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Question accordingly negatived.Column 390
Orders of the Day
Pensions Bill [Lords]
As amended (in the Standing Committee), further considered.
New clause 6
Protective costs orders
`Where an application is made to a Court and--
(1) the Court is satisfied that there has been, in relation to the scheme, a prima facie breach of trust by trustees, and
(2) the application has been supported by scheme members under prescribed conditions,
the court may grant an order requiring the scheme trustees to pay the reasonable costs of scheme members in obtaining legal advice in order to pursue claims on behalf of the scheme.'.-- [Mr. Ingram.] Brought up, and read the First time.
4.5 pm
Mr. Adam Ingram (East Kilbride): I beg to move, That the clause be read a Second time.
Before I begin my comments on new clause 6, may I say that, although the Minister for Social Security and Disabled People is in his place, which is good to see, I understand that congratulations are due on his recent elevation to the post of Secretary of State for Wales? I only hope that the decision was not taken on the back of battles with the Celtic fringes while debating this Bill over the past few weeks.
I give the right hon. Gentleman a word of advice: understanding the Scottish accent will not stand him in good stead when he goes to Wales. The Welsh accent is entirely different. Gaelic may be somewhat similar to Welsh, but the right hon. Gentleman will have a hard task speaking to the Welsh in that language. I wish him every success in his new appointment, although he will hold his post for a very short time.
The new clause is straightforward in its intention. It seeks to give maximum protection to scheme members in circumstances where they are required to initiate a court action against trustees of their pension scheme when they consider that there has been a prima facie breach of trust by the trustees. The purpose of the new clause is to lay down a level playing field between trustees and scheme members in matters that require determination by a court.
The new clause is based on experience of recent judgments, which, although they have clarified the law substantially, still leave areas of uncertainty. There can be no dispute that the cost of legal actions against trustees for breach of trust can be extremely high, because of the length of such cases and the need for different sub-categories of beneficiaries to be separately represented. Where scheme members, either individually or collectively, possibly and unusually with the support of their trade union, decide to take a case against their trustees or their employers, or jointly against them, for breach of trust, they face the prospect of open-ended and indeterminate costs. That is a major deterrent, especially if all costs are to be met by them if the case is found against the plaintiffs.
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Trustees against whom the case is being brought do not face the same hazard, for the simple reason that their costs will be met by the trust fund. Trustees, therefore, have the added facility and encouragement to drag out cases, making them extremely expensive and creating a greater disincentive to scheme members to take action in the first place.The most recent example of court action, on which the current law rests in relation to such matters, is the Melton Medes case. The case involved action being taken by beneficiaries against their employers, their pension fund trustees and others, in which they made serious allegations concerning the administration of the scheme.
The beneficiaries originally had the financial support of their trade union, the GPMU--the Graphical, Paper and Media Union--which paid out £250,000 in legal costs at the commencement of the case and as it developed. Understandably, however, the union decided that it could pay no more, because the case was open-ended. That left the beneficiaries unable to fund the case to its conclusion.
An application was therefore made to the court for a pre-emptive costs order. In the court's consideration, Justice Vinelott found in the plaintiffs' favour. As a result of the unprecedented nature of that judgment, the matter was then transferred to the Court of Appeal for further consideration.
Last August, the Court of Appeal upheld Justice Vinelott's judgment by declaring:
"What distinguishes the shareholder and pension fund member on the one hand from the ordinary trust beneficiary on the other is that the former have both given consideration for their interests. They are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration for the services of the employee."
At the Court of Appeal, Lord Justice Hoffman, in his judgment, laid down some criteria to be used in future cases. They include the provision that the discretion can be considered in pension scheme cases only where the plaintiff members are suing on behalf of the trust estate. Another provision stated that the fact that the employer's residuary interest on a winding-up of the fund might be reduced by the cost of reasonable and bona fide proceedings coming out of the fund could not be conclusive against the making of an order, and that this was to be a factor in the exercise of a court's discretion. A further provision was that, if the plaintiffs were impecunious, unless the litigation was funded, serious claims would never be investigated.
Clearly that decision set an important precedent. It established the right of scheme members and beneficiaries with a legitimate grievance to obtain a protective costs order out of a pension fund to enable them to litigate at the expense of the fund, irrespective of the eventual outcome of the case.
