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Mr. Michael Fallon (Sevenoaks) (Con): I want to raise again some of the issues that I raised on Report some six months ago about the scope of the pensions regulator. I remind the House of the business interests that I declared then.

On Report, I said that the scope of the regulator was too wide and that his power to hit individuals was too extensive. I also said that the contributions notices and the FSDs were too wide in scope. The Minister will remember that he brushed those concerns aside. He wrote me a four-page letter on 11 June in an attempt to reassure me, but—to his credit—he began a process of consultation almost from that date. That process has led to the very substantial amendments to the Bill that we are discussing this afternoon.
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It would be churlish not to acknowledge the great deal of work that has been done, but much concern remains. There is a great deal of worry about the position of insolvency practitioners, to which my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) has referred already, and about the position of individual investors, as they can still be caught by the regulator. However, a much more general concern remains that the Bill establishes what amounts to a new business regulator. It will be something like the Office of Fair Trading, but by no means all business transactions are referred to the OFT. I hope that the Minister will reassure me that the new regulator will have the resources and skills to deal with what I expect to be a flood of clearance applications.

Given that anything that could be construed as removing assets from a pension fund could be caught for six years, almost every business transaction is likely to be submitted to the regulator for clearance. The secondary effect on business could be that deals do not proceed unless the full pension fund deficit has been made up. As a result, struggling companies may be denied the opportunity to be taken over by others.

Therefore, I still need reassurance about three matters, and I hope that the Minister will supply that reassurance when he responds to the debate. First, will he confirm that the regulator will have the resources to deal with the flood of clearance applications that I expect to be put in? Secondly, is not the six-year period too long? I know that it derives from Inland Revenue statute, but I still think that it is too long and that it may have a deterrent effect.

Finally, will the Minister confirm that the new business regulator that he is creating will not deter the formation, or reformation, of businesses that is characteristic of a healthy economy?

Malcolm Wicks: We have had a useful airing of some of the issues. Those that I cannot cover in the few minutes I have, I will deal with in correspondence.

The hon. Member for Bournemouth, West (Sir John Butterfill) queried what I meant about insolvency practitioners. We just wanted to make it clear that insolvency practitioners acting in accordance with their functions under the Act cannot receive contribution notices and cannot receive financial support directions, as they are individuals. We meant nothing more than to clarify that.

We have had a welcome for the amendments, if at times—we are used to this—a slightly grudging one. There was no early consultation on the moral hazard clauses. To have consulted before introducing them would have given advance notice to those who wanted to avoid pension liabilities. The changes made in the Lords are not radical, but they make clear on the face of the Bill the Government's policy as expressed in Parliament. We are confident that the moral hazard clauses strike the right balance on protecting members, the PPF, levy payers and business interests.

On the final point from the hon. Member for Sevenoaks (Mr. Fallon), it is not our intention to interfere with legitimate and proper business reorganisation. We have to be concerned, however, to
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prevent people from dumping pension liabilities on the new pension protection fund. What we are doing has been widely welcomed by outside organisations, and I hope that the House will agree to the amendments that we are suggesting.

Lords amendment agreed to.

Lords amendments Nos. 2 to 94 agreed to.

Clause 168

Amounts to be raised by the pension protection levies

Lords amendment: No. 298.

Mr. Webb: I beg to move amendment (a) to the Lords amendment.

Madam Deputy Speaker: With this it will be convenient to discuss the Government motion to disagree, amendments (b) and (c), Government amendments (a) to (k) in lieu thereof, amendment No. 283 and Government amendment (a).

Mr. Webb: This is an area in which their lordships substantively disagreed with the Government. The amendments deal with the nature of the levy for the pension protection fund. Their lordships made two substantive amendments in the face of Government opposition when a combination of Conservative, Liberal Democrat and other peers prevailed, as reflected in Lords amendments Nos. 298 and 283.

Amendment No. 298 proposes that 80 per cent. of the levy should be a risk-based levy as opposed to one based simply on the number of members of a scheme. Amendment No. 283 proposes that part of the definition of risk will include the risk that the firm become insolvent, and not merely that the scheme itself is underfunded. It seems entirely proper that there should be a substantial risk-based levy and that the definition of risk should have some regard not merely to whether the fund is underfunded but whether the firm is likely to become insolvent, thereby triggering a claim on the fund.

