Grand Committee
(9 years, 2 months ago)
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Arrangement of Business
(9 years, 2 months ago)
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The Deputy Chairman of Committees (Lord Skelmersdale) (Con)
My Lords, the Grand Committee is in session. If there is a Division in the House, the Committee will adjourn for 10 minutes.
Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015
(9 years, 2 months ago)
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Baroness Verma
That the Grand Committee do consider the Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, on 11 December I laid before the House a draft statutory instrument containing the decision of my right honourable friend the Secretary of State for Energy and Climate Change, as justifying authority under the Justification of Practices Involving Ionising Radiation Regulations 2004, that the generation of electricity from the nuclear reactor design known as the UK ABWR—the UK advanced boiling water reactor—is justified. Regulatory justification is one of the regulatory steps which are necessary before new nuclear power stations can be built in the UK. It is based on the recommendations of the International Commission on Radiological Protection which are used around the world as the basis for radiological protection.
These recommendations form the basis of the Euratom basic safety standards directive, which requires member states to ensure that, before any new practice involving ionising radiation—such as a new design of nuclear reactor—can be introduced, it must first undergo a high-level assessment to determine whether its economic, social or other benefits outweigh the health detriment that it may cause. The requirements were implemented into UK law by the 2004 regulations, which provide that a decision on whether to justify a new practice should be taken by the justifying authority—in this case, my right honourable friend the Secretary of State.
The decision follows two public consultations by my department. There was first a consultation on an application from the Nuclear Industry Association for justification of the UK ABWR. Following that, the department last year published a second consultation on a proposed decision that the UK ABWR should be justified. After considering the responses to these consultations, we announced on 11 December our decision that the UK ABWR was justified. Copies of documents setting out detailed reasons for the decision have been deposited in the Library of the House.
In summary, we see a clear need for the generation of electricity by the UK ABWR because of the contribution that it can make through increased security of energy supplies and reduced carbon emissions. One UK ABWR will be able to produce 1,350 megawatts of electrical power for a high proportion of its operating lifespan of 60 years—enough electricity to power 2.5 million homes. Nuclear power has long been a significant source of low-carbon energy and it can continue to contribute to our energy mix. Energy companies are investing significantly in the prospect of new nuclear power stations, including Hitachi-GE Nuclear Energy Ltd and Horizon Nuclear Power, which are proposing to build two UK ABWRs at each of the two new nuclear power stations at Wylfa in Anglesey and Oldbury in Gloucestershire.
Beyond direct investment and employment from new nuclear power stations, we can benefit through the development of a globally competitive nuclear supply chain and an improvement in the quality of the UK’s skilled workforce. Against these benefits, there is the potential for detriment, but this potential is small, well understood and guarded against by an established regulatory regime. The radiation dose which members of the public would receive from the normal operation of a UK ABWR on an annual basis would be below detectable risk levels in the context of overall radiation exposure, including medical procedures and background radiation. The safety features of the designs and the regulatory regime, which sets limits on the release of radiation and monitors compliance, will ensure that emissions will be minimised. The risk of health detriment is therefore very low.
Justification decisions apply to the management and disposal of radioactive waste that new nuclear power stations will produce, as well as to their operation. In making our decisions, we are satisfied that the regulatory regime will limit the risk of health detriment from waste management and disposal to very low levels. We are also satisfied that there is a robust process in place to identify a suitable site for a geological disposal facility and are confident that a site will be identified and that a GDF will be built. We also concluded that the possible environmental detriments arising from new nuclear power stations are likely to be avoided or adequately mitigated by the licensing and planning regime.
We considered the risk of detriments arising from an accident or terrorist incident. Such possible detriments already exist, and the risk of such incidents should be seen in the context of the regulatory regime, which is intended to prevent accidents and protect against terrorist attack. We are confident in the regulatory regimes for the safety and security of civil nuclear installations and materials in the UK, and consider that the likelihood of an accident or other incident giving rise to a release of radioactive material is very small.
We have therefore concluded that the significant potential benefits outweigh the potential detriments, and that the generation of electricity by the UK ABWR should be justified. I commend the regulations to the Committee.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for introducing these regulations. Obviously, we support the regulations and we see that greater diversity in reactor designs in the UK will be a good thing. We generally support the building of new reactors at the site in Wylfa and believe that it is important for the UK to continue to keep its nuclear capabilities and capacity as we move towards decarbonising our electricity system.
My comment on the process, however, is perhaps more general. This process, which we are required to undertake under Euratom to justify activities involving non-ionising radiation under the 2004 regulations, means that we treat nuclear infrastructure in a very different way from other risks that exist in society. I have a question about what the Government think is the right way forward in terms of balancing risk, when it comes to assessing the role that nuclear power can play as we go forward. My reason for asking is that we have a particular regime for ionising radiation; however, as the noble Baroness pointed out, radiation is a naturally occurring phenomenon and background radiation levels differ greatly around the country.
There is probably now a need for a national conversation about risk and how we deal with it. In this case, nuclear power seems to be being singled out for treatment that is not necessarily commensurate with the scale of risk. I say that because, in aggregate, US climate scientist James Hansen often points out that nuclear has a massively beneficial impact on health in terms of lives saved from avoiding air pollution. That is just one example of the advantages of nuclear power when it is used sustainably and safely. There is a need for a public discourse about our perception of risk, particularly, as in other sectors of the economy we have nowhere near as tight regulation on activities that pose threats to human health. I include among them vehicle emissions and air pollution more generally, and the use of chemicals in our environment, particularly those which have the potential to disrupt endocrine systems. The list is a long one, but in this case we seem to have developed an incredibly detailed system which has a regulatory burden attached to it.
I would simply ask this: do the Government think that we should have a conversation about this, and if so, how would we go about it? As we weigh up the costs of mitigating climate change going forward, it is important that we have a thorough and detailed understanding of the relative risks. On nuclear, my sense is that we need to look at the issue again.
Baroness Verma
I am extremely grateful to the noble Baroness for her support for the draft regulations, and of course I agree with her that the sector by its very nature is heavily regulated, and rightly so in order to build confidence. I also agree that the discussions need to be much fuller and more informed, and of course I hope that we will take the opportunity to open that debate going forward. However, perhaps we need to wait until after May to begin so that it can be fully informed by all sides. I accept that what we do not want to do is single out a sector which is helping us to meet our carbon targets. We should not overly prescribe for one sector as against others. Given that, we need to ensure that there is confidence, trust and transparency in the system, so it is right that, until we have had that debate, we should continue in this vein. I am pleased that the noble Baroness has expressed her support and I commend the regulations to the Committee.
Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015
(9 years, 2 months ago)
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Baroness Verma
That the Grand Committee do consider the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I am pleased to open the debate on the amendment regulations on the renewable heat incentive scheme. There are a number of amendments to cover today to both the domestic and the non-domestic RHI. These are the Renewable Heat Incentive Scheme (Amendment) Regulations 2015, the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015 and the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.
Before I explain the details of the amendments, I would like to update noble Lords on the progress of the RHI. The RHI is a key part of achieving the Government’s vision of the future of heating in the UK: a future with secure supplies of low-carbon and renewable heat at affordable prices. The scheme first opened in November 2011 to the non-domestic sector. Since its launch, some 7,000 installations have been accredited under the scheme. So far, the scheme has paid for 2 terawatt hours of generated renewable heat. In April last year, the scheme was opened to the domestic market and we have seen more than 20,000 accreditations since its launch. Across the two schemes, we anticipate that the RHI could support over 7 terawatt hours of renewable heat in 2015-16. The RHI supports a diverse range of technologies, but currently we are seeing the highest deployment from biomass.
The year 2014 was a busy one for the RHI scheme. I have already mentioned the launch of the domestic scheme. We introduced amendments in May 2014 to make the non-domestic scheme easier to access, more efficient and open to additional renewable technologies. We also conducted a review of the non-domestic scheme from which some of the changes I will be introducing today have evolved. We continue to evaluate the scheme to ensure both that it incentivises uptake and that scheme administration is effective and efficient. We also published our consultation and response on the review of the biomethane injection to grid tariff.
To recognise the importance of innovation and technology development, we gathered evidence to assess the case for new technologies, or innovations to existing technologies, being included in the RHI. Following this, we have now published our guidance setting out the evidence requirements for considering new technologies. We have listened to stakeholder concerns about investment certainty for large-scale renewable plants. In December last year, we published a position paper on the introduction of tariff guarantees for the non-domestic scheme. These plants can take a considerable time to come online and can be affected by the lack of a guarantee on the tariff that will be available when they complete. The published position paper sets out what the policy may look like if the work is continued in the next Parliament.
Lord Teverson (LD)
My Lords, I very much welcome the Minister’s statement and her description of these schemes. When talking of trying to decarbonise power and energy in this country, we always think first of electricity but heating is very important particularly at this time in January—although my wood stove at home was a great comfort to me over the weekend, the solar thermal supply for the shower was perhaps not quite as good. These are really important technologies and it is good that we are continuing to modify these schemes.
I should like to put a couple of general questions to the Minister and then one specific question. I particularly welcome the greater emphasis on the sustainability of biomass, and I do so for two reasons. One is obviously that the sustainability of sources is very important in its own right. The second is that biomass is attracting a lot of criticism from a number of areas—maybe some of it rightly but perhaps some of it not so rightly—and it is very important that biomass’s image and reputation are kept strong and that it remains part of our renewable energy sources in the UK. Only by ensuring that we meet the sustainability criteria will we be able to do that.
One thing that we know—the Minister started to explain this quite broadly—is that, with biomass in particular, the supply chains are global. Much of the supply for some of the very large applications in the UK comes from across the Atlantic and maybe from even further afield—on the other side of the Pacific and from other parts of North America. When those supply chains are as long as they are, how do we know that the sustainability requirements are really met? Do we ever inspect them, or do we just rely on companies to do that? I ask that because I know from other areas of industry that things such as the sustainable forests code have been abused in the past. We know that relatively easy supply chains for food within Europe have not always been as good as they should be, even when the purchasing companies, such as the supermarket chains, have some of the tightest controls—or we thought that they had. I would be interested in hearing the Minister’s comments on that.
Secondly, I have a question relating to the European single market. If businesses want to purchase through other European Union countries, how is this legislation compatible with a single market if we have different standards in the UK? I assume that this has been got over, but I would be interested in understanding how that works.
A more specific question, on which I am not necessarily expecting an answer from the Minister today, relates to CHP. I understand from the Renewable Heat Incentive Scheme (Amendment) Regulations 2015 that, quite rightly, plants established before 4 December 2013 cannot claim back RHI because they were established before this type of scheme started. I understand that entirely. Where a CHP plant is added on to a CHP facility, particularly an AD one, that would be eligible for claiming RHI, but I understand that if that plant was built before 4 December 2013 and the CHP was then added on, it would not be eligible. That is a change of policy, as outlined by DECC following one of the earlier consultations. I know that that has affected certain plants and investment decisions, and I welcome that. As we all know, CHP is a very important late innovation in the UK and we wish to copy our European counterparts due to the success of those sorts of schemes in the past. If the Minister is able to answer that now or in correspondence, I shall be very grateful.
I very much welcome the evolution of this scheme, which I regularly remind people does not affect consumer prices for heat and has no effect on increasing energy prices.
Baroness Worthington (Lab)
My Lords, I, too, am grateful to the Minister for talking us through these regulations and for presenting a very clear and informative case for them. I have a number of questions relating to the regulations.
I notice that in the debate in the House of Commons, where these SIs were discussed previously, the Minister responding was a little loath to answer general questions about how the RHI is delivering against its targets. Specifically, when questions were asked about the budget, including the budget going forward, no clear answer came back. I therefore begin by reiterating those general questions to the Minister. Could she tell us when we might expect an update on how the RHI is doing in relation to where we need to be to hit our targets? Could she also give us a sense of when we might hear about how we are going in terms of the budget? Are we underspent or near to an overspend, and what are the budget projections going forward?
On the regulations, we certainly welcome, like the noble Lord, Lord Teverson, the introduction of sustainability criteria for biomass. It is a good idea, and it is very important that we restore the reputation of sustainable biomass. It is very easy to have one rotten apple in the barrel taint the perception of the whole system. It is important that we have transparent and robust information about sustainability and requirements on suppliers to meet those standards.
However, there is a point at which this ever increasing pressure to incorporate every single element of carbon emissions upstream on biomass is unique. It is not something that we do in other fuel supply chains. For example, gas is in the headlines a lot at the moment, and we hear debate about fracked gas versus LNG and versus gas coming from Russia, all of which have a different carbon intensity and carbon footprint, but that fuel supply chain is almost ignored and is not paid the same degree of attention. I understand why, but would just question when we might start to see a slightly more equal handling of fuel supply chains across the piece. Biomass certainly has a role to play in decarbonisation, but it should not be singled out. We ought to apply equal and fair treatment to all fuels, if we are going to pursue this very detailed accounting of upstream emissions.
I certainly welcome the list of suppliers and the department’s attempts to try to simplify this for both end-users and suppliers to ensure that the industry can get off to a good start.
I am also encouraged to hear from the Minister that she believes that biomethane injection to grid could be an important contributor to our renewable heat targets, but I am just curious to know to what extent biomethane is delivering. I imagine that we are now introducing tiered tariffs because there has been a relatively good uptake. What does the department now believe the potential for biomethane is? It would be very helpful to have it as the percentage of the total demand for renewable heat and gases, just so that we can get a sense of how we are doing and what the potential is. We expect that the RHI will uncover information about this market which, as has been said elsewhere, is a world first in terms of creating an open and widely applicable subsidy scheme for renewable heat. We would expect it to deliver quite interesting findings in terms of the least-cost options for decarbonisation. We simply have some curiosity as to where we see biomethane injection as we progress towards our targets.
We support the new powers to cause payments to be stopped and the interventions that are now possible. We have said this before in debates on the RHI. We remain concerned, and hope that the Government share our concern, that we must not see abuses of the RHI. We cannot afford negative headlines in the press about subsidies being abused or any wrongdoing, so it is important that the enforcement and sanctions parts of this intervention are got right. Why were these powers not originally included in the proposals? I am glad that they are there now, but I question why we had not thought through the need to do this earlier. I reiterate that I hope everyone in the department is fully aware of the need to ensure that, even if we take a slightly light-touch regulatory approach, we are very vigilant in ensuring that there is no potential for misuse of the funds, which are public funds in this case, not bill payers’ funds.
I have a question about the overall way we are going to move forward on the RHI. As we have seen from today’s discussions, this is now quite a complex policy area which has many triggers within it, including digressions and abilities to change different levels and to move technologies and bands. During the passage of the Infrastructure Bill through this House, an amendment was introduced by the Government that removed the need for an affirmative resolution for changes to some important parts of the RHI. At the time, I asked the Minister whether it would apply to tariffs and budgets applied to different technologies and whether it was appropriate. I am grateful to the Minister for writing to me on 17 November to confirm that moving from the affirmative resolution procedure to the negative resolution procedure would apply to tariffs for technologies. I reiterate my concern. I do not fully understand why it should be felt necessary to remove this part of the process which allows us to comment on statutory instruments and changes to statutory instruments. In her letter, the Minister said that it was to enable the Government to act quickly, but this is not a particularly slow process. It is an important part of the democratic process that ensures that we get proper scrutiny and an opportunity to question changes. It reassures the industry that due process will be applied to changes which will substantially affect plans for investment.
So again I ask: what is the real rationale for removing this important process? Perhaps it is for no other reason than that we will have fewer of these conversations, and that would be a great shame because I enjoy talking about the RHI. As the noble Lord, Lord Teverson, said, it is refreshing to be talking about something other than power when it comes to energy. I think we should maintain full scrutiny of these changes. This is a complex policy area, but it is an important one that we need to get right.
I am also slightly not reassured by the Minister’s statement that the Government will continue to “engage” properly with industry. I would like to hear a bit more about what engage properly with industry that means. I say that in the context of experience where, for example, on feed-in tariffs for solar, we saw very hastily introduced changes that were not properly consulted, and a great deal of bad feeling was created. If a change to the way we consider these SIs leads to anything like that in this market, it would be a great shame.
I would welcome the Minister’s comments on why we are moving away from the affirmative resolution procedure and, if they continue to pursue the negative resolution procedure, what the Government will do to ensure that they are properly listening to industry and engaging. Other than that, I am happy to support the regulations.
Baroness Verma
My Lords, I am extremely grateful to my noble friend Lord Teverson and the noble Baroness, Lady Worthington, for their support for the regulations. They have raised a number of questions. I shall endeavour to answer as many as I can, but if I miss out on any question, I shall write to them.
Baroness Worthington
Perhaps I did not articulate my question clearly enough. What I was asking about was not equal treatment within the RHI, but equal treatment across the energy sector. Why do we take a full “well to wheel” approach or a full lifecycle approach to biomass, but not to fossil fuels which, let us be honest, are inherently less sustainable? We do not treat them equally with biomass. My point was a broader one than simply about the RHI.
Baroness Verma
I am extremely grateful to the noble Baroness for that clarification, and clearly I failed to recognise the question as she originally put it. I think that the response needs to be made in a fuller, more formal letter to her. These are detailed criteria going forward, and of course what I cannot do is look retrospectively at the energy sources we have already.
Going forward with the schemes that we have control over today, we need to make sure that they are as sustainable and environmentally friendly as they possibly can be. Where we may have had trade-offs in the past, we want to ensure that those are now reduced to a minimum so that we can look not only at value for money for the consumer, but also that we play an active role in environmental protection, which is absolutely right.
I suspect that I have missed a number of questions, but since inspiration is not coming from behind me at this moment, I must assume that we will write.
I shall conclude by saying to the noble Baroness and to my noble friend that the contributions made by these schemes rightly should be reviewed regularly so that we can ensure that we are achieving the best value that we can offer to consumers without burdening the new sector itself. We also need to listen carefully to those in the sector to ensure that we do not inadvertently put up barriers that hinder their progress. We want to see newer technologies entering the marketplace, so a balance needs to be struck between reducing support when a technology matures and no longer needs so much support and encouraging the emerging ones. The noble Baroness mentioned the solar industry. Frankly, that is now seen as a mature part of the sector which needs less support, and rightly so.
In thanking both noble Lords for their support, I commend these regulations to the Committee.
Renewable Heat Incentive Scheme (Amendment) Regulations 2015
(9 years, 2 months ago)
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Baroness Verma
That the Grand Committee do consider the Renewable Heat Incentive Scheme (Amendment) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015
(9 years, 2 months ago)
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Baroness Verma
That the Grand Committee do consider the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015
(9 years, 2 months ago)
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Baroness Williams of Trafford
That the Grand Committee do consider the Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Baroness Williams of Trafford (Con)
My Lords, the Government recognise the importance of respecting human rights and are committed to preserving the rights of individuals in their homes and businesses not to undergo unnecessary intrusion. The Government have consistently made very clear their intention that public authorities should have fewer powers to enter people’s homes and that the privacy and rights of home owners and businesses should be protected and strengthened wherever possible. It is essential that powers of entry, as with any enforcement power, achieve the right balance between the need to enforce the law and ensure public protection, and providing sufficient safeguards and rights for the individual.
Powers of entry are statutory powers for a person to enter land or other premises for a specific purpose. Such powers are important tools that facilitate the protection of the public from harm, enable the effective investigation of offences and allow for the necessary enforcement of regulations. It is sometimes necessary to enter premises. However, we recognise that doing so can place burdens on businesses and individuals, and we have therefore sought to correct this.
The Protection of Freedoms Act 2012 introduced a number of measures to rationalise the more than 1,200 powers of entry that were available in statute. The Act required Ministers who have responsibility for powers of entry to, for the first time, examine those powers together, consider whether they were still necessary and proportionate and, crucially, consider whether they contained sufficient safeguards. Reports laid before Parliament in November last year proposed significant reform. The Act also provided for the introduction of a code of practice containing guidance about powers of entry and associated powers.
Following the review of existing powers of entry, this order provides for such a code of practice to come into force on 6 April this year. The order also describes those who will be covered by the term “relevant person” for the purposes of entry to premises. Subject to certain exceptions, this will mean that, in future, any person exercising a power of entry will be obliged to have regard to the new code. The two exceptions to the definition of “relevant person” are that, first, the person concerned is exercising a devolved power of entry and, secondly, that the exercise of the particular power of entry is subject to a separate statutory code of practice.
The relevant code of practice to which this order relates was first published last December. It provides guidance and sets out considerations that apply before, during and after the exercise of powers of entry—for example, that an occupier needs to be provided with written notice at least 48 hours before entry and that reasonable efforts should be made to obtain the informed consent of the occupier.
Of course, many of the considerations set out in the code already exist in statute in relation to certain powers of entry. It is therefore important that the code of practice does not override existing provisions and introduce unwelcome complication. The purpose of the code is simply to provide for a minimum level of safeguards to be applied broadly across powers of entry and to increase the consistency and transparency with which they are exercised. Where particular safeguards already exist in statute, the code will not alter or replace them.
Under the recent review, we proposed significant reform to existing powers of entry under statute. This code seeks to build on that reform and ensure that all entry to premises is exercised in a more proportionate and less intrusive manner, while upholding effective enforcement where necessary. I beg to move.
Lord Rosser (Lab)
My Lords, I thank the Minister for explaining the purpose of and background to this order. The Explanatory Memorandum indicates that the Secretary of State has been obliged to prepare a code of practice containing guidance about the exercise of powers of entry under, I believe, Section 47 of the Protection of Freedoms Act 2012.
Why does it appear to have taken a quite considerable period of time to produce the code? The public consultation took place over some six weeks at the beginning of 2013, and it does not appear that the Government were exactly overwhelmed with responses, since there were apparently just 28. What has been happening since the beginning of March last year? Could the Minister also say who was consulted on the code? The 2012 Act places a requirement on the Secretary of State to consult various people in the course of preparing the code of practice and in relation to the description of “relevant persons”.
Baroness Williams of Trafford
My Lords, I thank the noble Lord, Lord Rosser, for his contribution and hope that I can satisfy him on some if not all of the questions that he asked.
The review of all existing powers of entry identified more than 1,200 such powers. The noble Lord, Lord Rosser, asked why it took so long. I suppose the answer is, in part, that there were more than 1,200 separate powers, exercised in a very broad range of circumstances, and the review was therefore quite a considerable and complex task. It was really the first time that the Government considered these powers of entry as a whole rather than in parts. Although it took a while, I hope the noble Lord is satisfied about why it did. The important thing is that the review was carried out.
Lord Rosser
I certainly do not wish to pursue this point in great detail, but the consultation on the draft code of practice finished at the beginning of 2013, so presumably the draft code of practice reflected the 1,237 separate powers and how they could be brought together into a draft code of practice to produce greater conformity and consistency. What I cannot understand is why, the consultation on the draft code of practice having ended early in 2013, it has now taken so long for us to be considering the code of practice in its final form.
Baroness Williams of Trafford
My Lords, I appreciate the point that the noble Lord makes. The consultation was completed in 2013, but the issue is complex. I assume that the Government had to consider the complexity of the matter as a whole. The noble Lord still does not look satisfied, so perhaps I should put it in writing in due course.
The noble Lord also asked who was consulted. We consulted widely with organisations responsible for exercising powers of entry as well as with the businesses and individuals who are subject to the powers. We believe the new code of practice will provide the much needed consistency and transparency that he talked about and will ensure that members of the public know what to expect when powers of entry are exercised without unduly restricting the ability of enforcement bodies to take necessary action.
I now have from the Box behind me another point about why it took so long to produce the code. It was in order to meet the concerns of other government departments. It was necessary to complete the review of existing powers before bringing forward the code of practice and take into account their concerns on the wording of the code. I will lay that out in writing to the noble Lord.
The code was subject to public consultation and was available on the Home Office website. Home owners at the time were able to access it. The review and the code were separate projects—that might also be helpful to the noble Lord. The review was about which existing powers should be revoked, have safeguards added or be rewritten, while the code is about what safeguards should apply to the exercise of powers of entry that remain on the statute book. I hope that helps to clarify the noble Lord’s concerns there.
The noble Lord, Lord Rosser, asked why it will be five years before an internal review takes place. Section 49 of the Protection of Freedoms Act 2012 places an obligation on the Secretary of State to keep the code under review. This obligation will bite from the point the code comes into force. I hope that explains that point.
The noble Lord also asked whether organisations say that the code will make them less effective than they are now. None of the organisations that responded to the consultation stated that the code will be less effective than the current arrangements. I hope that gives the noble Lord comfort.
The noble Lord also asked when changes proposed by the review will take effect. It is for the department to make the legislative changes that have been proposed in review reports. Timetables will take into account the wider policy context in which a particular power operates; for example, it might be appropriate to make changes to powers of entry alongside other planned reforms. The Protection of Freedoms Act 2012 provides statutory tools to repeal, add further safeguards to or consolidate powers of entry, and I am aware of a number of changes having been introduced.
I am sure that I have not answered everything that the noble Lord, Lord Rosser, asked, but I hope that gives him some satisfaction. With that, I commend the order to the Committee.
Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015
(9 years, 2 months ago)
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Baroness Williams of Trafford
That the Grand Committee do consider the Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Baroness Williams of Trafford (Con)
My Lords, this order concerns the important government commitment to reduce the number of organisations that can access communications data. Noble Lords will be aware of the significance of this subject and of the provisions on the retention of communications data currently being considered by this House in the Counter-Terrorism and Security Bill.
As noble Lords will know, communications data are the who, where, when and how of a communication but not its content. It is a crucial tool for fighting crime, protecting children and combating terrorism. Access to communications data is governed by the Regulation of Investigatory Powers Act 2000, known as RIPA. RIPA contains robust safeguards, including tests of necessity and proportionality. In July last year, in response to an adverse judgment of the European Court of Justice on the EU data retention directive, Parliament passed the Data Retention and Investigatory Powers Act, or DRIPA. This Act ensured that important capabilities were not undermined, while increasing safeguards.
While that legislation concerned data retention, the Prime Minister also announced a number of safeguards concerning access to communications data. One of those safeguards was a commitment to reduce the number of organisations with access to that data. This order fulfils that important commitment. A further safeguard in the Data Retention and Investigatory Powers Act will ensure that data retained under that Act can be accessed only via RIPA or through a court order or warrant. This order therefore replicates a power to access communications data that already exists in the Financial Services and Markets Act 2000.
I will now turn to the substance of the order. As I have said, it reduces the number of organisations that can access communications data. This is a crucial safeguard. I know that this Committee will agree that only those authorities that can make the strongest possible case should be allowed access. Following a recommendation from the Joint Committee on the draft communications data Bill, the Home Office conducted an exercise to ascertain whether some authorities should lose their powers to access communications data. This order removes powers from the following 13 authorities identified in that exercise: the Charity Commission; the Civil Nuclear Constabulary; the Department of Agriculture and Rural Development, Northern Ireland; the Department for Business, Innovation and Skills; the Department for Environment, Food and Rural Affairs; the Department of the Environment, Northern Ireland; the Environment Agency; the Food Standards Agency; the Pensions Regulator; the Port of Dover Police; the Port of Liverpool Police; the Royal Mail; and the Scottish Environment Protection Agency.
Some noble Lords may consider that we should have gone further and taken away powers from more authorities. The Government considered the business cases for all the authorities with communications data powers. I can assure noble Lords that there are very good reasons why the authorities that have retained their powers have been allowed to do so. When deciding which authorities should retain access, the Government considered a number of issues, including the statutory responsibilities of the authorities with access, the seriousness of the offences they investigate and the number of requests that they made. Although identifying authorities to lose powers was not easy, the authorities identified in this order were not able to demonstrate that their continued access was strictly necessary.
It is worth noting that there is also a substantial amount of transparency on this issue. The most recent report by the Interception of Communications Commissioner listed all the authorities with access to communications data and the purposes for which they can access those data, as well as the number of requests that they made in the calendar year. I hope that the approach the Government have taken and the transparency available will assure noble Lords that the Government are taking the right action concerning which authorities should have investigatory powers. This brings me on to the other provision in this order.
The order also amends the Regulation of Investigatory Powers (Communications Data) Order 2010 to add a new purpose for which communications data may be acquired for the purposes of the Regulation of Investigatory Powers Act. This new purpose is specifically designed to replace powers that are currently available in the Financial Services and Markets Act 2000. The order specifies that only two public authorities will be able to use this purpose to access communications data: the Financial Conduct Authority and the Prudential Regulation Authority. The measure will ensure that all their requests for communications data are subject to the safeguards in RIPA. These two authorities are currently able to access communications data under RIPA for the purpose of the prevention or detection of crime. They are also able to access communications data under the Financial Services and Markets Act when investigating civil abuse of our financial system.
Noble Lords will understand, particularly in the light of experiences over the past few years, how serious and damaging the impact of abuse of our financial system can be. Communications data are capable of showing who contacted who and at what time. This power is fundamental in, for example, proving that insider dealing has taken place. So to be clear: this new purpose replaces powers that have been available in the Financial Services and Markets Act 2000 but ensures that they are subject to the robust safeguards in RIPA.
I know that the Committee will appreciate why we are bringing forward the provisions in this order. Equally, I know that the Committee will want to feel confident that we will keep under review whether the right authorities have the right powers. I can assure the Committee that we will. The Data Retention and Investigatory Powers Act 2014 provided for David Anderson QC, the Independent Reviewer of Terrorism Legislation, to undertake a review of investigatory powers and report by 1 May 2015. DRIPA also contains a sunset clause of December 2016. Therefore, legislation on communications data will be needed in the next Parliament. We look forward to the findings of the review and to using those findings to inform future legislation.
In closing, the order fulfils the important government commitment to reduce the number of organisations with access to communications data. It also ensures that all requests for communications data by the financial regulators are subject to the safeguards in RIPA. I beg to move.
Lord Rosser (Lab)
My Lords, I thank the Minister for explaining the background and purpose of the order which, as she said, removes some public authorities from the list of bodies allowed to access communications data under the Regulation of Investigatory Powers Act 2000, and increases the grounds under that Act on which the Financial Conduct Authority and the Prudential Regulation Authority can access data to include non-criminal enforcement of financial services regulation.
