Wednesday 23 February 2022
Arrangement of Business
My Lords, I think most Members of the Committee will be bored by this start, but I am obliged to say it. Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022
Considered in Grand Committee
My Lords, I turn first to the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022. These regulations set the national insurance contributions limits and thresholds, as well as the rates of a number of national insurance contributions, for the 2022-23 tax year and make provision for a Treasury grant to be paid into the National Insurance Fund if required.
National insurance contributions, or NICs, are social security contributions, as I am sure all noble Lords will know. They allow people to make contributions when they are in work in order to receive additional contributory benefits when they are not working, for example when they have retired or if they become unemployed. NICs receipts go towards funding these contributory benefits, as well as the NHS. As announced in the Budget, the Government are using the September consumer prices index figure of 3.1% as the basis for setting all national insurance limits and thresholds, and the rates of class 2 and class 3 national insurance contributions, for 2022-23.
I will first outline the specific changes to the class 1 primary threshold and the class 4 lower profits limit. The primary threshold and the lower profits limit indicate the points at which employees and the self-employed start paying class 1 and class 4 NICs, respectively. These thresholds will rise from £9,568 to £9,880 per year. The rates of class 1 and class 4 NICs have already been increased to 13.25% and 10.25%, respectively, through the Health and Social Care Levy Act. Increases to the primary threshold and lower profits limit do not impact on state pension eligibility. This is determined by the lower earnings limit for employees—which will increase in line with the CPI from £6,240 in 2021-22 to £6,396 in 2022-23—and payment of class 2 NICs for the self-employed, which I will come to shortly.
The upper earnings limit, the point at which the main rate of employee NICs drops to 3.25%, is aligned with the higher rate threshold for income tax. It was announced in the Spring Budget 2021 that the income tax higher rate threshold and the UEL will remain frozen at £50,270 until 2025-26. Similarly, the upper profits limit is the point at which the main rate of class 4 NICs drops to 3.25%. This will also remain at £50,270 per year.
As well as class 4 NICs, the self-employed pay class 2 NICs. The rate of class 2 NICs will increase from £3.05 in 2021-22 to £3.15 in 2022-23. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will increase from £6,515 in 2021-22 to £6,725 in 2022-23. Class 3 NICs allow people to voluntarily top up their national insurance record. The rate for class 3 will increase in line with inflation from £15.40 in 2021-22 to £15.85 a week in 2022-23.
The secondary threshold is the point at which employers start paying employer NICs on their employees’ salaries. This threshold will increase from £8,840 in 2021-22 to £9,100 in 2022-23. The threshold at which employers of people under 21 and apprentices under 25 start to pay employer NICs on those employees’ salaries will remain frozen at £50,270 per year to maintain alignment with the upper earnings limit.
The regulations also make provision for a Treasury grant of up to 17% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2022-23. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. The Government Actuary’s Department report laid alongside the re-rating regulations forecast that a Treasury grant will not be required in 2022-23. However, in view of the economic challenges created by the Covid-19 pandemic, the Government consider it prudent to maintain the maximum provision at this stage.
I turn to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022. As noble Lords will know, the Government are committed to delivering a welfare system that is fair for claimants and taxpayers while providing a strong safety net for those who need it most. These regulations will ensure that tax credits, child benefit and the guardian’s allowance increase in line with the consumer prices index, which had inflation at 3.1% in the year to September 2021.
In summary, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions and provision for a Treasury grant, and increases the rates of tax credits and guardian’s allowance in line with prices. I hope noble Lords will join me in supporting these regulations. I beg to move.
My Lords, I thank the Minister for her clear introduction of the measures in these regulations. I intend to speak solely to the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022. What really interests me about these regulations is that they come with the report from the Government Actuary which we should have had when we discussed the Government’s Bill to drop the triple lock. It would have been so much more informative to have those discussions with the figures before us, rather than discussing them in the abstract. This might be a minority taste, but I am particularly looking forward to later in the year when we will have the quinquennial review of the National Insurance Fund.
What disappoints me is that, in accordance with the regulations, these reports are laid before the House, which provides only limited scrutiny. I could ask questions now, but, with all due respect to the Minister, it would be unfair to ask her to answer detailed questions. It would be useful in some way to provide a forum where we could have a more detailed discussion of what is in the Government Actuary’s report. I do not know whether this has been the practice of the House, but speaking for myself, I could enter into a very detailed discussion about the Government Actuary’s report and what it tells us about the financing of the national insurance scheme.
Chart 1.2 on page 8 of the Government Actuary’s report shows how the balance in the fund is going to increase. It is projected to increase year by year over the next six years by amounts varying between £2.1 billion and £10 billion. These are massive sums being paid into the National Insurance Fund. At least it raises the issue of the use of that fund in order to provide benefits to which people have contributed.
According to the draft timetable, we will get the social security uprating order before us on 9 March. Since we now have available the Government Actuary’s report, it would be helpful to have the opportunity to ask more detailed questions about the relationship between the increases in the order and the information presented to us by the Government Actuary.
I will highlight just one aspect, and this is truly a Treasury point rather than a Department of Work and Pensions point. It is a bit odd, because the regulations are really more of a social benefit issue than a Treasury issue. I am not complaining about that, but the oddity is that the Government Actuary’s report reveals to us that, because the upper earnings limit has been frozen to keep it in line with the upper-rate tax threshold, the take of national insurance contributions is actually going to decline at a greater rate because everyone’s earnings are increasing. This is actually a regressive move. The freezing of the upper-earnings threshold for income tax purposes is a progressive move. It makes higher earners pay that little bit more, but the freezing of it for national insurance purposes is actually a regressive move, because it puts proportionately more of the burden of paying those contributions on lower earners.
I am sure that is not a specific government objective, but it is an oddity of the way the system is being operated. It reflects the fact that higher earners do not pay national insurance contributions. Maybe they could pay a bit more in order to support the taxation system. The fact that they stop paying most national insurance contributions at the upper earnings threshold is perhaps something we should bear in mind in the thorough rejigging of the tax system that I would favour.
With those few remarks, I support these regulations.
My Lords, I will start by addressing the social security regulations. Struggling through the alphabet soup that characterises these SIs brought home to me how hard hit so many low-wage people will be by the Government’s additional national insurance contributions levies. With inflation running at 7%—now some are expecting 8%—energy prices up by as much as £700 a year and most wages barely rising, this is not the time to hit low-income people with a 1.25% increase in NICs.
Using NICs rather than income tax to raise government revenue was always cruel because it drags in workers on wages below the income tax threshold and excludes a raft of high-income people. But the SIs reveal further subtle changes which I had not appreciated. The Government have been clear that income tax thresholds will be frozen to drag more low earners into income tax and more modest earners into higher-rate tax. But I—and, I suspect, others—did not anticipate a read-across into national insurance contributions. The upper earnings limit, the upper secondary threshold, the apprentice upper secondary threshold and the upper profits limit are all frozen, if I understand the SIs correctly, instead of increasing with CPI. They will pull more people into higher NICs payments, including many young people and apprentices. I would like to hear from the Minister how many people are impacted by the decision not to increase these thresholds by CPI and how much additional money is being raised by the Treasury as a consequence.
On the other side of the coin, CPI is being used to raise the lower earnings limit above which an earner gains access to certain state benefits; in other words, it will reduce the number of people eligible. What will the impact be on benefit recipients, how many will lose benefits, and how many will get reduced benefits and by how much? Why was there no consultation on issues that, frankly, are so significant? These are presented to us as though they are “routine changes” but they are not routine changes to people’s lives, as the Explanatory Memorandum tries to claim.
We then come to changes in the state pension. Pensioners are now being driven into poverty, certainly fuel poverty. How can the Government justify excluding the earnings component from the triple-lock calculation, and increasing pensions by only 3.1%, particularly with inflation galloping away? As I say, it is now expected to hit something between 7% and 8% over the year. I suppose that if next year inflation continues to be high, the Government will exclude CPI from their calculation, arguing that this year set a precedent for manipulating the formula while paying it lip service.
I notice that the notes suggest that raising the state pension by 8.3% this year, which would happen if it was based on average earnings, would increase the pension base and, over time, compromise the National Insurance Fund. If one is concerned about the health of the fund, why are the Government deliberately depleting it by offering employers NICs at zero rate in freeports? I think I have described this before as a fundamental problem. Freeports attract money laundering and other forms of crime because of their lack of transparency and now there is the possibility of an attractive tax package as a further incentive and, indeed, a depletion of the National Insurance Fund as a consequence, which presumably justifies many of the increases that we have seen in these SIs. Will the Minister finally tell us the cost of that giveaway of national insurance contributions at zero rate in freeports? I have been struggling to find the number; it may well be available, but I have struggled to find it.
My last comment is on the other statutory instrument, the tax credits SI, which raises by CPI the annual rates of working tax credit and child tax credit, and weekly rates of child benefit and guardian’s allowance. Although this meets the formula, today’s experience for people on low incomes is one of very high inflation, especially on the basics of life, including heat and food. Many would say that we are facing a crisis now, but that the economic pressures on families will get far more acute as the year moves on.
I have here a very brief note from the Child Poverty Action Group. It points out that
“benefits are due to increase by 3.1%, just as inflation is predicted to peak at 7.25%.”
I think that may be understated; people are now talking about a higher rate of inflation. The note continues:
“Energy bills are due to increase by 54% in April, and these families are set to spend three times the share of their income on energy, compared to better-off families … The council tax rebate scheme will mitigate around 40% of that cost through spring and summer, leaving families in poverty to cover around £35 in additional energy bill each month.”
I come from a part of London where house prices are extremely high, and many fundamental homes are above band D, but the people living in them are on very low incomes. They, of course, will get none of that council tax rebate benefit. The note goes on to say that
“180,000 families subject to the benefit cap will see no increase in their benefits come April. The cap hasn’t increased since 2016, while the cost of living has increased by around 16% in that time.”
