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'( ) any amount paid to the Board in respect of a debt due to the Board under section [Content and effect of a section [Contribution notices where failure to comply with restoration order] contribution notice](7) by virtue of a contribution notice under section [Contribution notices where failure to comply with restoration order],'.
No. 115, in page 104, line 22, leave out 'payable' and insert
'to be paid or transferred'.
No. 116, in page 104, line 37, at end insert—
'( ) any sums required to meet any liabilities arising from obligations imposed on the Board by a restoration order under section [Restoration orders where transactions at an undervalue],'.
No. 117, in page 104, line 37, at end insert—
'( ) any property (other than sums) required to meet any liabilities—
(i) transferred to the Board as mentioned in paragraph (a) and arising from obligations imposed by a restoration order under section [Restoration orders where transactions at an undervalue], or
(ii) arising from obligations imposed on the Board by such an order,'.
No. 118, in page 104, line 42leave out 'payable' and insert
'to be paid or transferred'.
No. 119, in page 104, line 42, at end insert—
'( ) In subsection (1) (other than paragraph (d)) and subsection (3) (other than paragraph (c)) any reference to a provision of this Act is to be read as including a reference to any provision in force in Northern Ireland corresponding to that provision.'.—[Derek Twigg.]
Clause 157
Mr. Waterson: I beg to move amendment No. 33, in page 105, line 5, after 'regulations', insert
', which shall be no earlier than the day on which the basis for calculating the risk-based levy in the first financial year after the initial period has been published.'.
Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss the following amendments:
No. 34, in page 105, line 6, leave out '12' and insert '6'.
No. 35, in page 105, line 27,after 'liabilities', insert—
'(ia) the likelihood of an insolvency event occurring in relation to the employer in relation to a scheme,'.
No. 36, in page 105, line 33, leave out paragraph (a).
No. 37, in page 107, line 10, leave out '50%' and insert '75%'.
No. 38, in page 107, line 43, at end insert
'save that in the first year, the levy ceiling will be no higher than £600 million'.
No. 39, in page 109, line 31, leave out from 'means' to end of line 33 and insert
'a period of time no longer than two years after the initial period begins.'.
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No. 40, in page 109, line 41,at end insert—
'( ) The trustees or managers of the scheme may charge a sum at least equivalent to the non-risked based amount of the levy to all scheme members.'.
Mr. Waterson: I shall be fairly brief as the amendments, almost without exception, echo equally important amendments that we moved in Committee—much good it did us then. They have to do with the nature of the levies, and especially the initial levy. The Government are moving, slowly, to a risk-based levy—and I shall say more about that on Third Reading—but they are opting for a flat-rate levy in the initial stages.
The amendments probe the matter from different directions. Amendment No. 33 would delay the start of the levy until the risk base had been established. Amendment No. 34 stipulates a shorter period for the initial levy. Amendments Nos. 35 and 36 deal with expanding the basis of the risk in the risk-based levy, and would give higher priority to the likelihood of an insolvency event relating to the sponsoring employer of a pension scheme.
Amendment No. 37 provides that the risk-based element of the levy, when it is finally sorted out, should be at least 75 per cent., rather than the 50 per cent. set out in the Bill. I think that the Minister said in Committee that that was Government's intention, but that he did not want to be tied down to it. We still think that it would be worth while to make it clear that far and away the greater proportion of the levy would be risk based.
Amendment No. 38 would place a cap on the initial levy of £600 million a year. Amendment No. 39 calls for a shorter period for the introduction of the risk-based levy. Its merits are fairly clear, and we debated the matter at length in Committee.
Amendment No. 40 raises the difficult issue of whether a sponsored scheme can pass on some or part of the levy to the members of that scheme. When we tabled the amendment in Committee, the Minister gave various reasons why it would not work, including that it would be difficult to administer. I understand that some schemes would face practical difficulties in finding the people to invoice. The Minister said that it could
"result in a reduction in the level of income for current pensioner members".—[Official Report, Standing Committee B, 1 April 2004; c. 597.]
He also thought that it might be unfair. I raised at length the situation of some companies that, for historical reasons, are now relatively small but have large numbers of pension members in their scheme. For example, Marconi, which has written to me on the issue, has 3,327 active members and 69,000 deferred and pension members, which is a ratio of more than 20:1. For a company like that, the levy will be a significant chunk off the bottom line.
