Pension Schemes Bill [ Lords ] (Fourth sitting)
Thursday 9th February 2017
(7 years, 3 months ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2017 View all Pension Schemes Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 February 2017 - (9 Feb 2017)
The Chair
I understand that following the debate this morning, Mr Blackford no longer wishes to move new clause 8. Is that correct?
Ian Blackford (Ross, Skye and Lochaber) (SNP)
That is correct.
New Clause 11
Asset protection for unincorporated businesses
“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”—(Ian Blackford.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
New clause 12—Review of actuarial mechanisms for valuing pension scheme liabilities—
“Within six calendar months from the day on which this Act comes into force, the Secretary of State must conduct a review of the actuarial mechanisms used to value pension scheme liabilities under section 75 of the Pensions Act 1995.”
New clause 13—Non-associated multi-employer schemes: orphan debt—
“The Secretary of State must, by regulations, exclude from the calculation in section 75 of the Pensions Act 1995 the orphan debt in any non-associated multi-employer scheme.”
Ian Blackford
It is a pleasure to serve under your chairmanship, Ms Buck. I thank the Committee for its assistance in taking new clauses 11 to 13 earlier than planned.
New clause 11 would help to deal with an issue facing plumbers in Scotland. Plumbing Pensions (UK) Ltd was established in 1975 to provide pensions for the plumbing and heating industry UK-wide. The scheme is managed by a group of trustee directors appointed from nominees of the Association of Plumbing and Heating Contractors in England and Wales, the Scottish and Northern Ireland Plumbing Employers Federation and Unite the union. The scheme has more than 36,000 members and assets in excess of £1.5 billion.
Under section 75 of the Pensions Act 1995, employers may, in certain circumstances, become liable for what is known as a section 75 employer debt. That debt is calculated on a buy-out basis, which tests whether there would be sufficient assets in a scheme to secure all members’ benefits by buying annuity contracts from an insurance company. Legislation specifies that a section 75 employer debt becomes payable when an employer becomes insolvent, winds up, changes its legal status or ceases to have any active members in the scheme. Although we must be mindful that the purpose of those rules is to protect pension benefits, the way they are currently framed creates problems for some stakeholders, and we are sympathetic to SNIPEF’s concerns, which I know it has also raised directly with the Minister.
The solution is not clearcut. There are several options for the Government to consider, but each has complications for pension schemes, employers and scheme members. We urge the Government to balance employers’ interests with the need to protect benefits for scheme members. The previous Pensions Minister, who sits in the House of Lords, indicated that she would look closely at how a solution to this complex issue could be reached. We need the same assurances from the current Minister that the Government will work to find a solution for the industry. They could use the Bill to bring forward such a solution.
SNIPEF aims to achieve an amendment to the section 75 debt legislation. Its main concern is for unincorporated businesses where people risk losing their personal assets, including their homes. It wants the Government to review the actuarial methods that are used to value pension scheme liabilities, as it believes that given the current economic conditions, the calculation of section 75 employer debt on a full annuity buy-out basis is inappropriate and detrimental to non-associated multi-employer schemes.
SNIPEF argues that orphan debt in any non-associated multi-employer scheme should be excluded from the calculation of section 75 employer debt. It also suggests that, provided that schemes are deemed to be prudently funded, the Pension Protection Fund should act as guarantor of last resort for orphan liabilities. SNIPEF believes that any changes in legislation should apply retrospectively to all employers from 2005. It would be helpful to hear the Government’s view on that request.
As I mentioned, SNIPEF recently met the Minister, and it has advised several MPs that he confirmed that those objectives could be incorporated in a Green Paper, but I want to use the opportunity of the Bill to address these matters. We are eager to hear whether the Government intend to include a solution in the Bill, and I look forward to the Minister’s comments.
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
It is appropriate, given the temperature in which we are working, that plumbers are mentioned. I only wish that some of them were in the Public Gallery to make repairs so that hon. Members would not have to wear their coats.
I joke about that, but I accept that this is a serious matter. When it was brought to my attention, it was my duty and pleasure to meet representatives of not just the plumbers but others. The Government are not ignoring the issue. Although some stakeholders have run an effective public campaign, as is their right, it was the job of the Department for Work and Pensions anyway to get to grips with this, despite the fact that MPs have contacted us individually, such as the hon. Member for Ross, Skye and Lochaber—
Richard Harrington
Thank you. I have finally got it. I shall provide tuition for other hon. Members.
This issue is important. For the record, I should remind hon. Members who are not as familiar with it as the hon. Member for Ross, Skye and Lochaber why the employer debt legislation is in place. It is to help ensure that members of salary-related occupational pension schemes receive the pensions they worked for and have been promised when their own employer cannot provide them. I think everyone would agree that that is a noble aim. Were that not a rule, it would have led to even more difficulties.
When I see representatives of those in such positions, I try to think about this key question: if they are not responsible for the debt, who is? Someone has to be responsible for it. As hon. Members will have picked up from the hon. Gentleman’s speech, people who have been working quite properly and, typically in this field, running their own businesses find themselves with—I do not know what the legal term is—a contingent liability that could be called upon. It is not as though they have received an invoice or a demand, or people have been banging on the door to repossess something, but it is understandably on their minds that that could and might happen, which is a serious matter.
Ian Blackford
That is exactly the point. We are talking about often small businesses that have done the right things in making sure their employees are protected and have adequate pension provision, but there is a sword of Damocles hanging over them with the worry and uncertainty, caused purely by this debt, that they may lose their businesses and houses.
Richard Harrington
I accept the hon. Gentleman’s point. We all agree there is a problem. I do not see how anyone could disagree with that. These people are simply in an unfortunate position, but the Government have to decide, “If not this, what?” and “What are the alternatives?” The hon. Gentleman said, as the groups involved have, that the debt should be passed to the Pension Protection Fund, which everyone would agree has been a very successful mechanism. We mentioned the Maxwell case before lunch. The PPF was intended to deal with failing schemes. It is paid for by the levy payer—by all the successful pension schemes—and I am sure they complain because it is a significant amount of money, but everyone would agree that it has been successful.
In this case, we would place an unfair burden on the PPF, because we are not talking about failing schemes. Many of them are successful and proper. That is why I mentioned a contingent liability. If it is your liability— I do not mean yours, Ms Buck, but anyone’s—it is real to you. It is not quite as real as having an invoice or a demand, but it is there all the time. I do not deny that. However, passing the debt to the PPF would place an unfair burden on the PPF and its levy payers.
Like so many issues facing defined-benefit schemes, the problem is complex and finding a solution is difficult. I accept that it is for the Government to address it. That is what we are elected and paid for. But like everything else in government, there is not an instant, easy solution. It is worth highlighting the fact that the Government have already made significant changes to the legislation in response to representations made by some employers. A number of mechanisms have been made available in employer debt regulations whereby only part of the debt or none may be payable. There are eight such mechanisms in legislation. A wide variety of circumstances can arise, because there are a lot of diverse scheme structures. The best example, which has been discussed with the plumbers and those making similar representations, is flexible apportionment arrangements, which permit an employer debt attributable to the departing employer to be shared among the remaining employers. That sounds attractive, but it is part of a triangle of previous employers, remaining employers and the PPF—it is about which of them gets kicked with this liability. Each group is obviously going to be in favour of the others getting it. I say that not to cast any aspersions or to make a value judgment, but it has to go somewhere, and in the end that is for Government to decide. On the face of it, however, that would be such a solution.
New clause 11 calls specifically for a change by regulations to the employer debt legislation in the Pensions Act 1995. It is aimed at providing protection for the owners of unincorporated businesses. Many of the plumbers who have made representations happen to be self-employed because that is the structure of their business, but they are not self-employed and running a large business. They just happen to be a business owner who is self-employed. A mandatory provision to protect one group of employers from their responsibility for an employer debt, for which there may be personal liability, again boils down to that debt needing to be met in some way by others in order to safeguard members’ pensions. It is true to say that such an approach would also conflict with existing employer debt provision that recognises the wide range of employers who participate in occupational pension schemes. It does not differentiate between different types of business structure in relation to employer debt duties.
Secondary legislation, in the form of the 2005 employer debt regulations, already includes a range of mechanisms to facilitate the management of an employer debt when an employer ceases to employ active members of a pension scheme. The regulations operate so that in some circumstances, only part of the debt or no debt may be payable. Those regulations are currently under review. We had a call for evidence about the operation of employer debt legislation in non-associated multi-employer schemes. We needed to call for evidence because there are losers and winners. It is the role of Government to try to assess interests, and some form of judgment has to be made. This area of legislation is extremely complex, and we have to check and consider things carefully.
I reiterate that we are not kicking the can down the road—it is not that we do not want to make a decision. It is a complex issue, and we are looking to consult on specific proposals in the very near future. In any case, a whole range of new proposals might come about in our Green Paper on defined-benefit schemes. If I say the release of that Green Paper is imminent, that could mean anything from tomorrow onwards, but it will be very soon.
Ian Blackford
I think the Minister will accept that I am trying to be helpful to the Government in trying to find a resolution to this situation. Let us look at the wording of new clause 11 again:
“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”
I would be content if we could get an assurance that the Government are willing to work together with us to solve this problem. The Green Paper will be coming forward, and I appreciate that the Minister has said he is prepared to look at this matter and see whether there is a resolution that can be found that would not have any unintended consequences,. I seek assurance from the Government that that will be the case. I know the Minister cannot be too prescriptive about the Green Paper at this stage, but I hope there is willingness to ensure that these issues of actuarial valuations will be taken into account in it.
The Chair
Order. I remind hon. Gentleman that he is making an intervention, not a speech.
Ian Blackford
Sorry, Ms Buck; I will sum up. I am trying to get to a consensus, so that we can work together on this.
Richard Harrington
I think I understand the hon. Gentleman’s intervention; I accept that he did not mean it to become a speech, but I think it did. He knows, because I have told him privately, that it is the Government’s intention to resolve this issue. I have stated many times that I cannot go into what will be in the Green Paper. I also cannot accept that the new clause should be included in the Bill, because we are not ready for it. We do not have a solution; there is no simple solution.
The hon. Gentleman has been involved, not actually in this issue but in many others to do with asset management and financial services, and knows that everything is more complex than it first appears. I have accepted that there is a problem, I have mentioned that there are different entities that have to deal with it, and I have accepted that we have to try to reach a solution—by consensus, I hope. However, I cannot give him that good news today; I have to resist the new clause being added to the Bill.
Craig Mackinlay (South Thanet) (Con)
It is a pleasure to see you in the Chair and to serve under your chairmanship, Ms Buck. The experience of the hon. Member for Ross, Skye and Lochaber comes through very clearly.
I hope I can offer some help to the Committee. I realise that this is a complex area, but the hon. Gentleman’s new clause does not actually encompass the extent of the problem, which goes further. Under the old rules—extra-statutory concession C16 on the winding-up of companies, which was used widely until 2012—a group of directors or owners could wind up a company using a very informal method, but that did not cease their liabilities to that company. That liability extended for 20 years afterwards. That was then formalised under section 1030A of the Corporation Tax Act 2010, which gave a statutory basis to the informal winding up of companies with assets of less than £25,000. That provision is still used very widely. Directors or owners of such companies being wound up under that statutory method could still face 20 years of future liabilities, so although the hon. Gentleman has identified a problem in the system, it does not just apply to unincorporated associations.
The effect of the section 1030A of the 2010 Act, which came into force on 1 March 2012, is that directors and owners of slightly larger companies are going down the route of a formal liquidation, which terminates their liabilities for ever more. However, hundreds—if not thousands—of old, smaller companies using the old extra-statutory concession will still be caught by a section 75 notice. This is a very wide issue that does not apply only to unincorporated associations, so I do not think the hon. Gentleman’s new clause is enough to close down his concerns on future liabilities. Personally, I accept the Minister’s assurances, but I think this is the start of a wider debate as to how those liabilities can be cut down.
In the hon. Gentleman’s new clause 12, there is a problem with determining the proper value of a pension liability. It is not as sharp as just the transfer value that is often given, and we will need in future to be a little bit cleverer in how we actuarially assess pension liabilities.
Ian Blackford
On the basis of the Minister’s response, I will certainly not push the new clause to a vote. We have received assurances that the Government will look at these issues; I hope they will not only be addressed in the Green Paper, but that there is the possibility of legislation as a result of that. I think we all recognise—there is a consensus on this—that we have to make sure we can resolve this problem for the benefit or incorporated and unincorporated businesses. On that basis, I will happily leave things as they are for now. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
Investment Strategy
“(1) A Master Trust, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the Secretary of State,
(2) The Trust must consult scheme members on—
(a) the Trust’s assessment of the suitability of particular investment and types of investment;
(b) the Trust’s approach to risk, including the ways in which risks are to be assessed and managed;
(c) the Trust’s policy on how social, environmental, and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;
(d) the Trust’s policy on the exercise of the rights (including voting rights) attaching to investments; and
(e) the right of scheme members to consider non-financial issues relating to their investments and be consulted on these issues.
(3) The Trust must review the strategy at least once a year, and revise if appropriate
(4) The Trust must revise the strategy at any time if there is any significant change to the information included in it.
(5) In the event of (4) above, the Trust must consult with scheme members, and the revise the strategy in the light of comments made.
(6) The Secretary of State may make regulations with a view to ensuring that the information disclosed under subsection (1) is provided in a timely and comprehensible manner.”.—(Alex Cunningham.)
A Master Trust must include an investment strategy which outlines what the Master Trust should consult scheme members on in areas of investment.
Brought up, and read the First time.
Alex Cunningham (Stockton North) (Lab)
I beg to move, That the clause be read a Second time.
Welcome to our walk-in fridge, Ms Buck. I had a discussion with the Government Whip, the hon. Member for Winchester.
Richard Harrington
On a point of order, Ms Buck. Actually, I do not know whether it is a point of order or a point of clarification. Before we come to the hon. Gentleman’s new clause, am I correct in saying that new clauses 11, 12 and 13 were all withdrawn?
Alex Cunningham
I was talking about the conversation that I had with the Government Whip about whether we should invoke the Factories Act. He reminded me that, unhelpfully, said law does not apply to the Palace of Westminster. The Minister mentioned kicking a can, and I remember playing kick the can in the street as a young boy. Perhaps you can provide us with a can, Ms Buck, and we can have a game after we debate the next new clause to warm ourselves up.
New clause 2 continues our theme of transparency and member engagement. It is designed to improve the way that master trusts consult their members about their investment strategies and ensure that members are aware of the guidelines that trustees establish for the management of members’ assets. The new clause would modernise the approach to fiduciary—I find that word even more difficult to say than “Lochaber”—management of savers’ assets and update the statement of investment principles approach currently required of master trusts. A master trust would have to have an investment strategy and consult scheme members about that strategy and about socially responsible investment—commonly known as environmental, social and governance issues.
Until now, every occupational pension scheme has been legally required to prepare and maintain a statement of investment principles, which is expected to cover the trustees’ plans for securing compliance with their statutory duties, their policies on investments, risks and returns, and how they will exercise their voting rights. In short, it allows trustees to consider factors that they believe will influence the financial performance of their investments and consult members about those issues. As long as pension funds can show that any investment or policy decision was made on a fiduciary basis and members were consulted, they can avoid the charge that they have not considered members’ best interests.
Public opinion tends to position the average citizen as a helpless bystander in this drama, but in fact it is their money that underpins the entire system. Anyone with a pension is, indirectly, an owner of Britain’s biggest companies. The new clause seeks to create a world in which people feel that their savings give them a positive stake in the economy and a voice in how the companies in which they invest are run. Although we may hope or even expect that scheme members have a say, the reverse is true: power has become increasingly concentrated in the hands of a relatively small number of opaque and unaccountable financial institutions. As the Kay report showed, those institutions often face systematic pressures to act in ways that may not serve savers’ interests. Direct accountability to savers is a vital component of a healthy economic and financial system. As millions more savers are about to enter the capital markets through pensions auto-enrolment, now is the right time to build a more accountable system.
In June 2011, the Government invited Professor John Kay to conduct a review of UK equity markets and long-term decision making. The Kay review considered how well equity markets were achieving their core purposes—to enhance the performance of UK companies and enable savers to benefit from the activity of those businesses through returns to direct and indirect ownership of shares in UK companies. The review identified that short-termism is a problem in UK equity markets. Professor Kay recommended that company directors, asset managers and asset holders should adopt measures to promote both stewardship and long-term decision making. He stressed in particular:
“Asset managers can contribute more to the performance of British business (and in consequence to overall returns to their savers) through greater involvement with the companies in which they invest.”
He concluded that adopting such responsible investment practices would prove beneficial for investors and markets alike. In practice, responsible investment could involve making long-term investment decisions, as well as playing an active role in corporate governance by exercising shareholder voting rights.
I hope that master trusts will want to consider the Kay review’s findings when developing their proposals, including what governance procedures and mechanisms are needed to facilitate long-term responsible investing and stewardship through the funds that they choose for members to save into. The UK stewardship code published by the Financial Reporting Council also provides master trusts with guidance on good practice in monitoring and engaging with the companies in which they invest. The new clause would ensure sure that trustees are guided by the members of the scheme whose money they invest.
In recent decades, efforts to improve the way companies are run have focused heavily on making directors more accountable to their shareholders—for example, the recent introduction of a binding “say on pay”—but the job is only half done. Ownership rights are exercised largely by institutions that are themselves intermediaries. Accountability to the underlying savers who provide the capital remains weak. The logical next step must be for institutional investors to extend the same accountability they expect from companies to the savers they represent.
The UK stewardship code was introduced in the aftermath of the financial crisis to address concerns that shareholders were behaving as absentee landlords. Rather than being enforced by regulators, it is a voluntary code that relies on scrutiny from below to promote compliance, mirroring the corporate governance code for companies. The investment regulations currently require master trusts to set out within the statement of investment principles the extent to which social, environmental or corporate governance considerations are taken into account in the selection, retention and realisation of investments, but savers are left out of the loop. Just as I have argued for greater engagement with members on other issues, I believe it is needed here too.
In addition, accountability should build trust in the system even among those who do not choose to engage, thus encouraging people to keep saving. That is an important consideration in a market where just 7% of retail investors trust investment firms to do the right thing and consumers cite lack of trust as the No. 1 reason for opting out of private pension saving. Practical objections on the grounds that savers are not interested or not capable of engaging with their money simply perpetuate a vicious circle of disengagement. Savers may be put off by the language of investment, but that does not mean they are not interested in where their money goes. The onus must be on the master trusts and the wider investment sector to communicate with savers in a way they find meaningful. Likewise, savers may lack understanding of the technicalities of investment, but there are many matters on which they are qualified to comment, including the way their scheme behaves as an owner of major companies or its policy on social, environment and governance issues.
Transparency is necessary, but not sufficient for a more accountable investment system. Savers must also have the right to engage directly with decisions about their money, in the same way that shareholders engage with companies. Of course, we are not suggesting that all savers should be consulted on every decision. In our view, engagement with savers has three key elements. Savers should have the right to be consulted about investment policies, particularly those that should be firmly grounded in the views of savers, such as socially responsible investment policies. It is sometimes argued that since savers will inevitably disagree, acting on their views can prove difficult, but that objection can be refuted by example: schemes such as the National Employment Savings Trust demonstrate the possibilities of using face-to-face engagement with savers to inform the development of policy. Savers should be able to subject decisions made on their behalf to healthy scrutiny and challenge. While companies are obliged to hold annual meetings at which the board accounts to their shareholders, no such requirement extends to pension schemes.
Making capital markets more answerable to the individuals whose money they invest offers a potential lever for rebuilding trust in the City and for promoting more responsible and long-termist corporate behaviour. Such accountability must be nurtured over time by institutional investors such as master trusts, other pension savers and civil society in general. As Mark Carney said back in 2013, if it is
“finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.”
We have an opportunity here to change the landscape that sees pension savers as passive uninterested participants by engaging with them on decisions that affect their lives. When I started this speech, I said I was continuing the theme of member engagement. The new clause would extend what currently happens in relation to investment decisions, and I commend it to the Committee.
Ian Blackford
Before the hon. Gentleman concludes his speech, I wanted to ask about subsections (3) and (4) of the new clause, which state:
“The Trust must review the strategy at least once a year…The Trust must revise the strategy at any time if there is any significant change to the information”.
Can he explain what form that review would take and what role investment advisers would have, if any, in that review?
Alex Cunningham
That is an extremely difficult question to answer. [Interruption.] Everyone can laugh, but the Government talk about regulations and laying down guidance, and I hope that they would be able to provide the necessary guidance.
Ian Blackford
This is actually a very serious point. The hon. Gentleman’s new clause would require an annual review, so it is pertinent to ask how that would be conducted and what role, if any, investment advisers would have.
Alex Cunningham
There has to be a role for investment advisers, but the crux of my point is that members should have some say in the investment decisions that affect them.
Ian Blackford
Can I deduce from that that the hon. Gentleman actually has no idea how such reviews should be conducted?
Alex Cunningham
That is not exactly the case. It is clear that we need a set of circumstances in which members are properly engaged, equipped and informed. If they are, they will be able to contribute.
Craig Mackinlay
I oppose new clause 2 just as I opposed new clause 1, not least because of practicality. Let us go back to the example of NEST, which could have millions and millions of members—and I envisage that it probably will. How on earth could an investment strategy be decided by 3 million members? That would probably lead to three million and one different investment strategies.
I do not see anything in the Bill that would prevent a scheme such as the one the hon. Gentleman proposes from coming to the market if there was demand for it from several employers and members in those employers. The market could then decide, “I like the look of that scheme, with its huge member involvement.” I see no reason why such a scheme could not evolve if one was called for.
The hon. Gentleman speaks about an ethical investment policy. That is all very well, but I remind him that the Co-op bank took a similar route, and it is not exactly in great shape. I put it to him that when I go to a doctor, I like to see the doctor; I do not particularly want to see the lay members of the NHS trust as well. I feel comfortable leaving this with investment professionals, because they will be judged on their performance. If they do not achieve, employers may look at an alternative master trust.
Julian Knight (Solihull) (Con)
Surely when picking a pension fund employers interact with funds and many of these issues are raised in those interactions.
Craig Mackinlay
As my hon. Friend says quite clearly, the results will speak for themselves. I come back to the principles that I mentioned earlier: the fund has to have good returns and be well run and focused, because it has one function—to deliver good pensions. Again, I do not see that the new clause would achieve any of those principles, and if nothing else, it is unworkable because of the size of funds.
Richard Harrington
I absolutely agree with my hon. Friend; member engagement and involvement sounds very good—it is a laudable objective—but I have been around for nearly 60 years, of which I was in business for nearly 30, and I do not feel qualified to assess an investment strategy. I say that not to insult the vast majority of people, but because, although independent financial advisers and accountants may be able to do that, it is almost impossible for an individual to do so. We have to look at a way of ensuring that the investment strategy is the correct one for the majority of members, and that the regulatory system, the supervisory system and so on are in place. Hon. Members mentioned NEST, which already has more than 4 million members and 230,000 employers. This idea is very interesting but not at all practical.
I remind hon. Members that trustees play a key role in managing assets. They have overall accountability for the investment strategy. They have a legal duty; the hon. Members for Stockton North and for Ross, Skye and Lochaber—I can just about manage to say that now—used the expression “fiduciary duty,” and the trustees have a fiduciary duty to the members.
Laudable as new clause 2 is, pensions legislation already includes requirements for investment decisions to be transparent and in the best interests of members. The Government fully recognise the possible impact of investment decisions on members’ retirement outcomes. Even without the new clause, the Bill will add to those requirements. Clause 12(4)(d) already sets out that regulations made by the Secretary of State
“may include provision about…processes relating to transactions and investment decisions”,
while clause 12(2) states:
“In deciding whether it is satisfied that the systems and processes used in running the scheme are sufficient…the Pensions Regulator must take into account any matters specified in regulations”.
The new amendment would duplicate the provisions for master trust schemes that already exist under the Occupational Pension Schemes (Investment) Regulations 2005. The regulations require trustees of all schemes with 100 or more members to set out a statement of investment principles for their scheme. That statement must be made available to members on request and
“must cover…their policies in relation to…the kinds of investments to be held…the balance between different kinds of investments…risks, including the ways in which risks are to be measured”
and other key issues. The trustees must ensure
“that the statement of investment principles…is reviewed at least every three years…and without delay after any significant change in investment policy.”
Most people who are automatically enrolled into pension schemes are likely to remain in their scheme’s default fund and will not actively engage themselves in the governance of the scheme. That is why legislation makes requirements about governance and oversight of these matters, and why most schemes, including master trust schemes, need to provide a default strategy that covers similar areas.
Finally, multi-employer schemes have a legal duty under the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to make arrangements to encourage members of the scheme or their representatives to report their views on matters that relate to the scheme, including areas about which the new clause proposes that the trustees should consult scheme members.
Ian Blackford
I am listening carefully to the Minister, and I broadly agree with him. Obviously there will be ongoing reviews of investment strategy, which should be communicated to members where appropriate. One way in which that could be done, as a matter of best practice for these schemes, would be for a statement of investment principles to be mailed to members as part of the annual report. That would give more clarity on the direction of travel of the fund’s investments.
Richard Harrington
As usual, the hon. Gentleman makes a very sensible suggestion, which should be considered. However, I believe that everything in the new clause is already included in legislation and that it is therefore unnecessary, so I urge the hon. Member for Stockton North to withdraw it.
Alex Cunningham
Let me first address the point about size and the ability to organise communications in this sort of situation. If Legal & General can do it, so can others.
The Minister described lots of ideas raised today as laudable. Sadly, all the ideas he supports exclude members. He rejects the idea of members being represented among trustees and the idea of member-nominated directors. His position is that everything should be left to professionals and to the marketplace, and that members may not be able to take part in or understand investment decisions. He admitted that he might not understand those decisions, but there are members out there who do, and it would be helpful if at least some of them could represent their fellow members and challenge some of the things that their trustees are doing.
One further point concerns me. An employer may opt for a particular trust but become dissatisfied with it and move. There are a very large number of employers, and I fear that a large number of them are disengaged. I wonder whether they are acting in the best interests of their employees. I will come to that during the debate on a later amendment. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Annual Member Meeting
“(1) The trustees of an authorised Master Trust Scheme must hold an annual meeting open to all members of the scheme.
(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—
(a) scheme members to observe the meeting remotely, and
(b) scheme members to submit questions to trust members remotely.”.—(Alex Cunningham.)
This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.
Brought up, and read the First time.
Alex Cunningham
I beg to move, That the clause be read a Second time.
This new clause takes us back to our member engagement theme. It would require master trusts to hold an annual member meeting, and it sets out ways to ensure that members are properly given the opportunity to be involved in that. It is now common practice for pension funds to hold an annual member meeting. Good member communications, provided at the right time and in an accessible format, are vital if members are to engage and make decisions that lead to good outcomes during their retirements. An annual member meeting ensures that trustees and administrators can be made human and accountable.
A Legal & General master trust annual report states:
“In September last year we hosted a Members’ Forum at Legal & General’s office in London. It wasn’t just a first for us, it was the first ever for any scheme like ours. We got a lot out of that meeting, and we hope that those members who attended did so too. Our aim was to get a better understanding of the things that matter most to members, to help inform our plans for the future. We believe we achieved our aim, and the feedback we got from those members was encouraging.”
I am not here to promote Legal & General, but I commend its attitude and its work in this arena.
Trustee boards should regularly review member communications, and when deciding on the format of those communications, should take account of innovations of technology that may be available to them and appropriate for their members. That would allow the more engaged members to hear a presentation from trustees and senior executives about how the scheme has managed their retirement assets over the previous year and what plans the scheme has to deliver a strategy and manage risk into the future on their behalf. If Legal & General can organise such an event, I think others can too—even if they have vast numbers of members.
If others do not do what Legal & General did, how could they have an annual forum? We must not forget that there is no necessity to fill a hall with thousands of people in this technological age. It is possible to reach more people perhaps by combining a live meeting with an online platform, or indeed to hold the whole meeting online. A recording of the meeting could then be made available on the trust’s website, with an opportunity to give feedback.