Are the Government prepared to rethink? This is an exceptional year of inflation, so choosing the figure of 3.1% has a great artificiality to it; it would not in most years, but it does in this one. Will they simply restore the weekly £20 uplift in universal credit, which would make a substantial difference to the families who will be hit? Will they reconsider the national insurance contribution increases and shift instead to a money-raising mechanism that looks at income tax and higher earners? Will they unfreeze the tax thresholds, which is a way of increasing income tax without obviously saying that one is going to do it? Frankly, one way to pay for all of this would be a windfall tax on the fossil fuel companies whose profits have soared because of world conditions, not because of their own efforts.
I am not going to oppose this SI, but I hope that the Government will not be complacent and think that the changes have gone through with their consequences unrecognised.
My Lords, I am grateful to the Minister for introducing these two measures. As she outlined, the first instrument increases the primary threshold above which people start to pay national insurance. It also freezes the upper earnings limit to ensure consistency with the equivalent limit for income tax. The lower threshold is being lifted by the level of CPI inflation in September last year; that is, 3.1%. We welcome any help for low-paid workers, given the enormous pressures on household budgets at the current time. The second instrument provides for a 3.1% uplift in the annual rates of working tax credit, child tax credit, child benefit and guardian’s allowance. We support these increases.
Of course, when it comes to inflation, the picture has changed quite significantly since September 2021. CPI is currently running at 5.1% and economists fear it could exceed 7%. We must also consider these changes against the backdrop of the withdrawal of the £20 universal credit uplift. Yes, the Government have amended the taper rate for some claimants, but many others gain very little or nothing at all. Finally, the 1.25% increase in national insurance contributions for 2022-23 and the longer-term introduction of the health and social care levy will be an additional hit to household finances.
The months ahead are likely to be extraordinarily tough for low earners and the unemployed. Contrary to media characterisations, they do not live a life of luxury. They have been making very tough choices in recent times and will face even harder decisions as the cost of living crisis ratchets up. According to the most recent CBI survey of manufacturers, close to four-fifths believe that prices will need to rise in the coming months. Such figures have not been seen since the oil shock of the 1970s.
Campaigner Jack Monroe has recently highlighted the scale of food price inflation as well as the poor availability of value range products in some supermarkets. Her work has led to the Office for National Statistics agreeing to publish a wider variety of cost of living metrics. I hope the Government will ensure that their policies take these new statistics into account.
Millions are living in poverty in this country. The number of children growing up in poverty is already too high, but we are likely to see it skyrocket in the next year. That should shame us all.
I do not say these things to score political points; the subject matter is far too serious for that. I know that the Minister takes these matters very seriously and I hope the same is true for her colleagues in the department. As I said in relation to energy prices yesterday, we have a month until the Chancellor makes his Spring Statement. Given the difficulties that so many face, that occasion needs to offer real support to those who are most in need—not just vague promises of a brighter future. However, on the question before us today, we fully support the safe passage of these regulations.
My Lords, I thank all noble Lords for their contributions to this debate, which was short but thoughtful. The noble Lord, Lord Tunnicliffe, is correct that the matters we are debating today are of real relevance to people’s lives and will be in the coming months as we see inflation far above the target set, which will have an impact on households’ budgets. That is why the Government are putting in place significant support to help them with that—I will turn to that briefly later.
To start with the point from the noble Lord, Lord Davies of Brixton, about the Government Actuary’s Department report and its interesting contents, I may not have all the answers to his detailed questions to hand for this debate, but I will happily write to him if I cannot provide them in this debate. Obviously, we have many different forums in this House where we can discuss those reports and he is welcome to submit Written or Oral Questions or apply for debates so that we can explore those in more detail.
The noble Lord, Lord Davies of Brixton, and the noble Baroness, Lady Kramer, raised the freezing of the upper earnings limit and other limits; we keep those limits aligned. We have touched on the complexity of our system at various points in these debates, but it is important to consider the overall picture of these tax changes. If we consider the impact of NICs and income tax together, the upper earnings limit is aligned to the point at which income tax increases from 20% to 40%. When this is combined with the NICs rates, individuals pay a rate of 32% on earnings below the upper earnings limit and 42% above the upper earnings limit. That is a progressive system to ensure that higher earners pay more.
On the noble Baroness’s point about the health and social care levy, I remember the time when the Lib Dem policy was a penny on national insurance to pay for the NHS. Well, this is 1.25p on national insurance to pay for the NHS. This is the right decision to make. We have supported the NHS through the pandemic, but we have come out of it facing a huge amount of work that needs to be caught up on in terms of elective procedures. We have also made a significant commitment to addressing social care needs in this country. These are significant increases in permanent spending on the NHS and social care, and they need to be funded; a national insurance increase that will turn into the health and social care levy is a progressive way in which to do this.
The noble Baroness may have preferred us to do that through income tax, but also calls for us not to freeze the income tax threshold over the coming years. Again, I contend that that is not something we are doing via a stealth tax. We have been perfectly up-front about some of the really difficult decisions we have had to make on tax to pay for the support we have provided to people during the pandemic. We expect everyone to contribute in a progressive way, which is why we have frozen the thresholds for income tax and other taxes. It is also why we have increased corporation tax so that businesses, which have also received a huge amount of support during the pandemic, make their contribution to repairing our public finances.
As I say, these are difficult decisions that affect households and families. We have tried to take them in a progressive way, and they are being done to pay for the significant support that the Government have been able to provide.
Can the Minister provide me with a number for how much in additional national insurance contributions the Government expect to receive from freezing the threshold that has an impact on apprentices? Below the threshold, their NICs are rated as zero; above the threshold, they pay NICs. Many of them will now be brought into paying NICs because the threshold is frozen. It is particularly interesting to me that the Government have chosen to target that group. The same goes for young people; I would love to have those numbers. I honestly do not think that most apprentices, students or even the businesses that apprentices work with have caught on to what is happening.
I note the noble Baroness’s specific questions. I am afraid that I do not have those figures to hand, but I will happily write to her with them. I take her point about those limits. As I say, it would probably be better to write but I imagine that, if there is an element of keeping parts of the tax system aligned, it is therefore a follow-on from the decisions we made on income tax thresholds passing through. I think it is probably better for me to write with the specific figures and the rationale for those decisions.
The noble Baroness also asked about the increase in the lower earnings limit, meaning that some people may lose eligibility for contributory benefits. Of course, since the introduction of the lower earnings limit, there have been a number of ways in which individuals can receive credits to protect their eligibility for contributory benefits. Those who are in receipt of universal credit or child benefit automatically receive class 3 NICs credits, which count towards their entitlement to the state pension. Only individuals receiving maternity allowance, carers allowance and contribution-based JSA and ESA are entitled to class 1 credits, which make them eligible for contributory benefits including the state pension. As I am sure the noble Baroness knows, individuals who are not in receipt of NICs credits can pay voluntary class 3 NICs to build their entitlement to the state pension; this could be individuals who earn below the lower earnings limits or individuals who have a gap in their NICs record from being unemployed or living abroad.
The noble Baroness also made a point about the changes to the triple lock this year not taking earnings into account. Those were very specific circumstances that we faced with the impact of the pandemic on those earnings figures. We are quite clear that that is an exception to our approach rather than the norm.
Finally, the noble Lord, Lord Tunnicliffe, talked about Jack Monroe’s campaign on the differential impact on inflation, looking at low-income households in particular. She has done excellent work and I am glad the ONS has taken up her suggestions. We will be interested to see the results of that work.
The Government recognise the impact of current energy costs and broader inflation on households. That is why we have taken a significant number of steps to support low-income households, including providing £670 million in 2021-22 for local authorities to support households struggling with their council tax bills; £140 million in 2021-22 for discretionary housing payments; and over £200 million a year, through the spending review 2021, to continue the holiday activities and food programme. We also raised the national living wage in April to ensure the lowest paid continue to receive pay rises, and we continue our ambition to abolish low pay altogether through use of increases to the national living wage. In recent weeks, the Chancellor set out a £9 billion package of support for low-income and middle-income households, with support for everyone to smooth the costs of the particularly high energy bills they are currently facing.
I hope I have addressed all noble Lords points. If there are further points that I have not managed to address specifically, I will write.
Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2022
Considered in Grand Committee
Immigration and Nationality (Fees) (Amendment) Order 2022
Considered in Grand Committee
My Lords, the Immigration and Nationality (Fees) Order 2016 sets out the immigration and nationality functions for which a fee is to be charged and the maximum amount that can be charged in relation to each of those functions. The order under discussion today seeks to make two changes to the 2016 order, specifically amendments to the maximum amount that can be charged for two application types: entry clearance as a visitor for a period of six months or less, more commonly known as a short-term visit visa; and entry clearance or leave to remain as a student.
I make it clear at the outset that the changes being discussed today do not alter the fees actually paid by customers. Specific fee levels are set out in separate legislation, namely the Immigration and Nationality (Fees) Regulations 2018, and these levels are not impacted by the amendment we are debating today. The changes in this amendment will serve to increase the flexibility in relation to fees in the future.
The maximum amount that can be charged for a short-term visit visa will increase by £35 from £95 to £130. This will align with the fee maximum for the published unit cost for this product. The maximum amount for entry clearance or limited leave as a student will be raised by £10 from £480 to £490. The relatively small increase will provide some additional headroom for student fees, particularly those that are close to the current maximum amount.
By way of background, both changes mark the first time the maximum amounts will have increased since 2016. They provide some additional flexibility for these fees in future, allowing the department to take a balanced approach when considering fee changes across visa routes.
Changes currently under consideration include adjustments to simplify the range of fees payable by customers. They include removing specific additional charges and consolidating into one overarching fee. A good example would be removing the biometric enrolment fees which are charged alongside certain applications, with those costs recovered through main application fees instead under a simpler and more transparent approach. I will of course share further details with noble Lords when I am in a position to do so.
Noble Lords will be aware that migration and borders functions are funded largely by immigration and nationality fees as part of the Home Office spending settlement to reduce the burden on the taxpayer. In order to maintain this position, it is critical that any changes are made in a way which is funded by other changes within the system. It is therefore vital that the maximum amounts set out in the fees order allow appropriate choices to be made on individual routes to support a balanced approach overall.
In conclusion, I emphasise again that we are not changing any fee levels through this order today. Any changes to specific fees would be subject to cross-government consultation and further parliamentary clearance and would be implemented through fees regulations, not this fees order. I hope that the Committee will see the need for this order. I beg to move.