However, the principles on which Lord Justice Hoffman made his judgment were narrow. It is important that the judgment had not been confirmed by the Law Lords, because the case was settled before the House of Lords had the opportunity to give further consideration to that new departure in law.
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Others who have considered the judgment have confirmed that the principles set out by Lord Justice Hoffman were indeed narrow. In the "Occupational Pensions Law Reports", pensions lawyer and expert John Mesher stated:"there is little guidance on which to predict how the discretion will or will not be exercised in the future, since the factors identified in it will be common to most cases where pension scheme members bring claims against the trustees or the employers." New clause 6 sets out to replace the broad statutory right available to beneficiaries, which is subject to interpretation by the judiciary, who may not always find in favour of the beneficiaries, with a properly defined right in law.
The Government may argue--indeed, they have argued when the matter has been considered elsewhere--that the appropriate mechanism for dealing with matters of dispute is the newly established pensions ombudsman, who has been in place for about four or five years. It is accepted that the ombudsman may be able to resolve certain disputes, but he will not be successful in all cases, and recourse to the law will therefore still be required.
When the matter was considered earlier in the Bill's progress, Opposition amendments sought to place the financial responsibility on the new regulatory authority, saying that that body had a duty to fund such cases in the interests of natural justice. The Government did not accept that approach.
The Government's first argument was that there was a pensions ombudsman in place to take on such matters, and that it was therefore unlikely that there would be such disputes requiring clarification. It was clear that the Government accepted that cases could still end up in court, but they were not prepared to find a mechanism to assist the beneficiaries to fund any case that they might be forced to take.
Under the regulatory authority provisions, that chance is denied them, and I am not aware of any other mechanism available to them. Clearly, if access to justice is not to be denied, the only way forward is through the mechanisms laid down in new clause 6, allowing trust funds to be used in pursuance of such matters.
I accept the arguments advanced during our earlier considerations that litigation should be avoided if possible, but I hope that the Minister will accept that that will not always be possible. The likelihood is that recourse to the law will be required in some cases to clear up matters of doubt and to ensure that the scheme beneficiaries are properly protected against possible wrongdoing or maladministration of their scheme.
I accept that such cases may be rare, but they may easily end up in a court of law, so it is important that beneficiaries should not be disadvantaged relative to the powers that rest with trustees, who can draw upon trust funds to protect their interests. On that basis, I commend the new clause to the House.
The Parliamentary Under-Secretary of State for Social Security (Mr. James Arbuthnot): Clearly it is right that the interests of scheme members should be protected. If members have reason to challenge the actions of the trustees because they believe that there has been a breach of trust, effective and straightforward methods of redress should be available. New clause 6 proposes one way of meeting that concern, by indemnifying members against their legal costs.
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I make no bones about it--I shall be asking the House to reject the new clause, for two reasons. The first reason is that it gives the courts a power that they already have. That is a fundamental objection. The second reason is that there are other ways which are more effective than legal action by which scheme members may pursue their concerns. I suggest to the House that new clause 6 is unnecessary.I shall first go through the other and more effective ways, which the House will consider important. The first avenue open to members who have concerns about their pension scheme will be the dispute procedures which trustees will be required to implement under the provisions in clause 49. Any member who has a grievance will be able to pursue it first with the scheme administrator and--if he remains dissatisfied--with the trustees or managers. It is right that scheme members should be able to ask the trustees to account for the decisions they make, and it is in the interests of both the schemes and the members that, if possible, disputes should be resolved by the schemes themselves.
If the member remains concerned after using the new dispute procedures, he will as now be able to take the matter to the occupational pensions advisory service and the pensions ombudsman. The member can be told how to get in touch with those bodies in the scheme documentation, and I have a couple of scheme documentations here--these are visual aids and props--to show precisely how the important bodies are drawn to the attention of members of pension schemes.
The Pension Law Review Committee recognised that any redress system should be effective and should have the full confidence of those using it. It should also be easily accessible and cost-effective. All those attributes are provided by the occupational pensions advisory service and by the pensions ombudsman. The occupational pensions advisory service offers free and independent advice to any scheme member who has a problem with his pension scheme.