In the debate, I also referred the Minister to the regulatory impact assessment on the Bill, which suggested—in the impenetrable language in which RIAs tend to be written—that it was envisaged that schemes would be able to pass on some or all of the levy to their members. However, the Minister was adamant that that was not the case. Imagine my surprise to read an answer
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given by Baroness Hollis in the other place in which she said that
"the requirement to pay the levy will fall on the trustees of the scheme, who will be left to judge how the levy charge could then be shared as they see fit among employers and employees as one of the overall pension costs."—[Official Report, House of Lords, 4 May 2004; Vol. 660, c. WA101.]
Obviously the Government were in "being nice to business" mode on that particular day. She also talked of minimising the burden on schemes. My question is: who was right—the Minister in Committee or Baroness Hollis?
Mr. Webb: This is an important group of amendments, because the basis of the PPF levy is central to the nature of the scheme. I know that my noble Friends in the other place attach great importance to the PPF being a genuine insurance scheme, and therefore think that the levy should be a risk-based levy, preferably in its entirety and from day one. I therefore have much sympathy with some of the amendments in the group, especially amendment No. 37, which would raise the proportion of the levy that would be risk based.
The worry about amendment No. 33 is that there might be a delay in getting the scheme going. I think that I understand the effect the amendment would have, but if I misrepresent it I hope that the hon. Member for Eastbourne (Mr. Waterson) will correct me. His point is that a risk-based levy would need some tough arithmetic, some data gathering and some research—in other words, it would not be easy to implement and industry should be warned about that—and all that would need to be done before the initial levy was introduced. I am beginning to think that "half-baked" was a generous assessment of the Bill, but I shall return to that point on Third Reading. We certainly want to start providing the assistance as soon as possible, especially given the meagre level of benefits provided by the financial assistance scheme introduced yesterday. Any delay in the introduction of the full PPF could mean that some pensioners get not the 90 per cent. payable under the PPF but the lower rate payable—perhaps 65 per cent.—under the financial assistance scheme. Therefore, timing matters. Amendment No. 33 might introduce delay and that would be a worry. Any significant delay would be a cause of anxiety, especially to members of pension schemes whose companies were not financially strong.
Amendment No. 34 is in the same spirit and would shorten the period over which the initial non-risk-based levy would apply from 12 months to six. My concern is the practicality of changing the rate of the levy half way through a financial year. It could be done, but it would not assist firms in their financial planning. It would perhaps be better to do away with the concept of an initial levy and introduce the full scheme as quickly as possible.
2.15 pm
I support amendment No. 35. The risk-based levy has to be based on the underfunding in the fund, but that is all that it must include. The Bill says that it may also include insolvency risk and other risks, but that is not a
20 May 2004 : Column 1132
requirement. What is the basis for a claim on the PPF? The first requirement will be an insolvency event, so it is bizarre that the PPF will not be required to base the risk-based levy on the risk of the very event that would trigger a claim. It is like providing car insurance without assessing the risk of the insured person having a crash. It is right to take account of insolvency risk, and amendment No. 35 would achieve that.
Another factor that should be included is size of firm. The Bill does not require the risk-based premium to take any account of the size of the firm, and that seems strange. Can the Minister advise the House of why that does not appear as a consideration? The risk of insolvency should be included from day one, and the only objection I can think of to that is how one would measure it. It is one thing to examine a large, blue chip FTSE-100 company and look at its credit rating and accounts, and reach a judgment. A lot of information is available about such firms, but in the case of a small firm with a one or two-member scheme, such as Wiggins Widgets—a mythical firm that I have used as an example in these debates—the finances would not be well known, and it would be difficult for the PPF to assess its insolvency risk.
If we were to accept amendment No. 35, it would not require the PPF board to perform an insolvency risk assessment of every employer—there are some 100,000. The PPF board would simply say that it would take account of insolvency risk as far as it was able to measure, without having to go to silly lengths for very small firms that would not have a credit rating or other information that could be used. I hope that the Minister will confirm that interpretation; if so, I certainly agree with the spirit of amendment No. 35,
Amendment No. 37 provides that the minimum risk-based levy should be 75 per cent., rather than the 50 per cent. that is assumed. I recall in Committee that the Government suggested that that was the sort of number they were thinking of.