My Lords, I thank the Minister for explaining the order. As she said, it increases the maximum fee that can be charged for applications for entry clearance into the UK for short-term visits of up to six months from £95 to £130 and for students from £480 to £490. Those are the maximum amounts that could be charged, but the fee is set under different regulations.
Interestingly, the reason given in the Explanatory Memorandum
“to better reflect the cost of processing applications”
applies only in the case of the visitor visa, not the student visa. Will the Minister tell the Committee the cost of processing both types of visa and how much headroom these new maxima will provide? Is it the case that the cost of the student visa is nowhere near the cost of processing the application, as the Explanatory Memorandum appears to suggest? If the current fee for student leave to remain applications is £475 and for student leave to enter applications is £348, why is it necessary to increase the maximum fee chargeable to £490 now when neither fee is currently charged at the maximum allowed? Can the Minister explain why it is so much expensive for a student to apply to remain in the UK than to apply to enter the UK? Intuitively, once a student’s details have been processed and retained, it would be easier and less costly for the Home Office to extend the visa.
The Explanatory Memorandum states that the consultation on this order took place more than eight years ago, between November and December 2013. Why has more recent consultation not taken place?
The draft impact assessment states that:
“The strategic objective is to attract talent and take back control.”
Can the Minister explain how either of these increased maxima will achieve those objectives? We have asked this question before, and we ask it again.
The impact assessment states that:
“Visa and immigration fees are set … to ensure that the Home Office has appropriate funding to provide effective Border, Immigration and Citizenship (BIC) services … and to move closer towards ‘self-funding’ and reduce the burden on the taxpayer.”
The Minister referred to the reduction of the burden earlier. Can she explain why the Home Office is unique in being required to be self-funding in the broader immigration and citizenship services it provides? Those services benefit every citizen of the UK through effective border and immigration control. Why is the health service not funded by those who use its services? Is the reason not the one set out in paragraph 8 of the impact assessment:
“The main groups affected are those migrants wishing to come to or extend their stay in the UK”?
They are people who cannot vote.
In addition, the impact assessment talks about providing
“additional scope to ensure that the department’s charging structure is flexible enough to support evolving products and services.”
Can the Minister confirm that fees are now being charged at a rate not just to fund existing services but to pay for research, development and provision of new products and services, such as the electronic travel authority?
The impact assessment says the impact of increasing fees on volumes is “highly uncertain”, yet paragraph 46 says:
“The proposed changes will generate direct benefits for the Home Office. Revenues will be higher from those applicants that continue to apply despite higher fees.”
I understand that the increased maximum for a student visa is small, and a small proportion of the overall cost of studying in the UK, but the increase in the maximum for a visitor visa is significant. Only last week I was in Cape Town talking to South Africans about the deterrent effect of the current UK visitor visa fee, even without the potential increase that this order would allow.
The order gives the Home Office the potential to increase the fees for visa applications, impacting on overseas visitors and potentially damaging our tourism and education sectors. At the same time the Home Office, rather than taking back control of our borders, has added 10 more countries to visa-free entry, while retaining visa-free entry from EU and EEA countries. The Government seem determined not to be seen to be giving EU or EEA citizens any advantages post Brexit, but in order to maintain this ideologically driven stance they have thrown open our borders to even more countries. It seems that the Home Secretary would rather be tough with migrants than with the Treasury over the Home Office funding settlement. I look forward to the Minister’s response, either now or subsequently in writing.
My Lords, the noble Lord, Lord Paddick, asked a number of the questions that I was planning to ask. I am aware that there is a wider debate on immigration fees and the Government’s policy of making a profit on certain groups, such as Commonwealth veterans or those paying for optional premium services. That wider debate is being carried out on the Nationality and Borders Bill as we speak.
I am aware that in this SI we are talking about two specific cost increases to the cap. Specifically, I noticed the note in the impact assessment that the optional premium services are
“charged above cost … to meet customer demands and to limit fee increases in other areas.”
Is the Minister able to say how much extra money is made through these optional premium services? By how much does that reduce other costs?
Another point, which was touched on by the noble Lord, Lord Paddick, is about tourism. Does the Minister recognise the importance of supporting the tourism industry? As she will know, there was an interesting Question in the Chamber earlier this month about school parties coming from France. I think she will have picked up the general sense of frustration in the House that school parties from our nearest neighbours are not coming. I understand the point about Covid, but nevertheless I hope she picked up the general sense of frustration in the House at the answers she gave to that Question.
The noble Lord, Lord Paddick, explored another point by asking the Minister to give a wider explanation about the need to provide extra headroom on the fees. As he asked, what is the cost of processing the fees? How much headroom is the Minister seeking in this SI? I understand the reasoning behind it, but what is that headroom and what is the processing cost?
The other point that I wanted to make—to pick up a point also made by the noble Lord, Lord Paddick—was about the general move to self-funding, which is a clearly stated aim by the Government. The noble Lord went on to question why this element within the visa system should be moving to self-funding when other large departments have not had that constraint put on them. I would be interested to hear from the Minister a philosophical defence of that position, given that we benefit from immigrants. That point is acknowledged, so why should the department be moving towards self-funding?
I thank both noble Lords for the points they made. I will first answer the last question on why we should be moving towards self-funding. We have been self-funding since as far back as I remember and it has always been the case that those who use our border and immigration services should contribute towards the cost of running them. It is not something that absolutely everybody in the country avails themselves of, unlike the NHS, which we all pay for through taxes. That is my best guess as to why we charge contributions towards the cost of border and immigration services.
Both noble Lords asked about the costs of the short- term visit visa. The incremental growth between 2015 and 2019 was from £85 to £95, and there have been no increases since 2019. The fee is currently £35 less than the published unit cost, which is £130. The current maximum amount of £95 has not changed since it was set in 2016. The impact assessment for this order suggests that an increase, even to the new maxima, would not have a significant impact on demand: 41,000 fewer applications. Against a baseline of 1.72 million, this represents about a 2.4% reduction in 2022-23, with a net benefit to HMG of £55 million. That is additional revenue minus costs, including the impact on the Exchequer of reductions in inbound tourism. There is little evidence to suggest that previous fee increases have had a notable impact on volumes.
The fee is broadly comparable to those of competitor countries, although the differing benefits offered by these products make direct comparison quite difficult. For example, the Schengen visit visa is cheaper at £67 but is valid for three months, compared with six months for the UK short-term visit visa. The comparable US visa is £117 but is valid for 10 years.
The noble Lord, Lord Ponsonby, asked about the premium service. It is entirely optional and costs between £15 and £48. As I say, it is optional. To answer the question of the noble Lord, Lord Paddick, the fees are set under the charging powers in the Immigration Act 2014. The estimated unit cost of the in-country student main applicant and dependant applications are £252 for a child student and £153 for an overseas applicant. As I say, the cost and the fee are quite different. I explained at the outset that the fees contribute to the cost of the border.
I think the noble Lord, Lord Paddick, asked me a couple of other questions that I did not manage to write down in time, so if there is anything outstanding I will write to him. At this stage, I beg to move.
Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022
Considered in Grand Committee
My Lords, this statutory instrument will implement the authorisation and supervisory regime for collective money purchase schemes. These are commonly known as collective defined contribution, or CDC, pension schemes. These will be the first schemes of their type in the United Kingdom pensions market. A further statutory instrument, the Occupational Pension Schemes (Collective Money Purchase Schemes) (Modifications and Consequential and Miscellaneous Amendments) Regulations 2022, will be laid shortly to implement further consequential amendments required for existing pensions legislation to accommodate CDC schemes. These further regulations will be laid using the negative procedure.
Before I move on to the detail of this instrument, I will remind noble Lords of the purpose of this new type of pension. The United Kingdom pensions market we see today has been built around defined benefit schemes, where the employer underwrites the pension benefits paid to employees, or defined contribution schemes, where individual members bear all the investment and long-term risks and where there are no employer guarantees regarding what the member might receive at retirement.
CDC schemes provide an alternative approach in which member and employer contributions are pooled and invested with a view to delivering benefits at the level to which the scheme aspires. They offer potential benefits in economies of scale and the opportunity for greater investment in higher-returning assets than are usually associated with defined contribution occupational pension schemes. Their collective nature means that investment and longevity risks are shared across the whole membership, and as these schemes provide an income for pensioner members there is no need for members to make complex financial decisions at the point of retirement. The Government believe that this new type of pension provision will be more sustainable for employees and employers alike, and has the potential to offer better outcomes for pension scheme members.
I turn now to the statutory instrument itself. Noble Lords will appreciate that this is a necessarily detailed set of regulations. As a new type of pension scheme, it is critical that employees and employers can have confidence in CDC pension schemes. These regulations set out requirements for the process of applying for authorisation and further detail on the criteria that need to be met by CDC schemes in order for them to be authorised to operate.
The authorisation criteria include that the design of a CDC scheme must be sound and that it has sufficient financial resources to operate and deal with particular issues that may arise. There is also a requirement that only fit and proper persons are involved in particular capacities to do with making key decisions about the scheme. If the Pensions Regulator is not satisfied that all the authorisation criteria are met, it cannot authorise the scheme.
These regulations also set out requirements relating to the Pensions Regulator’s supervisory role. It can withdraw authorisation if it is no longer satisfied that the authorisation criteria are met. The regulations set out further detail on information to be provided to the regulator while the scheme is running, which will help it consider whether it is satisfied that the authorisation criteria for schemes continue to be met.
These regulations also provide more detail about the actions trustees must take if a scheme experiences a “triggering event”. These are certain events, set out in the primary legislation, that can pose a threat to the future of the scheme and the interests of members. If a triggering event occurs, the trustees must take certain actions or continuity options. A triggering event may lead to a scheme being wound up. Schedule 6 provides a detailed framework for winding up a scheme.
These regulations amend the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 to allow for an alternative automatic enrolment quality requirement for CDC schemes. They also amend the Occupational Pension Schemes (Charges and Governance) Regulations 2015 to implement an annual charge cap set at 0.75% of the value of the CDC fund, or an equivalent combination charge. Finally, they amend the chair’s statement requirements in the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to reflect that CDC schemes will not have a default arrangement.