The Pension Law Review Committee has recognised the worthwhile work carried out by the occupational pensions advisory service, and the Government remain committed to providing financial support for that valuable service. There may have been some confusion about what has been said about the powers of the ombudsman and the occupational pensions regulatory authority to seek the direction of the courts, as those directions would be funded by the levy and the funding of litigation costs.
I should now cover the services of the pensions ombudsman which are also available to scheme members free of charge. This was the subject of some considerable discussion in Committee, particularly in relation to my role as a Chancery barrister. The pensions ombudsman was set up in 1991 to provide scheme members with an easily accessible and cost-effective way of resolving disputes with pension schemes. He has wide-ranging and flexible powers, which allow him to deal with the sometimes complicated disputes that arise in pensions cases.
The ombudsman may consider complaints about injustice caused by maladministration and disputes of fact or law. I make it clear that that includes complaints and disputes involving trust law as well as breaches of statute. The ombudsman has the same power as the courts in requiring information and the examination of witnesses,
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and I should emphasise that his determinations--unlike those of other ombudsmen--are final and binding on the parties to a dispute, subject only to an appeal to the High Court on a point of law. Effectively, his determinations have the same force as court rulings.The Pension Law Review Committee recognised the expertise and experience of the ombudsman in pursuing a variety of complex cases. Indeed, it recommended that his jurisdiction should be extended and should be available for the resolution of a wider range of pension disputes.
It would be productive at this stage to refer to the report of the Pension Law Review Committee. Paragraph 4.13.42 states:
"We have also considered whether to recommend that a tribunal be set up in place of the Pensions Ombudsman but we have not been persuaded by arguments in favour of a change of this sort. Whilst a tribunal is less formal than a court, creating a tribunal for pension disputes would still involve some of the elements that lay people find daunting: oral evidence, and an adversarial procedure, in which the protagonists confront each other and ask questions whilst the tribunal listens to the evidence, as opposed to the inquisitorial approach used by the Ombudsman, who investigates the facts and then decides on the basis of them. The Ombudsman's office has only been in place for a short time, during which it has established a good working relationship with OPAS and has investigated a number of cases in considerable detail and with great persistence. We therefore prefer to see changes implemented not by replacing the Ombudsman with a Pensions Tribunal but by introducing a series of rather smaller changes in the operation of existing institutions."
Although the new clause does not suggest that the ombudsman should be replaced by a pensions tribunal, it is instructive to listen to what the Goode committee considers to be the successes of the ombudsman.
Mr. Ingram: I accept that conclusion of the Goode committee, but it is worth while putting on record why it reached it. It received representations from the Council on Tribunals, which advised the committee that nothing less than an expert, properly constituted independent tribunal with a legal chairman would be apt for the purpose.
I hope that the Minister is not trying to suggest that the Goode committee recommendation represents the only judgment on the matter, and that therefore any other suggestions were unimportant, especially when a responsible body such as the Council on Tribunals has made such a strong recommendation that contradicts the conclusion reached by that committee.
Mr. Arbuthnot: I would not for a moment suggest that there are no arguments in favour of a tribunal. The Goode committee heard those arguments, and considered them carefully. It then published a report that is not small, and came to the conclusion that I have just read out.
At the moment, the ombudsman's jurisdiction is restricted to cases referred to him by individual members of pension schemes, but, as the Pension Law Review Committee recommended, in future he will also be able to handle complaints and disputes between employers and trustees and between the trustees of different schemes. Again, that will include cases involving breaches of trust law.
The Council on Tribunals has been fully consulted on the provisions relating to the ombudsman's jurisdiction. Although it might, understandably, want a tribunal to be created, I understand that it does not currently raise any objections to the ombudsman's jurisdiction and the extension of it under the Bill.
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We recognise that it may not be appropriate for the ombudsman to investigate all pension scheme disputes. Certain matters will be specifically excluded from his jurisdiction, because the Occupation Pensions Regulatory Authority will have enforcement powers that are more likely to be effective in securing compliance with the legislation in certain matters.My noble Friend Lord Mackay of Ardbrecknish explained in another place that we intend to make regulations which will exclude from the ombudsman's jurisdiction cases involving payment from surplus to an employer; failure to meet the minimum funding requirement; failure to comply with audit requirements; and the procedures for the appointment of member-nominated trustees and the scheme actuary. Concerns that scheme members may have about such matters will fall exclusively to the regulatory authority, which will have a wide range of powers to ensure compliance with statutory obligations. I recognise that court action is expensive. It is also time- consuming, and it may be daunting for members of pension schemes. Through the occupational pensions advisory service, the pensions ombudsman and the introduction of the Occupational Pensions Regulatory Authority, we have provided the means for scheme members to seek effective redress for their grievances without the need for lengthy and costly litigation. Effective means of redress, other than court action, is therefore available to scheme members.
