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Pensions Bill

Pensions Bill

Column Number: 551

Standing Committee B

Thursday 1 April 2004


[Mr. James Cran in the Chair]

Pensions Bill

9.30 am

Mr. Nigel Waterson (Eastbourne) (Con): On a point of order, Mr. Cran. As the Committee hurtles towards the Easter recess, I think it only fair to give the Minister an opportunity to update the Committee on the Government's progress with their new clauses and amendments on a range of important and serious issues—but as we listen to the Minister's answer, we must, of course, keep today's date in mind.

The Chairman: Your point of order has, of course, nothing to do with me, Mr. Waterson, but doubtless the Minister has heard it.

Clause 136

Initial levy

Mr. Waterson: I beg to move amendment No. 184, in

    clause 136, page 83, line 39, 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.'.

Moving amendments in this Committee sometimes feels like serving in tennis against someone without a racket.

The Minister for Pensions (Malcolm Wicks): You cannot be serious.

Mr. Waterson: The jokes do not get any better. I see that the Minister is in a frisky, pre-Easter mood; he obviously has a new team of gag writers, even if he does not have a new team of draftsmen.

We have reached an important and meaty part of the Bill, which deals with how the levy is to work. A range of amendments have been tabled to clause 136, which deals with an animal called the initial levy, whose purpose is to bridge the gap between the coming into existence of the pension protection fund, on a challenging timetable—to use the ministerial words—and the ability to introduce a risk-based levy, which we will talk about in more detail in due course. In other words, there will be a flat-rate levy in the opening period of the PPF's operation.

It is important to recognise that we are in a dynamic situation. As we consider the Bill in Committee, pension funds are still getting into difficulties—quite apart from the funds that may be staggering on only to fall into the arms of the PPF as soon as it is up and running. In the past few days, we have heard the worrying and serious news of the Mayflower bus maker company, which called in the administrators yesterday. Its retirement scheme, which affects some 2,000 workers, has assets of £36 million, but its pension promises amount to a liability of £57 million.

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That is another example of a group of workers who will fall through the cracks between where we are now and where we will be when the PPF is up and running. I do not want to repeat the arguments about how that problem could be dealt with or how compensation could be provided through unclaimed assets. However, we have yet to hear a satisfactory explanation of why unclaimed assets are available and usable for certain purposes set out in the Budget but not for this purpose.

There are significant arguments, some of which will be developed in later amendments, about whether it is sensible to start the PPF on a flat-rate levy. As a concession, the Government are proposing to claim only half the proposed levy in the initial stages. There is a whole raft of reasons why that might not be sensible, not least that the fund may not have sufficient resources to meet the claims in the early stages. Expert opinion suggests that quite a few claims will arise at the beginning of the PPF's life.

Amendment No. 184 approaches the issue from one direction; we shall consider amendments that approach it from other directions in due course. It would ensure that the regulations provided for in the clause, which start the application of the initial levy, would not come into effect any earlier than the day of publication of the basis for calculating the risk-based levy in the first financial year after the initial period.

This will be a theme of several mini-debates, so let me get the issue out in the open now: the Government are being foolhardy in starting off with a flat-rate levy. That would be extremely unfair on some companies, and may well not provide the resources to meet claims in the early stages. I can hear the Government's argument now: ''We want to get this in place in plenty of time—we want it up and running as soon as possible to help people in that situation.'' I understand that argument, but I simply do not accept it.

There are interim approaches that could be adopted. One of them would be to legislate in a measured, calm way—as the Government of the day did after the Maxwell saga—and seriously try to deal with the situation that people face, whether that is the case of the 60,000 Allied Steel and Wire workers, of whom the hon. Member for Cardiff, West (Kevin Brennan) speaks so eloquently, or the potential problems of the 2,000 workers in the Mayflower pension scheme.

We have set out how we think the parallel compensation scheme can be set up, but there are other views, and I will come to them in more detail in due course. The Association of Consulting Actuaries is also concerned about the fact that a risk-based levy will not be introduced from the outset. It says that one way of dealing with the problem would be to start by calculating the levy by reference to the existing minimum funding requirement. It says:

    ''It is inevitable that the risk based premium cannot be totally fair as some schemes would be 'uninsurable'.''