The Pensions Regulator’s guidance accompanying its new defined-contribution schemes code of practice highlights AMMs as one way that multi-employer schemes can stay close to members. The new clause would bring master trusts into line with the normal practice in the corporate sector and among the growing number of pension schemes.
Richard Harrington
Again, I find myself having to disagree, not with the hon. Gentleman’s intention, but that this is a practical solution to what he wants to achieve. The new clause would require the trustees of an authorised master trust—it would not be there if it was not authorised—to hold an annual meeting open to all members, even if they cannot attend in person. It is clear what the hon. Gentleman wants.
As I have said—I know it is a bit of standard response, but I reiterate it—we are doing everything in the Bill to encourage member engagement and communication, especially now that the pension freedoms have been implemented. People must have the ability to assess their choice, and part of that is communication with what goes on. As we know, the Bill works alongside the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 and the Financial Conduct Authority rules that set out minimum standards for communication. Those ensure that members have access to appropriate information to make decisions about their pension saving, including an annual benefit statement and, for most people, a statutory money purchase illustration, which gives members a projection of their pension in retirement.
Documents relating to the governance of a scheme, such as the trustees’ annual report, the chair’s statement and the statement of investment principles, have to be provided on request. In addition, the Government have committed to ensuring that the pensions industry builds and launches a pensions dashboard, which is very important and would allow members to see their pension rights with different providers across the pension landscape.
Alex Cunningham
I do not have the app jargon either, as the Minister will probably realise. We have talked much about engagement and communication over the past two or three sittings. I remain concerned that there is still no real requirement on the trustees of any of the master trusts to communicate with the people whose money they are responsible for managing. We need to make communications much more practical, and I believe that if member meetings work well for some organisations, they could also work well for master trusts.
I hope that master trusts out there will learn from NEST and from Legal & General, and will understand that member meetings can happen and that they can derive tremendous benefits from their members being much more engaged. I would prefer to see a situation in which it is enshrined in the law and there is a compulsion for people to build on what is already happening out there, to repeat some of it and to see a level of engagement that we have so far not seen, but I do not intend to press the clause to vote at this stage. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 4
Master Trust Schemes: Review of Participation
‘(1) The Secretary of State must, before the end of the period of 12 months from the day on which this Act receives Royal Assent, establish a review of participation in Master Trust Schemes.
(2) The review must consider what steps can be taken to increase the participation in Master Trusts Schemes by the following groups—
(a) carers;
(b) self-employed;
(c) workers with multiple employees; and
(d) workers with annual earnings below £10,000.”
(3) One of the options considered by the review to improve participation must be changes to the terms of auto-enrolment.’. —(Alex Cunningham.)
This new clause reviews options for widening participation in Master Trust Schemes for groups currently facing barriers, in particular groups not currently covered by auto-enrolment.
Brought up, and read the First time.
Alex Cunningham
I beg to move, That the clause be read a Second time.
I was pleased to table this vital new clause, which attempts to widen access to master trust saving for those whom this Government have left excluded for too long. As it stands, the Bill does little to build on the success of Labour’s auto-enrolment policy and ensure that saving into master trusts is accessible and encouraged for the number of groups that evidence suggests are not saving adequately for their retirement.
I recognise that the Government have announced a review of the operation of auto-enrolment into master trust saving, but its scope is broad, with few specifics in the terms of reference published yesterday. It is vital that the review specifically addresses the question of how we can improve master trust saving among the groups specified in the new clause. That will ensure that the Bill delivers plans that strengthen security and dignity in retirement. The Minister may already be wondering why I am pursuing the new clause when it appears he has the matter in hand. He may have it in hand, but there is merit in naming some of the very specific groups who most need change and in implementing the recommended changes.
It is a testament to the last Labour Government that 10 million additional workers are estimated to be newly saving or saving more as a result of auto-enrolment into master trusts. It has led to an additional £17 billion of pension saving being put away, mostly by low-income workers. Nevertheless, many excluded groups remain, in part due to the actions of this Government, who increased the triggering threshold at which workers were automatically enrolled into a master trust saving scheme. According to the latest Department for Work and Pensions statistics, 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment. Critically, those groups are over-represented among low earners, the self-employed, those with multiple jobs and carers—the areas we believe that the Government should focus on in their review, as set out in the new clause. I hope they will.
At the end of last year, the Pensions Policy Institute published a report assessing future trends in defined-contribution pension saving. It is worth quoting the following section of the report in full, as it clarifies the current situation. It states that
“the evidence so far suggests that many households will be unable to maintain their current standard of living when they reach retirement. The advent of auto-enrolment has increased the number of workers saving for retirement, with more active savers now in defined contribution (DC) pension schemes rather than defined benefit (DB). This rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve in order for them to provide savers with an adequate pension.”
The report goes on to find that the median saving of DC scheme members could yield £3,000 a year as an annuity, which is not a lot of money.
More work needs to be done to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges, as we have tried to do throughout our consideration of the Bill. Nevertheless, the top-up provided from access to master trust saving through the auto-enrolment scheme is a valuable addition to state pension provision, so it is worth while to ensure that as many low-income groups as possible have access to master trust saving.
I will start with how master trust saving for low-income groups could be improved through the Bill. Taking carers first, while those who leave or reduce their hours of employment to care for loved ones are rightly supported through the social security system, it seems unjust that they will probably miss out on the fuller benefits enjoyed by those who are able to save more into occupational pensions as a result of being able to remain in employment, in spite of the fact that carers engage in valuable labour—work that would otherwise have to be picked up by the state. It is my strong belief that the Government should try to improve the retirement prospects of carers, and master trusts, which have been set up to service large numbers of low-income savers, may be an avenue worth exploring. We would include carers as part of a wider review of groups that are excluded from pension saving.
The same is true of the self-employed. I was personally heartened by the amendment tabled by the hon. Member for Amber Valley. After more than a decade of expansion in that part of the labour market, self-employed people now make up 15% of the workforce. Vast numbers of them are at the very bottom end of the income scale, and there is much evidence to suggest that they are not saving as much as those in other sections of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people do not have a pension. The New Policy Institute found that the self-employed are not only less likely to participate in pension saving but tend to save less as a whole when they do.
Despite that worrying evidence, there are few obvious means by which the self-employed can begin to build up a savings pot in a master trust. That is just one way in which Britain’s entrepreneurs have been let down and ignored. There is no mechanism to manage the enrolment of self-employed people in master trust schemes. Of course, the fact that there is no employer means that, like informal carers, self-employed people’s contributions cannot currently be topped up. I do not believe that it is beyond the bounds of possibility for an expert review to look into that conundrum. The Labour party remains the party of working people, including the self-employed, and we are keen to explore how they might be encouraged to save into defined-contribution master trust schemes to ensure that they have the dignified and secure retirement that we believe everyone has the right to.
Perhaps moving closer to the existing system of saving into master trust schemes, there is also the urgent question of people with multiple jobs. Under the current system, those whose earnings exceed the earnings threshold but result from multiple jobs are unable to access auto-enrolment into a master trust scheme. It seems that the only logic preventing that group from accessing savings is the administrative barrier posed by their having more than one employer. In other words, there is no mechanism either to establish total earnings to trigger access to auto-enrolment, or to determine the sponsoring employer of a person working multiple jobs. Although that issue may seem overwhelming to the Government, we believe that it warrants further attention—especially given the way the labour market is changing, with as many as 3 million people estimated to be working multiple jobs just to make ends meet.
I turn finally to access to master trust savings for low-income savers. Under the auto-enrolment policy developed by the Labour party, working people would have been automatically enrolled into a master trust scheme once their earnings had crossed the trigger level of just over £5,000, the logic being that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. However, the coalition Government increased the earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust.
The last annual review of auto-enrolment into master trust savings concluded that the lower earnings threshold will be £5,876 and the trigger threshold will be frozen at £10,000. Although that freeze will bring a few more workers into the scheme through inflation, we do not believe that that is happening quickly enough. Given the generational crisis that is developing in our pensions system, more needs to be done to include low earners in savings provision and encourage retirement planning.
In conclusion, we recognise that the upcoming 2017 review of auto-enrolment presents the Government with an opportunity to take seriously the problem that certain groups are excluded from master trust savings. The new clause would guarantee that the Government engaged with these vital issues and those groups in the full and proper way. To be clear, we are not trying to force the Government to implement specific policy proposals after the Bill’s passage, although in the view of our colleagues on the Constitution Committee, that would not be out of step with much of the rest of the Bill. We merely wish to place a statutory requirement on the Government fully and properly to consider as part of their planned review what steps could be taken to widen participation for some of the most vulnerable groups.
I have one very specific question about the implementation of the review’s recommendations once it is completed. We talked about this earlier in relation to another matter. Will the Minister have powers under regulations to implement those recommendations, or will we have to wait for another pensions Bill, which is unlikely during this Parliament? The new clause would help to increase the security and dignity of retirement for groups on the lowest incomes. How can the Minister possibly refuse to guarantee that the review will address these important issues and groups?
Richard Harrington
I compliment the hon. Member for Stockton North on his speech. He has quite clearly listened to all the speeches I have made since being appointed to this job. I will point out one or two facts to respectfully disagree with him—and, for once, his style, which I have not done up to now. To make this into a political matter by saying that auto-enrolment was Labour’s idea is not really fair. I may be correct in saying that Lord Turner, who chaired the Pensions Commission, was offered a peerage by three political parties and took one from the Liberal Democrats. The other commissioners were Labour and Conservative. I am not being flippant, but the spirit of our debate has generally not been party political at all.
Alex Cunningham
I accept that—okay, we are making a few political points. It was a Labour Government who brought in auto-enrolment, but this Government have successfully encouraged more and more people to invest more and more, which is a very positive thing. I place that on the record.
Richard Harrington
That is very reasonable. The hon. Gentleman’s general approach—and mine, I hope—has been not to bring party politics into the debate, because we all have exactly the same objectives.
I have one or two further points to make. The hon. Gentleman mentioned women being excluded from auto-enrolment—not by law but in practice—for different reasons. Actually, the number of women being enrolled is very impressive, although I do not have it to hand. I am pleased to say that I do not think that this is a gender equality issue.
The fundamental point is that the issues that the hon. Gentleman mentioned and that his new clause would address were mostly covered by the Secretary of State in yesterday’s announcement about the extent of the auto-enrolment review. That was not timed to happen just before this Committee sitting; it is just how things worked out. The review will look at the self-employed, who are excluded from the current system, which has gone from nought to a lot very quickly, after all. It will also look at people with multiple earnings under the £10,000 mark from different sources. Incidentally, people paid less than that—I cannot remember the exact figure, but it is just under £6,000—are allowed to enrol, and they get help from their employer and the tax system, although at that level they would not necessarily pay tax. All these things are being looked at. The review will be very comprehensive and will go far beyond what the statute calls for. I will be very pleased to look at its results.
The hon. Gentleman asked whether implementing the review’s recommendations would involve another pensions Bill, which he and Her Majesty have decided we will not be having in this Session. I cannot say, because I do not know what the recommendations are, but some things will need primary legislation and others will not.
Unless the hon. Gentleman has an urgent intervention to make, I will conclude. I have listened carefully to what he said and am glad to have included it all in my speeches, and I am glad that it will all be included in the review.
Alex Cunningham
My final intervention is to raise the very specific issue of carers. Will carers be included in the review?
Richard Harrington
The review is generally worded. It could include carers—they are not specifically mentioned, but I believe that it will include them, and I would encourage it to include them. However, to include them as a category would be a little unfair on others who may be in a similar financial position.
The hon. Gentleman’s sentiments are absolutely right, as were most things he said in his speech, but I do not think it is appropriate for the new clause to go into the Bill. It is far too early; we have been doing auto-enrolment for only a short time, and we are doing a comprehensive review. Despite his sentiments, I ask him to withdraw the motion.
Alex Cunningham
I am pleased to have those commitments on the record, particularly those relating to some of the more vulnerable groups. I appreciate that there are other groups apart from carers, as the Minister said, but carers provide a tremendous service that is probably worth billions of pounds to our country every year, so it is important that we have some form of provision for them. The new clause was always going to be a probing clause. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 7
Enrolment in Master Trust scheme: duty on employers
“Before an employer enrols in a Master Trust scheme they must—
(a) take reasonable steps to ensure themselves that the scheme is financially viable;
(b) ensure the scheme is on the list of authorised Master Trust schemes maintained by the Pensions Regulator (section 14); and
(c) take reasonable steps to ensure themselves that the scheme will meet the needs of their employees.”.—(Alex Cunningham.)
This new clause would require employers to conduct basic checks before signing up to the Master Trust scheme.
Brought up, and read the First time.
Alex Cunningham
I beg to move, That the clause be read a Second time.
It is almost as if I am doing an aerobics class; I have already warmed up, even in this cold Committee Room.
New clause 7 would provide employers with a fiduciary duty and a duty of care to members to ensure that the master trust of their choice meets the needs of their staff. The auto-enrolment process in the UK rests on the employer making the choice of scheme for those purposes. The new clause would ensure that, before authorisation, the employer is duty-bound to ensure that the master trust is fit for purpose and has all the necessary information for that choice to have a sound footing.
We need to ensure that the employer has a defined duty to carry out due diligence when choosing a workplace pension. Otherwise, many employers—through expediency or otherwise—will continue to make choices that may not be in the best interests of the scheme’s beneficiaries.
The past 20 years has seen us lurch from one mis-selling scandal to another. Pension transfers, endowments, payment protection insurance and interest rate swaps have all been subject to class actions, and to massive retrospective penalties being imposed on those found wanting in due diligence.
In the US, the employer has a fiduciary responsibility to their staff and chooses their scheme in their best interests. That means that if employers do not take due care in the choice and governance of the plan that they set up for their staff, they are liable to civil prosecution. Employers in the US take fiduciary obligations seriously, not least because scheme members are now taking and winning class actions if they do not.
A class action can focus on the choice of scheme provider, failure to establish suitable investment options and failure to monitor how funds perform as the scheme progresses. Some advisers in the UK, such as Pension PlayPen, think that the information given to employers to choose a workplace pension is insufficient, and that there is little supervision of the due diligence process by regulators, which is in sharp contrast to what happens in America.
The other day, Pension PlayPen stated on its blog:
“The common law includes the concept of an employer’s duty of care to staff, not just for their health and safety but for their financial welfare. This duty of care forms part of a social contract, the implicit responsibilities held by individuals towards others within society. It is not a requirement that a duty of care be defined by law.
An additional worry is that employers do not see this as their choice. Too often we get answers from employers ‘we did what our accountants told us to’. It is as much in the interests of accountants to ensure the employer states why they have chosen their pension as it is the employer’s.”
So what happens when the duty of care and fiduciary obligations go wrong? The only option is the courts. According to a Financial Times article last November, there has been an “explosion” of class actions in the USA on the issue of financial detriment to scheme members. These suits have not yet gained much public attention, due to the reputation of the US legal system, but it is also partly because the legal action is fragmented and spread between different courts, and cases are often settled in private with binding confidentiality clauses. What is more, pensions have the unfortunate reputation of being rather dull, even though the sums involved dwarf those of the multibillion dollar settlements seen in banking since 2008.
However, the basis of the complaints are sound and echo a warning that we have been making about the lack of transparency and engagement for members of schemes. Members may have been charged excessively high fees, the most noticeable or important point being that the investment process may be used to extract wealth.
As in other financial suits, such as PPI suits, the cases claim that financial organisations have used opaque structures, so that transactions extract money that ought to go to members of schemes. In one case, JP Morgan has been sued by a participant for allegedly causing employees to pay millions of dollars in excessive fees, through a scheme motivated by “self-interest”. The plaintiff claims that JP Morgan, as well as various board and committee members, breached its fiduciary duties by, among other things, retaining proprietary mutual funds from the bank and affiliated companies for several years, despite the availability of nearly identical, lower-cost and better performing funds.
Not all of these cases are just related to charges in the investment chain; some are also about administrative processes. A website—401khelpcenter.com—highlights that members of Essentia Health in Minnesota filed a class action lawsuit against the sponsor, claiming that the organisation paid excessive fees to their record keepers.
Craig Mackinlay
The hon. Gentleman has mentioned many times the potential for class action, particularly in the US, on various issues. Does he not believe that having the word “reasonable” twice in the new clause that he has tabled actually becomes a licence for class action, rather than closing it down?
Alex Cunningham
I certainly do not. I am not a lawyer, but I believe that the new clause is sufficient and does not open the way for such action. What I am trying to do is provide a protection for employers within the scheme, and therefore also for members.
The latest complaint was filed in January against Aon Hewitt Financial Advisors, accusing the company of breaching the Employee Retirement Income Security Act 1974, or ERISA. That is the fourth lawsuit to target the fee arrangement for services provided by a computer-based investment advice programme.
The Chair
Order. May I ask the hon. Gentleman to move away from discussing court cases in his comments?
Alex Cunningham
I am doing that now. We have a clear warning that if a company fails in its fiduciary obligation, litigation may be an option. We know from the FCA report that implicit costs are opaque and likely to be much higher than those that have been explicitly presented. We believe that it will not be long before legal teams from the US alert their operations in the UK of potential opportunities for litigation. I can see the adverts on TV now: “Problems with your pension fund? Have you been subject to high fees and transaction costs that you never knew were there?”
The most important “don’t” must be, “don’t assign a low priority to your employees’ auto-enrolment choices.” The big lesson of the litigation—albeit US litigation—is that employers must assume that they have that fiduciary duty, as do trustees, and that they always need to have auto-enrolment choices on their radar screens. It is a lesson once again that the lack of transparency in the governance process, the administration process, the investment process and the advice process will lead to the detriment of the member.
To ensure that we can help build citizens’ trust in the system, we must have transparency for employers and members. We must have the information in front of the employer choosing the scheme to protect them and their employees. I commend new clause 7 to the Committee.
Richard Harrington
I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment. So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.
The employers’ duty is met by scheme choice, because that is what auto-enrolment is. It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.
It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers. Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.
I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process. It is well-meaning, but it is unnecessary and should not be part of the Bill. I sympathise with the intent. The hon. Gentleman is trying to protect members from people acting in a fraudulent way.
Alex Cunningham
Perhaps the Minister can address this very simple question: is he satisfied that employers could not be subject to legal action against them if they end up making a bad choice on behalf of their employees?
Richard Harrington
As I have explained, their choice on auto-enrolment is restricted to choosing a regulated, authorised scheme. I am not a Government lawyer, or any other type of lawyer, although perhaps I should disclose to my chagrin that I did a law degree 40 years ago.
Julian Knight
Is it not true that many of the auto-enrolment schemes are vanilla in their investment outlook? Many of them—or a high proportion—are based around direct savings accounts and passive investment funds. They are not the high-risk, high-octane investments that would perhaps need the approach in the new clause.
Richard Harrington
I absolutely agree. In fact, such schemes are often criticised for precisely that reason. They are criticised for being too conservative—in the investment sense, not the political sense—and for missing out a lot of good possible investment decisions, and the thought of that being reviewed by every single employer. I mentioned NEST and its 230,000 employers. I cannot believe that it would be fair to place such a regulatory burden on them when they are choosing from an approved list. The whole purpose of the regulation is that the schemes are approved, proper and regulated.
I am trying to see where the hon. Gentleman is coming from. I hope that he can see where the Government and I are coming from, and why I am not of the view that the new clause would be appropriate. I respectfully invite him to withdraw it.
Alex Cunningham
I accept the explanation that the Minister has provided about the employer making a choice from a regulated scheme and the protections included within that. If he is satisfied that employers will not face legal challenge as a result of the choices that they make within a regime where they must choose a scheme on behalf of their employees, and has placed that on record, I am content. I beg to ask leave to withdraw the new clause.
Clause, by leave, withdrawn.
Bill, as amended, to be reported.
Local Government Finance Bill (Seventh sitting)
(7 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
On a point of order, Sir David. On Tuesday afternoon, when I asked the Minister whether he had been privy to conversations in the Department or across Whitehall more generally about Surrey County Council’s proposed referendum on a 15% council tax increase, and what the Government might have said to the leader of the county council, he said:
“I think that the hon. Gentleman is presupposing the discussions that happened and the outcome of the situation.”––[Official Report, Local Government Finance Public Bill Committee, 7 February 2017; c. 208-09.]
In the light of the sweetheart deal agreed with Surrey County Council, I wonder whether the Minister would like to take the opportunity to correct the record.
The Chair
I have listened very carefully to the point of order. No doubt the Minister and the Government Whip have, too, but I sense that they are not very keen to comment on it. It is there for the record.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
Further to that point of order, Sir David. The hon. Member for Harrow West knows that a sweetheart deal has not been done with Surrey. I refer him to today’s written ministerial statement, and indeed to the statement made by Surrey County Council.
Mr Thomas
On a point of order, Sir David. You may not be aware that there has been some discussion in Committee about the fact that the Government have not yet published their summary, let alone the full details, of the 400-plus responses to their consultation document, which is pertinent to consideration of the Bill. Have you had any indication that the Minister might finally have got around to releasing the consultation responses, so as to better inform our scrutiny of the Bill?
The Chair
Neither I nor the Clerk has had notification. Does the Minister wish to share the position with the Committee?
Mr Jones
Further to that point of order, Sir David. It has almost become a custom for the hon. Member for Harrow West to ask that question in our sittings. I reassure him, as I have done a number of times, that we intend to publish the responses to the initial consultation. We are also looking to publish a further consultation, and we expect it to be released next week.
The Chair
I am very grateful to the Minister; that is helpful.
Clause 6
Power to reduce non-domestic rating multipliers
Jim McMahon (Oldham West and Royton) (Lab)
I beg to move amendment 30, in clause 6, page 9, line 40, at end insert—
‘(2) Before an authority reduces non-domestic rating multipliers in its area it must consult with any neighbouring authority.’
This amendment would require an authority that intends to reduce its non-domestic rating multiplier to consult any neighbouring authority before doing so.
The Chair
With this it will be convenient to discuss the following:
Amendment 48, in schedule 2, page 44, line 7, at end insert—
‘(1A) A relevant authority shall determine that the multiplier discount shall apply—
(a) to all hereditaments in its area, or
(b) only to some hereditaments in its area (defined by reference to their location, rateable value, class of hereditament or such other factors that the relevant authority determines when specifying the multiplier discount).’
See explanatory statement for amendment 49.
Amendment 49, in schedule 2, page 44, line 17, after ‘area’ insert—
‘, in accordance with that relevant authority’s determination under subsection (1A).’
This amendment, together with amendment 48, would mean that a billing authority, a county council or the Greater London Authority could apply a discount to the whole of its area or could apply to particular areas, above or below a particular rateable value threshold or to particular categories or sub-categories of hereditament.
Jim McMahon
It is a pleasure to serve under your chairmanship, Sir David. The amendment would require a local authority to consult neighbouring authorities when it wished to change its business rate base. The principle behind that has to do with not only being a good neighbour, but ensuring that local authorities cannot be played off against each other. For example, an investor or developer might come to an area with a significant end user, and set one local authority off against another to get a preferential deal; preferential deals, done in the background, are all the rage at the moment.
Mr Jones
I hear the school of thought that the hon. Gentleman is adopting, but does he not accept that the Bill proposes reducing the multiplier across a local authority area, not in one particular place in the area, or for one particular industry? Is not the line he is pursuing therefore pretty flawed?
Jim McMahon
Amendment 30 is linked to amendments 48 and 49, which would allow local authorities to set the multiplier at different levels in all or part of the area, so potentially that could happen. I will come to the reasons why those amendments were tabled, but if all the amendments were accepted—the Government may well choose to do that; we would be happy with that—there would be that provision.
A local authority could reduce the multiplier in an area. Take the example of a large warehousing, distribution, office-type business relocated to an area; say Google did not want to relocate to London, but thought Oldham was the place to be. That £1 billion of investment could make Oldham Council consider whether it was worth reducing the multiplier across the whole borough—unless, of course, Google said, “We have this agreement in Oldham, but let’s see what Rochdale, Tameside or Manchester can do for us.” It would not make sense to have that artificial competition in local areas.
Mr Thomas
My hon. Friend gives a number of examples, and we now know that Surrey has a sweetheart deal to be a business rates pilot in 2018-19. One could imagine a scenario in which Surrey County Council wanted to reduce business rates; amendment 30 not having been made, it would not have to talk to neighbouring areas, which might be a bit put out by that.
Jim McMahon
I take that point completely, but we may need to take Surry out of the equation, because there are rules for everybody and then there are separate rules for Surrey; we will need to account for that in future legislation. Obviously, if an elderly relative needs social care, Surrey is the place to be, but we must make laws for the whole country. This is about restricting artificial competition, where possible. One area may not be aware of discussions in the area next door because they may be covered by commercial sensitivity considerations. The risk of that information being released as a result of a random text message being mis-sent is very unlikely—I am sure it almost never happens—but local authorities could be set up artificially against each another.
Kevin Foster (Torbay) (Con)
I hear what the shadow Minister is saying, but his amendment 30 refers to consulting, not securing agreement. By his own logic, if an authority is not aware of something and then gets a letter, it may decide to do the very thing he is talking about.
Jim McMahon
Local authorities are independent units of government. They cannot be at the beck and call of their neighbour. Their working together constructively is important for local relationships and the local economy, and that is exactly what the amendment would provide for. “Consultation” includes an assumption that local authorities will reach out, be inclusive and share in a constructive and mature way with their neighbouring authorities. I cannot see why this small change would be contentious. Surely it is in the interests of all local government, as a family, and as a unit, that people work together to the same end. Of course we welcome investment from the private sector when it moves to an area, but that should not be used to create an artificial divide between neighbouring authorities. That is the point of the amendment.
Amendments 48 and 49 are simply about expanding the power available to some bodies to change the multiplier, so that it is available to all billing authorities, the Greater London Authority and county councils. Through these amendments, we are trying to say, “We respect every unit of local government, whether it is a combined authority with a Mayor, a metropolitan authority, a London authority, a district council or a county.” Every unit of government should have the right to affect the economy in its area.
Taken as a package, these amendments would expand the freedoms that the Government are trying to progress—freedoms that local government has largely welcomed—and make them available to all local government, in the way that it is proposed they be made available to some. The amendments would enable local authorities to act in a mature way, consult their near neighbours and, hopefully, get agreement on the best way to administer a scheme, in tune with neighbouring authorities, rather than acting against them.
I do not propose to spend any more time on this matter, although we could go on at length about it for the sake of it. These are quite minor amendments in the scheme of things. They are certainly not contentious; they are more about tidying up the offer, and expanding it to a wider group of people. The consultation required with neighbouring authorities would be similar in spirit to the way in which local plans under development involve consultation with neighbouring authorities, so it would bring the Bill into line with other legislation affecting local government.
Mr Thomas
I am grateful for this opportunity to comment on the amendments. Amendment 30 is sensible, and is made all the more so by the new context that Surrey County Council has created for our deliberations. The deal that David Hodge, the leader of Surrey County Council, has done with Nick seems to have been a particularly interesting piece of negotiation. I am told that Surrey County Council met on Tuesday to consider whether to go ahead with the referendum, and that at the beginning of the meeting, David Hodge was determined to go ahead with it. It appears that a message—perhaps a text message from Nick or somebody else—was sent to him, and the meeting was suspended. He rushed out, and there was a sudden change in approach—
The Chair
Order. This is a very interesting fleshing out of the details of the linked email, but I do not think it is entirely relevant to the amendment that the hon. Gentleman is supporting. I draw his attention to that. Not so much about Surrey.
Mr Thomas
Once again, Sir David, your timing in putting me straight is impeccable. Having given the context, I turn to why that is immediately relevant.
Let us assume that Surrey County Council wants to take advantage of the opportunity that it will have, as we now know, from 2018-19 to reduce business rates. Who might be affected by that decision? A number of neighbouring authorities close by, some within the Greater London Authority area. One thinks of Hillingdon and Hounslow. Surrey County Council might think, “We know that a third runway will be built at Heathrow. It’s a bit further away than Hillingdon, so businesses might not be immediately interested in moving to Surrey. They might be more interested in focusing on the attractions of Maidenhead or Hillingdon, which are much closer to that third runway. But if we were to reduce business rates a little, ahead of any other authority’s ability to do so from 2020-21, we might be able to get in first and attract those businesses to Surrey, rather than to Hounslow, Hillingdon, Ealing, Maidenhead or beyond.”
