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Mr. David Willetts (Havant) (Con): I assure the Minister that, yes, we do understand the need to protect the PPF from exploitation and abuse. Indeed, I checked the original statement on the creation of the fund, made back in June 2003, and we specifically raised that issue with the Secretary of State for Work and Pensions. We understand the overall purpose of the provisions, but this is an example of the dangers of legislating in haste and repenting at leisure, because there is growing concern in the business community about the effects of some of those provisions.

I hope that the Minister is at least willing to undertake to consider the provisions further in the light of some of the representations that he has received and which we have received as well. Perhaps I can briefly give some examples of those concerns.

The PPF and the regulator will have draconian powers. In practice, a new contingent risk will be placed on companies, company directors and shareholders. Those in the business community are concerned that that will put at risk capital, shareholders' capital and dividends in a way that they had not expected. Does the Minister accept that he should consider not just the protection of the PPF, but the proposals' effect on the ability of British business to raise capital and reward capital, given the new risk to directors and the providers of capital?

That raises a specific point that has been made to us and, I am sure, to the Minister. Will the regulator solely take account of the PPF and the need to protect its finances or will he also be able to take account of the financial position of the employer and the parent company? Is that a relevant consideration for the regulator in exercising the powers set out in the new clauses? For example, what would the position be if the exercise of the power in the new clauses were to tip a company over into bankruptcy? Is that a relevant consideration for the regulator or is it beyond the focus that the new clauses give to him? It would be helpful if the Minister could comment on that.

The Minister referred particularly to new clause 17, so may I press him on that? Like the Minister and Members on both sides, we have been approached by the Association of Consulting Actuaries, which is unhappy about the provisions for multi-employer schemes. We rather like multi-employer schemes and, given the Minister's affinity for the co-operative movement and continental industry-wide schemes, I presume that he likes them too. However, the provisions are quite tough for such schemes and the ACA has suggested that

"the proposal that any employer within a group of associated employers be compelled to make up . . . some or all of a scheme shortfall should be restricted to the scheme shortfall over PPF level benefits, and not the full scheme shortfall."

It will be interesting to hear him comment on that, because the ACA's proposal would limit the burden that is imposed by these provisions.

I also want to ask the Minister about retrospectivity. Does he believe that these provisions, which go back to 11 June 2003, are retrospective and fully covered by the
 
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statement that was made then? That is what he appeared to maintain earlier. Again, lawyers are concerned that these provisions would be difficult to defend and would be open to challenge under human rights law on the grounds that they are retrospective and constitute an unjustified risk to people's ability to enjoy their property. We would also appreciate the Minister's comments on the human rights aspects of the provisions.

Mr. Webb: As ever, it is a pleasure to welcome the hon. Member for Havant (Mr. Willetts), with his insightful contributions, back to our proceedings.

I always get the sense of playing catch-up when the Government try to close a loophole that they fear they have just created. They have created the PPF and, quite properly, they do not want it to be abused because of the knock-on effect that that would have on the levy on employers. Having created this thing, they have sat down to think how people might abuse it. They therefore introduce provisions to second-guess the way in which the fund might be abused and to close each possible loophole in turn.

I think that I am right in saying that these new clauses are the third set relating to moral hazard. We had ones quite late in Committee to do with not putting a pension fund in the hands of an employer who had virtually no assets, because he would almost inevitably make a call upon the PPF. However, I have a slightly nagging fear. Although the Government might have correctly guessed the most obvious ways of dealing with the matter, ingenious employers, accountants and—dare I say it?—even actuaries might think of new ways of circumventing the Government's intentions. We now have an open book with a pen in the Minister's hand so that, every time the Department thinks of another clever wheeze, it can write half a dozen new clauses to stop it. However, what will happen when the ink is dry, the Bill has become an Act and a clever financial wizard comes up with another moral hazard to put an unfair burden on the PPF?

