he envisages and explain why so little detail has been given? I beg to move.
I shall try to help the noble Lord, Lord Skelmersdale, to understand the detail of what is proposed here. The intention of Clause 16(3) is to make clear the powers of the Secretary of State in making orders to establish the new public sector scheme and for its operation. It enables the new scheme to include: provision for the increase of benefits under the new scheme, as would be required to match the indexation of benefits currently provided for under the RMPP, and the revaluation of deferred benefits. The noble Lord will understand that salary increases in excess of indexation will fall to be the responsibility of the RMPP, even if they refer to past accrued service. The provisions also include flexibility in the treatment of members who have deferred entitlements in the government-backed scheme but are still employed by Royal Mail, as might be required if a member sought to take early retirement on grounds of ill-health. That is why the clause enables a potentially different treatment between active and deferred members. They also include provision for payment of transfer values, as would be required for members who wish to transfer out their accrued benefits to another pension scheme.
These provisions for the new scheme are important to ensure that the new scheme can provide benefits which compare with members’ entitlements under the existing Royal Mail pension plan and therefore meet the intention of ensuring that members with benefits in the new scheme are no worse off. These provisions will be reflected in the rules of the new scheme, which will be set out in secondary legislation.
We believe that this clause is necessary to ensure that the Government can meet their obligations under Clause 19(2) to ensure that members are no worse off in relation to their pension provision. The deletion of these powers would leave the Government without a firm legal basis to provide such benefits. I hope that that has clarified what Clause 16(3) is meant to achieve.
On Amendment 45A, the effect of Clause 16(4) is to make the scheme capable of being treated as an occupational pension scheme for the purposes of the relevant legislation. These purposes will be set out in secondary legislation. As the noble Lord recognised, such treatment would put the new scheme in an analogous position to other public service schemes, which are occupational pension schemes. For pay-as-you-go schemes, some of the requirements that apply to other occupational schemes, such as those relating to investment, would not be relevant. But there are others, such as those relating to the provision of information to members and dispute-resolution procedures, which will be relevant, and where the Government expect them to be applied by order to the new public service scheme created under Clause 16. I am sure that noble Lords will agree that these safeguards under general pensions legislation are important for members. That is why we have that formulation for Clause 16(4). One has to identify which bits of those provisions are relevant and which are not. Clearly, those relating to investment are not relevant because this is an unfunded scheme.
On Amendment 47, subsection (5) provides for the designation of the new public scheme as a salary-related contracted-out scheme. The Royal Mail pension plan is currently contracted out from the state second pension. But because the new scheme is not established by an employer for its employees, it would not normally be issued with a contracting-out certificate by HMRC. If the new scheme was not contracted out, the effect would be to restrict the transfer of contracted-out benefits between the RMPP and the new scheme. It would also prevent transfers between the new scheme and other contracted-out schemes, as would be required if a member of the new scheme wished to transfer their accrued benefits to another scheme. The treatment of the new scheme as a contracted-out scheme therefore allows for a seamless transfer of total accrued rights, including contracted-out rights, from the RMPP to the new scheme.
The noble Lord specifically asked why we did not include indexation in the Bill. The indexation of benefits will reflect provisions in the RMPP rules and needs to be specified, together with other rules in the new scheme, in secondary legislation. In undertaking that, we will consult with the trustees. In the light of this explanation regarding the effect of these measures, I hope that the noble Lord, Lord Skelmersdale, is satisfied and will withdraw the amendment.
I am very grateful to the Minister for that extremely helpful explanation. Indexation is in part governed by law, is it not? Did we not debate a pensions order only the other day in Grand Committee on exactly that basis? Is the Minister suggesting that the Secretary of State, in consultation with the trustees, will exercise his undoubted power to go over and above the indexation if he wants? I suspect that it is extremely unlikely.