We are all interested in the success of Surrey County Council’s leader in bypassing the Minister with responsibility for local government finance, who is here with us, finding the really powerful person in the Department—Nick—and doing the deal, but it seems to the Opposition that although it is perfectly reasonable for the leader of Surrey County Council to want to do the right thing for his residents, if it will have a potentially adverse impact on nearby local authorities, surely Surrey County Council should have to talk to them and at least warn them of its intention.
Mr Jones
I remind the hon. Gentleman, who probably knows this but chooses not to say it, that if a particular local authority in an area that was affected by the challenges in the steel industry wanted to reduce and give a discount on the business rate to a steel plant, for example, that option already exists. Will he acknowledge that?
Mr Thomas
I accept that the option exists in certain places in certain situations. What we are seeking to do is to end the inflexibility of the provisions as they stand at the moment. I gave the example of counties and the particular problems they have in relation to this power. This flexibility would allow local authorities that do not benefit from the presence of an enterprise zone or sites with assisted area status to still offer some form of incentive to business investment.
Mr Jones
The hon. Gentleman is being very generous in giving way. He mentions the issues that counties have. Counties can give discounts, but those discounts are dealt with by the billing authority, which is generally the district in a two-tier area. Will he set out exactly what the concerns are and what the county issues are that he mentions?
Mr Thomas
I am doing my best to do so; the Minister may not be listening as well as he might like to. Let me give some additional background to the concerns that have been put to me.
Schedule 2 gives the power to districts, counties and the Greater London Authority to reduce the business rates multiplier, but as it stands it must be applied to all qualifying properties that pay business rates hereditaments in its area. I am told that authorities would welcome having more flexibility. For example, an authority may wish to reduce business rates in a particular area or to help a particular industry.
There are current powers under section 47(5A) of the Local Government Finance Act 1988, as amended by the Localism Act 2011, to grant discretionary relief to any ratepayer. However, they apply only to billing authorities —so not counties or the Greater London Authority —and are determined on a case-by-case basis, as the authority may grant a discount only if it is satisfied that it would be reasonable for it to do so, having regard to the interests of persons liable to pay council tax.
David Mackintosh (Northampton South) (Con)
Will the hon. Gentleman give way?
David Mackintosh
As someone who has worked at granting discretionary rate relief, I ask the hon. Gentleman whether he recognise, that to do this it is necessary in two-tier areas to work across both authorities? Therefore, if the billing authority wants to do it, it will of course talk to the other authority involved.
Mr Thomas
I welcome the hon. Gentleman’s intervention, but what surprises me is that he did not explain why, having so enthusiastically backed the powers in amendments 48 and 49 when the Select Committee considered the report, he now seems hesitant about following that logic. I take his point that the best local authorities will want to consult each other, but amendment 30 is intended to deal with authorities that were not so respectful of their neighbouring areas, or the economic impact on the neighbouring areas’ residents. The amendment would lock such consultation into law.
It is interesting that apparently the hon. Members for Northampton South and for Thirsk and Malton, and other members of the Select Committee, did not come up on their own with the idea of an ability to vary the multiplier. They received substantial evidence from councils up and down the land about the power. The Local Government Association, the District Councils’ Network and the County Councils Network advocated it. Indeed, the Select Committee noted that its predecessor Committee recommended a similar provision.
On that basis, I suggest that my hon. Friend the Member for Oldham West and Royton was entirely right to table all three amendments. I understand, in the light of Surrey County Council’s decision, that there may not be enthusiasm for amendment 30, but I should be interested to hear why the Minister is rejecting the advice of the Select Committee on amendments 48 and 49.
Rob Marris (Wolverhampton South West) (Lab)
I shall confine my remarks to amendment 30, which would require consultation on multiplier discounts. I get the impression from the Minister’s demeanour that he is not minded to accept it. He can intervene and tell me whether I am wrong, but until I finish speaking, when I am sure he will have been persuaded, I shall proceed on that basis. It surprises me that he is not so minded, because this sort of provision is already in the Bill.
Schedule 2 to the Bill is to do with amending the Local Government Finance Act 1988, including schedule 7 to that Act. Page 45 of the Bill sets out proposed new paragraph 6C of schedule 7. At lines 13 to 20, there is a nice little table. The new paragraph states that, where a multiplier discount is to be introduced by a specified authority, the neighbouring authorities, or related authorities —perhaps to use a term that is not in the Bill—must be notified. I concede to the Minister that they do not have to be consulted—the verb used in the amendment—and that “notify” is different. To read from the table—it is not a long one—the first “Relevant authority” is:
“A district council for a district in a county for which there is a county council”.
It has to notify, “The county council”. Next:
“A county council for an area for which there is a district council”
has to notify
“The district council for each district in the county”.
“A London borough council” that wants to apply a multiplier discount has to notify “The Greater London Authority”, which, conversely, has to notify “Every London borough council”.
As I said, one verb is “notify” and the one in the amendment is “consult”. They are different—I accept that—but they are not a million miles apart. We already have the concept, or something close to it, in schedule 2 to the Bill in the form of proposed new paragraph 6C, so it seems reasonable to think that the Government ought to accept the amendment, which would simply push the concept out from notification to consultation.
Mr Jones
I thank the hon. Members on the Labour Front Bench for their amendments, and for giving me the opportunity to address the issues and talk specifically about multiplier discounts. The hon. Gentlemen seem to have gone into things in some detail, which leads me to believe that today could be a very long day—I might need to ring Mrs Jones a little later to tell her that I will be home later than expected.
I hope that the Committee will agree that the measure on the multiplier discount is an important and positive one, which will give councils further levers to attract and incentivise local investment. The effect of amendment 30 would be to require any local authority considering the introduction of a discount to consult its neighbouring authorities before implementing a reduction. We do not believe that that is the right approach, nor do we believe that the amendment is necessary.
One of the main aims of the clause is to allow local authorities to show that they are willing to work hard and be flexible to attract business. However, local authorities already work closely together on many issues, including economic strategy. The amendment would create an unnecessary and complex additional burden on any local authority seeking to introduce a discount. That is precisely the sort of approach from which we are trying to move away.
The purpose of the power in the Bill is to provide local authorities with the tools to incentivise local growth. In exercising the power and in maximising its effect, we expect local authorities to take steps to publicise widely their intention to introduce a multiplier discount.
Clause 6 and schedule 2 already require that, in two-tier areas, the authority introducing the discount must inform the other authorities and the Secretary of State of its intention to specify a multiplier discount before 31 December in the preceding financial year—I hope that that answers the question of the hon. Member for Wolverhampton South West. Furthermore, in a two-tier area, the Local Government Finance Act 1988 as amended by the Bill and the regulations made under the Act will allow the Government to ensure that the income of a tiered authority will be protected from a discount introduced by another authority.
We consider that there is no need to make unnecessary provisions in the Bill, which is what the amendment would introduce. The Bill already strikes the right balance of providing information to those most directly affected without creating an additional formal burden.
On amendments 48 and 49, it may be helpful to the Committee for me to clarify that clause 6 and schedule 2 already allow an authority to specify a multiplier discount that would apply to all ratepayers in that local authority area. The effect of amendments 48 and 49 would be to allow an authority to apply the multiplier discount only to some properties, for example, on the basis of location, rate or value, or business type.
Although I understand the desire of hon. Members to give local authorities the flexibility to target any reductions in business rates, I do not agree that the amendments are necessary. Billing authorities already have wide-ranging powers to grant discretionary relief to ratepayers in their area. In practice, that already allows authorities to reduce business rate liabilities for a specific sector or area if they wish to do so.
Clause 6 and schedule 2 provide the ability to do something different and to reduce the overall tax rate across the area. I hope that, with the clarifications that I have provided, the Committee is reassured that the amendments are not necessary, that amendment 30 should be withdrawn and that amendments 48 and 49 should not be pressed.
Jim McMahon
I appreciate the Minister’s response, but there seems to be a conflict in the Government’s view of how local authorities should work together. The Localism Act 2011 includes a duty to co-operate, which provides that local authorities must actively engage and consult with neighbouring authorities when dealing with local plans that are going through in legislation. It seems slightly odd and contradictory that a local authority should not go ahead with a local plan that talks about the development of a place without that engagement, but that that is not a requirement when it is looking at the tax base of the same place, which could have an equal impact on the economy and development of a neighbouring authority. It seems very contradictory.
I am not sure whether the Government’s position has changed and they intend to come back to local plans and change the duty to co-operate with neighbouring authorities. Local government has been asking for consistency. What is the spirit in which local government has to maintain relationships and co-operate with their neighbouring authorities? Does that run through everything that the council does?
David Mackintosh
I wonder whether the hon. Gentleman agrees that this is taking place all the time in lots of areas with lots of different authorities. In my experience, we had a pooling arrangement, with eight local authorities all looking at business rates. In terms of the enterprise zone in Northampton, there were 11 authorities across the south-east midlands local enterprise partnership area, all of which had to co-operate and talk about business rates together.
Jim McMahon
I am pleased about that. On a daily basis, there will be council leaders, cabinet members and other councillors and officers who, through the course of their business, will engage with their neighbouring authorities and other authorities in their sub-region. That is entirely appropriate and standard as a matter of course. We are talking about a duty, where the actions of an individual authority can have a fundamental impact on a neighbouring authority. It is there in legislation already for local planning development. When the tax base of a neighbouring authority is proposed to be changed, the same duty to co-operate and consult should be in place.
Jim McMahon
That is exactly the purpose. Consistency is the word that is most appropriate for the amendment. I am not sure why the Government want to be inconsistent. The only thing they are consistent in at the moment is the power grab by the Secretary of State to retain more power—we will come on to some of the Bill’s provisions on that a bit later. What we want is for local authorities to feel empowered, in a clear and understood framework, which provides safeguards for other areas that could be affected by their decisions. That is what amendment 30 would do.
Mr Jones
It is interesting—it has been quite a theme throughout the Committee—that the hon. Gentleman keeps talking about this power grab. He will know that the vast majority of delegated powers within this just update existing powers and, where that is not the case, they are subject to the parliamentary process. Does he not accept that he is over-egging the pudding?
Jim McMahon
I do not accept that point at all, and the reason is that I do not take the headlines from the Minister; I take the wording of the legislation that is coming through, and that wording is crystal clear. We will come on to this later, but even when the infrastructure levy is being designed, central Government will prescribe the exact layout and content of the consultation document—where it should be placed, where it should be published, and how it should be published. In terms of being absolutely prescriptive and micromanaging what local authorities do, this is not central Government letting go and empowering local authorities at all, so let us have a bit of consistency on that.
Mr Jones
This is really interesting. The hon. Gentleman seems to be undergoing some sort of conversion. In my albeit short time in local government—I am sure that this was also his experience—it was micromanaged and controlled by a central Labour Government probably more than at any other time in history. Will he accept that he is now talking a completely different language from that which the Labour party talked while in government?
Jim McMahon
I am pleased that the Minister has made such a good and thoughtful intervention, taking us back to the glory days of councillors being able to operate under a forward-thinking, all-embracing Labour Government. Those were the days when we provided money for new schools and Sure Start centres, embraced culture and the arts, and opened up entry to our museums and galleries. Those glory days seem a long time ago.
The Chair
Order. Before the Minister responds, I draw the Committee’s attention to precisely what we are debating at the moment.
The Chair
Order. Before the hon. Member for Oldham West and Royton responds to the Minister’s point, I draw the Committee’s attention to the amendments that we are debating. Could Members please address their remarks to the amendments?
Jim McMahon
Sir David, your stewardship of the Committee is to be commended. The Minister abused that intervention by taking us far away from the Bill. Perhaps we can discuss the benefits of a Labour Government supporting active Labour local councils another time. He experienced that before he came to the House, but I am not sure that he learned the right lessons from his time in local government. I am sure that we will come on to that.
Consistency is important. For local government to be able to get on and do the job that it is there to do, it needs to know what the expectations are and what the framework is; and the more consistency, the better. There should not be over-prescription or micromanagement —there should not be 2,000 performance indicators. That is not what we are getting at. We need nice, clean legislation that is easy to understand and to administer and, importantly, local authorities need to be able to manage their development and their relationships with neighbouring authorities. We want to divide the Committee on amendments 48 and 49, which are important because they would create a relationship of equals.
We want to empower local government, which is multi-layered and looks different in different areas. It has the democratic right, because it is elected by local residents, to make changes to enhance the area’s economic circumstances. It is therefore right that we consider extending that power to the Greater London Authority and to county councils. Notwithstanding the natural relationships that exist, whereby district councils, as the billing authorities, will speak to their county councils, this is about ensuring that it is a relationship of equals. I hope, notwithstanding the Minister’s response, that between now and the vote, he will come to acknowledge the logic of those two amendments.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Jim McMahon
I beg to move amendment 45, in clause 6, page 9, line 40, at end insert—
“(2) The Secretary of State shall, by regulations, make provision enabling billing authorities and major precepting authorities in England to increase non-domestic rating multipliers in their areas in certain circumstances.
(3) The regulations shall specify the circumstances in which powers under subsection (2) can be exercised.”
This amendment would require the Secretary of State to bring forward provisions that enable billing authorities and major precepting authorities in England to increase business rate multipliers under certain circumstances.
The Chair
With this it will be convenient to discuss amendment 46, in clause 6, page 9, line 40, at end insert—
“(2) The Secretary of State shall, by regulations, make provision enabling billing authorities and major precepting authorities in England to increase non-domestic rating multipliers for unoccupied hereditaments in their areas, in certain circumstances.
(3) The regulations shall specify the circumstances in which powers under subsection (2) can be exercised.”
This amendment would require the Secretary of State to bring forward provisions that enable billing authorities and major precepting authorities in England to increase business rate multipliers on empty properties under certain circumstances.
Jim McMahon
The amendments are critical because there is no power without the resources to fulfil that power and responsibility. The clause cannot just be about giving local authorities a business tax break giveaway and enabling them to reduce the multiplier. Local areas must be able to balance that power to reduce with a power to increase business rates in an area of interest, and that is what the amendments seek to do.
I will give an example of how that could be administered. Let us say that Oldham Council has a desire to regenerate the town centre so that it can flourish and empty shop units can be put to acceptable use again. There will be a cost to that, because although there is a £50,000 small business rate relief in place, many units on the high street are above that threshold but nevertheless critical to how the town centre and high street function. It would be legitimate for the council to conclude that the best way to balance that is to increase the multiplier for out-of-town retailers or large supermarkets to reinvest funds back into the town centre.
Jim McMahon
In many ways the amendments are about understanding what the Government are trying to achieve in giving these powers to those at a local level. Our principle will always be that that is for local determination. That is exactly what localism and local accountability is about and it will be for the local authority, in consultation with its business community and residents, to make the case and find the right balance at a local level.
Mr Thomas
My hon. Friend will know that the Conservative party—or at least the Conservative party in Surrey—thought that an increase of 15% was acceptable for council tax. I do not know whether it thinks that a 15% increase in business rates is acceptable, but that clearly would not be acceptable to us. That is why we should again praise the contribution of Robert Evans, leader of Surrey County Council, for leading the charge against such an increase.
Jim McMahon
I should say for the record that David Hodge is the leader of Surrey County Council. He is an influential council leader, and I have thought that for a while. His stewardship as leader of the Conservative group of the LGA is well known. He is forthright and determined and does his research for meetings, and he knows how to build relationships to make progress.
The Chair
Order. Although I am very interested in hearing about Mr Hodge and his background, I do not think that is relevant to the amendment.
Jim McMahon
I suppose I went back to my local government roots and felt the need to protect that council leader somewhat, because I fear that in the light of the leaked text messages he will be thrown under a bus by the Government—politically speaking, of course. It would not be surprising for a council leader to fall on his sword to protect a Government Minister—and, of course, Nick, who we are thinking about today. Is Nick still in post? Do we know where Nick is? Has anybody seen Nick? I am concerned for Nick. Sir David, if you could find that out for this afternoon I am sure that the Committee will run much more smoothly. We will be much more settled and calm knowing that Nick is in a safe place and that he has not been thrown under a political bus.
The amendments are about the balance of the base. It could be that any authority—let us use Surrey as an example—decides that increasing its business rate base is the right thing for its area. It would have to have a discussion with the business community affected, similar to the discussion that Surrey had when it floated the idea of a 15% increase in council tax. The Bill provides for that, but it does not provide for every billing authority to have the same power as hand-selected authorities to increase the base. We are again asking for consistency and for every billing authority to have that same power.
High streets in many areas are struggling with not only vacant units but inappropriate usage. We might want a targeted intervention to encourage the types of uses that would result in our high streets flourishing. The truth is that, given the way retail is going, far more is being spent online. If current trends continue, we will be spending £1 billion a week on online retail. A high street retailer has to pay to exist before it earns £1 over the till—it has to pay to be there—and that is a significant barrier for a lot of people who are trying to make ends meet.
We need to acknowledge that the world is changing. The Bill does not do that, so perhaps we need to have a separate conversation about how we tax business and support the local economy. The measure is at least a start, because it says that there will be an ability within a property-based system to teem and lade resources across a local authority area.
Mr Thomas
My hon. Friend will remember that some 66% of businesses pay no business rates at all because of small business rate relief. If the Government were minded, as a result of our probing amendment, to grant local authorities the power to raise business rates, that power would be levied on those business giants, such as Amazon, that perhaps struggle to pay tax in other forms. The amendment is not anti-small business, which we all want to encourage; it allows for big business to perhaps be asked to pay a little more.
Jim McMahon
Let me finish this point and then I will give way. The way in which the rateable value is calculated is generally based on the rental value of the property. For bars and restaurants it is obviously based on turnover, but for retail properties it is based on the rental value. Institutional investors in shopping centres and on high streets know that they have to pay a huge business rate liability when units are unoccupied, so they are establishing leases with a notional rental value—£70,000 to £80,000 a year—and an exhaustive rent-free period in line with that. When the valuation takes place, the headline rent might be £70,000 to £80,000 a year, but when the discounts provided in the lease are taken into account, the amount charged to occupy the space might be far less—possibly just £1. The business rates, however, are based on the headline value in the lease.
There are a number of examples of people investing their life savings into opening a high street shop and starting a business, but when they receive their business rate bill they are not able to hold their heads above water because they are just over the threshold and do not qualify for small business rate relief. That is even the case when they are given preferential rental options through the landlord. We need to look at the situation in a very different way, if we accept that high streets have a role to play in the vitality of our communities.
Mr Jones
The hon. Gentleman makes some important points about high streets and town centres, and I share his concern about how retail is shifting quickly. He has talked about consistency many times this morning, but how was it consistent for him to argue against changing the multiplier to a lower indexation rate, which will create lower bills for the town centre businesses that he is talking about? He says that he wants to help those businesses, so why was he against that?
Jim McMahon
Much of what we are trying to do through these amendments is to tease out from the Minister what the Government are trying to achieve. Some elements of the Bill make complete sense and reflect what local government, the Communities and Local Government Committee and individual councils have been asking for, but other elements are less clear. We are trying to get to the bottom of what the Government are trying to achieve. That might convince us that this is absolutely the right thing to do and that we should get behind it.
Rob Marris
In terms of consistency and the situation envisaged, the Minister did not say in his intervention that, while the purpose of the provision is to get rid of using RPI, it does not specify what will take its place. Therefore, far from bills necessarily falling, a different indexation could result in them rising.
Jim McMahon
That would be delightful. Perhaps he could even say whether a Surrey index could be used. A clarification would be helpful.
Mr Jones
The hon. Member for Wolverhampton South West has been diligent on the Bill, but he is clearly off the mark. I am sure that the hon. Member for Oldham West and Royton will recall our debate on indexation and the multiplier, during which I clearly set out the Government’s intention to use the CPI measure of inflation, which is indeed lower than RPI and will save businesses more than £300 million overall in the first year.
Jim McMahon
My recollection of that response was not as clear as that. I appreciate the direct nature of the Minister’s response today, but from my recollection we were told we were moving away from RPI, and we asked to what. He was unclear about that except to say, “What else is there, but CPI?” Well, a different measure could be created.
Mr Thomas
As my hon. Friend may remember, the Minister was involved in the Housing and Planning Bill and advocated with great certainty then measures that have now been rejected by other Ministers in the Department. Surely we cannot today take his word as gospel, which is why clarity in the Bill might be more useful than his words of wisdom now.
Jim McMahon
I often agree with my hon. Friend, but I do not want to paint the Minister as having little influence over his colleagues. I am sure they listened to his sound wisdom, reflected on it and took it on board. The Minister may not be the Minister tomorrow, however, and the legislation that we are creating transcends individuals. It is about having a framework in place to govern the nation.
Getting parity, prescription and consistency is important. I go on about consistency quite a lot because I have been on the other side of the argument when national Government passed legislation that was not clear or consistent. That only leads to confusion at local level.
The difference is that when central Government are confused, local government is confused and hundreds of individual authorities are confused, and that has cost and time implications. The more we can do to create a clear framework where duplication is not required to understand where the Government are trying to get to is to everyone’s benefit.
Kevin Foster
Given what is going on elsewhere, it is welcome to see some consistency in the shadow Front-Bench Members who have shown up; they have not managed to resign yet.
I listened carefully to the hon. Gentleman’s points. Amendments 45 and 46 are about increasing business rates. Perhaps he would like to spend some time dwelling on why he thinks putting business rates up on things like retail shops in local areas would be a benefit as his amendments allude to.
Jim McMahon
The point is about making sure that the powers that are being devolved to local billing authorities can be implemented. Critical to implementation is the affordability of the measures being taken. It is okay saying local authorities can take a hit on their tax base by reducing the multiplier, but that money must come from somewhere. We have seen time after time, and we have discussed time after time, the pressures in adult social care and frontline services when local councils just do not have the headroom required to fund the reduction.
The logical thing to do is to give all billing authorities the power to be able to teem and ladle within the business rate tax base, which is what the amendments are trying to get to. Many people would find it reasonable, as we heard in our evidence sessions, that large ratepayers—the big supermarkets and out-of-town warehouses—should probably pay more to fund the vitality of our local high streets and town centres. I think most members of the public would support that.
Justin Tomlinson (North Swindon) (Con)
I have every sympathy on the point about online trading. As the former chair of the all-party group on retail, I am familiar with the issue. I understand that the amendment is a probing one and not to be pressed to a vote, but I would urge a little caution. We must be careful about who is grouped with big business. The vast majority of retailers on the high street would be classed as big business, as they are not eligible for small business rate relief. The high street is struggling. When local authorities, as highlighted in the Portas review, were given discretion on car parking charges they continually hiked them and sped up retail’s rate of decline. I just urge caution.
Jim McMahon
I appreciate that intervention. I suppose my reflection on the Portas review is similar to the reason for the amendment. It is okay to say that councils can have the power to reduce car parking charges, but fees and charges are a significant part of local government income. At a time when revenue support grant has been snatched away and local authorities are being told they will be self-sufficient, going forward, it is difficult for them to find the headroom to reduce car parking charges. I pay tribute to the local authorities that have done so, particularly when they did it in a targeted way, to support local retail.
Jim McMahon
I will just finish this line of argument. At the moment the current rules would require consultation to take place in the area where a rates increase was wanted—even for areas that had the power, and notwithstanding that there were areas without it. It would be necessary, let us say, to draw a line around the retail park that the authority might want to look at for an increase in business rates, and then consult people who were affected by the business rate increase. If it wanted to use the money generated to fund another area of town, such as the high street or town centre, that would not involve the same consultees that were involved in the part of the area subject to the increase. I think that that is the issue.
Local authorities must reflect more broadly on their area, and not on a narrow defined area, which the Bill seems geared to. That flexibility would be welcomed by local authorities. As to being consistent, this is not a case of my arguing against myself—it is about providing a framework and allowing local areas to administer it appropriately for their locality.
Mr Jones
The way the hon. Gentleman is applying his logic is to say that the more taxes are hiked up, the more revenue is received; but we must be careful with that. A good example from my constituency was when the Labour council hiked up the car parking charges and lost £350,000 in income. Does he think that that is a good example of what he is suggesting? Is that why we should not look to increase taxes in the way he advocates?
Jim McMahon
I congratulate the Minister on living in a Labour council area. There are 22 million other people in the country living with Labour in control locally, and they get to experience at first hand the benefits of Labour being in government. The Minister should reflect on his fortunate circumstances. Let us hope that other parts of the country benefit from the same thing soon.
Rob Marris
I suspect that, with all due respect to my hon. Friend, he was not aware of that example from Nuneaton. Is he, however, as pleasantly surprised as I am that for the first time in debate on the Bill the Minister has actually produced some evidence?
Jim McMahon
The Minister has provided a certain insight. I would not quite call it evidence, because I have seen nothing produced; there has not been an assessment to back up that claim, as far as I can see. We need a higher bar on what we mean by evidence than the Minister jumping to his feet in a fit of excitement.
As we progress through the Bill and explore where the Government are trying to get to, I hope that the Government will take time to use the probing amendments to reflect. If they really want to achieve localism, if they really want local councils to take responsibility for growing their economic base and their tax base, we need to recognise that within any area there will be micro housing markets and micro business markets, where that local variation and local power to deploy in a very different way in the local authority area is critical to being able to grow the economy from the grassroots up. This is not about an aggressive attack just for attack’s sake; it is about a genuine deal, and the deal would always be that a local authority would say to the public, “We want to do this over here, and it would mean increasing business rates, but we would use that money to support this initiative over here.”
I genuinely believe that many people in this country are witnessing the decline of their town centres and high streets and are in tears, because that is a reflection, a symbol, of how the town is doing more generally. When people go into their town centre, which is the heart of the community, and they see windows boarded up and “To Let” boards where local shops used to thrive, they genuinely feel that part of their identity has been taken away. Our high streets are more symbolic than just a retail space; they are part of our cultural identity. I therefore hope that the Minister will reflect on our suggestions and that, if not during this phase, we may see some of them coming forward in the near future.
Mr Thomas
I think that this amendment will come to be known as the Mackintosh-Hollinrake amendment part 2. I again draw your attention, Sir David, to the excellent report by the Communities and Local Government Committee on what 100% business rates retention might mean. I can assure you that present when the report was agreed was the hon. Member for Northampton South. The report makes very clear his support for the recommendation that the power to raise the multiplier for business rates should be introduced. He wanted, as did the rest of the Select Committee, rises capped so that they were limited to the increase in the average council tax. I do not know whether at that point he foresaw Surrey County Council wanting to increase council tax by 15%. Clearly, a 15% hike in business rates would be completely unacceptable, but it is interesting that members of the Select Committee propose that local authorities should have the power to raise business rates as
“an effective lever to stimulate and foster local economic growth.”
The reason I supported our tabling these as probing amendments was that it is important, during the passage of the Bill, to consider the sources of revenue that local authorities will have to pay for the vital public services that the people of England get from their councils. Given the huge reduction in revenue support grant that we are all familiar with English local authorities having experienced, the two principal sources of income will be business rates and council tax.
The power does exist in law to increase council tax. If that goes beyond a certain threshold—well, Ministers are varying the threshold up and down at will at the moment. There is the power to increase council tax, however, and one can go higher than the threshold if one can get the consent of one’s local residents. There is no similar power for business rates.
In the new Jerusalem that we heard the hon. Member for North Swindon set out at an earlier sitting—I am sure that by now, Sir David, you have had the chance to read his speech—he foresaw business rates being reduced and, across every local authority area that did that, great big new warehouses, out-of-town shopping centres, large businesses moving in and business rates income rising as a result. Unfortunately, in the course of—
Mr Thomas
Let me finish this point and then I will happily give way to the hon. Gentleman, whom I am delighted to see I have woken up. I hope that in the course of the consideration of the Bill to date, he and other members of the Committee have begun to understand that there is a whole series of barriers to economic growth taking place in particular local authority areas. Actually, an individual local authority may not have much scope, if any, to increase its business rates income.