I now wish to acknowledge the considerable interest expressed in both Houses on CDC schemes during the passage of the Pension Schemes Act 2021. Many valuable contributions were made at that time regarding aspects of CDC schemes. A key concern was ensuring that CDC schemes treat their members fairly and, in particular, respect the interests of different generations. To help achieve this, Regulation 17 sets out requirements for CDC scheme rules to ensure that there is no difference in treatment when adjusting benefits between different cohorts or age groups of scheme members, or between members who are active, deferred or receiving a pension.
The importance of good communications to members of these new schemes was debated here and in the other place. Concerns were expressed that members should be given access to enough information to give them confidence to make informed decisions about their savings. Much of this is provided for in the negative regulations which have been published in draft and will be laid shortly. Alongside the regulations we are debating today, these will provide for transparency to allow for scrutiny of how a CDC scheme is operating.
The forthcoming negative regulations package will set out the disclosure requirements for scheme providers, with requirements to provide information relating to target benefits, including the actuarial valuation and a statement informing members and prospective members that benefits may be adjusted based on the actuarial valuation and are not guaranteed. CDC schemes will also be required to publish their scheme rules, including details of benefit design.
Debates on the Act also covered the powers of the Pensions Regulator to specify the requirements that should be met in respect of the financial sustainability of the scheme. Schedule 3 to the regulations sets out in detail the financial sustainability requirements for new 213CDC schemes, including the information required on application for authorisation and what the regulator must take account of in deciding whether it is satisfied that a CDC scheme has sufficient financial resources to meet the costs of establishing and operating the scheme, as well as sufficient resources to deal with the costs, as required by the Act, if a triggering event occurs.
Finally, concerns around the diversity of trustee boards, and what may be done to improve diversity, were raised during the passage of the Act. The Pensions Regulator has published a draft code of practice, which sets out that trustee boards should have policies on diversity and inclusion, including objective selection criteria, and that they should demonstrate that they have the ability to capture and monitor data on diversity and inclusion. I beg to move.
My Lords, I thank the Minister for her presentation, which was clear and to the point. I would like to raise two issues for consideration.
The first is the possibility of widening the scope for CDCs to smaller companies and how the Government view that. The current legislation has been written very much with Royal Mail in mind but if the CDC scheme goes well, others might want to follow suit, including smaller employers. But they would want to join something bigger; for example, a multi-employer or industry-wide CDC scheme or master trust CDC scheme. Will this require new primary legislation to allow multi-employer schemes, or does the Pension Schemes Act give the DWP sufficient power to do this? If it would require new secondary legislation, how long does the Minister think this might take? Does she share the view that multi-employer schemes are key to unlocking CDC? Not everyone has the resources or scale of the Royal Mail to do it for themselves. Please can she explain the process for multi-employer CDCs?
Secondly, can the Minister say something about retirement-only or decumulation CDCs and the position of the DWP on these? One of the discussions over the new pensions freedoms is that individuals take all the risk of managing a DC pot for themselves, including the longevity risk. In a pooled CDC retirement scheme, this is shared with others, so it is an attractive option for people to join at retirement. What is the scope for these and what is the position of the DWP on this? NEST has hinted that it might be prepared to look at it, but it would be helpful to know whether the Government look on these suggestions favourably. I look forward to the Minister’s response.
My Lords, I refer to my registered interests: I am trustee of the Telefonica pension scheme and the People’s Pension master trust. I thank the Minister for her helpful presentation of the regulations, and the DWP staff who kindly took the time to answer my many queries. My contribution is rather long. The only consolation is that it would have been even longer had I not had that discussion with colleagues.
Collective defined contribution schemes are clearly a welcome addition to the pensions landscape, whereby employees can, in effect, share their investment and longevity risks and remove some complexity from individual decision-making. But with only one employer committed to date, there is a risk that the regulations are bespoke for the Royal Mail scheme but may need adapting for others set up subsequently.
There is considerable uncertainty over the fuller impact of the CDC proposal, which is reflected in the detail of the regulations and the draft code. The code contains a list of matters more likely to satisfy the Pensions Regulator, but some lack a qualitative feel or benchmarks or triggers. Take the example of trustee governance. The draft code says that the regulator is
“more likely to be satisfied”
if there is clarity as to
“who decides in a scenario where both the employer and trustee have an interest”,
but it does not express a view on good practice in such scenarios.
A CDC scheme is set up under an irrevocable trust by an employer. In a single or connected employer scheme, sustainability can be influenced by employer behaviour and changes to corporate control and structure. A regulator’s expectations for the governance framework and the extent of trustee discretion are therefore particularly important. I ask the Minister: is it the intention to set out good practice expectations on the governance framework and the extent of trustee discretion?
The approach to authorisation, supervision and continuity reflects that for master trusts, but there are differences. For authorisation, it is the actuary who confirms the soundness of the scheme and issues the viability certificate. There are a lot of requirements for the actuary to meet before issuing a certificate, including a novel role in considering non-actuarial matters. Is this considered a materially extended level of obligation on an actuary when compared with other forms of pension schemes?
On benefits, calculations and adjustments, the regulator expects the trustees to make their legal advice available to the actuary. Can the actuary rely on the trustees’ legal advice when issuing a viability certificate? A certificate requires certain tests to be met: two gateway tests at authorisation and two live running tests after the scheme has begun operating. The first gateway is met if the estimate of the projected average annual increase in the first 10 years of benefits on a central estimate is no less than the estimated projected annual increase in the CPI. But why is that test is set on a central estimate basis with no element of prudence built into achieving the projected increase?
The other tests are intended to limit the amount of cross-subsidisation between members and the risk of excessive cross-subsidy. As the Minister herself said, fairness between groups of members—in particular, the fair treatment of younger members—is of considerable importance. On the information available, it is difficult to assess whether the proposed gateway and ongoing tests provide a confident measure of whether a scheme’s design is sound and fair, and whether they would be appropriate for all CDC schemes. Given their importance, could the code of practice or any guidance to supplement that code set out more clearly why these tests for controlling cross-subsidies will be fit for purpose in all authorised schemes?
A CDC scheme can have more than one section. For example, where an employer wants to pay different rates of contribution for particular employees, new employees or future accruals, or offer non-CDC benefits, they have to set up a separate section. However, in my view, separate sections can carry the potential for one section to weaken the viability of another—or even precipitate closure; for example, by reducing the size of the scheme membership and/or stemming the flow of new members. I think I understand that the potential to impact on the soundness of another section would not form part of the assessment for the authorisation of a new section; such an impact would be dealt with through the “significant or triggering event” process for those other sections. However, given that CDC schemes need to be sustainable over very long periods, and companies can change ownership or be restructured over shorter periods, that could be a regulatory weakness. If it is considered appropriate, can the Pensions Regulator defer the authorisation of a new section on the grounds of its impact on the sustainability of another section? What consideration is being given to permitting variation in the benefit characteristics in a CDC scheme without the need for opening a new section?
To be financially sustainable, a scheme must have reserves to meet the costs of dealing with a triggering event and implementing a continuity option. These requirements seem less robust than those required of master trusts. Reserves do not have to be ring-fenced and the employer is not explicitly required to contribute. No doubt the Minister will argue that a CDC scheme cannot take in member contributions or funds prior to authorisation and the financial sustainability criterion being met. This, therefore, implies that an employer such as Royal Mail must provide some financial resources for a scheme to be authorised.
There are some “buts”, however. It is not clear in what circumstances the regulator could require an employer to contribute to the reserves. The financial reserves required will change over time, as a scheme grows and becomes more complex, so what suits authorisation may not suit ongoing supervision.
Trustees have to identify other ways of meeting these scheme costs where they are not relying on the employer, such as building reserves from member charges or a service provider contracted on a fixed-cost arrangement, even if a triggering event occurs. The code does not require a pot of money or assets to be ring-fenced; the trustees can rely on other means, such as enforceable guarantees. But the strength of those guarantees or other means may depend on the strength of the employer. The employer covenant, trustee access and enforceability in insolvency will then all come into play and have to be monitored, but regulatory failure happens, even with the best of intentions and the most applied regulators. Yes, there is a prohibition on increasing member charges during a triggering event, but I ask the Minister—as I have in the past and no doubt will in the future—what happens if the reserves are not sufficient to meet the costs flowing from a triggering event.
Under a CDC scheme’s rules, the employer can retain the right to wind up or close a scheme, or add sections, but there is no requirement to contribute to reserves, where their decisions increase the likelihood of a triggering event in a particular section. I ask the Minister: would the regulator have the power to direct an employer to contribute to the reserves where an employer decision leads to a triggering event, if it is considered appropriate?
Where continuity option 3 to run as a closed scheme is implemented, there has to be a question about how long that position is sustainable. It is unclear when the regulator would consider it to be unsustainable, so I ask the Minister whether it is intended to set hard triggers that would flag to the regulator to consider directing trustees to wind up.
I am drawing slowly to a conclusion. The wind-up of a scheme and decollectivisation of benefits to individual discharge amounts will pose some challenges, and this will be a novel area. In my view, the regulations and draft code lack flesh on the process to manage members out of CDC. There needs to be a high level of confidence in and understanding of the calculation of members’ final discharge amounts. Communications to and support for individual members will be challenging, yet there is no explicit provision for defaulting members into guidance nor requirement for targeted support for pensioners defaulted into income drawdown. Is it anticipated that such matters will be covered in the code?
Under the regulations, no pensions or benefits must be paid by the scheme during the wind-up period, but Regulation 29(7) says:
“Where a person … would have become a pensioner beneficiary … during the winding-up period … the trustees must pay that person a periodic income”.
I struggle to fully understand the implications of those provisions, so I ask the Minister whether a person who would have become a pensioner beneficiary can opt out of receiving a periodic payment. Will such payments be treated as authorised payments, with implications for a member’s pension freedom or limits on future tax-incentivised contributions? I could not find the trail to the answer to those questions.
Finally, on charges, will the code give guidance in the absence of reference to a de minimis for small pots and on how charges in relation to performance fees will be fairly applied when a member seeks a transfer out?