That is one approach. The MFR is at least a familiar concept, and it could well be used as an interim measure, so that we could start off with some element of risk built into the calculation of the levy. Those

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seem perfectly sensible proposals for dealing with the interim situation.

I commend the amendment to the Committee, but it is only one way of dealing with the genuine concerns out there in the real world about the delay in bringing in the risk-based levy. I shall have quite a lot to say about that under other amendments.

Mr. Steve Webb (Northavon) (LD): As the hon. Member for Eastbourne (Mr. Waterson) said, a whole group of amendments have been tabled to tackle the issue of the initial period, the initial levy, how it should be calculated and for how long it should apply. I shall restrict most of my remarks to some of other amendments to the clause.

As I understand it, the hon. Gentleman's specific proposal is that if the initial levy is not risk based, we should at least be able to expect that the basis on which the risk-based levy will be calculated will be known at the outset. That puts the onus on the PPF to get moving and gather the information that it might need to calculate the risk-based levy. It could also encourage the Government to take a bigger role at the outset. I recognise that Ministers want the body to be at arm's length from Government to some extent, but as we are scrutinising the setting up of the fund, the earlier that we have sight of what sort of risk-based levy we might have, the better. We will talk about the nature of the levy at some length later.

There is an issue of accountability involved. Who will decide how the risk-based levy looks? The Committee and the House will decide what is to be included in it. The amendment goes slightly further than that, and says that the basis of the risk-based levy should be set out as soon as possible—indeed, before the whole thing gets going. Certainly, provided that that does not cause delay in getting the scheme up and running—none of us would want that—I have a lot of sympathy with what the hon. Gentleman suggests.

Malcolm Wicks: Good morning, Mr. Cran. Despite the date, we on the Government Benches are in serious mode, as usual. There are no jokers in our pack of Government amendments—but of course I cannot speak for all the amendments before us today; I do not have that authority.

I draw some comfort from the fact that there is no fundamental challenge to the concept that the PPF should be funded by a levy. Moreover, there is consensus that it should have a risk-based element, and I suspect that there is consensus that the risk-based element should represent most of the levy moneys raised. In that sense we are discussing some important detail—indeed, more than detail—about the nature of the levy, its timing and how specific we should be at this stage about the factors that relate to the risk. We shall cover that matter when debating different amendments.

The amendment would delay the introduction of the PPF until the risk-based protection levy can be implemented. Again, I would gently challenge the position of the hon. Member for Eastbourne on that. In debates on the pre-PPF situation, the ASW workers

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and others, he urges speed, but sometimes he urges delay. At some stage he should clarify whether he wants the PPF up and running as soon as possible or not.

Mr. Waterson: If the Minister had been paying his usual close attention, he would have noticed that clarification during my opening remarks. It is perfectly possible to deal with the interim situation as I have described while setting up the PPF and the long-term levy in a more measured way.

Malcolm Wicks: It is helpful to have that clarification, because the hon. Gentleman mentioned the news reports about the financial situation of Mayflower, the bus manufacturer, and the possible threat to workers' pensions. It is not for me to comment on press speculation, but some companies will run into such difficulties in the coming period. While scrutinising the Bill perfectly effectively—as we are doing—it is also important to look forward to the PPF's coming into being in April next year.

The amendment would delay the introduction of the PPF, but the hon. Gentleman has clarified that. Setting up the pension protection fund as soon as we can means that some of the information we need to calculate the risk-based levy will not be available from the outset. That is a statement of plain fact and common sense. We remain committed to enabling the board to introduce the risk-related element to the pension protection levy as soon as possible.

We have clearly stated that the levy must take into account risk factors. That is clear from subsections (2)(a) and (3) of clause 137 on the pension protection levy, which will ensure that schemes that pose the greatest risk pay the lion's share of the levy. It will be for the PPF board, however, following consultation with stakeholders, to decide how those risk factors will be taken into account when it sets future levy rates and structures.


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