Do we leave the PPF board the flexibility to ignore the Government? After all, the Minister told us constantly in Committee that he wants the PPF to be at arm's length from the Department. It would thus have the flexibility not to go above 50 per cent. even though the Government want 75 per cent.
That is rather odd. Surely, Parliament should be giving a clear steer to arm's length organisations whose actions have implications for the economy, the health of business and the funding of pension schemes. It is not good enough for the Minister to say that the PPF board can make up its own mind; the House should give it a stronger steer. A risk-based levy of 75 per cent. might not be enough; perhaps the figure should be 100 per cent.
A recent example shows why a large risk-based element is important—I think the hon. Member for Eastbourne hinted at it when he raised the Marconi case. What about schemes where a large number of members have very small pensions? Because the premium is based partly on membership and not solely on risk, there might be a temptation to get such people to leave the scheme. If the levy is not wholly risk based, there could be behavioural consequences. Has the Minister given any thought to the consequences of a membership-based levy?
20 May 2004 : Column 1133
In a large pension scheme, a "legacy" could have built up of former workers, many of whom have only small entitlements—for example, because they worked for the company a long time ago, before indexation rules and when salaries were low. If the levy is not fully risk based, the employer has an incentive to get rid of people with very small pension rights. The firm will realise that it is incurring a membership-based liability for each such person, and the danger is that they could be offered a buy-out, such as a defined contribution asset—something that was actuarially equivalent at the time, but that would give them less security in the future. Scheme members would need advice about whether to accept such an offer. After consulting people who run pension funds, I understand that that could happen, so it is a serious, practical point and I hope that the Minister will give me a response.
The point might not be important if only a few people were likely to be affected, but there must be many large schemes with many members with fairly small pensions, so unless we accept the amendment and, indeed, go further and make the levy entirely risk based, we shall have to pay money for every person in the scheme for every year that they are in the scheme until they reach pension age, which would cost a lot of money. Of course, it would also cost money to get rid of those people by giving them cash equivalents. I shall not labour the point, but will the Minister tell us whether the Department has thought through the possible effects of a membership-based levy over a long period?
We should like the 50 per cent. to be increased. Parliament should give a strong steer to the PPF board. My noble Friends in another place attach great importance to the issue and they want the Government to consider it in the later stages of the Bill.
Amendment No. 38 would put a £600 million cap on the levy in the first year of the PPF. Although the figure seems rather arbitrary, one can see the point that is being made. As the figure relates only to the first year, it would not need uprating. However, I understood that in the first year the levy would raise only about £300 million, or even less, so I am puzzled by the cautiousness of the cap. As the Minister pointed out earlier, the PPF will not be paying out anything in the first year; no schemes will yet have gone into it so no liabilities will have been incurred. As there will be no pensions in payment, there are unlikely to be any nasty shocks in year one.
Amendment No. 39 relates to our earlier arguments about the transitional period. I accept that these are probing amendments so I shall not be unduly critical, but amendment No. 39 would allow a two-year transition, while under other Conservative amendments either the scheme would not start until there was a risk-based levy or there would be a six-month transition period. If the Conservatives were actually in government, which permutation would they choose? Do they have a view on which of their amendments they support? I suspect not. However, as they have done the House a service by tabling amendments on these important issues, it would be unfair to criticise them for the fact that all the provisions are mutually inconsistent.
Amendment No. 40 deals with passing on the levy to scheme members, but I am not sure why we need such provision. Surely, an employer running a scheme who has to pay a levy to the PPF can do what they like. They can make the extra payment and negotiate with their
20 May 2004 : Column 1134
employees, so there is no need for a statutory basis for passing on the levy. Whether employers pass on the levy will depend on the relative negotiating strength of the parties involved.
I should not want employers to be able to wave a big stick and say, "Look, we've got a statutory power and we can force you to pay the money". I should prefer things to be on a negotiated basis. Pensions are a key industrial relations issue. Only today, we read that the rail unions are talking about taking strike action over pensions, so anything that would make the pensions negotiating climate more adversarial—as the amendment would do—would be regrettable.
Many of the amendments raise important points. I welcome those that would not delay the scheme but would introduce the risk-based premium earlier and at greater length. However, some of them are probably unnecessary.
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