However, why are the Government bringing forward the order now? The Explanatory Memorandum refers to the draft communications data Bill, as did the Minister, and a Joint Committee report published more than two years ago. The Explanatory Memorandum also states that while that Bill was being considered there was substantial consultation with the authorities from which this order removes powers, as well as with the Treasury in relation to the change affecting the Financial Conduct Authority and the Prudential Regulation Authority. All this appears to have been some time ago, and it is only now that the order is being brought forward, yet there have been other developments since the Joint Committee report on the consultations to which I have referred. As the Explanatory Memorandum itself says in paragraph 12—to which the Minister has already made reference—the Data Retention and Investigatory Powers Act of last July,
“requires the Independent Reviewer of Terrorism Legislation to carry out a review of investigatory powers, including communications data”.
That review should be completed by 1 May, in just over three months’ time. In addition, the Intelligence and Security Committee is determining how we can properly balance both security and liberty in online communications.
Why then have the Government decided to bring this already delayed order in now rather than wait for the pending reports and views on issues relating to communications data from the independent reviewer and the ISC? Is bringing this order forward now rather a case of jumping the gun in the light of developments in recent months, bearing in mind that this order appears to have been somewhat delayed? It would be helpful if the Minister could say why the Government deem it appropriate for the 13 organisations listed to lose access to communications data. One of them has undergone a fundamental change in ownership since the Government first started considering this issue. What were the criteria against which the decision that they should lose access to communications data was reached?
On the consultation that took place some time ago, which is referred to in the Explanatory Memorandum, can the Minister confirm what I think she said in her opening comments that all the 13 authorities concerned had agreed to the removal of their powers to access communications data? Will she also say whether the relevant Ministers did likewise in respect of the authorities that came under their departments? Were any authorities originally on the list subsequently taken off the list of 13 we now have? Were any organisations that were not originally on the list subsequently added it?
During a debate in this House in July last year, reference was made to the Food Standards Agency, which is included in the list of 13 organisations and, in particular, to the egg inspectorate of the Food Standards Agency using RIPA. We were told that in the past few years people have gone to prison for multimillion-pound frauds restamping eggs. In that debate, we were told that billions of eggs were being brought in from France unstamped and processed in a factory in the Midlands. The egg inspectorate had to know about this, and there was a tip-off. The point being made in that debate was that any idea of the egg inspectorate not being able to use RIPA would seriously weaken the efforts of those who are there to protect us from the kind of activity I have just described. Will the Minister comment on that in the light of the fact that the Food Standards Agency is listed as one of the organisations losing access to communications data under RIPA?
We are not opposing the order, but I should be grateful if the Government respond in some detail—if not today, then subsequently—to the questions I have asked and the points that I have made.
Baroness Williams of Trafford
My Lords, I thank the noble Lord, Lord Rosser, for the questions he has raised. I am very grateful that he will allow me to write to him in due course, given that I have not had a Box behind me for most of the debate.
On why the order is required now and why we cannot do everything together, DRIPA has a sunset clause and everything will have to be reviewed in the next Parliament. In addition, the independent reviewer David Anderson QC will report his findings on 1 May 2015. There is no doubt about it: the Government and subsequent Governments will need to review the whole thing in the round anyway, and the sunset clause in 2016 will underline that need to review the whole issue.
The noble Lord also asked why we specifically chose the 13 organisations to lose power and whether they were satisfied with that loss. I understand that some concern was expressed by the Royal Mail. I do not know of any concern expressed by any other organisation. The primary reason they were chosen was they had made little if any use of the powers, and therefore were taken off the list. It is also important to note that the Joint Committee found it difficult to say which organisation should lose its powers.
Lord Rosser
As I understand it, the Joint Committee basically said that organisations should be looked at. That has been done and the 13 have emerged. It would certainly be helpful to know the criteria that we use to decide which ones should be on the list.
Baroness Williams of Trafford
I hope that I have explained that. It was the case that either little use or no use had been made of the powers. I assume that, as time goes on, organisations may be added to the list or be taken off it, depending on events. The noble Lord asked a specific question about the egg inspectorate. As I understand it, the inspectorate does not have powers to access communications data. I hope that that helps.
Lord Rosser
Is the Minister saying that it does not have powers at present—not that it will not have them but that it does not have them at present?
Baroness Williams of Trafford
It has never had them, I understand. I will have to write to the noble Lord because I know that I have not answered all his questions, but I hope that he will be satisfied with that.
Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015
(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Lord Popat
That the Grand Committee do consider the Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Lord Popat (Con)
My Lords, this measure has already been considered in another place. It has long been an established fact that wearing seat belts is an important safety mechanism. Seat belts are a significant factor in saving lives in collisions, and they are therefore something that the Department for Transport takes very seriously. That is why the fixed penalty for not wearing a seat belt increased to £100 in 2013.
That said, there are some circumstances in which it is appropriate for individuals to remove their seat belts. An exemption from the requirement to wear a seat belt exists for those travelling in vehicles being used for police and fire-safety purposes. There is no parallel exemption for ambulance personnel when they are travelling in the back of an ambulance and providing treatment to a patient. Therefore, an ambulance worker who removed their seat belt to provide life-saving treatment, including chest compressions, to a patient or to deal with a paediatric or obstetric emergency would be committing an offence. That is an unfair position in which to put those whom we should properly be supporting. The outstanding and selfless work and commitment of those in the front-line ambulance service is one of the things that makes the NHS the envy of many other countries in the world.
In December 2011, as part of the Department for Transport’s Red Tape Challenge, a decision was taken to create a new exemption from the requirement to wear a seat belt for persons riding in an ambulance while providing treatment to a patient. In 2013, the proposal was considered in a consultation paper on speeding limit exemptions for emergency vehicles. There was unanimous support for the proposal from a range of stakeholders, including representatives from the ambulance service, the police, road safety groups and members of the public.
There is a European directive which harmonises the compulsory use of seat belts in specific categories of vehicles across member states. The directive permits member states to grant exemptions from the requirement to wear seat belts in certain specified circumstances, provided that the approval of the Commission is obtained. One such circumstance is ensuring that the emergency services can perform their duties properly. The department requested the EU Commission’s approval in respect of the proposed exemption in November 2013, and this was granted in June 2014. The derogation granted by the Commission provides that the exemption should be applied when the patient requires treatment,
“which due to its nature or the medical situation of the patient cannot be delayed”.
These regulations will add an additional exemption from the requirement to wear a seat belt for persons travelling in an ambulance while they are providing urgent treatment to patients. The regulations are drafted in accordance with the terms set out by the European Commission.
The proposed changes have been drafted in consultation with the Department of Health. They have the support of the Association of Ambulance Chief Executives and seem entirely logical. This is a straightforward change which will allow the emergency services to do their job. I therefore commend the order to the Committee.
Viscount Simon (Lab)
My Lords, the Minister in his opening remarks has touched considerably on what I wanted to ask him. He mentioned road safety groups. I simply want to ask whether those groups include representatives from St John Ambulance and other charitable organisations. Will they covered by these regulations?
Lord Rosser (Lab)
I thank the Minister for explaining the purpose of and reasoning behind this order, which we support. As the noble Lord said, the regulations exempt persons riding in an ambulance from the requirement to wear a seat belt while providing emergency medical attention or treatment to a patient for whom such treatment cannot be delayed. Indeed, one assumes that in reality ambulance personnel have been ignoring the existing regulation in these circumstances since, I am sure, they put the welfare and indeed the survival of their patients ahead of abiding by seat belt regulations—and ahead of their own personal safety. Not being in a position where seat belts can be worn places the safety of ambulance personnel in jeopardy if the ambulance itself is involved in a road accident or incident either directly or indirectly. I assume that the purpose of the order is to regularise a situation that I imagine has existed on almost a daily basis.
I would be grateful if the Minister could confirm—I am sure that the answer will be “yes”, given what is set out in the Explanatory Memorandum to the regulations—that this measure has also received the support of the trade unions which represent ambulance personnel.
Perhaps I may also take what is to an extent a liberty by raising another point. I hasten to say that I do not expect the Minister to respond to it today since I accept that, while it relates to an aspect of wearing seat belts, it is not one that even I could argue is covered by these regulations. It would be helpful if the Minister could let me know in due course either what decision the Government have made, or when they expect to make a decision, following a consultation in 2011 on the implementation and method of enforcement of the 2003 EU directive requiring children aged three and up to 14 travelling in a coach to wear seat belts. As I say, I appreciate that I am taking a bit of a liberty in raising this issue now, but if the Minister is subsequently able to give me the answer, I shall be extremely grateful to him. Again, we support the order before the Committee.
Lord Popat
I thank the noble Lord, Lord Rosser, for supporting the order. The noble Viscount, Lord Simon, asked a question about St John Ambulance. These regulations apply the definition of “motor ambulance” in Regulation 3(2) of the Road Vehicles (Construction and Use) Regulation 1986. A motor ambulance is defined as a purpose-built motor vehicle which is specifically constructed and equipped for medical purposes. I am pleased to say that that applies to St John Ambulance.
The noble Lord, Lord Rosser, asked what paramedics do at the moment when they need to provide treatment. Obviously, they do an excellent job. Given the imperative for paramedics to preserve life and give treatment to the patient in the ambulance, we understand that they will carry out treatment using their judgment and will remove their seat belt if necessary. I am glad they have that exemption now so that whatever work they do will be legal.
The noble Lord, Lord Rosser, also raised the outstanding issue of buses and coaches having seat belts for children under 14. This legislation took a long time to come here because we had to get permission from the European Union. Legislation requiring that seat belts are worn by children under 14 is being prepared by the Department for Transport and will be presented to the House for consideration when it is finalised and cleared.
I hope that I have answered all the questions. I will certainly look at Hansard and, if I have left anything out, I will be very happy to write to noble Lords.
Lord Rosser
I raised a question that relates to the order. It was about whether trade unions representing ambulance personnel supported the change. I am sure they did, but perhaps the Minister can confirm that.
Lord Popat
There was widespread consultation on this—a 12-week consultation about changes to specific exemptions, which closed in February 2103. A wide range of stakeholders responded, including representatives from the ambulance service and road safety groups. There was also widespread support for the proposal across all stakeholder groups. I guess that “all stakeholders groups” would include the CBI and the TUC.
I hope that I have addressed all the questions. As I said earlier, I will be very happy to look at Hansard and, if I have left anything out, I will respond.
Local Audit (Appointing Person) Regulations 2015
(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Baroness Williams of Trafford
That the Grand Committee do consider the Local Audit (Appointing Person) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
Baroness Williams of Trafford (Con)
These regulations are among a number necessary for local public audit in the new regime introduced by the Local Audit and Accountability Act 2014. That Act abolishes the Audit Commission and gives greater responsibility for auditor appointment to local public bodies. I will not take up the Committee’s valuable time by repeating the arguments put forward during the passage of the 2014 Act in this debate. There was broad support across the House for making the collective procurement of audit services available to local public bodies, and these regulations deliver on the commitment that we made then.
We recently updated our impact assessment: this is saving £759 million over the five years between 2012 and 2017—the duration of the outsourced audit contracts—and an estimated £1.35 billion over 10 years. As a direct result of this work being done by the private sector, the cost of external audit for local bodies will reduce by £30 million per annum.
Before getting into the detail of these regulations, I will explain the background. From 2017, a local public body will have to appoint its own auditor unless it chooses to opt in to the collective procurement arrangements we are providing for with these regulations. The Local Audit and Accountability Act 2014 already allows local public bodies to get together to jointly procure audit services. During its passage through Parliament, we amended the Bill to make broader collective procurement arrangements available in light of an appetite in the sector for this. In particular, the noble Baroness, Lady Hanham, worked with the noble Earl, Lord Lytton, to address and resolve concerns so that legislative provisions for collective procurement for smaller authorities would be suitable for the needs of that sector.
I will deal with the appointing person regulations first. As I said, we made provision for collective audit procurement in the Local Audit and Accountability Act in response to demand within the sector. We also consulted on a draft of these regulations. Responses were broadly content with these provisions, including those that we asked specific questions about: that the decision by local bodies to opt in must be taken at full council, and that the maximum period of the appointing body’s responsibility should be set at five years.
This is a lengthy set of regulations, so noble Lords will understand if I do not discuss them in detail. They make the collective procurement of audit services available to the sector while meeting objectives of accountability, transparency, continued auditor independence and audit quality. To achieve this, they: provide for the Secretary of State to specify an appointing body in a transparent manner; allow more than one appointing body to be specified, enabling specialisation in audit procurement for different groups of authorities; set out how authorities can opt in to, and later opt out from, the appointing body’s arrangements; require the appointing body to consult authorities on audit fee scales; define the appointing body’s roles in relation to auditor appointment, resignation or removal; require the appointing body to monitor auditor independence and compliance with contractual obligations, and deal with any disputes or complaints relating to audit work or audit contracts; and provide that an authority which has opted in to these arrangements will not be required to have an independent auditor panel. The regulations also provide that the appointing body’s services will be available as an additional option to the Secretary of State if an authority which has not opted in to collective procurement arrangements also fails to appoint its own auditor.
The smaller authorities regulations have a similar objective to the set of regulations I have just spoken about, but for smaller local public bodies. They provide for the collective procurement of audit services for smaller bodies, with the same guiding principles as for principal authorities. Those are transparency and accountability in decisions taken about how a body’s auditor is appointed, and continued effective, independent assessment of the accounts of authorities subject to that audit.
As with an appointing body for principal authorities, the body’s remit is clearly defined and will be focused on achieving good value for money in audit procurements. If it does not, smaller authorities are unlikely to use its services.
Lord Palmer of Childs Hill (LD)
My Lords, I thank my noble friend the Minister for that detailed exposition. I need to declare—especially given her last comment—that I am a chartered accountant and that I was, until May, the chairman of a local authority audit committee. I think that is probably enough in that respect.
I see my role as being to pick holes, if there are any, in what I see in front of me. The main thing that I am looking at is the draft guide which my noble friend referred to. On page 3 of that guide, there is the comment that the annual accounts are subject to a limited assurance review. Within audit committees, internal audit teams have a way of classifying the work of each department or service area, and when they audit that service area, they deem its performance to have been satisfactory, limited or poor respectively. It is generally done with a traffic lights system. The term “limited assurance” has a specific connotation within the audit field, and by referring in the guide to a limited assurance review there is the complication that it will be viewed as part of what I call the traffic lights system in local authorities. It is a slightly careless use of words that are used within the realm of audit. Could my noble friend think about that and the confusion that it might cause?
There seems to be a very light mention within the paper of internal audits, which I mentioned in an earlier discussion on the Bill. Good local authorities rely very much on their internal audit teams. External auditors also rely on the internal audit to a large degree, although it depends very much on the firm and the internal audit. The idea is that you do not do the job if it has already been done. However, internal audit is hardly mentioned. It is mentioned on page 5 of the paper that there should be an internal control, but there does not then seem to be a relationship in terms of what regard external auditors can take of that internal audit. If we are aiming to drive down costs for local authorities and the like, there ought to be an acknowledgment of what good internal audits can achieve. I did this when I was chairman of an audit committee—internal audits tore the living daylights out of service areas, and if they did not perform better, they had to come back and explain why. That is what internal audits do, but there does not seem to be much mention of it here.
Annual appointments are complicated, as very few accountancy firms are deemed by the Institute of Chartered Accountants in England and Wales—I presume this is the case in Scotland as well—to have the stature, knowledge and capability of doing this. I cannot remember what the figure was—I am sure other noble Lords will—but it was no more than eight, and probably about five. There were about 10 firms that had the capability but only about eight were deemed to be able to do it. So there will be a very limited market for these firms. I do not know whether the Minister has inquired with the professional bodies as to whether they see any problem.
My last comment on this is about very small authorities. My understanding of the paper is that very small authorities—those with a turnover under £25,000—will not need to appoint an external auditor, unless someone raises a query. In practice, if a small authority that needs a set of accounts, and thus an audit, has a turnover of £25,000 or less, and somebody raises an accounting query, that local authority or body will then have to appoint an external auditor to deal with that query from a member of the public. I may have this wrong, and my noble friend will correct me, but my reading says that that is what needs to happen. Therefore, in practical terms, if Mr or Mrs Vexatious raises a problem with the accounts of a local body with a turnover of £25,000 or less, it has to appoint an external—not internal—auditor, whose fees will start, say, at £1,000 and may be a lot more. My noble friend should know that that is impractical. I hope that these points are addressed before the regulations are put on a firm basis.
Lord Beecham (Lab)
My Lords, I declare an interest as a member of Newcastle City Council and of its independently chaired audit committee.
My noble friend Lord McKenzie and I whiled away a happy hour or three, as I recall, on these issues when the Bill was going through. Some of the reservations that we had then would apply also to the proposals before us, and my noble friend will enlarge on them. I concur with some of the questions raised by the noble Lord, Lord Palmer. In particular, he is right in his recollection that there are, apparently, eight firms—a couple of which are actually connected to the big five; so there is generally little choice in this field. One of the questions is whether that is acceptable to the Government or whether there should not be an attempt to encourage other, perhaps smaller, firms to develop an expertise, make more of an impact on the market and recognise that, in fact, the high cost of employing the major firms—the Deloittes, the PwCs and so on—is justified in the context of even a joint appointment. The fact that there is a joint appointment will not necessarily reduce the cost of an individual audit exercise, although perhaps the Government have done some work on that and can enlighten us.
One of the points that I, and I think my noble friend, raised was the desirability of positively promoting a change of auditor after a period of time, because there is a danger that the auditor and the local authority get too close together. The Minister has a long experience—although not quite as long as mine—in local government and as a council leader, and will therefore be familiar with these issues. A turnover is desirable, and perhaps the noble Baroness can indicate whether the Government might be prepared to facilitate that in this context.
One of the other issues facing all local authorities is, given the effective demise of the Audit Commission, the difficulty of comparing what goes on within one’s own authority with other authorities. The Audit Commission had its virtues and some problems from time to time, but at least it often provided information across the piece that one could look at and with which one could compare what one’s own authority was doing. I know that that is the view not just of political members of the audit committee in Newcastle but very much of the independent chair and independent members, and they miss such a basis for comparison. Given what I guess is the slightly smaller degree of experience in these matters among the smaller councils that we are talking about, have the Government any proposals to remedy this information gap? While all authorities can benefit from that kind of comparative information, it is probably more important, in some respects, for smaller authorities—particularly if independent members serve on them. It would be very much welcome to hear the Government’s position on that process.
The Audit Commission is not officially dead and buried but that part of its work regarding local authorities is effectively gone as far as local authorities are concerned. That is unfortunate and we have to live with it—at any rate, for the time being—but, given these new proposals, I hope that something will be done to assist members of smaller authorities, their officers, in so far as they have any, and those who ultimately do their accounts to be able to look at what comparable authorities are doing. That would certainly be a much more useful process for the audit committee’s oversight, or that of the local authority, of what is going on in their local patch.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for introducing these two sets of regulations. As she will have gathered from the debate in the other place, although we have some questions of detail, we will not seek to oppose these regulations.
I agree with much of what the noble Lord, Lord Palmer, and my noble friend Lord Beecham said, and I will come on to some of those points in a moment. However, on the issue of internal audit, I had no doubt that the noble Lord would raise it because he was very strong on this issue when we were discussing the Bill. My question is how under this regime the strength of internal audit is going to be reflected in the setting of fees. That was not clear from my reading of the regulations.
We are pleased that during the passage of the Local Audit and Accountability Bill, which is now an Act, the Government accepted the argument in favour of preserving some opportunity for ongoing collective procurement of audit services for those who wished to avail themselves of the opportunity, which is what these regulations cover. Although we were not supportive of retaining the Audit Commission with all its former powers, its precipitate demise forgoes the opportunity; we should have used it in some of the roles that are promulgated in these regulations. It is a pity that that decision was taken without thinking through the consequences.
The LGA has created Public Sector Audit Appointments Ltd which is due to manage ongoing audit arrangements. Until April 2015, it is the responsibility of the Audit Commission. It will use staff transferred from the commission, so we are getting rid of the commission and transferring some of the staff into this new body to carry out some of the activities that it was already carrying out in managing those existing contracts. How many staff are to be transferred under these arrangements and what are the expected ongoing annual costs of the new entity through to 2017?
My noble friend Lord Beecham touched upon the best value profiles and the ability of individual authorities to benchmark themselves against others. I understand from what I have read that the profiles will not be preserved in their previous form and therefore will not be available under the new regime.
Both the appointing person regulations and the smaller authorities regulations provide for the Secretary of State to specify the person or persons to appoint a person to appoint a local auditor. For principal authorities and smaller authorities the Secretary of State can specify different persons in relation to different classes of authorities. Will the Minister say a little more about what the Government have in mind in terms of these appointments, whether they will seek to appoint for different classes of authority, what experience they will look for in the person they appoint, how they propose to monitor the performance of such persons and by reference to what criteria?
The noble Baroness referred to the LGA. I do not know whether it is proposed that the existing LGA entity will become involved, whether there will be a new entity, or whether that will be part of the provision. Is it the intention that Public Sector Audit Appointments Ltd will be an appointee? It is noted that no appointment can be made for a financial year before 1 April 2017, but does this imply that the existing contracts will not be extended beyond their current term? I think that they can be extended to 2020. What is the earliest date that the run-on of existing arrangements can be triggered? If there is a desire to run them on to 2020, what is the earliest date when the decision is needed in respect of that?
The noble Lord, Lord Palmer, and my noble friend Lord Beecham touched on capacity. When outsourcing its audit contracts to the private sector the Audit Commission sought, although with limited success, some diversity of providers. My recollection is that most of the contracts went to the big four accounting firms. I think there were a few others, and Grant Thornton featured among them. I cannot remember how many other firms were sought, but there were precious few.
Lord Palmer of Childs Hill
Perhaps I may add that Grant Thornton did not mop up a large number of the contracts.
Lord McKenzie of Luton
I think that it was the fifth firm. I cannot remember whether there were any beyond that, but there may have been changes in the interim.
What requirements, if any, will be placed upon appointed persons in this regard to seek to bring diversity of providers to the market? The regulations cover the obligation of appointing persons to oversee issues of independence. Generally, this should cover the independence of the auditor from the authority being audited as well as the independence of the auditor from the appointing person. As the Minister said, there has been extensive consultation around these proposals, but significant and authoritative concerns still appear to have been raised in some quarters. I refer first to comments made by the Audit Commission, which chime with those made by the noble Lord, Lord Palmer. How does the Minister respond to the comments made by the Audit Commission in its letter to all noble Lords written in September 2014? I refer to two paragraphs in particular. The first says:
“Currently all local authorities have their financial documents subjected to review by an external auditor. This is at no cost to most councils spending less than £25,000 a year and has a maximum cost to them of £100 a year. Under the current government’s proposals, external checks will not happen routinely for local authorities spending less than £25,000 a year. However these bodies will have to appoint an auditor for when local people wish to contact one with formal questions or objections. Additionally, these parishes and other bodies will have to publish specified information on their website or, if they don’t have one, on the website of the district council. This will inevitably cost more than the current arrangements”.
That is precisely the point the noble Lord made. The commission goes on to say:
“The regulations making provision for all procurement possibilities (exempt opted-out authorities, exempt opted-in authorities, non-exempt opted-in authorities, and non-exempt opted-out authorities) are close to impenetrable. Administering these complex new arrangements will also require any collective procurement body to hold and keep up to date large amounts of information about all 10,000 or so small bodies across the country. This will include contact details, whether they want to be part of the body or not, all the audit appointments the body has made, and all the bodies where auditors have used their statutory powers. This will add to its costs and therefore increase audit fees”.
How do the Government respond to that?
Moving on briefly to the position of the Institute of Chartered Accountants in England and Wales, I should declare my interest as a fellow of the institute, although it is a long time since I practised to earn a crust. A key part of the new arrangements will be the NAO’s proposed Code of Audit Practice. The Minister will be aware of the responses to the draft code as well as the smaller authorities regulations, in particular that of the ICAEW. Although broadly supportive of the code, the institute has expressed some reservations about smaller authority assurance arrangements. It expresses these in two paragraphs in particular, and as an aside I should say that it also refers to the issue of value for money in arrangements going forward:
“We have noted the statement in paragraph 3.6”—
of the consultation document—
“‘should evidence of poor value for money become apparent during the course of the audit, the auditor should consider the implications of this for their work.’ It would be helpful to clarify that this does not require auditors to search for evidence of poor value for money, but rather consider the underlying arrangements where a significant situation might arise which identifies that value for money is not being achieved”.
Is that right and are the Government happy that that is the position?
I now move on to small authority assurance engagements, to which the noble Lord, Lord Palmer, also referred. The institute states:
“As you know, ICAEW has had significant concerns about the government’s proposals in relation to smaller authority assurance engagements. In particular, our concerns have centred around the mis- understanding of the difference between ‘audit’ and ‘assurance’ engagements”.
It goes on to say:
“ICAEW would not be supportive of a change to the definition of audit as suggested by DCLG and we would strongly urge the NAO to also reject moves to create such confusion and to create a new definition. Indeed, as indicated in our response to government on the smaller bodies’ regulations … we would not recommend that any ICAEW member firm take this work on if significant changes to the regulations are not made and that the definitions of audit and limited assurance continue to be mis-interpreted”.
That is pretty strong language, and stronger than I have read in any representations that it has made before. The Minister said that the Government are still in discussion about that, but can she say something more about whether there is any movement or convergence of views on that with the institute? If the institute is advising its members not to engage, that is a very serious blow indeed. If these issues with the ICAEW have not been resolved, and the institute maintains its stance on discouraging member firms from taking on assignments, there is a major problem. Obviously, there is a little time before we get to 2017, but it would be good to know that there was some progress on that matter.
I have one or two further minor points for the Minister. An opted-in authority will not be required to have an auditor panel, but if it does, that panel must not be consulted on opted-in matters related to the audit or the auditor appointment. Why is that provision there? It is not apparent to me as it stands. For smaller authorities, the exercise of the public right to question and object must in future take place within the 30-day inspection period rather than in the period after it. What is the purpose of that change?
I have one final point. Under the transparency code for smaller authorities, there has to be an explanation of any differences between balances carried forward and total cash and short-term investments. How is that supposed to help? As it stands, it could be interpreted in myriad different ways. These regulations are exceptionally complex. We would not seek to stand in their way, and guidance will obviously help, but we hope that the complexity will not defer the opportunity to use this approach, which is an important strand of our discussions on the Bill.
Baroness Williams of Trafford
I thank all noble Lords who have contributed to this debate. Like them, I declare an interest in local government, but I do not declare an interest as an accountant—although I declare an interest as being married to one.
The noble Lord, Lord McKenzie, is quite correct that this is a complex area. The more we look into it, the more we realise how complex it is. I will go through the various points that noble Lords made.
I wonder whether my noble friend Lord Palmer is the same Lord Palmer who was on Barnet Council.
Baroness Williams of Trafford
I conducted a peer review on Barnet Council some time ago and I wondered whether that was indeed my noble friend.
Lord Palmer of Childs Hill
As an opposition councillor, I was chair of the audit committee for four years.
Baroness Williams of Trafford
Marvellous, so our paths have crossed. My noble friend asked about the draft guidance on the limited assurance review and whether it was understood by the accountancy profession. It is well understood by the audit and accountancy professions because it is already in use. It is about European standards and defined in the guide, so I hope I can give him comfort on that.
My noble friend also made a point about internal audit and about there not being enough detail in the guide. It may be helpful if I point out that these regulations and the guide are about external auditors and do not really focus on internal audit. However, that is not to say that we do not agree entirely that internal audit is extremely important.
Lord Palmer of Childs Hill
The point is that a very small local authority would not have an auditor and would have to appoint someone if an action took place. If an auditor was in situ, I am sure that they would behave very responsibly—I have seen them do so—but my point concerns when you have to appoint one. I am sorry for interrupting my noble friend.
Baroness Williams of Trafford
I totally understand where my noble friend is coming from. If you are a small authority—for example, a parish council—and someone makes a vexatious claim against you, I am making the assumption, although I stand to be corrected if I am wrong, that the appointing body could do that for you. I understand that that is correct. Therefore, the body appointed by the Secretary of State could do that for you—it could take on the role that a larger authority would avail itself of. I hope that that helps my noble friend.
Both my noble friend Lord Palmer and the noble Lord, Lord Beecham, talked about the limited audit market. The Government’s view is that the repackaging of the audit contracts by a sector-led body could in fact open up the market. That is the hope. It may be helpful for noble Lords to know that we are working with the sector to encourage new entrants.
The noble Lord, Lord Beecham, talked about the turnover of auditors. The NAO will have a key role in complaints, similar to that of the current Audit Commission. I am happy to share with him the letter from Kris Hopkins MP and Andy Sawford MP on this very point if that would be helpful.
The noble Lord, Lord McKenzie, asked about the number of staff to be transferred and the cost of the transfer. If it is okay with him, I will write to him about that. He also talked about the specification and who the Government will appoint as the specified persons. Much will depend on what is put forward by the sector, but it is open to the sector to bring forward specialised bodies. In terms of extending the current contracts, as the noble Lord pointed out, we will run them until 2017. We can extend them to 2020, and we will make that decision in the summer of 2015.
The noble Lord also asked about the independence of the auditor from the appointing person. That is a very good point. The auditors’ own codes and proper practices remain in place under the new regime.
The noble Lord also mentioned the concerns raised by the Audit Commission, which we do not agree with because we are of the view that the new system is cheaper. It is true that smaller authorities may pay more due to no longer being cross-subsidised by larger authorities, as is currently the case, but I assume that, in pooling arrangements, they will try to make those processes more efficient.
In terms of the limited assurance engagement, the limited assurance order is already under way. This will not change. Officials understand that firms are eager to engage with limited assurance contracts and will be meeting them on 2 February.
The noble Lord, Lord McKenzie, mentioned that the arrangements are very complex to maintain for smaller authorities. Smaller authorities will all have to self-certify income, and this information will be held on a spreadsheet just as the Audit Commission holds it, so it is not as complicated as it may first seem. The new regime for smaller authorities is proportionate to their size and the amount of public money that they handle.
I hope I have covered most points. If I have not, I shall write to noble Lords. On that note, I commend the order to the Committee.
Local Audit (Smaller Authorities) Regulations 2015
(9 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Baroness Williams of Trafford
That the Grand Committee do consider the Local Audit (Smaller Authorities) Regulations 2015.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments
House of Lords
Fixed-term Parliaments Act 2011
(9 years, 2 months ago)
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Lord Grocott
To ask Her Majesty’s Government what assessment they have made of the impact on Parliament of the next general election date having been fixed as 7 May 2015 since the enactment of the Fixed-term Parliaments Act 2011.
