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Volume 773: debated on Monday 6 June 2016


My Lords, with your Lordships’ permission, I shall now repeat a Statement made in another place by my right honourable friend the Minister of State for Small Business, Industry and Enterprise, Anna Soubry. The Statement is as follows:

“The House will remember that on 25 April I made a Statement to the House after BHS had entered administration. The administrators Duff and Phelps tried to sell BHS as a going concern, with a view to retaining all stores and as many jobs as possible. I understand that they had talks with a number of interested parties.

As reported last week, the administrators have now concluded that, although offers were received, none was sufficient to enable a deal to be completed, and they have had to take the decision to wind the business down. This will, of course, be devastating news for the workers at BHS and their families, and also for those businesses which supply BHS. This followed the sad news received by Austin Reed workers on 29 May that only a partial sale of that business was possible, with the remainder being wound down over the course of June.

A number of questions have been raised about how BHS found itself in this situation. The proper authorities—the administrators, the Insolvency Service and the Pensions Regulator—are already looking into these matters. I am clear that any wrongdoing will be taken very seriously and I will return to this later in the Statement.

Our focus now is to support all those affected and get people back into work as quickly as possible. While we await the administrators’ plans for winding down the business, I can inform the House that Jobcentre Plus has already been in contact with the administrators and is preparing a range of support to assist staff. Jobcentre Plus is on standby to go into BHS stores and directly advise affected staff on their options. Already, teams are centrally tracking vacancies in the retail sector and will make local BHS branches aware of any vacancies in their area.

Jobcentre Plus also stands ready to deploy its rapid response service in acknowledgment of the scale of the job losses. This is a service with a strong record of helping people at a very distressing time. It can offer workers support, including help with job searches, CV writing and interview skills; help to identify transferable skills and skills gaps, linked to the local labour market; training to update skills, learn new ones and gain industry-recognised certification that will improve employability; and help to overcome barriers to attending training, securing a job or self-employment, such as childcare costs, tools, work clothes and travel costs.

I can also inform the House that the DWP has written to major retailers asking them to consider what opportunities they may be able to offer the workers and local areas affected as the situation becomes clearer this week. The DWP will also be monitoring the impact of redundancies locally on a continuing basis and will provide additional targeted support to any areas particularly affected. I can assure the House we will do everything in our power to support workers and their families through this difficult time, not just for BHS, but also for those made redundant from Austin Reed.

I now turn to some of the wider issues. On 3 May, the Business Secretary instructed the Insolvency Service to begin its investigation into the extent to which the conduct of the directors of BHS led to the insolvency of BHS and/or caused detriment to its creditors. While the Insolvency Service cannot give a running commentary on its investigations, I know that the work is well under way, and I am clear that if evidence is uncovered that indicates that any of the directors’ conduct fell below that to be expected, action will be taken. This can include applying to the courts to disqualify the relevant parties from being a company director for a period of two to 15 years. If there are any indications of any criminal wrongdoing relating to BHS, we will ensure that the relevant investigatory body is informed.

Members will also be aware of considerable concern about the BHS pension schemes. The BHS schemes are in a Pension Protection Fund assessment period. The test is whether or not the schemes’ funds are sufficient to allow each scheme to buy annuities which will pay members at least Pension Protection Fund-level benefits. If it cannot, the scheme will transfer to the PPF and compensation will be paid. The PPF aims to resolve these issues as quickly as possible. PPF compensation is generally 100% of the pension in payment for anyone over the scheme’s normal pension age at the date of the insolvency and, for everyone else, 90% of the accrued pension, subject to a maximum cap.

The Pensions Regulator is also currently undertaking an investigation into the BHS pensions scheme to determine whether it would be appropriate to use its anti-avoidance powers. This means that if the regulator believes that an employer is deliberately attempting to avoid their pension obligations—leaving the Pension Protection Fund to pick up its pension liabilities—the regulator may intervene and seek redress from the employer. There is a clear process that must be followed and this can sometimes take a considerable amount of time. When it becomes appropriate to do so, the regulator will consider issuing a report of its activities in this case. We will closely examine its findings.