In Committee, we asked the Minister whether there should not be a stronger anti-moral hazard provision in the Bill. The Government who, with the best advice in the world, are unlikely to foresee the next clever wheeze to create a burden on the PPF, are unlikely to have enough parliamentary time to introduce primary legislation to deal with such a wheeze, which could leave the fund open to abuse. When I made that point to the Minister he offered a human rights defence and said that we could not have a general anti-avoidance rule because it might be draconian and contravene human rights legislation. Has he had a chance to reflect on that argument, and is that still the Government's position? Each group of new clauses appears to be satisfactory—no one wants assets to be sold at an implausibly low value, thereby weakening the pension scheme or the position of the employer and leading to an unnecessary claim on the PPF—but they deal only with individual examples. The Minister said that in each group of new clauses the Government have given themselves broad powers, which is mildly reassuring, but it is not reassuring enough. Is the piecemeal approach of
 
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anticipating the nasty schemes that nasty people might devise and trying explicitly to prevent them necessarily the right way to deal with such issues?

Kevin Brennan (Cardiff, West) (Lab): Does the hon. Gentleman agree that if we were talking about housing benefit instead of pension protection we would call such activity fraud, not moral hazard? People claiming housing benefit would be deemed to be doing things to take advantage of the system and would be banned from making a claim. Just because it is big business, that does not mean that we should not face up to the problem and say that anything that is done simply to take advantage of the scheme or to rip it off should be banned.

Mr. Webb: Indeed, that is the general thrust of my argument which, however, was not expressed quite as forcefully as the hon. Gentleman's contention—I was tiptoeing around the issue. There are general presumptions about the nature of housing benefit fraud. Lying on the form is obviously fraud, but artificially depressing one's earnings to get more housing benefit is less clear-cut. However, there should be a presumption that artificial activities, the principal or sole aim of which is to make an unnecessary claim on the PPF, should be prohibited in general, rather than being prohibited individually, as there will always be others that we have not thought of. I should be grateful for further reassurance from the Minister on that point.

The hon. Member for Havant made a fair point about retrospection. The Minister read out a general hint from the Secretary of State on 11 June 2003 about the undesirability of certain actions. I doubt, however, whether that would stand up in court. We might want an employer to be caught by an anti-avoidance law, but none the less he might argue that in the past 12 months his firm undertook some asset transactions and that the Secretary of State's remarks on 11 June could not be interpreted as making that an unlawful avoidance of a restoration notice.

I am also worried about the two-year limit. First, does there need to be a date at all? If an employer at any point artificially depresses the value of a fund, should we not take action? Why do we want the two-year cut-off? If it can be demonstrated that the action taken was entirely artificial, why does it matter whether it took place two years and a day earlier or one year, 364 days earlier? The fund was artificially depressed and its position was weakened. Even if a claim is made on the pension protection fund just over two years later, the PPF has still suffered. It may be argued that once two years have elapsed it is hard to prove that something was done in response to something else, but the two-year limit is entirely arbitrary. Can the Minister therefore explain why it was selected?

4.45 pm

We do not want any action to be taken that leads to an artificial claim on the PPF, so why two years? Is there some other part of pensions legislation that uses two years, or is there just a broad-brush assumption that once two years have gone by, one can no longer prove the case? Surely these matters should be judged on the merits of each individual case, which would imply that the fixed two-year rule is removed and replaced by a
 
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general provision that if anything that was done artificially reduced the value of the fund, leading to a claim on the PPF, and if it can be demonstrated that that is why it was done, the regulator is allowed to make some sort of restoration order.

I appreciate that that falls foul of the point made by the hon. Member for Havant about the open-ended nature of the liability on the directors and so forth, but clearly if something had occurred more than two years previously, it would be difficult to prove. If it could be proven that the effect on the fund was completely artificial, the people responsible should not be allowed to get away with it.

As ever, the spirit of the new clause is right. We want to close the loopholes, but I am not convinced that the piecemeal approach to closing loopholes is the way that we should be going.

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