Lord Wallace of Saltaire (LD)
My Lords, it is a little too soon to reach definite conclusions on fixed-term Parliaments. The Government believe that the Fixed-term Parliaments Act has a number of benefits. It curbs prime ministerial and, therefore, executive power by preventing the Prime Minister of the day from calling an election on his or her own schedule. It has also assisted with Parliament’s work planning. The Prime Minister of the day will be required to appoint a reviewer to evaluate the Act in 2020.
Lord Grocott (Lab)
My Lords, I wonder whether the Minister shared the nation’s palpable sense of gloom this morning when the broadcasters and the newspapers united in reminding us that there are 100 days of campaigning left until the general election. Do fixed-term Parliaments not inevitably lead to inordinately long election campaigns, as many of us predicted, and, I am afraid, to the past its sell-by date House of Commons that we have at present, with very little to do in either House? Does the Minister at least acknowledge that there is a growing view, on both sides of this House and in the Commons, that the passing of the Fixed-term Parliaments Act was a serious mistake?
Lord Wallace of Saltaire
My Lords, the noble Lord may perhaps have missed the report from the Political and Constitutional Reform Committee last year, which stated:
“Our evidence has overwhelmingly argued that the greater certainty about the length of a Parliament provided by the Fixed-term Parliaments Act 2011 is a positive development, and in particular has created opportunities for better planning by the Government and Civil Service”.
I cannot understand why he prefers the situation of 1964-66, which led to the putting off of decisions and the devaluation of 1967; the two elections of 1974, which led to a Labour Government entering into an IMF programme; the dithering by Mr Callaghan in 1978; or that wonderful experience in 2007 when Gordon Brown kept changing his mind as different opinion polls came out. That was not good Government.
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
My Lords, we have plenty of time. When two noble Lords stand up, perhaps one of them could be courteous to the other and decide to give way.
Lord Cormack
My Lords, I am most grateful to my noble friend Lord Tyler. As one who fought all the elections to which my noble friend the Minister referred, will he accept that those of us with that sort of experience have evaluated? We do not need to wait until 2020. This is a disservice to the constitution and the sooner it is consigned to the legislative rubbish tip the better.
Lord Wallace of Saltaire
My Lords, the noble Lord demonstrates that his conservatism on constitutional matters is as deep as that of the noble Lord, Lord Grocott. It was in the Labour Party’s manifesto for the last election that it would legislate on a fixed-term Parliament—as indeed in others. This transfer of, what was after all, executive power to Parliament was, one would have thought, an extension of our democratic system and a limit on prime ministerial power.
Baroness Hayter of Kentish Town (Lab)
My Lords, the Minister said that it is too soon to decide whether this is a good thing. The sad thing is that the other place seems to be working part-time, so why are the Government not using their planning for better use of Parliament during the extended period?
Lord Wallace of Saltaire
My Lords, that is something that we need to learn about five-year Parliaments. There are some very good proposals from the Institute for Government and from the Political and Constitutional Reform Committee about how best to use the fifth year of a Parliament to discuss some of the issues that any Government will have to deal with—for example, Green Papers on the future of the National Health Service, et cetera. That is something which, in a future five-year Parliament, perhaps with another stable coalition Government, we might do. We have delivered stable government through difficult economic times for five years, unlike the Labour Governments of 1974 to 1979, and others. That is a very major advantage.
Baroness Stowell of Beeston
My Lords, the noble Lord knows that we follow several conventions. We have had one already, which is about giving way to each other. There is another about the sides taking turns as we go around the House. We have just heard from the Labour Front Bench, so it is now the right time to hear from the noble Lord, Lord Tyler.
Lord Tyler
My Lords, will my noble friend confirm that there are 19 government Bills still in play in this Session and a further 14 government-backed Private Members’ Bills? There are a number of draft Bills and more than 90 statutory instruments, so this Parliament still has a lot of work to do. Does he agree that anyone who attended our very interesting debate yesterday on the Counter-Terrorism and Security Bill or indeed the debate on the Infrastructure Bill in the other House can see that Parliament is working really hard at the moment? Any suggestion that this is a zombie Parliament is ridiculous. Has my noble friend also noted that the Labour Opposition in the other House constantly complain that they have not enough time whenever a programme Motion is recommended?
Lord Wallace of Saltaire
My Lords, I think that we stand a good chance this time of avoiding the dreadful experience of the wash-up which we have had when elections are called at short notice and the rushed election campaigns which follow.
Lord Elystan-Morgan (CB)
Will the Minister accept, putting the matter as neutrally as one can, that there must be some dubiety as to whether there was the slightest justification in constitutional law for the Fixed-term Parliaments Act in that since the Second World War there was no instance of a Government running to the country in the short term without justification—that was true in 1951, in 1966 and in 1974—but there were instances of Governments who went right up to the buffers —in 1997 and 2010? Is not the true reason for the Fixed-term Parliaments Act that the coalition Government were desperately anxious to give security of tenure to the Liberal Democrat party?
Lord Wallace of Saltaire
My Lords, I do not accept any of the noble Lord’s premises.
Lord Foulkes of Cumnock (Lab)
Is the Minister aware that my noble friend Lord Grocott has more parliamentary experience than Nick Clegg, David Cameron and Ed Miliband put together? He therefore deserves to be listened to carefully.
Lord Wallace of Saltaire
My Lords, I have infinite respect for the ancient wisdom of the noble Lord, Lord Grocott.
Boko Haram
(9 years, 2 months ago)
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Baroness Quin
To ask Her Majesty’s Government what recent assistance they have given to the rescue and recovery of the Nigerian girls abducted by Boko Haram.
Lord Wallace of Saltaire (LD)
My Lords, the abduction of the Chibok schoolgirls was an appalling example of Boko Haram’s brutality. Since their abduction we estimate that another 900 or more individuals have been abducted by Boko Haram in separate incidents. The UK, along with international partners, has increased its support for the Nigerian Government to help locate the girls and to tackle the broad threat posed by Boko Haram. We are providing a substantial package of UK military, intelligence and development support to Nigeria.
Baroness Quin (Lab)
My Lords, Holocaust Memorial Day seems a particularly poignant time to remember the Nigerian schoolgirls, and indeed the others who are victims of Boko Haram’s violence and persecution of religious communities in Nigeria and now in neighbouring countries. Is the Minister aware that the African Union summit is being held this weekend? It originally planned to focus on the vital issue of the empowerment and education of women but will now also include the need to unite against Boko Haram. In the light of that, will the Government give urgency to their consultations with our European, Commonwealth and North American partners to see how international assistance can be stepped up?
Lord Wallace of Saltaire
My Lords, my noble friend Lady Northover is at the African Union summit this week, and will no doubt be taking part in some of those conversations. We are consulting not only with our North American and Commonwealth colleagues; Niger and Cameroon are directly affected. The French, British and American Governments, in particular, are working with all the countries in that region because Boko Haram, as noble Lords know, does not respect borders.
Baroness Falkner of Margravine (LD)
My Lords, does my noble friend agree that, given the pivotal role of the Commonwealth—with two affected countries, Nigeria and Cameroon, being members—it is appalling that the Commonwealth Secretary-General took four months before he responded to the abduction in the first instance; and can the Minister tell the House a little more about what efforts we are taking within the Commonwealth to step up efforts to defeat Boko Haram?
Lord Wallace of Saltaire
We are working very closely with Nigeria. I am not fully briefed on how far the rest of the Commonwealth is involved, but we have a training team and an intelligence team working with the Nigerians on coping with the pressure from Boko Haram, which now occupies a substantial chunk of north-eastern Nigeria.
Baroness Kinnock of Holyhead (Lab)
My Lords, the Minister may be aware that Boko Haram has very strong ties with Islamic State and, indeed, with al-Qaeda. Does the Minister agree that the insurgency currently taking place in Nigeria is a direct result of the bad governance and the systemic corruption of President Goodluck Jonathan’s Government?
Lord Wallace of Saltaire
My Lords, my briefing is that Boko Haram is much more a Nigerian phenomenon than a global one such as ISIL. There are some links but that is what I understand. I also stress that the origins of Boko Haram go far back beyond President Goodluck Jonathan’s Government. It dates from the noughties, so to speak. Things have been getting worse recently but it is rooted in a range of underdevelopment problems in north-eastern Nigeria, such as overpopulation and government neglect.
The Lord Bishop of Leicester
My Lords, will the Minister join me in expressing his appreciation of those moderate Muslims who have spoken out in this country against Boko Haram and in emphasising the continuing need to be proactive in drawing together those communities that would easily find themselves pitched against each other in our towns and cities?
Lord Wallace of Saltaire
My Lords, I will happily join in that. Boko Haram has almost certainly killed more Muslims than it has Christians. It is very much a radical Muslim movement, which is as opposed to the Sultanate of Sokoto and the moderate Muslims in the north as it is to others.
Baroness Afshar (CB)
My Lords, in their negotiations, are the Government aware that everything Boko Haram is doing is contrary to the teaching of Islam, to the textual teaching of the Koran, which demands the education of women, and to the practice of the Prophet, who favoured his wives and daughters to be educated?
Lord Wallace of Saltaire
My Lords, I am well aware of that. But, as the noble Baroness well knows, radical movements of this sort, made up of the young, discontented and jobless, tend to latch on to whatever ideologies they can find.
Baroness Morgan of Ely (Lab)
My Lords, we understand that up to 100 British soldiers are being lined up for a mission to train the Nigerian military in its fight against the Islamic extremists of Boko Haram. Will the Government ensure that human rights training is included in this initiative?
Lord Wallace of Saltaire
My Lords, I am not going to comment on operational numbers. We have a military mission there and we are also sending people in on short-term secondments to help with the training. Of course human rights is a part of this, as I mentioned.
Baroness Hussein-Ece (LD)
My Lords, does my noble friend agree that speaking out against the horrendous Boko Haram has nothing to do with religion? We speak out against it, whether we are Christian, Muslim, Jewish, Hindu or whatever. It is an aberration that has nothing to do with any religion.
Lord West of Spithead (Lab)
My Lords, in support of my noble friend Lady Kinnock, is it not clear that the Government in Nigeria have focused much more on the coming election and the wealth down in southern Nigeria and have ignored northern Nigeria; and, further, that local government and the police are corrupt and on occasions, as we know, have been helping Boko Haram? Are we putting pressure on the Nigerian Government to correct those faults? Without doing that we cannot really gain any momentum in the other areas the Minister has talked about.
Lord Wallace of Saltaire
My Lords, of course we are working closely with the Nigerian Government on a whole range of issues such as this. The north-east of Nigeria has been neglected compared to the north-west—not only to the south—and the noble Lord knows well the extent to which the oil wealth is now in the south but the northern elite that used to think it ran Nigeria feels excluded. There are many levels of different tensions that are reflected in this.
Lord Lea of Crondall (Lab)
My Lords, given that we do not run Nigeria like we did until about 1960, and given that we have to be sensitive about the views of the Nigerian Government on overseas countries, of which we are one, being party to all the security concerns within the country, will the Minister comment on the degree to which he feels that the Nigerian Government are being open to other countries that wish to be of assistance, whether on a bilateral or multilateral basis?
Lord Wallace of Saltaire
My Lords, we are working very closely with the Nigerian Government. Of course, we are not trying to pretend that we are a colonial power coming in. We are an ally and we are concerned about the security of the whole of the broader Sahel region.
Alcohol Consumption
(9 years, 2 months ago)
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Lord Harrison
To ask Her Majesty’s Government, in the light of policies to reduce alcohol consumption, what discussions they have had with supermarkets about the range of strengths of alcoholic drinks they supply.
Baroness Jolly (LD)
My Lords, the Government have long worked with the alcohol industry to reduce health and social harm. Supermarkets are committed to all relevant alcohol pledges under the public health responsibility deal, and have contributed to removing 1.3 billion units of alcohol from the market by reducing strength; 80% of labels now have the correct health information; and there is the promise not to sell any carbonated drink with more than four units of alcohol in a single-serve can.
Lord Harrison (Lab)
To help supermarkets communicate with their customers, will the Government consider providing a legal definition of lighter wine, as well as exploring duty differentiation in wines to provide a service that will enable people to choose lighter wines? Finally, will the Government encourage the average strength of house wine to be lowered where such house wines are sold in pubs, restaurants and, indeed, here in the House of Lords?
Baroness Jolly
The noble Lord is right in that all the major supermarkets and chains have worked really hard to reduce the amount of alcohol in the wine, beer and spirits that they sell. However, one thing they are not particularly good at—with the exception, perhaps, of Morrisons and Asda—is having separate spaces within each supermarket where wines with lower levels of alcohol are displayed. On the question of the House wine, I am happy to have a word with the Secretary of State about that.
Baroness Gardner of Parkes (Con)
My Lords, is the Minister aware that some time ago we were told that the calorific value of a glass of wine would be published? Why is that not proceeding, because it is quite an incentive for people who are not too worried about the alcoholic effects but are concerned—as we all should be—about obesity?
Baroness Jolly
We should all be concerned about the alcoholic effects as well. Currently, not all wine bottles have calorific labelling, although there is labelling that relates to anxiety about pregnant women, but I will have to come back to Peers on that.
Lord Turnberg (Lab)
My Lords, is the Minister aware that whenever the price of alcohol goes up—above the level of inflation—the incidence of deaths from liver disease goes down? Will the Government consider increasing taxation on alcohol to take it above the level of inflation so that we will see a reduction in liver disease?
Baroness Jolly
The noble Lord is right. Alcohol consumption has fallen, as has the number of alcohol-related deaths, due to the increase in taxation on alcohol by this Government and possibly previous Governments. Nevertheless, harmful effects such as liver disease, as well as social impacts linked to alcohol, such as crime and domestic violence, remain much too high.
Baroness Cumberlege (Con)
Does my noble friend agree that there is great merit in keeping the pubs open and that single men who are lonely and depressed are very often welcomed into pubs? Their spirits are raised—in all senses of the word—and they then are not a burden on the National Health Service.
Baroness Jolly
I am not quite sure. I can tell noble Lords about licensing. We are actively working with Public Health England on the practicalities of how health-related objectives for the licensing of premises selling alcohol would work at a local level.
Lord Brooke of Alverthorpe (Lab)
My Lords, while we welcome the reduction in the amount of alcohol being sold in certain areas, is it not true that growth is taking place in other areas? In particular, the drinks industry is trying to get its brands into the heads of young people. Is the Minister content to see supermarkets now selling alcoholic lemonade that is stronger than many beers? Is she content to see them selling ginger beer and other soft drinks with more alcohol than is contained in many beers? Should we not be doing something about that?
Baroness Jolly
Yes, indeed, and that has been done already. There is a commitment on the amount of alcohol that can be contained in fizzy, canned drinks.
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
My Lords, when I am up, everybody has to sit down; that is the usual convention. As we have not heard from the Cross Benches on this Question, we will go to the Cross Benches, and we should have time for my noble friend, Lord Phillips of Sudbury, after that.
Lord Krebs
My Lords, can the Minister give us some information on the Government’s current assessment of the public health benefits of a 50 pence per unit minimum price for alcohol, which has been recommended by the Chief Medical Officer, among many others?
Baroness Jolly
We are keeping the developing evidence on minimum unit pricing under review. It has only ever been one part of the Government’s strategy, which, as I have explained, includes a wide range of national and local actions, including partnership with industry and increased powers for local communities to take action.
Lord Phillips of Sudbury
Will my noble friend assure the House that the Government will continue to resist the temptation of yet more legislation in this area and rely on persuasion? Secondly, can she tell us whether the existing law is being enforced? My suspicion is that it is extremely patchy.
Baroness Jolly
I know that as part of the responsibility deal there has been a big move by Public Health Ministers at the Department of Health to drive down the number of alcohol units being sold. As I have said, that number has been significantly reduced—by 1.3 million units.
Baroness Armstrong of Hill Top (Lab)
Is the Minister satisfied that supermarkets have done enough—it is voluntary, as she said—to reduce the amount of high-value alcohol products being sold cheaply as loss leaders?
NHS: Finances and Services
Lord Hunt of Kings Heath
To ask Her Majesty’s Government what assessment they have made of the latest King’s Fund quarterly monitoring report on the situation of National Health Service finances and services.
Baroness Jolly (LD)
We agree with the King’s Fund that very real financial and operational challenges face our health and care services. However, we are committed to a sustainable future for our NHS. This is demonstrated by our protection of NHS funding and our further funding commitment for 2015-16. This will begin to deliver the vision for transformation set out in the NHS Five Year Forward View.
Lord Hunt of Kings Heath (Lab)
My Lords, the King’s Fund quarterly monitoring report of NHS finance directors shows a worrying picture of 42% of NHS trusts facing a financial deficit this year, services under pressure, operations cancelled and a 50% increase in the wait for packages of care by patients in hospitals. Finance directors describe the situation as critical. What specific action are the Government taking to respond to this crisis? Are the Minister and her Liberal Democrat colleagues now prepared to say that they regret their role in helping the passage of the 2012 Act, which has caused so much damage and fragmentation?
Baroness Jolly
To take the last point first, I do not regret that. I do not regret parity of esteem for mental health. I do not regret health and well-being boards in local authorities. On the noble Lord’s first set of points, we have seen rising demand in emergency and waiting lists, a reduction in unplanned financial support, and focus on safer staffing ratio guidance. Various things are happening. The noble Lord, Lord Carter, one of the noble Lord’s noble friends, is looking at procurement within hospitals. Right across the piece, local NHS and foundation trust boards are concentrating on how they can restructure services to improve the situation.
Lord Fowler (Con)
On the financial position, did my noble friend hear the interview given this morning on the “Today” programme by the Labour health spokesman, Mr Burnham? Given the pressure on health budgets, which we all accept, would it not be idiotic, as he advocated, to turn our backs on the sensible economies that can be achieved from the contracting out of ancillary services?
Baroness Jolly
This brings us, I think, to Section 75. We are absolutely clear that no contracting out or commissioning should be done unless it is in the interests of the patient.
Baroness Tyler of Enfield (LD)
My Lords, a recent report from the Nuffield Trust on the state of NHS finances showed that spending on agency and contract staff had increased by roughly 20%. Given that this increased reliance on temporary staff has significant costs attached, as well as raising concerns about quality and continuity of care, can my noble friend say what the Government plan to do about it?
Baroness Jolly
Agency staffing cost the NHS £2.5 billion last year. This is nothing new. For as long as I have been involved in the NHS, there has been a hefty agency bill. The Government established Health Education England to ensure that the NHS has access to the right number of staff, with the right skills and available at the right time. The Department of Health expects trusts to have a strong grip on their finances.
Baroness Howarth of Breckland (CB)
My Lords, does the Minister accept that, until we have a system in which care and health are linked together, we will never manage to get a secure system? Does she not agree that we are in real difficulties when hospitals are blamed for not having good-quality staff, because those cost money, and yet are blamed for overspending when they do have the quality staff?
Baroness Jolly
This Government have introduced the better care fund, which aims to produce seamless care across health and social care. There are also 150 local plans, 120 of which are fully approved. We shall watch those pilots with interest.
Baroness Farrington of Ribbleton (Lab)
Would the Minister care to comment on the fact that cuts in local authority spending are spoiling the chance of getting proper care in the community? The Government’s allocation of targets and grants is disadvantaging most of all the most deprived parts of England.
Baroness Jolly
I understand that local authorities have to struggle very hard to put together packages of care; I have even spoken to my own local authority very recently. We have to do the best with what we have. Currently, that is where we are.
Lord Forsyth of Drumlean (Con)
My Lords, can my noble friend help me and explain why it is that the health service both in Scotland and in Wales, where it has more money, is doing considerably less well than the health service in England under this Administration?
Baroness Jolly
My noble friend makes a very interesting point. Perhaps they should look at some of the examples that are actually used in the NHS in England.
Lord Brooke of Alverthorpe (Lab)
Is it not true that in Scotland and in Wales, there are more chronic, long-term sick patients than there are in the UK generally? Will the Minister say why, each time a Minister replies to questions on the failing performance, they pray in aid the number of additional patients who are now going into the NHS? Is this coming as a great surprise? Is it a surprise that people are getting older? What is the projection for the next five years about the numbers that we have to deal with? Surely this should be planned for.
Baroness Jolly
Indeed it should be planned for. There are now a million more people over 65 than there were at the beginning of this Parliament, but at the beginning of this Parliament there were no plans to cope with that onward growth.
Baroness Tonge (Ind LD)
My Lords, does the Minister agree with me that chaos is reigning in the health service at the moment? We really must stop this piecemeal approach of throwing bits of money at it and putting on patches where it is failing, and have a proper all-party conference to discuss the future of the health service and how we are going to fund it. That is the only thing that the general public would respect.
Baroness Jolly
I am not sure whether that will happen, but there is an awful lot of agreement across the main political parties about what should happen. In particular, we all agree that health and social care should be joined together.
Crime and Courts Act 2013 (Consequential Amendments) Order 2015
Baroness Williams of Trafford
That the draft orders laid before the House on 25 November and 5 December 2014 be approved.
Relevant documents: 15th and 17th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January
Microchipping of Dogs (England) Regulations 2015
(9 years, 2 months ago)
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Lord Gardiner of Kimble
That the draft regulations laid before the House on 11 December 2014 be approved.
Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 13th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 22 January
Films (Definition of “British Film”) Order 2015
Lord Gardiner of Kimble
That the draft order laid before the House on 4 December 2014 be approved.
Relevant document: 17th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January
Recall of MPs Bill
(9 years, 2 months ago)
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Lord Wallace of Saltaire
That the amendments for the Report stage be marshalled and considered in the following order:
Clauses 1 to 6, Schedule 1, Clauses 7 to 10, Schedule 2, Clauses 11 to 16, Schedules 3 to 5, Clauses 17 to 20, Schedule 6, Clauses 21 to 25.
Deregulation Bill
(9 years, 2 months ago)
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Lord Wallace of Saltaire
That the amendments for the Report stage be marshalled and considered in the following order:
Clauses 1 to 3, Schedule 1, Clauses 4 to 8, Schedule 2, Clause 9, Schedule 3, Clauses 10 to 13, Schedule 4, Clauses 14 to 18, Schedule 5, Clause 19, Schedule 6, Clauses 20 to 26, Schedule 7, Clause 27, Clauses 42 to 44, Schedule 12, Clause 45, Schedule 13, Clauses 46 to 50, Schedule 14, Clause 51, Schedule 15, Clause 52, Schedule 16, Clause 53, Schedule 17, Clauses 54 and 55, Schedule 18, Clauses 56 to 72, Schedule 19, Clauses 73 to 83, Schedule 20, Clauses 84 to 87, Schedule 21, Clauses 88 to 91, Clauses 28 to 35, Schedule 8, Clause 36, Schedule 9, Clause 37, Schedule 10, Clause 38, Schedule 11, Clauses 39 to 41, Clauses 92 to 96.,
Pension Schemes Bill
(9 years, 2 months ago)
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Lord McAvoy
“Fiduciary duty of trustees
(1) The Secretary of State may by regulations—
(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and(b) set out the powers and duties of a board appointed under paragraph (a).(2) Regulations under this section—
(a) shall be made by statutory instrument, and(b) may not be made unless a draft of the instrument has been laid before, and approved by resolution of, each House of Parliament.(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.
(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—
(a) the shareholders in, or(b) other owners of,the operators of the scheme.(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous bodies.”
Lord McAvoy (Lab)
My Lords, the amendment stands in my name and that of my noble friend Lord Bradley. It is our contention that the Bill does not go far enough to address the governance of defined contribution pension schemes. We have consistently argued on the Bill and the previous Bill that all workplace pension schemes must be run by independent boards of trustees. Those trustees would have a fiduciary duty that would take precedence over any duty owed to shareholders. In proposing the amendment, we are setting out a clear responsibility that all those looking after someone else’s money or advising on investments should be subject to fiduciary standards of care. That will mean that conflicts of interest must be resolved in the beneficiaries’ interest. That omission from the Bill is perhaps surprising given the findings of the government consultation document entitled, Reshaping Workplace Pensions for Future Generations. Paragraph 22 states:
“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”.
The Bill sets up a new model of collective pensions. This will have a form of independence within the governance arrangements, with an alignment of interests. It falls short of our proposal for independent trustees with a clear fiduciary duty to act in savers’ interests, but is an acknowledgement of the principles underpinning good governance. The Government have failed to take the opportunity to require that independence in the governance of all pension schemes.
In Committee, the noble Lord, Lord Bourne of Aberystwyth, said:
“I do not think that we are miles apart on our desired outcome, but we believe that working with the industry, consumer groups and pension groups to achieve the best interests is the right way forward. If we can achieve the same end without making it mandatory, we believe that that is the right approach. It is probably at the root of the difference between the two parties that we believe that we are achieving the result without having to make it mandatory”.—[Official Report, 7/1/15; cols. 381-2.]
In response, we say to the Minister: how long should we give the industry to change? How much evidence do we need to prove that government action is needed and that it is our responsibility to act? Enough is enough.
During the past three years alone, the failures of the pension industry have been well documented. Market studies have been produced by the Office of Fair Trading and the Financial Conduct Authority and reports produced by the Pensions Institute and the Centre for Policy Studies, among others, as well as by journalists from the Times, the Telegraph, the Mail and the Guardian, through to Channel 4 documentaries, to name but a few. There can hardly be a literate adult in the UK who does not understand that there is something seriously amiss with our pension industry. Nor should we ignore the fact that many of those commentators and financial experts have called on the Government to take action because of the failure of regulation, the failure of parts of the market to follow ABI codes of practice or adopt best practice. It has been given a chance to improve for the past decade or more, and even the mis-selling scandals that have cost the industry dear have not been enough to prompt the change that we all believe is necessary.
One further matter should be considered: the success of auto-enrolment. Auto-enrolment has proved attractive and more people have remained in the schemes to date than we had dared hope. We have helped people to do the sensible thing, but that will not be sustained if we do not protect savers from excessive charges, poor returns, poor management practices, mis-selling scandals and the like. People need to trust the private sector pensions industry. As my noble friend Lady Drake said in Committee:
“It will be a major regulatory failure of public policy if millions of citizens are auto-enrolled into pension schemes but Parliament has not ensured that sound governance is in place.—[Official Report, 7/1/15; col. 378.]
I beg to move.
Lord German (LD)
My Lords, before I listen to answers from the Benches opposite, I shall ask the Minister a few questions. If he feels that it is not appropriate for him to reply, perhaps members of the Labour Front Bench might give me the answers.
My understanding is that the number of schemes without trustees—those referred to in this amendment—is of the order of 40,000 to 47,000. I have no problem with independent trustees or trust-based pension schemes: my question is about the scale of the impact of this amendment. If 46,000 or 47,000 schemes—if that is the number of schemes required by this amendment to set up boards of independent trustees—are required to find trustees, there would, first, be a drag on finding that number of suitably-qualified people to fulfil those roles. I wonder where such people might be found.
Secondly, is there a cost to such a change? Changing these schemes is bound to cost them money. Given that the Government have put in place the 0.75 per cent cap, which means that more than 99 pence in the pound of every pension contribution goes towards the benefit—the pension that comes out at the other end—is there any way that that cost would have to fall on the member benefits? In other words, would the need to pay the costs of so many changes to a large number of schemes reduce people’s pensions?
My final question relates to the role of the independent governance committees that are set up. My understanding —perhaps my noble friend could confirm it—is that these committees were set up as a result of the report of the Office of Fair Trading and are a government response to that request. If that is so, perhaps my noble friend could tell me what the role and responsibilities of the IGCs are which can be fulfilled, and which would perhaps fill the trustee role in the schemes where there is no trust-based system as required by this amendment?
Lord Bourne of Aberystwyth (Con)
My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.
I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.
The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.
As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.
In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.
I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.
The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract-based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.
We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.
Lord McAvoy
I thank the Minister for giving way. The Minister has raised some objections that are less extreme than those of the noble Lord, Lord German—so there is a difference in fairness here. Our new Clause 13 was initially a response to the problem of having so many trustees. Let us not forget this direct quote from my honourable friend Gregg McClymont:
“Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 324.]
Lord Bourne of Aberystwyth
I am grateful to the noble Lord opposite for that intervention, but the case remains there is clearly going to be a cost associated with this. This is an objection to it, but the prime objection is that we do not accept the principle that contract-based schemes need such a fundamental change. Though different in essence from the fiduciary nature of trustees’ duties and trust schemes, there are of course obligations placed on contract-based schemes, as I have tried to set out.
We all agree that good governance of pension schemes is essential. This is why the Government’s proposed new governance standards, applying across broadly all workplace pension schemes in respect of money purchase benefits will further protect members by ensuring that schemes are run in their interests. It is also why this Bill makes provision for targeted regulation-making powers in respect to the running and good governance of collective benefits and certain decisions in defined ambition schemes and in relation to collective benefits.
I accordingly and respectfully ask the noble Lord to withdraw this amendment.
Lord McAvoy
My Lords, maybe I am paranoid or maybe I just have a suspicious mind or maybe my mother knew what she was doing when she called me “Thomas”, but I do not believe that it is entirely coincidental that what someone called the Welsh mafia are in operation here, with certain facts—in inverted commas—being produced. Cost has been mentioned by the noble Lord, Lord German, and the Minister. Can anyone in this House give an exact figure for the cost to the members of pension schemes where there has not been proper fiduciary guarantees of independent governance? Can anyone give me a quote? Plenty of folk can quote instances where money has been lost through pension funds. I do not think that the principle that we are putting forward here is as unreasonable as has been portrayed, particularly by the noble Lord, Lord German. We will return to scale at a later stage. In the mean time, we will try to find an estimate of how much has been lost to ordinary members of pension schemes through a lack of governance.
In the mean time, however, I beg leave to withdraw the amendment.
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”
Lord Bourne of Aberystwyth
My Lords, I address the House as one half of the Welsh mafia or the Taffia—a charge I reject totally of course.
These amendments are consequential in nature. They address an omission in the current legislation. In the course of checking through the changes made as a result of the Bill, omissions in the Pensions Act 2014 came to light. The amendments needed all relate to overriding legislation—that is, when legislation overrides provision in the scheme rules such that the legislation is treated as if it were part of the scheme rules.