My Lords, I join the previous speakers in thanking the Minister for her helpful introduction. To a certain extent, it was discursive, in that it brought in broader issues to set the context for these regulations. I suspect that, in this area, we just have to get on and do it before we truly understand what the problems are. The Royal Mail proposals act almost as a pilot: we do not know how this is going to work until we actually do it.
The advantage of speaking after my noble friend Lady Drake and the noble Baroness, Lady Janke, is that almost all the points that I had in mind to make have already been made. In particular, we have to move towards multi-employer schemes. We have to move towards schemes that are effectively in payment-only arrangements. They are not really encompassed within these regulations, and we hope that, in due course, we will be able to move forward. When I say, “in due course”, I really mean “soon”, but it is good to have the issues on the table, and I am glad that the noble Baroness, Lady Janke, made those points and I echo them.
I am glad that my noble friend Lady Drake asked all those questions, as they are all pertinent and important and need to be answered. I have one slight question about her use of the term “central estimates” and the suggestion that these decisions have been made using prudent estimates. The problem with prudent estimates is: prudence for whom? One person’s prudence could be a counterparty’s lack of prudence. That is one of the central issues that still needs to be resolved in how these schemes operate: whose interests are being considered, and how to offset the interests of one group against another.
My natural inclination in those circumstances is to use what we used to call “best estimates,” which have now been retermed “central estimates”. “Best estimates” perhaps captures the issue a bit more closely, but people did not like using that term, so we now have to learn to use “central estimates”. The point is that, as soon as you move away from a central estimate, you move towards favouring the interests of one group as against a counterparty group. That is one of the issues. The question was entirely reasonable, but it is a particularly difficult one to answer, which goes to the heart of how these schemes will operate in practice.
My third point is about the sheer complexity of this set of regulations. It is a bit depressing that there are going to be even more regulations. I have been told that, in practice, it is easier to establish a defined benefit scheme than one of these schemes; the procedural hoops that have to be jumped through to establish a scheme are easier for defined benefit schemes than for these new CDC schemes. Perhaps that is the right approach, but its effect is doubtless to deter organisations that might otherwise be attracted to developing this form of provision, because they are intimidated against doing it in practice. As is the nature of things, they will tend to be smaller, less professionally savvy groups of employers. That is why moving towards a multi-employer model is so important and urgent.
I think it reasonable to assume that other employers of the Royal Mail model are limited. This will work only if it is provided for a whole range of different sizes and natures of employer, including employers without strong human relations or whatever the staffing function is called, and employers without a strong union presence that can get involved in the development of this sort of scheme. In my view, that will happen only when we have a multi-employer model.
Yet we have these regulations. I can cope with understanding regulations on pension schemes—humble brag—and I find these a real struggle. To expect people to cope with these regulations from a standing start is a big ask. They are here now, and I am not for one moment suggesting that we send them back and ask for them to be redrafted, but it means that the onus passes to the Pensions Regulator, which will have to bear this in mind when it considers applications to establish this sort of scheme.
Obviously, the regulator has to comply with the law and protect members’ interests, but if it adopts a bureaucratic, nitpicking approach to how these regulations and requirements are met, we will have very slow progress on what is an important and useful development as a type of pension provision. We have to emphasise this to, and work with, the Pensions Regulator to ensure that it adopts a practical approach and enables other employers to think, “This isn’t going to be a nightmare; we can actually do this”.
My Lords, I thank the Minister for her introduction to these regulations and all noble Lords for their contributions. As some noble Lords will remember, we spent a long time debating the Pension Schemes Act in this House. We asked lots and lots of questions about the establishment of CDC pension schemes. When we asked questions of the Minister, at least some of the time the answer came back: “The detail will be in the regulations”. Now here we are; here are the regulations and they will implement the authorisation and supervisory regime for CDC schemes. It is not surprising that so many questions have come from my noble friend Lady Drake and other noble Lords, and I am afraid I have more to add to the list. I very much hope the Minister can answer them, because this is our last chance before the scheme is created and it is incredibly important.
Here are my questions, starting with the future of CDC schemes. In his foreword to the consultation document in 2019, the Pensions Minister, Guy Opperman, said:
“There were encouraging signs of a growing interest in CDC amongst employers and commercial providers, outside of the Royal Mail and CWU. I expect this will increase further”.
It is three years down the road, and still only Royal Mail has committed to establishing a scheme. The Government admit that future take-up is still unknown.
In her contribution, my noble friend Lady Drake highlighted some of the concerns that flow from devising the details of a scheme with only one employer in mind. The future will not be the same, of course. The noble Baroness, Lady Janke, and my noble friend Lord Davies of Brixton asked what happens if other employers want to join in future. It is my understanding that we would need additional legislation if we got developments such as unconnected multi-employer schemes or commercial master trusts operating CDC schemes. The Minister can confirm that.
In such scenarios, different risks would need to be considered. One would expect the regulations and the code of practice provisions on things such as financial sustainability and trustee discretion to be more robust. For example, I would expect to see a definite requirement to ring-fence reserves to meet the costs of a triggering event or implement a continuity option; or, for example, a strengthening of trustee discretion over things such as opening new sections or the appointment of the chair of trustees. Can the Minister confirm that these regulations and the draft code of practice under consultation will not be considered fit for purpose for unconnected multi-employer and commercial master trust schemes?
The Government have acknowledged that there is considerable uncertainty as to the impact of the CDC proposal. I take the point made by my noble friend Lord Davies that, when one starts something, of course one will never fully know until it is out there. However, it is probably because of that uncertainty that the regulations and the draft code are long and complicated —because they are trying to cover for a range of circumstances. In turn, I suspect that that will mean that the CDC scheme rules are likely to be long and require a high level of understanding by trustees and their advisers. That complexity adds to the importance of clear member communications, and good systems and processes.
However, because of the way in which the rules are framed—my noble friend Lord Davies is right—a lot of responsibility will have to be borne by the regulator on some complex technical issues. If CDC schemes grow in number, as is hoped, how will the regulator, given its increasingly complex pensions remit generally, build and maintain the necessary capacity and capability to authorise and supervise such schemes? This is highly technical stuff but with a lot at stake. How is the regulator going to be able to manage it?
Next, I want to turn to the fit and proper person test for trustees. These regulations, in Regulation 8 and Schedule 1, together with the code of practice, set tough fit and proper person requirements for assessing whether a person can be a trustee of a CDC scheme, especially around skills, knowledge and experience. I am clear about the importance of ensuring that members’ interests are protected by an informed, knowledgeable and balanced team of trustees. However, the detail in the draft code leads me to ask a couple of questions. Is the Minister at all worried that the bar is perhaps set too high for committed and conscientious member-nominated trustees to meet? Is it perhaps the policy intention to squeeze out member-nominated trustees from single or connected employer CDC schemes? Is it perhaps the intention to have CDC schemes run only by professional trustees?
I realise that the scheme rules are complicated but, if schemes end up relying increasingly on professional trustees, that potentially brings a different risk: groupthink. Corporate trustees are more likely to come from the industry and may be more concerned with compliance than looking beyond it to see emerging risks. Further, a single employer or connected employer CDC scheme is established under an irrevocable trust by an employer. Could the terms of such a trust fetter the discretion of the trustees to a point and remove the chair of trustees?
Then there is the key issue of financial sustainability, about which my noble friend Lady Drake asked some crucial questions to which the Committee needs clear answers today. I am going to go back a little in history and remind the Minister of a couple of exchanges during the passage of the Bill. I must say, I was a lot more articulate in my head at the time than I was when I read it in Hansard afterwards; it is amazing how much less impressive it is when one reads it later, but bear with me. In Committee, I put this to the Minister:
“I think I understood her to say that the regulator would not approve a scheme unless the sustainability criteria had been met and that they could be met only if an adequate amount of money was placed in, for example, escrow. Is she saying that a scheme would be approved only if the regulator was satisfied that enough money had been provided up front by the sponsoring employer to fund the continuity options in the event of a triggering event?”
“The answer to the question asked by the noble Baroness, Lady Sherlock, is yes, the money would be in an escrow account if needed.”
I pressed her further and asked:
“So could it never be the case that in the event of a triggering event, such as a wind-up, an employer pulling out or an employer downsizing, money would have to come from members’ contributions to fund the continuity option?”
The Minister’s answer was clear. She said:
“The answer to that question is no, it should not be.”—[Official Report, 24/2/20; col. GC 18.]
How can we be assured of that?
My noble friend Lady Drake had an exchange with the Minister on the same issue on Report. I hope that the Committee will bear with me if I quote again briefly. The Minister said:
“For the financial sustainability requirement at Clause 14 to be met, the trustees must provide evidence that they can access sufficient financial resources to cover the costs associated with setting up and running the scheme, as well as those associated with dealing with triggering events. If the regulator is not satisfied about the security of these resources and that they can be accessed as needed, the requirement will not be met and the scheme will not be authorised. It may well be that, in the early days of a CDC scheme, initial funding comes from the employer, but our approach does not just rely on employer-provided financial support; it enables trustees to draw on other options, including funds held in escrow, insurance policies or contingent assets. These should be available to cover any costs arising from a triggering event.”—[Official Report, 30/6/20; cols. 604.]
That raises a key question: how can the Minister assure the Committee that there will always be enough money available to meet the cost of a triggering event and implement the continuity strategy without recourse to members’ funds, as she promised on Report? Despite all our pressure, the Government chose not to require the reserves to be more obviously ring-fenced, as in a master trust. As my noble friend Lady Drake has pointed out, the requirements in the regulations and the draft code are pretty soft and unspecific. I look forward to hearing the Minister’s answer to her question as to whether there will be hard triggers—such as ratios—when we come to make those assessments.
I have gone on quite a bit but I think this is incredibly important. A lot of people will read this record—more than the number in this Room—because huge amounts of money will be at stake. If the Minister is asking the House in due course to pass these regulations, it is really important that we get some concrete reassurances on the safety of those members’ assets.