The important point here is what has to be provided in respect of accrued rights in the new scheme. That will effectively be done by treating people as “deferreds” on 16 December 2008 and taking account of their salaries at that date and the accrued service to that date while recognising that, going forward, that will be uprated by inflation. As for whether the overall scheme should deal with increases in pensions above that rate, that would be a matter for the existing scheme. It would be a judgment that the trustees and the employer of the existing scheme would have to make. That is not being dealt with by this provision. This is dealing with the accrued rights, the consequences for “deferreds” and future pensions. The new scheme will protect the salary link only to the extent of inflation. Anything above that would be for the existing scheme and would be a matter to be determined by the trustees and the employer in the normal course of events.
I think that I understand that. However, at vesting day, for want of a better expression, there will be both deferred members and existing members whose pension payment is already being made. I am therefore slightly confused by the Minister’s reference solely to treating everybody as deferred pensioners. However, I shall look at his words very carefully.
I am sorry. I hope that the noble Lord will give me the chance to explain. Certainly for existing pensioners, their rights have already accrued and are set out in their entitlements. As I said, those will simply become payable from the new scheme rather than from the existing scheme. I referred to those in current employment who have accrued rights and who will likely gain future rights as well by virtue of their continuing employment. I am sorry if I did not make that clear.
Clearly, I misunderstood. We will shortly have an amendment about the recipient when the pensions of the current deferred members come to be paid, all coming on the same cheque from a source somewhere or other. We will debate that in due course. For the moment, I beg leave to withdraw the amendment.
Amendment 42 withdrawn.
43: Clause 16, page 8, line 26, leave out “and”
The three amendments in this group are obviously linked, and lead to the final one, which is to add something to the end of line 27. I shall skirt round the fact that the first amendment simply leaves out “and” and the second amendment inserts “and”. The main amendment is to insert proposed new paragraph (d), which I thought would have been dealt with previously when we discussed additional voluntary contributions. In fact, I was surprised when it did not appear in the group with Amendment 39.
The amendment seeks to,
“include provision for the payment of additional voluntary contributions by members in pensionable service under the RMPP for the purpose of acquiring additional periods of pensionable service”.
This does not require me to rehearse all that I said when we discussed AVCs. However, I make the point again that AVCs, properly explained and properly marketed—if that is the right word—can be of great benefit to people who might end their working life with a not overly generous pension scheme. Even under the new public scheme, the benefits and structure will probably be the same. It is a long time since we had the Principal Civil Service Pension Scheme as a non-contributory scheme for post office workers, but here we are. We have another chance to put in something about additional voluntary contributions. I beg to move.
I support my noble friend, perhaps for a reason that he has not mentioned. It seems to me that this would be a very good provision in relation to people who have what we might call a chequered work pattern. That may very well apply in the case of many women who take time out of work to undertake caring and other family responsibilities.
It is true that when we discussed the state pension some time ago, as my noble friend Lord McKenzie will recall, we introduced a rather similar amendment as far as women and the state pension were concerned. There was great support for the amendment, which was to enable women to pay extra to purchase pensions for the period when they had not been in the workforce. This would have the same effect. Therefore, for the reasons indicated by my noble friend and for the situations in regard to people who will have a chequered work pattern and will not have a continuous working life, the amendment would enable people to purchase extra years, so to speak, and to build up their pension so that it was an adequate amount when they came to take retirement. For those reasons, I support the amendment.
I thank my noble friends for moving and speaking to the amendment. I think that it was originally grouped with Amendment 39, which we discussed earlier. It is a pity that it was degrouped, because at least if they were together there would have been some good news in our response to my noble friend; maybe that will presage what I am about to say. However, I agree with the thrust of the comments that have been made about the opportunity for people to contribute to AVCs and therefore enhance their pension provision.
As we discussed in relation to Amendment 39, which was also proposed by my noble friend Lord Clarke, members of the RMPP have been able to make additional voluntary contributions to the RMPP, which will provide them with a top-up to the pension that they will receive on retirement, including through the purchase of additional years of service. The Government’s intention is that accrued rights in respect of AVCs related to the purchase of added years accrued up to the qualifying time can be transferred to the Government. We are in discussions with the trustees concerning the practical arrangements for effecting such a transfer.