As I said on 25 April, retail is a vital sector for the UK economy and we are committed to it, which is why I will be meeting key retailers in the coming weeks, along with ministerial colleagues from other government departments. While the news of BHS’s closure is a huge blow, the retail sector as a whole is resilient. There are now 3.1 million retail jobs in the UK, up by 83,000 since 2010, and almost back to record pre-recession levels.

High streets remain a crucial part of our local and regional economies, creating jobs, nurturing small businesses and injecting billions of pounds into our economy. A recent report by the Association of Town Centre Managers found that town centres contribute nearly £600 billion to the economy each year. We will continue to support the British high street. That is why we reduced corporation tax and announced the biggest ever cut in business rates in England, worth £6.7 billion over the next five years.

I know that little of this will be of comfort to BHS workers facing an uncertain future. But I can assure them and the House that this Government will do everything in their power to get every affected worker back in a job as soon as we possibly can. I commend this statement to the House”.

That concludes the Statement.

My Lords, I draw attention to my registered interests, in particular my involvement with a distressed investment and restructuring vehicle.

I thank the Minister for her Statement on the collapse of the BHS chain in its entirety. We share the particular concern for staff and their families, and for the small businesses affected by this collapse. It is always difficult when a decision is made that the existing owners can no longer operate such a business, which must then change ownership. Huge difficulties are faced when trying to sell a loss-making business, especially—as in this case—when the business has a negative value. In these circumstances, it is not uncommon for its equity value to be nominal, the transactions supported by cash left in the business and by vendor loans. In that regard, we welcome the Insolvency Service investigation, once sold, into what transpired in the year or so of trading under Retail Acquisitions. We do not plan to continue a running commentary on this but it is a very important investigation.

I will focus on three issues and seek the Minister’s observations on these matters, which have a much wider significance. Certainly, with the collapse of Austin Reed and the problems with Tata Steel, this illustrates that there are problems with our current system of dealing with pensions, particularly defined pension schemes; in dealing with the administration and insolvency process, and the attempt to rescue as much of the business as possible; and, finally, in dealing with what can be done to transition 11,000 workers back into some sort of work and economic security.

On pensions, the current arrangements are really designed for a different era. In the post-financial crisis world, and as a result of quantitative easing, the return on gilts and low interest rates make the job of pension trustees to ensure a viable tracking strategy very difficult. Many of the schemes now in deficit had performed reasonably but are now very distressed. This has affected even our largest and most profitable businesses. In the case of BT, there are £47 billion of IAS 19 liabilities and a £6 billion deficit. This is a company with a £42 billion market cap. These conditions exist in many companies and in local authority pensions, too.

On BHS, the reports and statements confirm that extensive discussions have been going on for many years. We know that these discussions were going on in many different places. The Pensions Regulator said in its annual funding statement, released on 13 May, that the average company paid 10 times as much in dividends as it did in deficit recovery contributions. It went on to say that the increase in deficits could be in the region of 20% to 35%, depending on the scheme’s valuation date and hedging strategy. With this in mind and its own findings indicating that there is a wider problem than just that seen with BHS, what action is the Pensions Regulator taking to avoid another such crisis? Is the number of companies needing such discussions increasing? If so, are Ministers drawing up plans to deal with these problems?

Secondly, we have great concerns about the process of administration. Naturally, it is a great tragedy that the whole business unfortunately had to fold. It is certainly unfortunate that BHS was unable to seek supplier support and, therefore, the prospect of being able to sell the business became ever more difficult as the working capital requirement made it untenable for any bidder. In regard to this, we are also concerned that it seemed that the business was to be sold only in its entirety. Further activity and restructuring were not undertaken to save some of the business during the administration process.