Justin Tomlinson
I suspect that the hon. Gentleman drifted off during my speech, because the key point I made was about the growth of small businesses to medium-sized businesses. That not only generates business rates income and does not require big out-of-town warehouses, but crucially creates yet more jobs that are vital to local residents.
Mr Thomas
I was sufficiently shocked by the sight of a Government Back-Bench Member rising that I did pay attention, but it is possible that, as events have moved on, I cannot recollect every aspect of the hon. Gentleman’s contribution. As punishment, I will go back and re-read it. He makes a partially interesting intervention—if he will forgive me for saying so. He is right: the challenge across the country for future businesses and economic growth is to take the entrepreneurial spirit that leads to the establishment of small businesses in the first place and to turn those into medium-sized businesses and, ultimately, bigger businesses.
Increasingly, as my hon. Friend the Member for Oldham West and Royton made clear, we are seeing more of those small businesses that are successfully transitioning into medium-sized and bigger businesses not needing the size of property that would lead to the increase in business rates income in the way that this Bill implies will be the only way for councils to generate increased business rates income in the future. There is that constraint, plus those that the hon. Member for Waveney alluded to and the barriers that I set out when I took the Committee to Allerdale Borough Council in Cumbria, with the mountains and lakes of the Lake district being natural barriers to economic growth.
We are now privileged to have the hon. Member for Thirsk and Malton with us. He will be delighted that, in a spirit of tribute to him and the hon. Member for Northampton South, I am moving a probing amendment that grants—as he and other members of the Select Committee wanted—the power to raise business rates so that that is included in this legislation. I look forward to hearing the case for raising business rates from the hon. Gentlemen.
As my hon. Friend the Member for Oldham West and Royton alluded to, one can foresee the social care crisis being so severe, and the worry about individual families’ circumstances being so great, that council leaders and councillors up and down the country will not want to go beyond a 1%, 2% or even 0% increase in council tax. However, they might want to look at the big businesses based in their area and potentially increase business rates as a source of income to pay for vital public services.
In the evidence given to the Committee by the chairman of the Federation of Small Businesses, we heard of his desire to see local authorities properly funded, so that the range of discretionary services that councils can offer when they have the resources, and that help businesses, can be available. The Minister’s most recent intervention on car parking charges was interesting. The chairman of the FSB noted in his evidence to us that one reason local authorities raise parking charges is that they have few alternative ways of raising revenue.
Mr Thomas
Given that that we do not wish to put the amendment to a vote, I have not sought support for it.
I return to the contributions made to the Select Committee report by the hon. Members for Thirsk and Malton and for Northampton South, who supported the power to raise business rates. Labour Members do not go as far as those hon. Gentlemen want us to, but their enthusiasm for raising business rates returns us to a broad point: where and how does one increase the quantum of local authority funding, if one wants the people of England to have the good-quality public services that they deserve? We have noted with considerable concern the impact that the decline in revenue support grant has had on rural bus services, public services and policing. If they do not have the power to raise business rates, I suspect that more and more councils will want to increase council tax as a way to fund public services.
The motivation for amendment 46, a probing amendment, is to note the difference between what can happen to empty property rates in Scotland and Wales, and what can happen in England. Councils in England can charge up to 150% on properties that have been unoccupied and substantially unfurnished for more than two years. In Scotland, they can charge up to 200%, and the qualifying period is only a year; Wales has similar powers. It would be interesting to hear from the Minister the reason for the difference. In Britain’s best constituency, Harrow West, the old post office site in the town centre has been empty for the better part of 10 years. Perhaps if empty property rates were set at the same level as those in Scotland, the developers who own the site would have more enthusiasm for accelerating their use of the planning permission that they have for it.
Kevin Foster
It is sad to hear that the hon. Gentleman’s town centre post office was a victim of Labour’s cuts, but how does he think post offices would be sustained by an increase in their business rates?
Mr Thomas
I say gently to the hon. Gentleman that the old post office site is not vacant due to the closure of the post office; the post office transferred across to a slightly smaller site immediately opposite under a Labour Government. Sadly, that post office has now closed under a Conservative Government, and the Post Office now operates from a franchise in a small corner of the local WH Smith. Again, as part of the mentoring that we offer, I gently suggest that he might want to check his facts a little more before making interventions that are that easy to rebut.
Jim McMahon
I took a slightly different emphasis from my hon. Friend’s contribution. It was not about post offices closing and relocating; it was about a site lying vacant for so long. If a more aggressive business rate regime were in place, it might prompt the owner of the site to bring it forward for development. That is what I took from his contribution.
Mr Thomas
My hon. Friend is absolutely right. We in Harrow are increasingly concerned about the time that it is taking the developer to bring the site back into use. Perhaps the Scots and the Welsh Labour Administration have got the rate of empty property relief right. I would be interested to hear from the Minister on that. These are probing amendments, and in that spirit, I look forward to the Minister’s response.
Mr Jones
It is always a pleasure to respond to the hon. Gentleman’s amendments. Clause 6 provides a power for authorities to introduce a multiplier discount, to incentivise businesses to invest in their areas and to stimulate local economic growth. Amendment 45 would introduce a wide-ranging power for the Secretary of State to provide in regulations for a local authority to be able, under certain circumstances, to raise the multiplier for its area. I understand the hon. Gentleman’s intention, but I am afraid that I do not agree that his approach is right, or that there is a justification for giving, or a need to give, local authorities a general, unfettered power to generate additional income by raising taxes on businesses.
Local authorities already have a range of more specific powers to raise additional income from businesses where authorities are delivering a specific improvement to the benefit of the local economy, including through business improvement districts and business rate supplements. In addition, the Bill would provide for a new infrastructure supplement for Mayors of combined authorities. These powers rightly include additional measures to ensure the effective engagement of businesses, and the additional income generated goes towards delivering specific improvements to benefit local businesses. Amendments 45 and 46 contain no such assurances or protections for business. Instead, they would allow local authorities to increase business rates without such checks and balances.
Amendment 46 would give the Secretary of State a wide-ranging power to make provision for a local authority, under certain circumstances, to increase the multiplier specifically for unoccupied premises. However, owners of such properties are already subject to full business rates, subject to the exemptions that may apply. The amendments would provide local authorities with powers to add additional costs to owners, who may not be receiving any rental income. That would be unnecessarily punitive and of very limited benefit.
I am therefore certain that the amendments would not be supported by the business community, and Labour Members offered no evidence to suggest that they would be. We need to provide business with the certainty it needs over rates bills, while allowing more flexibility for local government, for example through the new multiplier flexibilities. I hope that Labour Members will recognise the balance that we have struck in the Bill for business and local government. In that spirit, I hope that they will withdraw the amendment.
Jim McMahon
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 2 be the Second schedule to the Bill.
Mr Jones
If local authorities are to move to even greater self-sufficiency, they need the tools to incentivise and stimulate local economic growth. The powers in schedule 2 give councils the flexibility to reduce business rates across their whole area by applying a discount to the multiplier. It provides local authorities with the ability to shape local economic conditions and signal their intent to attract business investment.
Under existing legislation, only the Secretary of State has the power to set the national business rates multiplier that applies in England. This Bill changes that. The purpose of clause 6 is to introduce schedule 2 to the Bill, which amends the Local Government Finance Act 1988 and inserts new paragraphs 6A, 6B and 6C to schedule 7 to that Act.
Ordered, That the debate be now adjourned.—(Jackie Doyle-Price.)
Local Government Finance Bill (Eighth sitting)
(7 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 4 / Noes: 7 - Question accordingly negatived.
The Chair
I remind the Committee that with this it will be convenient to discuss the following:
That schedule 2 be the Second schedule to the Bill.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
The clause allows local authorities to specify a multiplier discount. The effect will be to enable them to reduce the nationally determined business rates in their area.
Schedule 2 provides two delegated powers. The first enables the Secretary of State to add, vary or amend descriptions of local authorities that can exercise this power, so that he or she can respond to changes in the organisation of local government. The second gives the Secretary of State the power to set a maximum multiplier discount that a relevant authority, as defined in schedule 2, may apply. The Local Government Finance Act 1988, as amended by the Bill, and regulations made under that Act, will allow the Government to ensure that the income of a tiered authority in a two-tier area is protected from a discount introduced by another authority.
We encourage two-tier areas to work together when setting a discount. Under paragraph 6C, the authority introducing a discount must inform the Secretary of State and other affected authorities of its intention to do so by 31 December in the preceding financial year. The list of relevant authorities under the schedule is defined in new paragraph 6A(2) and includes lower and upper-tier authorities, as well as unitary authorities and the Greater London Authority, all of which receive a share of business rates. New paragraph 6B(1) sets out how a multiplier discount must be expressed by an authority. Overall, these changes give local authorities the flexibility to attract business investment, while providing businesses with the stability of knowing that business rates will not increase beyond the national level.
Rob Marris (Wolverhampton South West) (Lab)
My hon. Friends on the Labour Front Bench, whose amendments 45 and 46 would have enabled an increase in rates, will be happy to know that schedule 2 allows that. Paragraph 6 of schedule 2, which starts on line 32 of page 42 of the Bill, amends paragraph 3A of our old friend, schedule 7 of the Local Government Finance Act 1988. Paragraph 6 goes through aspects of multiplier discount and refers, in lines 1 and 2 of page 43, to taking
“the sum of those multiplier discounts.”
I cannot see that the Bill prevents a negative multiplier discount, though I stand to be corrected by the Minister. I look around the room at all the MPs on the Committee; they all studied mathematics far more recently than I did—I make no mention of you, Sir David—but my understanding is that if there is a negative multiplier discount, the result is a positive. That would produce the effect sought unsuccessfully by my hon. Friends through amendments 45 and 46.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
For the record, let me clarify that we were not seeking to change Labour party policy in this area, so my hon. Friend is wrong, unusually, to say that we were advocating an increase in business rates. We were merely seeking an opportunity to raise the suggestion made by the Select Committee on Communities and Local Government—and particularly the hon. Members for Thirsk and Malton, and for Northampton South—which advocated in its report a power for local authorities to increase business rates if they wanted to.
Rob Marris
I am grateful to my hon. Friend for that clarification. I apologise to the Committee if I mis-expressed myself. I was not advocating one course or the other, because I believe in local control and localism, but on my reading, the amendments made by schedule 2 would allow that increase.
The Minister adverted to new paragraph 6B, which is to be inserted into schedule 7 to the 1988 Act; it starts at line 27 of page 44 of the Bill. Under new paragraph 6B(3), the Secretary of State can, as the Minister said, set a maximum. The Secretary of State spoke this morning about incentivising and stimulating, and about local authorities working hard and being flexible to attract business. He referred to tools to incentivise local growth, without, of course, producing any evidence relating to the incentives, or their prospects of success, but we have already been around the block several times on the subject of the lack of evidence, so I shall leave that.
However, while we are talking about localism, sub-paragraph (3) is another instance of a power being reserved, if not grabbed, by central Government—the power for the Secretary of State to set a maximum for a multiplier discount. That does not seem to me to bolster localism. Broadly speaking, if we go along with what the Minister says—with the idea that 100% retention of business rates and so on will incentivise local authorities to be even more pro-business, whatever the colour of the authority—we should let local authorities act accordingly and make what outside observers and indeed some residents may see as mistakes. That is what localism is about: letting local authorities take decisions and bear the consequences.
Jim McMahon (Oldham West and Royton) (Lab)
It is hard to think of a recent example, but perhaps the Government are trying to prevent a local authority from threatening to increase the rate to such an extent that there is local outcry, forcing the Government to do a back-room deal to resolve the issue.
Rob Marris
I cannot think that that could possibly happen in any county in England. However, I wonder whether specifying a maximum multiplier discount, which, as I understand it is, in lay terms, a floor below which a local authority must not go, is to do with a Government attempt to shore up local government finances. The present Government and their coalition predecessor nicked loads of money from local authorities, so local authorities without enough money might still be tempted, in a beggar-my-neighbour way, to use the powers provided generally, were it not for schedule 2, to set a multiplier discount at a very low rate.
Of course Government finances are in a complete mess, and the national debt has gone up nearly two thirds in the past six years. There are real problems with the Government finances. They are not under control, and that is reflected in local authority finances. Some local authorities might be tempted to take action that outside observers and the Secretary of State might regard as foolish. What, therefore, does the Secretary of State do? He reserves powers, under schedule 2, to set a maximum multiplier discount.
That goes against the grain of what the Government are professing to do in the Bill—bolstering localism, and giving local authorities non-evidenced incentives to be business-friendly. A local authority cannot get too business-friendly by setting out too much of a multiplier discount, because then the Secretary of State will say, “You cannot do that.” Again, there are contradictory messages. I do not say that nothing my party says is ever contradictory. On occasions it could be pointed out that things I or my colleagues have said are contradictory; that is the human condition. However, we are dealing with a Bill presented by a Government who talk about local control, and schedule 2 contains an example that shows them going in the opposite direction.
Mr Jones
I will respond briefly. The hon. Gentleman’s argument and the intervention by the hon. Member for Harrow West showed how confused the Opposition are about this area of policy. I have clearly set out how the clause would operate, and explained that the intention is to allow local authorities to apply a discount to their multiplier if they wish. To respond to the question of the hon. Member for Wolverhampton South West, the Secretary of State will have the power to stipulate a maximum increase in a business rate supplement, and we are showing some consistency for when things go the other way and an area might want to reduce the multiplier. The clause is therefore not inconsistent with the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Schedule 2
Power to reduce non-domestic rating multipliers
Amendment proposed: 48, in schedule 2, page 44, line 7, at end insert—
‘(1A) A relevant authority shall determine that the multiplier discount shall apply—
(a) to all hereditaments in its area, or
(b) only to some hereditaments in its area (defined by reference to their location, rateable value, class of hereditament or such other factors that the relevant authority determines when specifying the multiplier discount).’—(Jim McMahon.)
See explanatory statement for amendment 49.
Question put, That the amendment be made.
Mr Jones
I beg to move amendment 37, in clause 7, page 10, line 6, at end insert—
‘( ) In section 67 of that Act (interpretation: other provisions), in subsection (7), for “and (6)” (as inserted by paragraph 6A of Schedule 3) substitute “, (6) and (6B)”.’
Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover section 43(6B) of that Act.
Mr Jones
The Government are committed to supporting small businesses across all areas of the country. In rural areas, that will help to ensure that key amenities continue to be available to local communities.
The system of rural rate relief provides 50% mandatory relief to the only village shop, post office, public house or petrol station within a rural settlement, subject to certain rateable value thresholds. In the autumn statement, the Government announced the doubling of rural rate relief to 100%, which increases support for rural businesses. The clause brings that change into effect by amending section 43 of the Local Government Finance Act 1998 so that those businesses that qualify for rural rate relief pay no business rates at all. That will bring the rural rate relief scheme into line with the small business rate relief scheme, which provides 100% relief for eligible businesses.
The Government’s intention is for the qualifying businesses to receive 100% rural rate relief from April 2017. For the 2017-18 financial year, before this legislation is in place, local authorities will be expected to use their discretionary powers under section 47 of the 1988 Act to provide 100% rural relief, and they will receive compensation through a grant from central Government. To ensure that all eligible rural businesses receive the relief, the clause provides that the 100% relief will become mandatory. The Government intend to bring the clause into force from 1 April 2018. This is an important amendment to legislation to protect and support valuable rural businesses.
Mr Thomas
In the interests of speed, I will take the opportunity to speak to the Government amendments now, rather than in a separate clause stand part debate.
If I understand correctly, a small business in a rural area might quality for 100% business rate relief under small business rate relief, but if it also qualifies for the 50% rural rate relief, it has to be given that 50% relief rather than the 100% relief, because of the hierarchy of rate reliefs that exists. As I understand it, the clause intends to deal with that loophole.
As the Minister hinted, a rural settlements list sets out the types of businesses that would benefit from small business rate relief. Those are a public house or petrol station that is the only such business in a rural settlement and has a rateable value of less than £12,500, a food store or general store that is the only one in the settlement, and post offices with a rateable value of less than £8,500. Local authorities have the discretion to top up the 50% rural rate relief to 100%, but not all do so, presumably because of the difficult financial situation that local authorities face at the moment, regardless of their political leadership, given the cuts to revenue support that the Government have been pushing through.
I intervene in this debate to ask the Minister a number of questions. Why does the rural rate relief scheme not cover a wider range of businesses? I ask that in the context of growing concern in the countryside that rural enterprises will be some of the biggest losers in the business rates revaluation that will come into force after April 2018. There have been real concerns that livery yards and riding schools, for example, will go to the wall because of the expected increase in business rates under the revaluation. There is concern that kennels and catteries, polo grounds, racecourses and racing stables will also be among the worst hit. That is of such concern that the hon. Member for Montgomeryshire (Glyn Davies) has raised concerns. Similarly, Sarah Phillips, the director of participation at the British Horse Society, worried aloud—understandably—through The Times that increases in business rates after April would have a devastating impact on livery yards and riding schools. She went on to point out that rural businesses, which typically occupy more space, were being put at an unfair disadvantage by a bricks-and-mortar tax based on premises, not profitability. That prompts a question of Ministers as to why more rural businesses will not be able to benefit from the changes.
Indeed, the many businesses that want to install solar panels are also asking why rural business rate relief will not similarly help them. They also stand to suffer considerably from the business rates revaluation that will come into force after the next revaluation in April 2017. The problem is that, going forward, solar panels will be judged separately from business premises, and it appears that they will not all qualify for small business rates, which is the other potential opportunity for assistance. Given the solar industry’s potential to create good new jobs, why are Ministers not taking advantage of the extension of rural rate relief, perhaps to help out a number of other businesses?
When we debated clause 5, we talked about whether the retail prices index or the consumer prices index should be used. I know that you read Hansard diligently, Sir David, so you will remember that £78 billion will potentially be gained by businesses and lost by local authorities over the next 20 years as a result of the change. Perhaps if Ministers were to take advantage of the flexibility in clause 5 over whether CPI is used, which my hon. Friend the Member for Wolverhampton South West noted, they might be able to find the resources to help more businesses in our countryside to survive.
Bricks-and-mortar businesses—in urban areas, too, but in this context particularly in rural areas—are under growing pressure from the rise in online businesses. One of the great successes of the previous Labour Government, and of Britain more generally, is that we are such a hub for online technology businesses, but those businesses tend to need less space and are therefore less likely to pay high business rates, whether they are in urban or rural areas. Many businesses are saying, “Hang on a second. We have to pay huge business rates every year, and these online businesses are not being taxed in the same way. Isn’t it time for a bit more equality between these two types of businesses?”
The challenges for businesses in rural areas are sometimes even more acute. In Threlkeld, a small village just outside Keswick in the Allerdale Borough Council area, which the hon. Member for North Swindon always likes to be reminded of, there is a new coffee shop run by the community—it is a social enterprise—and a pub. We know that the pub would qualify for 100% rural rate relief, but we do not know whether the coffee shop would. As the coffee shop is part of a community hall facility, it helps the community of Threlkeld to benefit from the existence of that premise, where lots of different community activities take place. Would it be eligible for 100% rural rate relief or not? It is not a post office, a pub or a petrol station. Perhaps Ministers might listen to the concerns of businesses in the countryside a little more and do more to help them.
Rob Marris
If that community centre were classified as a public toilet under clause 9, it might get some relief—as might its users.
Mr Thomas
The last time I visited that coffee shop, which has fantastic views of Blencathra and Skiddaw—two of the great English mountains—although there were toilets there, that was not what the bulk of the premises were being used for. It would be interesting to probe whether it has the potential to get at least some relief under clause 9, but let me not test Sir David’s patience by being diverted down that particular route.
I would like to ask Ministers why, in their view, rural rate relief is so limited and whether there might not be scope for providing more assistance to businesses in the countryside, more generally and also given the rise in online businesses, which do not require such large premises. In particular, it would be good to hear what the Government will do to help the nascent solar panel industry, particularly those businesses seeking to put up solar panels in rural areas.
Mr Jones
Thank you, Sir David, for allowing me the opportunity to respond to the shadow Minister. He mentioned rural rate relief. Clearly, there is a key criterion for eligibility. The idea of rural rate relief is to ensure that key amenities are available in rural areas. He seems to have conflated it—at some length—with the business rate revaluation. As he will know, the revaluation is not a process designed to raise any more or less money for the Exchequer; it is a fiscally neutral exercise meant to ensure that rateable values reflect property rents and changes in those rents over the revaluation period.
In the 2017 revaluation, nearly three quarters of ratepayers will see either no change or a reduction in their bill. The hon. Gentleman seems suddenly to have an interest in rural areas. Most people in rural areas think that the Labour party has generally neglected them when it has been in government, but he now seems to be taking a more significant interest, which perhaps we should welcome. Rural businesses, if their rates have increased, will also be eligible for part of the £3.6 billion transitional relief scheme that we are introducing at the same time. I hope to reassure him that, in its totality, the business rate revaluation will predominantly reduce rate bills in rural areas by an average of 4.4% and in significantly rural areas by an average of 6.4%.
Mr Thomas
I would gently point out that it was not the Labour Government who sought to close hospitals in rural areas, such as the one in Allerdale Borough Council’s area that serves the community of Threlkeld, to which I referred. I suggest that the Minister is being rather complacent about the impact on some rural businesses as a result of the revaluation. Have Ministers considered extending rural rates relief so that other businesses in isolated communities can benefit?
Mr Jones
We keep taxes continually under review. As I said to the hon. Gentleman, we are not complacent. We have put in place a significant package of transitional relief in that regard. He has waxed lyrical about Allerdale. Having been up to that part of the country recently, I know how beautiful it is, but I also observed that the local economy is not just about tourism and related activities. It is also heavily based on the nuclear industry. There are many people in that area who depend on the nuclear industry for their livelihoods. I would say to the hon. Gentleman, very gently, that his party’s policy on nuclear is probably the biggest threat to that particular part of the country. [Interruption.]
The Chair
Order. I would be grateful if the Minister would stick very closely to responding to the points that were made by Mr Thomas.
The Chair
That was a very clever way of continuing the debate. I think it is best if we move on.
The Chair
That is obviously not a matter for the Chair. It is a matter for the Minister how he responds to the points that are made, but he heard the point made. It is entirely a matter for him whether or not he wishes to respond.
Mr Jones
Thank you, Sir David. There is a concern about whether the point made relates to rural rate relief. I would say to the hon. Member for Harrow West that solar panels quite often form part of a building that might be subject to business rates. There are some situations—I will not go into the details—where those solar panels will be subject to business rating because they are part of plant and equipment, and some occasions where they will not be. I would also say that because that equipment forms quite a small part of the hereditament in question, which would be subject to business rates alongside the solar panels, there are situations where business rate levels have reduced as part of the revaluation, even though the solar panels may be subject to business rates.
If you will allow me, Sir David, in the spirit of trying to move the Committee along, I would like to speak quickly to the amendments tabled to the clause. Amendments 37 and 41 are purely technical amendments, which concern a principle used in business rates known as the end-of-the-day rule. Hon. Members new to the technical details of the business rates system may believe that we are thinking about the end of the day—which could not come soon enough for many of us—but I am afraid this is slightly different. The liability of a ratepayer to business rates arises on a day-to-day basis. That means that business rates are calculated for each day based on the circumstances of the ratepayer and the property on that day. That then gives rise to the question at what point in the day those circumstances are to be taken from. If, for example, a ratepayer moved into the property at 12 noon, are they a ratepayer for half of that day, for the full day or not at all?
The relevant legislation does not leave that point to chance. Section 67 of the 1998 Act contains various provisions dealing with such circumstances. The provision adopted in section 67 is that the circumstances as they may exist before the day ends are taken to have applied for the day, and if conditions necessary to satisfy the requirements of, for example, a mandatory rate relief are met immediately before the day ends, they are taken to have applied for the day. If, for example, a charity started to use its property wholly or mainly for charitable purposes at 12 noon, it is assumed to have used the property for the whole day and is therefore eligible for mandatory relief.
The end-of-the-day principle is a familiar and accepted principle in the business rates system. The amendments will apply that principle to various measures that we are introducing in the Bill and they will clarify that the same principle applies to some existing reliefs.
Amendments 37 and, in part, 38 will ensure for the avoidance of doubt that the end-of-the-day principle is applied for rural relief and small business rate relief. In practice, those reliefs are already operating using the principle, but we want to put that beyond doubt. Amendments 38 and 39 will ensure that the end-of-the-day principle is adopted for the new relief for telecommunications infrastructure introduced under clause 8 and schedule 3. Amendment 40 ensures that the principle is adopted for charitable and empty property relief on the central rating list introduced under clause 10. Finally, amendment 41 will ensure that the end-of-the-day principle is adopted for the new administrative arrangements being introduced for the central rating list under clause 11.
Amendment 37 agreed to.
Clause 7, as amended, ordered to stand part of the Bill.
Clause 8
Relief for telecommunications infrastructure
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 3 be the Third schedule to the Bill.
Mr Thomas
Before I open my remarks on whether the clause should stand part of the Bill, having consulted with the registrar of standards, I need to declare that my partner works for a company that certainly manages and I believe installs mobile telecoms infrastructure.
I intend to explore the Minister’s thinking on the case for the clause. In the 2016 autumn statement, the Chancellor announced that the Government would provide 100% business rates relief for new full-fibre infrastructure over a five-year period from 1 April this year. In the context of the significant concern about BT and the way in which Openreach is working, and about the profits it and other bits of the industry have been able to generate, why is that particular provision needed? I ask it as a probing question.
Clearly, there is an opportunity cost to Ministers’ decision to offer full business rates relief for five years. All of us recognise the need to speed up access to the very best broadband telecoms not only in rural areas, in the context of the previous debate, but for businesses and households in my constituency, which complain about slow access to the newest broadband infrastructure. One wonders whether it is not the money, as full business rates relief for telecoms infrastructure will not offer up huge sums of money to those installing such infrastructure. However, there is clearly an opportunity cost in other areas.
Ministers do not appear to be cracking down enough on Ofcom or BT about the speed at which the broadband is being rolled out. How does the Minister see the clause making a real difference in the context of the considerable profits already being generated by the companies operating in this area?
Rob Marris
I hope the Minister can point to this, because I cannot find it, but my hon. Friend referred to the Chancellor’s announcement that mentioned a five-year period. I cannot find a reference to a five-year period in schedule 3. It may be there and I just cannot see it, or it is somewhere else and the Minister can point it out to me.
I see in schedule 3 more than four pages and five formulae. The ever-helpful Library brief cites on page 37 documentation from the autumn statement saying that this measure
“would reduce business rate revenue by £10 million”.
For a company such as BT, £10 million is not a huge amount of money, but for everyone in this room, it is. Nationally and relatively—I stress “relatively”—it is not a huge amount of money, but we get a four-page schedule and five formulae. That strikes me as completely over the top.
We see in schedule 3—on page 46, lines 30 and 31, page 47, lines 37 to 38, and page 48, coincidentally lines 30 and 31 again—the same wording:
“any conditions prescribed by the Secretary of State by regulations are satisfied on that day.”
So here we have the Secretary of State and more regulations. Then when I look at the power to make regulations in paragraph 12 on page 50 of the Bill, it says:
“any power to make regulations conferred by virtue of this Schedule”—
schedule 3—
“includes power to make provision having effect in relation to times before the coming into force of this Schedule”.
I would like the Minister to talk the Committee through that a bit. No doubt he will say something like this happens all the time, but I am a bit uneasy about what seems on the face of it to be a retrospective power in schedule 3, paragraph 12. That is a little worrying. Even though I appreciate it may be a power that would be used or is intended to be used to lessen the tax on a particular business or set of businesses, I still find the retrospection a little troubling.
Mr Jones
The Government intend to support the roll-out of a full-fibre telecommunications infrastructure for all. Full-fibre broadband will deliver a step change in the speed, service quality, security and reliability of broadband services. It will provide important support for a more productive economy and boost the prospects for economic growth.