However, we certainly do not want to deny members access to the courts if that is what they want, and assistance is available for those members who decide to go to the courts. New clause 6 would allow members to apply to have the costs of legal advice met by the scheme trustees where the members are pursuing a case involving a breach of trust.
As I said, the courts already have that power. In the Melton Medes case, to which the hon. Member for East Kilbride (Mr. Ingram) referred, a number of scheme members brought an action against the trustees of their pension scheme. The members applied successfully for a protective cost order allowing their costs to be met from the scheme, regardless of the outcome of the case.
The hon. Member for East Kilbride read out parts of that judgment. However, I suspect that he may have read out those parts of the judgment that were modified by the conclusions reached by Lord Justice Hoffman. I suspect that the hon. Gentleman may have read out the historical position rather than the current position. If I am wrong about that, I hope that the hon. Gentleman will correct me immediately.
Perhaps it would be best if I were to read the summary in the "All England Law Reports", which states:
"An action by a member of a pension fund to compel the trustees or others to account to the fund was analogous to a derivative action by a minority shareholder on behalf of a company in that pension funds were a special form of trust and the analogy between them and the company/shareholder relationship was much stronger than ordinary trusts and, in both cases, a person who had given consideration for a limited interest in a fund (whether a pension fund or the company's assets) was alleging injury to the fund as a whole and seeking restitution on behalf of the fund. Since a minority shareholder was entitled to a pre-emptive costs order indemnifying him out of the assets against his costs and any costs he might be ordered to pay to the other party, the court could also make a similar order in favour of a pension fund member pursuant to s 51 of the Supreme Court Act 1981."
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I do not believe that that finding is as restrictive as the hon. Gentleman suggested. The Court of Appeal made that ruling, and I understand that it will not be appealed further. Therefore, I suggest that new clause 6 is unnecessary.Mr. Ingram: Does the Minister agree that the matter is not being pursued further in a higher court because a settlement was reached in the case, and therefore the reference to the Law Lords was withdrawn? If the case had gone to a higher court, a different decision might have been reached. I said that there was some doubt and uncertainty arising from the judgment and I based my argument on that point. I have visual aids as well, and I could read out the whole judgment if that is what the Minister wants. However, I think that we should make some progress on the matter. I stand by my earlier remarks about the uncertainties that can prevail. We are still in a grey area, because the judgment was not considered in a higher court of law.
Mr. Arbuthnot: I am not entirely sure that the hon. Gentleman could read out the whole judgment, because I think I am the only person who has it. I have not spoken to the parties in the case, and I do not know what motivated them to come to a settlement after the finding of the Court of Appeal. However, until that judgment is overturned in the House of Lords-- whether in this case or in another case--it remains the law of the land.
I believe that new clause 6 is unnecessary, because it provides a power that the courts already have and that they have exercised. It extends to scheme members the principle known as the Beddoes principle, under which trustees can apply to the court for an order indemnifying them from the trust fund against the costs of legal action taken on behalf of a scheme.
I have described a wide range of measures that provide scheme members with various means of challenging the actions of the scheme trustees. Schemes will have to provide dispute resolution procedures and they have access to an excellent means of redress through the free services of the occupational pensions advisory scheme, the ombudsman and the Occupational Pensions Regulatory Authority. Following the Melton Medes case, it is clear that they can apply to the courts for protective costs orders if they prefer to take their case to the courts. I am therefore unable to accept that the new clause would serve any useful purpose. I hope that the hon. Gentleman will not press it to a division, because it would not improve the Bill.
Question put and negatived.