Without these amendments, any overriding requirements made under regulations under Schedules 17 and 18 to the Pensions Act 2014 would not be treated as part of the scheme rules for the purposes of the Pensions Act 2004 and subsisting rights provisions in the 1995 Act, leading to inconsistency in the way in which overriding provisions are dealt with and a potential lack of clarity.
I beg to move.
Lord Bradley (Lab)
I shall briefly respond as this is the first set of government amendments. I thank the Minister for the courtesy of writing to me with his proposals around these amendments; it is very helpful to have that in advance, as it limits the need for further debate on these matters. Maybe I should declare an interest in that my great-uncle was Welsh, but I do not claim to be part of the Welsh mafia. With those remarks, I am supportive of the amendments.
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”
“( ) The FCA must discharge its functions in relation to pensions with a view to securing an appropriate degree of protection for consumers with a right or entitlement to flexible benefits whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards actively to inform consumers of key risks and benefits.”
Lord Bradley
My Lords, this amendment is connected to Amendment 22. We had an extremely interesting debate in Committee on the merits of what is known as the second line of defence, and I am pleased that we are able to return to it today as a result of our amendment.
I preface my brief remarks on this matter with our general approach to the Bill throughout its passage in the House. While we broadly support the new freedoms and flexibilities in the Bill and its related Bill on taxation, we have sought throughout to ensure that the interests of pensioners—customers—are protected in what has often been a very dysfunctional annuities market. Our overriding aim has been to ensure that those protections for the public are in place before the Bill is enacted at the beginning of April.
To return to this specific amendment, we argued in Committee that a second line of defence was vital. We discussed evidence from two reports from the Financial Conduct Authority, quoted in Committee, that the market is often not functioning as it should and is letting consumers down. We believed that action was needed immediately to protect savers when making possibly the most complex financial decision that they will ever have to make.
In Committee, the Minister did not seem to accept that action for a second line of defence should be in place by April this year, when the new freedoms and flexibilities are implemented. Instead, he suggested that, because the FCA is a relatively new body with new powers, and has committed to reviewing all its rules in the first half of this year, we should in effect await the outcome of its deliberations before any further action was taken. In response to the Minister, I said that while I would reflect on what he had said, I believed that the public sought reassurance and the confidence that a second line of defence would give them. That is why we have continued to champion a second line of defence throughout the passage of the Bill in both Houses, as have many pension groups and organisations outside this House.
I and my noble friends therefore welcome the Government’s apparent change of heart today, and the fact that they have recognised the strength of the arguments to protect pensioners that we have been making. It is with pleasure we received, and read, the very welcome letter from the Financial Conduct Authority, dated 26 January, saying that it would ensure the,
“appropriate protection of consumers, accessing their pension saving”.
This is extremely welcome, and starts to put together a proper second line of defence.
At this stage of the debate, though, I have three questions for the Minister. First, as the letter says:
“Subject to agreement of the Board, we are minded that it is appropriate to bring these rules into force on a temporary basis from 6 April, and prior to consultation, to provide important additional protection for consumers”.
Will the Minister confirm that the Board will agree to putting this second line of defence in place and that, at a future stage, the Board may decide that it is not necessary?
Secondly, the letter goes on to say:
“As part of that consultation we will also consult on whether to retain or modify the temporary rules that we are proposing to introduce in April”.
Will the Minister assure the House that, after the temporary period that the Financial Conduct Authority is proposing, there are no circumstances in which it would then remove the second line of defence?
Thirdly, in relation to trust-based schemes, it is my understanding that the Pensions Regulator is responsible for these schemes, not the Financial Conduct Authority. Will the Minister assure the House that similar protections for trust-based defined contribution schemes will be made by the Pensions Regulator, in parallel with the FCA?
The merits for a second line of defence seem now to be accepted. I look forward to the Minister’s responses.
Baroness Drake (Lab)
My Lords, I had a lengthy and impassioned speech prepared on the need for a second line of defence to address the risks that pension savers might make detrimental and irreversible choices when they access their savings. However, this has been tempered by the letter from the FCA, so my contribution is shorter and less passionate as a consequence.
This amendment sets out a duty on the Financial Conduct Authority to protect savers accessing their pension savings when they are engaging with providers during the decision-making and purchasing process. This is distinct from the duty on the FCA to protect savers receiving guidance from designated guidance providers.
The guidance guarantee, now referred to as Pension Wise, is a key measure for helping people navigate the complex retirement options arena from April 2015. There are people working hard to make its delivery a success, as it will provide a very important service to savers. The FCA will expect providers to check whether a customer has used the guidance service and, if not, to encourage them to do so. In popular parlance, this is the first line of defence.
Beyond the guidance stage, the saver has to move to the process of making a decision, and of selecting or purchasing a retirement income route. It is what happens at this stage—the exchange between the consumer and the provider—that is causing so much anxiety and to which the amendment is directed. It puts a duty on the FCA to secure an appropriate degree of protection for the consumer at that stage. This is what is popularly referred to as the second line of defence.
As my noble friend has said, we have now received the letter from Mr Woolard, Director, Strategy and Competition at the FCA, advising that FCA board approval is being sought for this second line of defence. It is minded to bring these rules into force on 6 April 2015, pending a review of all the current regulatory requirements around the customer’s interaction with the providers. The CEO and chair of the FCA have made some thoughtful and welcome speeches that have set the framework for debate in addressing the challenge of poorly functioning financial services markets.
The recent FCA reports on retirement income markets have been hard hitting and on the nail. It is worth reminding ourselves what they observed: annuity sales practices were contributing to consumers missing out on a potentially higher income; consumers’ tendency to buy from their existing provider lowered the potential for higher income; consumers will be poorly placed to drive effective competition; the retirement income market is not working well; and the introduction of greater choice and potentially more complex products will reduce consumer confidence and weaken the competitive pressures on providers to offer good value. The anxiety was that that analysis and the heightened risk of consumer detriment with the advent of the new freedoms would not translate into sufficient regulatory protection. Against that background, the FCA letter is most appreciated, although I await with interest the answers to my noble friend Lord Bradley’s three questions.
The second line of defence is not a total solution to the risk that consumers will make decisions that are not in their interest, but it will make a very important contribution to what we know is a poorly performing market. I therefore welcome the FCA letter and thank the Minister for facilitating its publication.
Lord Hutton of Furness (Lab)
My Lords, it has been clear to everyone following this debate about the latest tranche of pension reforms brought forward by the coalition Government that if we were to mitigate some of the obvious risks that are created by this new world of choice and flexibility at the point of retirement for people saving in DC schemes, it would be necessary to put into place something that we have now called the second line of defence.
The need for the so-called second line of defence was crystal clear quite early on. It is important that we do not treat people at the point of their retirement like children; they have saved all their lives for that point. However, the lack of a requirement to take guidance, because it is a choice or option, certainly creates a substantial risk that the benefits of the Government’s reforms—the greater freedoms—which I think most of us would welcome, could create some very unfortunate outcomes. We know from the failure of the open market option, and from previous attempts to get this right, that the real risk we need to mitigate here is that people will make the wrong decision, and in the later years of their retirement they will find that they just do not have enough money to pay their bills, and will present themselves and seek benefits. That would be a terrible outcome.
Therefore, the decision to put in place the second line of defence, which we heard recently from the FCA, is to be enormously welcomed. We do not know what this second line of defence will actually be; we do not know what will prompt them—what questions consumers will be asked by their pension provider before they take any final decisions. But at least we now have something in place that holds out the prospect that these reforms will work. There was a very real danger that if we did not put this second line of defence in place, the reforms would fail, and that the failure would live with us and haunt us for decades—people who had saved and worked hard all their lives would find themselves running out of money during their retirement. That would represent policy failure on a grand scale.
Today, therefore, we have an opportunity to make these reforms work. I suspect that means that probably we will not need a vote on my noble friend’s amendment, which, like my noble friend Lady Drake, I was very keen to support today. I hope that we would have had a majority in this House for the amendment. This prudent step is not about wrapping up these new freedoms with overly regulatory responses, and so on, but about taking the right course of action to mitigate the obvious risk of policy failure while preserving at the same time the essence of the new freedoms, which is to choose and to make personal financial decisions at the point of retirement.
So I, too, would welcome some further clarification from the Minister today about exactly how this so-called second line of defence will work. We do not know very much about it, but it has to be in place pretty quickly, and there will be lots of concerns out there about exactly what it will mean and who will effectively have the responsibility to enforce it and oversee it.
Baroness Greengross (CB)
My Lords, I put my name to this amendment. I thank the Ministers, with whom I have had the pleasure of discussing it, for the work they have done in making sure that the FCA has come to its extremely welcome conclusion. I echo what the noble Lord, Lord Hutton, has just said. We want to know a bit more about exactly how this will work and whether it is sufficient. In the mean time, I have nothing more to add except that, with a great deal of pleasure, there is no longer the need for an amendment, so far as I am concerned—so I will leave other noble Lords to speak to it.
Lord Newby (LD)
My Lords, I declare that I have no known Welsh connections.
Lord Newby
In Committee, the issue of the second line of defence was the subject of more debate than anything else. I, and other noble Lords, received a lot of lobbying from all sides of the industry and consumer groups about the need for a second line of defence. So I am pleased that other noble Lords are as pleased as I was when I heard, at the end of last week, that the FCA was planning to announce yesterday that it would make new rules by April to protect consumers as they make decisions on how to access and use their pension savings in later life. The Government share the aspirations of the noble Lords, Lord Bradley and Lord Hutton, that we should put in place a new system which gives the maximum opportunity for people to take informed decisions, because we accept that these decisions are, very often, for life and have very significant consequences.
Yesterday evening, I circulated the FCA announcement to noble Lords who had taken part in earlier debates. In short, the rules will introduce a second line of defence. Pension providers will be required to ask consumers seeking to access their pension savings about key aspects of their circumstances relating to the choice that they are making and give relevant risk warnings in response to the answers. This is a very important element: we are keen not simply to have another tick-box exercise, which we could have done at this point. Providers will also have to highlight that guidance from the Pension Wise service, or regulated advice, can help them to avoid making a poorly informed decision. The FCA will also require that messages should be delivered to consumers in direct and simple language.
The FCA announcement illustrates precisely why the amendments we are considering are not needed. The FCA already has a duty to ensure that the retirement income market is working for consumers captured under its statutory objectives, including its objective to secure an appropriate degree of protection for consumers. The announcement demonstrates just how seriously the FCA is taking this duty. It would also be unusual to legislate to give the FCA a specific objective in relation to one sort of investment—pensions—and to do so outside the Financial Services and Markets Act.
I was asked a number of specific questions. The first related to the board agreeing the proposals. It is notable that the press release does not refer to the board. I suspect that this is not an unusual way of dealing with announcements that the FCA wishes to make between board meetings. I believe that there will be a board meeting next month at which the decisions announced yesterday will be ratified. It would be extremely unusual if the board were to go against the advice of its officials on a matter such as this. I am not on the board; its members are independent. However, if I were a betting man, I would be prepared to put my shirt on the likelihood of these new rules being ratified.
The second question was whether these are temporary or permanent rules. The temporary element of them relates to the fact that there has been no consultation. In order to get them in place in time, they have to be introduced quickly under a fast-track procedure. Again, while I cannot formally commit the board or the FCA, I think it is fair to say that there is no intention in anyone’s mind that this should be a temporary provision. The new rules have a long-term purpose; there is no temporary element. It is certainly the intention that there will be permanent rules—but, as I say, the transition from temporary to permanent involves the consultation process which they would normally undertake.
The third question related to whether trust-based schemes would also be covered. As the noble Lord, Lord Bradley, pointed out, the FCA will not cover trust-based schemes, but the DWP, which writes the regulations for trust-based schemes, is working with the Pensions Regulator to consider how this can best be dealt with for trust-based schemes on the same basis, so we have it in hand. This is a very recent development so far as the FCA is concerned; it was announced only yesterday.
Lord Bradley
I am grateful to the Minister. As the DWP is working on the issue with the Pensions Regulator, will it be on the same timetable for introducing such a second line of defence from 6 or 7 April?
Lord Newby
My Lords, that is what we are hoping to achieve, so that everybody is working on the same basis. In making the announcement yesterday, the FCA demonstrated that it has listened to the many representations it has received directly, and to debates in your Lordships’ House. I am pleased that it has. In the light of that announcement, I hope that the noble Lord will feel able to withdraw the amendment.
Lord Bradley
I am very grateful to the Minister for that reply. I thank my noble friends Lady Drake and Lord Hutton, and the noble Baroness, Lady Greengross, for their support for this amendment.
The Minister responded well to the three questions I raised. While I accept that he is not a betting man, I also accept that his assurances that the board will approve these proposals, that they are not temporary, and that the DWP will bring in a similar, parallel policy for trust-based schemes are all welcome and reassuring to the House. I believe that this is a real victory for all those who have campaigned, both inside this House and outside Parliament, for a second line of defence to give added protection to people making decisions about the pension pots and retirement income. As we said, that is perhaps the most important financial decision they will make in their lives.
Lord German
I also support the letter from the FCA. It is very welcome. The bottom of the first page of the letter says, in absolute terms, that,
“the FCA has also decided to bring the ABI retirement code into our rules”.
Would the noble Lord agree that that is very welcome, given that the ABI retirement code lays out in great detail the journey through which the customer will travel? The letter makes it very clear that that will happen.
Lord Bradley
I am grateful to the noble Lord, Lord German. That is in the letter and, as I said, we welcome its contents. It reinforces the points that we made about the second line of defence and the future adequacy of that provision. That is clearly welcome.
In conclusion, we will closely monitor the way that the policy and the implementation fall, to ensure that consumer rights are properly protected in the way that everyone in this House expects. With that, I beg to ask leave of the House to withdraw the amendment.
Lord Newby
“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;(b) create other exceptions to subsection (1).( ) Regulations under subsection (3)(a) may, in particular, make provision about—
(a) the valuation of the subsisting rights;(b) the process for determining whether the exception applies.”
Lord Newby
My Lords, these amendments are those that we indicated, in Committee, that we would lay on Report. They respond to the recommendations of the Delegated Powers and Regulatory Reform Committee. The committee was concerned that Clause 48(3) was too broad. That subsection provides a power to create exemptions to the requirement to check that advice has been received under the advice safeguard. In Committee we explained that, as set out in the consultation response document Freedom and Choice in Pensions, we intended to exempt those with pensions wealth below £30,000 from having to obtain advice. This remains our only intended use of the exemption. However, it may prove necessary, once the new flexibilities come into force, to create an exemption that applies in other circumstances.
Amendment 4 divides the original power, creating a specific power to exempt from the safeguard those who have rights to safeguarded benefits that are worth less than an amount specified in the regulations. This relates to the exemption we intend to make in regulations for those with safeguarded wealth of £30,000 or less. Amendment 6 makes the same change for Northern Ireland. Amendment 14 changes the procedure that applies to regulations made under these powers, so that only regulations that make an exception for those whose safeguarded wealth is below the specified amount are subject to the negative procedure. These regulations will need to be in place by 6 April, so it will not be possible to make them subject to the affirmative procedure. However, regulations that create any other sort of exception will be subject to the affirmative procedure. Amendments 15 and 16 make the same change of procedure for regulations made by the Northern Ireland Department for Social Development.
The final part of Amendment 4 allows the regulations to specify exactly how this £30,000 threshold will be calculated. In response to feedback from stakeholders, we have decided that this should apply only to safeguarded benefits in the scheme from which the member intends to transfer, and be calculated on the basis of the cash equivalent transfer value, which is the standard measure in the industry.
Lord Bradley
I am grateful to the Minister for the explanation of the amendments, which are fine for the Bill, particularly the clarification around the amendment that we moved in Committee on the issues of appropriate independent advice and authorised independent adviser. That is very helpful, and I am pleased that the amendments are now being made.
Lord Newby
““appropriate independent advice” means advice that—
(a) is given by an authorised independent adviser, and(b) meets any other requirements specified in regulations made by the Secretary of State;“authorised independent adviser” means a person who—
(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Secretary of State, and(b) meets such other requirements as may be specified in regulations made by the Secretary of State for the purpose of ensuring that the person is independent;”
Lord Newby
“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;(b) create other exceptions to subsection (1).( ) Regulations under subsection (3)(a) may, in particular, make provision about—
(a) the valuation of the subsisting rights;(b) the process for determining whether the exception applies.”
““appropriate independent advice” means advice that—
(a) is given by an authorised independent adviser, and(b) meets any other requirements specified in regulations made by the Department for Social Development in Northern Ireland;“authorised independent adviser” means a person who—
(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Department for Social Development in Northern Ireland, and(b) meets such other requirements as may be specified in regulations made by the Department for Social Development in Northern Ireland for the purpose of ensuring that the person is independent;”
Northern Ireland: On-the-Runs Scheme
(9 years, 2 months ago)
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The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)
My Lords, with permission, I will repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Northern Ireland to an Urgent Question in another place on the on-the-runs scheme. The Statement is as follows.
“On Monday 26 January, the coroner conducting the inquest into the death of Mr Gareth O’Connor, who disappeared in May 2003, directed that the inquest would be stayed, pending an investigation by the PSNI into one of the suspects in Mr O’Connor’s murder. The suspect was part of the administrative scheme dealing with so-called on-the-runs, and was in receipt of a letter from the Northern Ireland Office informing him he was not wanted for arrest by police forces across the United Kingdom. This case is specifically covered on pages 107 and 108 of the Hallett report into on-the-runs, where it is described as ‘error 2’. The fact of the error has been in the public domain for some time and this case is not a new development.
The Police Service of Northern Ireland is investigating the suspect’s case and will be considering whether charges can be brought against the individual. I spoke to the chief constable of the Police Service of Northern Ireland yesterday, and I understand from him that this is a live police investigation. I also briefed the Justice Minister on the case. The police will investigate where the evidence leads them. Under the circumstances, it would not be appropriate to comment further on the specifics of the case.
In relation to the OTR administrative scheme, I set out the Government’s position in full in my Statement to the House on 9 September. This followed detailed consideration of the report by Lady Justice Hallett that was published in July. I made clear in my Statement that the scheme is at an end and that there is no basis for any reliance on letters received under the scheme by so-called OTRs in the past. There is no amnesty, immunity or exemption from prosecution. Those who received letters under this scheme should be in no doubt. If there is considered to be evidence or intelligence of their involvement in crime they will be investigated by the police, and if the evidence is sufficient to warrant prosecution, they will be prosecuted”.
Lord McAvoy (Lab)
My Lords, I thank the Minister for repeating the Secretary of State’s Statement in the House of Commons. The revelation yesterday regarding the collapse of the inquest into the murder of Gareth O’Connor has caused further justifiable concern and anxiety in Northern Ireland. Our thoughts today must and should be with the O’Connor family. Like so many of those left behind, they sought truth and justice about what happened to Gareth in 2003. They have waited 12 long years for an inquest into the death of their son. The thought of preparing for a week-long inquest would have been harrowing for the family. This development has made a highly stressful situation even worse. News of another error from the administrative scheme for the on-the-runs is devastating, following the catastrophic error in the Downey case last year.
We have apologised for the Downey error, and do so again for the error in the O’Connor case. In the same way as this scheme never offered amnesty, it was also never intended to cover alleged offences committed after the signing of the Good Friday agreement. The delay in the coroner and the family being made aware of the error is deeply troubling. The Northern Ireland Office and the police knew about the case, and indeed—as the Minister has indicated—it was referred to in the Hallett report.
I have some questions for the Minister. Why did the Northern Ireland Office not ensure that this family were told of the error in the immediate aftermath of the Hallett report? How many other potential specific errors identified in the Hallett report are the Northern Ireland Office currently investigating? In view of the financial pressures facing the Police Service of Northern Ireland, what is the Minister’s estimate of the time it will take to review all the cases covered by the on-the-run scheme? Finally, in a related matter which has caused similar concerns, can the Minister give the House an update on investigations on the missing information as regards the royal prerogative before 1997?
Baroness Randerson
The noble Lord made a number of important points and asked a number of questions. I am very pleased to hear that the noble Lord has echoed the apologies already made by the PSNI and by the Secretary of State to the family concerned. Why were they not told of the error earlier? It is a very complex situation in terms of the independence of the judiciary and of the inquest service. However, it is important to bear in mind that the Secretary of State and the PSNI have apologised to the family for the impact of this new development on them. We fully understand the problems it raises for them.
The noble Lord asked for the number of errors that were identified in the Hallett report. The Hallett report identified the Downey case and two other errors, of which this is one, and there are 36 cases where there is concern. All these are being reinvestigated by the PSNI as part of Operation Redfield.
The noble Lord asked how long this will take. I can be no more satisfactory in my answer than to say a number of years, in the estimation of the PSNI. He also asked for an update on the information relating to the royal prerogative of mercy. Following the Hallett report, the Northern Ireland Office has taken steps to improve its administrative systems. Work is ongoing with stakeholders to identify if there is any more material to be found.
Lord Alderdice (LD)
My Lords, I am grateful to my noble friend for repeating the Answer. I recall some elements of this case because Mr O’Connor disappeared shortly after the IMC was formed and we reported as much as we knew at that time in the very first report of the IMC. What puzzles me a little at this stage is, the mistake having been made and having been reported on some time ago, was the coronial service not informed so that it would have known that bringing forward an inquest at this stage was not going to go anywhere? If it was informed, it seems puzzling. If it was not informed by the PSNI, surely that is a serious gap that adds insult to injury in terms of the disadvantage that the family have been put at, not to mention the coronial service itself.
Baroness Randerson
My noble friend refers to the interlinking between the PSNI and the coroners service. It is important to bear in mind the independence of the PSNI. It must be free to pursue investigations. It is also important to bear in mind that this inquest has been ongoing for a number of years. Beyond that, it is not appropriate for me to comment on an individual case.
Lord Rogan (UUP)
My Lords, will the Minister confirm that the letter to the suspect in the Gareth O’Connor case was delivered to him by Gerry Kelly? If this is so, why was Gerry Kelly used as the postman, and how did he know the name and address of the suspect? How many other OTR letters have been given to Kelly for delivery? Further, how many other OTR letters have been given to the IRA/Sinn Fein leaders, Gerry Adams and Martin McGuinness, for delivery?
Baroness Randerson
The noble Lord asked about the issues associated with the OTR administrative system in general. I can do no better than to refer him to the Hallett review, which set out in detail a description of the situation. This was a system set up under the previous Government. In so far as we are able, this Government have given the full information that we are aware of in relation to the Hallett review.
Lord Browne of Belmont (DUP)
My Lords, will the Minister explain how a suspect received an on-the-run letter in error relating to a murder that took place post the 1998 peace agreement? Who was responsible for the error and who signed it off?
Baroness Randerson
I am sorry to disappoint the noble Lord. I really cannot comment on the details of a specific case.
Lord Empey (UUP)
My Lords, will the Minister explain what metaphysical forces were at work that allowed a member of Sinn Fein to deliver a letter to a person who he did not know at an address that he did not know? Will she also confirm to the House that no blank letters were given to Sinn Fein for it to distribute to persons of its choosing? Will she give a categorical assurance from the Dispatch Box that no letters of that character were issued at any stage?
Baroness Randerson
I understand the general concern that noble Lords are expressing about this scheme. I can say to the House only that, once we identified the scheme we brought it to an end in an orderly manner. We certainly are not of the view that the scheme has been operated in an efficient and acceptable manner. I once again refer the noble Lord to the Hallett report, which gave a very detailed description of the way in which those letters were issued and the way in which errors were made.
Lord Lexden (Con)
Would my noble friend not agree that a postman who takes possession of a letter and then says that he does not know the address to which that letter was delivered strains credibility?
Baroness Randerson
The noble Lord has his own view. In speaking to the House today, I can deal only with the facts as I know them about events that took place a considerable number of years ago.
Lord Hylton (CB)
My Lords, on the wider question, we can all understand the grief, the sense of loss and sometimes the bewilderment of families who were the victims of ancient crimes. However, would it not be very much better for all concerned if prosecutions were to cease for offences committed before 1994, when the two major ceasefires came into force?
Baroness Randerson
This Government take the view— the same view as the two parties of this Government took when we were in opposition—that it was inappropriate for there to be amnesties for people who had committed crimes at that time.
Pension Schemes Bill
(9 years, 2 months ago)
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Lord Bradley
“Drawdown funds: cap on charges
The Secretary of State may make regulations imposing a cap on the charges that may be imposed on members of flexi-access drawdown funds.”
Lord Bradley (Lab)
My Lords, the purpose of this amendment is to give the Government the ability to cap the charges on flexi-access draw-down pension products. It is important because it gives the Secretary of State the power to take action if it is clear that unfair charges are being levied. When the freedoms and flexibilities commence in April, there will likely be a large increase in the number of people using these products, and it is right that the Government are able to protect these savers.
In Committee, I laid out why this measure is necessary. A possible 320,000 savers will be looking to turn their pension pots into retirement income in April, and the charges that can be levied can be high. As Which?, the consumer body, has pointed out:
“Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%”.
We remain concerned about ensuring that good products are available for low and middle-income savers, as well as for those who have large pension pots. As I have said, we should remember that the median pension pot is around £30,000. The cap on charges for these products on decumulation, alongside those in place during accumulation, could be a very important stage. As NEST pointed out in its recent consultation on the subject:
“The solutions we as an industry develop over the next few years could affect the lives of millions of people in old age. We absolutely cannot afford to fail consumers. Leaving their retirements to chance is not an option”.
As I said in Committee:
“A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it”.—[Official Report, 12/1/15; col. 614.]
I accept that I have fallen into the jargon that we promised we would not pursue during our deliberations. Decumulation is when you are turning your pension pot into a decision on retirement income.
The Minister replied that this amendment was not required, because:
“There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers”.—[Official Report, 12/1/15; col. 617.]
This is obviously potentially very welcome, but I want take the opportunity provided by this amendment to probe a little further. Can the Minister advise the House today precisely which part of the existing legislation the Government would use were they to take action? Further, can he say whether the Government have any plans to take such action and when that would arise? I am trying to establish not just whether the Government believe that it is possible to do that but whether they would use the powers that the Minister says they now have. Even if the powers already exist—I look forward to the Minister’s response to my question—accepting this amendment would send a powerful signal that the Government intended to protect savers in this market from April. I hope therefore that the Minister will indicate that the Government are ready and willing, as well as able, to do so. I beg to move.
Lord Bourne of Aberystwyth (Con)
I thank the noble Lord, Lord Bradley, for his contribution and recognise that “decumulation” might be jargonistic—I am sure that I have used jargon myself—but “rip-off” certainly is not, and I think we agree that we do not want rip-off charges. The Government are as much against them as the Opposition, I am sure. I will do my best to answer the specific points that the noble Lord raised.
This amendment was tabled by the noble Lords, Lord Bradley and Lord McAvoy, also in Committee earlier this month, so noble Lords will forgive me if I have dealt with some of this previously. As I mentioned on that occasion, the Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. I can reassure the noble Lord on that point.
I am pleased to be able to say that the Government have powers under the Pensions Act 2014—specifically, Section 43 and Schedule 18 confer them—to limit or ban charges borne by members of any pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.
Similarly, the Financial Conduct Authority has wide-ranging product intervention powers, including the ability to cap charges on flexi-access draw-down funds. These existing powers cover all the institutions that could offer such draw-down arrangements.
Flexible draw-down is a relatively niche product, aimed primarily at those savers with large pension pots. HMRC data from the start of 2014 showed that only 5,000 people per year have entered flexible draw-down, which has been in place since 2011. Flexible draw- down is clearly not currently a mass-market product.
With the introduction of the new flexibilities from April of this year, we expect this to change. We have given the industry a great deal of flexibility to develop a range of more flexible retirement income products and offer consumers greater choice. We want to see a vibrant and competitive marketplace, bringing forward products that meet consumers’ needs and enable consumers to make reasoned choices. The Government believe that a competitive market is the best way to ensure that products are well priced and we expect the expansion in take-up of draw-down products to exert a downward pressure on charges. Moreover, as scheme members can withdraw variable amounts, draw-down products generally require more administrative activity than accumulation-phase products. With the introduction of the new pension flexibilities, none of us can be absolutely certain how this market will develop. This was a point made quite fairly by both the noble Lord, Lord Bradley, and the noble Baroness, Lady Drake, in Committee.
Imposing a charge cap on draw-down at this stage, before we have seen the charges on the new products that are currently under development, could therefore risk setting a new norm and arrest any reduction in charge levels, or set a charge that is too low to be deliverable and stifle the draw-down market altogether. We therefore need to monitor how this market develops from April to gather further evidence about average charge levels before making any decision on what would be an acceptable charge level. The Government and regulators are therefore monitoring the development of new retirement income products, including the next generation of draw-down products, very closely.
Innovation and flexibility in the retirement income market must, of course, be for the benefit of consumers, not at their cost. The Government welcome the FCA’s commitment in its recent policy statement that it will commence a full review of its rules in relation to the retirement income market in the first half of this year. If these measures reveal evidence of sharp practice—rip-off charges, in the noble Lord’s phraseology—the Government and the FCA have the powers to act quickly to protect consumers. Along with the Financial Conduct Authority, we are also legislating to require reporting of charges and information on transaction costs by trustees and independent governance committees respectively of all workplace pension schemes from April this year. We are also committed to consulting further in 2015 on the transparency of additional costs and charges, to enable comparability across schemes; we will be considering draw-down funds as part of this work programme. We covered some of these transparency issues in Committee.
Baroness Drake (Lab)
The Minister made the point that I had not heard before that, from April 2015, the independent governance committees will be invited to report on draw-down products, which is to be welcomed. Could he clarify whether the full remit of the independent governance committees will apply to draw-down products, or is it just a question of reporting?
Lord Bourne of Aberystwyth
As I understand it, it would certainly cover the point that the noble Baroness makes about draw-down products; it will not simply be a question of reporting.
To conclude, while the Government share the concerns about member-borne charges, the Government and regulators are equipped with the powers to cap charges in all pension schemes, including draw-down products. We feel that intervening in the market at this stage would be wrong: intervention must be based on evidence, but it is an intervention that the Government have not shied away from making elsewhere in the market. We are closely and proactively monitoring developments in the decumulation market to consider whether there is need to use those powers.
In the closing remarks of the noble Lord, Lord Bradley, in Committee, he stated his hope that we would act in the interests of consumers if we were to see excessive charges in the new draw-down products that come to market. I can reassure him that this remains our intention. I therefore respectfully ask the noble Lord to withdraw his amendment.