In the 2016 autumn statement, to which the hon. Member for Harrow West referred, the Government announced £1 billion of new funding to boost the UK’s digital infrastructure. That includes investment of £400 million in a new digital infrastructure investment fund to boost commercial finance for emerging fibre broadband providers. Alongside that package, the Chancellor announced 100% rate relief for a new full-fibre infrastructure in England. Clause 8 and schedule 3 will introduce that relief, which will apply for five years, commencing on 1 April 2017. Hence this part of the Bill will have a retrospective effect. I hope that the hon. Member for Wolverhampton South West understands the principle behind the retrospection.
Mr Jones
I will come to the cost a little later. The schedule provides powers to award rate relief to telecom networks. Some networks appear on the local rating lists held by local authorities and some appear on the central rating list held by the Secretary of State. The schedule therefore introduces the new relief for both local rating lists and the central rating list.
The powers in the schedule will allow the Secretary of State to set conditions on when the relief will apply. Through these powers, we will target the relief on operators of telecom networks that install new fibre on their networks. That will incentivise and reward those operators who invest in the broadband network.
These are concepts that we have not previously defined for business rates. The powers in the schedule will therefore allow us to develop definitions with experts in the telecoms and business rate sectors. By taking this approach we can ensure that we accurately capture in the relief only those parts of the telecoms networks that comprise new fibre. There is a distinction there because it is important—by definition, this is an incentive—that we incentivise the laying of new fibre cable. We are not looking to fund fibre cable that may have already been laid but not switched on, so to speak. I am absolutely clear that this is for new fibre.
Rob Marris
As I understand it—as ever, I am open to correction—the provisions in the clause and accompanying schedule are by nature, to use the Minister’s words, incentives: a financial incentive to encourage, in particular but not only, rural broadband and better internet connections, which we all support. It appears to be—I stress “appears”—a bung for private industry to do something that Ofcom could order it to do. Why are we being asked to do it in the Bill, rather than Ofcom just doing it by mandating companies?
Mr Jones
It is clear that the thrust of what we are trying to do, as I said at the outset, is to bring this forward as part of a package—£1 billion of new funding to boost the UK’s digital infrastructure, including £400 million in new digital infrastructure investment and a fund that is dedicated to that—to boost commercial finance for emerging fibre broadband providers. It is important that the hon. Gentleman understands that this measure is designed to widen the market in that sense.
Rob Marris
I am grateful for the Minister’s generosity in giving way. The Library briefing gives some figures on what this measure would cost each year, and I know he said he would get on to that. Are the figures for the cost each year included in the £1 billion to which he has referred at least twice, or are they in addition to it?
Mr Jones
That is a very good question, which I will write to the hon. Gentleman and the rest of the Committee on. The overall cost, which the hon. Member for Harrow West asked about—he wanted me to go into what the cost was in each of the first five years, but I am not able to do that today so perhaps I can satisfy him in writing—is £60 million over that particular period.
To pick up the thread that I was on, the powers in the schedule will allow the Secretary of State to determine the level of relief to be awarded. As I said, the Government intend to allow telecom operators 100% rate relief, but only for new fibre. That new fibre will of course form part of existing telecoms networks with existing ratings assessments. Through the operation of this scheme, we intend to ensure that relief is only for new fibre, as I have clarified to the Committee. To achieve that, the powers in the schedule will allow us to set, by a formula contained in regulations, the correct level of relief for each property, reflecting the amount of the network that qualifies for the relief. That will be based on a certificate from the valuation office of the amount of rateable value attributable to the new fibre.
Hon. Members will recognise that this is a technical area, but one in which we need desperately to ensure that the provisions are correct. Therefore, my Department will shortly issue draft regulations for consultation on how to implement the relief for new fibre. On that basis, I hope that clause 8 and schedule 3 will stand part of the Bill.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Schedule 3
Relief for telecommunications infrastructure
Amendments made: 38, in schedule 3, page 48, line 16, at end insert—
“6A In section 67 (interpretation: other provisions), in subsection (7), for “43(6)” substitute “43(4B) (so far as relating to England), (4F) and (6), 45(4D)”.”
Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover section 43(4B) of that Act and the new sections 43(4F) and 45(4D) inserted by Schedule 3.
Amendment 39, in schedule 3, page 49, line 29, at end insert—
“10A In section 67 (interpretation: other provisions), in subsection (7), for “47(2)” substitute “54ZA”.”—(Mr Jones.)
Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover the new section 54ZA inserted by Schedule 3.
Schedule 3, as amended, agreed to.
Clause 9
Discretionary relief for public toilets
Question proposed, That the clause stand part of the Bill.
Jim McMahon
I get all the crap jobs. I have been told that I am not allowed to use foul language, so I am afraid most of the puns have been wiped out.
This is a straightforward clause, which hopefully addresses a long-standing request from a number of local authorities for the facility of public toilets to be recognised as important not just in areas with high levels of tourism but in urban settings. We need to look back on the history of public toilets—not too far; I will go back only to the Romans—and on the establishment of the need for public conveniences.
When people are away from their home setting and need to use a convenience, it makes sense that conveniences are provided in convenient places, which they can get to easily. The truth is, in recent years, we have seen the number of public conveniences reduce significantly. In real terms, in 2010, the spend on public toilets by local authorities was £85 million and, last year, it was only £54 million. We have seen a lot of money taken away from public conveniences, which has had a real impact, with more than 1,700 public toilets having closed down. We know what the impact of that is.
Steve Double (St Austell and Newquay) (Con)
Are those figures just for county and district councils or do they include parish councils? Many parish councils, particularly those in places such as Cornwall, have taken over the running of public toilets.
Jim McMahon
The figures come from a BBC freedom of information request last year, which went to all main local authorities. The question was not how many toilets they maintained but how many were in their areas of responsibility, so perhaps that includes toilets run by other authorities such as parish, community and town councils. I cannot confirm that from the article.
Rob Marris
As I understand it, if the parish council or whatever is a billing authority, it will benefit from the clause.
Jim McMahon
The parish council will benefit from the clause. The question was whether the data on the number of public toilets included parish councils and I cannot confirm that. Notwithstanding that, it is hard to believe that all 1,700 toilets have been handed over to parish councils. I think we can assume that, given £31 million has been taken out of their provision, a significant number of public conveniences have been taken away.
Some local authorities have recognised the impact that has had on their communities and, although they have faced difficult budget restrictions, they have tried to step up and bring the community together to try to find local solutions. For instance, we know that a number of pubs, cafés, bars and restaurants acting as community toilet providers have been recognised with a small payment from their local authority. That is one way in which there has been some impact, particularly in areas of high footfall such as tourist areas, and my own local authority does that to a good standard. However, there is a world of difference between being able to spot a little sticker displayed in the window of a community toilet provider and the community knowing where to find established facilities.
The other thing is that a number of the conveniences were in isolated locations, such as country parks, and a number of those have closed, too. At the moment, 10 areas have no public toilets, including Newcastle, Merthyr Tydfil and Wandsworth. Given the coming budget cuts, I imagine that councils will have to reflect on whether they look after children who need safeguarding protection, take care of elderly people who need social care, or maintain their toilets. Even if local authorities have a rate reduction, those toilets still have maintenance, staffing and cleaning costs, and I suspect that a number of them will fall foul of the cuts. Although this is a step in the right direction, it does not feel like a holistic strategy for providing that public infrastructure in many areas.
Campaigning organisations have taken this issue on. The British Toilet Association does a lot of work on it. We sometimes dismiss this issue, and people laugh it off because it attracts a sense of humour, but the British Toilet Association makes the case for why these facilities are important. This is about not just the number of toilets, but the quality of provision. The association is leading the way in ensuring that there is a quality standard so that people who use public toilets are not put off by poor cleanliness, antisocial behaviour or poor maintenance—for example, lights that are out. It recognises good practice through its annual awards, which it hopes will drive up standards in the industry.
I ask the Government to at least have a conversation with the British Toilet Association to find out what more can be done to come up with a holistic strategy to deal with this issue and to ensure that we do not lose any more public conveniences. Worse, in a bid to try to retain them but save money, maintenance may be reduced to such an extent that they are not welcoming and people do not feel safe in them. As a result, they may become a venue for antisocial behaviour, and none of us wants to see that.
When talking about money and numbers, at times we miss the human cost. I could have spent 20 minutes making jokes, but we have to be serious about what these public services are there for. I want to reflect on a story from a part of Manchester that my mum lives in, which used to have public toilets and now no longer does. A man called Brian Dean, who suffers from Parkinson’s disease, went out with his wife, Joan, and needed to use the toilet. The toilet they thought would be there was not—it had closed—and they could not find anywhere else to go, so unfortunately he wet himself. For that to happen to an adult who was ill was absolutely distressing for him and his wife, who was proud of her husband and had a sense of responsibility for getting him around. They said that it left them with a feeling of humiliation. We can talk about numbers and finance, and we can crack jokes, but there is a human cost. There is a reason why these conveniences are there in the first place. We have to think about how much we value this type of public service.
I am pleased to see this measure, but I think it exposes a wider issue about how local authority premises are treated in the ratings criteria. Education facilities such as an independent school, an academy or a free school outside the local authority attract the 80% mandatory business rates relief, but local authority schools do not. We see the same thing in the health service: health providers outside the public sector can attract the 80% mandatory relief, but Government health providers cannot.
We have seen this before. Even before this Bill was introduced, because of the rateable values involved, privately operated public conveniences were under the rateable value threshold and could claim exemption, but council-run facilities could not. There is a broader issue here about how the ratings assessment treats public and Government-owned buildings. We should ensure that there is a level playing field. We have debated that in relation to education facilities, health facilities and other public buildings. It strikes me that the Government have reflected and feel that these important public buildings need to be recognised in the legislation, and I am pleased. It has been a while coming; local authorities have been asking for this for some time, but it has not happened. A request was made, for instance, during the sustainable communities process, and it was not taken on board.
I recognise that we have a great deal of business to get through, so I will leave my remarks there. However, I did not want to let the issue pass without making it clear that however funny this may appear on the surface, it is actually quite important.
Steve Double
I want to make a few comments as someone with a fair amount of experience on this matter. I was the Cornwall Council cabinet member responsible for public toilets when a major review of public toilet provision was undertaken to look at—from the unitary authority’s point of view—the best way to deliver this vital service to the public. As the hon. Gentleman said, this service is important to many people. In Cornwall, it supports not only the tourist industry on our beaches and in our parks, but local people, including the elderly, people with medical conditions and people with young families, who often need to use these facilities.
Mr Thomas
Given that the hon. Gentleman is likely to have slightly better access to the Minister’s thinking than the Opposition are, will he say why he thinks Ministers are only giving discretionary relief, as opposed simply to exempting public toilets fully from business rates?
Steve Double
I am grateful for that intervention. I was going to say that I feel partly responsible for the clause. Along with my colleagues in Cornwall, I lobbied the former Prime Minister and Chancellor hard on this issue, because our experience in Cornwall was that this was a particular barrier for maintaining the provision of public toilets. From my point of view—I cannot speak for the Minister—there is not a one-size-fits-all solution across the country. In different areas, there are different challenges in maintaining public toilet provision. The discretion allows local authorities to set out whether it is a priority in their area.
Let me explain why the measure is so welcome. In Cornwall, which has a large unitary authority covering a very large geographical area, having all those toilets run and maintained by the unitary authority is not the most efficient way to do it. It is far better to devolve the provision and maintenance of those facilities down to local parish councils, town councils or other groups that are better placed to maintain them and keep them open at the hours that the community needs them—that may not be all year round, or all day. Those organisations will be better and more efficient at keeping the facilities clean and well maintained, because people can do it locally, rather than there being a centralised process like the one that Cornwall Council had, with people driving all over the county just to maintain the facilities. Devolving down the running of the facilities to local groups and councils is much more efficient and effective.
In my experience as a cabinet member, one of the biggest barriers to parish councils taking over the running of the facilities was business rates. Often, a fairly small parish council whose precept was only a few thousand pounds a year would consider taking on the cost of maintaining the public toilets, but they would find that the business rate alone on the toilets was more than their whole precept. Deciding whether it was feasible and affordable to take on the facilities was a significant challenge, even if the council recognised that taking them on would be very beneficial to the community. Putting discretion in the hands of the senior authority is sensible, because in the case of Cornwall Council, it can then decide that it sees the value of these facilities across the county. It may want to play its part in helping to maintain them and keep them open, but it may not want responsibility for their day-to-day maintenance and running. It can make the decision to grant that discretion. That would help parish councils with the cost of taking on these facilities, and perhaps enable them to afford to do so. This is a sensible and welcome move, and it has my full support.
Rob Marris
Certain houses of repute with cultural artefacts get a tax break for opening at certain times of the year to the public. My hon. Friend the Member for Oldham West and Royton did not have time to mention that the redoubtable Brian Dean, the gentleman with Parkinson’s, tried every shop in a row of shops, asking if he could use their toilet, and was refused, as is their right. Having desperately tried to avoid it, it was only at that point that he had to soil himself. That is a sad reflection on those shops, but I understand it. I would like the Minister to give some thought to whether it might be possible to structure a business rate relief for private premises, such as a coffee shop in Allerdale, that allow the public access to their toilets, in the way that we allow tax reliefs for certain houses with cultural artefacts. We put something in; there are certain things that they provide; and they get a tax break for providing that service.
As we all know, with our ageing population, it is statistically likely that there will be a rise of near incontinence and urgency. The need for access to toilet facilities among the population as a whole, and the need for those facilities to be fairly readily available, will increase. I say that as one of the patrons of Wolverhampton Mencap. Many adults with learning difficulties get a sense of urgency and need to get to a toilet very quickly. I would ask the Minister to look at a system in which private premises that were not “wholly or mainly” a public lavatory facility, as in the clause, but that had a toilet—perhaps a coffee shop—and made it available to the public for a specified number of hours or whatever got some business rate relief for providing that public service.
Mr Thomas
I rise to make two points. It was interesting to hear the contribution of the hon. Member for St Austell and Newquay on how he thought we got to this point. I commend him for his successful lobbying, but I wonder why Ministers could not have gone a bit further. There are already business rates exemptions for agricultural land, presumably because of its importance to rural communities and to the countryside that we all value. Given the growing concern about the long-term financing of public toilets, one wonders whether it is time to dwell on the question of whether public toilets should be given full business rates relief. I have to be honest; I have not looked into the issue in detail yet, but it is a question worth posing to Ministers.
I come back to the example of the Threlkeld village hall coffee shop, which I spoke about before, and which my hon. Friend the Member for Wolverhampton South West tempted me to flag up on this issue. It has toilets that are used by members of the public, predominantly when they come in to use the coffee shop, but it is the only place in the community other than the pub where they might do so. The village hall is a social enterprise. Would business rates relief be on offer to that part of the premises that has toilets, if members of the public can use them?
Mr Jones
I will deal with the hon. Gentleman’s point in a moment. First, public toilets contribute to high-quality public spaces, and are an important amenity for our communities, as has been said in this debate. They help people, particularly older people, to enjoy what our country has to offer, and to continue to live an active life. That is why we are introducing a measure through clause 9 that will allow local authorities to use their discretionary powers over business rate relief on publicly owned toilets. As my hon. Friend the Member for St Austell and Newquay said, Conservative MPs, particularly in Cornwall, lobbied the Government significantly on this issue. I am sure that he is delighted that the measure is being put into legislation.
Under current legislation, a billing authority cannot grant discretionary relief to properties occupied by a local authority. To pick up on the point made by the hon. Member for Wolverhampton South West, local authorities can grant rate relief to places where owners of private property allow the public to use their conveniences. I hope that that reassures him.
Clause 9 will amend billing authorities’ discretionary relief powers, which are set out in section 47 of the Local Government Finance Act 1988, and will give them the power to grant discretionary relief to publicly owned toilets. The clause will help councils to keep toilets open, and importantly, it will pave the way for savings by parish and town councils, which often bear the burden of maintaining such facilities. Where a billing authority decides to grant discretionary relief, the relevant business rate liability will be reduced or removed altogether.
I will pick up on a couple of points made. I did not catch the name—
Mr Jones
It is kind of the hon. Gentleman to assist me. That sounds to me like it might be a charitable organisation. If that is the case and the property is used wholly for charitable purposes, there is a fair chance that it would qualify for charitable relief, which would reduce the rating liability by 80%. It might be worth him looking into whether that is the case.
I will not go into what the hon. Member for Oldham West and Royton said about the principle of whether NHS hospitals and so on should be subject to business rates. We will debate that fully when we deliberate on a new clause. I certainly took on board what he said about the challenges in some places where there are no public toilets at all; that is a fair point. One of the places that he mentioned was Merthyr Tydfil, which he will know does not come within the remit of the Bill, as it is under Welsh jurisdiction. He will be interested to know that it is my understanding that Wales does not have such a rate relief scheme for public toilets. Perhaps the Labour Administration in Wales might want to take a leaf out of this Parliament’s book and consider implementing a similar scheme.
This is a highly beneficial clause that will support local authorities in keeping valuable public toilets open by reducing the cost of maintaining them, thus preserving important amenities not just for local people but, in many areas, for tourists and visitors. I commend the clause to the Committee.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Central non-domestic rating: other reliefs
Amendment made: 40, in clause 10, page 12, line 32, at end insert—
‘( ) In section 67 of that Act (interpretation: other provisions), in subsection (7), for “and 54ZA” substitute “, 54ZA, 54ZB and 54ZC”.’—(Mr Jones.)
Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover the new sections 54ZB and 54ZC inserted by clause 10.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Thomas
I rise to make a contribution that is in the same spirit as those made by the hon. Members for Thirsk and Malton, and for Northampton South, in the Communities and Local Government Committee debate on 100% business rates retention. I will raise the issues that they might feel intimidated about raising, or be reluctant to raise. That Committee heard concerns about the central list and agreed that Government and local authorities could together consider whether properties on the central list should continue to be held by central Government, and how the revenue generated could be better used under 100% retention. It made the point that it had received representations from throughout the local authority world criticising the central list’s lack of transparency and urging that the revenue from the central list be distributed among authorities. A number of councils said that the accounting was opaque, and London Councils suggested that the basis for including properties on the central list was unclear.
That was perhaps most nicely summed up by David Magor of the Institute of Revenues Rating and Valuation:
“The central list is a mystery; no one knows what the central list is spent on. Is it the Chancellor’s central pot?”
Perhaps that is how Surrey is being sorted out. He continued:
“The central list should be distributed to local government because it is part of rate income. There is no logical reason why the central list should continue in its present form.”
The Minister will by now have gone through the Select Committee report and had time to reflect on the Committee’s concerns about the operation of the central list. I express those concerns, but recognise that clause 10 seeks to ensure that properties on the list can qualify in future for charitable, empty property and telecoms relief. What impact will that have on the approximately £1.5 billion raised in business rates annually, and on the central list? Presumably, were the £1.5 billion to be depleted significantly as a result of all those additional reliefs, there might be consequences for the redistribution of resources among councils. I will not go into the concerns about other impacts on the pool of money raised from business rates, or the scale of the cuts to the revenue support grant, but it would be helpful to hear what estimate Ministers have made of the impact of clause 10 on the £1.5 billion pot.
I have received representations from the Charity Retail Association, which is responsible for representing all charity shops in England. It suggests, instead of the 80% charitable relief to which the Minister referred in discussion on clause 9, 100% relief to ensure no postcode lottery. Some charity shops get 100% as a result of the additional 20%, which is discretionary, being given to them by their authority, but not all do. The association asks for 100%. What do Ministers think of that concern?
Rob Marris
Does my hon. Friend agree that 100% relief for charities would be consonant with what someone—I cannot remember who—called the big society?
Mr Thomas
I will not go down that particular route—you might get annoyed with me, Sir David, and I would not want that to happen—but my hon. Friend makes a good point.
It is worth remembering that the central list primarily focuses on utilities or property belonging to the formerly nationalised industries. One thinks about the privatisation of the water industry, for example, where in general water companies are mostly owned by private equity investors that have taken on billions of pounds of debt, often in the form of loans from shareholders, which the chair of Ofwat as recently as 2013 suggested was morally questionable, in order to avoid corporation tax costs. One wonders whether it is entirely appropriate for such companies to benefit from reliefs in the context of concern about water companies and other privately owned utilities not paying as much corporation tax as they might. It is in the spirit of inquiry that I ask those questions.
Mr Jones
This clause, and clause 11, are concerned with the operation of one of the less well known parts of the business rate system: the central rating list. Most properties are assessed for business rates on the local rating list for the authority where they are located. In cases where a property sits over the boundary of more than one local authority, the valuation officer will place that property into the rating list they believe contains the largest part of the property by value.
Those well established and common-sense rules deal satisfactorily with most properties. However, some properties are less suited to those rules. Network properties, such as the electricity, gas, water, railway and telecom networks, may span many local authority areas. It is of course very difficult—or impossible—to say into which local list those networks should fall, and it would be equally difficult to break up the rating assessments into individual local areas. Therefore, those networks are instead placed on a central rating list maintained by the central valuation officer and held by the Secretary of State.
The clause introduces charitable and unoccupied property relief to the central list. I would like to say that these are not new reliefs; the same properties on local rating lists have been entitled to relief since business rates were first introduced in 1990. We are merely replicating those reliefs on the central list. It is of course fair that properties that would be eligible for relief on local lists should also be eligible for relief on the central list. Introducing charitable and unoccupied relief to the central list will therefore allow us to include any properties on the central list that may become eligible for such reliefs.
A couple of questions were asked. First, in relation to charity relief and whether we will look to extend that, as I said a little earlier, all taxes are generally under review, but there are no plans at this time to change the system of charitable reliefs.
The hon. Member for Harrow West asked about the cost of the changes we want to make to the central list. We are not aware of any existing properties on the central list that may be eligible for charitable or unoccupied relief. The canal network was on the central list when it was occupied by the British Waterways Board, but since it has passed to the Canal & River Trust it has been on the Birmingham local list, where it receives charitable relief. The extension of these measures to the central list will allow us, where appropriate, to move on to the central list properties that may be eligible for relief.
Mr Jones
I thank the hon. Gentleman for that question. As I said, we are looking to bring these provisions into line with the provisions on the main rating system and the main local list, but we are not aware of any existing properties that may be eligible for charity or unoccupied reliefs at this time. On that basis, I will leave it there in the hope that clause 10 will stand part of the Bill.
Question put and agreed to.
Clause 10, as amended, accordingly ordered to stand part of the Bill.
Clause 11
Central non-domestic rating lists
Amendment made: 41, in clause 11, page 15, leave out lines 7 to 9 and insert—
“(8B) In relation to England, a hereditament falls within a description or class on a particular day if (and only if) it falls within the description or class immediately before the day ends.”;”—(Mr Jones.)
This amendment makes it clear when a hereditament is to be regarded as falling within a description or class for the purposes of Part 3 of the Local Government Finance Act 1988.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Thomas
I have some brief questions on clause 11. According to the explanatory notes, Ministers are apparently worried that maintaining the central list would give rise to an increasingly heavy process and regulatory burden. It would be good to hear an example from the Minister to understand the justification for that concern. The fear, rightly or wrongly, is that it could affect the business rates income of a local authority adversely if a large property were moved on to the central list from the local list. What estimate, if any, is there for the likely annual impact on the central list and what arrangements for consultation between the local authority and the Department would there be before a property was moved off the local list and on to the central list?
New section 52A(2), which clause 11 inserts into the Local Government Finance Act 1988, allows separate rateable values for separate types of property to be attributed to separate types of property in the future. Can the Minister give an example of when and how that new power might be used?
Mr Jones
Clause 11 is concerned with the administration of the central rating list. The central list mostly comprises network properties that span many local authority areas and so are less suited to being on local rating lists. The list itself is a public document and is readily available to view on the Valuation Office Agency’s website. It includes ratepayers such as Network Rail, BT and National Grid together with their rateable value. It is clear and transparent which ratepayers and networks appear on the central list and what they pay in business rates. The rates bills on the central list are collected by my Department and directed for the benefit of local government.
When the system was first introduced in 1990 there were fewer companies than now operating a smaller number of large utility networks and infrequent changes were needed to the central rating list. However, we increasingly find that we have to make several minor administrative regulations a year just to maintain the accuracy of the existing central rating list. New operators also continue to join such sectors with new properties and it is proving increasingly difficult to keep pace with these changes using the existing system of regulation. As a result, some of the new network properties, and especially those in the telecoms sectors, have been assessed on the local rating lists instead of the central rating list. The choice of which local list to place such networks on is difficult and often the subject of challenge. In turn, that has created uncertainty and instability for local government revenues. As such, the current operation of the central rating list does not provide us with a solid foundation on which to move to 100% business rate retention.
That problem has been recognised by local government. The sector has called for reform in this area. Therefore, the Government intend to devise and operate a transparent policy for which properties should be appearing on the central rating list and then apply that policy consistently from the outset of the 100% retention scheme. That will provide certainty for both ratepayers and local government and is a reform that has been welcomed by local government.
Mr Jones
Amendments 42 and 43 are minor and technical amendments that clarify the drafting of clause 12. Clause 12 enables the Government to require billing authorities to offer the option of electronic billing to all ratepayers. That provision covers both the electronic service of notices and the issuing of documents, to reflect the fact that under the relevant legislation, business rate bills can incorporate both demand notices and accompanying documents.
The amendments clarify the drafting of clause 12 by making it clear that, while notices are served on a ratepayer, any documents are issued to. These are very minor changes that simply improve the drafting of the provision and do not alter the effect or policy outcome of the clause.
Jim McMahon
I have a quick question on this measure. I recognise that these are, by and large, drafting amendments, but I want to briefly probe the clause. My point also talks in some way to clause 14. Is it the intention at some point to move on from simply electronic billing, which feels quite old-fashioned already—utility companies have been doing that for quite a long time—to online accounting, where companies can log on to an account that has all their property information contained in one place, regardless of local authority?
Mr Jones
Without moving ahead to debate clause 14, as the hon. Gentleman will know, that clause is a paving provision, which provides the scope for Her Majesty’s Revenue and Customs to develop a new system in that sense. What it does not do is allow that system to be implemented; it would probably need primary legislation to be implemented. I hope that I can therefore reassure the hon. Gentleman that there is no hidden agenda in relation to clause 12.
Amendment 42 agreed to.
Amendment made: 43, in clause 12, page 15, line 39, after ‘served’ insert ‘or issued’.—(Mr Jones.)
This amendment makes a minor drafting change.
Clause 12, as amended, ordered to stand part of the Bill.
Clause 13 ordered to stand part of the Bill.
Clause 14
Provision of digital etc services by HMRC: preparatory expenditure
Question proposed, That the clause stand part of the Bill.
Jim McMahon
May I ask the Minister a question about confidence in IT systems? Back when I was a council leader, we were implementing what we call My Account, the principle behind which was to bring together a range of different data held by the local authority in different datasets and different IT systems into one place so that residents could log on, see their interactions with the local authority, pay bills, raise issues and, we hoped, get a more tailored service. In a neighbourhood—Oldham, for instance, has brought together seven townships, so people have a very localised identity—a tailored service would bring out local libraries, community centres or events in that area. A similar IT system was implemented by Transport for Greater Manchester. As London has its Oyster card, the Get Me There card in Manchester was designed to be a single card that could be used on different modes of transport across different operators.
With both projects, there were two lessons. First, they showed that we should never believe what an IT salesman offers—usually salesmen will say what we want to hear, but the technology does not always follow. Secondly, they showed just how complicated it is to bolt together different IT systems. The patches needed to get the different systems to talk together can be very complicated, extremely time-consuming and, as a result, extremely costly. IT data coders are not the cheapest labour to employ. Given my own experience and reflections on IT systems, and given Government experience across political parties—no elected politician has wanted an IT system to fail, and we trust professionals to get on and do the job promised, although sometimes that works and often it does not—what confidence does the Minister have that we can genuinely move towards a system for HMRC that provides the type of functions proposed in the Bill?
