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Mr. Webb: I understand why the Minister makes that point, but the burden comes from working out the figure for individual schemes; all the proposal requires is that the aggregate be the same. It is possible to estimate the aggregate without working out the figure for each scheme.
Malcolm Wicks: I am genuinely puzzled about how one could work out the aggregate without the sum of the parts.
For the reasons I outlined, we tabled an amendment to the amendments introduced in the other place, which would reduce the burden on the PPF and small schemes to provide an accurate calculation of risk. Our amendment provides a regulation-making power to enable the PPF to disapply the requirement that insolvency risk be taken into account when setting the risk-based levy. We intend to use that regulation-making power to exempt small schemes from the consideration of insolvency risk. We consider that that approach is in keeping with the spirit of the amendment tabled in the other place, which required the board to impose both levies, so that the risk-based levy is imposed in respect of all eligible schemes. In that sense, our approach may go further than the hon. Gentleman's amendment by still requiring a risk-based levy to be in place for all schemes, but it will allow the board to calculate risk much more simply for small schemes. The board would thus have to consider underfunding only to determine the risk-based element, information on which will be provided anyway by all such schemes through PPF valuations. The amendment not only allows burdens on schemes and the PPF to be kept to a minimum, but also ensures that the levy paid by all schemes will reflect at least some assessment of risk. Our
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approach should go a long way towards meeting the concerns expressed by the Opposition and the NAPF, without undermining the principle of the amendment in the other place—to apply a risk-based element for all schemes.
Mr. Fallon: I think the Minister's comments will be welcome. Will his definition of a small scheme be the same as that proposed by the Liberal Democrats? Can he clarify that point for the House?
Malcolm Wicks: I can clarify that it is also our definition of a small scheme.
In summary, I urge the House to disagree with the amendment introduced in the other place, and to accept the Government amendments to clause 168 that we propose in lieu. The amendments will restore clause 168 to the Bill, but with a change to require that 80 per cent. of the estimated total collected by the levies should be collected via the risk-based pension protection levy. They also make some changes consequential on the amendments made in the other place.
I urge the hon. Member for Northavon to withdraw his amendment relating to small schemes and to support instead the Government amendment that we propose to the Lords amendments to clause 166. To recap, that will have the effect that, in relation to prescribed schemes, the PPF may disapply the requirement that insolvency risk be taken into account when setting the risk-based levy.
In response to some specific questions put by the hon. Gentleman, yes, it is the case that firms will be able to opt for a risk-based levy as soon as they want, but— this may disappoint him—they do not have to move to risk-based levies until the triennial valuation falls due. The hon. Gentleman shakes his head, but there is a question of judgment about how we phase in such things and whether it would be appropriate—we think it would not—to require a scheme to bring forward, no doubt at some expense, its triennial valuation. That is a matter of judgment, not of great principle, and that is our judgment. If the valuation falls within the transitional period, the firm would not have the choice of deferring until a later date.
When well-run funded schemes opt into the risk-based levy, the PPF will need to decide how to charge schemes that have been left outside. It is extremely likely—although it will be a matter for the board—that schemes that do not opt in will have to pay higher amounts as a result, especially as the PPF will want to incentivise schemes to enter the risk-based levy as soon as possible. I hope that goes some way towards satisfying the hon. Gentleman.
The hon. Gentleman referred to the advice he received from the NAPF. It is my understanding that the association recognises the concerns we have raised about the amendments it suggested initially and that it welcomes the Government's approach in response to those amendments, which combines the principles of fairness and administrative simplicity. The NAPF— a great friend of the Government—will of course want to work with the PPF board to put the regulatory framework into practice in a proportionate way.
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I hope that after those explanations the hon. Gentleman might consider withdrawing his amendment and supporting our amendments.
Sir John Butterfill: First, I remind Members of my entry in the Register of Members' Interests; I chair not only the parliamentary contributory pension fund trustees, but also the trustees of the People's Dispensary for Sick Animals pension fund.
I have one or two queries arising from the comments of the hon. Member for Northavon (Mr. Webb) and the Minister. I am concerned about the way in which the risk element will be assessed. Will the Minister further clarify that? A triennial valuation would make obvious any deficiency in the fund and the extent to which it would need to be remedied, and I see no particular problem with that. However, if I heard the Minister correctly, it is the intention that, in assessing the risk-based levy, the employer's financial viability will also need to be taken into account. What will be the criteria for that?
The hon. Member for Northavon implied that large schemes might be safer than small ones. However, when we recall Enron we might consider that large schemes were not safe at all. In many cases, the greatest risks may arise from very large companies. How do we assess that? Do we say that the asset base of the company is sufficiently large to give us reassurance? On the other hand, we all know that a couple of years of disastrous trading can quickly erode an asset base. We only have to look at what has happened to the market rating of large companies such as Marks and Spencer recently to see how quickly things can turn around. Therefore, will the levy itself be constantly reassessed according to the assessment of the financial viability of the employer, or will that be assessed only on a periodic basis, and what will the assessment be?
What will the situation be for charities? The Minister will appreciate my concern about this in respect of the People's Dispensary for Sick Animals. We have a relatively well-funded scheme, which substantially exceeds the MFR valuation. It does not meet the 100 per cent. solvency test, but very few schemes do. However, there is no trading record in respect of charities. They certainly will have some assets, but the amount of assets tends to be regulated by the charity commissioners. We have to satisfy the charity commissioners that, for example, we are not holding back too much by way of assets to the detriment of using that cash and those assets for our charitable purposes. We hold back, by way of reserve, about one year's operating expenditure, so that if all our charitable donations dried up we could still keep going without anything coming in for a year; that has been accepted by the charity commissioners. If, however, the regulator did not regard that as satisfactory, the Government would have to talk to the charity commissioners to see whether they would allow charities to hold greater reserves in the light of their pension liabilities. The Minister may wish to consider that further and come back to me at a later date, but it is certainly a very relevant point as far as charities are concerned.
The other problem with assessing the viability of charities is that one never knows how much income there will be in any one year. We at the PDSA have become rather good at forecasting what it will be; a lot
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of our income derives from legacies that we know will be coming to us, so we can make fairly accurate predictions of our legacy income over the next few years. Other charitable income, however, from charity shops or appeals or all the other available funding methods, are subject to much greater fluctuation. To what extent might charities be penalised because they cannot show a trading record in precisely the same way as a firm can? That will be a concern to the whole charity sector.
Malcolm Wicks: I am happy to talk to the hon. Gentleman about the PDSA and the point that he raises about charities, given his involvement with the PDSA; we hope that later there will be fewer animals at risk, but that is another debate. In terms of the risk of firms, the board must consider underfunding and it must consider insolvency risk, but other criteria will be up to the PPF board.
Sir John Butterfill: I am grateful to the Minister for that. It does seem to me, however, that given the range of risk that will have to be assessed—not just the viability of the fund but the viability of the employer—the process may take quite a long time to complete. Is the Minister satisfied that the present timetable that he has set out will be adequate for that purpose?
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