For us, many of these issues are those present in a “creditor in possession” model versus a “debtor in possession” model. The Minister knows that we have a keen interest in these matters. While we do not propose to replace the “creditor in possession” model, this example certainly suggests that further consideration should be given to a “debtor in possession” model, one that would allow the company to operate and ensure that there were such regulations and laws so that suppliers were able to continue to support a business during restructuring and administration. Indeed, we proposed a model to the Minister some time ago. Certainly, it would not have been able to save such a business in these circumstances—it is very difficult to talk about a particular example—but it would certainly have given the administrators further time to look at restructuring the business and perhaps saving some or a portion of the jobs. We hope that the Minister will consider this.

Also in relation to the administration—we have also raised this with the Minister—recently there has been great concern about the position of creditors, certainly the seniority of creditors. Is it not time that we reconsidered the generous arrangements that allow bank loans always to be repaid first, and whereby taxpayer liabilities in the shape of VAT, national insurance and PAYE are always relegated to second position? We should also consider redundancy costs. Does the Minister consider that they should be paid first, in line with other secured creditors?

We are concerned that the Government should do what they can to support the workers in finding new employment. We welcome the fact that their attention extends to the workers at Austin Reed as well. We hope that the preparations they have made will be activated more quickly than appears to be the case from the Statement. We would be grateful to the Minister if she would give us more of an idea of when the intervention will occur. What more can be done actively—as opposed to plans in preparation—to allow jobcentres to contact the company more broadly? Will the Government consider appointing somebody to “hub” the activity on behalf of the department and all the different agencies of government? In relation to the Minister’s observations about the rapid response service being on standby, on what basis will this be activated? Does she consider that such a test has already been met and that it would be worth while activating the service immediately?

I, too, thank the Minister for repeating the Statement. Our thoughts are with the staff and their families. We welcome the support that has been given and the Government’s ongoing investigations. The Labour spokesperson has just commented on the position of creditors, which has irked me for some time. However, the Government’s complacency and short-term approach is very concerning. Eight thousand jobs have been lost and there are 3,000 in the supply chain. However, the Statement says that,

“the retail sector as a whole is resilient”.

What does the Minister make of the British Retail Consortium’s forecast that 900,000 retail jobs will be lost by 2025? We need a retail strategy, just as we need a manufacturing strategy. Why do the Government wait for disaster to strike? We have seen it three times now, with British steel, Austin Reed and British Home Stores. The people affected need to be retrained to do different jobs. They need lifelong learning and continuous professional development as part of a working life they enjoy and in which they can take pride. If we had a retail strategy, we could look at making the high street a destination of choice—somewhere that people want to visit as well as being able to order goods online. However, at the end of the day, if you lose your job to a computer, you had better learn how to programme one.

I agree with the noble Lord, Lord Mendelsohn, that this is a very important matter. As he said, we face the potential loss of 11,000 jobs, some of which are in the supply chain.

In answer to the noble Baroness, Lady Burt of Solihull, the retail sector, of which I used to be a member, does have a certain resilience. The Statement rightly referred to the way it has come back from the recession. With Woolworths—and I was a retailer then, not a government Minister—we found that other retailers were quick to buy the properties and adapt them to new uses. We found some of our best people from ex-Woolworths staff. I hope that the Jobcentre Plus process, which I will come on to describe, will be able to build on things in a similar way. Everything is difficult but the high street is changing, as are consumers. In our towns and cities, we need to think about that and about what other sources of employment and customer pleasure can come through. That will, of course, include things such as restaurants and catering as well as retail, and online stores as well as conventional shops.

Our approach involves the regulatory framework, and I will start with pensions. The pensions legislation was strengthened by the previous Labour Government in 2005 with anti-avoidance provisions. There are provisions for dawn raids and the regulator has strong powers. Trustees have quite strong powers, too, but I think they are always a little worried about precipitating insolvency if they move ahead too fast. As the noble Lord, Lord Mendelsohn, said, this is not an easy area, but the Insolvency Service is undertaking an investigation and I will come back to that. The Pensions Regulator is engaged and we look forward to its report. I am sure we will be looking to make sure that trustees and regulators have the right powers in future. In the new world of lower interest rates, which the noble Lord rightly described, things are obviously much more difficult.