I understand that particular concerns have been raised in relation to members who, as at the qualifying time of 16 December 2008, were still making contributions in respect of an existing AVC contract for the purchase of added years. I assure noble Lords that, for members in that position, their contracts in respect of AVCs are not changed by the Government’s proposals. I think that there was a concern that if they were broken and people had to contract again, given that they were older when they did that, the terms would be less favourable. In other words, they will be able to continue contributions under their existing contracts on the same basis after the qualifying time as they did immediately before. All that is changing is that rights that they had accrued under that contract prior to the qualifying time will be transferred to the Government together with their qualifying accrued rights in respect of their core scheme benefits. The rights that they accrue under the contract after the qualifying time will remain with the RMPP, as at present. I hope that this clarification is helpful in explaining why Amendments 43 to 45 are not required.
More generally, the amendments would provide all members of the new government scheme with the opportunity to accrue additional rights under that scheme, in addition to the qualifying accrued rights transferred from the RMPP. The Government cannot support this outcome. The new government scheme will, exclusively, contain historic liabilities incurred before the qualifying time. To safeguard the interests of taxpayers, while also providing certainty to scheme members, there must be a clear cut-off between the liabilities in the new public service scheme and those in the RMPP. Because the public service scheme will have no members building up further service, it will not include provisions normally associated with the accrual of new rights in the scheme, either through normal service or through additional voluntary contributions.
Including the provision in respect of additional voluntary contributions proposed by the amendment would add to the complexity of the administration of the scheme, and therefore the costs to taxpayers, duplicating the existing provisions in the RMPP—which the Government are not proposing to change—potentially creating confusion for scheme members and potentially adding to the costs and risks carried by taxpayers in the long term. I stress that the fear was that if people’s accrued rights in respect of AVCs transferred to the Government they would have to start a new contract to continue building rights, and that would be a more expensive option for them. My advice is that that is not necessary and that if they have contracts they can continue with them. Part in respect of accrued rights will go to the government scheme and part will remain with the RMPP. I do not think that there is anything proposed in relation to the RMPP, although that is a matter for trustees and the sponsoring employer going forward, which would prevent people contracting anew in that scheme for AVCs going forward. I hope that assurance will enable my noble friend to withdraw his amendment.
My noble friend is right that it was not as good news as on the previous amendment. I was rejoicing in the fact that for once I had agreement from the Secretary of State, but that seems now to have got a little muddy. I know that it was not intentional, and I have already paid tribute to the expertise of my noble friend Lord McKenzie and to his grasp of these matters. I will need to look at what has been said, together with what was said earlier about additional voluntary contributions. I will probably come back with something more succinct and perhaps more acceptable to the Government.
I am very happy to meet to talk through the specifics of this, because I think that what my noble friend wants to achieve effectively can be achieved under the arrangements that are proposed. Maybe we need to have a get-together to go through the detail over a cup of tea—
How could anyone resist such an invitation? When my noble friend talks about meeting to discuss things, it gives me a chance to say something. On the previous amendment, a dear friend opposite, the noble Lord, Lord Skelmersdale, said something about the brief that I received from the union. Other than getting some advice on some of the technical stuff about pensions, I do not get a brief; I wish I did. I wish that I could sit here and readily put my hands on briefs that somebody had prepared. I would like it on the record that I am working mostly on my own, but that some good friends have helped me with pensions technicalities.
I will think carefully about sitting down for tea. If it was with the other fellow, I would probably say I would bring a long spoon, but that would be cheeky. For the moment, I beg leave to withdraw the amendment.
Amendment 43 withdrawn
Amendments 44 to 45A not moved.
46: Clause 16, page 8, line 28, at beginning insert “Subject to subsections (7A) to (9),”
I have tabled Amendments 46, 49 and 71. I prepared a paper at length on Sunday that referred to Amendment 50, but that comes later: it seems to have jumped from the earlier group.
Amendment 46 suggests that the subsection should start with,
“Subject to subsections (7A) to (9)”.