Mr Jones
The hon. Gentleman raises a very important matter. There has been a catalogue of challenges with IT projects down the years, most notably the NHS supercomputer, which reportedly cost the Government of the day about £13 billion and never worked. We had IT challenges with regard to police and fire control centres—again, the system never worked and was finally aborted. We do have to be careful and cautious, as the hon. Gentleman points out. The measure in the Bill, however, will not lead to a full-blown programme, but will enable HMRC to carry out the early design work and engagement to develop proposals for how that particular principle of providing digital services can be developed. Given the spirit of my explanation, I hope the hon. Gentleman is reassured that this is about early design and engagement rather than entering into a full-blown IT project which, as he rightly pointed out, can often be challenging.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Power to impose infrastructure supplements
Question proposed, That the clause stand part of the Bill.
Mr Thomas
I support the clause, but will the Minister give some clarity on what seems to be an unfolding situation with a vital piece of national infrastructure: Crossrail 2? According to a report in yesterday’s Evening Standard, Government insiders—we do not know whether they were called Nick on this occasion—revealed concerns about stumping up half the current £30 billion, claiming that Ministers were going cold on the idea. The remainder of the approximately £32 billion cost would be funded by London fare payers, taxpayers and London businesses.
We know that the previous Chancellor, before the current Prime Minister sacked him for incompetence, gave a green light in last year’s Budget but, sadly, without a detailed plan for funding, timing or legislation. You will know, Sir David, that Crossrail 2 would increase the capital’s rail capacity by 10%, bringing an extra 270,000 people into central London while cutting journey times at the same time.
In the context of London’s expected rising population of 1 million over the next 10 years, more investment in London’s infrastructure is clearly hugely important. Data have been released to try to persuade Ministers to continue with the previous Chancellor’s commitment, with the suggestion that without Crossrail there will be a meltdown at a minimum of 17 stations across the tube network. In the context of clause 15, can the Minister give any reassurance to a former Member of this House, now our excellent Mayor of London, Sadiq Khan, that the Government will continue to stump up their 50% for Crossrail 2?
Mr Jones
The Government are paving the way for the election of combined authority Mayors. They will be the focal point for delivering real economic benefits across their areas. Six areas are preparing to elect Mayors in May. This means that, subject to parliamentary approval, a third of people in England will have a directly elected Mayor, like the Mayor of London, on the principle that they will create jobs, improve skills, build homes and make it easier to travel across their areas.
While I am on that point and in response to the hon. Member for Harrow West, the business rate supplement for Crossrail is expected to generate income of about £4.1 billion towards the total estimated cost of that project of £15.9 billion. It is difficult for me to comment on speculation and supposition, particularly from an unnamed and unverified source, so I will not enter into that today, apart from saying the Government have positively supported the Crossrail 2 project from the outset.
The Mayors will work with partners across their areas to bring a louder voice, strong co-ordination and clear accountability for local people. They will be responsible for driving economic growth and regenerating their areas. We are devolving specific power and budgets to help them to achieve just that. One key way that Mayors will deliver on that is through strategic investment in infrastructure. Each mayoral combined authority has a long-term investment fund of up to £36.5 million a year. To boost that investment, we want to give Mayors a powerful fiscal tool to raise up to 2p in the £1 to invest in infrastructure that will benefit local businesses and the broader community. The clause sets out that relevant authorities can impose a settlement and confirm who will be subject to it and for what kind of project it can be used.
Mr Thomas
I beg to move amendment 29, in clause 16, page 17, line 5, at end insert”, or
(c) any other billing authority.”
This amendment would enable any billing authority to impose an infrastructure supplement on non-domestic ratepayers in its area.
Having made clear my support for the power to impose an infrastructure levy, I come to the question of who should be allowed to impose it. It appears that Ministers are determined that only authorities with a Mayor should be allowed to do so. That seems to us to be a grotesquely unfair act of discrimination against local authorities that need investment in infrastructure but have decided for their own local reasons that a Mayor is not a suitable way forward for them.
One thinks in particular of the authority of Cornwall, which the hon. Member for St Austell and Newquay will know has done a deal with the Government without needing to elect a Mayor. Cornwall Council made representations to the Select Committee on Communities and Local Government, on which the hon. Members for Northampton South and for Thirsk and Malton sat. Cornwall Council felt that it would be at a disadvantage if the provision were introduced and it was not allowed to benefit from it.
In addition, the Select Committee received evidence from the Chief Economic Development Officers’ Society. It is worth bringing attention to the significant bit of that evidence. CEDOS said:
“In the move to 100% business retention, it is essential for all areas, as far as possible, to have a level policy playing field on which to drive economic growth. In our view, the intention that only areas with elected city-wide mayors will be able to add a premium to business rates to pay for new infrastructure is fundamentally at odds with this. We believe this power should be available to all areas with the provision that a majority of all businesses should agree, which we think is a reasonable one.”
The Select Committee went on to urge the Government to consider with local authorities whether, by placing areas without a directly elected Mayor at a disadvantage, the proposal conflicts with the aim of 100% retention.
I can think of a number of areas—I return to the example of Allerdale Borough Council—that need significant investment in infrastructure from time to time and where the power to introduce an infrastructure levy could make a significant difference to economic growth in the area. Let us take the example of flooding. In the past, Allerdale Borough Council has had a number of significant floods in its area, and it has been fortunate to secure grants to help with flood prevention measures. However, given the pace of climate change, one could easily imagine a scenario in which funding for further work is required to prevent flooding and to allow businesses to operate effectively. Without the infrastructure investment, the local authority might become less attractive to businesses. It is not impossible to envisage a situation in which businesses wanted to move out of the area. Indeed, one area that was the victim of significant flooding in Allerdale is the area that most large businesses are attracted to as a base.
I offer that as an example—as far as I know, Allerdale Borough Council does not have a Mayor and has not done a devolution deal with the Government, but it will have infrastructure needs. Surely it should not be left at a disadvantage compared with authorities that have a Mayor.
Rob Marris
To give my hon. Friend another example, over in East Anglia, Waveney might suffer from coastal erosion.
Mr Thomas
My hon. Friend makes a good point; it is a shame that the hon. Member for Waveney is not here to help us to think about the impact on coastal areas. When we talk to businesses—as the Opposition do regularly—infrastructure investment is one of the areas that they continue to cite as crucial for future economic growth. We are all aware of the regional inequality in this country and the need to try to generate further economic growth at a faster pace outside London and the south-east.
I am not surprised that the Chancellor of the Exchequer would want to go to Manchester, which is one of the leading districts where Labour authorities are leading the charge to help businesses. However, one needs to recognise that the advantages that Manchester has pursued—rightly, in terms of a levy for the purposes of investment in infrastructure—would also benefit authorities elsewhere in the north, the north-west and the midlands, and no doubt in Cornwall, Northamptonshire and other areas. This is a question of fairness and equality and of investment in areas that do not have a Mayor. I look forward to the Minister’s attempts to justify why authorities that do not have a Mayor should be denied the opportunity to benefit from this type of infrastructure investment.
Jim McMahon
This amendment is one of the most important to the Bill. A number of amendments have been crucial for obtaining information from the Government, but this one is absolutely critical to equality and the ability to grow our local economies.
The town that I represent is part of a combined authority. It has been part of joint working across Greater Manchester since 1986. I was the first leader of the council to sit on the new combined authority that had additional powers from Government; that combined authority is due to elect a Mayor in May. It is playing the game in the way that the Government set out, but that does not mean that every town in that area is able to develop its local economy in the way that it ought to.
Let me give an example. We already agree across 10 boroughs on the priority projects for the city region. The bar is set quite high: the question is, what will benefit 2.6 million people and the wider economy? More localised infrastructure investments never quite make it up the list of priorities, because they do not benefit the wider city region significantly enough, though they are extremely important locally. I am talking particularly about the remediation of brownfield sites that have been lying derelict.
Mr Jones
Is the hon. Gentleman advocating for the directly elected Mayor of Greater Manchester combined authority being able to levy an additional business rate supplement for infrastructure, while an individual authority in the Manchester city area could layer a supplement on top of that, without further safeguards for local businesses?
Jim McMahon
I am not suggesting that at all. I am saying that differential devolution is being proposed—there is some devolution to Mayors in combined authorities that is not on offer to other billing authorities—and that does not create a relationship of equals. For instance, in Greater Manchester the Mayor would be able to introduce a 2% infrastructure levy; if the local authority had the same power, that would create a more level playing field and allow a mature debate about how that might be teemed and ladled. For instance, it might be agreed across Greater Manchester that 1.5% could go into the central pot for the city region and 0.5% retained locally for more localised infrastructure investment. Alternatively, under the provisions of the combined authority order, Oldham could choose to opt out of the combined authority. It could decide that the city region was not working for it, give the required notice period and come out. However, it should not then be disadvantaged by not having the retained powers that the Mayor has, when at that point, the Mayor would not be representing the area, while directly elected councillors would. That equality is what we are trying to get to.
My hon. Friend the Member for Harrow West, the shadow Minister, has gone into detail on the number of areas that have perhaps not got over the line and agreed to a Mayor, but there are more than 20 million people living in areas that are not even part of any mayoral discussion. Apart from the areas that have deliberately chosen not to have a Mayor, there are many areas that do not have the access to Government to even have that conversation. Are we saying that their economies are less important because of that? It strikes me as an odd approach, if we believe in localism and growing the economy locally, because let us be honest, the days of an employer opening a massive factory that employs 5,000 people in a community are long gone in many areas. Economies will grow from small and medium-sized businesses developing in the community, and hopefully growing in scale. However, if we do not plant the seeds to enable that, then I am afraid that we are saying that towns such as Oldham, which have weak economies that have not been rebuilt, will be left behind, and that is not good enough.
I can begrudgingly accept that the Mayor is a means to an end—I do not think that having a Mayor should be a requirement of a combined authority deal, although that is the game being offered and many areas are playing it—but I absolutely believe that local freedoms and local economic development powers should be available for every corner of the country, not just the hand-selected parts that have direct access to Department for Communities and Local Government civil servants and Ministers. I put it strongly: this is coming not just from Labour Members, but from a lot of Conservative council leaders, who are sick of this very urban/northern/midlands view of economic development. They feel that their area is being left behind by their own Government.
Jim McMahon
I absolutely agree. I attended the District Councils Network conference, and exactly the same message was coming from our district councils, which are billing authorities as well. They are saying: “We accept that the Government want to grow the city regions. We accept that that will be a priority, and we do not begrudge that. What we begrudge is being left behind and having no solutions for our localised economies.”
Throughout this process, the Government, almost on a point of principle, have refused every amendment suggested, regardless of its merit, the logic or the evidence base referred to. This amendment would galvanise support for the Bill from right across the House and across local government. It is the right thing to do. It would offer every part of the country the chance to grow and develop in line with local circumstances, and it would show everybody that the Government were serious about letting go.
I plead with the Minister; this is what council leaders have told us they want. Of all the amendments that he might want to make concessions on, this is the easiest one to give away. It is the most logical, and would galvanise support across every political shade of local government.
Mr Jones
I thank the hon. Member for Harrow West for his explanation of amendment 29, which would add all 326 billing authorities to the definition of a relevant authority in subsection (1), and would mean that an infrastructure supplement could be levied by billing authorities, and not just mayoral combined authorities and the Greater London Authority. Hon. Members will understand that we cannot support the amendment for several reasons. In preparing these measures, the Government’s view was, and continues to be, that the settlement should be made available in the areas in which it can have the greatest impact. Furthermore, major infrastructure investment needs to be considered at a city or a county-wide scale. The settlement should therefore be operated at a level that reflects the functional economic geography of the area.
Jim McMahon
The point is raised wherever we go around the country that that approach makes sense in urban areas, where the economy is centred on the city centre and moves outwards, but county areas, for instance, are completely different. They do not have central economies; they have very complex economies that do not respond in the same way, which is why we tabled the amendment. This measure would benefit more Conservative council leaders than Labour council leaders. We are not pleading for Labour authorities in isolation; we are pleading for common sense and logic.
Mr Jones
The hon. Gentleman takes a very benevolent view to Conservative local authorities, which is quite a departure from the view he sometimes takes, but I take his point on board. I will explain the situation relating to county areas, which the hon. Gentleman is speaking for, in a moment.
Mayoral combined authorities and the Greater London Authority have strategic oversight of their functional economic areas and their needs. Mayors of such authorities will therefore be best placed to engage with businesses to assess what type of infrastructure could help to grow their economies and deliver infrastructure at a significant scale. That can make a real difference. When someone exercises power over a large geographical area, we have to have someone whom the public throughout the entire region can hold accountable. No individual council leader, MP or anyone else has been elected across the scale of a whole combined authority area. That is why the elected Mayor is the best option, and the best way to deliver accountability.
Jim McMahon
I do not necessarily want to find holes in every element of the Minister’s argument, but there is a gaping hole in this element of it. There are some areas that sit outside combined authorities but are covered by a directly elected Mayor.
Mr Jones
There are, of course, non-constituent members of combined authorities that do not elect Mayors, but as the hon. Gentleman knows, they are not full members of a particular combined authority and would not therefore benefit automatically from things such as gain-share payments, which combined authorities have been provided with, and they would not generally be subject to the infrastructure levy and the business rates supplement, which can be provided for by a directly elected Mayor.
Jim McMahon
With all due respect, that is nonsense. Is the Minister saying that the Mayors of Doncaster, Hartlepool, Bristol and Salford, who are directly elected and cover the whole of their geography and the whole of the billing authority area, cannot have the same powers as a Mayor covering a wider area? The argument that has been put forward is about democratic accountability. Well, democratic accountability also applies to those areas, and some of them may choose to be part of a combined authority. Let us have fairness and a level playing field, and let us give the same powers to all directly elected Mayors, whether in a combined authority or a local authority. That would at least be a compromise position.
Mr Jones
I hear what the hon. Gentleman says, but I was talking about a combined authority area, not an individual authority area.
We must not lose sight of the other options available to councils for delivering additional benefits to and growth in their areas, though we seem to have done so to an extent in this debate. For example, business improvement districts may be established in every area of England. The Bill also includes provision for property-owner business improvement districts throughout England, not only in London. Going back to the point about elected Mayors in individual authorities, we already have provisions enabling the introduction of a business rates supplement to the levy for investing in projects that promote economic growth and development. Councils already work with businesses using existing resources to deliver a positive economic environment. The local growth fund is another mechanism used by local enterprise partnership areas and local authorities in that regard.
Having reflected on the points that I have made, I am not sure that I will completely convince the hon. Member for Oldham West and Royton, but I encourage the Opposition to withdraw the amendment.
Mr Thomas
It is a little surprising that we did not hear from hon. Members representing Cornwall, which will be discriminated against. There has been a devolution deal for their authority that did not include a Mayor; they were not aware at the time that they would miss out on this.
Steve Double
I note with interest the hon. Gentleman’s dig at Cornwall, but Cornwall is incredibly proud to be the only rural area that has had a devolution deal with the Government. We see that as a sign of the Government’s support for and confidence in Cornwall. The deal is not the end of the story. We do not know where it will take us, but in Cornwall, rather than putting down the devolution deal we have been granted by the Government, we celebrate it.
Mr Thomas
I am not doing down devolution at all; I am merely representing the concerns of the hon. Gentleman’s council, in a way that he is not doing, about its exclusion from the ability to levy the infrastructure supplement. I would applaud his representing his constituents and his council’s concerns properly, and his wanting to see the devolution deal that his council has negotiated enhanced in the way that we are suggesting.
The Minister has made an attempt to justify the exclusion from the measure of all authorities that do not have a combined authority and a Mayor. I have to say that it was not a convincing performance. Given the number of representations that we have heard from county councils and district councils that are frustrated with the insistence of the Secretary of State and the Minister that there has to be a Mayor before they may have this power, we will speak for them in a way that the hon. Member for St Austell and Newquay will not speak for his constituents. We will speak for councils in Swindon in a way that the hon. Member for North Swindon will not. We will speak for the residents of Torbay, who need investment in infrastructure, in a way that the hon. Member for Torbay will not.
Justin Tomlinson (North Swindon) (Con)
To be clear, Labour does not speak on behalf of the people of North Swindon, because I gained the seat, and Labour lost control of the council when it put up council tax by 43% in only three years. That disgraceful situation has meant that we have had a blue town since 2003.
Mr Thomas
When the residents of Swindon hear that there was the opportunity for investment in infrastructure but the hon. Gentleman voted against it, I suspect that a red Swindon will be closer. We will vote for equality—we will press for a Division on this amendment.
Question put, That the amendment be made.
Mr Thomas
I beg to move amendment 44, in clause 17, page 17, line 25, leave out paragraph (a).
This amendment would enable funds raised through the infrastructure supplement to be spent on housing.
In introducing the power to introduce an infrastructure supplement, clause 15 states:
“The purpose of imposing an infrastructure supplement is to raise money for expenditure on a project that the authority is satisfied will promote economic development in its area.”
Amendment 44 is completely in line with that stated purpose as it deletes clause 17(3)(a), which explicitly prevents relevant authorities from spending the sums raised through an infrastructure supplement on housing.
Given the fanfare that accompanied the long-awaited housing White Paper earlier this week, it might surprise some observers that, while Ministers claim to be bold and radical in tackling the housing crisis, they are failing to take this opportunity to enable mayoral combined authorities and the Greater London Authority to invest in housing, which would in turn promote economic development. Sadly, it is all too familiar for those of us on this side of the Committee who know that Ministers’ rhetoric does not always match reality.
Committee members know that I like to be pithy and get to the point, and I have checked the dictionary so that I can be precise in my use of language on the amendment. The Oxford English dictionary defines infrastructure as:
“The basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise”.
There is nothing in that that makes me think that housing might be excluded from any appropriate definition of infrastructure spending. Increasingly, businesses see housing as vital to their future growth.
There may be some Committee members who, for some reason, do not take an interest in London’s affairs. They might not have come across a wonderful business membership organisation called London First. Its mission is to make London the best city in the world to do business in. As a London MP, I have always known London First to do an excellent job in reflecting its members’ priorities. Of the two major campaigns that London First is currently running, one relates to the urgent need for action to expand airport capacity in London and the south-east, and the other is a campaign to double house building in the capital to 50,000 homes a year. As London First explains,
“the capital has a serious housing shortage that is starting to limit its competitiveness. Substantial increases in house prices and rental costs mean people from all walks of life are struggling to find accommodation.”
It worked with the Confederation of British Industry and the Federation of Small Businesses to develop the campaign. It is worth dwelling on several of the key findings of their survey of members. Some 68% of the members who responded to the survey were worried about the impact that a shortage of housing and high prices is already having on their ability to recruit and retain staff; 75% were concerned about the future impact that rising housing costs will have on their ability to recruit and retain staff; and 70% believe that the housing crisis will affect London’s future economic success.
Mr Jones
I thank the hon. Gentleman for his explanation of the amendment. I do not agree with all he said, particularly in relation to the White Paper and our record in recent years on building new council housing, bearing in mind that more council housing has been built in the past seven years than was built in the 13 years of the Labour Government. That said, the amendment would remove the reference to housing in the list of exclusions at clause 17(3), allowing funding raised for the infrastructure settlement to be spent on housing.
We are clear that the supplement should deliver direct benefits to local businesses and as such should be focused on delivering infrastructure that will create a better economic environment. The supplement expenditure should also be additional—that is, spent on infrastructure that otherwise would not get built. That will be crucial in engaging with businesses locally and securing their support for any such proposals.
Clause 15 makes clear that the supplement must be spent on infrastructure that will promote economic development. That will enable Mayors to invest in a wide variety of projects—for example transport, digital and broadband—that have the potential to make significant improvements across an area, and to support broader investment that will best serve the local business community.
The Mayor is directly elected, as we have discussed, by the local people and so has a mandate to decide what best serves the interests of the community. In many cases, we would expect the infrastructure delivered through the supplement to have a beneficial impact on housing delivery anyway. Crossrail, which was funded by a business rate supplement, as we have discussed, will enable an additional 57,000 new homes to be built and help create £5.5 billion of additional value to residential and commercial real estate along its route between now and 2021.
The hon. Gentleman may wish to note that the Government already support housing infrastructure in a range of ways, including the £3 billion home building fund, which provides loans to house builders of all sizes. We also give capacity funding to local authorities to support the delivery of large housing sites and housing zones, and we have recently announced a £2.3 billion housing infrastructure fund. This is grant funding for local authorities to support housing delivery on sites where viability is marginal and it has the potential to unlock up to 100,000 units in the areas of greatest housing need.
Jim McMahon
On that point, does it not go against the spirit of localism and devolution to expect local areas to come to the Government with a begging bowl for housing funding?
Mr Jones
All I can say is that we are damned if we do and damned if we do not. If we do not offer up significant funding streams to support projects for local areas, Opposition Members criticise the Government. When we do offer up significant funding—the £2.3 billion in the housing infrastructure fund is indeed significant—we are again criticised, so I am not sure what the Opposition want. I would encourage areas, as I hope the hon. Gentleman will encourage his area, to look to the fund to unlock new housing that is badly needed across the country.
Having reflected on the points that have been made, I am not convinced that amendment 44 is worth supporting. I therefore ask the hon. Member for Harrow West to withdraw the amendment.
Mr Thomas
I have heard what the Minister has said. I have also heard the response of my right hon. Friend the Member for Wentworth and Dearne (John Healey), who speaks on housing for Her Majesty’s loyal Opposition, who described the housing White Paper, quite accurately, as less a White Paper and more a white flag. That encapsulates the reality of the Conservative party’s approach to housing. The Minister has missed an opportunity by rejecting amendment 44 out of hand, but I do not seek a Division on the amendment at this point, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Rob Marris
This is a somewhat confusing clause, because it is entitled “Use of money raised by infrastructure supplements”, but what it goes into, in subsection (3) for example, is what the money cannot be spent on. Now, I understand that. I listened to the Minister—as an aside, I have to say that I was not convinced by what he said about housing and I hope he will reflect on it, but I understood what he said. This is part of the forbidden list, which runs to six factors in subsections (3)(a) to (f). However, to come back from that a bit, we have a problem, in that clause 36—definitions and interpretations—does not tell us what infrastructure is. I hope the Minister can tell me, either now or later, where in the Bill the definition of infrastructure is, because I cannot see it—it might be there, but I cannot see it. At the moment, we seem to have a Bill that does not say what infrastructure is and says only what the money cannot be spent on.
I am aware that clause 33—we will get to it later, Sir David, but I have to refer to it now, as it is very germane—refers to the guidance that can be given by the Secretary of State on what money can be spent on. The Minister gave us a little indication a few moments ago, because he referred to infrastructure projects—the use of the money that would be permitted under clause 17—to create, to quote him, “a better economic environment”. He then said something that, again, I cannot see in the Bill—he may correct me; it might be there, and if it is not, it sounds as if the Secretary of State would be minded to have it in the guidance. The Minister said that the projects would have to be “additional”, and that the money would be spent, to quote him again, on something that would “not otherwise get built”.
The Minister, like me, is a Member of Parliament for the west midlands, although I am in the urban core of the west midlands, directly under the combined authority. Nuneaton is in Warwickshire, which is a bit hokey-cokey about the combined authority, with its local enterprise partnership and so on, but Wolverhampton is squarely in there. As a west midlands MP who is astute about what is going on, the Minister will be aware that a subject of political debate in the mayoral elections for the West Midlands Combined Authority is whether it should buy the M6 toll road.
Jim McMahon
The points raised by my hon. Friend the Member for Wolverhampton South West are absolutely key to the freedoms that Parliament says it is keen to give away to local government. Clause 17(3)(a) to (f) lists the items the money and infrastructure supplement cannot be used on. I would welcome an intervention from the Minister if he can provide clarity. This feels as if he is trying to tell local authorities that, however tight their budgets, they cannot use the supplement to fund council services that should be funded elsewhere, which is why it refers to social services, education services, services for children and health services as opposed to schools, health centres or day care centres.
Will the Minister clarify whether this is “services”—the revenue element of service provision in the public sector—or a restriction on building capital projects such as new schools and health centres?
Mr Jones
I pick up on the point also made by the hon. Member for Wolverhampton South West about the definition of infrastructure. The hon. Gentlemen are quite rise to raise that. First, we are leaving to the Mayor’s judgment what type of project might deliver appropriate infrastructure that promotes economic development. The term “economic development” is key.
As we have said, in making that economic development happen we have talked about transport infrastructure, digital networks and so on and so forth that will deliver those types of economic benefits and economic growth. To reiterate, we are leaving it to the Mayor’s judgment. We can safely say, in that context, that we would not expect the type of project the hon. Member for Oldham West and Royton is suggesting, such as a children’s centre, to be funded.
Jim McMahon
The way the Bill is worded will only make lawyers wealthy and councils frustrated, because subsection (3)(a) is very clear that the money cannot be used for housing—we know what a house is—but paragraphs (b) to (f) are less clear, including with regard to social services. There is a difference between facilities and service provision within those facilities. The restrictions on what the money can be used on in the Bill include social services, education services, services for children and health services, but not building schools, Sure Start centres, youth centres, day care centres or healthcare centres.
I sought clarification from the Minister about exactly what that means. The response was that it will be up to the Mayor; there will be local discretion. However, there is not local discretion—there is an explicit list excluding what the Mayor will not be able to spend the money on. Is there an in principle objection to using the supplement funds for revenue costs? There is a degree of logic to that; it is not the supplement’s intention. However, owing to the way the Bill is worded, I suspect that any council or Mayor could take the infrastructure supplement and go on a school building programme. I think many communities would welcome that. Many communities would probably not welcome the inability of that same Mayor to provide housing with that fund, or even, as part of a wider development, to potentially provide gap funding for a housing requirement as part of a mixed-use development.
For a Minister who has tried to promote economic growth to restrict Mayors in that way makes no sense whatever. I ask him to go back and speak to the civil servants, and to clarify before the next sitting—maybe even in writing—whether subsection (3)(a) to (f) is intended to restrict the revenue use of that infrastructure supplement, or the intention is that it is not to be used to build such facilities. Do the Government intend to come back with an amendment to clarify the wording?
Mr Jones
Elected Mayors of mayoral combined authorities will have a strategic overview of their areas, so will be well placed to deliver projects that have a significant effect on local economies. The infrastructure supplement provides a unique opportunity to deliver infrastructure investment at a significant scale to benefit local businesses and communities. As I said earlier, that will be infrastructure that would otherwise generally not be built. Clause 17 sets the parameters for how many ways can be used to help to ensure that that is achieved.
Naturally, the supplement can only be spent on the project for which it has been levied. The sums received can be used to pay off loans secured to pay for the project to which the supplement relates, which may well answer one of the questions asked by the hon. Member for Wolverhampton South West on the west midlands and the idea of some sort of involvement in the Birmingham northern relief road, which I think he was referring to.
Rob Marris
I was specifically referring to the M6 toll. If the M6 toll is taken over and is made free, that will create economic development through the west midlands urban centre proper because it will take pressure off the current M6; it is not a question of a northern relief road. The Minister has mentioned again stuff that would not otherwise get built. I am getting the message from him, but I cannot see that in the Bill.
Mr Jones
When I say Birmingham northern relief road, I mean the M6 toll. That was its previous name when the project was brought forward and delivered under the Margaret Thatcher Government during the late 1980s and subsequently built during the 1990s with private finance, as the hon. Gentleman will recall.
The point is about a Mayor of a particular combined authority area. I think most businesspeople in the west midlands will think that Andy Street is the right man to undertake that role, because of his extensive knowledge of the business world and how to get the west midlands economy moving. If he were elected Mayor, he would have to decide whether it was worth while to undertake projects such as opening that toll road to general traffic, which would have an economic benefit.
Mr Jones
No, I will make some progress. So I hope that clears that point up.
As we have said, the money raised cannot be used to provide existing council services, such as social care. The clause provides a list of areas of expenditure that are excluded from the infrastructure supplement, and it includes provision for the Secretary of State to amend that list through regulations. Any such regulations would of course be subject to the affirmative procedure. There are also provisions to enable the Mayor of London to channel funding through the Greater London Authority’s functional bodies, such as Transport for London. The rest of the clause recognises that projects may have other funding streams, including from lower-tier authorities.