We are worried about this case, but it is different from steel, which was a whole sector facing unparalleled pressure. I take the point that retail is facing pressure, but I do not think it is on quite the same scale and it is not so concentrated in particular communities. It is tough for those whose jobs in town centres are lost when BHS closes but, as I said, I am hoping that, with the help of Jobcentre Plus, we can ensure that people either get jobs using their experience and training or get the opportunity to retrain. Jobcentre Plus is on standby and in contact with the administrator to plan the support. The administrator will, of course, have to make funds available for redundancy. The rapid response service will be activated and has been in contact with BIS since the administration started. I am pleased that we have had such a timely Statement and are able to update noble Lords.

My Lords, I declare an interest as an adviser to the Joint Committee of the other place. I welcome the Statement and the early involvement of the Insolvency Service, triggered by the Business Secretary. I hope that we will dig far and dig deep. There are clearly issues here of potential fraudulent preference, creditor preference and misappropriation of corporate assets, under the direction of the directors of the company. These things must be investigated properly, openly and transparently. HMRC must also look into the ownership structure and how it managed to convince itself that these businesses are owned by Lady Green, in tax-free Monte Carlo, but run by her husband from the taxable—but receiving little income—United Kingdom.

I have two questions for the Minister. First, why is the Pensions Regulator requiring seven months to investigate this most outrageous situation? Any sensible person would be able to get to the bottom of this in a couple of months. This regulator has already shown itself to be asleep at the wheel. Ministers must encourage it to give a high priority to this. My second question is: how much is this going to cost the taxpayer?

The swift answer to the first question is that the Pensions Regulator is independent. We have set up the regulator in an independent way. But of course I share the view that there are questions to be answered here. It is interesting and useful that two committees of the other house are looking into this matter. It is difficult to make an estimate of the cost to the taxpayer but, obviously, a lot of the funds for things such as redundancy can come out of the existing resource. We are hoping to find jobs for those who unfortunately have lost their jobs, and that the administrator will be able to sell on some of the sites, which are often prime high street sites and will be able to be adjusted for other uses.

My Lords, I endorse entirely the remarks of the noble Lord, Lord Myners. Leaving aside the very important general issues involved in this case, which were outlined well by my noble friend the Minister and the noble Lord, Lord Mendelsohn, there are particular aspects of the BHS affair and of its governance over a number of years which—if I may use a technical term—stink. In my day there would have been a Board of Trade inquiry. I realise that that procedure no longer exists—maybe for good reason—but will my noble friend assure the House that the investigation by the Insolvency Service and any other investigation that is required will range as widely and thoroughly as a Board of Trade inquiry would have done in the old days? That is what we need.

I thank my noble friend. I am not familiar with the earlier legislation, which has of course been replaced, but I can say that we have set up, in good time, this Insolvency Service inquiry. We are hoping to get the results from the administrators around the end of July. There are powers to disqualify directors and any evidence of criminal behaviour can be referred to the relevant investigatory authority for investigation and, potentially, prosecution. We have to do the right things that we can do under the existing powers, and we are pushing ahead with that. Then, obviously, we need to reflect on whether or not those powers are the right ones. I should have said earlier that the funds made available for redundancy will come out of the Government budget rather than the administrator’s.

My Lords, I declare my interest as a trustee of the Santander and Telefonica pension schemes. I welcome the Government’s commitment to assisting the workers and their families who have been impacted by the events of BHS and Austin Reed. For them, this is a real and human story. Job loss is always stressful, people are anxious and families are affected, so anything the Government can do to find these people new employment has to be a priority. As we get into the investigation of BHS, several thousand people will be anxiously wanting to know how and when they can get into employment and fund their mortgages, children, homes and everything else.