My reading of the Government's amendments to those amendments is that the Government have largely accepted that argument. I am sure that the Minister will clarify the position, but I understand that the Government broadly accept the principle of an 80 per cent. risk-based levy and of allowing the insolvency risk of the firm to be a determining factor, among others, of the risk-based premium. My understanding of Government amendment (a) to Lords amendment No. 283 is that the Government are giving themselves, or the PPF, the power to exempt certain firms from consideration of insolvency in assessing the level of the risk-based premium. Provided the Minister can assure us that that power will be used sparingly and can give some flavour of the circumstances in which it would be used, I have no objection in principle to the idea that using the solvency risk to the firm might not always be appropriate. We welcome the fact that the Government seem to have accepted the general principle.

That said, I have a number of concerns about how things will operate. I hope that the Minister can clarify a point that remains not entirely clear even after
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their lordships' discussions. As I understand it, after the transition to a risk-based levy, firms will have the opportunity to move to the risk-based levy more or less straight away. However, firms will still have the option, even if we accept the Lords amendments or the Government's versions of them, to put off for several years the evil day when a risk-based premium arrives. That is my understanding of where we will leave the Bill today; if I am wrong, I hope that the Minister will correct me. I think that firms will still be able to say that they do not fancy a risk-based premium and that they will still go for the flat-rate premium for as long as they can.

2.45 pm

Clearly, that creates some bizarre features. If my understanding is right, and if one draws an analogy with car insurance, we are effectively saying that people who drive middle-of-the-road family cars—a Ford Escort, or something like it—can say they would like a risk-based premium because they are not much of a risk and realise they will pay a low premium. On the other hand, Ferrari drivers—and the Ferraris of the pensions world—will be able to say, "Heck, we may face a very high risk-based premium, so we will put off the evil day for as long as we can and will stay with a flat-rate premium."

That seems perverse. If the Ferrari drivers are, in effect, creating a bigger potential call on the fund, and if we do not introduce a levy reflecting that risk, there will be some cross-subsidisation. Essentially, the safe drivers—the low-risk pension schemes—will subsidise the high-risk ones. Will the Minister make it clear whether that is indeed how things will work? Can high-risk schemes put off the move to a risk-based levy? Can he justify that? Now that the Government have accepted the principle of an 80 per cent. risk-based levy, as they have in their amendments, it seems odd to say that high-risk schemes will not have to pay it for several years.

Amendments (a) to (c) are intended to respond to the concerns expressed by Baroness Hollis when she responded in the other place to the Opposition's first attempts to amend the Bill. One of her first responses was to say that there is a problem in applying a risk-based levy to small schemes. As we know, the vast majority of occupational pension schemes are small, with small numbers of members and relatively small assets. There would therefore be a disproportionate cost on the schemes if we required small ones to provide information for the calculation of a risk-based levy and on the PPF from working out the insolvency risk for tiny firms—perhaps even one-man or one-woman firms—especially if the risk simply reflected the fund's being underfunded, which is information it would probably have anyway, but there was also a risk of the small firm going to the wall. Trying to do that for hundreds of thousands of small schemes would be disproportionate.

Baroness Hollis registered that as an objection to the whole principle of an early move to a risk-based levy, advancing that as an argument for why it should not be done at all. The Government have now accepted the principle of a risk-based levy, however, and, aided by the National Association of Pension Funds in drawing up our amendments, we say that small schemes might be exempted. Amendments (a) to (c) set out a definition of
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a small scheme, and we have referred to a scheme with fewer than 100 members. I must admit that when I first saw our amendments—the Minister knows what I mean by that—I was surprised that 100 was chosen as the threshold, but, as the National Association of Pension Funds points out, at 31 March 2003 schemes with fewer than 100 members accounted for around 60 per cent. of the defined benefits and hybrid schemes that will be eligible for the PPF. By setting the threshold at 100, we are freeing the PPF of the obligation to work out risk-based premiums for 60 per cent. of all schemes, which is a substantial concession in the spirit of Baroness Hollis's objections.

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