Amendment 49 suggests the replacing of subsection (7) with subsection (7A). It is necessary to spell these things out, because it is nice to get them on the record. I know that they will appear because of the system, but I am determined to get them out now. Proposed new subsection (7A) states:
“If an order is made under section 20(1)(c), the fund established shall be established under trust and vested in a trustee for the new public sector scheme; and the scheme and trustee shall comply with the following sections of the Pensions Act 1955 (c. 26)—
(a) section 34 (power of investment and delegation),
(b) section 35 (investment principles)
(c) section 36 (choosing investments)
(d) section 36A (restriction on borrowing by trustees)
(e) section 39 (exercise of powers by member trustees)
(f) section 41 (provision of documents to members)
(g) section 47 (appointment of professional advisers)
(h) section 49 (other responsibilities of trustees, employers etc), and
(i) section 50 (requirement for dispute resolution arrangements).
(8) For the purposes of the provisions referred to in subsection (7A), the Secretary of State shall be deemed to be the employer.
(9) If an order is made under section 20(1)(a) or (b)—
(a) the new public scheme shall be administered by a company limited by guarantee,
(b) at least one third of the directors of the company shall be nominated by qualifying members of the RMPP in accordance with requirements prescribed in the order, and
(c) the company shall have power to administer the scheme, to appoint advisers and to delegate functions exercisable by it in accordance with requirements prescribed in the order”.
This amendment is comprehensive. By specifying the sections of the Pensions Act, it avoids any doubt and ensures that the Bill is in line with the requirements of the 1995 Act.
Amendment 71 would delete paragraph (a). I am trying to be careful about saying things that might hurt people.
Members with qualifying accrued rights that are transferred to the new public scheme will have no direct relationship with the Secretary of State: their rights will be enforceable against the new public scheme. The new public scheme might be funded or unfunded. There is nothing in the Bill to say that it could not be wound up. Amendment 50 makes explicit what seems to be assumed. Amendment 71 seeks to delete paragraph (a). I hope that the Minister has understood that: I took advice on the amendment and I have read out what I was given. I beg to move.
The amendment is indeed comprehensive. I congratulate the noble Lord, Lord Clarke, on neatly doing what Ministers claimed could not be done. He has given a clear picture of the scheme, linked it to existing legislation and clarified where the two do not match. The question is whether the new scheme should be operated in this way. Clearly, it ring-fences the assets and runs as a company, with the deficit made up from government funding as needed. This would be an unlimited drip-feeding exercise. It is the sort of amendment that we sometimes get from the Liberal Democrat Benches. It would be very expensive as the Government would have to extend the guarantee and would get no assets from the existing pension fund. That is why, as I said earlier, I do not go along with a trust scheme as proposed by the noble Lord.
These amendments give rise to a number of issues concerning the detail of the Government’s proposals. The first issues that I will clarify are the envisaged arrangements for the transfer of assets under Clause 20, and in particular subsection (1) of that clause, which contains provisions for where the assets will be transferred. The Government intend any gilts and cash transferred to go to the Treasury and the Consolidated Fund respectively. The other assets will go to a fund established by the Secretary of State and will be sold over a number of years, with proceeds going to the Consolidated Fund.
I emphasise that the fund established under Clause 20 is solely for the purpose of holding assets transferred from the RMPP prior to their disposal. In respect of the qualifying accrued rights transferred to the Government, the pensions due to members will be paid by the new public service scheme and funded from taxation. The new scheme will not operate on a funded basis.
I will touch on issues related to a funded model. It has been suggested that it would be better for the new scheme to operate on a funded basis, rather than for the Government to assume direct liability for the payment of benefits. We have examined this carefully. Our analysis, set out in the impact assessment, demonstrates that the funded model would involve investment risks that could add billions of pounds to the final cost to the taxpayer. For example, if investment returns were 1 per cent lower than forecast by the trustees at the last full valuation of the scheme, an additional £6 billion would be added to size of the funding deficit falling to the Government—a doubling of the deficit’s size. The funded option would also be the most expensive to run, not least in terms of investment management costs, where the Government’s proposed approach would in the long term result in significant savings when compared to the £30 million currently paid by the scheme each year.