The hon. Member for Wolverhampton South West insinuated—I think when we debated amendment 44—that I may not be interested in housing in terms of infrastructure. I reassure him that I am interested in housing, which is extremely important. That is why the Government have set out significant measures in our White Paper that we are looking to consult on. He mentioned reflecting on the debate about amendment 44. I reflect on all the clauses that we debate, but to be clear, the arguments that were put forward did not convince me that it was worth supporting that amendment. I clarify that so the Committee and the hordes of people who no doubt will read Hansard understand that the Government are absolutely committed to delivering new housing. On that basis, I ask the Committee to support clause 17.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 33 to 36 stand part.
Rob Marris
Clause 33 relates to guidance and, according to subsection (2)(a), that will cover:
“the kinds of projects which may, and may not, be regarded as appropriate ones in relation to which to impose infrastructure supplements”.
Will the Minister give us some idea as to when the guidance is likely to be issued by the Secretary of State and its legal force? In the Bill we have had “direction”, in a different context, and “regulations” used. This is “guidance”, but how strong is guidance? If the Secretary of State gave guidance that school buildings were not to be included in an infrastructure supplement but the Mayor of a combined authority wished to include them and could make an argument that they were infrastructure, who would get their way?
Mr Jones
Clause 33, as the hon. Gentleman rightly said, will require Mayors to have regard to any guidance that the Secretary of State provides in relation to infrastructure spending. The Bill sets out a wide range of requirements that must be applied to the development of an infrastructure supplement, including who can impose a supplement, restrictions on what it may be used for, the consultation that must take place and what should be included in the prospectus. In addition, the clause provides that the Secretary of State may issue guidance to assist Mayors and businesses in the process. The type of guidance that I would expect to be issued by the Secretary of State would be statutory guidance, so there will be a formal guide for the particular Mayor in a particular area to work to.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Clauses 33 to 36 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.— (Jackie Doyle-Price.)
Pension Schemes Bill [ Lords ] (Third sitting)
(7 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 4 / Noes: 10 - Question accordingly negatived.
Alex Cunningham (Stockton North) (Lab)
I beg to move amendment 30, in clause 28, page 20, line 14, after “charges” insert
“, including any caps on these charges,”.
This requires members to be informed about caps on charges.
Good morning, Mr Rosindell. The amendment is straightforward: it would ensure that members are given accurate information, particularly where caps have been placed on the charges alluded to in the clause. As the Secretary of State has yet to determine costs and charges throughout a pension scheme—not just administration but investment and transaction costs—we have yet another delay in ensuring that scheme members are delivered the efficiencies that they deserve. We are also dependent on the Secretary of State bringing forward secondary legislation on the continuity strategy, which means yet more delay.
I am in danger of repeating myself, but scheme members really ought to get more information about the issues that affect their pensions. We have to start somewhere, and I maintain that the Bill remains a good place to do that. As I have said elsewhere, the Government support a cost-collection template in the local government pension scheme, which prompts the question: why do they not use that for master trusts instead of going down the road of yet more consultation?
I know from experience this week that the Minister is unlikely to be sympathetic to the amendment. Assuming that we are in that place again, what consultation is he planning with scheme members on the need for greater transparency and how they think they ought to be informed and given the opportunity to be active rather than passive scheme members?
The Secretary of State said last week:
“We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]
I had hoped that we could go some way to implementing at least some measures to help to fill the communication deficit, but now we will have to wait even longer. Trust members would have a little more confidence in this Government if they took this opportunity to take action on costs and charges and the need to share information about issues such as caps.
I conclude with a final question for the Minister. The review is under way. Is he satisfied that he will have the powers under the Bill or any other piece of legislation to accelerate the drive for greater transparency, or will we have to wait for another pensions Bill, which I understand is unlikely during this Parliament?
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
I can do no better than to echo the sentiments of the Opposition spokesman in welcoming you back to the Chair, Mr Rosindell, which is a pleasure indeed. I wish that I could accept the amendment with such enthusiasm—
Richard Harrington
—but we support the sentiments behind it. As with many things in the Bill, both sides want the same thing; the question is how things are achieved. The explanatory note to the amendment says that it
“requires members to be informed about caps on charges”,
which I understand, but the Government argue that that would duplicate provision elsewhere, so it is unnecessary.
I have said before that the Government agree with the principle that members should be able to see the costs and charges that affect their pension pot. Since April 2015, regulations have required trustees to report information about costs and charges in a chair’s statement, which must be shared with members, so that provision is there. Those regulations impose a charge cap where a scheme is used for automatic enrolment and contributions are invested in a default arrangement, as defined in the charges and governance regulations. To be clear, the cap is an annual one of 0.75%, or an equivalent combination charge, of the value of the member’s rights. That applies to master trusts in exactly the same way as it applies to other pension schemes.
The Government recognise that more needs to be done to increase transparency. We will be making regulations requiring charges and transaction costs for money purchase benefits in occupational pension schemes to be given to members and to be published. We have to get it right, and we are consulting. The hon. Member for Stockton North said that he thinks it is just another consultation, but it will happen this calendar year.
The purpose of the implementation strategy is for the Pensions Regulator to have scrutiny as part of the approval process.
Alex Cunningham
Before the Minister draws to a conclusion, I would be interested to know whether the regulations will outline exactly what chairs will be required to do to report on issues such as the cap.
Richard Harrington
Sorry—I was distracted when the hon. Gentleman asked his question.
Alex Cunningham
I will repeat it; we all get distracted at times. Will regulations outline what will be required within a chair’s statement to ensure that such things as caps are properly reported on?
Richard Harrington
I will answer that question in the same way as I have up to now: the consultation is looking at the way to disclose. I cannot give the hon. Gentleman the undertaking he seeks, but I fully expect that to be the case.
In answer to the other question, about whether the results of the consultation will require primary legislation, I can clearly say that they will not require another Bill. As to whether there will be another pensions Bill, the hon. Gentleman obviously has access to information on the Queen’s Speech that I do not have. I certainly do not think it is the position—it may be, but I do not think anyone knows at this stage.
I ask the hon. Gentleman to withdraw his amendment. That is not because I believe it is silly or anything, but because it is not needed. The charges in the scheme will be tethered to any cap that applied, and that information is already available to members.
Alex Cunningham
The Minister teases me a little with the idea that we might have a second pensions Bill this Parliament. I do not think he really believes that will be the case.
I recognise what the Minister has said. The very fact that he believes that the information will be included in regulations is a positive response, and for that I am grateful, but again we are back to the issue raised originally by the Constitution Committee. It said that there was a tremendous reliance by the Government on secondary legislation in the entire Bill.
Richard Harrington
I remind the hon. Gentleman of the affirmative nature of the regulations. That will allow scrutiny and discussion.
Alex Cunningham
Indeed. That is exactly why I am confident that what the Minister is saying will come to pass. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 28 ordered to stand part of the Bill.
Clauses 29 to 31 ordered to stand part of the Bill.
Clause 32
Pause orders
Alex Cunningham
I beg to move amendment 31, in clause 32, page 22, line 33, leave out paragraph (d).
This removes the provision that gives the Master Trust the ability to stop making payments to members of the scheme.
The Chair
With this it will be convenient to discuss the following:
Amendment 36, in clause 32, page 22, line 44, at end insert—
“(f) a direction that further contributions or payments to be paid towards the scheme by or on behalf of any employers or members (or any specified employers or members) are collected and held in a separate fund, until the conclusion of the pause order;”.
The amendment provides the Pensions Regulation with an alternative to stopping payments to the schemes under subsection 5(b) of a pause order.
Amendment 37, in clause 32, page 23, line 11, at end insert—
“(7A) The Secretary of State may by regulations set conditions on the terms of a separate fund, used for purposes under section 5(f).”.
This amendment is consequential to Amendment 36.
Alex Cunningham
Our amendment 31 would remove the provision that gives the master trust the ability to stop making payments to scheme members in the event of a pause order following a triggering event. Our biggest concern with the clause is that, while the pause order is in place, there is a significant impact on the members of the scheme through no fault of their own. We understand that there may be circumstances in which a master trust should no longer collect contributions from an employer, but it is unacceptable that elderly, vulnerable people who are dependent on their pension do not receive it. It is our duty to ensure that pensioners do not pay the price for a problematic situation arising in a master trust, and that their quality of life is not adversely affected.
I think of the 80-year-old lady who trusted that her workplace pension would be safe and would look after her in retirement, but whose payments do not arrive when she expects. She is concerned, but decides that it must be an administrative error and that the payment will probably arrive the next day—but it does not. She does not have a computer to check the company website, and she may have spent hours on the phone waiting in a queue to inquire as to why she has not received her pension.
Amendment 28 called for not just employers but members to be told of triggering events. When we debated that amendment, the Minister said we could create unnecessary anxiety for scheme members before their lives were impacted. I accepted that point, and listened carefully to what he said about communication with a member when they were affected. A pause order resulting in the halting of payments is extremely significant. That woman may no longer have a workplace to go to; maybe the employer has ceased to exist and bears no responsibility to communicate with previous employees. She has not been informed about the triggering event that caused the pause order that has led to her not receiving the money she relies on to get by. The Minister knows the financial impact on such a person; I wonder what he would say to her.
The primary function of a master trust is to facilitate the collection of contributions and the payment of pensions. If a pause order has been issued, why can the master trust not still pay out? It may well be that the pause order lasts for only 48 hours, or even a week. Perhaps it is not unreasonable to expect people to be able to get by for a short amount of time, but pensioners could have no warning that they may not receive payments for an unspecified period. As it is, the Bill allows a pause order period of up to six months, and includes powers to extend that period.
What will happen to people and their livelihoods if they cannot access their pension? What provisions do the Government plan to put in place to ensure that those affected by a pause order will not face difficult and testing financial circumstances? We could have a widespread crisis on our hands—especially if it is a large master trust—that could impact on countless people and their families. I do not believe the Government have properly considered what would happen in those particular circumstances. I appreciate that requiring a master trust to pay out when there may be concerns about accuracy and record keeping could be problematic, but if the pensioners’ pot is protected, surely the income stream can continue?
That was also debated in the other place, without resolution. There was mention of exceptions, such as for ill health, but I am interested to hear the Minister’s view on continuing payments. If there has to be exceptions for some groups, who would be protected in those circumstances? I understand that a pause order allows the regulator to go in and make sure that the situation is sorted, but that is a difficult situation, and there will remain much uncertainty among members who see their incomes dry up.
We are back to communications again. Will the Minister advise the Committee on what information he believes should be shared with members, and when? Is it at the point of impact—when payments stop? Members must be at the heart of auto-enrolment, and they must trust that the system actually delivers for them. Stopping their payments will discredit the entire process. Opt-out rates could soar and trusts could be undermined.
Turning to the amendments tabled by the Scottish National party, we firmly believe that the Government need a plan to ensure that pensioners do not miss out on receiving their pension for an unspecified period, but we also believe that payments into schemes should not simply be halted. As a result, we welcome the SNP amendments that make way for a separate fund for contributions to be paid into during the period of a pause order, thus protecting the long-term interests of the member who had contributed.
Richard Harrington
I wish to make it clear, without punning too many times on the word “pause”, that we did pause after the intelligent discussion in the other place, so I will go into some detail on why we will not be accepting the amendments, two of which were tabled by the hon. Member for Stockton North and the third by the SNP.
First, amendment 31 would remove an important provision that allows the regulator to issue a pause order, which temporarily prevents benefits from being paid out from a master trust scheme to scheme members. Such an order can be made only in very limited and specific circumstances. I will briefly set out what those are.
Alex Cunningham
I appreciate the Minister allowing me to intervene so quickly. He says that pause orders can be made only in very specific circumstances, which he is about to outline. Will he acknowledge that they could last for up to six months, and perhaps be extended even beyond that?
Richard Harrington
The hon. Gentleman is correct, but of course it is at the discretion of the regulator, which will be dealing with all the circumstances. It could also be a very short period—that is the intention. I hope he agrees that the regulator has to have flexibility to deal with the specific circumstances of a particular case.
The scheme would have to be in a triggering event period, which means that one of the key risk events, which I explained previously, has occurred in relation to the scheme, the obvious one being that the scheme funder has become insolvent. Alternatively, the order could be made in relation to an existing scheme if it has submitted its application for authorisation and the decision on that application is not yet final. To satisfy the criteria, further conditions must be met. The regulator has to be satisfied that if a pause order is not made, there is or is likely to be an immediate risk to the interests of members in the scheme or the assets of the scheme.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
I am listening carefully to the Minister. We all understand the circumstances that would end up with a triggering event and what he describes as the potential insolvency of the scheme funder, but we have all been keen to make sure that in those circumstances the assets of the plan holders are protected. I want to tease out with him that scenario where we believe that the funds are protected. On the basis of the fear and alarm that could be spread when people see that their pensions are not being paid, I have a predilection for making sure that both payments into funds, whether it is a new fund that is created in the short term, or payments out of funds are maintained. There is a threat to confidence in master trusts and auto-enrolment if there is a pause in payments being made. On the basis that it always should be the case that the fund assets are protected, although I understand that there are certain circumstances where the regulator may want to take particular action, we have to be careful to scope out exactly what those circumstances might be.
Richard Harrington
The hon. Gentleman tries to tease things out from me and I am afraid I have to tease him back by saying that it is impossible to state the particular circumstances of every case. I was going to say later, in response to SNP amendment in this group, that no one wants to cause panic among members. There are many triggering events and there will be cases where the regulator might need to issue one of these pause orders, but they will be sorted out hopefully quite quickly; that is the idea. I do not see how, in those circumstances, writing thousands of letters to people would not cause precisely the kind of panic and lack of confidence that we are all trying to prevent.
I will return to that point. As with everything in the Bill, this is not a question of one side making stupid points and the other making sensible points; this is about trying to envisage different circumstances that might arise. It is my duty and my job to make sure that the regulator has flexibility, although I quite understand the hon. Gentleman’s point of view.
Ian Blackford
I absolutely understand and have no reason in principle to believe that the regulator may not have to have such a power. However, I am trying to understand what kind of event might lead to such action taking place if it is the case that plan holders’ assets are protected. Is it to do with any particular costs of administration for delivering all this? I am not clear what kind of event might lead to such action having to be taken.
Richard Harrington
It has been mentioned that, for example, suspicions of fraudulent activity might, in extremis, be such an event. Alternatively, the regulator might not yet be satisfied with respect to the administration of the scheme. The pause order clause is intended to apply in extremis. I am certain that most things will be taken care of in the normal course of things, but we felt that the regulator needed that power in extremis. That does not necessarily mean that the sky has to be falling in. A pause order might be used to concentrate people’s minds on resolving the situation quickly. Nevertheless, the power is there. It can be used
“during a triggering event period…if…the Pensions Regulator is satisfied that making a pause order will help the trustees to carry out the implementation strategy.”
The order is designed for quite particular and limited circumstances. I know that we keep using sledgehammer and nut analogies—on Tuesday I mentioned kernels— but I really believe that if it did trigger the kind of communication that the Opposition referred to, it might cause a major panic, which is something that we have to avoid and that the system exists to resolve.
Alex Cunningham
To extend the nut analogy, for a pensioner who may be losing £40 a week from their pension for up to six months, a pause order is not a tiny nut; it is a large coconut. It has a major impact on their lives.
Richard Harrington
I quite agree, and of course there are checks and balances within the system: the pause order can be exercised only on a determination by the determinations panel, and then there is a higher level of scrutiny. In a small administrative matter, it would be totally irresponsible for the regulator to suddenly decide on a pause order with the exact effect that the hon. Gentleman alludes to, either on pensioners receiving benefits or on people working as normal and paying contributions that come out of their weekly or monthly statements.
I totally agree with the hon. Gentleman’s intent, but I think it is important to look beyond the general definition of a pause order and into the specifics, which I hope I have explained, albeit briefly. I ask him to withdraw the amendment; he makes an important point, but I think we have attended to the detail necessary to ensure that what he fears, and we all fear, does not take place.
As we have heard, amendment 37 is consequential on amendment 36, so I will discuss both SNP amendments together. The hon. Gentleman has stated that he supports them, so at least it will be on the record that the Opposition and the SNP actually agree on this subject. [Interruption.] That was teasing, to use this Committee’s terminology. I withdraw any teasability if I have caused offence.
Critically, amendment 36 would allow the Pensions Regulator to issue a pause order containing a direction that any paused payments into the scheme are to be
“collected and held in a separate fund, until the conclusion of the pause order”,
and amendment 37 would allow the Secretary of State to make regulations about the fund. On the face of it, it seems sensible to have a separate fund set up, but it would be extremely difficult in practice. Employers would have to negotiate with their employees to obtain their permission to take deductions from their pay and pay them into a different entity. That money would not actually be being paid towards a pension scheme; it would have to go to a solicitor’s client account, for example, or to another account that had been set up, instead of to the pension itself. There are tax implications and many other implications. That would cause fear, because people would think, “What is happening to my existing pension money? I am having to pay it into an emergency account.”
Craig Mackinlay (South Thanet) (Con)
On that point, may I ask what the sponsoring employer’s position would be under a pause order? Would the sponsoring employer be in contravention of his auto-enrolment obligations, having been forced to stop paying towards a master trust that is set up or is part of the employees’ contributions arrangements?
What would happen to the employer in terms of his obligations under auto-enrolment? Is it envisaged, if a pause order is in place, that he would have to keep the money within the business until the situation is resolved, and then that money be passed over to the same fund, if it is cleared to continue in operation, or to a new fund that stands in its place?
Richard Harrington
My hon. Friend raises a very good point that we have considered. Having been an employer for many years and supervised payroll systems, I understand that that would be the obvious thing to do: simply hold on to the money. Provided it was kept within a business but earmarked for that, I do not think anyone could say that the employer would be in breach of their legal duties for auto-enrolment.
Of course, then a problem arises. It sounds appallingly administrative and technical, but it is the sort of thing that lawyers make a lot of money out of. If it were paid into a non-pension fund emergency account, which I believe could be an unintended consequence of the honourable amendment tabled by the hon. Member for Ross, Skye and Lochaber, it could mean that the money is not being paid into a pension fund. What happens to its legal status, the tax and everything else? It is very much in extremis and complicated.
I am not regarded within the pensions trade as a great voice for employers, as I think everybody in the House would agree, but this would represent a significant burden for employers. I ask hon. Members to bear in mind that employers will not typically have been responsible for this problem—they will not typically have been responsible for the events leading to the pause order being made. From their point of view, they have simply been complying with their duties under auto-enrolment, as my hon. Friend the Member for South Thanet said.
I do not believe we can place them in a situation where they risk being unable to comply with their legal duties or where compliance becomes a significant burden. As I have said, this is very complicated and the tax and payroll implications are not certain. I think we would all agree that in these rare and very limited circumstances, the solution presented in the Bill is the most simple for employers to comply with. Given the very limited impact on scheme members and the low likelihood of this situation arising, I believe that is the right solution.
Alex Cunningham
The Minister keeps talking about short periods of time when there might be an impact. Has the Department given any consideration to the impact of loss of income on members of the scheme and on the social security system? What would happen to ensure that people affected by the loss of income due to a pause order are compensated by social security in the event of their qualifying for benefits because they no longer have a pension income?
Richard Harrington
The hon. Gentleman makes a very good point about social security implications. I cannot answer that question. I will have to give it some thought and I am happy to correspond with him on that subject. I think it is interesting and, although not directly relevant to this point, it is an important implication.
Hon. Members will be delighted to know that I have just remembered that employers are excused from AE duties during the pause order period. From the hundreds of pages of the Bill it had to get to the front of my mind, and it has. I thank the hon. Gentleman for triggering that recollection. I do think that everything has been taken into consideration. I hope that my explanation has been sufficiently comprehensive for the amendment to be withdrawn.
Ian Blackford
It is a pleasure to see you back in the Chair, Mr Rosindell. I know that, in the interests of brevity, we are considering this slightly the wrong way round, in that I will speak to the amendment that the Minister has already responded to.
We all share the desire to ensure that the plan holders’ funds are protected in both the accumulation and decumulation phases. We are concerned about the impact of a pause order on a member’s savings, as there are no mechanisms in place that allow ongoing contributions to be collected and held on behalf of the saver. I know that the Minister has said that there are issues about where the funds would go and what kind of protection would be given, but those are exactly the kinds of things that we have to resolve in this Committee. It is clear that any additional contributions that savers make at a time of a pause order have to be protected properly, but surely it is within our gift to architect that properly.
It is unacceptable that a member should be penalised, and in effect lose wages in the form of employer contributions, due to events that are out of their control. The Society of Pension Professionals has also said that it will be necessary to ensure that the period of effect of a pause order cannot start before the trustees receive notification of the pause order. That would mean that any contravention could occur only after the trustees are in receipt of the order. The society argues that without that notification, the trustees could be in breach of a pause order through no fault of their own if a direction is not complied with during the period between the date the regulator makes the order and the date the regulator notifies the trustees of it. That could happen, for example, if new members joined the scheme in that period contrary to a direction under clause 32(5)(a). The Government should clarify whether they intend to take action to protect savers.
Richard Harrington
Mr Rosindell, before we end our debates on this clause, I would like to make a point of clarification regarding an error on my part. In previous sittings, when I was referring to the regulations generally, I said that they are subject to the affirmative procedure. However, I made a mistake in referring to clause 28 in that context, because the negative procedure applies there. I apologise for that. Obviously, it was not done on purpose. I hope that Members will forgive me.
Regarding the amendment itself, I have adequately covered the points that have been raised, and I reiterate the Government’s position that we reject the amendment.
Alex Cunningham
It is quite heartening in some ways that we can all make mistakes.
The Minister has talked several times during his response to the amendment about the short period that the pause order will probably apply. I remind him again that that period could be six months, during which a scheme member may not receive their income.
Richard Harrington
I reiterate that that is a maximum period. There will be very few cases of this type and the regulator will be on it every minute of every day; it is not the case that it will be forgotten about for five months and then dealt with in the final month. It is for the Government and the regulator to put in a long stop and to answer the questions, “What if this happens? What if that happens?” and so on. However, I am absolutely certain that if we were to be in front of a Committee such as this one in years to come, I would be amazed if the process took anything like six months.
Alex Cunningham
I certainly understand the Minister’s point of view, but in the event of one of the large master trusts failing—perhaps one that has a million members—in 10 years’ time, a considerable amount of could pass before any resolution could be found. For that reason, we must take some action in this area.
The Minister also said that the regulator needs flexibility. Well, that does not offer any financial flexibility to the scheme member. The hon. Member for Ross, Skye and Lochaber—I nearly messed up as well and I should not mess up that constituency name, should I?—repeated the point I made in my original speech. If the pot is protected and is safe, why on earth can the benefits not still be paid out to the member in these circumstances? The Minister spoke about checks and balances, but checks and balances do not deliver income for the person who depends very specifically on what is probably a small amount of income. I have talked about the impact that that could have on the social security system.
Therefore, because resolution could take up to six months and it could be a major master trust that is affected, with the impact felt by many people, I intend to press the amendment.
Richard Harrington
It is absolutely true that the pause order can be extended, but the regulator closely supervises the scheme in this period. If the hon. Gentleman accepts that the role of the regulator in this matter is, in effect, to take it over, it is very hard to envisage this taking longer and longer. I certainly cannot see it happening with no one even bothering to communicate with the members, even in the case of a disaster happening, such as the hon. Gentleman mentioned, which I obviously do not think will happen, to the administrators of such a scheme. We have given the matter considerable thought and I ask him to withdraw his amendment.
Alex Cunningham
I am afraid I have to disappoint the Minister. I am not going to withdraw the amendment. The bottom line is that there is always a real possibility—a quite long word with an extremely long meaning—that there could be a failure in the system, and that failure could result in a loss of income to some of the most vulnerable people in our society. For that reason, I intend to press the amendment to a Division.
Ian Blackford
I will support the amendment. We have to feel satisfied that there are reasoned arguments why a pause order should be made and why payments should not be paid to pensioners. I am certainly willing to listen to further arguments, but I do not think a clear case has been put for why it should be made, except in very extreme cases of fraud and so on, and that case has not been made. Equally, in terms of retaining confidence, I wish to press our own amendment on the basis that it is important that plan holders continue to make payments, even in a triggering event. I want to test the will of the Committee and press our amendment to a Division as well.
Question put, That the amendment be made.
Richard Harrington
Clause 34 provides for a prohibition relating to member charges during a triggering event period. Trustees must not increase charges above the level set out in the implementation strategy, introduce new charges on members or impose charges as a consequence of a member leaving or deciding to leave the scheme during a triggering period.
Regulations under clause 34 will set out how the charge levels in the implementation strategy are to be calculated. The Government intend that those levels will reflect what members paid towards the normal running of the scheme before the event happened. The charge levels will be calculated by looking back at previous charges in the scheme, and controls will be built in to protect against cases in which schemes increase charges shortly before a triggering event, so a scheme would not be able to get away with that one before the extra scrutiny.
The effect of these measures is that members will not pay any more during a triggering event period than when the scheme was operating normally. That will protect the members; even though a scheme itself is likely to incur additional costs, the money to pay them will not come from members’ pension pots. I hope that everyone will agree that that is most important. It will preserve the value of members’ rights during a triggering event.
The clause also restricts the charges that can be imposed by a master trust, proposed by trustees or employers, to receive members under the continuity option 1. Such a receiving scheme—a new scheme—will be prevented from increasing charges above the levels set out in a statement that it will give the regulator before the transfer happens, or from imposing new charges to meet the costs incurred by the transferring scheme. That means that members can join another scheme and continue to save in another pension without their pot being depleted to pay for costs incurred as a result of that happening. The clause keeps normality of charges and prevents schemes from taking advantage of a triggering event, and protect members’ pots and maintains their value.
Alex Cunningham
I wish to ask a couple of question on clause 34 as I again return to the theme of transparency. The Minister outlined the purpose of the clause, and we welcome the protection of members from administration charges beyond those set out in the implementation strategy during a triggering event period. The clause makes clear the responsibilities of both trusts transferring members out and those receiving them.
The Minister listened carefully to my previous contributions on costs. With regard to this clause, I would like a better understanding of what those administration costs actually cover. Do they cover investment transactions, for example? Assuming that they do, will the Minister confirm that subsections (1)(c) and (2)(a) afford members protection from additional transaction costs as a result of the transfer of their funds out of a master trust and into a new one?
Richard Harrington
I thank the hon. Gentleman for his constructive comments. I can do no better than remind him of what I have already said: our whole purpose is to ensure that everything remains the same so far as all charges are concerned. He is right about the regulations and the devil being in the detail. That is precisely because we do not want the kinds of loopholes that could exist. If I may mix metaphors briefly, we do not want a chink of light that people can drive a coach and horses through. It is clear that—to be a bit pompous and draw on my O-level Latin from 1973—ceteris paribus, they have to remain as they were.
Question put and agreed to.
Clause 34, as amended, accordingly ordered to stand part of the Bill.
Clauses 35 to 38 ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 39 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 40
Interpretation of Part 1
Amendments made: 19, in clause 40, page 28, line 15, at end insert—
“‘pension scheme’ has the meaning given by section 1(5) of the Pension Schemes Act 1993;”.
This amendment defines “pension scheme” where it is used in Part 1 without further qualification. The definition in section 1(5) of the Pension Schemes Act 1993 catches both personal and occupational pension schemes.
Amendment 20, in clause 40, page 28, line 35, at end insert “, and—
‘(2A) The reference in section 11(3) to activities that relate directly to Master Trust schemes is, in its application to a Master Trust scheme which provides money purchase benefits in conjunction with other benefits, to be read as a reference to activities that relate directly to the scheme as a whole.’”.—(Richard Harrington.)
Where a Master Trust scheme is a “mixed benefits” scheme (providing money purchase benefits and other benefits), clause 1(2) provides for Part 1 to apply only to the “money purchase benefits” aspect of the scheme. This produces an unintended effect for clause 11(3), as it would require the scheme funder’s activities to relate only to the money purchase benefits aspect of each of the Master Trust schemes referred to which is a mixed benefit scheme. This amendment prevents that effect from arising, by saying that even for mixed benefit schemes, a “scheme” in clause 11(3) means the scheme as a whole.
Clause 40, as amended, ordered to stand part of the Bill.
Clause 41
Regulations modifying application of Part 1
Question proposed, That the clause stand part of the Bill.