Finally on this issue, can the Minister assure the Committee that, when moves are made to extend the CDC authorisation to unconnected multi-employer schemes or commercial master trusts operating CDC schemes, the financial sustainability requirements will be more robust, given the nature of the risks and the increased scale that would bring?
The Pension Schemes Act 2021 created a whole new kind of pension scheme. That does not come along very often. These regulations are the only chance that the House of Lords will have to gain clarity on how those schemes will operate and how members’ assets will be protected. I therefore really hope that the Minister has come armed with some detailed answers. I look forward to her reply.
My Lords, I thank all noble Lords for their helpful contributions to this debate. Before the noble Baroness, Lady Sherlock, raised it, memories came flooding back of our discussions on the Bill, which were lengthy and in depth.
I start by raising the points made by all noble Lords; I will try to answer at the level and detail for which the challenge has been set down. The noble Baronesses, Lady Janke and Lady Sherlock, asked how we will ensure that the CDC scheme has sufficient financial resources to cover the cost of operating the scheme if things go wrong. As part of the financial sustainability and continuity strategy authorisation criteria, the scheme must show how members will be protected against impacts, including costs, if a triggering event occurs, and must satisfy the regulator that there are sufficient protections. The financial sustainability requirements include demonstrating that there are sufficient financial resources to cover the cost of establishing and operating the scheme as well as costs arising from addressing a triggering event. This must be available to be used as and when needed.
If the regulator is not satisfied that the criteria are met, it must not authorise the scheme. The scheme will also need to satisfy the regulator on an ongoing basis that it continues to meet the authorisation criteria; for example, if the costs associated with addressing a triggering event change, the scheme must be able to show that it has sufficient resources to cover this. The regulator can require information relevant to the authorisation criteria to be included in a supervisory return. It is a significant event if the scheme is unable or unlikely to be able to meet the cost of a triggering event occurring.
Again, the noble Baronesses, Lady Janke and Lady Sherlock, raised the appointment of trustees and asked how we will ensure diversity on the board of the trustees. Our primary focus is on ensuring that trustees in all occupational pension schemes meet the standards of honesty, integrity and knowledge appropriate to their role. The regulator’s draft code of practice, published in January, sets out that trustee boards should have policies on diversity and inclusion, including objective selection criteria, and should demonstrate that they have the ability to capture, process and monitor data on diversity and inclusion. This would need to be demonstrated to the regulator for it to be satisfied both that the scheme satisfies the authorisation criterion and that the scheme’s systems and processes are sufficient to ensure that it is run effectively. The regulator will continue to supervise trustee action in this area and has established a working group to look at data, research, best practice, practical tools and employer engagement. We will look at the outcomes from the working group and consider what measures are needed.
The noble Baroness, Lady Janke, asked about widening the scope of CDCs to other organisations and multi-employer schemes. Under the Bill, the powers to extend CDCs to multi-employer schemes by secondary legislation are subject to the affirmative resolution procedure—so the powers under the Bill are there. At this moment, we are developing our understanding of the models that stakeholders are interested in delivering, including multi-employer schemes, master trusts and decumulation-only models.
I move on to the contribution of the noble Baroness, Lady Drake; I am pleased to hear that our officials were helpful to her. She asked whether there are tax implications that might limit a member’s pension options once they are designated into draw-down at the end of the winding-up process, and made some interesting points about the tax regime and CDC schemes in wind-up. We will continue to engage with HMRC to ensure that the tax legislation works appropriately in those circumstances by the time one of these schemes is in a position where wind-up is being considered.
The noble Baroness also asked how, if a scheme decides to open a new section, the interests of members in the original scheme will be protected. A proposal for an undivided scheme to become a scheme divided into sections is a specified significant event. Trustees will need to notify the regulator of such a proposal and explain how the interests of members of the scheme have been taken into account. This will take place before an application to create a new section can be submitted. Schemes must be able to demonstrate that they can continue to meet the authorisation criteria on an ongoing basis, including whether the opening of another section would have an impact on the requirement that the design of the scheme is sound. If the regulator had concerns, it would challenge the trustees on why they wanted to pursue opening a new section without having a clear plan in place to protect the interests of members in the original scheme. If the existing section is to be closed to new members or accrual, the proposal to close it is a specific significant event and the decision to close it is a triggering event. Both must be notified to the regulator. The legislation sets out requirements for communication between trustees and the regulator in relation to the closure of a scheme or a section of a scheme.
The noble Baroness, Lady Drake, asked why we have not applied the de minimis measure to single or connected employer CDC schemes. We do not anticipate that the initial tranche of single or connected employer CDC schemes will have members with small pots. However, we will continue to monitor this and take appropriate steps if it becomes apparent that the de minimis measure is needed in CDC schemes. In any event, we will need to revisit the question of applying a de minimis measure or flat fees in CDC schemes if we extend such schemes more widely, including to multi-employer, sector-wide schemes and master trusts.
The noble Baroness made the point that employer contributions are not taken into account in the second gateway test and the first live running test. The tests are intended to ensure that members get fair value for the contributions they pay into the scheme. This means that, although the total contributions are pooled, these actuarial tests are designed to give members confidence that the value of their rights in the scheme will not fall below the value of the money they have personally contributed.
The other live running test takes a more holistic view using the employer and member contributions and seeks to identify excessive cross-subsidy between cohorts of members. It does this by comparing the contribution rate with rights to benefits expected to build up each year smoothed over a five-year period. If the benefits fall outside the window determined by reference to the contribution rate, the test is not met. This could be because contributions are a lot higher than expected benefits, which might indicate excessive transfer from contributing members to pensioners or deferred members, or the opposite, that is that contributions are a lot lower than expected which might indicate excessive transfer from pensioners and deferred members to contributing members.
The noble Baroness, Lady Drake, asked about trustees sharing legal advice on scheme rules. We will write with an answer to that.
She also asked what happens when there are insufficient funds to pay for wind-up. The regulations create an ongoing duty on trustees to ensure that there are sufficient assets to deal with the cost relating to a decision to wind up, which is a triggering event. They could, for example, be in the form of first call on employer assets.
The noble Lord, Lord Davies, said that the regulations are complex and asked how the regulator will cope. The regulator and the department have worked closely together in the development of the regulations and its code which will provide further detail on how the regulations are intended to work. The regulator will work closely with new schemes.
The noble Lord, Lord Davies, also raised a point on the use of central estimates and the complexity of the regulations. I agree with him. It is a big ask, but it is appropriate because it is important that schemes are well designed and well run.
I now turn to the questions asked by the noble Baroness, Lady Sherlock. She asked for confirmation that the regulations and the CDC draft code of practice under consultation will not be considered fit for purpose for unconnected multi-employer and commercial master trusts. The answer is yes. I have passed that one.
The noble Baroness asked how, as CDC schemes grow in number, we hope, and given the regulator’s increasingly complex pension remit, the regulator will be able to build and maintain the necessary capacity and capability to authorise and supervise CDC schemes. We have worked closely with the regulator on this matter and will continue to do so.
The noble Baroness also asked whether the bar is set too high for committed and conscientious member-nominated trustees to meet. I believe I have answered this on the point about diversity and making sure that people have integrity.
I apologise, I was not clear enough. My question is not about diversity in the sense that it is mostly understood; I was specifically asking whether the requirements had been framed in such a way as to be too difficult for member-nominated trustees to meet, with the effect that they would be driven out in favour of corporate trustees, which would lead to us not having a diversity of views. I was not referring to the other, more traditional, understanding of diversity.
The point is very well made. We will have to work with member trustees to make sure that they are trained and that they understand the requirements prior to taking on responsibilities. I will consult my colleagues and answer in more depth in writing.
The noble Baroness, Lady Sherlock, asked whether the policy intention is to squeeze out member-nominated trustees from single or connected employer CDC schemes. The answer is no. She also asked whether the intention is to have CDC schemes run wholly by professional trustees. Again, the answer is no. She also asked a further question: “A single employer or connected employer CDC scheme is established under an irrevocable trust by an employer. Could the terms of such a trust fetter the discretion of the trustees to appoint and remove the chair of trustees?” I am advised that this is not the case and that there is no change from other schemes.
The noble Baroness also asked whether I can assure noble Lords that there will always be enough money available to meet the cost of a triggering event. As part of the financial sustainability and continuity strategy authorisation criteria, the scheme must show how members will be protected against impacts, including cost, if a triggering event occurs and satisfy the regulator that there are sufficient protections. The financial sustainability requirements include demonstrating that there are sufficient financial resources to cover the cost of establishing and operating the scheme, as well as costs arising from addressing a triggering event. They must be available to be used as and when needed. If the regulator is not satisfied that the criteria are met, it must not authorise the scheme.
The scheme will also need to satisfy the regulator on an ongoing basis that it continues to meet the authorisation criteria. For example, if the costs associated with addressing a triggering event change, the scheme must be able to show that it has sufficient resources to cover them. The regulator can require information relevant to the authorisation criteria to be included in a supervisory return. It is a significant event if the scheme is unable or unlikely to be able to meet the cost of a triggering event.
The noble Baroness asked about member-nominated trust rules applying to CDC schemes. Generally, trustees are required to ensure that arrangements are in place and implemented that provide for at least one-third of trustees or at least one-third of directors at the trustee company to be member-nominated.
The noble Baroness, Lady Sherlock, asked would— I apologise, I am struggling to read this piece of paper. I will write to the noble Baroness and place a copy in the Library so all noble Lords understand.
The noble Baroness asked me to assure the Committee that, when moves are made to extend CDC authorisation to unconnected multi-employer CDC schemes or commercial master trusts operating CDC schemes, the financial sustainability requirements will be more robust, given the nature of the risks and the increased scale such schemes would bring. I can confirm that they will be appropriate to the risks.
I will write to noble Lords to clarify matters, when we have gone through Hansard, to make sure we have answered all the questions in the detail that they need. I appreciate the points that the noble Baroness, Lady Sherlock, made about this being the last chance in the regulations. As the noble Lord, Lord Davies, said, these are new schemes. I hope that, after we have passed these regulations, we carry on apprising noble Lords of their progress. We want all noble Lords to raise their concerns or ideas they have with us.