The general question of investment risk is not just an issue for the Government. Noble Lords will be aware that the issue of the appropriate level of investment risk is also a matter of debate for company-sponsored defined-benefit schemes. For them, the question is one for trustees and sponsoring employers. In respect of the RMPP liabilities, it is entirely legitimate for the Government to take the view that they should not bear investment risk. This conclusion underpins other public service schemes; that is why it applies here.
I turn to the detail of the amendments. As I explained, the intention is that any gilts and cash transferred would go to the Treasury and the Consolidated Fund respectively, with other assets going to a fund established by the Secretary of State and to be sold over a number of years. The option under Clause 20(1)(a) for a transfer of the assets to the Secretary of State would allow for the transfer of any cash to the Secretary of State, who would then pay it into the Consolidated Fund. It is also a contingency measure, should the fund envisaged under Clause 20(1)(c) not have been established by the time the transfer of assets is required to take place. The question of the destination of the assets transferred under Clause 20 is therefore not a matter of policy choice between the options under subsection (1) of that clause, but a question of the particular characteristics of the assets and the constraints they impose on how the assets can be held.
In practical terms, this means that at least two options under Clause 20(1) will be required. It is not an either/or choice, as implied by the amendment. That would frustrate what I understand to be the purpose of Amendment 49, and make it unworkable. Nevertheless, I should briefly set out the Government’s position on the substantive issues arising from the detailed proposals. The first concerns whether the general requirements under pensions legislation will apply to the new public service scheme. The effect of the provision under subsection (4) of Clause 16 is that the scheme will be capable of being treated as an occupational pension scheme, as we have discussed, for the purposes of the relevant legislation. Such treatment would put the new scheme in an analogous position to other public service schemes, which are occupational pension schemes. For “pay as you go” schemes, clearly certain requirements, such as those relating to investment that would apply to occupational schemes established on a trust-based, funded model, would not be relevant. But other requirements, such as those relating to the provision of information to members and dispute resolution procedures and those where the Government expect them to apply to the new public service scheme created under Clause 16, will be relevant.
The second substantive issue raised by Amendment 49 is the administration of the new scheme. Subsection (7) provides for that to be delegated by the Secretary of State. The Government are in discussion with the trustees on the future administration arrangements for the new scheme and on how these might best be co-ordinated with those of the company-backed scheme with which members are familiar. As the process of consultation with the trustees has not yet been concluded, no final decision has been made on administrative options, but these could include, for example, initially contracting administration of the new scheme directly to the existing RMPP administrators.
In this respect, the Government are well aware of the importance of close co-ordination with the arrangements for the existing scheme and for continuity for scheme members. They are also aware of the importance of a responsible administration of the scheme that is effective in responding to members’ queries. The proposal in Amendment 49 to impose a particular administrative structure would, in the Government’s view, be unhelpful in achieving these outcomes. It would raise additional questions regarding co-ordination with the existing RMPP administration. By forcing a transition away from the existing structure, the amendment would increase risks to members.
I hope that I have dealt with the points raised by the amendments. I should stress that the fund envisaged by Clause 20 is not a funded pension scheme; it is simply a mechanism by which the assets that would be transferred to the Government under these arrangements are held, managed and disposed of in due course, and the proceeds will go into the Consolidated Fund. In light of my explanation on the issues raised by the amendments, I hope that my noble friend will consider withdrawing his amendment.
I thank my noble friend for that clear explanation, but the amendment is a direct attempt to get a trust-based scheme. That is fairly clear and there is no duplicity. As I tried to say in a garbled way at the beginning, there are some benefits to having such a scheme. It would impose an obligation on the scheme to appoint member-nominated trustees. It would observe the same investment obligations of any trust-based scheme. Member trustees should be able to act as trustees, even if they have a potential conflict of interest. I do not wish to fog this issue; this is a deliberate attempt to try to get the new scheme to be trust-based. It is as simple as that. Obviously, I have listened carefully and I shall read every word that has been said.
This is a very nice atmosphere in which to be discussing these matters. Unanimity and friendship are breaking out all over. Seriously, I am indebted to the Minister for that last remark. I shall probably take advice on this issue and, no doubt, return to it at a later stage. In the mean time, I beg leave to withdraw the amendment.