Lord Bradley
I am grateful to the Minister for that response, and for taking up all the issues that I raised under the amendment. I noticed with interest his view that the competitive market will put downward pressure on charges, and I sincerely hope that that is the case. Monitoring of that situation will be essential to ensure that products do not come on to the market that seem attractive to customers, but with charges attached that are, because of the products’ complexity, hidden within them.
I welcome the fact that the Government have clarified to the House exactly what powers they have to deal with the matter, and the assurance that the Government not only have them but will use them in conjunction with the regulators if it is quickly seen that it is necessary to protect consumers from excessive charges. With those assurances, and with the certainty that this will be closely monitored both inside and outside the House, I beg leave to withdraw the amendment.
Lord Bradley
“National Employment Savings Trust transfers
In relation to NEST, within one month of the passing of this Act, the Secretary of State must lift the ban on transfers and the contribution cap.”
Lord Bradley
We return to the issue of the National Employment Savings Trust. The amendment requires the Government to lift the restrictions on NEST. In Committee and in a letter that the Minister was kind enough to send me between Committee and today, he explained why it is the Government’s opinion that that is impossible. I want to use this short debate to push back against that idea and explain why I believe that it is possible to lift the restrictions quickly, and why it should be done now.
NEST has been a success, as we all recognise and as the Minister acknowledged in Committee. As I said then, we should celebrate the fact that it has provided a high-quality, low-cost product in an important market that has not always—or often—served the saver well. Restrictions remain that prevent NEST building on that success. They limit, first, the contributions that can be made. In 2014-15, no more than £4,600 could be paid in. Secondly, there are restrictions on transfers from NEST in and out of other pots, except in certain circumstances, such as pension credits as part of a divorce settlement.
We have long argued that those restrictions should be lifted, but the Government pushed back, arguing that to do so would break EU state aid rules. That was obviously a serious point that needed to be addressed, as it was important not to leave NEST open to legal challenge. The EU ruled relatively recently that NEST is a service of general economic interest and did not breach state aid rules. My colleagues in the other place therefore sought legal advice to ensure that it would not breach state aid rules if the restrictions were lifted. That advice was published in November 2012, and concluded:
“It is important to appreciate that this can be done without offending EU state aid rules if the UK government presents the arguments as to why the subsidy no longer qualifies as a state aid under the Altmark principles”.
However, the Government still have not moved on that. Since then, we have had confirmation that legal advice sought by Gregg McClymont was accurate. The EU commission agreed that NEST would not breach state aid rules were its restrictions to be lifted. That is obviously welcome news, and has the potential to improve the savings environment for many in the UK. Alas, the Minister laid out, both in Committee and in the letter that he has since kindly sent me, why he believed that it was still not possible. The reason was that it appears to be EU state aid rules. In the Chamber the Minister argued:
“It is our understanding that we would have to reapply to vary the state aid consent that we have”.—[Official Report, 7/1/15; col. 442.]
However, later in the correspondence he said that the European Commission decision published on 26 June 2014 provided confirmation that removing the annual contribution limit and transfer restrictions from 1 April 2017 is compatible with the state aid measures afforded to NEST. The Commission also agreed that the removal of restrictions on individuals making transfers in and out of NEST could be brought forward to coincide with the introduction of automatic transfers, if they were earlier than April 2017.
Noble Lords will, therefore, understand if I am reluctant to accept the Government’s argument. We have been told repeatedly that state aid rules make this simple but important change to NEST impossible now. So can the Minister, first, provide more details as to why the EU state aid decision does not apply to any point earlier than 2017? Secondly, can he say why the decision on state aid would be challenged, as he suggested in the letter that it might? Thirdly, whose interests would be disadvantaged by the cap being lifted earlier? Lastly, how is that sufficient to invalidate the existing EU judgment? It would be helpful to the House to have further clarity on the Government’s argument as to why it is not possible to lift restrictions on NEST before 2017. I beg to move.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Bradley, for his contribution and for allowing me to provide an update on NEST. I will do my best to answer the specific point on state aid rules.
I stress at the outset that the Government have broadly two concerns about the amendment. One of them is the state aid rules. The second is that we want NEST to focus on its mission to provide assistance to small and micro-employers in the run-up to 2017, when the restrictions will be lifted. However, I will go through some of the background and do my best to answer the specific points—or point—raised by the noble Lord, Lord Bradley.
As promised—and as acknowledged by the noble Lord opposite—during the Committee proceedings I wrote to the noble Lords, Lord Bradley and Lord McAvoy, copying it to other noble Lords who had participated in the debate, clarifying, I hoped, a point relating to state aid and the removal of the annual contribution limit and transfer restrictions from 1 April 2017. It must be noted that that letter referred to it certainly not being contrary to state aid rules to lift the restrictions on 2017. That was, of course, the consent given. However, it does not follow that it could be done any earlier; otherwise, a particular date would not have been chosen for lifting the restrictions. This is where the issue is: whether if a particular date is given, and consent is given for that date, it follows that you can lift the restrictions at any date before. This is the difference between us. I do not think it follows, where an application has been made for a particular date and consent is given, that you can predate it. However, I will try to come back to that.
Lord Bradley
My Lords, following that last point, perhaps I might quote again from the letter, which I accept I may not be interpreting correctly. It says:
“The Commission also agreed that the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with the introduction of automatic transfers if this were earlier than April 2017”.
Lord Bourne of Aberystwyth
Indeed, and I will come on to that point but it relates only to the transfers, not to the amount. The amount remains subject to the consideration of 2017. There are two limbs to this and I will try to cover that point, because we may be looking at a date slightly earlier than April 2017 if we succeed in achieving the aim of the automatic transfer. That limb of it could be there somewhat earlier but not the other limb, as it were. Let me proceed and, I hope, deal with the points. If not, I am sure that the noble Lord will let me know.
Later this week noble Lords will again, I hope, debate the National Employment Savings Trust (Amendment) Order, laid before Parliament on 16 December 2014. Its purpose is to implement the proposals that we have been talking about. As noble Lords will be aware, NEST was established to support automatic enrolment by ensuring that all employers had access to a low-cost workplace pension scheme with which to meet their duties, regardless of the size or profitability of their workforce. Its design, including the annual contribution limit—I think this is the point at issue, and is subject to the 2017 designation—and transfer restrictions, which admittedly could be somewhat earlier, focuses NEST on this target market of low to moderate earners, and smaller employers whom the market found difficult to serve. I believe that I mentioned this in Committee but I may be wrong on that point.
NEST already has more than 1.8 million members and 10,500 participating employers. NEST is doing what it was set up to do: supporting automatic enrolment, and doing so very successfully. During winter 2012 and spring 2013, the Department for Work and Pensions undertook a call for evidence on these issues of limitation. It sought to assess whether there was evidence that the annual contribution limit and the transfer restrictions placed on NEST were preventing it serving the market it was designed for. The evidence showed that although there was a perception that these two constraints were a barrier to access, the reality was that they did not prevent NEST from serving its target market. Seventy per cent of small and medium-sized employers expect to contribute no more than the legal minimum to their workers’ pensions. Until October 2017, minimum contribution levels are a total of 2% on a band of earnings. There is already a substantial amount of headroom within the annual contribution limit, which is currently £4,600, for contributions above the minimum. For example, minimum total contributions for a median earner on £26,000 a year would be £405.
In relation to transfers, individuals in other schemes who can already make transfers rarely do so. Evidence shows that more than 80% of workers fail to transfer their previous company pension funds across to their new employer’s scheme. In addition, around only 14,000 small and medium-sized employers currently provide trust-based workplace pension schemes that could be transferred to another pension provider. Of these, the Department for Work and Pensions estimates that around 5,000 might be able to consider a transfer of their workplace pension provision to NEST, which is equivalent to less than 1% of all firms.
Around 1.2 million small and micro-employers have yet to enrol their eligible workers. There is most likely to be a supply gap in this segment of the market, which underlies the rationale for establishing NEST. This is where the Government want NEST to focus. This is because of a shortage of provider capacity and the fact that other providers have traditionally not found it possible to serve this market at reasonable cost. Implementation on this scale needs NEST, the only scheme with a public service obligation, to be able to play a significant part in meeting this challenge.
If the House will indulge me for a moment, automatic enrolment has been a tremendous success so far, with more than 5 million workers enrolled into a workplace pension. Opt-out rates have been lower than expected, at around just 10%. We would not be in this position if not for the consensus that automatic enrolment has enjoyed from all sides of this House over the past decade. However, we must not be complacent. The 5 million workers enrolled so far work for only 43,000 employers. The challenge for the next phase of the rollout of automatic enrolment is to ensure that the remaining 1.2 million small and micro-employers are able to enrol their eligible workers.
The Department for Work and Pensions estimates that NEST will need to accept between 45% and 70% of those employers, ensuring that supply gaps are addressed. The scale of this challenge should not be underestimated—for example, during 2016, around half a million small employers will need to enrol their workers, which is an average of more than 40,000 employers per month.
With this in mind—and taking account of the evidence —the Government determined that removing the annual contribution limit and transfer restrictions immediately to address the perception of complexity would not be a proportionate response. Conversely, doing nothing would not be consistent with the Government’s broader policy objectives to encourage increased saving and consolidation of pots. We therefore concluded that legislating now to remove these constraints in 2017 was a balanced approach. Legislating now will address any current perception that the constraints are discouraging small employers from using NEST to meet their automatic enrolment duty. It will also send a clear signal that NEST will be on a similar footing to other schemes from 2017.
Lord Bradley
Once again, I am grateful to the Minister for his extensive response on this very important matter and his recognition, which the whole House shares, of the value of NEST and the excellent work it has done—particularly for low-income workers, giving them a very important model to pursue. It was not our intention for the amendment to undermine in any shape or form the focus of the mission of NEST that the Minister rightly referred to. It was to try to ensure that the continued auto-enrolment of employees continues, and NEST is part of that process because it is doing such a successful job. I am, however, grateful for his clarification of the European ruling and the distinction between transfers and contributions. I will read the explanation in detail following this debate.
We all want to ensure the continued success of NEST as an organisation. I am sure that over the coming months it will continue to play that role and I look forward to debating further these matters as further legislation is presented to this House. In the mean time, I beg leave to withdraw the amendment.
Lord McAvoy
“Scale of pension schemes
(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have the power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”
Lord McAvoy (Lab)
My Lords, Amendment 10 would ensure that the fiduciary duty of pension scheme trustees should include a duty to consider whether the scheme had sufficient scale to deliver good value for members. It is the same amendment that we proposed in Committee but, having reflected on the Minister’s answers, we believe that this is so important an issue that we want to return to it.
The Minister said in Committee that,
“although … the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties”.—[Official Report, 7/1/15; col. 393.]
He also said that the framework was already there to enable mergers and scaling up, and indeed they are happening. However, it is crucial to us on this side of the House, whether the issue is governance and transparency or the way in which duties are imposed on trustees, that we should always be looking to get best value and protect the interests of the public throughout this process. Strengthening the arm of the Pensions Regulator will help to achieve that scale.
It is our view—and that of the Pensions Regulator, which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes, and we want a process in place to try to reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful, but would give powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pension industry that scaling up will have to happen, and that in doing so costs would be reduced and there would be a better outcome for savers, I hope and believe that the Government will wish to support the amendment. I beg to move.
Lord German (LD)
My Lords, once again I have a few questions for the movers of the amendment as well as the Minister. The sense that I get from the amendment is that bigger is always best and small is not to be preferred. The truth, presumably, lies somewhere in the middle of all that.
There are questions that arise from the amendment. When you have schemes—I presume there are many tens of thousands of them are around, but I do not know how many of them are of the size and scale interpreted by the amendment—it is important to ask what defines sufficient scale, which is the first part of the noble Lord’s amendment. I would like to understand what “sufficient” means. I presume that noble Lords would want to see all pension schemes with good governance, low fees and good outcomes for their members.
So my first question is: what is it that big schemes can provide that smaller ones cannot? I understand from reading Hansard from the other place that one of the suggestions from the movers of this amendment there was that asset management could be moved in-house. I wonder whether that is a sensible provision. Can the Minister tell us whether or not there have been successes with in-house asset management? Is that a given for securing lower costs and a better outcome for the consumer?
I turn to the other pressure that the amendment seeks to apply. The claim is that by forcing schemes to merge, there will be economies of scale. In the capping regime that the Government have undertaken, there must be a league table of high-cost fee pension schemes. Can the Minister say how many bigger and how many smaller providers are in that league table? This will enable us to discover whether or not big is best and whether there are appropriate economies of scale.
I need to test another issue with the movers of this amendment: namely, merging. Merging with whom and how is it to be determined? What the amendment seeks to do is to force pension schemes to merge. I understand that there has already been a significant shift in the number of schemes that have merged; the extent of the direction of travel is extensive. Perhaps the Minister could remind us of the speed with which schemes are merging and growing bigger. But if you force mergers, as with any arranged marriage you need to engage in a partner search. I wonder whether the movers of the amendment can tell us how this partner search is going to take place; who is going to undertake it and who is going to police it—because I think that would be almost impossible.
I remain to be convinced that forcing unwilling, low-cost, good value for money, well governed, smaller pension schemes to merge is the right approach to ensure that the members of the scheme get the best returns. There are alternatives. The fee cap, disclosure, regulation of governance and transparency are all issues that this Government have taken on board and are progressing. I am left with some doubts about whether the forced marriage regime which is being proposed by the noble Lords opposite is the best approach when there are better alternatives.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord McAvoy, for moving this amendment. It would impose an additional duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme.
The principle of promoting scale to drive value for money for scheme members is one that we can all understand. However, the Government believe that introducing further legislation to ensure that the fiduciary duty of trustees includes a duty to consider whether a scheme has sufficient scale is unnecessary and overburdensome.
In response to my noble friend Lord German, I can confirm that there is already a trend towards larger schemes and away from smaller schemes. We contend that trustees’ existing fiduciary duties already require them to act in their members’ best interests, so it would be unusual if they did not consider this point. In addition, trustees must pay particular attention to four key areas. First, they must comply with governance requirements—for example, they must establish and operate internal controls. Secondly, they must have regard to investment governance and decision-making. Thirdly, they must adhere to administration practices—for example, record-keeping. Lastly, they should seek to prevent fraud—for example, theft or pension scams. Specific legislation would place the financial cost of managing a difficult and complex forced consolidation on members. In many cases it would be in direct conflict with scheme rules which may not permit such transfers and mergers.
A further difficulty with this amendment is the complicated underlying process that trustees would be required to undertake to implement its requirements. The noble Baroness, Lady Drake, put her finger on this in Committee when she said that problems could arise around transfers. Trustees would, for example, be required to find a suitable alternative scheme, assess the scheme’s suitability and undertake independent checks. Again, the costs of that would be borne by members; it could be a costly process if they were required to do that in the way this amendment suggests.
Lord McAvoy
I thank the Minister for his response. However, I have struggled a wee bit to align some of the comments made by the Minister and by his loyal and noble friend Lord German. We have been accused of saying that bigger is beautiful, but no, we did not, and of saying that bigger is best, but no, we have not said that. The Minister has used the word “sledgehammer” to describe this minor, moderate amendment, and it is just not true. The noble Lord, Lord German, referred to a “forced marriage”. The only forced marriage I see is, more appropriately, across the Benches here and it is heading for a rocky end in divorce and mayhem and not on good terms either.
I repeat what the amendment would do. It would ensure that:
“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.
The only duty is to consider. It is not a forced marriage, it is not bigger is best, it is not big is beautiful, and it is not a sledgehammer. I am losing track of all the various adjectives used here to describe this little amendment. We think it is a reasonable duty to give them to make sure they at least consider it. No force of any kind is envisaged at all. The Minister is not an extreme person but I am disappointed that he has perhaps been waylaid by his loyal and noble friend into using some extreme language which does not fit the amendment. However, I beg leave to withdraw the amendment.
Lord Bradley
“Decumulation
(1) A qualifying money purchase scheme may not sell annuities directly to anyone who has saved with the scheme unless this is the recommendation of an independent annuity broker.
(2) A relevant scheme may provide an independent brokerage service itself.
(3) A self-provided annuity brokerage service will be considered independent for the purposes of this Act if the provision of its services is subject to the direction of independent trustees.
(4) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;(b) ensuring access to most annuity providers; and(c) minimising costs.(5) The standards meeting best practice for annuity brokerage services shall be defined by the Pensions Regulator after public consultation.
(6) The standards set out in subsection (5) shall be reviewed every three years and, if required, updated.”
Lord Bradley
My Lords, we return to decumulation, which is the process of converting pension savings into retirement income. The amendment is aimed at protecting savers who default into an annuity with their same savings provider. The annuity market is not working as it should and the Financial Conduct Authority’s recent Thematic Review on Annuities Sales Practices set out, first, that 60% of retirees with DC pension savings were not switching providers when they bought an annuity, despite the fact that around 80% of these consumers could get a higher income on the open market. Secondly, an estimated 91% of people with medical conditions could get a higher income on the open market through an enhanced annuity. Thirdly, firms’ sales practices are contributing to consumers not shopping around and switching, and missing out on a potentially higher income in retirement as a result. There is evidence of non-adherence by pension providers to the ABI code.
The amendment would provide safeguards for those who do not take advantage of the new flexibilities provided by the 2014 Budget changes and for whom an annuity remains the best product. There are people who will prefer the security of a product that guarantees them a set income for their entire lives, without the difficulty of making predictions about life expectancy. The FCA report recognises that annuities can still be a very attractive option—indeed, for some a better option—than a flexi draw-down product.
This amendment is about protecting people from a highly dysfunctional annuities market which can be riddled with excessive fees and charges, which sometimes capitalises on people’s inertia and lack of financial knowledge, that does not necessarily reward loyalty and that sometimes plays fast and loose with its regulatory framework. For example, the National Association of Pension Funds estimates that those who do not shop around receive up to 20% less in their annuity. The Financial Conduct Authority estimates that consumers could be missing out on up to £230 million in additional pension savings because they are not shopping around in the most effective way.
The annuitising process remains complex. The Financial Services Consumer Panel recognised this in December 2013 and said that a “good annuity outcome” might well require expert help. Our new clause would require the recommendation of an independent broker in order to sell an annuity to someone who has saved with the same scheme. This may be an existing provider or it may be another, but an independent broker would protect consumers from getting a bad deal when taking such a crucial decision in their lives.
In Committee, the Minister acknowledged that the process of annuitising is complex and requoted the evidence that says that,
“many consumers are not getting the most out of their hard-earned savings”.—[Official Report, 7/1/15; col. 363.]
He also concurs with us that annuities can be good value where the individual member selects a product that meets his or her needs. So, across the House, we recognise that the market is dysfunctional but that annuities should remain part of the options available for people planning for their retirement. However, we diverge on what should be done to help people find a way to the best product.
The Minister said that the Government, through providing the public with guidance,
“will ensure that individuals can access the support that they need to understand and navigate their retirement choices—for example, to help them decide whether an annuity product is the right choice for them … Where they decide to purchase an annuity, they must be encouraged and supported to shop around for the best deal. Those are key objectives for the guidance and the Financial Conduct Authority’s rules will underpin it”.—[Official Report, 7/1/15; cols. 363-4.]
I do not think that the guidance will be sufficient to enable the complex choice of deciding between annuity products. What guidance will do is to help people to consider where to annuitise, or whether to take the cash option or to go for some kind of draw-down product. This is fine as far as it goes. People who retain an independent financial adviser pay that person to select the best annuity options for them to choose between. There are hundreds of such products, all with a lot of small print and mystifying jargon and statistics. Choice requires expert help—even, dare I suggest, for the financially literate. The independent financial adviser is an expert, with regulatory backing and examinations to pass, so they do more than offer guidance. People may pay upwards of £1,500 for that assessment of options—a steep fee, and certainly one beyond the reach of people with small pension pots. However, the fee reflects the complexity of choosing the right product for that person to meet his or her particular needs. Guidance is not sufficient to choose an annuity.
There is other evidence to support advice for choosing annuities. As was made clear in Committee in the other place, pension schemes should ensure that any brokerage service they employ on behalf of their members meets best practice in terms of providing members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the costs. Pension schemes have a duty to get the best possible deal for their members, or to do it themselves in-house. Such good practice can be found in pension schemes such as the Royal Mail’s and the National Employment Savings Trust. Though this amendment, we are seeking such best practice in pension schemes across the country.
The Minister said in Committee in the same speech that requiring independent advice may have the perverse result of deterring people from selecting to stay with the same savings body. It is estimated that 20% of savers remaining with their existing company get a good deal, or perhaps even better than by changing companies. However, the fact that 80% do not get such a good deal indicates to me that our amendment is required to protect savers to ensure that they do. With respect, I think that the Minister is wrong in principle. An independent broker should consider all options, including remaining with the existing provider.
In many ways, I deeply regret the need for this amendment because it acknowledges that the change needs to come from government. Offering advice is best practice in some pension saving schemes, so why do they not all do it? If the industry acted in the best interests of all savers, it would not be necessary. Sadly, the industry does not always conform to the ABI code of conduct. Despite a series of damning reports from think tanks such as the Centre for Policy Studies, and the Office of Fair Trading report published in 2013 and the FCA reports in 2014, this financial sector has refused to change and put the best interests of savers first. Government action is required; the public should be able to look to us to protect them. At a time when the House collectively agrees that this series of pension reforms should seek to rebuild trust and confidence in pensions, particularly in the private pension sector, this amendment is needed to protect consumers.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Bradley, for introducing this amendment, which we recently considered in Committee. In his speech in Committee the noble Lord explained the intent behind this amendment, as he has again today: to protect savers who put their pension savings into an annuity with the same provider they save with because of failure to shop around for a better deal. In Committee he also referred to the concept of empowering schemes to undertake the responsibility for ensuring the member gets the best deal, using their advantages of bulk buying. We can all understand the noble Lord’s motivation but, for reasons I will give, I do not think that the amendment would achieve these ends.
If the amendment were agreed to, an individual would be able to buy an annuity from their savings provider only if it was recommended by an independent annuity broker. This requirement would catch everyone who wants to buy an annuity from their savings provider, not just those who accept an annuity from their scheme without having looked for a better deal on the open market. It would also affect those who have made extensive investigations on their own behalf and who would therefore be paying a broker to tell them something they already know.
Moreover, the amendment would not protect consumers from getting a bad deal. I acknowledge that it might limit the providers who could offer that bad deal, but only regarding their existing customers. There would be nothing to stop someone getting a bad deal from an annuity provider chosen on the basis that it has a shop on their high street or appeared first on their internet search, as the annuity broker requirement would bite only if the member wanted to buy an annuity from his existing savings provider. If the broker does not recommend the savings provider, the member will not be permitted to buy an annuity from them. Are we so sure of the competence of all annuity brokers that we should, effectively, take this decision out of the hands of the person most affected by it and put it into the hands of the annuity broker?
On the idea of empowering schemes to undertake the responsibility for ensuring the member gets the best deal by using the advantages of bulk buying, there again appears to be nothing in the amendment to facilitate this. In any case, I remain agnostic on these advantages in the context of an individual choosing what to do with their pension savings. The purpose of the Budget changes is to allow the member to choose from a range of options that suit them best, based on their knowledge of their specific circumstances and wishes. It is not clear how schemes bulk buying annuities for cohorts of members would be able to reflect these choices.
In addition, we must always be careful of the law of unintended consequences—a law that cannot be amended by this House. There would be a real risk that members would simply stop even considering internal annuity products because of the inconvenience and delays, not to mention the extra costs involved in consulting a broker. In fairness to the noble Lord, that point was raised in Committee.
I remind noble Lords that some providers offer guaranteed internal annuity rates which can often be a higher rate than that available on the open market. We should be careful before we do anything which might deter members from taking advantage of such products. As I hope I have made clear, we agree that individuals should certainly be helped in reaching the decision that is right for them and, as noble Lords already know, we have put in place a number of ways in which this help is offered, and via the FCA we have brought forward additional safeguards thereto. However, we do not think that the individual’s decision should ultimately be constrained by others. On that basis, I urge the noble Lord respectfully to withdraw his amendment.
Lord Bradley
Again, I am grateful to the Minister for his views on this amendment, so clearly laid out. I was particularly interested in his comment that we should recognise the law of unintended consequences on this amendment. Some may consider it to be true of the whole Bill, but that remains to be seen.
Maybe the reason I am most persuaded to withdraw the amendment is that I will not have to try to pronounce “annuitise” as many times in the future as I have in the last few days. I recognise the points that have been made, and we will be debating further this afternoon matters relating to the guidance guarantee and how robust that will be in supporting people. We are particularly concerned about the number of people who remain within the same scheme and do not seek advice. We will look at that again as these matters unfold further through regulation. In the mean time, I beg leave to withdraw the amendment.
Lord Newby
“Public service pension schemes
In Schedule 5 to the Public Service Pensions Act 2013 (meaning of “existing scheme”), in paragraph 1, after “1972” insert “other than a scheme which relates to staff of the Secret Intelligence Service or Security Service”.”
Lord Newby
My Lords, these two amendments make a small change to the Public Service Pensions Act 2013 in respect of the pension schemes of the Security Service and Secret Intelligence Service to put beyond doubt the application of that Act to those agencies.
The first amendment introduces a proposed new clause after Clause 79 to ensure that the pension schemes of the Secret Intelligence Service and the Security Service are not included in the list of existing schemes in Schedule 5 to the Public Service Pensions Act. The amendments are necessary because since the Act was passed in 2013 new information suggests that the pension schemes for those security services might fall within the Act’s definition of an “existing scheme”. As such, they would be subject to the requirements set out in the Act that their current pension schemes should close on 1 April this year, and a new scheme, reformed in line with the Government’s principles on public service pension reform, should take its place.
However, at the time the Act was drafted it was thought that the security agencies’ pension schemes fell within a different category—that of public body pension schemes. The requirements here are different. Instead of a closing date of April this year, the Government have set out an expectation that public body pension schemes will reform by April 2018. Consistent with our original understanding of their status, the Government have been working with the security agencies to ensure that a new reformed pension scheme is in place ahead of 2018.
As I am sure noble Lords will understand, it would not be possible at this late stage for the Government to change course and put in place a new pension scheme for the security agencies in time for this April. It would also not reflect the agreement the Government have with the agencies and their staff to keep the existing scheme open until 2016. As things stand, without introducing a new pension scheme in April this year, there is a significant risk that the agencies’ staff would be left without any lawful pension provision after this date. That is obviously a situation that the Government could not allow to happen. The amendments I propose today will prevent any risk that the security agencies’ pension scheme will be forced to close on 1 April 2015 and will allow the Government to continue to work with the security agencies to put in place a new reformed scheme by the original deadline. The amendments do nothing more than this and will have no wider bearing on any other public service or public sector pension scheme. The second amendment enables the new clause to come into force on Royal Assent. This is to ensure that it is in force before 1 April 2015, so the risk of forced closure never manifests itself. I beg to move.
Lord Bradley
I am grateful for the explanation from the Minister and I can assure him that I have no intention of opposing changes to the secret service’s or the security services’ pension schemes.
( ) the first regulations under section 8(3)(b), 9, 10, 11 or 21,”
Lord Bourne of Aberystwyth
My Lords, this amendment changes the parliamentary procedure applicable to the exercise of some delegated powers contained in Part 2 of the Bill from the negative resolution procedure to the affirmative resolution procedure the first time these powers are exercised. These powers relate to exclusions from the definition of collective benefits and how schemes that provide collective benefits will operate in relation to certain key matters. The Delegated Powers and Regulatory Reform Committee recommended that the regulation-making powers in Clauses 9 to 11 and Clause 21 should be subject to the affirmative procedure the first time they are used. In response to amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, in Committee, I made clear that the Government accept that recommendation in respect of those powers. This amendment therefore places regulations made under those powers subject to the affirmative procedure on first use, as the Committee recommended. The Committee also recommended that the power in Clause 8(3)(b), allowing regulations to exclude a specified benefit from the definition of a collective benefit, should be subject to the affirmative procedure every time it is used.
I also explained when we debated the noble Lords’ amendments in Committee that the Government do not consider this to be appropriate because there needs to be flexibility to respond to new developments in scheme and benefit design that could result in benefits falling within the definition of “collective benefits” and hence becoming subject to the requirements of regulations made under Part 2 of the Bill, contrary to policy intention. Clause 8 is a key provision as it defines the scope of the provisions relating to collective benefits in Part 2. Because it is a key provision it should be subject to the affirmative procedure the first time it is used but there are circumstances where the Government may need to use this power without unnecessary delay to avoid members’ benefits being affected and to avoid schemes being subject to expensive requirements around the setting of targets, actuarial valuations and so on, which are not appropriate because other regulatory and governance requirements would be more appropriate to them. As the affirmative procedure could result in delay, leading to significant distress to members who would be without clarity as to whether their benefits were caught by the collective benefit provisions, we believe that the power in Clause 8(3)(b) needs to be affirmative on first use only. I therefore beg to move this amendment.
( ) regulations under section 48(3)(b), or( ) ”
“( ) Subsection (2) applies where regulations made by the Department for Social Development in Northern Ireland contain—
(a) provision made under section 51(3)(b), or(b) provision made under section 82 that amends, repeals, revokes or otherwise modifies a provision of primary legislation,(whether alone or with other provision).”
“( ) section (Public service pension schemes);”
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”
Lord Bradley
“( ) must be sufficient to ensure that the body is capable of carrying out its functions under section 333C(1).”
Lord Bradley
We now come to the very important issue of the guidance guarantee. In Committee we debated a number of significant issues that this amendment addresses. However, I would like to probe the Government a little further on the arrangements for providing guidance through Citizens Advice and the Pensions Advisory Service.
Specifically, I am seeking assurances that those two organisations are capable of delivering the guidance and that the quality of the guidance will be consistently high across the two delivery partners. Key to this is that the delivery agencies receive the funding they need to deliver a quality advice service for those who request it. The whole purpose of this is to ensure that when the pensions freedoms and flexibilities are introduced in April, people have the quality guidance to make the crucial decisions about their retirement income.
Guidance—not advice, which is a regulated function—will be available from April 2015 to assist all the 600,000 people due to retire next year, or those who have deferred making decisions about their annuities until the legislation is passed, together with any 55 to 65 year-olds who are thinking of cashing in their pension pot. Further demand for the service may also come from younger people as the Treasury has said that people in their 50s or even 40s may be eligible for guidance.
