Local Government Pension Scheme

Debate between Ian Blackford and Richard Burden

Monday 24th October 2016 Westminster Hall

[Richard Burden (Birmingham, Northfield) (Lab)]

I am grateful for the opportunity to contribute to today’s debate. I join my right hon. Friend the Member for Knowsley (Mr Howarth) in congratulating the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on the way he introduced the debate on behalf of the Petitions Committee. I will concentrate on three areas: local decision making; scrutiny of Government proposals; and how the regulations and the guidance attached to them relate to broader UK policy.

As other Members have said, local decision making comes down to whether pension fund scheme members and local authorities are allowed their say in how pensions are invested, rather than simply being overruled by Government. It is also about the ability of those responsible for public institutions to exercise the judgments they are appointed to exercise within the law. In the case of local authorities, that involves accountability not only to their electorates, but to scheme members. In their role as pension trustees, they have to be able to make judgments in line with their fiduciary duties. Funds must be invested in the best interest of their members, as European directives lay out, and I hope that will not change, although I find it difficult to understand how the regulations are compatible with those directives.

If Ministers are serious about being committed to more local decision-making and giving powers back to local areas, it follows that investment decisions should be made by local authorities, fund trustees and members, not by a Secretary of State with a broadened set of powers of intervention. That is where concerns arise, however, along with concerns about the degree of scrutiny Parliament is being allowed over the issue. That is pretty alarming given the negative responses received as part of the consultation. Indeed, today’s debate is only happening at all because of a public petition being acted upon and allowed to happen by Members of this House. It is not a result of Government initiative or Government action.

[Ian Blackford]

The hon. Gentleman is making some important points. Does he agree that it is rather shameful that the measure was introduced through a statutory instrument, rather than with a debate in the House of Commons in which all Members could properly participate?

[Richard Burden]

The hon. Gentleman makes an excellent point, and I hope it is not lost in the debate. The Minister will respond to the debate, and I hope he will address that point specifically when he winds up, although I am afraid that Ministers have form here. It seems that the changes—or at least some of them, and some of what is written in the regulations and the guidance attached—appear to be allied to new rules on public procurement that were announced in February without any parliamentary scrutiny up to that point.

The most we knew about either of those changes was a highly partisan press release issued at the Conservative party conference in October 2015. Indeed, the formal announcement from the Government on the local government procurement changes did not even happen in this country. Instead, it happened at a joint press conference by the right hon. Member for West Suffolk (Matt Hancock), who was then at the Cabinet Office, and the Prime Minister of Israel. It took successive applications for a Westminster Hall debate to enable us to find out what those regulations meant. The ministerial reply to that debate left a number of questions unanswered, and it took more correspondence back and forth before a Cabinet Office letter to me on 4 May finally clarified that some of the actual changes being proposed were a lot less dramatic than the rhetoric we had witnessed in the Conservative party press release and the Minister’s joint press conference.

On the changes in local authority pensions regulations, will the Minister clarify what is rhetoric and what is reality when it comes to guidance and consultation in relation to administering authorities preparing and maintaining investment strategy statements under regulation 7 of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016? I particularly want to ask about paragraphs 3.7 and 3.8 of the consultation. Paragraph 3.7 stated:

“The Secretary of State has made clear that using pensions and procurement policies to pursue boycotts, divestments and sanctions against foreign nations and the UK defence industry are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.”

Paragraph 3.8 states that such guidance is intended to make it clear that the administering authority,

“should not pursue policies which run contrary to UK foreign policy.”

So will the Minister confirm that his reference to,

“boycotts, divestments and sanctions”

in no way overrides UK Government policy and guidance on illegal Israeli settlements in the Occupied Palestinian Territories, nor fetters administering authorities’ ability to follow that broader policy. I ask because the UK Government have a long-standing and clear foreign policy position that is bipartisan in recognising the illegality of Israeli settlements in the Occupied Palestinian Territories. The Government’s current guidance, issued to UK businesses, does not encourage trade or financial involvement with the settlements. A recent statement by all EU member states “unequivocally and explicitly” makes the distinction between Israel and all territories occupied by Israel since 1967.