New clause 4
Investment powers: duties of trustees
`(1) Trustees or managers of a scheme shall, in relation to investments held by the scheme--
(a) make available to scheme members a statement of policy on the exercise of shareholder voting,
(b) maintain records of shareholder voting,
(c) permit the inspection by a scheme member of the voting records described in subsection (b), within 21 days of the date of a written request to trustees, and
(d) provide to a scheme member within 21 days of the date of a written request a copy of all or part of the shareholder voting record.'.-- [Mr. Dewar.]
Brought up, and read the First time.
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4.30 pmMr. Donald Dewar (Glasgow, Garscadden): I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Mr. Michael Morris): With this, it will be convenient to discuss also the following: Government amendments Nos. 36 and 38 to 50.
Amendment No. 13, in clause 47, page 30, line 21, leave out `may' and insert `must'.
Mr. Dewar: This is a debate on quite an important issue by any standards; in fact, I am not clear why I used the word
"quite"--perhaps it is innate moderation. It is an extremely important issue which generated a great deal of anger as certain events in industry and commerce were deeply resented by a wide cross-section of the public, and indeed, of informed and technical opinion. The new clause addresses the issue of corporate governance. A great deal has been said about that in recent times, but it should be brought before the House during our consideration of the Pensions Bill. As anyone who has examined the facts and figures will recognise, pension funds hold a special place because of their growing financial muscle, which has built up spectacularly in recent years. Much of the present discontent has been highlighted by one or two spectacular cases. British Gas attracted an enormous amount of publicity and Mr. Cedric Brown became famous. In my view, no reasonable man would want such fame, although there may be private consolations when he inspects his bank balance. Those cases have done a great deal to damage public confidence.
During the passage of the Pensions Bill, we spoke learnedly about the impact of the Maxwell case and what it has done to shake confidence in the management and solidity of pension funds. I do not want to exaggerate, but some recent instances, particularly those concerning private utilities, and the way in which managers have used their muscle and their privileged position to award themselves startling increases in salary and perks have made a profound impression on the public. If I lived in the City, worked in the City and lived on the City, I would be concerned about some of the public responses and the evident worry.
It is not just poor Mr. Brown and British Gas. In some ways, it is more alarming when people who are given the opportunity to enrich themselves do it with vim and vigour, although the chance arose simply through privatisation and not because of some great entrepreneurial skill that has driven out a new platform of economic activity and the opportunity to contribute to national growth. The national grid might be a example of that. The existing operation ran on under new colours, but those colours provided the opportunity to move very fast in the direction of
self-aggrandisement. I do not intend to make a lengthy speech about that aspect. I draw it to the attention of the House because it is a matter of particular sensitivity, but I have no doubt that the arguments can be rehearsed on other occasions.
The foregoing is symptomatic of a much wider problem of which the Secretary of State will be well aware. These days I read the Financial Times regularly. It reports pensions news and related issues in a detail that other papers cannot match. Reading it every day, I have been
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struck by the number of times I have come across details, now routinely reported, of the emoluments of chief executives and directors of public companies. It is clear that there are now people who are able, out of earned income, to build up significant capital fortunes in a way that some of us would have though inconceivable only 10 or 12 years ago.Sometimes there are other perquisites, such as pension contributions which outrage common sense, and share options which yield profits comparable to a decent-sized win in the national lottery. I do not want to give the impression--I realise it is likely that the Secretary of State will charge me with this--that I am opposed to reward for initiative. If people work hard, if they have special talents or if they produce special results, that will and ought to be reflected in their earnings and their rewards. That is an inevitable part of the system; I do not protest against it. I am trying to put the case in comparatively low-key terms because I do not want to end up in a slanging match with Conservative Members over what they would describe as the politics of envy. That would not take the argument much further.
I am sure that Ministers will accept, however, that certain cases have raised eyebrows and that there is a worry which is widely reflected right across the sweep of industry and of those who comment on industrial and commercial matters. I wish here to use the words "offensive" in a justified but not excitable fashion. I find it offensive to see rolling contracts extending over a number of years. They mean that if someone has to go because he has not been a success or has not delivered as expected, he is paid sums which seem extraordinary to me--I was going to say "to you", Mr. Deputy Speaker, but that would be an impertinence on my part; I do not know how broad your vision of these matters may be--given that he is paid them simply because he has not succeeded in his job.
