Local Government Pension Scheme

Richard Burden Excerpts

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.

--- Later in debate ---

[Mr Jones]

A lot has been made of the fact that these measures are being made by statutory instrument. The Public Service Pensions Act 2013 gives Ministers broad powers over the running of pension funds. That Act was scrutinised at significant length in the House. Considering the suite of powers that Ministers are given by that Act and taking into account the views of organisations such as the local government pensions scheme advisory board, the new regulations do not go anywhere near as far as they could have. I know from meeting that board that several people from administering authorities and trade unions are represented on it, and I discussed this issue with them at some length.

To pick up a few other points, the new investment regulations and guidance allow authorities to take into account non-financial factors, such as social, environmental and corporate governance considerations, when making investment decisions. However, authorities must take proper advice, act lawfully and take decisions that are in the best interests of scheme members and taxpayers. They must also act in a way that is consistent with UK foreign and defence policy.

The guidance is clear that administering authorities should not use pension policies to pursue boycotts, divestments or sanctions, except where formal legal sanctions exist and embargoes or restrictions have been put in place by the UK Government, where policy responsibility for such matters lies. We have taken the same view in our guidance on boycotts in the context of public sector procurement, which in turn is based firmly on the position in international law.

[Richard Burden]

The Minister ran together three things: boycotts, divestments and sanctions. Boycotts tend to be a consumer thing. Sanctions tend to be a Government thing. The issue relevant to this debate is divestment. Paragraph 3.7 of the consultation document says that

“boycotts, divestments and sanctions against foreign nations and the UK defence industry are inappropriate”.

Will he clarify that action to divest pension funds from a company involved with Israeli settlements in the Palestinian territories would not fall foul of that so long as it was done on a case-by-case basis?

[Mr Jones]

I will address more of the hon. Gentleman’s points later in my comments, but I can clarify that any such divestment must be in line with the policy of the UK Government.

The hon. Member for Ross, Skye and Lochaber mentioned on a number of occasions the situation in Canada. We are aware that public service pension schemes in Canada have been merged, based on the fact that they are now important global investors. The Ontario teachers’ pension scheme seems to be regularly wheeled out as an example. There are several Members here from the west midlands who will know Birmingham airport well, and I am aware that the Ontario teachers’ pension fund has a significant investment in that airport. We see in the situation in Canada one of our drivers for pooling the LGPS funds, along with the wider need to save costs, not in terms of a direct cost saving to the Government but one that will be put back into those pension funds for the benefit of members.

I agree entirely that transparency of pension investments is important, so that all concerned can see where pension fund cash is being spent on fees and why. My Department is working closely with the scheme advisory board and others to ensure that information is clear in relation to fees charged to pension funds.

I assure hon. Members that there is an opportunity for trade union representation on pools. That is a matter for the individual pools themselves and depends on their governance arrangements, but the individual local authority members that support each scheme will have the right to be part of setting up those pooling governance arrangements, and it will therefore be their decision on whether union representatives are on the pools.

There have been extremely good examples of investment in local housing in England, as well as in Scotland, which the hon. Member for Ross, Skye and Lochaber mentioned. There is a good example in Greater Manchester, where funds have been used from the Greater Manchester pension scheme. As I said, a relatively small amount of funding has gone into that type of investment hitherto, and we want to encourage pension funds and pools to increase such investment.

The hon. Member for Birmingham, Northfield (Richard Burden) mentioned the significant correspondence he had had with my right hon. Friend the Member for West Suffolk (Matt Hancock). Without seeing that correspondence, it is difficult for me to answer some of his questions directly, but I will undertake to look at that correspondence and come back to him with a written response.

The hon. Gentleman mentioned overseas business risk guidance issued by the Foreign and Commonwealth Office. That guidance does apply to local government pension funds, but it is important to be clear that the Government are committed to promoting trade links and business ties with Israel and therefore the guidance strongly opposes boycotts.

[Richard Burden]

Just for clarity, I mentioned nothing about trade with Israel. I mentioned overseas business risk and the FCO guidance relating to Israeli settlements in the Occupied Palestinian Territories. If the Minister wishes, I can quote from that guidance, but I am sure he knows what I am referring to. It is nothing to do with Israel; it is to do with illegal Israeli settlements in the occupied territories.

[Mr Jones]

As the hon. Gentleman knows, that is covered in the guidance, and I will write to him at further length on that point.

The hon. Gentleman asked for clarification on whether local government procurement guidance applies to the LGPS. Our guidance on pension scheme investments is entirely of the same framework as the guidance issued by the Cabinet Office on public procurement. Both operate within the wider framework of national and international law.

The hon. Gentleman also mentioned tobacco. It is our position, as is clear from our response to the consultation on investment, that decisions on matters such as whether to invest in tobacco are for individual pension funds provided that they comply with the broad principles in our guidance.

The hon. Member for Birmingham, Erdington (Jack Dromey) mentioned localism. Our reforms are entirely consistent with localism. We have removed the petty, arbitrary caps on different types of investments put in place by the Opposition some years ago and given local authorities real freedom to decide how they invest their pension funds.

In summary, I reassure the House that investment decisions will remain for administering authorities. The Government are challenging local authorities to be independent and ambitious, subject to local democratic control and appropriate safeguards. We have no intention whatever of gambling with money that has been set aside to pay pensions.