Secondly, will the Minister confirm that neither the regulations he has introduced nor the guidance that accompanies them in any way override UK Government policy and guidance on illegal Israeli settlements in the Occupied Palestinian Territories? Will he confirm that they do not fetter administering authorities’ ability to follow such guidance in relation to local authorities’ overarching commitment not only in regard to the Palestinian territories, but in implementing the United Nations guiding principles on business and human rights? I want to be clear that when paragraph 3.8 of the guidance attached to the regulations says that administering authorities should not pursue investment policies that

“run contrary to UK foreign policy”

it in no way undermines or overrides the overarching commitment in the UK’s own 2013 action plan for implementing the UN guiding principles on human rights and business, which state that the UK Government,

“are committed to ensuring that in UK Government procurement human rights related matters are reflected appropriately when purchasing goods, works and services. Under the public procurement rules public bodies may exclude tenderers from bidding for a contract opportunity in certain circumstances, including where there is information showing grave misconduct by a company in the course of its business or profession. Such misconduct might arise...where there are breaches of human rights.”

In his reply to me of 4 May this year, the right hon. Member for West Suffolk, on behalf of the Cabinet Office, made it clear that public procurement policies were in no way intended to undermine the long-standing UK policy that Israeli settlements in the Occupied Palestinian Territories are illegal under international law. He also said,

“There are flexibilities to enable individual authorities to exclude suppliers that are corrupt, guilty of misconduct, in breach of various international laws and so on”.

Will the Minister confirm that the various international laws referred to would include the Geneva conventions?

The implications go beyond any question about Palestine or Israel or even the middle east as a whole. There are implications for the whole gamut of ethical investment policies and for the ability of a local authority pension fund to decide not to invest in tobacco or in the activities of companies that are felt to be environmentally unsustainable. The implications go wide indeed. In this context I want to draw the House’s attention to the Government’s response to the consultation on today’s regulations, which states:

“Provided that the guidance to be published under draft Regulation 7(1) is complied with, there is nothing in draft regulation 7(2)(e) to prevent an administering authority from taking any non-financial consideration into account provided that it is made in the best long term interests of scheme beneficiaries, and does not represent any significant risk to the health of the fund.”

When the right hon. Member for West Suffolk replied to me in relation to the procurement issue, he said that all such decisions have to be made on a case by case basis, which has of course always been the situation; there is nothing new there. However, will the Minister today clarify that all the assurances I was given in relation to local government procurement, extracted from the Government in the letter of 4 May sent by the right hon. Gentleman, also apply in respect of the 2016 local government pension scheme regulations and guidance notes that we are debating today?

When I wrote to the right hon. Member for West Suffolk during his time at the Cabinet Office, even though the pensions aspect of the announcement was a Department for Communities and Local Government responsibility, I tempted him to comment on the new management and investment regulations for local authorities’ pension funds, as well as the public procurement matters that were within his area of responsibility, and I am pleased to say that he did so. In his letter to me of 4 May, he said that the changes we are debating today,

“Increase rather than decrease the potential for local discretion in decision-making”.

I am pleased to hear that. I have difficulty relating it to what is in the guidance notes and regulations, but I hope he is right about that, and I hope that any interpretations of the regulations will reflect that statement that was made on the record by a Cabinet Minister. I hope the Minister today will confirm that statement in relation to the concerns that I and others have raised today and will no doubt raise during the debate.

I have asked the Minister specific questions about specific parts of the regulations and guidance notes and about the correspondence that I have had with the Government on this matter. I am sure he has been fully briefed and will be able to give full answers to all the questions. If there are areas where he cannot give clear answers, I hope he will respond to all Members in writing.