Alex Cunningham
The clause allows the Secretary of State to adjust the range of pension schemes to which part 1 of the Bill applies, either to extend the regime or to disapply it in whole or in part. As it stands, the clause is an extraordinarily wide provision. This almost turns on its head the normal approach, which is to determine policy first and then to legislate. We accept the importance of having flexibility to deal with the changing models that an agile sector might bring forward, but in scrutinising this legislation we need to have the opportunity to test the boundaries of that flexibility.
It appears that we will not now get further details of the regulations before the Bill leaves the House, despite what the Constitution Committee has said to the Government. As I mentioned earlier, that is a real shame. I therefore have a few questions for the Minister. The Minister in the other place suggested that the clause would be used to disapply some or all of the provisions for a mixed-benefit master scheme. Given the amendments tabled in this place in relation to mixed-benefit schemes, can the Government outline how exactly this clause will be used? Which schemes will be carved out of the regulation, to borrow a phrase from the Minister?
I know that additional voluntary contributions and non-associated multi-employer schemes were raised in the other place, but can the Government also confirm whether they plan to carve out schemes on an individual scheme basis or exclude them on a broad scheme basis through the application of more general principles?
Richard Harrington
I thank the hon. Gentleman for his comments, which I will answer. The overall principle is to allow the flexibility that accepts that master trusts, which have grown tremendously over the past couple of years, do not fit into a one-size-fits-all formula. It is certainly not a case of saying this is the scheme’s rule; it is basically optional whether someone is in it or not, because it can be carved out. I know that the hon. Gentleman understands that and respects the principle. Again, it comes down to how it will be applied. We want to make it specific. We have had some useful consultations with master trusts and others on this subject. The regulations will give us the flexibility to ensure that we can deal with the existing situation and see what examples have been thrown up. More importantly, there will be the flexibility to change. The clause makes provisions to modify part 1 where it applies.
We have tried hard in a complex area to ensure that all relevant master trusts are in the scope of the authorisation regime. That is the point of the part of the Bill that we have been discussing up to now. As I have said, things change and the industry moves quickly. That is why we are calling for a type of flexibility that would not on the face of it seem necessary because the Bill regulates master trusts, which we all agree is the right thing to do—there is no question about that. The industry has shown that it is very flexible and can change. The provisions will be designed so that the regulations can be disapplied if they are not relevant. We intend to ensure that the whole system for authorisation, which we have discussed at length, applies in a proportionate way.
The scope of the power was discussed extensively in the other place. We have made it clear—this is the critical point, if the hon. Gentleman will bear with me—that we intend to continue discussions with the industry and also with the regulator to develop secondary legislation. It is not as though civil servants, however good they are, have sat in a room and just designed regulations. We have asked for time after the Bill to make sure they reflect the way in which the industry has developed. The passage of the Bill, from concept to now, could be near equivalent to the time that master trusts have grown in the first place. I hope that the hon. Gentleman will bear with me. We have indicated that we intend to consult on regulations under clause 41(1)(b) in relation to mixed master trust schemes, where the only money purchase benefits are those related to the additional voluntary contributions. It is technical and much of it is common sense, but it has to be done right, otherwise there will be unintended consequences of institutions and members of schemes being caught when it is perfectly well dealt with elsewhere. I know that the hon. Gentleman would not want that to happen.
Another example would be the provisions in clause 41 for regulations
“which provide for two or more pension schemes to be treated as a single Master Trust”.
Again, that is in certain circumstances. Those circumstances would be common control, common rules or schemes provided by the same service provider. It is easy to say that common sense will prevail, but we need the flexibility to ensure that the framework is there for those specific, albeit exceptional, cases.
I believe strongly in the clause and think it necessary that the significant regulatory powers included in it have the potential to alter the scope of the regime. Members will want to debate and approve the making of such regulations. That is why, as I have mentioned several times—albeit once incorrectly—that these are subject to the affirmative procedure; they will not be done on new year’s eve at five minutes to twelve without anybody noticing. The purpose is not to hide this from Parliament or anybody else, but to ensure that we get this important provision in the Bill absolutely right.
Question put and agreed to.
Clause 41 accordingly ordered to stand part of the Bill.
Clause 42
Power to override contract terms
Question proposed, That the clause stand part of the Bill.
Alex Cunningham
On Second Reading, the Secretary of State, in answer to the hon. Member for Tonbridge and Malling (Tom Tugendhat), nailed his colours to the mast on transparency and pension freedoms, not that we have seen much of the former displayed in recent days. He said:
“Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings. He asks for more detail. We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system. Greater transparency is clearly one of the steps forward. I completely agree with him on that.”
I agree completely with the Secretary of State on that. He also said that he was determined
“to remove some of the barriers that might prevent people from accessing pension freedoms”.
He said:
“The Financial Conduct Authority and the Pensions Regulator indicate that significant numbers of people have pensions to which an early exit charge is applicable. The Bill amends the Pensions Act 2014 to allow us to make regulations to restrict charges or impose governance requirements on pension schemes. We intend to use that power alongside existing powers to make regulations to introduce a cap that will prevent early exit charges from creating a barrier for members of occupational pension schemes who are eligible to access their pension savings.”
We remain disappointed that this grand commitment to transparency has not yet found its way into the Bill, but we are reassured that the Government seek to protect scheme members from prohibitive costs and exit charges.
The Secretary of State said that he had consulted the industry on the issue.
“The measures proposed in the Bill have been developed in constructive consultation with the industry and other stakeholders, so we have confidence that they are proportionate to the specific risks in master trusts and will provide that necessary protection.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]
In the light of that statement, we seek assurance from the Minister that legislation proposed in subsection (2) allowing breach of contract in that way will not leave the Government open to challenge from the industry, something that would cause unnecessary upheaval for both schemes and members. With that in mind, will the Government tell us what consultation took place with providers and advisers and confirm that they are content that this part of the Bill is not open to challenge? If a legal case is brought against a master trust for breach of contract, is the Minister satisfied that it will have a defence under the clause?
Finally, what consideration have the Government given to the interests of members who, in the event of a legal challenge, will be unable to draw down money from their pots?
Richard Harrington
As hon. Members will be aware, what we are now discussing is not restricted only to master trusts; the rest of our discussions today have been. It is a bit of a change. We are now talking about all occupational pension schemes.
The clause will cap exit charges and member-borne commission, which is the sort of thing we all want. Like most of the measures in the Bill, it relates to what we all accept is a problem; in this case it is exit charges—where they come from, who pays them, how they are calculated and so on. The hon. Gentleman refers to protecting members, which I perfectly understand, but that is the point of the legislation. I say that in case anybody reading about the Bill in Hansard or elsewhere thought that the Opposition were trying to protect members and the Government were not. The intention of the Bill is to protect members. I have laboured that point—I hope that the hon. Gentleman will excuse the pun on his party’s name—because it is fundamental.
The clause amends the existing legislation—the Pensions Act 2014—to allow regulations to be made that enable a term of a relevant contract on charges to be overridden if that contract conflicts with a provision in those regulations. I emphasise that the power will allow for a contract to be overridden only if it conflicts with a provision in the regulations, which will ensure that relevant contracts are consistent with regulations and will provide certainty to the parties involved.
At this point it might be helpful if I clarified that the clause is distinct from previous clauses in the Bill that refer to charges, which all relate to the proposed master trust authorisation scheme. The discussions on charges and capping before now were specific, whereas this discussion is general. We intend to use the clause alongside existing powers in the 2014 Act to make regulations clearly to cap or ban early exit charges. Those charges are any administration charges paid by a member for leaving their pension scheme early when they are eligible to access pension freedoms, which in the past they would not have faced at their normal retiring date.
I mentioned early exit charges before in a different context. Cynical commentators might say that providers impose those charges to take advantage of a situation—a kind of last hurrah—because they know they are going to lose the value of a pension. The industry’s converse argument, which I have some sympathy with, is that they calculate the value of a pension over a period of years, and early exit means that value may then be x years minus 10. That is not a ridiculous argument, but the Bill makes it clear that the Government do not have much sympathy for it.
As has been mentioned, the Financial Conduct Authority will make rules to ensure that the cap or ban on early exit charges in personal and workplace pension schemes, which they regulate, will comes into effect on 31 March 2017. That has already been approved by Parliament through amendments to the Financial Services and Markets Act 2000, which broadly allows for a contract to be overridden. The consultations we undertook on early exit charges and member-borne commission showed that the charges generally arise in contracts between trustees or managers of certain occupational pension schemes and those who provide administration services to the scheme.
Our existing powers in schedule 18 to the Pensions Act 2014 enable us to make regulations that override any provision of a relevant scheme where it conflicts with a provision in those regulations. For example, we have used that power in relation to the appointment of service providers in the scheme administration regulations. The reason we are taking this new power is that the existing power does not extend to the contracts under which these charges arise. That is why clause 42 contains a power to allow the overriding of a term of a relevant contract that conflicts with a provision of the regulations under schedule 18. What is a relevant contract? It is defined as one between a trustee or a manager of a pension scheme and someone providing services to the scheme.
The regulations that we intend to make will apply to charges imposed from the date the regulations come into force, even where these arise under existing contracts. We expect the regulations to come into force in October this year, so it is not a long difference. It is a difference for legislation reasons, but on the scale of things it is not a lot.
Richard Harrington
If the hon. Gentleman would bear with me, I will answer the question asked by the hon. Member for Stockton North before giving way, unless it is really urgent.
Ian Blackford
My point is in relation to new clause 8, which I have tabled. I want to be clear that the Minister is saying that there will be no exit charges for anyone exiting a master trust, whether a new saver or someone who is currently in a master trust plan. If the answer is in the affirmative, I would be happy not to press new clause 8, because it would be superfluous.
Richard Harrington
I will come to that point in a minute, if I may first respond to the question from the hon. Member for Stockton North—I am not ignoring what the hon. Gentleman has just said, but I think that the answer will become apparent.
There was public consultation in 2015 that concluded in August. Since then we have had various discussions with providers and other industry bodies; we are really trying to get everyone involved. Again, we do not want to be unfair to one side or to create loopholes that should have been anticipated. I think that the hon. Member for Stockton North will accept that this area is complex.
Alex Cunningham
I appreciate the Minister’s answer to my question. I also asked for the Government to confirm that the people they have consulted are content that this part of the Bill is not open to legal challenge.
Richard Harrington
It is very hard to talk about legal challenge because the legal profession in the United Kingdom has provided that itself in many cases where legal challenge was not intended by the Government. All that I can say is that we do not expect legal challenge on this issue.
Legislation introduced to challenge capping contract schemes has already been passed, so it is creating parity. I hope that I am not misleading anyone by saying that we do not expect that. We have done our due diligence and no one thinks that there will be a legal challenge, but I am afraid that I cannot give the hon. Gentleman a categorical assurance, because that is what the legal system exists for. I am sure that very clever counsel might read this one day and think, “Ah, ha! I’ve thought of something.” There is nothing that we know of.
Alex Cunningham
With those considerable caveats, I assume the same applies to any legal case brought against a master trust for breach of contract and that they would have a defence under this clause.
Richard Harrington
If I may, I will answer the question from the hon. Member for Ross, Skye and Lochaber concerning new clause 8 and the point about no exit charges from a master trust. I confirm that when a master trust is closing the scheme cannot levy a charge for leaving. I believe that responds to his question, unless I misunderstood it.
Ian Blackford
No, I do not think it does. To be absolutely specific: in any circumstances of any exit of an individual from the master trust there would be no exit fee. If the Minister is responding to that statement in the affirmative, I would happily withdraw new clause 8, if that is permissible.
Richard Harrington
When the master trust is closing it cannot levy a charge. That is as clear as I can be. Perhaps we can discuss the point in more detail. I am not trying to mislead the hon. Gentleman and he knows that, I hope.
The pensions market is continuously evolving and modernising and that extends to charging practices. It may be necessary to alter the charges requirements at pace to reflect any changes in the pensions market that may disadvantage members. I revert to the point I made to the hon. Member for Stockton North: that is the purpose of the whole exercise; we are doing it for that reason. That is why we intend to consult on the draft regulations later this year. I am aware that people outside the House, and sometimes hon. Members, groan when a further consultation is announced, as though the Government are doing it to kick the can down the road. I can assure them that that is not the case. We intend to get it right and public consultation is very important.
The regulations would also be subject to parliamentary scrutiny, as I have explained, through the negative procedure. The Delegated Powers and Regulatory Reform Committee was content with that approach because it would allow future legislation to be amended quickly to provide the member protection that the hon. Gentleman and I both want.
Before I conclude on this clause, I will address the point made by the hon. Member for Ross, Skye and Lochaber. I have learned the name of his constituency now and look forward to visiting. He was satisfied by my answer to his earlier question but he wants to know what happens if the master trust is not closing. In that case, the normal exit charge protections apply; there is no difference. I believe that is a clear answer to his question.
Alex Cunningham
There is one area that the Minister has not addressed. As he said, we are all here to champion the member, but Opposition Members might just go a bit further in some of those protections. I did pose the question about elected members and what consideration the Government had given to the interests of members in the event of a legal challenge who would not be able to draw down their benefits.
Richard Harrington
I have already made it clear that the Government do not expect legal challenges. It is a bit of a circular argument but in the legislation the regulator exists to protect members, so I cannot accept his point on this matter.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Clauses 43 to 45 ordered to stand part of the Bill.
Clause 46
Short title
Amendment made: 21, in clause 46, page 31, line 3, leave out subsection (2)
This amendment removes the privilege amendment inserted by the Lords.—(Richard Harrington.)
Clause 46, as amended, ordered to stand part of the Bill.
New Clause 1
Membership of Master Trust Schemes: Member Trustees
‘(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least half of the trustees of the scheme are Member Trustees.
(2) Member Trustees must be individuals who are—
(a) members of the Master trust scheme; and
(b) not members of senior management of a company that is enrolled in the Master Trust scheme.
(3) Member Trustees must be appointed by a process in which—
(a) any member of the scheme who meets the condition in subsection is to apply to be a Member Trustee;
(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and
(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.
(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.
(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—
(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or
(b) the actual managing or organising of the whole or a substantial part of those activities.’—(Alex Cunningham.)
This new clause ensures that where named individuals hold the position of Trustee in a Master Trust, at least half of those Trustees must be Member Trustees. “Member Trustees” are members of the trust themselves and must not hold a senior management position in an organisation which participates in the Trust.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss:
New clause 6—Member-nominated directors—
‘(1) By a date to be set by the Secretary of State in regulations, all companies that are trustees of a Master Trust Scheme where all the trustees are companies must ensure that at least half their directors are Member-nominated directors.
(2) “Member-nominated directors” are directors of the company in question who—
(a) are nominated as the result of a process in which at least the following are eligible to participate—
(i) all the active members of the occupational trust scheme or an organisation which adequately represents the active members, and
(ii) all the deferred members of the occupational trust scheme or an organisation which adequately represents the deferred members, and
(b) are selected as a result of a process which involves some or all of the members of that scheme.’
This new clause will ensure that where companies hold the position of Trustee in a Master Trust, at least half of their directors are Member-nominated directors. “Member-nominated directors” are active or deferred trust members who have been selected by other members of the scheme.
Alex Cunningham
New clauses 1 and 6 take me back to my central theme for the Bill, which is putting members first by introducing member-nominated trustees and directors for master trusts, or member governance of their money. I remind the Committee that all the investment risk lies with the members and not with the sponsor or the provider; they should therefore have representation at the decision-making level.
The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees, or MNTs. If the scheme’s sole trustee is a company including the employer, rather than individuals, scheme members will have the right to nominate directors of that company, who will be member-nominated directors, or MNDs. In those circumstances, my references to MNTs apply equally to MNDs. Member-nominated trustees of pension schemes have been a part of UK pensions since the emergence of occupational pension plans in the middle of the last century.
Under the Pensions Act 1995, following the Goode report, a rule was introduced that a third of trustees had to be nominated, although companies could opt out of that rule. The Goode report came out of a series of scandals and corporate collapses in the late 1980s and early 1990s that led to losses to occupational pension funds. In particular, Robert Maxwell, the proprietor of the Mirror Group Newspapers, was subsequently exposed as having stolen millions of pounds from his employees’ pension schemes. In the Pensions Act 2004, the rule was made compulsory. The Secretary of State has the power to raise the threshold from one third to one half, and Labour is committed to implementing that. Many pension funds already have one half of trustees nominated, even though the law requires less.
Given the steady growth in numbers and the formalisation and establishment of member trustees in our pension system, the Association of Member Nominated Trustees emerged in September 2010 to provide support for member trustees. It is adamant that master trusts must be obliged to have member representation on their boards. It is no surprise that master trusts are lobbying against that, but they are mostly profit-making entities, so it is in their own best interest that they have member representation in order to win the confidence of scheme members.
After the Robert Maxwell scandal, the Government legislated to ensure member representation on pension scheme trust boards because they recognised that that would be a powerful way to prevent unscrupulous scheme sponsors from repeating Maxwell’s behaviour. That argument is no less relevant to master trusts. Defined-contribution schemes managed by master trusts owe fiduciary and other duties to their beneficiaries, and trustees are required to act in the best interests of their members. Trust-based schemes are subject to trust law and regulated largely by the Pensions Regulator. If the scheme’s sole trustee is a company rather than individuals, scheme members would have the right to nominate directors of that company.
Ensuring effective governance for pension schemes remains a challenge. While trust-based schemes benefit from a clear governing body in the form of the trustees, there is a clear absence of member-nominated trustees in the majority of master trusts. Improved governance must include MNTs, packaged with improved training and facility time to dedicate time to the job. Master trusts and independent governance committees lack scheme member input into the investment process, and they need an overhaul. Since the pot belongs to the member and the scheme-sponsoring employers bear no investment risk, there is an argument to be made that governance by scheme members should prevail in number terms over employers.
While some companies choose to operate a trust-based defined-contribution scheme, most new auto-enrolled members will not be saving into one; instead, the vast majority will be saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare. With one or two exceptions, we are not aware of any master trust or independent governance committee that has taken the step of putting in a member or finding a mechanism for electing members or appointing members to governance boards.
The benefits of member representation in the trust-based world have been examined. One benefit is the increased diversity that MNTs can bring. Having a member perspective adds diversity, and diversity prevents the risk of group-think within boards. That is because of a range of different member perspectives, experiences and areas of interest. It is also comforting for members to feel that they have some stake in the management and stewardship of a pension scheme. Ian Pittaway, chair of the Association of Professional Pension Trustees, said:
“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits or a death-in-service case or something like that. Every board I chair is enriched by having members on it and it would be a very sad day if we sat there with just professionals running the scheme in a very arm’s-length way.”
The AMNT’s 700 members are trustees of about 500 pension schemes with collective assets worth approximately £700 billion. It stated:
“We believe that member representation is crucial in the governance of Master Trusts. It will give greater assurance that these trusts operate, and are seen to operate, in the members’ interests and that the scheme members can have confidence in them. The importance of giving members representation on the trustee board has been borne out by research by The Pensions Regulator and Share Action, which demonstrate that diversity is a key benefit of the trustee model. This view is widely supported in the pensions industry.”
In the DB world, as long as a scheme was well governed and well administered, the member would end up with a reasonable replacement ratio. In the DC world, however, a member’s outcome depends on a host of factors that are beyond members’ control. Most members do not have a say in which scheme they are enrolled into, and even if they believe a scheme is not the best possible fit for them, they are unlikely to be able to transfer without losing their employer contributions. A worrying feature of the UK is that people who bear the risk are not freely able to exercise choice.
Better member representation could help to reassure members that they are enrolled in schemes that are well governed by boards that have their best interests at heart. That would also help solve the thorny issue of getting people to save more. The figures for auto-enrolment show low levels of contributions, and we need members to feel willing to increase their contributions.
Member representation may face some resistance. For a master trust with 20,000 clients and 900,000 members, running an election could be challenging. Some master trusts, however, have had success with elections. The Pensions Trust, which started life as a DB master trust but has now expanded into DC, has a board made up of 50% member-nominated trustees and 50% employer-nominated trustees. Those representatives are elected from the pool of companies that use the trust. The AMNT believes that employer support is necessary to enable member trustees to fulfil their roles with appropriate time off. There are clear issues with governance in both trust-based and contract-based DC workplace pensions. In the past the Office of Fair Trading has highlighted a lack of member engagement, along with higher charges and a lack of review, as the main challenges for the DC schemes. As auto-enrolment is extended to smaller employers, the need to address those challenges is becoming more pressing.
We need a clear route into better member representation. Most in the sector agree in principle that it can only be beneficial to the DC landscape. The Bill has nothing on a mandatory requirement for MNTs, but seems like a logical place in which to include them. To place an emphasis on member representation and perhaps change some of the barriers to an effective system, therefore, the Government should act now.
Some say that as larger master trusts cater for thousands of employees, the vast majority of them would not be represented on the trustee board. Others say that democracy is too expensive, but the scale of the master trusts should not be a barrier. USS, the universities superannuation scheme, has more than 250,000 members and nearly 400 employers. The plumbers and mechanical services (UK) industry pension scheme has more than 36,000 members and more than 400 employers. RPMI has more than 500,000 members and more than 100 employers. All those have member-nominated directors nominated by representatives of the members and pensioners of the schemes. If schemes on that scale can do it, so can master trusts.
Richard Harrington
I would like to make the point that, in the trustee system that has evolved, trustees have a duty to act in the best interests of all members, as the hon. Gentleman stated. I certainly agree that one of the strengths of the trust-based system for occupational pensions is that there are different sorts of trustees. I have been a trustee of a pension scheme myself, so I accept that argument.
The hon. Gentleman’s mention of Robert Maxwell and that scheme is very relevant to my life now, because many of my constituents in Watford call themselves the Maxwell pensioners. Most of the system of regulation, including this Bill, came about because of that and other examples.
I respectfully remind the hon. Gentleman that in many of the cases that the Pensions Regulator has dealt with, there have been plenty of member trustees, and they have been ignored, not listened to, not felt to be relevant or just bamboozled, so it is not a perfect system anyway. As he knows, the whole reason for the Bill is that master trusts, which are hugely complex, have evolved over a very short period in a very sophisticated way. They are not the same as individual trust-based pension schemes, which is why we need this extra legislation.
Alex Cunningham
I accept the Minister’s explanation that member trustees are being ignored, or that their views are simply being set aside, but I would suggest that is why we need proper procedures in place, whether for master trusts or other pension schemes, to ensure that member trustees are given the proper training and understanding and the time to do their job to the best of their ability, so that they are not ignored.
Richard Harrington
I agree. That relates to a general regulatory issue, as well as the specific ones we are talking about today. I remind the hon. Gentleman that master trusts are subject to scheme administration regulations, which require that schemes used by multiple employers must have three trustees. The majority of those trustees have to be independent of anyone who provides services to the scheme. We are not just saying, “Forget member trustees; they should all be representatives of the scheme.” All trustees, whoever they are, have got the same fiduciary duty to all members. I am sure that the hon. Gentleman is aware of that, but I think that is very relevant in resisting his new clauses. It is very important that all trustees know that, and I believe they do.
Although master trusts are exempt from the existing requirements for member-nominated trustees, they are subject to all other regulatory obligations. As I said, the scheme administration regulations ensure that the majority of trustees are non-affiliated trustees. The authorisation criteria in the Bill subject all trustees to a fit and proper person tests assessed by the regulator. Facts to be considered in that test include how the people running the scheme are connected with other companies or people.
The new clause appears very attractive on the surface, because it appears that it is just saying, “Members are great and can stop all bad things from happening. They need to be represented, and the way to do that is by making sure they are directors or trustees.” I would not want the hon. Gentleman to think that we are against member-nominated trustees, because we are not, or that we think that member-nominated directors are inappropriate in master trust schemes. He mentioned the universities superannuation scheme, which is very complex and sophisticated, and certain things work for it. I have met staff of that scheme. I believe that the Bill will address the points he made.
I hope that hon. Members are sufficiently reassured that we are ensuring that trustees act in the best interests of members. I have explained why the Government are of the view that the new clause is unnecessary, and I respectfully urge the hon. Gentleman to withdraw it.
Alex Cunningham
The Minister appeared to agree in part of his speech that member-nominated trustees are a good idea, even if he feels that in many cases their views have been ignored in the past. He has left me a little confused as to whether he supports member trustees, though certainly not in the context of master trusts. Well, I do, and I referred in my speech to organisations that also support the idea of empowering members and ensuring that they have the time and training to fulfil that role. Therefore, I will not withdraw the new clause and will press it to a vote.
Ian Blackford
The proposed new clause contains a principle that I think we would all like to encourage concerning member engagement. There is the issue of democracy and the fact that these are members’ funds, and I think that we all get that point. The salient point for me is that addressed by other hon. Members: trustees are to act in the best interests of their members. We all recognise the duty and obligations that trustees must have. It is important, whether they are independent or member trustees, that they are aware of their responsibilities.
The key matter, in what is becoming a very complex world, rightly with increasing regulation, for which we understand the reasons, is that trustees can discharge their obligations and duties. Although I would encourage member trustees to be involved, and it is important that they are given adequate training, I would find it difficult to support the compulsion in the proposed new clause that member trustees must make up 50% of the board. That would be the case in an ideal world.
Alex Cunningham
I did not say 50%. That was an example. We would need a situation in which we can have some member trustees.
Ian Blackford
Reference has been made to member trustees making up 50% of the board, which is something I could not support. I can support the general principle that member trustees should be represented, that there should be elections and that they should be able to take the time they need to devote to this and get proper training, but I cannot support at this stage having compulsion as part of that, on the basis of the responsibilities that trustees have to represent all member interests.
Craig Mackinlay
I can understand the laudable aims of the hon. Member for Stockton North, but where such boards have had member participation, the reality has not always been a fantastic success. I had an oblique interest in the Maxwell pensions fiasco because I belonged to a firm of chartered accountants appointed to look into that big mess, so I have some experience of that. I was also a member of the Joint Committee that looked into the BHS pension schemes, which also had member participation. That really did not come out as a great success. There was no issue of fraud, but were those employee members really tough enough to stand up to an overpowering sponsoring employer?
What we have is different from the occupational pension scheme arrangement, for which I think it is good, right and proper for its members to participate. We are considering master trusts, in which thousands of employers may be involved. I am sure that there may be only a few hundred master trusts that would bother to adhere to the new clause’s regulations after they come into place. The National Employment Savings Trust is probably going to be the biggest master trust for some time to come, with possibly millions of employees involved, and I cannot understand how on earth we could have an election process involving millions of people and different employers.
Alex Cunningham
Legal & General, one of the largest insurance companies, manages to do that in order to communicate properly with its members. While I am on my feet, I also make the point that the hon. Gentleman says that having member trustees has not been a fantastic success. Does he therefore believe that the views of members should be excluded? I remind him that in master trusts it is the members who bear all the financial risk—no one else—so why should they not have some control or some say over their funds?
Craig Mackinlay
I do not disagree with what the hon. Gentleman says; ultimately, it is the employees’ funds, and it is important that they should take the greatest interest in them. I think that employee involvement in occupational schemes has generally been worthy and a great success, but I am more concerned about the practicalities of how the form of democracy he advocates could possibly work when there will be millions of employees in a single master trust.
Julian Knight (Solihull) (Con)
With regard to the potential for an administrative nightmare, is it not also true that companies will switch between different master trusts? If the requirement of having elections and so on is put upon them, that will make administration even more difficult, if not impossible.
Craig Mackinlay
I thank my hon. Friend for outlining further the complexities of what the hon. Member for Stockton North is proposing. What we are looking for from master trusts is that they are well run, safe and that they actually perform for the pensioners of the future. With the greatest respect, the administrative costs of what he is proposing could actually outweigh any positive parts that he thinks will come out of it, so I cannot support his new clause.
Ian Blackford
I know that the hon. Member for Stockton North has stated that he is not asking for a majority of trustees to be elected, but that is exactly what new clause 1 calls for—it calls for at least half of the trustees of a scheme to be member trustees. I just wanted to clarify that point. For that reason, I cannot support the new clause.
Question put, That the clause be read a Second time.