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Mr. Geoffrey Clifton-Brown (Cotswold) (Con): My neighbour the hon. Member for Stroud (Mr. Drew) has drawn the Minister's attention to the problems associated with the Lister-Petter pension scheme, and the Minister is indeed meeting the hon. Gentleman and some members of that scheme. The subsidiary went bust and the main company is still trading, yet pensioners in the subsidiary scheme seem not to be covered. Can the Minister clarify what is happening? If he cannot do so now, perhaps he will write to me if I first supply him with more details of that scheme.

Malcolm Wicks: It would be wrong of me to comment on a particular scheme because I do not know the circumstances, but if the hon. Gentleman sends me the information I shall consider it carefully and write to him. We have considered various moral hazard provisions, and we are fully aware of the danger that sophisticated company structures—involving parent companies and many subsidiaries—can lead to the dumping of pensions in one scheme, while the parent or subsidiary companies remain solvent. We are dealing with this issue in general terms, but I am grateful to the hon. Gentleman for raising it. We will deal with it in the way that we discussed.

1.45 pm

Mr. Webb: The Minister is being very generous in giving way—he has clearly had a good night's sleep. No one is arguing that it is likely that the Government will have to be the lender of last resort, and he is right: if a large scheme goes down, a big pot of money goes into the PPF in the year in question, so there is no problem. However, the Government have included a "what if?" provision in schedule 7, with which amendment No. 31 deals, that creates a reserve power. My question is: what happens if the fund gets into a really difficult situation? The Minister says that that is not very likely, but he clearly concedes that it is possible; otherwise, such a power would not be included in the Bill. If such a situation is possible and that power could be exercised, surely it would be better for the Government to act as lender of last resort, rather than cutting benefits. So the question of the likelihood or otherwise of the scenario is not relevant; the Government have included the "what if?" provision in the Bill, so would not the alternative strategy be preferable?

Malcolm Wicks: As ever, I am in a generous mood, so I shall not point out that the hon. Gentleman is rather good at "what if?" scenarios. That can be helpful in testing things out, but occasionally it can prove somewhat absurd. It is right and proper that there should be no liability on the general taxpayer as regards the PPF, not least because many taxpayers are not in final salary pension schemes. We have therefore carefully costed likely liabilities to the PPF. Yes, we
 
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have built in certain provisions and safeguards, because it would be irresponsible to ask the House to support this Bill without building in an in extremis scenario.

Mr. Webb: A "what if?" scenario.

Malcolm Wicks: Yes. In terms of national emergencies—perhaps this is not a very good comparison—it is right and proper that we plan for the most extraordinary things that might happen to our various institutions, or to the country as a whole. However, so far as such events are concerned, we are not talking about their likelihood. We are convinced that raising the levy by 25 per cent. a year to a cap of 100 per cent., along with the requirement to consult the Secretary of State on crucial matters, provides the necessary flexibility.

We have learned the lesson of the need for such flexibility from the United States. In discussing the American war on poverty and its relationship to this country, the great Professor Halsey of Oxford once spoke of ideas drifting across the Atlantic, soggy on arrival and of dubious utility. However, as a proponent of the special relationship, I should point out that this situation is very different; we have learned proper lessons from across the Atlantic. The fact that the board itself, subject to certain provisions, can raise the levy without having to come to Parliament—in the United States, Congress has to be consulted—is a very important flexibility.

I emphasise the point about assets because in this debate and the dubious comments occasionally made about the American Pension Benefit Guaranty Corporation, it is sometimes forgotten that the PBGC, despite the current financial difficulties, holds considerable assets. Notwithstanding anything else, those assets would enable it to meet its commitments for several decades. It is sometimes suggested that in an extreme scenario in which a particular company crashes, the PPF would be unable to operate, but in fact, considerable assets would go to the PPF. That point gets forgotten.

A recent Channel 4 documentary—the hon. Member for Northavon might have contributed to it—talked about the PBGC being on the verge of collapse. On watching that documentary, I thought that the merger of Channel 4 and Channel 5 had already taken place, such was the absurdity of the analysis offered by the young gentleman presenting it. He was riding a moped, and seemed to think that he was in a film with Sophia Loren.

May I move on to indexation? One of the amendments was designed to increase the cap on indexation to 5 per cent. As I have already explained, the Bill is designed to reduce the level of the indexation cap to 2.5 per cent. on all future accruals. By restricting the amount of indexation paid, the PPF is better able to predict its liabilities. It also means that the PPF will not end up paying more than some schemes are required to do. Furthermore, it avoids creating a further increase to the levy of around £100 million a year. If we add to that the proposal for 100 per cent. compensation for all, the amendments would effectively add an estimated £200 million to the levy each year.

Once again, I look to Conservative Front Benchers to intervene to explain their proposals. If they seriously believe in provisions that would add an extra
 
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£200 million a year, we need to know whether it is a proper spending commitment. It sounds like one. Are they saying that the taxpayer should fund the proposals or that the levy should be substantially increased? Or is it that they are thrashing around as ever without being clear where they are going—one way or the other?

Mr. Nigel Waterson (Eastbourne) (Con): Given that the Minister provokes me and that the world's media are standing several deep in the Press Gallery, craning to hear our every word, let me make it clear that our probing amendments are designed to get the Minister to admit that what the Government are selling is not a total safety net. Indeed, the Minister just made the point—it will be interesting to read the Hansard—that the reason for making reductions in indexation is to ensure that the PPF has enough money to pay people out. It is yet another example of cheese-paring the benefits to be paid to pensioners in order to make the scheme work in the first place. That is the point, and it is important that the public end up with a clear impression of what they are and are not getting with the scheme.

Malcolm Wicks: If we are cheese paring, there should presumably be more cheese and it has to be paid for. The hon. Gentleman has not answered my point. Is he making a spending commitment—I think he is—of £200 million a year? Is he telling industry to pay much more on the levy or saying that the taxpayer should subsidise it? I would be happy to give way again. Answer came there none. We are not cheese paring. Unlike in Monty Python, this is a cheese shop with a whole variety of cheeses—ample for everyone and ample to cover the liabilities on pensions that we are predicting. A further point is the impact that such a measure might have on schemes. If schemes followed suit, it would increase scheme liabilities and contribution levels, as well as a bigger hit on schemes via the levy.

The hon. Member for Northavon also asked about the consistency of 2.5 per cent. indexation with a revaluation cap of 5 per cent. There is no inconsistency. Pension schemes are required to revalue in line with the retail prices index with a cumulative cap of 5 per cent. The PPF revaluation maximum rate of 5 per cent. therefore mirrors the maximum rate in the Pension Schemes Act 1993 and, as with the PPF indexation, it is in line with the requirements of the schemes.

The Government have taken account of the recommendations made in the Pickering report regarding indexation and revaluation. While that report recommends a reduction in indexation, it specifically recommends that revaluation should remain unchanged. We followed that advice.

Finally, I should like to clarify the position on borrowing. I hope that my distinction between the cash flow position of the PPF and its funding position has already dealt with the doomsday scenario of the hon. Member for Northavon. [Interruption.] My speech writer is beginning to understand my approach to these matters. I should clarify that borrowing will be needed only in extreme cases where there is an exceptional cash flow need. That is most likely to happen at the outset, but even there, the PPF will collect the levy at least a
 
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year in advance of the PPF having to start paying any pensions. There will also be a limit, set through regulations, on the amount that the PPF can borrow.

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