I am conscious that there are various bodies investigating the circumstances surrounding the collapse of BHS and the implications for its pension scheme. Therefore, I do not want to express an opinion on the role of any player but I will ask the Minister two specific questions. The rules of the DB pension regulatory system were written in the context of the view taken of risk at that time. Regulation can never remove all risk but the economic and commercial circumstances have changed. We live in a post-2008 world where assumptions about growth, interest rates and investment returns are more restrained, and companies frequently change hands or corporate restructurings occur. These can happen quite quickly, so the assessment of an employer covenant backing a given pension fund has to be frequently monitored and reviewed. It cannot be done and simply put on the shelf. I know from personal experience that things can move very quickly, and the circumstances that you find your scheme in can be materially quite different. Will the Government consider reviewing whether the regulator’s powers remain fully fit for purpose and are still sufficient to allow it to address threats to the funding of DB pension schemes?

The BHS events also confirm what I already knew as a trustee: that trustees have little or no powers to intervene in a corporate event, even when they anticipate it will weaken the employer covenant significantly or prejudice the scheme’s funding level. Are the Government considering a review of the sufficiency of trustees’ powers where a corporate event significantly weakens the position of the pension scheme? At the moment there is very little they can do other than report to the regulator.

I am grateful for the noble Baroness’s thoughtful comments. I, too, used to be a pensions trustee and my experience was that you lived in constant fright of doing the wrong thing and that you really did try very hard to be on top of management and to make sure your responsibilities were fulfilled—otherwise the riot act was, rightly, read to you by pension schemes’ legal advisers. You also tried to look ahead, and any suggestion of M&A was always a good opportunity to try to make sure that the pension fund always got topped up. I know that the Pensions Regulator has spent a lot of time trying to train the remaining defined benefit pension schemes to do things well.

We need to see the results of the insolvency and the Pensions Regulator investigation to see where we get to. Obviously, these kinds of arrangements are kept under review. I take the point, also made by the noble Lord, Lord Mendelsohn, that circumstances are a bit different now. Trustees have strong powers, and if you were to look at the whole situation, you would need to look at that as well. These defined benefit schemes are of course, in a way, a good thing, because the employer provides pensions for the workers so that they do not have to have state pensions. These schemes, which have now largely disappeared, can be extremely favourable for those who have them, giving them security, making them loyal to the employer and so on. It is a difficult area and I am in danger of straying into the territory of the Pensions Minister.

My Lords, I agree very much with the noble Lords, Lord Lawson and Lord Myners, when they say that the smell of this case is not good. We do not have the full facts yet, but the smell is very bad indeed. The Statement talks about seeking redress from the employer, but this presumably is a dead end, because the current employer is insolvent, and it is the group that originally owned BHS which should be vulnerable. Can the Minister assure us that the powers exist to seek redress in that direction?

The second point is about the regulator. What in the world enabled the regulator to allow these pensions liabilities to be transferred in this way, on the basis of the facts that we have seen? Who will be responsible for holding it to account and for finding out whether the legislation and the regulator’s powers are adequate to stop this sort of thing happening again?

My understanding is that the pension powers are quite wide-ranging, and there is therefore the possibility of previous owners being called to account and having to provide some sort of compensation. I referred to the changes made in 2005, which provide various avenues. This is probably the first Statement we have had on this subject in this House and I will certainly provide a little more detail in writing on what the provisions are, if that would be helpful to the noble Lord.

My noble friend referred to investigating the pension funds and processes by which the deficit arose, and a number of other noble Lords and noble Baronesses have referred to the fact that the investigatory powers do not seem to be adequate. When the development of pension fund deficits is investigated, I ask my noble friend to concentrate specifically—or that she ask the authorities to do so—on those companies and funds whose closure would mean that no assets were left in this country. It is all very well saying that we will pursue an individual or pursue sums of money but, as the noble Lord, Lord Myners, identified, in a number of cases there are no assets left in this country and, possibly, no individuals to pursue either.

I am not sure that I entirely understand all the subtleties of my noble friend’s remarks. Obviously, Sir Philip Green is a director of a number of active companies in this country at present, mainly in the Arcadia Group. I think that I explained that there is recourse. If it were to come to this—and I am not sure that we should necessarily leap to conclusions—it is possible to take steps against people, including criminal investigations, if those are appropriate. Of course, different member states help each other in relation to people who are located in different domiciles.