In the debate on the previous amendment, we talked about unforeseen consequences of the legislation. I hope— this is just a background comment—that we are not in a position that a previous Government were in in the 1980s, when we blundered into a massive pension reform without thinking through all the implications. As Black and Nobles said in “Personal Pensions Misselling”, as quoted in The Blunders of Our Governments:
“No-one looked at pensions as posing particular problems because no-one knew or thought to look”.
To her credit, my noble friend Lady Turner was pretty much a lone voice in the debate in this House in raising concerns about that Bill, and concluded in a speech on 11 July 1986 that it was “vital” that people buying personal pensions should be offered adequate protection. I am very pleased that my noble friend is in the Chamber this afternoon.
It is against this background that we still have concerns and questions about how guidance will be organised and delivered in practice. These concerns include: people who decide to cash in their pension pots or to move money into complex draw-down products when an annuity may still have been their better option; the potential for product scams and whether the introduction of the criminal offence, although welcome, will be enough to deter the proliferation of what the Financial Times called “whizzbang investment schemes”; that the Financial Conduct Authority will not be specifically regulating the guidance guarantee; that the guidance will not be comprehensive enough to ensure that people fully appreciate the consequences of the decisions they make; and that all government policy has not been thoroughly thought through and clarified, because unless the policy is clear, the guidance staff will be put at a great disadvantage.
We know now that in the first instance the Government have allocated £35 million to the guidance service to recruit around 300 staff for the Pensions Advisory Service and Citizens Advice. It is still not clear how this amount has been calculated. Has the Minister made any further assessment of the likely take-up of the guidance from the first tranche of, say, the 600,000 people who may seek such guidance? As was pointed out in Committee, there has been a huge variation in projections on this point, from the Legal & General study of 9,000 people being offered free advice but with only a 2.5% take-up, to the Chartered Insurance Institute, which predicted a 90% take-up.
Further, has an estimate been made of the proportion of people who will seek guidance by phone from the Pensions Advisory Service and those who will seek a face-to-face interview delivered by the citizens advice bureaux? Without such an assessment, it is difficult to understand how demand for the service will be managed by the different delivery agencies.
Next I will deal with qualifications and training. These issues have been explored well by outside commentators, including Radio 4’s “Money Box” programme, Money Marketing and other specialist pension advisers. It has been noted that TPAS is recruiting telephone advice workers at a salary of around £30,000 per annum. Applicants are expected to have five years’ experience of pension work and advice and, ideally, a relevant qualification. However, the CABs are recruiting people for face-to-face work on salaries of around £18,000 to £24,000. Applicants there need merely to be numerate, and knowledge of pensions is desirable but not essential.
Further, the Treasury has said:
“All Citizens Advice and TPAS staff delivering the pensions guidance will receive intensive and detailed technical training prior to April 2015. They will be tested to ensure they have the necessary pensions knowledge before they talk to the public. They will also have access to a programme of continuous professional improvement”.
However, Barnett Waddingham, senior consultant and former TPAS chief executive Malcolm McLean has said:
“You can train people until you are blue in the face, but they need to have a starting point of knowledge. Citizens Advice seems to think that you can take people with absolutely no pensions knowledge and train them up in a few weeks’ time. Why is it asking for such a different level of pensions knowledge to TPAS? Arguably the face-to-face service is more difficult, because you are on your own in a room with someone”.
Is the Minister satisfied that staff recruited will be of sufficient quality to deliver the service? “Money Box” suggested that the face-to-face service could be second class compared with TPAS. Will he confirm that to date TPAS has recruited only 20 extra staff. Crucially, will he confirm that the intensive and detailed technical training will be completed when the system goes live in April?
My next questions are about coverage of the face-to-face service being provided by the citizens advice bureaux. In Committee, it was pointed out that Citizens Advice has a network of some 300 bureaux across the country, but the specialist pension guidance staff would be located in only 44 offices. In the light of the International Longevity Centre study that suggested that 63% of people seeking guidance would prefer a face-to-face interview, are 44 centres sufficient to meet the demand from April? Can the Minister confirm that these are sufficient? Have the Government made any estimation of the maximum waiting time for an appointment at one of these centres? If there is a delay in getting an appointment, a decision could be made about pension pots that is not in the best interest of the customer.
Since there are only 44 centres, what is the maximum distance that a person will have to travel to get guidance, and has account been taken of the distribution of these centres for public transport for those who may need it? In terms of the day-to-day operations of the service, will the offices be open early in the morning or late in the evening, or at weekends, particularly for those people who are in employment? Further, on the money allocated for the service, will the Minister again assure us that the invaluable work undertaken by CAB staff for some of the most vulnerable people in local communities will not be affected by the pensions work and that no funding provided by local authorities will be used by CABs for pensions guidance? Will the Minister also confirm that each interview will last up to 45 minutes and that the designated guidance adviser, as the CAB worker will be known, will just lay out the options for the customer to consider? Will the customer after a period of reflection be entitled to further consultation, or will they then have to seek paid independent financial advice?
Will the Minister confirm what the complaints procedure will be? Will the customer first complain to the CAB and what form will that take? If it is not resolved, will it then be passed to an independent adjudicator approved by the Treasury? Can the Minister give details about how that independent adjudicator service will work? If the complaint remains unresolved, will the Parliamentary and Health Service Ombudsman then intervene, but only with the support of a Member of Parliament? Is this all correct, and will the Minister give full details of the complaints procedure? If he cannot do so today, can he tell us when it will be published?
Finally, will the Minister give us an absolute assurance that both the TPAS and the CAB service will be ready to go live from April, in barely eight weeks’ time, not only in England and Wales but in Scotland and Northern Ireland, and that there will be clarity on all policy areas so that those delivering the guidance are able to give accurate information to the customer?
At the heart of the amendment is our wish to ensure that the Bill works in the way that is intended and that the guidance will be available, taken up and prove effective in helping people to choose the right products to fund their retirement, and to make the right decisions about lump sums or other retirement income. To date, this House has been provided with too little information about the guidance to be offered. At this late stage, we must be satisfied that the guidance will be fit for purpose and will address all the issues that the public will need to consider in order to make one of the most important decisions of their lives. I beg to move.
Baroness Oppenheim-Barnes (Con)
My Lords, this Bill is a very welcome reform and has been met with a good deal of justified praise. I, too, have concerns about the possibility of the citizens advice bureaux being able to take on such another role—and to do it effectively, because I have the greatest admiration for it having dealt with it over many years. Its staff are all volunteers. They do not necessarily have specialised knowledge. Those who have had training in dealing with the pensions market are scattered quite thinly, as has already been said by the noble Lord, Lord Bradley. We had not very long ago two big Bills which imposed new duties on the citizens advice bureaux, the most recent being the Consumer Rights Bill and, before that, the regulatory reform Bill. They were given extra sums of money, which were not overgenerous, because they now have to give specialised information. I know that big-shot financial advisers often get things very wrong and they are supposed to be experts, so a great onus is being placed on the citizens advice bureau that I am concerned about. These are very important matters; this is a very important and welcome Bill; and I hope that my noble friend will be able to say something that is helpful and pacifies my concerns.
Lord Flight (Con)
My Lords, I, too, have some reservations about the guidance arrangements, in two different types of area, which I hope can be put at rest. First, imagine that an individual with a pension of £20,000 goes to get guidance. Is the guidance likely to say, “Go on—pay the tax, take the money and spend it”? The main guidance will be divided between buying an annuity or entering into a draw-down. The pension might be a bit small for the mechanics of a draw-down, so one is likely to be guided towards an annuity. For the present and foreseeable future, we all know that bond yields are artificially low, and that anyone who buys an annuity today will look back in five, seven or I do not know how many years’ time, when bond yields are back to normal, and say, “My God, I got a really bad deal when I bought that annuity. I know that I cannot sue the Government because it was guidance, not advice, but it was pretty bad guidance to suggest that I buy an annuity when what it was based on—mainly bond yields—were artificially low”.
The second thing that worries me is that people will, as it were, be left in the air. Their guidance might sort out whether they would be right to buy an annuity or right to do something else, but let us say that the guidance is, perhaps, that they should leave their money in the pension scheme and draw down only when they want to. They will then need someone to manage those investments. As a result of what I believe to be the very mistaken RDR reforms, most financial advisers are not willing to take on individuals with less than a substantial sum of money. How, therefore, will the individual get from the position of government guidance on what type of product they might buy to selecting a fund manager or a fund, if they are not able to get financial advice? As a result of the contortions that we have got into in financial regulation, people cannot get such advice from the government guidance bodies because the Government cannot give investment advice. I think a lot of people will end up feeling that they are left hanging in mid-air, even if they have gone through a very good guidance process, as to where they should go to choose the right product.
Baroness Turner of Camden (Lab)
My Lords, it was very kind of my noble friend on the Front Bench to mention me in his very interesting summary in support of this amendment. This is a Bill that involves a number of risks for the individual. That is one of the reasons why the individual benefiting from it should also have access to very reliable advice. That is what this amendment is all about: ensuring that the Government make quite clear that individuals have a right of access to reliable information. This has to last them for a long time, and it is on a risky basis unless they have proper guidance before they enter into it.
Lord Newby
My Lords, this amendment relates to the funding of the Pension Wise service. It requires that financial assistance given to the service and to Citizens Advice is sufficient to allow them to discharge their function of giving pensions advice. The Government wholeheartedly agree that it is vital that delivery partners are funded appropriately to discharge the function of giving pensions advice. As I made clear in Committee, there are already provisions in the Bill that effectively safeguard that. The Bill places the Treasury under a legal duty to take appropriate steps to ensure that people can access pensions guidance. Implicit in this duty is a requirement to ensure that delivery partners are appropriately funded to deliver their element of the service.
The noble Lord, Lord Bradley, asked a number of questions, in Committee and again today, about both funding and process. I hope that I can reassure him on them.
On funding, I am happy to reconfirm that all delivery partners, especially those such as the Pensions Advisory Service and the three Citizens Advice bodies in the UK, which will rely wholly or largely on government funding, will be appropriately funded to allow them to deliver pensions guidance, and that that funding will be ring-fenced for that purpose. There is no question that Citizens Advice core grant funding from local or national government will be expected to be diverted from other activities to fund pensions guidance. Citizens Advice is very experienced in effectively managing multiple ring-fenced funding streams.
I can also reassure noble Lords that grant agreements are already in place to ensure that delivery partners are appropriately funded in the current set-up phase. That funding is coming out of a £20 million development fund that the Chancellor announced in the Budget, of which a £10 million advance was approved by Parliament last July to cover preparatory work on the service. Funding agreements for the live running phase are currently being discussed and agreed with the delivery partners.
In its guidance publication on 12 January, the Treasury set out further detail on the costs of preparing to deliver the guidance service in the current financial year, and an initial estimate of how much it will cost—namely, £35 million. Both in Committee and today, the noble Lord, Lord Bradley, asked me to give a more detailed description of what assumptions have been made to come up with that figure, because there is a wide degree of uncertainty as to how many people will take it up. I am sure that he will understand why the Government are reluctant to publish a central assumption, as it were. Inevitably, it will be less than 100% accurate and will raise all kinds of questions about whether it should be higher or lower than the figure given. All that I can say today is that we have talked to the potential guidance providers and other stakeholders, and formed a range of likely outcomes, which has informed that figure of £35 million.
I can confirm that the majority of the funding estimate will go to delivery partners. We are continuing to take on board information from delivery partners and others. I can confirm what I said in Committee, which is that we will confirm a levy figure in March, which we expect to be £35 million, or very similar. If the Treasury finds that more resource is needed, it will provide that resource in the forthcoming financial year and claw it back from the industry in subsequent years. So there is flexibility to ensure that we can meet demand once we see how the scheme is going.
The noble Lord and other noble Lords asked a number of detailed questions about citizens advice bureaux’s readiness for 6 April. I hope that I can reassure them on progress to date. First, delivery partners have had clarity on FCA standards since they were published last November. That provides the framework for the guidance against which their compliance will be measured. I can assure him that delivery partners and the Treasury have been working hard to ensure that the service will fully comply with those standards.
The noble Lord asked about the 44 participating bureaux. The 44 bureaux, the names of which have already been published, are the first tranche of participating bureaux. We will not limit the number to 44 across the country as a whole; that is the first tranche, and a further wave will be announced shortly. So there will be significantly more than 44, and we are still in discussion with Citizens Advice about exactly what that number should be.
Recruitment is under way, and there has been a very encouraging response so far. I understand the concerns of the noble Lord and others about training and whether, at the end of it, people will be able to give high-quality advice. The development of that programme is well under way and it will be accredited by the Chartered Insurance Institute, which is an extremely well respected professional standards body. All trained guidance specialists must have undergone training and passed the assessment at the end of the training programme.
Lord Bradley
Is the Minister confirming that they will be accredited with that qualification before the service goes live at the beginning of April?
Lord Newby
My Lords, that is the intention. I was about to say that although not every person recruited by Citizens Advice will be an expert in the field, it is recruiting at two levels, including those with relevant experience. It would, therefore, be a complete mistake to gain the impression that the Citizens Advice workforce will be made up of well meaning people who have just had a bit of training. Some will have had a small amount of training but others will be seasoned experts in the field. That has been borne out to a certain extent by the people coming forward so far.
Lord Bradley
On that point, will the customer be able to choose whether they have a specialist adviser or someone with a very small amount of training on this issue?
Lord Newby
No, I do not think that that is the intention. We believe, and are confident, that everybody will have been trained to a level at which they can give appropriate advice. It would be completely impractical and unnecessary to proceed as the noble Lord suggests. I can assure him that the Treasury is working extremely closely and collaboratively with the guidance bodies to design the service and ensure that we are ready for April. Are we confident that we will be? Yes, we are.
The noble Lord asked a number of other questions. Could I confirm that we expect a typical advice session to last 45 minutes? Yes, we can. He asked whether people would be able to go back and get a second bite of the cherry. We have already said that that will be possible, although we hope that if people do not have all the guidance they need, directing them to the website will deal with a lot of second-order issues.
The noble Lord outlined his understanding of the complaints procedure. I believe that the way he outlined it is correct. If not, I will write to him—I need to read it first.
The noble Lord also asked about operating hours, which are still being finalised.
Baroness Hollis of Heigham (Lab)
Would the Minister mind expanding a little on this? He, or certainly his colleagues, will know that as a result of cuts by the MoJ, CABs have lost 60% of their funding that has been going into legal aid. To my knowledge, this means that CABs have substantially restricted their hours, they are often unavailable on the telephone and they are offering a very reduced and spartan service, particularly in rural areas, where, at the same time, individuals cannot access through broadband any of the websites that TPAS and so on may go on to produce. Is the Minister saying that there will be enough funding, over and beyond paying the CAB advisers £18,000 a year or whatever after their training, to keep CABs open at full hours, rather than simply to mount the skeleton service that is all they can afford at the moment, thanks to the cuts by his colleague, the right honourable Chris Grayling?
Lord Newby
My Lords, I am saying that we will designate a very significant number of CAB offices to provide this service, and the funding that we will provide will allow them to meet this additional requirement without having to draw on any of their existing funds. We are not planning to operate this service through every CAB, so I cannot say how it will affect any particular one. However, the key principle under which we are operating is that the CABs which participate in giving this advice will have the funding to do it without drawing on any of their other resources.
Baroness Hollis of Heigham
I am grateful to the noble Lord for giving way. Is the Minister saying therefore that the CABs will be open all the hours necessary for pensions advice, but will still be unavailable to help people who are at risk of losing their home because they have housing benefit problems?
Lord Newby
My Lords, all I am saying about operating hours is that they are still being finalised.
The noble Baroness, Lady Oppenheim-Barnes, expressed some concerns that other noble Lords have expressed, in particular that CAB volunteers might be expected to do this onerous job. I assure her that everybody who will be providing the guidance will be paid, so it is a rather more formal arrangement than that.
The noble Lord, Lord Flight, talked of the possibility of people being given inappropriate advice. It is not a question of the guidance being like advice, to the extent of saying at the end of the session, “You should therefore do X rather than Y”. The purpose of the guidance is to set out the options so that people can make informed choices. He referred to people hanging in mid-air because they would not know what to do next. We hope that the combination of the guidance session and the information on the website will be extremely helpful. As we discussed earlier, the companies with which an individual already has a pension pot will have significant responsibilities to ensure that their existing policyholder takes all relevant circumstances into account. To the extent that the companies believe that the policyholder may be going off the rails, they are able to point this out to them and, we hope, guide them on to a more sensible path.
Perhaps I may conclude by quoting Gillian Guy, the CEO of Citizens Advice, speaking on BBC Radio 4’s “Money Box” last Saturday. She said:
“We are absolutely confident that our service will be up and running and … we’re really pleased that we have a role in this pensions guidance delivery, because it actually plays to our strengths in helping people understand the options that are open to them and setting them on a path where they can take decisions in a well-informed place”.
We agree. I hope that the noble Lord will feel reassured that the Government will provide sufficient funding to delivery partners to provide the guidance service and therefore feel able to withdraw the amendment.
Lord Bradley
Again, I am grateful to the Minister for his response to the many questions that I and other noble Lords have raised today. I must admit that I am not particularly reassured by the responses. I am still concerned about the level of qualification and training of the staff in CABs. This is no reflection on the CAB which, as the noble Baroness said, does invaluable work. When I was a Member of Parliament, my local CABs were superb in giving supporting advice to my constituents, many of whom I referred directly to them. This is no comment on the integrity or the quality of the CAB. I just worry that by moving into this specialist area, it will not have the level of expertise to give the proper guidance to ensure that people make the right decisions about their retirement income.
Again, while I cast absolutely no criticism on the CAB, I worry that the haste in which the service is to be rolled out—in barely eight weeks’ time—will not ensure that the bureaux are able to deliver as comprehensively as will be required, or that they have the level of staff in the 44 offices in the first instance to respond to the demand. In regard to the second tranche which the Minister mentioned, the CAB website refers to “a small number” of additional officers. Again, that concerns me when it comes to the national coverage of the scheme—there will not be a sufficient number of accessible officers to meet the demand.
I recognise why the Minister is not able to give me a take-up figure, but surely in determining what the demand will be on 7 April, some estimate must have been made. Again, I worry that if that has not been done in a very effective way, people may have to wait weeks or even months for an appointment with one of the advisers to get advice, by which time they may have taken a decision that is not in their best interest. The underpinning of the freedoms and flexibilities will quickly fall into disrepute because of the lack of opportunity to get an appointment and for the guidance to be in an accessible place at the time the person needs that help and advice.
A huge number of issues have been raised this afternoon across this House that still need to be properly addressed. I fear—I mentioned it as background—the problems of the 1980s; I sincerely hope that the guidance service will not quickly fall into disrepute due to lack of preparation, lack of staff qualifications and lack of coverage to meet the demands made of it. I make all those points to ensure that they are recognised by this House. We will monitor the situation closely, as will the public and outside bodies. Suffice it to say that that is what we will do. In the mean time, I beg leave to withdraw the amendment.
“( ) must ensure that guidance includes the consequences of pensions flexibility on eligibility for income-related benefits and on assessment for care and support under section 17 of the Care Act 2014 (assessment of financial resources).”
Baroness Hollis of Heigham
My Lords, I would like to move Amendment 21 in the names of my noble friends Lord Bradley and Lord McAvoy and the noble Baroness, Lady Greengross, who apologises for having to leave early. I hope, as this is a modest amendment asking for guidance, that the Government will accept it. I really do. There are huge issues to be untangled.
The Government are proposing that, at 55, people should have full access to their DC—defined contribution —pots, without, I believe, fully considering how this affects entitlement to means-tested, income-related benefits, IRBs, as well as payment for social care. Clearly, if a warehouseman of 56, earning perhaps £20,000 per year and living in private rented accommodation with a DC pot of £25,000, in future extracts £8,000 of it to buy a new car, that £8,000 will count as extra income in that year. Some of it will be taxable and it will affect any income-related benefits he may have, such as housing benefit. Obviously, guidance is absolutely essential, so that people with modest pots understand this. Taking some capital from their DC pot adds to their income—no question. It can both be taxed and affect any benefits.
So far, so simple—sort of. But what if our warehouseman can access the £25,000 in his pension pot but chooses not to do so, so that it sits there as capital? The social security capital rules of people of working age are clear: you are allowed £6,000 of savings without affecting your income-related benefits; from £6,000 to £16,000 your savings are assumed to generate an additional income of £1 for every £250 of capital per week; more than £16,000, you lose entitlement to means-tested benefits altogether. If, therefore, our warehouseman has savings, say, in an ISA worth £25,000, he has to spend down £10,000 of that to become eligible, say, for some housing benefit.
The question then is: what counts as accessible capital or savings such that they affect working-age benefits? Not your home—I will not raise issues of equity release here—nor an inaccessible pension pot; but savings accounts, unit trusts, stocks and shares, and ISAs do count, sensibly, so that one cannot shelter large savings, say of £100,000, while claiming taxpayer-funded benefits. The rules are there for a purpose. If you deliberately deprive yourself of capital—perhaps buying that Lamborghini—in order to claim housing benefit, you are treated as though that capital is still available to you.
However, from April you can access your DC money purchase pot at 55 in exactly the same way as you can access your ISA. Both pensions and ISAs are tax privileged. From 55, the only difference will be that with pensions you get tax relief when putting money in, and with ISAs when taking money out. Growth in either a pension or an ISA pot is tax-privileged in exactly the same way.
We know, however, that £25,000 in an ISA pot debars you from IRBs. What will happen now to a £25,000 pension pot equally accessible at 55? Under the existing rules on social security, having such a pot should stop you claiming IRBs until you have spent it down to below £16,000. Our warehouseman, who after 20 years with the same firm injured his back at 53, gets ESA and housing benefit, but at 55, because he can access his DC pot of £25,000, exactly like ISAs, he should lose his benefit—until, exactly like ISAs, he has spent it down to £15,000, whether or not he actually takes money out of the pot.
However, the Government do not like that; it rather spoils the pensions party. So they seek—irrationally, in my view—to treat pensions and ISAs differently, because, as the letter to me of 22 January from the noble Lord, Lord Bourne, of which other noble Lords have also received copies, states:
“The key difference between the classification of pensions and ISAs rests on the tax treatment. Pensions have never been taxed, and so are effectively deferred income which has yet to be taken. As the primary purpose of pensions is for retirement, this is not assumed to generate an income until pension credit age. ISAs on the other hand are treated as capital rather than income, because they have been saved for out of already-taxed income. Although ISAs and pensions may appear more similar in the light of flexibility, they remain fundamentally distinct”.
But they do not; the argument is patently absurd. The key difference between pensions and ISAs in the past has not been their tax treatment, which is effectively identical if you are a basic rate taxpayer, both in work and in retirement, with the same tax relief on the way in and on the way out. That makes no difference at all, despite the letter from the Minister. The key difference has always been that ISAs are accessible and pensions are not. Because ISAs were accessible, they counted—rightly, in my view—against income-related benefits. Because pensions have not been accessible but were ring-fenced for retirement, they rightly did not count against income-related benefits.
The Minister says that the primary purpose of pensions, and therefore the reason for treating them differently from ISAs between 55 and 65, is that they are for retirement. That is true now, but it will not be after April 2015. That DC pot of £25,000 can be used at 55 for anything—buying a car, helping a daughter with university fees or helping a son with a mortgage deposit—just like ISAs. The pension pot can be wiped out by 65 even before you hit retirement—just like ISAs. Equally, the pension pot and the ISA pot made by choice both remain untouched until 65—just like ISAs. There is no difference. To argue that they have a different purpose because “pensions are for retirement” is whistling in the wind. DC pensions need no longer be for retirement at all; they are just like ISAs. Much of the research so far suggests that some people will treat them in practice exactly like ISAs and use them for whatever they see fit. For the Government to treat them differently makes a mockery of fair and consistent rules in social security.
Baroness Drake
My Lords, this amendment addresses the need for the Government to make savers aware of the interplay between pension freedoms, entitlement to income-related benefits and assessment for care and support. Pension reforms give rise to a significant risk that those with modest incomes will be overtaxed when they take cash out of their pensions—a concern shared by the FCA, the Pensions Policy Institute and the International Longevity Centre.
In the face of complexity, people get security from taking cash and putting it in the bank. They may not understand that that could result in their facing a significant tax bill, generating less income for their retirement. However, that is not the end of it. Savers accessing the cash from age 55 may not understand the risk of depriving themselves of income-related benefits. Some savers therefore risk both moving into a higher tax band than normal and paying unnecessary income tax, and losing benefit income because cash in the bank means loss of entitlement to benefits.
For pension savers below the state pension age who are claiming income-related benefits, the DWP will not take into account their pension savings if they do not access them. Once they do, however, the funds accessed will be treated as income, such as an annuity, or capital, depending on how they take them; the rules are different. Savers receiving benefits—such as housing benefit, council tax deductions, income support and income-based jobseeker’s allowance—could therefore experience benefit loss if they take significant cash out of their pension pot. For example, and as my noble friend explained, under current rules, anyone below state pension age with capital below £16,000 can apply for housing benefit. When an individual’s wealth goes above £6,000, they will start to see a reduction in benefit, and once it reaches over £16,000 it will stop completely. Reductions in council tax operate on a similar principle.
For pension savers above the state pension age, under the new freedoms, as now, pension savings are taken into account when assessing entitlement to benefits —whether or not the saver has accessed them. Defined contribution pots are given a notional income, or the actual income taken from the pension pot is used. Under the new freedoms, a saver, through income draw-down, can keep varying the amount of cash that they draw down. As it is not a single decision, will people have to report every time they access their savings?
If the saver takes all of their pension pot in cash—not to behave irresponsibly but to put it on deposit in their building society—they might meet a loss of entitlement to benefit. The noble Lord, Lord Newby, in his letter to my noble friend Lady Hollis, states:
“We believe that people should use their funds responsibly if the alternative to doing so is claiming income-related benefits”.
I completely agree with that sentiment. However, that message has not been communicated clearly to people on income-related benefits or to those who are potentially on those benefits. It has been lost in the “Your Money, Your Choice” promotion. Pension savers who take the cash and put it on deposit may not believe that they are behaving irresponsibly. As Martin Wheatley of the FCA observed: when faced with complexity, people prevaricate. If the simple option of just taking the money and putting it in their bank is given to them, they may just make that snap judgment.
Where savers take the cash and go on a spending spree, they risk being caught by the “deliberate deprivation of assets” rule, which is meant to stop benefit abuse. I will paint a scenario. Complexity and behavioural bias push people towards taking cash. They are overtaxed and the value of their savings falls. The cash, put responsibly in the bank, results in a loss of benefit income so the real value of their savings falls further. If they spend their capital too aggressively they could be caught by the deliberate deprivation of assets rule. One could say that it was their freedom of choice: they made the mistake and took the cash and put it in the building society; or they blew it, so they should not be allowed to fall back on the state. However, we should at least make sure that people understand that. I am pretty confident that most people out there do not have a clue on the interface between the benefit system and the pensions freedom. If the Government want them to make an informed choice, they are entitled to and need to know.
How does one police the new arrangements? Does the DWP have the capacity to keep track of how pension cash has been spent? Will providers have to keep records of savers’ behaviour, and for how long? What if someone takes their savings in cash in their 50s, when working, and there is a long gap between taking it, spending it and seeking benefits? What evidence will be used for determining deliberate deprivation? Will it include taking too many cruises? The Government’s policy and rules need to be clear and people need to have clear information so they can take informed decisions. I do not demur from the sentiment explained by the noble Lord, Lord Newby, but at least allow people to understand how they discharge responsible behaviour.
There is also a lack of clarity on how the Government’s pension freedoms are intended to complement their policy on the provision of care and support. I have not seen any analysis that has worked through the subtleties of that interplay. Rather, as the noble Baroness, Lady Jolly, confirmed in her letter to my noble friend Lord Hunt, the Government’s view is that the impact on care and support in the longer term is difficult to assess, because it is difficult to predict how people will behave under the new freedoms. The Government have therefore chosen a practical response on how people will contribute to the cost of care. In essence, people will be charged and assessed on the basis of their assets at the point of needing care. Cash taken from pension pots is an asset to be taken fully into account. If a saver has an annuity, that income will be taken into account. If the saver has not accessed their funds, a notional income will be calculated. These are complexities which have to be explained to the saver who is looking to make an informed decision. On the one hand, if people take all their pension fund in cash and put it in a savings account, it could be utilised more quickly when paying for care. On the other hand, if people do not take an annuity and spend their pension cash quickly, they will make less of a contribution to the funding of social care costs. This presumably has policy implications for any Government.
How will access to cash from income draw-down products be monitored or required to be taken? If draw-down is to be treated as income, could you take such a little tiny bit that you protect your pension assets and have a minimal amount taken into account? I do not have a clue and I am sure most people do not either. Will the rules require you to take a certain amount from your income draw-down product when you are being assessed for care support? I do not want to get into debate on government policy, but people need clear information on what the policy and rules are so that they can make informed decisions.
Lord Bradley
I will be brief as I cannot better the brilliant analyses of my noble friends Lady Hollis and Lady Drake on the interrelationship between the pension freedoms, income-related benefits and care costs. The only point I want to emphasise relates to our previous amendment on the guidance guarantee—namely, it is critical that there is absolute certainty and clarity of policy in this area to ensure that those who are giving guidance to customers are consistent and clear about what that guidance should be. I look forward to the Minister’s detailed response to the analyses of my two noble friends.
Lord Newby
My Lords, I hope that noble Lords will forgive me if I concentrate on the amendment. First, the Government believe it is right that the content of the guidance session is set out in FCA standards which are unfettered by a restrictive legislative framework.
The FCA consulted on these standards last year and published its responding policy statement, including a near-final version of the guidance standards, in November last year.
Baroness Hollis of Heigham
I apologise for interrupting the noble Lord quite so quickly, but the amendment was not meant to refer solely and exclusively to face-to-face guidance that may or may not be offered by the CABs or TPAS. What I am talking about is a government leaflet, the content of which should also be on a website, explaining in very plain English exactly what all these interactions mean, and therefore allowing people to reflect on those before they then go off to the CABs to decide what is the best thing for them.
Lord Newby
My Lords, I remind the noble Baroness that there will be three strands of guidance: face-to-face guidance; telephone guidance; and information on the Treasury website. Perhaps we will produce a leaflet, but we hope that much of the detail of the background to the way in which the system will work will be on that website.