I am happy to recognise that worth must be rewarded, but the argument that firms are only paying the market rate has set in motion a ratchet phenomenon, whereby each supports the other and the ante goes up endlessly. There is genuine scope for abuse here. But I also recognise that this is not all about pay and executive perks. That would be a rather narrow basis on which to conduct the argument. As I have said, we come across extraordinary examples in the papers. I, for instance, have been watching the activities of Mr. Sorrell of Wire Packaging and Plastic with considerable interest. At one time--admittedly, tied to performance targets --he was looking at a rake-in of about £35 million over the next few years. It is interesting to note also that the sum has been moderated and the man has been reined in as a result of shareholder pressure and a revolt by a cross-section of the institutions with an interest in WPP--which, despite its rather prosaic name, turns out to be an advertising agency holding company more familiarly known as JWT, or Ogilvie and Mather, and one or two other names of that sort. This is a startling example of the extreme end of the argument.
It is not just a question of pay. We also believe, in the context of investments in a public company held by a pension fund or any other institutional investor, that those investors ought to take a practical interest in how the company in question is run, in the interests of the beneficiaries of a pension fund or of the shareholders of an institutional investor. That would also lead to the better
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government of the company under examination. I think of such matters as investment policy, environmental considerations, which often raise sensitive issues, and the difficult balance between profit and environmental considerations. There are other ethical and management issues that should be on the agenda and given active consideration by shareholders, especially institutional shareholders.Short-termism in investment policy is often debated. It may be said, "This is a general problem. Why do you seek to impose a particular burden upon pension institutions and pension funds?" By the end of 1992--the percentage has probably increased since then--pension funds were reckoned to hold about 34 per cent. of the equity market, getting on for £300 billion. In 1963, it was not 34 per cent. but 8 per cent. There is a real question mark over how that substantial influence will be exercised and the level of responsibility that is expected of the funds.
There is not necessarily a great deal of dispute about many of the basic considerations of what should be expected. But there will be a dispute, I think, about whether we want to do anything about those who fall short of expected standards. That is perhaps the real purpose of the new clause. It is designed to provoke or invite some debate on that issue. We do not want- -when it comes to short-termism, this is an important distinction-- institutional investors or pension funds to be owners in a superficial sense. We do not want them merely to be dealers in the shares of the companies in which they have an interest. We do not want them watching and waiting to take a percentage profit when a share price reaches a pre- determined level and has a certain added value over the purchase price.
It is compatible and much in the interests of those for whom pension funds are in existence that matters such as research and development, investment and management standards come well to the fore. To encourage that positive interest we want to encourage positive ownership of the sort that I have tried to outline. I remember talking to a managing director of a firm with a proud record of research and development and investment in it. My constituency does not throw up many such examples. The company was in a highly technical industry in which it did not produce spectacular results at the time. It was investing heavily for the future. A rather aggressive conglomerate came shopping for it with a hostile takeover bid. The managing director--in fact, he was the managing director of one of the subsidiary companies--was asked to see some institutional investors to discuss the issues with them and to try to persuade them that there was genuine interest in the company remaining in independent ownership and continuing its proud traditions of investment and innovation. There was also a national interest.
The managing director told me that what ensued was the most depressing experience of his industrial life. He visited largely Edinburgh investment offices. The House will be aware that Edinburgh is a large centre of investment funds. He said, rather bitterly, that he found people half his age in smart suits. It sounded as though it was rather like looking at the occupants of the Conservative Benches.
Mr. Ingram: They are not very smart.
Mr. Dewar: I think that there is a sartorial distinction between the two sides of the House. No one has ever
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accused me of being a dandy, but if the Secretary of State wishes to do so, I shall await his speech with interest.The managing director went around the boardrooms, but the young men would not listen to his arguments. He described them--at least, I am interpreting what he said, so I shall describe them--as having brains like calculating machines and having about as much vision. They made it clear that if the price--the percentage mark-up on what they had originally paid--was right, the door would be slammed shut and the sale could go ahead.
There is a wider worry about institutional investors. That case was symptomatic of a general problem. The Secretary of State would not deny that investment in the United Kingdom, as a percentage of gross domestic product, has not been as good as it should have been. Between 1979 and 1993, our level of investment was lower than that of any of the other G7 countries. The deficit in investment in fixed capital relative to, say, France and Germany, is something like £1, 000 per employee.