Amendment 46 withdrawn.
Amendment 47 not moved.
48: Clause 16, page 8, line 36, at end insert “to 16 December 2008 or later”
This amendment is grouped with Amendments 60 and 62, which are all about retrospectivity. The amendments are clear enough; they seek to limit the retrospective nature of these powers to the date that the Government have indicated that they hope will become the basis for any transfer. Of course, the actual date has not been set in stone. We established that in earlier debates.
The memorandum to the DPRRC also makes it clear that the Government envisage using retrospective power for a few different purposes, such as if future legislation requires some retrospective changes. I am sure that quite a good case could be made for having some retrospective powers in these clauses. However, this clause, because it is based on precedent legislation, could be extremely specific. Once again, a perfectly unexceptional power has been given the widest possible scope. Will the Minister not consider the value of putting a few more safeguards on these powers, or, at the very least, explain why they have such a wide effect? I beg to move.
These amendments relate to the provision for orders made under Clauses 16, 17, and 18 to have retrospective effect. The provision for retrospectivity in relation to orders made under those clauses is an important protection for scheme members. It is also necessary to ensure effective co-ordination of the proposals in respect of pensions with the Government’s other proposals in respect of partnership. Perhaps I may deal with the latter point first.
The Government have made it clear that their proposals on pensions will be implemented only if a partnership agreement is concluded. It is also the case that a partnership agreement can be concluded only if the historic pension liabilities are addressed through the measures set out in the Bill. Both are further dependent on state aid clearance being obtained from the European Commission, the date of which is uncertain. In practical terms, these dependencies mean that implementation of the measures under the Bill will require a high degree of co-ordination. A change to any one factor could affect the others. The Bill must provide for these dependencies to be managed adequately; otherwise its whole purpose risks being defeated.
It is also the case that any prospective partner will require certainty as to the date at which the pensions measures will come into force so that there is no doubt about the level of risk that is being assumed. In addition, members of the RMPP will not welcome uncertainty as to how they will be affected, and the point at which their qualifying accrued rights will formally transfer to the new government-backed scheme.
Ensuring the required co-ordination between pensions, partnership and state aid clearance, while also providing certainty for members and any prospective partner, presents a practical challenge because of a number of factors that are outside the Government’s control. In particular, an extended timescale for state aid approval, or additional time required for consultation with the trustees on the detailed regulations, might delay the date at which relevant statutory instruments can be laid. Furthermore, in respect of a number of the proposed measures—including, for example, the establishment of the new scheme—the period required for implementation could potentially be lengthy.
For these reasons, it is essential to provide flexibility to allow for orders made under Clauses 16, 17, and 18 to have retrospective effect. I think that we are agreed on that. In the absence of flexibility, there would be an increased risk that factors outside the Government’s control in relation to pensions could leave RMPP members in a position of uncertainty and act as an obstacle to partnership, delaying the vital modernisation of Royal Mail that is urgently required to protect the universal postal service.
I turn to the amendments. Limiting in the Bill the date at which provisions can have effect to a date later than 16 December 2008 would have no positive practical effect and, indeed, could adversely affect the position of members of the new government scheme going forward. The Government have made it clear that they propose that 16 December should be the key cut-off point for the qualifying accrued rights that should be transferred from the RMPP to the new government scheme. In accordance with this policy, most of the provisions made under these clauses could not take effect before that date, because the qualifying accrued rights would not have fully accrued at that point. Going forward, however, it is common for pension schemes, including the RMPP, to have a power enabling retrospective amendment of scheme rules. This is required in order to comply with legislation or court rulings that also have retrospective effect. Placing an artificial limit on the scope of retrospective implementation of orders made under Clause 16 could prevent the new public service scheme complying with such changes and thereby adversely affect the position of members.
In the light of what I have said in explaining the purpose and importance of the orders under Clauses 16, 17, and 18 being able to have retrospective effect, I hope that the noble Lord, Lord Skelmersdale, will not press his amendment.
Amendment 48 withdrawn.
Amendment 49 not moved.
House resumed. Committee to begin again not before 8.31 pm.