Baroness Hollis of Heigham
I am sorry to press this, and the noble Lord is being very generous in allowing me to intervene again. However, after following this Bill through, I do not know how these provisions will interact. I do not know whether it is okay to recycle your ISAs into pensions and carry on claiming full income-related benefits. This is not about guidance from the CABs. Unless the CABs know whether you are allowed to recycle your ISAs into pensions, how the hell can they give anybody any advice?
Lord Newby
My Lords, I will come to that. I shall deal with the amendment first because it raises an important point in itself before we get to some of the broader issues.
As I say, the FCA consulted on the guidance standards last year, and published its policy statement in November. The near-final FCA standards make certain specific requirements with regard to both collecting relevant information and providing certain types of information. Ensuring that consumers consider factors which are pertinent to their retirement decision, as relevant to them, is an important part of that which the standards capture. The standards require that, according to consumer needs, people are encouraged to provide relevant information about their financial and personal circumstances and their objectives to ensure that they can get maximum value from their guidance experience. In terms of financial information, this might include pension pots or benefits, other sources of wealth or income, including where the individual has a spouse or partner, tax status and debt. In terms of personal circumstances, this might include whether an individual has dependants, or a spouse or partner, and the state of their health and potential long-term care needs. In terms of objectives, this might include the consumer’s plan for retirement, so they can identify their income needs.
The noble Lord, Lord Bradley, spoke to this issue in Committee and asked about the effects of the new flexibilities on eligibility for income-contingent benefits and social care. That has been the burden of other speeches today. This is an extremely important issue and one to which the Government have given, and continue to give, detailed consideration. It is important that the treatment of such products is clear for claimants and for decision-makers, as noble Lords have pointed out. On guiding principles, the Government want to ensure that someone’s decision to use a flexible pension product does not significantly impact on how their means are assessed for social security purposes or social care charging purposes.
Our intention is for the principles of the current rules to remain in place after April this year. At the last Autumn Statement we announced a change to the notional income rules for benefits from April 2015, so that 100%—rather than 150% as now—of the income that an equivalent annuity would offer is taken into account. This will therefore be a more generous calculation than under the previous rules. Guidance will be tailored to an individual’s circumstances and give consideration to issues such as welfare, the need for and future likelihood of social care, and levels of savings and debt. However, where it is clear that consumers need specialist help, they will be directed to relevant specialist guidance and information as appropriate. In the case of social care needs, the guidance service will direct people to their local authority, which, under the Care Act, is obligated to direct them to sources of information and advice.
Benefits entitlement will be one issue for individuals to consider in making their choices, but it is only one of several important factors, such as tax consequences and personal circumstances. As we discussed on tax, there is a special requirement on pension providers to discuss with customers the potential tax implications of the course that they might follow. I can also reassure the House that the guidance service will ensure that consumers also consider relevant issues related to pension decisions, such as state pensions, debts, and other assets, wealth and income. The Government are committed to ensuring that individuals are equipped and empowered to make informed decisions on how to use their pension savings and to take account of these wider circumstances.
On the amendment, the guidance will include benefits. The problem that the noble Baronesses so eloquently described, particular concerning ISAs, is that there are a number of extremely detailed interactions between the savings options and the benefits and tax consequences that will need to be dealt with as part of the guidance. The concern expressed by the noble Baroness, Lady Hollis, which I completely understand, is that the Treasury and DWP will not get their act together and are not up to the job of doing this. Unsurprisingly, I am significantly more confident than she is. She has begun a correspondence with the DWP on the ISA issue; an e-mail from her to the department is awaiting a response. I can give her an assurance that she will get a detailed response in writing to the questions she has raised between now and Third Reading.
I am not seeking in any way to diminish the fact that potential areas of confusion might arise in particular cases. The challenge that we have accepted, and hope that we can rise to, is to ensure that the guidance and the people providing it will be able to guide people through some of these thickets. If it were not complicated, we would not need to go to such lengths to set up a guidance system in the first place. We are confident that we will deal with these issues, and that people, as they take up guidance, will get the information they require to enable them to make informed choices.
Baroness Hollis of Heigham
My Lords, the Minister’s answer—this is of course not personal; he is dependent on the briefing and the current state of the consideration in the two departments—frankly has appalled me. It is shocking. We are eight weeks away and apparently the two departments have not yet worked out the different rules for the treatment of ISAs and pensions. Are you allowed to cycle your ISAs into pensions to protect them but see the benefit bill go up? Answer: we know not.
We seem to have different rules for social care for those below 65 and above 65—above 65 you will pay, but below 65 you need not. A capital asset is essentially your pension. Is that right? We do not know. We do not know whether we will have fairness between people of a generation—those aged from 55 to 65—or whether we will have intergenerational fairness between those below 65 and those above it.
This is not about guidance; it is nothing to do with guidance at this stage. It is about getting the darned policy right. The policy has not been established. On all the difficult issues, the Government have said, “Have your choice and don’t worry about the small detail”. I am sorry but something like 15 million people are out there who in one way or another will be getting income-related benefits or state pension who need to know. We are eight weeks away and the Government, in the Minister’s words, say these issues are under “detailed consideration”.
This is awful. I have never seen anything of such significant importance to individuals in all my time—20-odd years in social security—or of such sizeable financial implications for taxpayers. We are eight weeks away and we have no clarity of policy that could therefore inform guidance. Writing guidance down and sending it off to CAB and TPAS is easy. What matters is getting the policy straight, and as far as I hear from the Minister tonight the Government have not even begun to do that. It is frankly appalling. I do not blame him. He is obviously a messenger—if I may use that word impertinently—from the DWP and is trying to put the best case he can, but this is shocking. I am sorry that unless he can tell us the policy answers to the questions raised by my noble friends and me tonight this has to be further explored at Third Reading because, as he said, it is under “detailed consideration” and he cannot give answers now.
All that the Minister has so far are inconsistent and contradictory policies, whether they come from HMRC, social care or the DWP. Even though he has had plenty of notice, he has been unable to put those bits together into a jigsaw so that we can even begin to recognise the picture on the box. Eight weeks away! He must be mortified. I would be if I had come to the House with that brief. I hope that, as a result, he will stamp his foot, and we will see whether he is in a position to give clarity of policy, following which there may then possibly be clarity of guidance on Third Reading. If not, I strongly suggest that he postpones Third Reading until the Government have got their act together. In some anger, I withdraw the amendment.
Lord Bradley
“Pension flexibility: Treasury review(1) The Chancellor of the Exchequer shall, within a period of 18 months from 6 April 2015, publish and lay before both Houses of Parliament a comprehensive review of the impact of pension flexibilities.
(2) The information published under subsection (1) must include—
(a) the distributional impact, by income decile of the population;(b) a behavioural analysis;(c) an analysis of the cumulative impact on Exchequer revenues;(d) an analysis of the impact on the purchase of annuities.”
Lord Bradley
I will be brief on this amendment because I share the concern of my noble friend Lady Hollis about the previous amendment, and I do not want to delay the Treasury Minister stamping his feet to get it sorted out as soon as possible.
This group contains amendments which, in their various ways, require the Treasury to publish updates on the key fiscal and behavioural effects caused by the freedoms and flexibilities introduced in this Bill and in the Taxation of Pensions Act. I wanted to return to the debate that we had in Committee and see whether this time I could convince the Minister of the importance of doing so. I hope that I am not unfairly characterising his argument in Committee by saying that the essence of it was that this is not necessary because the relevant data will be published elsewhere. He said that,
“there is no need, in the Government’s view, for further reviews of the Exchequer impacts of the policy as the Government have already committed to keep these under review through the usual processes”.—[Official Report, 12/1/15; col. 576.]
There are two reasons why I still believe that these amendments represent a good additional way of tracking the effects of the policy. The first is that while the relevant data may be published elsewhere, a single document containing the Government’s assessment of the effects, specifically of the new freedoms and flexibilities, would be a welcome addition and require the Government to focus on the overall effects of the policy.
The Government are fond of talking about how significant and novel the changes are. In the foreword to the recent update the Chancellor wrote:
“The government is introducing the most radical changes to pensions in almost a hundred years”.
It is therefore incumbent on the Government to go further than before in thoroughly monitoring the effects and ensuring the public have easy access to the information.
Lord Newby
My Lords, these amendments would require the Government to publish two reviews of the impact of pensions flexibility. I will explain again to noble Lords why the Government believe that they are unnecessary. First, on the issue of the request for distributional analysis,
“by income decile of the population”,
Amendment 23 seeks to require that the Government review the distributional impact of pensions flexibility no less than 18 months after the Bill takes effect. As set out during debate on the Taxation of Pensions Bill, pensions flexibility does not have a direct consequential impact on household incomes. Distributional effects will be driven by the choices individuals make about how and when to take their pension. In addition, household income is not necessarily a reliable measure of pension wealth, particularly in the years immediately prior to retirement. It is possible that the impacts of this policy could be misrepresented if we were to review them only against the distribution of household income.
Turning next to the issue of behavioural analysis which we discussed in Committee, the costing of tax policies often takes account of how individuals will behave in response to them. The assumptions that underpin this behavioural assessment and the methodologies used to arrive at them are certified by the independent OBR. The assessment of how people will behave is, of course, fundamental to the costings that the Government published in the Budget for the impact of pensions flexibility on the Exchequer. The policy costings note published alongside the Budget sets out in detail how the figures have been calculated and so how the Government have estimated the number of people who will access their pension flexibly.
Although I will not describe that methodology in detail here, it is freely and publicly available. Additionally, the Government have set out information elsewhere on the number of people they expect to access their money flexibly. The Tax Information and Impact Note published at the Budget and updated since states that the Government expect,
“around 130,000 individuals a year to access their pension flexibly”.
Policy costings notes set out the assumptions and methodologies underlying costings for tax and annually managed expenditure policy decisions. This practice was established at the June Budget 2010 and reflects the principles outlined in Tax Policy Making: A New Approach, published alongside the Budget that year. This publication is part of the Government’s wider commitment to increased transparency. However, as discussed in Committee, the Treasury considers that in certain circumstances—usually regarding tax-planning and avoidance—making more detailed behavioural assumptions public can have the potential to affect the behaviour they relate to, and can as such be potentially detrimental to policy-making. I reassure noble Lords that the Government will be closely monitoring the behaviour of individuals through tax data when the new system comes into force. This will also be made public through the significant amounts of data on tax receipts and liabilities that HMRC publishes annually.
Both these amendments would also require reviews of the effects of pensions flexibility on the Exchequer, including the impact on income tax, national insurance contributions and the use of salary sacrifice arrangements. When considering this, it is important to note that at the Autumn Statement the Government published estimates of the Exchequer impact of the policy as a whole. These costings, which were certified by the independent Office for Budget Responsibility, cover all the changes made to the policy since the Budget as a result of consultation.
As noted earlier, table 2.1 of the Autumn Statement document set out the total impact of these decisions publicly. After debate on this subject in the other place during the passage of the Taxation of Pensions Bill, the Financial Secretary to the Treasury wrote to the former committee for the Act, setting out these impacts. This included costings for the £10,000 annual allowance, which the Government have introduced to protect the flexibilities from being used by individuals to gain unintended tax advantages.
Turning first to the issue of salary sacrifice, as I explained in Committee, the costings published as part of the Autumn Statement are based on the same central assumptions that underpin the costings published at the Budget. Since the Budget, the Government have explored in more detail the effect of salary sacrifice on this costing. These costings have been scrutinised by the OBR, which was created to provide independent and credible analysis of the public finances. In line with standard practice, these are accounted for as changes to the forecast and so are not outlined in table 2.1 of the Autumn Statement document.
In recognition of the concern raised by Members in the debate on the Taxation of Pensions Bill about the likely impact of salary sacrifice on the Exchequer, the Government’s estimates of these costs were included in the letter sent by the Financial Secretary, and I outlined them in Committee. As the Financial Secretary stated in the debate on the Taxation of Pensions Bill in the other place, the Government will be closely monitoring behaviour under the new system and will work closely with industry to ensure that the system remains fair and proportionate.
The Government therefore believe that there is no need for further legislation in relation to reviews of the Exchequer impacts of this policy, as the Government have already published a significant amount of information and have committed to keeping the Exchequer impacts under review through the usual processes.
Amendment 23 contains a provision that would require that any published review include any impact the pensions flexibility measures might have on the sale of annuities. Data on annuity sales will continue to be available through other channels, such as the data published by the ABI and publications by individual firms. For the Government to review this would be an unnecessary duplication of information already in the public domain.
As I have set out, much of the information requested by this amendment is already in the public domain, published as part of the fiscal process. I hope that that will satisfy the noble Lord. He asked me a specific question about whether his assumption in Committee was correct. I believe it is; if I am wrong, I will write to him. But in the mean time, I hope he will withdraw his amendment.
Lord Bradley
I am grateful to the Minister for his response, particularly on that last point about the example I gave in Committee regarding salary sacrifice. I accept his assurance that, as far as he is aware, all possible scenarios in relation to salary sacrifice have been taken into account in the calculation of impacts on Exchequer revenues, and thank him for his offer to write to me if that is not comprehensively covered by the point I made in Committee.
I am obviously disappointed that the Minister is not prepared to bring all the issues together into one coherent document that would be available to the public and to Members in both Houses of Parliament for ease of analysis of that information. However, I am pleased that he has assured us that, as part of the process of monitoring, the behavioural effects will be taken into account, because the consequences of all these changes need to be very closely monitored. But, in light of the time and the urgency with which he needs to address many of the issues raised today on Report, I beg leave to withdraw the amendment.
“( ) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;”
Lord Bourne of Aberystwyth (Con)
My Lords, this group of amendments is required to ensure that the transfer provisions contained in Schedule 4, which replace provisions under the Pension Schemes Act 1993, continue to operate effectively. The amendments will also ensure that the regulations being adjusted to take account of the new transfer rights that we are creating operate correctly. It may appear that we are taking a range of additional regulation-making powers, but I reassure noble Lords that that is not the case.
Many of these amendments will enable the continued operation of regulations that have been created under existing powers in the Pension Schemes Act 1993 and their adaptation for the new transfer provisions. These regulations were created under a broad power in the Act to modify or disapply the transfer provisions. This power related to salary-related schemes. As this term will no longer be used, that section of the legislation was removed. However, the regulations that flowed from it still need to operate in the broader regime that we are now creating. Rather than replace the broad power, these amendments introduce a number of more specific powers so that it is clearer in the primary legislation what the regulation-making powers are being used for.
I will now briefly set out what each amendment does. Amendment 25 restores an existing power to ensure that the Transfer Values (Disapplication) Regulations continue to have effect by creating a new limb to new Section 93(10) to provide a power to disapply the right to transfer in prescribed circumstances in relation to a prescribed scheme or a member of a prescribed scheme. It is necessary to restore this power to ensure, for example, that the current provisions relating to NEST and transfers continue to have effect. Amendment 33 makes identical provisions for the corresponding Northern Ireland legislation.
Amendment 26 will allow the continued operation of the regulations that give a member more time to make a decision about their transfer if their cash equivalent value has changed—for example, due to a mistake in the original calculation—after they have received their statement of entitlement. From April, members with safeguarded benefits will be required to take “appropriate independent advice” before their transfer out can be processed. This amendment would allow regulations to provide for more time to apply for a transfer if they do not obtain their financial advice within the usual three-month period, should this prove necessary. Amendment 29 will allow regulations to make corresponding time extension provisions for trustees to do what is necessary to give effect to their members’ wishes.
Amendment 27 provides a power to allow the continued operation of the transfer regulations that enable a member to choose whether to proceed with a transfer where the amount of the cash equivalent shown in a statement of entitlement is subsequently increased or reduced.
Amendment 28 makes a consequential amendment to the existing legislation that sets out when a member’s right to a transfer falls away. It puts beyond doubt that the right to a transfer value falls away either after three months or after any extension period granted by the legislation. This amendment has been made in response to industry concerns that the current situation could place trustees in a conflicting position where they could not action the transfer, as the advice had not been obtained within the relevant period, even though, in theory, the right to transfer still existed.
Lord Bradley
I am grateful to the Minister for his explanation. Clearly, it is important that the transfer provisions smoothly flow between this legislation and previous legislation to safeguard people’s benefits in their pension schemes. While I acknowledge the Minister’s comment that the amendments do not add even more regulations, in the scheme of things, this matter probably would not be something that we would be too concerned about because of the number of other matters that already have to be dealt with. However, that is the nature of the Bill—it relies heavily on regulations—so the explanation of these amendments is important in the overall scheme of the Bill.
“( ) After subsection (6) insert—
“(6A) Regulations may extend the period specified in subsection (1A)(a) in prescribed circumstances.””
“(3B) Where regulations under subsection (2)(b) provide for the cash equivalent shown in a statement of entitlement to be increased or reduced after the member has made an application under section 95, the regulations may provide for the application under section 95 to lapse (but this does not prevent the member making a fresh application in respect of the increased or reduced cash equivalent).””
(1A) A member of a pension scheme loses the right to take a cash equivalent in accordance with this Chapter if, after the member makes an application under section 95, the duty of the trustees or managers to do what is needed to carry out what the member requires is extinguished by section 99(2A).
(1B) Nothing in subsection (1) or (1A) prevents the member from later acquiring a new right to take a cash equivalent in relation to the same benefits.”
“( ) After subsection (4A) insert—
“(4B) Regulations may extend the period for compliance under subsection (2) or (3) in prescribed circumstances.””
“( ) provide for this Chapter not to apply in relation to a person of a prescribed description;”
“Regulations may extend the period specified in subsection (2)(b) in prescribed circumstances.”
“( ) After subsection (2) insert—
“(2A) Regulations may extend the period for complying with the notice in prescribed circumstances.””
“( ) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;”
“( ) After subsection (6) insert—
“(6A) Regulations may extend the period specified in subsection (1A)(a) in prescribed circumstances.””
“(3B) Where regulations under subsection (2)(b) provide for the cash equivalent shown in a statement of entitlement to be increased or reduced after the member has made an application under section 91, the regulations may provide for the application under section 91 to lapse (but this does not prevent the member making a fresh application in respect of the increased or reduced cash equivalent).””
“( ) After subsection (4A) insert—
“(4B) Regulations may extend the period for compliance under subsection (2) or (3) in prescribed circumstances.””
“( ) provide for this Chapter not to apply in relation to a person of a prescribed description;”
“Regulations may extend the period specified in subsection (2)(b) in prescribed circumstances.”
“( ) After subsection (2) insert—
“(2A) Regulations may extend the period for complying with the notice in prescribed circumstances.””
“8 (1) Section 29 (regulations and orders) is amended as follows.
(2) In subsection (2), after “other than” insert “regulations under section 18A above or”.
(3) After subsection (2) insert—
“(2A) A statutory instrument which contains regulations under section 18A may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””
Lord Bourne of Aberystwyth
My Lords, the House will be relieved that this amendment is relatively straightforward. It enables any regulations that are made under new Section 18A of the Judicial Pensions and Retirement Act 1993 to be subject to the affirmative resolution process.
Clause 78 of the Bill provides a power to create a fee-paid judicial pension scheme via new Section 18A of that Act. The creation of such a pension scheme is a legal requirement on the Lord Chancellor as a consequence of the Supreme Court ruling in O’Brien v Ministry of Justice.
The Delegated Powers and Regulatory Reform Committee report for the Bill recommended that such regulations be subject to the affirmative regulations procedure, and we are pleased to confirm this. This brings regulations on judicial pensions in line with those that will establish the new judicial pension scheme starting in April 2015, providing a high level of parliamentary control in respect of any changes to judicial pensions. I beg to move.
Lord Bradley
It would not behove me well to challenge anything that the Supreme Court rules on, but I am sure that it is as relieved as we are that the regulations would be subject to affirmative resolution.
Eritrea and Ethiopia
(9 years, 2 months ago)
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Lord Chidgey
To ask Her Majesty’s Government what assessment they have made of recent events in Eritrea and Ethiopia, and of their impact on migration to western Europe.
Lord Chidgey (LD)
My Lords, according to the UN refugee agency, in the first 10 months of 2014, the number of asylum seekers in Europe from Eritrea nearly tripled. In Ethiopia and Sudan, the number of Eritrean refugees also increased sharply. By November, some 37,000 Eritreans had sought refuge in Europe, compared with around 13,000 a year ago. Most asylum requests have been lodged in Sweden, Germany and Switzerland, with the vast majority arriving by boat from across the Mediterranean. Eritreans were the second largest group to arrive in Italy by boat, after the Syrians. An unprecedented number of Eritreans are fleeing their country as refugees, on a precarious journey to Europe as well as to bordering countries. As at mid-2013, the UNHCR estimated that the total population of concern originating from Eritrea was more than 313,000 people, including more than 292,000 refugees and 20,000 asylum seekers.
Sheila Keetharuth was appointed special rapporteur on the human rights situation in Eritrea by the UN Human Rights Council in September 2012. Since then, she has made several requests to visit Eritrea; so far, her requests have been denied. She has nevertheless reported on the human rights situation in Eritrea. In her second report, in May 2014, she confirmed that violations included indefinite national service; arbitrary arrests and detention; extrajudicial killings; torture; infringement of freedom of movement, assembly, association and religious belief, and so on. In November 2014, the UN announced that the commission of inquiry into human rights abuses in Eritrea, established in response to the steep rise in migration out of the country, had begun operations. It is due to report in June 2015.
A common argument from Eritrean pro-government supporters is that the exodus of Eritreans is due to economic pull factors. If this were the case, one would surely expect to see refugees from other developing countries fleeing in similar epic proportions. They clearly do not. On the other hand, there are apparently numerous human rights violations that incite Eritreans to leave the country. In this regard, the indefinite national service and arbitrary arrests and detention, or fear of them, are the top push factors for flight, according to the special rapporteur.
According to reports from the UN Human Rights Council, Eritrea holds many detainees without charge or due process. Some have been in prison for more than a decade. Others have died in detention. Apparently, detention without recourse to justice is common in Eritrea, there being no avenues for detainees to submit complaints to judicial authorities, or to request investigations of credible allegations of inhumane conditions or torture. There is no independent authority serving on behalf of detainees. Furthermore, detainees and family members do not challenge, allegedly for fear of reprisals. The state does not investigate or monitor conditions in detention centres, nor does it appoint independent monitors to do so.
The Danish Immigration Service undertook a fact-finding mission to Ethiopia, London and Eritrea in the autumn of 2014, publishing its findings and conclusions in November 2014. The conclusions of the report differed significantly from the body of the text in its interpretations of the causes of emigration, quoting information from UN agencies that could not be verified by the UNHCR. Supporters of the Eritrean Government have nevertheless quoted the report widely in response to concerns about the unprecedented number of Eritreans fleeing the country. The UNHCR published its concerns regarding the methodology used by the DIS, stressing that information ascribed to the UN in the report was not provided by the UNHCR, as inferred. Information provided by the UNHCR about Eritrean arrivals was not included; instead, the report relied on the speculative statements of others.
In December 2014, the UNHCR published a detailed, point-by-point commentary and critique of the DIS report. It pointed out the absence of any information on regulatory frameworks for the media, NGOs, research institutes and other actors, and of any assessment of the reliability of information from those sources. It is understood that the DIS has withdrawn its report for further consideration. In the mean time, the 17 recommendations made to the international community in the first report of the UN Human Rights Council special rapporteur on Eritrea still stand.
With regard to development co-operation, for more than a decade, the Eritrean Government have encouraged mining and exploration firms to participate in the exploitation of the country’s mineral resources. Although major firms have stayed away, possibly aware of the risk of complicity in human rights violations through the use of national service conscripts, a number of smaller firms have acquired mining and exploration licences.
According to Human Rights Watch, those mining firms are walking into a potential minefield of human rights problems, particularly getting entangled with the Eritreans’ uniquely abusive programme of indefinite forced labour—the inaptly named national service programme. The programme was originally set at 18 months, but now requires all able-bodied men and most women to serve indefinitely, often for years with no end in sight, under harsh and abusive conditions. Some conscripts are assigned to state-owned construction companies, which have a complete monopoly in their field. International firms operating in the country are more or less forced to engage those companies as subcontractors, thus indirectly supporting a system of forced labour.
The relationship between Eritrea and Ethiopia is arguably the most important and volatile in east Africa. The fall-out between the two former brothers in arms initiated a two-year long border war in 1998. Apparently triggered by a dispute over the border district of Badme, the war claimed about 100,000 casualties, cost billions of dollars, and remains the main source of instability in the region.
Fighting ended with the signing of the Algiers peace agreement and establishment of the Ethiopia-Eritrea border commission in 2000. The commission delivered its delimitation decision in early 2002—importantly, placing Badme inside Eritrean territory. Initially, Ethiopia refused to accept the commission’s findings and refused to withdraw to the border that it had established, leaving thousands of internally displaced people in refugee camps.
Ethiopia eventually accepted the commission’s ruling in 2006, but its implementation continues to be the source of severe tension between the two Governments. Indeed, the UN special rapporteur on Eritrea stated in her second report in May 2014 that she holds the view that border issues should not serve as an excuse for the Government of Eritrea to violate the rights of their citizens within their own territory.
Furthermore, a sustainable peace is unlikely to emerge as long as conflict is seen solely in terms of border demarcation. The economic, political, cultural and historical links that bind the two states together should be the basis for a sustainable framework for peace. According to the Royal Institute of International Affairs—Chatham House—opportunities exist for external efforts to foster improved relationships. A fresh approach should involve engaging with each country separately, rather than immediately attempting to promote dialogue between them.
Economic incentives are central to enabling improved relations between the two states, although prospective economic benefits from reopening the border are unlikely to be persuasive, given that they were unable to prevent the war. International engagement on areas of mutual interest could help foster a sense in Eritrea of stable economic sovereignty against Ethiopia’s economic predominance. Waiting for changes of leadership before making significant efforts to engage is, however, untenable, with no guarantee that successors would adopt a different foreign policy.
In discussions prior to this debate, it has been claimed by Eritrean Government supporters that the Eritrean Government now plan to restrict national service to 18 months as set out in law, probably by the end of the year. I have also acquired a document issued by the Permanent Mission of Eritrea to the UN in New York. The document is entitled “Leaked Memo” and claims to reveal Ethiopia’s destabilising policy against Eritrea. It is apparently a translation into English from Amharic of a news item from the Shabait news agency website last February. I would be grateful if my noble friend the Minister could comment on these developments and perhaps give a considered response in due course.
My noble friend will be aware that since December 2014 a number of responses have been given to Written Questions on Eritrea submitted by noble Lords, including the noble Baroness, Lady Kinnock. These have been commented on in the past but can my noble friend provide an update, for example on the outcomes of meetings of FCO and Home Office officials with Eritrean Ministers in December; on EU negotiations on policies towards Eritrea, to suppress the number of refugees from that country; and on the release of political prisoners in Eritrea since FCO officials raised the issue with the Eritrean ambassador in March 2004, considering that since then a new ambassador has been appointed?
Lord Patten (Con)
My Lords, migration from Ethiopia and Eritrea to western Europe can be understood only in relation to where those leaving go to. Take Ethiopia. Following my noble friend’s excellent speech and the point he made on Ethiopia, we must recognise, however, that that country is now host to more than 600,000 immigrants—the highest number of refugees taken in by any African country. The Government of Ethiopia should be highly commended for accepting and managing so many with such scant resources—and not attacked.
The first question is where these refugees come from. A minority come to Ethiopia from sub-Saharan Africa—from countries even poorer than Ethiopia. Far more come from countries nearer at hand. A lot of Somalis, many more from the Sudan and more from Eritrea itself, of course, flood into Ethiopia. Then there is the huge number—more than 160,000—of recent returnee refugees: Ethiopians returning to Addis Ababa from Saudi Arabia since the amnesty there granted by the late King Abdullah ended. They, too, are often destitute when they arrive.
Where do all these people go to if they try to get away from Ethiopia? The answer is that not all, by any means, go to Europe—that is a contemporary urban and media myth. Quite a lot travel south to South Africa. Ethiopia and its Eritrean refugees generate by far the largest number of migrants out of the Horn of Africa to the Yemen and through Djibouti. Certainly, some travel the western route, aiming north for countries such as Libya and thence to attempt those perilous sea crossings to reach the warm waters of southern Europe, before travelling further north. Far from all of them, however, come, or seek to come, to Europe.
Vital work needs to be done to try to anchor people where they are in Ethiopia or Eritrea—to develop there a stable, trustworthy civil society within which sustainable local livelihoods can emerge. This does not need grand plans, geopolitical initiatives or great gestures, let alone a bunch of selfie-taking celebs jetting in and then, just as quickly, jetting out as soon as possible. Rather, it needs some money and lots of slogging, grinding hard work.
Many are trying to do it. For example, there are three outfits in Ethiopia that I know doing just this, in the shape of CAFOD, the UK-based Catholic Agency for Overseas Development, and two sister—or brother—organisations of theirs from the Caritas network: SCIAF and Trócaire. They are all working to promote sustainable livelihoods and then to anchor the otherwise wannabe migrants, whether they are refugees in transit from the countries I have described or younger native-born Ethiopians seeking the somewhat illusory betterment that they think they might get abroad through migration.
As it happens, my own daughter, Mary-Claire, is not long back from a visit to Tigray in northern Ethiopia, with CAFOD, for whom she works, happily just in time for this debate. She has told me what it is like on the Eritrean border, marked by just a line of straw across the asphalt track between the two countries. The programmes run by these three bodies have to date reached more than 65,000 people, more than 60% of whom are women and girls, which is much to the good.
What do these programmes do? They provide training and support on business development and entrepreneurship skills to poor female and male farmers—former pastoralists—as well as to the urban self-employed, predominantly women and girls. They also help organise farmers into co-operatives and support groups and get the young training in business, finance, numeracy and literacy, and lots more.
None of this is easy; nor is it easy at the moment for our own Government to deal with much of the raucous criticism of our taxpayer-funded overseas aid budget. I suspect but do not know that much of it, directly or indirectly, goes on trying to help people in the end to stay put and not to migrate—to be where all of us would want to be, at home if at all possible. I say to my noble friend the Minister on the Front Bench that figures are perhaps available. If figures to this end are available, they might persuade more of our fellow citizens that the overseas aid budget is well spent on trying to anchor the otherwise migrant-inclined.