Before the Minister sits down, I am conscious of not going back to a supplementary question, so will be quick. On the small pots problem, I understand why it was said that it is not anticipated with, for example, nursery schemes, but we do not know what every scenario will be. I was seeking an assurance that these regulations do not set a precedent for removing de minimis protection for small pots, where needed. That is what I was looking for. I can see why a nursery scheme would address that, but it may not be the only solution.
I think I heard the Minister say that the regulator can consider the impact on existing sections when considering the authorisation of a new section, but could that be made clear in any letter? It is inevitable, as night follows day, that employers will want to change their pension arrangements at some point. This is just to be clear about the consequences, not to argue against what she was saying.
On the two points just raised by the noble Baroness, Lady Drake, the answer to the first is no, and we will write to the noble Baroness on the regulator and the sections and place a copy of that letter in the Library. I commend these regulations to the Committee and ask for approval to implement them.
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2022
Considered in Grand Committee
My Lords, these statutory instruments will increase the value of lump sum awards payable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and the diffuse mesothelioma payment scheme, which was established by the Child Maintenance and Other Payments Act 2008.
These two schemes stand apart from the main social security benefits uprating procedure. However, through these statutory instruments, we will increase the amounts payable by the September 2021 consumer prices index of 3.1%. This is the same rate that is being applied to industrial injuries disablement benefit and other disability benefits under the main social security uprating provisions. These new amounts will be paid to those who satisfy the conditions of entitlement for the first time on or after 1 April 2022.
The Government recognise the tremendous suffering of individuals and their families caused by the serious and often fatal diseases resulting from exposure to asbestos or other listed agents. The individuals affected, and their families, may not be able to bring a successful claim for civil damages in relation to their disease. This is mainly due to the long latency period of their condition and the fact that their former employer may no longer exist. They can, however, still claim compensation through these schemes.
These schemes also aim, where possible, to ensure that people with prescribed diseases receive compensation in their lifetime while they themselves can still benefit from it, without first having to await the outcome of civil litigation, which can take a long time. While improvements in health and safety procedures have restricted the use of asbestos and provided a safer environment for its handling, the legacy of its widespread use is still with us. That is why we are ensuring that financial compensation from these schemes is available to those affected.
I will briefly summarise the specific purpose of the two compensation schemes. The Pneumoconiosis etc. (Workers’ Compensation) Act 1979 scheme—which for simplicity I shall refer to as the 1979 Act scheme—provides a lump sum compensation payment to individuals who have one of five dust-related respiratory diseases covered by the scheme, who are unable to claim damages from employers because they have gone out of business and who have not brought any action against another party for damages. The five diseases covered by the 1979 Act scheme are diffuse mesothelioma, bilateral diffuse pleural thickening, pneumoconiosis, byssinosis and primary carcinoma of the lung, if accompanied by asbestosis or bilateral diffuse pleural thickening.
The 2008 mesothelioma lump-sum payments scheme, which I will refer to as the 2008 scheme, was introduced to provide compensation to people who contracted diffuse mesothelioma but who were unable to claim compensation under the 1979 Act because, for example, they were self-employed or their exposure to asbestos was not due to their work. The 2008 scheme allows payments to be made quickly to people with diffuse mesothelioma at their time of greatest need. Under each scheme, a claim can be made by a dependant if the person with the disease has died before being able to make a claim.
The rates payable under the 1979 Act scheme are based on the level of the disablement assessment and the age of the person with the prescribed disease at the time the disease is diagnosed. The highest amounts are paid to those diagnosed at an early age and with the highest level of disablement. All payments for diffuse mesothelioma under the 1979 Act scheme are automatically made at the 100% disablement rate, the highest rate of payment, reflecting the serious nature of the disease. Similarly, all payments for this condition under the 2008 scheme are made at the 100% disablement rate and based on age, with the highest payments going to the youngest people with the disease. In the last full year for which data is available, April 2020 to March 2021, 2,270 awards were paid under the 1979 Act, totalling £34.4 million, and 400 people received payments under the 2008 Act, totalling £8 million. Overall, 2,670 awards were made across both schemes in 2020-21 and expenditure was £42.4 million.
As noble Lords will be aware, the Covid-19 pandemic has presented unprecedented challenges across government. I am particularly mindful of the tremendous impact it has had on many of our most vulnerable customers. I would like to share some actions we have taken to try and maintain services for customers during this time.
In March 2020 we temporarily suspended all face-to-face assessments to protect the health of claimants and staff. In order to qualify for payment under the 1979 Act, customers must have an entitlement to IIDB, so some customers will have been impacted by the suspension of face-to-face assessments. We have continued to process IIDB claims for people with fast-track prescribed diseases within average processing times, as those claims can be assessed on paper without the need for a face-to-face assessment.
To minimise disruption to our most vulnerable customers, we also introduced changes to the pre-pandemic processes of both DWP and our assessment provider, CHDA. These changes enabled DWP to undertake in-house reviews and enabled CHDA to increase paper-based assessments for some respiratory disease cases and undertake small volumes of video assessments for customers with specific claims and conditions.
Face-to-face IIDB assessments resumed for most customers in April 2021. However, we are continuing to assess some people on paper evidence wherever possible. Journey times for some claimants will have been increased because of this increase in paper-based assessments. Our healthcare providers are having to submit more requests for supporting medical evidence from the NHS, such as new X-rays and scans. This process can take some time in normal circumstances, but with the additional pressures on the healthcare sector it is taking longer than usual.
While a paper-based scheme and a limited number of video assessments will continue to be appropriate for some of our claimants, they will not be suitable for all. Face-to-face examinations are usually required for IIDB to confirm the nature and severity of disablement an individual may have. For example, disablement may need to be confirmed by testing lung function. These assessments can often be made only with the claimant present and can involve spending an hour, sometimes longer, in an enclosed private space with a healthcare professional. For this reason, some of the respiratory disease claims that cannot be assessed by paper continued to be suspended until earlier this year due to the additional risks in undertaking these assessments. They have now resumed with extra safety measures in place.
As a result of delays, some customers making claims for the lump-sum schemes will have had a birthday while waiting for an assessment, meaning that their award was at a lower rate. To ensure that no customer was unfairly disadvantaged as a result, from 19 August we began to award one-off special payments to put these claimants back into the position they would have been in had they not been affected by the suspension of services.
I turn now to lung health more generally. While we expect the number of people diagnosed with mesothelioma to begin to fall in the coming years, this Government are well aware that there will still be many people who develop this and other debilitating respiratory diseases in the coming years. That is why we are committed to working with our agencies and arm’s-length bodies to improve the lives of people with respiratory diseases.
The Covid-19 pandemic has presented major challenges for all healthcare systems. The NHS published a Cancer Services Recovery Plan, which was developed with the Cancer Recovery Taskforce. The plan aims to prioritise long-term plan commitments, which identified respiratory disease as a clinical priority, and will support recovery, including the delivery of targeted lung health checks.
We remain committed to returning the number of people waiting over 62 days to start treatment to pre-pandemic levels, as per the 2022-23 planning guidance, and to continuing to increase referrals by encouraging patients to come forward. Additional funding of £1.5 billion has been confirmed for expanding treatment capacity across all elective care next year, and £2.3 billion for diagnostics over the next three years. The plan makes it clear that cancer will be a priority for that funding. We need to work together to make sure that this happens. There is a focus on personalised stratified follow-up as part of out-patient transformation. Cancer has been identified as leading the way on patient-initiated follow-up, and the strategy sets out plans for all specialities to develop this.
The 2021/22 Priorities and Operational Planning Guidance, published by the NHS in March 2021, includes plans for tackling the backlog of non-urgent treatment, such as services for lung disease patients, as well as plans that aim to stabilise total waiting lists and eliminate waiting times of two years or more. The Department of Health and Social Care has made available £1.5 billion to assist local teams to increase their capacity and invest in other measures to achieve these priorities. The spending review 2021 announced £2.3 billion to increase the volume of diagnostic activity and open community diagnostic centres to provide more clinical tests for patients, including those with lung diseases.
We know that research is crucial in the fight against cancers such as mesothelioma. That is why the Department of Health and Social Care invests £1 billion per year in health research through the National Institute for Health Research. I am aware that people suffering from occupational lung diseases are likely to be at higher risk of complications resulting from Covid-19 and that it continues to be a distressing time for people with the prescribed diseases we are discussing today.
The Department of Health and Social Care is following the advice from independent experts on the Joint Committee on Vaccination and Immunisation on which groups of people to prioritise for Covid-19 vaccines. They advised that the immediate priority should be to prevent deaths and protect health and care staff, with old age deemed the single biggest factor determining mortality.
People with chronic respiratory conditions were prioritised as part of group 6 in the first phase of the Covid-19 vaccination rollout; this group was also given priority for the booster campaign. As of 19 January 2022, 91.3% of people aged 16 to 64 with underlying health conditions have received their first dose, 88.5% have received their second dose and 74.8% have received a booster or third dose.
Returning to these important regulations, I am sure that we will all agree that while no amount of money can ever compensate individuals and families for the suffering and loss caused by diffuse mesothelioma and the other dust-related diseases covered by the 1979 and 2008 Act schemes, those who have them rightly deserve the financial compensation that these schemes offer.
I am required to confirm that these provisions are compatible with the European Convention on Human Rights, and I am happy to do so. I commend the increase of the payment scales for these schemes and ask approval to implement them.
My Lords, I thank the noble Baroness for her presentation of the uprating of benefits to sufferers of mesothelioma and pneumoconiosis and for her description of the measures that the Government have taken to address some of the needs of these sufferers during the pandemic.
However, I feel that the key issue here is whether the Government really consider a 3.1% increase in any way adequate, with inflation predicted to reach 7.25% by the time people receive the uplift—the Bank of England expects inflation to peak at 7.25% in April and to average around 6.2% over the course of 2022. According to the latest DWP statistics, in the year from October 2020 to September 2021, £39 million was paid out through the pneumoconiosis scheme and £8.4 million through the mesothelioma scheme. There were 220 and 30 claimants respectively in September 2021. These figures show that uprating the payments by 3.1% rather than 6.2% risks a real-terms cut of £1.2 million for pneumoconiosis claimants and £260,000 for mesothelioma claimants—a hugely unfair cut during a national cost-of-living crisis. I wonder how people will cope with this crisis of funding, particularly if they are severely ill.
