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Mr. Fallon: Has the hon. Gentleman calculated what the loss of revenue in levy not raised would be from that 60 per cent. of schemes?
Mr. Webb: There would be no loss, because those 60 per cent. of schemes would make the same total contribution to the levy—on a pro-rata basis, not on a risk-based basis. Our amendments would not change the balance of the burden between big and small schemes, but they would reduce the disproportionate bureaucracy—for both the schemes and the PPF—involved in calculating a risk-based levy for small schemes. The levy could be per head or some other pro rata arrangement.
Although the amendments mention 60 per cent. of schemes, they would affect only 1 per cent. of members of schemes. The amendments would save huge amounts of bureaucracy, but 99 per cent. of members would still be covered by a risk-based levy. That is the neat combination that would be achieved by amendments (a), (b) and (c).
In the other place, Baroness Hollis said, in objecting in principle to a risk-based levy, that
"there will be a number of extremely small eligible schemes that are required to pay the levy—applying an extremely complex risk-based calculation to schemes, which might have 10, 20 or perhaps 40 members, would be a case of using a sledgehammer to crack a nut—and providing the required information may be overly burdensome and costly for the scheme."—[Official Report, House of Lords, 4 November 2004; Vol. 666, c. 490.]
The House will accept that we have gone further even than the noble Lady suggested by relieving the PPF of the burden of that work for schemes of up to 100 members. I hope that the Minister will accept the amendment, given that generosity of spirit and the attempt to address the concerns of the noble Lady.
I believe that the noble Lady last night expressed concern that the amendment had been tabled late in the day, but one of the reasons for that was that the concerns about small firms had been used as an argument to resist risk-based levies. The Government only last night accepted the principle of risk-based levies—it was not until we saw today's amendment paper that we learned of the Government's amendments to Lords amendment No. 298—and our amendment is a tidying-up amendment.
Mr. Waterson:
Is the hon. Gentleman telling the House that he had seen the Government's amendment before tabling his amendment?
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Mr. Webb: No, I am saying the opposite. Once we knew that the other place had defeated the Government on the risk-based levy, we received representations from the National Association of Pension Funds, which, while it agreed with the principle, was concerned about its application to small schemes. The association helped us to draft amendment (a), which we tabled last night. Since then, it has become apparent that the Government have accepted a risk-based levy in principle, which we welcome.
I hope that the Minister will accept the amendments. It would be a shame to divide the House on them, although we will do so if necessary. The changes the amendments would make are in the spirit of something that the Government argued not so long ago only a few yards away. My understanding is that although the Government disagree with Lords amendment No. 298, the long list of Government amendments (a) to (k) are designed to replicate the spirit of the Lords amendments, albeit slightly more efficiently. I do not have a problem with that and, in principle, we do not have a problem with Government amendment (a) to Lords amendment No. 283, on the assumption that the Minister can tell us what it means when it refers to
That is one of those phrases that could mean anything and before we give it the nod we need to know whether the Government envisage widespread exemptions or very limited ones. In principle, however, we are minded to be sympathetic to that amendment and we hope that the Minister will accept our amendments in the spirit that they were intended, as he has accepted the spirit of the Lords amendments.
Malcolm Wicks: In essence, there is now little between us on this issue, but it is such an important part of the Bill that I need to approach my explanation with care. An Opposition amendment was made on Report in the other place to replace clause 168 with a new clause. We disagree with the amendment made in the other place, but have tabled an amendment in lieu.
The amendment made in the other place had four main objectives—to require the board to collect at least 80 per cent. of the levies estimated to be raised via the risk-based pension protection levy; to require the board to ensure that the amount collected via the scheme-based levy has a value that is no greater than the administration costs; to require the Secretary of State to lay regulations before Parliament before any changes are made over the proposed levies that the PPF board could collect in any given year; and to impose restrictions on the levy ceiling and the increase in pension protection levies from year to year, so that they apply from the end of the initial period, rather than from the end of the transitional period. That would mean that during the transitional period the board would not be able to increase the amount of the levy collected by more than 25 per cent. from year to year. I understand that that was the intended effect of the amendment. However, clause 171(1)(a) would still allow the levy ceiling to be modified during the transitional period. However, let us not worry about that technical defect.
We disagree with the amendment made in the other place for the following reasons. We do not believe it right that Parliament should have to approve changes to
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the amount collected through the levies. We have made it clear throughout our discussions that it is critical that the PPF can operate independently at arm's length from Government. That was an important lesson that we learned from US experience of the Pension Benefit Guarantee Corporation, where changes must be approved by Congress and where, as a result, no changes have been made since 1991. It is a fundamental principle in our approach that the PPF should operate without undue political interference, and that is why we created different controls through the imposition of a levy ceiling and the 25 per cent. rule.
From the outset it was our intention that, during the transitional period, the amount raised by the board through the pension protection levies should be controlled by the levy ceiling only and not by the 25 per cent. rule, which applies from the second financial year after the end of the transitional period. If the board was constrained by application of the 25 per cent. rule during the transitional period, its only option might be to collect the £300 million that we anticipate will be needed from the end of the transitional period in the first financial year after the initial period, even if that turned out not to be necessary. That might be the only way that the board could ensure that the PPF could meet its liabilities in the subsequent year.
On administration costs, the intention of the amendment seemed to be that the scheme-based levy should be used to collect administration costs for the PPF. We do not think that that is a sensible approach. It is crucial that a clear distinction be drawn between the PPF income that is used to pay compensation and the income that is used to pay administration costs. That is also important so that Parliament can scrutinise the PPF accounts, and is in line with the way in which most other non-departmental public bodies are funded. I should also be clear that the amendment does not achieve the intent I have described. Instead, the effect would be simply to restrict the amount that could be collected through the scheme-based pension protection levy to the same level as the PPF's administration costs.
However, we do recognise the importance of risk in setting the levies, and that is perhaps the crucial point. We have always made it clear that the levies should be predominantly risk based and that we might expect the PPF to collect 80 per cent. from the risk-based levy. We recognise the concerns that have been raised, however, and the importance of the issue for well-funded schemes with a strong employer covenant. We therefore propose an amendment in lieu, with a provision to increase the amount collected through the risk-based levy to 80 per cent. of the estimated total to be collected, through a concession.
3 pm
If we disagree with the amendment introduced in the other place, some consequential technical amendments would have to be made to the original clause. Those amendments would result from amendments made to clause 166 on Report in the other place, requiring the board to set both a risk-based pension protection levy and a scheme-based pension protection levy in relation to eligible schemes from the end of the transitional period.
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In this group we are also considering the amendment tabled by the hon. Member for Northavon (Mr. Webb). Amendments introduced in the other place require the board to set a risk-based levy for all schemes. The hon. Gentleman's amendment would enable the board to make exceptions to that rule and set only a scheme-based levy for small schemes, defined as those with under 100 members. The intention would be to ensure that it would not be necessary for the PPF to undertake a complex and costly assessment of risk to collect a relatively small amount of money. We fully agree that there are possible problems surrounding small schemes and the calculation of the risk-based pension protection levy; the Government raised the same concerns throughout the progress of the Bill, and when the Opposition introduced the amendments in question.
There are, however, a couple of problems with the amendment. It provides that the board may set only a scheme-based levy in relation to small schemes, provided that the amount the board estimates will be raised from those schemes in aggregate is the same as the amount that would have been raised from them if a risk-based pension protection levy had also been imposed. It seems that in order to estimate the amount that would have been raised from schemes via a risk-based pension protection levy, it would be necessary to undertake a risk calculation in relation to those schemes—the very process that we are trying to avoid due to its cost implications.
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