Baroness Kinnock of Holyhead (Lab)
My Lords, I will briefly touch on the situation in Ethiopia. With an election looming there in May, we learn that its media are being decimated. The right to free expression continues to be denied and at least 60 journalists have fled the country since 2010. The reality is that the Ethiopian Government cannot tolerate independent voices being raised or information and analysis being disseminated. Intimidation, harassment, threats and unbearable pressure are put on those whose voices are raised against policies which threaten political opposition.
Both Eritrea and Ethiopia have a Marxist-Leninist heritage. Ethiopia is still effectively controlled by the Tigrayan People’s Liberation Front, through a system of ethnic federalism. Although there has been some improvement we have to ask how it can be that, at the 2010 election, the EPRDF won 90% of the vote. At this stage, I particularly commend the work of Human Rights Watch, which argues relentlessly for recognition of the effects of the Ethiopian denial of fundamental rights and the need for its friends and donors to speak out on issues which are of life-and-death proportions to so many brave people.
In 1988 I travelled to Eritrea, which was at war at the time with Ethiopia. Since 1962 they had been deadly enemies; tensions and conflicts have characterised all the years since. It was the longest running struggle for independence in Africa and was about independence from Ethiopia. As we know, the people of Eritrea continue to suffer and such is their desperation that they seek refuge in other countries, which can mean very long journeys.
On the subject of migration, I begin with a shocking fact which serves to illustrate the desperation of Eritreans. Almost as many Eritreans fled their country—a country which, incidentally, is not at war—as Syrians fled theirs in 2014. UNHCR has said that:
“From January to October 2014, more than 60,000 Syrians, including almost 10,000 children, arrived by sea. In the same period almost 35,000 Eritreans arrived by sea in the Mediterranean, including 3,380 unaccompanied children”.
Surely, we have to ask exactly what makes people take such terrible risks to leave their country. The cruelty, tyranny and oppression of Isaias Afewerki and his regime know no bounds. Eritrea is isolated politically, regionally and internationally and it is under UN sanctions because of its alleged support for al-Shabaab in Somalia. The country is often described as Africa’s North Korea. All rights and freedoms are denied. There is no religious freedom or political pluralism, and no freedom of the media or of speech.
The 2015 FCO report has given details of Eritrean abuses: arbitrary and inhuman detention, indefinite national service, lack of religious freedom, no job prospects and much more. Indefinite national service is clearly the main driver of migration. UNHCR has confirmed that young Eritreans are conscripted into endless military service characterised by harsh treatment. They are sent to work in gold and copper mines or to camp out on the Ethiopian border. National service should be limited to 18 months but conscripts are often held for as long as 20 years. Is it surprising that they are prepared to take such risks in the hope of a chance of a better life? The number of Eritreans seeking to come to Europe has nearly tripled over the last year and is mostly made up of very young refugees. The special rapporteur says that the authorities in Eritrea show no inclination to tackle the root causes of the exodus. She confirms a lack of rule of law, and reported cases of extrajudicial disappearances, arbitrary detention and torture in detention.
Also, does the Minister agree with the suggestion made by some European Governments that it is necessary now to offer additional support and engagement to Eritrea, arguing that additional aid will lead to more openness and to change? Surely there can be no “new beginning”, as has been suggested, with this regime. As history proves, concessions to regimes such as Eritrea will achieve absolutely nothing. I ask the Minister to give some detail on the apparent willingness of the UK to have discussions with the Eritrean regime on,
“drivers of irregular migration and ways to mitigate it, asylum and returns, and potential areas for joint co-operation”.—[Official Report, 6/1/15; col. WA 136.]
What exactly does that mean? Will the UK delay any response on refugee policy until the UN commission of inquiry issues its report on the subject?
European Governments should not make major Eritrean policy changes until they see the inquiry findings. Let us see if Eritrea is prepared to co-operate with the UN commission of inquiry before taking any hasty decisions. Now there are signs of unbelievable courage and determination in Eritrea on challenging Isaias Afewerki. The people are aware of the dangers of open protest, but we have to ask just how long they—and he—can hold on. We must urge the EU and others to make sure that the UN commission is given clear and urgent access.
Isaias Afewerki’s agreement to co-operate would be the first test of whether he is ready to accept change. Whatever happens, if there is negotiation, the European Union and member states must not make quick concessions but use any momentum to ensure that there can be—and will be—fundamental change. The release of Dawit Isaak would be a welcome and symbolic victory.
My final point relates to what are routinely called “irregular migrants”. These people arrive in Calais having endured a terrifying journey and are then treated as if they are economic migrants. This is clearly not what persuades them that they must leave Eritrea. Many other African countries are just as poor as Eritrea, but their citizens do not come to Europe in their thousands, as they do from Eritrea now. Will the UK argue for their right to stay and ensure that they are treated as refugees?
Lord Avebury (LD)
My Lords, I warmly congratulate my noble friend Lord Chidgey on securing this short debate that links Eritrea and Ethiopia, and on his masterly summary of the human rights violations in Eritrea and the consequent exodus of large numbers of refugees.
The two countries were linked in a forced marriage when the UN organised a bogus test of public opinion in Eritrea and imposed a federal union of the two countries in 1952, followed 10 years later by Emperor Haile Selassie’s annexation of Eritrea. There followed a 30-year war of liberation to restore Eritrea’s independence.
In the 1970s, I was chairman of the Eritrea Support Group, which campaigned in Parliament and the media for Eritrea’s freedom and tried to persuade Ministers to support the self-determination of the Eritrean people, sanctioned by international law. Ministers would always reply with the mantra, “We believe that a federal solution would be best for the people of Eritrea”. I tried to ask them how they dared to usurp the right of the people themselves to exercise the most fundamental right of all peoples, emphasised by its position as Article 1 of the International Covenant on Civil and Political Rights.
In 1981, I visited Eritrea at the end of the Ethiopian sixth offensive. I travelled by Port Sudan through the desert and then along the Freedom Road, which was blasted out of the rock, up into the highlands, where I stayed at the Nacfa Hilton, a cave behind the front line. At dawn we saw the Antonov bombers dropping their loads on the ruins of Nacfa, in which the only building standing was the tower of the mosque. The corpses of Ethiopian conscripts killed in a hopeless attack on the cliffs protecting Nacfa were still lying where they had fallen, testifying to the futility of the Dergs’ colonialism.
In 1993, after the Eritreans gained their freedom, they held a referendum, in which there was a 99.3% turnout, in favour of independence, an event that no one who was there could ever forget. There was a spontaneous outburst of joy, with singing and dancing in the streets, and it seemed as if Eritrea, with its talented and hard-working people, would become a beacon of democracy and prosperity in the Horn of Africa. However, that dream was shattered when Ethiopia launched a fresh war of aggression on the pretence of a dispute over the border between the two countries.
After tens of thousands of lives had been lost on both sides and hundreds of millions of dollars had been spent on sophisticated weapons, it was agreed to refer the demarcation of the boundary to a commission headed by the distinguished British jurist Sir Elihu Lauterpacht, who was a schoolmate of mine 66 years ago. Both countries had agreed to accept the commission’s decision as final, but when the details were published in April 2002, Ethiopia found one excuse after another to dispute the findings. Ostensibly, its main reason was that the commission had awarded the small town of Badme to Eritrea, but as it had no significant value there must have been other reasons. The suspicion is that the long-term objective of Ethiopia is to re-annex its former dependency and, meanwhile, to weaken it by threatened aggression along the border and working to intensify sanctions on false charges of supplying weapons to the al-Shabaab terrorists in Somalia.
The Ethiopians unlawfully occupied territory all along the border that should have been demilitarised under the settlement, and Eritrea has been forced to maintain large armed forces as a precaution against further military attacks by its bullying neighbour. That was its justification for the much criticised imposition of indefinite military service, which was mentioned by my noble friend. The Eritrean ambassador told us that from last November conscription was limited to 18 months and that conscripts would not be required, as before, to perform civilian work such as road building, earning no more than $30 a month. Thousands of young people are fleeing the country every month, and Eritreans are the most numerous of those attempting the risky crossing from north Africa to Europe in which so many lose their lives. There is hope now that the flood of Eritrean asylum seekers will abate and that the colony will receive a boost from the extra labour in the private agricultural sector from the release of the indefinitely conscripted young people in the system.
The permanent existence of a state of “no war, no peace” is a major reason for the plethora of human rights violations by Eritrea, which have been mentioned by both my noble friend and the noble Baroness, Lady Kinnock. These include the arrest and disappearance of 21 opponents of the Government in 1991, arbitrary arrests and severe restrictions on freedom of expression and assembly. These are undoubtedly seen by the regime as necessary protections against their unscrupulous and determined enemy. That is not to defend such practices but to make an observation. Does the Minister not agree that, if the threat of aggression were lifted, violations of human rights would diminish and the flow of refugees would be further reduced? Trade between the two countries and access by Ethiopia to the ports of Assab and Massawa would boost economic activity throughout the region and lower unemployment locally and internationally, thus reducing the incentive to emigrate.
Ethiopia, on the other hand, has no enemies in the region and therefore has no reason for the severe restrictions on freedom of expression that it imposes. Human Rights Watch said last week that 22 journalists, bloggers and publishers were charged with criminal offences in the past year. Six independent publications were intimidated and closed, with dozens of staff forced into exile. Three owners of publications also fled abroad to escape false charges that led to sentences of three years in prison in absentia. Six members of Zone 9, a bloggers’ collective, were charged under the counterterrorism laws and have been in custody for 274 days, sending a chilling message to online activists. Can the Government not make representations to Prime Minister Desalegn to relax the stringent controls on freedom of expression so that Ethiopians can have a genuine election in May?
Above all, I call on the Government, and through them the EU, to launch a new diplomatic effort for peace in the region—for Ethiopians of all political parties to accept the Lauterpacht settlement unequivocally and to withdraw their forces from Eritrean territory.
The Lord Bishop of Derby
My Lords, I, too, thank the noble Lord, Lord Chidgey, for his comprehensive and challenging analysis and assessment. I will make some general remarks and then one or two specific points.
This complex situation is partly because the region is very unstable and there is a lot of movement from both of these countries to Saudi Arabia and the Yemen, as well as to Europe. Such an unstable context requires some big picture approaches. Then there is the conflict between Ethiopia and Eritrea, as the noble Lord, Lord Avebury, has clearly explained. That complexity makes a neat solution very difficult.
We have heard something of the human rights abuses. We need to put firmly on record in this House the particular suffering of women and girls, not least through military service, through trying to avoid military service by escaping into marriage and getting married at a very young age. There is also the problem of religious freedom in Eritrea. The constitution there guarantees religious freedom but only four groups are allowed to worship—Orthodox Christians, Catholics, Sunni Muslims and Lutheran evangelicals. Any mature country in that region needs to honour the spirituality and aspirations of its citizens.
We are told that 4,000 people a month are fleeing from Eritrea into Ethiopia, which further complicates the dynamic between the two countries. Because many who flee are women and children and unaccompanied minors, they are ripe for what we call human trafficking. Many of them are picked up and exploited by labour gangs for sexual slavery and even for body parts. The noble Baroness, Lady Kinnock, spoke of their sheer desperation and desire to escape. In Matlock, in the Peak District of Derbyshire, you might think that you could not be further from Ethiopia and Eritrea. However, when a couple who had driven back from the continent in a campervan arrived in Matlock, out from underneath crawled a refugee. He had had a desperate experience and was shaking, crying and happy to be turned in to the police. This tragic vignette illustrates the issue.
I am privileged to be a trustee of Christian Aid, which, along with CAFOD, is working on the ground in Ethiopia. It has been there for 30 years. It started by engaging with emergency work and is now doing very important development work with HIV, malaria, maternal and child care and especially the safeguarding of the rights of women and girls and of their educational development. I tell noble Lords that in part because it is a sign of hope, but Christian Aid—and possibly CAFOD, too—does not work in the north of Ethiopia or in Eritrea. It cannot get access to do that voluntary work; often we can work with partners on the ground, growing capacity, but Eritrea and the north of Ethiopia is a no-go territory because of the chaos. That means that the partnership that government can often assume from the voluntary and faith sector is not able to operate, which is a further challenge and complexity.
The number of migrants we experience in western Europe is simply a cry for help, showing us the scale and seriousness of government malfunction and the complexity of the history we are looking at. Therefore, there has to be an approach that is not just bilateral, with these countries trying to work with their difficult histories and tensions. Rather, we have to ask our Government to work with the EU, the UN and through the Foreign Office, and to try not just to look at the political possibilities but to engage with the voluntary and faith sectors to work with the desperate need on the ground, especially in northern Ethiopia and Eritrea, where there is all that suffering and no real access to giving help.
Therefore, I will be interested if the Minister can comment on the overall strategy and on how working with Europe and the UN might give some hope, besides bilateral things; on any representations on honouring religious freedom in Eritrea; and on how voluntary and faith groups might assume the partnership they often have with Governments in other needy areas to offer some offer support and development on the ground within the context of that complex political situation.
Lord Rea (Lab)
My Lords, I am very grateful to the noble Lord, Lord Chidgey, for securing this short debate. I thank the noble Lord, Lord Avebury, for introducing me to Eritrea in the year 2000 during a lull in the war with Ethiopia. In the next phase of the war the Eritreans did not do so well; it ended in a rather unsatisfactory ceasefire a year or so later. The subsequent developments in the economically damaging state of “no war, no peace”, were described extremely well by the noble Lord, Lord Avebury. The unresolved border tension, as several noble Lords have said, is having a major impact on Eritrea’s economy—less so, I guess, than in Ethiopia, which has a much bigger population. The standing army that Eritrea maintains is a major drain on a country with only 3 million people.
When we were in Eritrea, we visited, among other places, the Red Sea port of Massawa, where we met the Minister for the coast and fisheries, Petros Solomon, an impressive former senior officer in the independence struggle. He took us to see a remarkable coastal prawn and tilapia aquaculture pilot project, which was being developed with the help of a small American grant. If that project had gone ahead and expanded it could have become a valuable food-producing and export industry. Sadly, it was abandoned a year or so later, possibly due to government opposition to external NGOs.
In 2001, I was among those invited to attend the 10th anniversary celebrations of the end of the independence struggle. Among other visits we were taken by helicopter to the former battleground of Nakfa, which the noble Lord, Lord Avebury, described. We were impressed by the ingenuity and courage of the Eritreans and their capacity for hard work. However, shortly after our visit, 15 senior government members, known as the G15, who had signed a letter to President Isaias Afewerki urging him to implement the agreed democratic constitution and hold elections, were all arrested. They included Petros Solomon, whom the noble Lord, Lord Avebury, and I had met one and a half years earlier. Some 13 years later, he is still in prison, without trial and held incommunicado, as is his wife. Can the noble Baroness, to whom I gave notice of this question, say whether our embassy has been able to obtain any information about this man and his colleagues who are still detained? Some fear that he and some of the other G15 letter writers may no longer be alive.
There are other long-term political prisoners, including a number of journalists known as the 31, whose fate is unknown, and there are almost certainly many more. Human Rights Watch and Amnesty International have condemned these and other arrests and disappearances, as the noble Baroness is fully aware. As all other speakers have said, there is compulsory conscription for national service and not all of it is military. Some consists of what could euphemistically be called vocational training, but pay is very low—pocket money if you are lucky. There is also a large standing army which has to be maintained because of the tension with Ethiopia and which the country can ill afford.
It is alleged that many national service recruits are being used as virtual slave labour, in poor conditions in ore-producing mines. The Eritrean Government deny this. Does the noble Baroness have any information on this? According to an independent report by the Danish immigration service, the reason given by most Eritrean asylum seekers for leaving the country is economic rather than political, although deserters from national service naturally fear punishment if they return. As noble Lords have said, this report appears to have been withdrawn. Other noble Lords have testified to the important part played by human rights abusers in the exodus of Eritreans. As we hold this short debate, there is a UN human rights commission of inquiry going on. It was not allowed into Eritrea itself, so it has, apparently, had to rely on external testimony. Does the noble Baroness have any information on the progress of this inquiry?
Other informants give another, rather more hopeful, side to the story. There is grass-roots development and, within limits, considerable local democracy. As can be imagined, this does not include criticism of the president who, like President Putin, is unaccountable but still apparently popular, despite having lost the war with Ethiopia and heading an autocratic regime. As in Russia, support for the president is strongest in provincial and rural areas. In part, this is due to the policy of land reform which grants land—all of which is state owned—to landless farmers on equitable long-term leases. WHO and UNDP have praised the effectiveness of Eritrea’s antimalarial programme and its collaboration with external advisers in public health. It has achieved the millennium development goals in education and maternal and child health. This information comes, not just from the Eritrean Government, but from United Nations agencies. Its expansion of free education and healthcare is well ahead of most other countries in Africa.
Eritrean support of al-Shabaab in Somalia is denied by the regime’s supporters who say that, in fact, Eritrea has its own jihadist problem. Does the noble Baroness have direct evidence of this alleged Eritrean involvement in Somalia? Could this possibly be Ethiopian propaganda?
Eritreans are intensely proud people and respond negatively if told what to do. They are determined to pull themselves up by their own bootstraps—hence their rejection, often to their own detriment, of many projects by aid agencies, whether official or non-governmental, and their stringent conditions for accepting much needed inward investment. They are determined not to be exploited by multinational corporations. It would be very useful to hear what the UK’s experience of investment in capital projects has been in Eritrea.
I suggest that, as with other long-drawn-out conflicts, discussion, initially perhaps behind closed doors, is more likely to lead to an acceptable outcome than open confrontation or sanctions. Having said that, political prisoners such as Petros Solomon, of whom I spoke, must be released, or at least be tried in open court. Their continued detention without trial and the failure to implement independent Eritrea’s agreed democratic constitution are major factors blocking the development of normal relations between Eritrea and the rest of the world.
Baroness Morgan of Ely (Lab)
My Lords, I congratulate the noble Lord, Lord Chidgey, on securing this very important debate, and particularly on his illuminating introduction.
The tragedy unfolding in Eritrea and Ethiopia is impacting directly on us here in the UK and across the EU, and the picture painted by the right reverend Prelate tugs at your heartstrings. It is another example of how we cannot isolate ourselves from the problems of the world; we cannot haul up the drawbridge and hope that the situation will go away. Hundreds of thousands of innocent people are desperate in both these countries: so desperate that they are prepared to risk everything—and I mean everything—to start a new life, not just here in Europe but in other African countries, too, as noble Lords have said.
There is no doubting the seriousness of the situation, particularly in Eritrea. As has been suggested, Eritreans and Ethiopians are the main nationalities of the irregular migrants seeking asylum in the EU, apart from Syrians. They come either by land, normally through Lebanon and Syria into Turkey and the western Balkans, then on to the EU, or by sea, often using Tunisia or Alexandria in Egypt as their key point of departure. I ask the same question as that asked by my noble friend Lady Kinnock: what are they fleeing from? What is driving this mass exodus, which includes not just women and children but thousands of unaccompanied minors? The simple answer is that neither Ethiopia nor Eritrea is a functioning democracy.
Although both Ethiopia and Eritrea are suffering real problems, there is more scope to influence activities in Ethiopia. In the past, there seems to have been a modicum of free speech and a free press in Ethiopia, although the Government’s intolerance of dissent seems to be increasing significantly in the face of general elections in May. There have been large-scale arrests of protesters and a crackdown on opposition opponents. This is particularly true in the Oromo region, where at least 5,000 people have been arrested as a result of their opposition to the ruling party.
But if we think that the situation is bad in Ethiopia, it is truly catastrophic in Eritrea, where all freedoms were suppressed in September 2001. There is no religious freedom, as the right reverend Prelate underlined, no political pluralism, and no independent press in the nation. The forced and interminable military service to fight the unending border war with the neighbours in Ethiopia is clearly a real problem that is driving people from the country.
There are some key points which we would like the Government to take on board. We believe that all possible pressure should be brought to bear in particular on the Eritrean regime to give way to a democratic Government who will respect human rights and the wishes of their people. What this does not mean is attempting to start a new relationship with the existing Eritrean authorities through providing unconditional aid. Given the failure of all previous attempts to engage in a meaningful way, do the Government really believe that the regime can respond positively? Do the Government agree that, unless there is clear and verifiable evidence that human rights in Eritrea have improved, there should be no new beginning with the regime?
I understand that the United Nations Commission of Inquiry on Human Rights in Eritrea will visit the UK this week to hold meetings and collect testimonies and accounts on the human rights situation in Eritrea. Can the Minister give an assurance that the Government will support the UN in its work and ensure that an objective picture of the situation in the country can be assembled?
We are all aware that there are fears and concerns within the British population about the scale of immigration to the UK. Such a fear is not just here in the UK, but true across the EU. We need to ensure that, across the EU, we have a co-ordinated approach to migration from this part of the world. Let us be clear: if Britain left the EU it would not stop people from coming, but it would stop us from working together in a co-ordinated fashion with our EU partners.
A €5 million programme is being established between FRONTEX—the agency of the EU that manages co-operation between national border guards to secure the external borders of the Union, including from illegal immigration, human trafficking and terrorist infiltration—and the UNHCR to help the countries of the western Balkans strengthen their asylum and migration policies and capabilities. Additionally, FRONTEX is co-operating closely with Turkey, which has helped to stem the flow of the ghost ships that we saw before Christmas. I understand that it has assigned a member state expert to help the Turks to improve security around the port of Mersin.
The EU has also signed a readmission agreement with Turkey, which means that Turkey must take back not only nationals who may be irregular migrants, but migrants who are seen to have come from Turkey. There is close and joint co-operation in the Aegean Sea and on the Greek and Bulgarian land borders. Could the Minister explain how on earth the UK could begin to influence or support these actions if we were outside the EU?
We should not underestimate the people who are seeking to benefit from people’s immense suffering: the people traffickers who extort thousands from these desperate people. Europol is ensuring that there is an exchange of information across Europe and with our partners in the western Balkans and Turkey that ensures that European nations can tackle some of the criminal aspects behind this migration.
However, we should be clear that none of this will stem the flows out of Ethiopia and Eritrea. The human rights violations are simply too much for many of the population to bear. While Eritrea is considered a real basket case in terms of human rights, the tragedy is that things seem to be getting worse in Ethiopia, which was once the darling of the international aid community. Can the Minister explain how aid, being conditional on improvements in human rights, can be strengthened for Ethiopia? Can she outline how we can offer more support to Eritreans in the camps in Sudan and Ethiopia? Finally, can the Minister clarify the situation relating to migrants from these two countries when they arrive in the UK? What proportion of them are termed “irregular migrants”? What proportion are given asylum status? Is there any recognition that there are many desperately poor countries in Africa, but that poverty and economic migration does not explain the disproportionate numbers arriving from these two countries?
The Minister of State, Foreign and Commonwealth Office (Baroness Anelay of St Johns) (Con)
My Lords, I congratulate my noble friend on securing today’s debate. I also commend the important work of the various all-party groups of which he is an active member, including the All-Party Group on Africa. As he has described, there are few more moving stories than those of migrants who undertake perilous journeys to reach western Europe, sometimes losing their lives in the process. The noble Baroness, Lady Morgan of Ely, has just described that graphically. Today’s debate is, therefore, a welcome opportunity to discuss an issue that clearly links the United Kingdom and our partners in Africa—and indeed, our partners in the European Union in our work to reduce the need for migration and the need for unsafe migration.
The Government have made it very clear that the international community must act together to reduce the risk of migrants losing their lives or falling prey to the traffickers. Migrants make the journey for a number of reasons—whether seeking more economic opportunities or to escape human rights abuses and persecution. I shall come in a moment to some of the more specific points which noble Lords have made on that matter. Poverty and instability in the Horn of Africa drives individuals to seek a better life in Europe and beyond. For those who cannot leave, these same factors contribute to an environment in which fundamentalism and extremism can prosper. Tackling illegal migration to the EU from the Horn of Africa is therefore clearly in our interest and that of all countries in the region. We must address the problem at its source, and the UK is committed to playing its part.
The noble Lord, Lord Rea, in particular asked questions about al-Shabaab and the terrorism link with regard to that. He mentioned the United Nations and Eritrea monitoring group. I understand that Eritrea denies any support for al-Shabaab but continues to refuse entry to the monitoring group. We urge it to co-operate fully with the group’s work. I am entirely at one with the noble Lord in this matter.
Clearly co-operation through our European Union partners is important. I was asked about that not only by the noble Baronesses, Lady Morgan and Lady Kinnock, but by my noble friend Lord Chidgey and the right reverend Prelate. In addition to our bilateral work with key regional partners, we play an active role in the new EU-African Union Khartoum process, which includes of course both Ethiopia and Eritrea, supporting dialogue and co-operation to tackle people smuggling and human trafficking in the region. I can tell the noble Baroness, Lady Morgan, that the Prime Minister’s position is that we will negotiate a successful resolution to our relationship with the European Union, and in any future decision by the British people we would put a very positive case and would certainly hope that we would remain part of it. That is the result of successful negotiation by my right honourable friend Philip Hammond, who has been travelling around countries throughout western Europe, taking soundings and getting some very positive results—more positive perhaps than some of the press makes clear on some of the issues that we have been broaching. There is still a long way to go. We know that but we are making progress.
We welcome the fact that both Ethiopia and Eritrea have expressed commitment to the Khartoum process. It provides the best framework to drive this issue forward. Noble Lords have drawn attention to the tension between Ethiopia and Eritrea. I would say to them that if they are taking the Khartoum process seriously, they have to take negotiation on the basis of solving the differences between them seriously too. As a member of the core group of EU and AU member states steering the development of how we take this process forward, we as a country are keen to ensure that we maintain momentum and that the process leads quickly to concrete projects that combat the smuggling and trafficking.
Several noble Lords asked me, in particular, about extended military service—very much a euphemism. I listened very carefully to all the words used by the noble Lord, Lord Rea, the noble Baroness, Lady Kinnock, my noble friends Lord Avebury and Lord Chidgey, and the right reverend Prelate about the real nature of this—one or two noble Lords referred to it as being like slave labour—and the fact that it acts as a serious driver for people to leave the country. Having left and broken the rules on conscription, people are—I cannot think of the right word—terrified to return. That is why some of the figures of asylum grants by us to Eritreans look so high, because clearly there has been concern about them returning to that country given their reasons for leaving.
We did indeed have a joint visit to Eritrea by Home Office and Foreign Office officials in December. They looked at the drivers of migration and particularly discussed the matter of extended military service. I can say to my noble friend Lord Chidgey that this was a useful starting point for further co-operation. A similar visit to Ethiopia is planned for the near future. With regard the visit to Eritrea, the Eritrean Government representatives assured the officials from the FCO that military service will be strictly limited to 18 months and, indeed, I have been briefed by those officials today. The undertaking has been given. It is matter now of making sure that that is put into practice.
The noble Lord, Lord Rea, made the valid point that not everybody fleeing Eritrea is fleeing persecution; some leave for strong economic reasons, and the extension of the 18 months’ military service, with no knowing when it would finish, was an awful position to be in. That is very different from some of the drivers that one sees for people fleeing from Syria.
The matter of development assistance was raised by my noble friend Lord Patten. He asked about the role of aid. We are firmly committed to the use of aid in ensuring that there is security and prosperity in countries that currently experience neither. Our total spend over all countries in 2013 was almost £11.5 billion, second only behind the USA in overall volume. We believe that that is helping to change the lives of many millions of ordinary citizens across the Horn of Africa. In Ethiopia, in particular, last year our funding allowed over 1.6 million children to go to primary school, helped 110,000 mothers to give birth safely and provided clean water for more than 250,000 people. Our funding is also helping Eritrean refugees in Ethiopia, particularly with shelter and support to unaccompanied minors, as well as warning refugees of the risks of illegal migration. I know that none of that will be a surprise to the noble Baroness, Lady Kinnock. When she was a Minister she was passionate about these issues, and rightly so. I can assure her that that passion remains in government.
I was also asked about the issue of Ethiopian and Eritrean relations more generally. My noble friend made reference to a leaked memo on Ethiopia’s destabilising policy against Eritrea—at least the memo refers to itself as being leaked, whether it was or not I simply do not know. We will consider its contents seriously and closely. Better relations between the two countries are clearly needed. We have called on both sides to respect the commitment that they made in the Algiers peace agreement of December 2000 to refrain from using force against each other. We will continue to encourage both Eritrea and Ethiopia to engage bilaterally and internationally to overcome the current stalemate and hope that progress can be made towards demarcation in accordance with the decision of the Eritrea-Ethiopia Boundary Commission.
Lord Avebury
Does my noble friend not recognise that the Algiers agreement was final and binding and that both parties had agreed to accept it, so there is no question of negotiations or variations on the settlement? They both must accept it, and, in particular, Ethiopia must agree to the border that was determined by the British judge, Judge Lauterpacht.
Baroness Anelay of St Johns
My Lords, international agreements, once entered into, should be adhered to, and I hope that the Russians hear that with regard to the Minsk protocol with regard to Ukraine. I agree with my noble friend about the importance of keeping one’s word.
Much attention was drawn to the issue of human rights, and rightly so. I will summarise very rapidly indeed. The noble Baroness, Lady Kinnock, my noble friends Lord Avebury and Lord Chidgey, the noble Lord, Lord Rea, and the right reverend Prelate the Bishop of Derby all raised issues. Briefly, with regard to the matter of Petros, we are of course aware of that case. I am afraid that I can give the noble Lord, Lord Rea, no comfort. We do not have any assurances about his well-being despite consistent efforts to obtain them. We will continue to call for his release.
There are human rights abuses across the board. The right reverend Prelate raised the issue of religious freedom. We will continue to look very carefully at the matters he raised because, clearly, those are abuses that have occurred and, as he rightly says, particularly against groups that are not registered under the Eritrean system. There was a reference to the detention of political prisoners and journalists. We certainly try to establish the facts. There are still journalists in detention despite reports that six have been released. There was a reference to the Swedish-Eritrean journalist Dawit Isaak, who is still under arrest.
With regard to all these matters, we do not give up. Just because it is difficult, we do not give up in pursuing our relationship with these two countries. Walking away would leave those who are the victims of persecution and misbehaviour by Governments in a more perilous position than they currently face. The commitment of this Government is that this is a challenge that requires a global, long-term response to a difficult problem. We will all keep trying to ensure that, as an international community, we do our best to tackle it for the sake of those behind the traffickers and behind Governments who do not have good governance.