4.45 pm
It is not easy to put that right and I am not suggesting that a modest new clause in the Pensions Bill will resolve the problem. We have to start trying to resurrect an interest in a definition of ownership and stewardship for shareholders, and especially for institutional investors, that is wider than has been accepted in the past. It was on the basis of a wish to encourage healthy corporate governance that the new clause was tabled.
The new clause is something of a reprise. We have debated it in the House of Lords and in Committee. My noble Friend Lord Haskel raised the issue and argued the case forcefully. Lord Mackay of Clashfern, sounding a little like a boy scout, expressed good intentions but promised no action. We thought it right to return to it in Committee but we got very little help, I am afraid, from the Under-Secretary of State, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot), who took that debate. It was an interesting debate in the sense that he conceded a great deal of the ground that I have outlined in this debate.
The relevant passages come from the Standing Committee's proceedings of 18 May. We had tabled an amendment designed to make sure that when investment principles were being considered and put into written form, the trustees of a pension fund would take into account their ability to exercise their voting rights. It was a comparatively modest peg for a discussion about the way forward. I shall quote a few broken phrases to give the spirit of the Under-Secretary's argument rather than wearying the House with its detail. He said:
"I am sure that we all agree that the intention behind the amendment--the improvement of good corporate governance--is admirable. Shareholders have a crucial role in influencing and ensuring good governance and the competitiveness of British industry . . . The Government are concerned that shareholders should take their corporate governance responsibilities more seriously. It is extremely important that they should subject the performance of their companies to critical scrutiny . . . The role of shareholders is crucial to the country's economic prosperity."
At that point, I was in the audience and not an active participant. I felt 10 ft tall and thought that I was going to get a gold star for good conduct. Clearly, the
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Under-Secretary thought that we were fighting the good fight. Rather oddly, he went off the tracks after that, because he started to consider what we should do, from that platform of agreement, about the nature of the problem. I do not disagree, but he said that "good practice in corporate governance does not necessarily translate easily into legislation . . . The Goode committee considered the matter carefully. On ethical and socially responsibly investment, page 350 of the report says:`We believe the present law to be satisfactory and do not recommend any change'."--[ Official Report, Standing Committee D , 18 May 1995; c. 223 -24.]
I have no doubt that the report did say that about the narrow issue of the rights of trustees to take into account certain ethical and environmental considerations, but that was not what we were discussing.
The Under-Secretary went on, even more strangely, to accuse us--at least by implication--by charging that the choice that we were offering was between forcing trustees to invest in a particular way and allowing them to make their own decisions on how best to serve the interests of their beneficiaries. I cannot imagine how the notion that we were forcing trustees to follow a certain investment course could be inferred from the nature of that amendment.
The point of rehearsing these arguments is to underline the fact that the Government accept that there is a problem and that a great deal needs to be done but that there is very little sign of their being prepared to consider any likely solution or even a modest first step forward.
We know that in total--I am referring to equity holdings--the assets of pension funds are getting on for about £500 billion. We know that they have a crucial role, especially in the equity market, and that good governance must involve them. If we cannot get them moving, it will be difficult to make any impact on the problem.
The House will know that, although there is a feeling that some progress has been made, there is clearly a long way to go. The National Association of Pension Funds, for example, has been charting the progress and examining in particular the way in which pension funds have been exercising their franchise at the shareholder meetings of the companies in which they have invested. There is no doubt that a good deal of progress has been made but, as the vice-chairman of the National Association of Pension Funds made clear at the association's most recent conference, there is still a long way to go. He accepted that the job was by no means satisfactorily completed.
The Cadbury report had a fair bit to say about corporate governance in general. I do not want to mislead the House, but it is a little odd to find that the Cadbury report referred to the fact that the Goode committee--the Pension Law Review Committee--was sitting and said that, in the light of that, it would be inappropriate for it "to deal specifically with pension fund governance issues". However, its comments about institutional shareholders and good governance, which I shall not quote at length, are relevant. It states that institutional investors should make positive use of their voting rights unless they have good reason for doing otherwise and that they should register their votes wherever possible on a regular basis. The committee recommended that institutional investments should disclose their policies on the use of
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