There has been a 56% increase in the cost of energy, as we heard in an earlier debate. Not being able to afford heating is particularly punitive for sick people and further penalises them in relation to healthy people. What special measures will the Government introduce to support people who are sick, often gravely ill and dependent on care? How will people afford the necessary care in the financial crisis ahead? How will their families manage? This is particularly important as many lung diseases are diagnosed only when beyond treatment, with many sufferers having only a short time to live and a high need of care.
The Minister mentioned the fact that the Government have put more money into research on the causes of and cures for lung disease. However, lung disease accounts for 20% of all deaths yet research funding lags well behind other better-known diseases. I hope that this might change in light of the current circumstances. The British Lung Foundation campaigns for more research and supports sufferers and families. I pay tribute to its work but given the fact that the diseases are caused by dust, which is present still in large numbers of buildings—many containing vast amounts of asbestos—are we really taking adequate action to address these unhealthy circumstances? It is particularly distressing that so many sufferers are mystified as to how they contracted such a fatal condition. More research on lung diseases is needed, as the Minister said, and I hope that that might attract more funding as a result of the pandemic, when lung disease has been such a major killer.
The Health and Safety Executive estimates that occupational lung disease accounts for 12,000 deaths a year—still. This is not a disease of the past, as many people seem to think. I will therefore put the following questions in conclusion. What additional support will the Government provide in the light of the inadequacy of this uprating to support sufferers of mesothelioma and pneumoconiosis and their families? What is the Government’s position on automatic uprating to give confidence to sufferers and families, which is urgently needed in the light of economic uncertainty? Will the Government look again at equal treatment for sufferers and families to reassure them that the families will not suffer? Will she raise with the Government the need to ensure more realistic funding for research into lung disease? I look forward to her response.
My Lords, I thank the Minister for introducing these regulations to the Committee and I am pleased to hear her references to additional support for people during the Covid-19 pandemic, which may otherwise have left them severely disadvantaged. However, more can always be done.
We have heard that the Government have decided to increase the amounts set out in the mesothelioma lump sum payments regulations by 3.1%, the rate of inflation as measured in September 2021 by the CPI. I will not repeat the figures quoted by the noble Baroness, Lady Janke, but I concur with her points regarding the gaps between this uprating and the exponential increases in the cost of living. This is an extremely vulnerable group of people in our society. I urge the Minister to look again.
Current high death rates among males aged 70 and above reflect the fact that this generation had the greatest potential for asbestos exposure in younger working life during the period of peak asbestos use in the 1950s, 1960s and 1970s. Death rates among those under 65 have now been falling for some time. The most recent deaths in this younger age group are among the generation who started working life during the 1970s or later, when asbestos exposures were starting to be much more tightly controlled.
These kinds of diseases are a result of our industrial past and today I am proud to put in the official record the name of one south Wales miner who toiled underground man and boy to bring wealth and prosperity to the whole UK from the 1950s to the 1980s, until the year-long miners’ strike put paid to future employment for him and many like him. He was my dear late stepfather, Terrence John Howells, who luckily escaped the wrath of lung disease but was taken early by ischemic heart disease after a lifetime of working hard in the harshest of conditions underground, his face and hands covered in blue scars that were the permanent reminders of the toll that that industry left upon its workers.
Pneumoconiosis, in particular—also known as dust or black lung—was another industrial disease known as a silent killer, clogging and destroying the tissue of lungs and robbing thousands of men in particular of their futures. It was more prevalent in south Wales than anywhere else in the UK because of the young age at which mining was embarked on there. It ensured that families would see their fathers, husbands, brothers and sons fade through slow and painful illness. These compensation measures we are discussing must never be spoken about without remembering the context of the suffering of so many families and the consequences of these dreadful industrial diseases.
As well as reflecting on our industrial past and what people gave and endured in working in heavy industry, we must also reflect on the negligence towards health and safety matters. We need a strong Health and Safety Executive, but the number of health and safety inspectors has dropped by a third under this Government. There were 1,495 inspectors with the Health and Safety Executive in 2009-10, but just 978 in 2017-18, after falling every year in a row. Funding was slashed from £239 million to £136 million over the same period. Can the Minister tell us how confident she is that the HSE is sufficiently well resourced both to manage the risks to employees as we move out of the pandemic and to be mindful of the health risks we may encounter in the future, so that future generations will be better protected than my dear stepfather and his comrades were in their working lives?
In her speech on this matter last year my noble friend Lady Sherlock raised several important issues with the Minister that remain unaddressed a year later, so I will reiterate them on her behalf. There is a lack of parity between the levels of compensation being offered to sufferers and to their dependants, and we look forward to hearing a restatement of the Government’s rationale for this decision. Similarly, will she address the impact of disparity on women, who are often the dependants? Is there a cost estimate of providing equal payments? I look forward to the Minister’s response to these questions.
My Lords, as the noble Baroness, Lady Wilcox, reminded us of her relative, I start by saying that this is about people—people who contracted the disease through no fault of their own. We must be mindful of that. I remember that Lord Kirkwood, from the Liberal Benches, lost his dear wife to this. We must remember that this is about people.
The noble Baroness, Lady Janke, asked whether the 3.1% increase was adequate. The CPI in the year to September is the latest figure that the Secretary of State can use for the uprating review to allow her to meet the DWP’s hard IT deadlines. Using a consistent period for uprating each year means that, over time, the index balances out. As to whether it is adequate, certain disability benefits, including the industrial injuries benefits, are being uprated by the rate of the consumer prices index in September, which was 3.1%. This increase matches the increasing industrial injuries disablement benefit, to which the 1979 Act scheme is linked, as the lump-sum schemes we are debating today provide compensation payments to people who have become disabled through these debilitating diseases. We believe that it is appropriate to uprate the payments in line with other disability benefits.
Both noble Baronesses asked what the Government are doing to help with the cost of living. We have raised the national living wage, given nearly 2 million families an extra £1,000 a year through our cut to the universal credit taper and increased work allowances, frozen fuel duty for the 12th year running and invested £200 million in successful holiday activity, and will maintain the energy price cap to at least the end of 2022 to protect millions of people and ensure they pay a fair price for their energy—in spite of the rising cost of wholesale energy.
We must acknowledge today, as we have done in the past, that the cost of living is severely impacting people; we understand that people are having a difficult time. We are contributing £140 to the energy bills of 2.2 million low-income households, providing seasonal cold weather payments of an extra £25 a week to an estimated 4 million people during periods of severe weather and giving up to £300 in winter fuel payments to people over state pension age. We are providing £670 million to help local authorities support households struggling with council tax bills.
The noble Baroness, Lady Janke, asked what the Government are doing to ensure that disability benefits adequately support disabled people. We are forecast to spend over £58 billion this year on benefits to support disabled people and those with health conditions, which is around 2.5% of GDP. In 2021-22, spending on the main disability benefits—PIP, DLA and attendance allowance—will be nearly £5 billion higher in real terms than it was in 2010. In real terms, total disability benefit spending in 2026-27 is forecast to be over £23 billion higher than it was in 2010. We have increased the employment and support allowance for people with the greatest needs by around £900 a year. We have increased the higher rate of attendance allowance, carer’s allowance and the rate of DLA paid to the most disabled children by over £140 a month. We have enhanced the rates of PIP, and there is a higher proportion of people on the top-up rates of PIP than there were on DLA—34% versus 15%.
The noble Baroness, Lady Wilcox, raised a very important point about research into lung disease. Research is crucial in the fight against cancer; that is why the Department of Health and Social Care invests £1 billion per year in health research through the National Institute for Health Research. For several years, we have been working actively from a low base to stimulate an increase in the level of mesothelioma research activity. This includes a formal research priority-setting exercise, a National Cancer Research Institute workshop and a specific call for research proposals through the National Institute for Health Research.
In 2016 the Government awarded a grant of £5 million from Libor to Imperial College to establish the National Centre for Mesothelioma Research. The centre brings together four leading institutions, all of which have major interest in the treatment of mesothelioma, at the National Heart and Lung Institute.
The noble Baroness, Lady Wilcox, raised the point, which has been raised many times, about equalising dependant payments with those made to people who have the disease. I stress that the main intention of these schemes is to provide financial support to those living with certain diseases and to help them deal with the issues that illness brings. It is right that funding is targeted where it is needed most. Around 90% of payments made under both schemes are paid to those who have the diseases covered by these schemes. The noble Baroness, Lady Janke, also talked about equalising the payments—I think I have answered that.
The noble Baroness asked about statistics on the level of industrial injuries over the 2010-20 period. We do not have those statistics, but we know that the Health and Safety Executive has had a major recruitment exercise and we have worked closely with it to make sure that as far as possible it has the resources it needs to do its job. I am happy to write to noble Lords and to place a copy in the Library to outline that in much more detail.
I thank all noble Lords for their helpful contributions to this debate. In a particularly difficult year, it is right that we continue to prioritise financial support for people diagnosed with mesothelioma and other dust-related diseases and recognise, as we have already said, that people with these prescribed diseases will be more vulnerable to respiratory viruses such as Covid-19. In addition to the compensation awarded through the scheme before us today, the Government also provide specific support for those who have industrial injuries or diseases through the industrial injuries disablement benefit, a payment based on the level of disablement. Other state benefits may also be available to claimants to cover other needs, such as income replacement and the costs arising from disability.
Now, more than ever, support is vital. While these statutory schemes deliver an essential part of the financial support we offer, many other important issues for people with the prescribed diseases have been raised today. That is why we are committed to working with NHS England to improve the lives of people with respiratory diseases. As in previous years, this has been an interesting debate which demonstrates this House’s continued interest in and commitment to ensuring that the necessary support is available to these individuals. I hope that I have dealt with the questions that have been raised, but, as I promised, I will write to all noble Lords separately to make sure that all the questions have been answered. I commend the uprating of the payment scales for these schemes and ask for approval to implement it.
Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2022
Considered in Grand Committee
Committee adjourned at 6.52 pm.