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Mr. Webb: I have some brief observations that are broadly in sympathy with what the hon. Member for Eastbourne (Mr. Waterson) said. He cited two high-profile schemes that illustrate a couple of issues raised by the PPF. I want the Minister to clarify the basis for the levy. The hon. Gentleman referred to the BT scheme. It told me that within one financial year its deficit—on the FRS 17 basis, I think—fluctuated by more than £3 billion. I hope that the Minister can confirm that the risk-based part of the levy will be raised on a more stable basis, such as actuarial valuation. However, what happens between actuarial valuations because it is my understanding that they are three yearly? We have discussed annual valuations, perhaps with the PPF board or the regulator in mind, but it is all getting a bit fuzzy—although that may be due to lunch. It would help if the Minister clarified how that will work. The hon. Member for Eastbourne mentioned the M&S scheme. If it makes sense for companies to borrow money to reduce the deficit in their schemes, thereby lowering the risk-based premium because—to go back to an earlier point—that takes no account of the insolvency risk and takes into account only the deficit in the fund, there will be a bizarre non-economic incentive for companies to borrow lots more money so that they save money on their PPF levies, but put themselves in a more exposed financial position. Will that be the case? Will firms have an incentive to borrow a pound, put it in the fund and save themselves the PPF levy as a result, and yet thereby increase their financial insecurity because they are more in debt? The nub of the amendment is what minimum proportion of the levy should be risk based. The Government are on shaky ground. Their argument for not introducing the risk-based levy initially is that they need lots of information, but the clause presumes that the risk-based levy is up and running. It presumes that they already have enough information and the argument is about what percentage of the total should be risk based. Once they have got the information, under what circumstances would the Government or the board not want to make the levy predominantly risk based? It is clear that the Government's policy intention is that the levy should be predominantly risk-based, but they also want the board to be at arm's length. Do they have any means of requiring the board to make the risk-based levy a larger proportion of the total? That is an important point, and I would be grateful if the Minister commented on it. Although it is the Government's intention that the risk-based levy is a big proportion, the board might for some reason say, ''No, it will be 50 per cent.'' If the board thwarts the Government's policy objective, who wins? If we do not require a minimum of 75 per cent., do the Government have any power to say to the board, ''No, we think it should be more risk-based for wider economic reasons''? I do not think that they have that power. Under what circumstances might the board want the risk-based levy to be less than 75 per cent.—or less than 100 per cent., frankly? As the Government are Column Number: 588 broadly sympathetic to that outcome, do they have any levers to make the PPF board deliver that, or can the board do what it likes on that front once it is in existence?Malcolm Wicks: The amendment is not dissimilar to others. The Government's approach is to set down the criteria that the new board will have to take into account, and to state very clearly that we need to get the balance right between the basic levy and the risk-based levy with an emphasis on the risk element. The Government's position is not to so prescribe the new fund that the board will not have the discretion that we believe it needs and deserves, if only to put some distance between itself and some of the difficulties that the Pension Benefit Guaranty Corporation ran into in the USA. The hon. Member for Eastbourne said that he thought that by prescribing, or at least by using, 75 per cent. he was pushing at the door. In terms of trying to develop a soundtrack for this Committee, ''Knocking on Heaven's Door'' comes to mind. The hon. Member for Northavon (Mr. Webb) was very helpful with his Simon and Garfunkel offerings earlier, and I thought that my Parliamentary Private Secretary should apologise to the Committee for suggesting that the ''Sound of Silence'' would have been the appropriate track. David Cairns (Greenock and Inverclyde) (Lab): Never. Malcolm Wicks: He withdraws his remark. The hon. Member for Eastbourne is pushing at an open door in the sense that we think that the greater proportion of the levy should be risk based. However, we do not think that it would be sensible to so restrict the new board by saying that it must be at least x per cent. That is the only difference between us; it does not come down to much more than that. It was mentioned that BT could pay about £100 million. Even those who are not very good at arithmetic must realise that if we are talking of raising £300 million in the first full year after the initial year, to somehow suggest that one of our British companies might contribute a third of that defies the rules. I am sure one of the lobbyists provided the hon. Member for Eastbourne with that absurd example. It is so absurd that it could not have come from the wise and hon. Gentleman. It is daft. Mr. Waterson: It was in The Times. Malcolm Wicks: Well, there we go. We should not comment too much on what the figure might be for one company. A major company of that kind might pay a few million pounds initially. However, to suggest that it would be a third of the total would mean that we would soon end up with about fifty thirds adding up to the whole. We should ground the discussion in some common sense. We do not want to prescribe to the board what the percentage break should be. Having consulted various stakeholders and relevant bodies, we consider that an appropriate split in due course could be—although it is up to the board—about an 80 per cent., 20 per cent. split in favour of risk factors. Column Number: 589 The hon. Member for Northavon asked how we stop the board doing its own thing. It would be proper common sense and convention for it to listen to our debates, as it were, in retrospect—that is a bit of retrospectivity that I support—and read what this Committee says about the issue. If, in due course, something like 80:20 came about, we would not be surprised. The hon. Gentleman, who is amused by that piece of information, should realise that for us to suggest exactly what the circumstance might be in 2005–06 would be a bit ridiculous. I hope that that gives a steer as to our broad intention. Mr. Webb: That is a helpful steer to the future. Will the Minister clarify why his preference is not for 100 per cent.? Malcolm Wicks: It would be for the board to consider at any one time how large the greater proportion might be, and it might well be 100 per cent. I suppose that against that, one might take the view that all scheme members will potentially benefit one day, and they will certainly derive some sense of confidence and security with regard to their pension scheme from the fact that the PPF exists. It might be that some basic levy would, therefore, be appropriate, although I would not particularly want to prescribe that. The PPF will take a longer-term view. I assure the hon. Gentleman that that is one of the intentions behind the PPF. It is why, for example, the board will not be able to vary the levy by more than 25 per cent. in any one year. Perfectly appropriately, that will force the board to take a view. I do not think that we should run through the whole high street of companies. I was asked about M&S and bonds—the name is Bond, St. Michael Bond, is a phrase that comes to mind; it is near Easter, Mr. Cran, so forgive us. If a company issues a bond and puts money into the pension fund, then, yes, all other things being equal, we would expect such investment to lead to a lower levy. That is probably the answer to the question. On lower-paid employees, the ability to take account of the level of pensionable earnings of the active members of a scheme, which we allow for, will ensure that schemes with large numbers of low-paid members will not be penalised. I hope that that is reassuring. On the point that the hon. Member for Northavon raised, the PPF board will consider valuations at a specified date. For example, if one scheme completed a valuation in March and another scheme did so in June, and the results were different because of the differing economic conditions, the board might take such differences into account. The regulator will collect annual information to provide an updated position. The PPF can use that to take account of variations in scheme circumstances. Mr. Waterson: I am grateful for the Minister's clarification on a couple of points, including the St. Michael one. I hope that the industry will take note. This was never more than a probing amendment. I beg to ask leave to withdraw the amendment. Column Number: 590 Amendment, by leave, withdrawn. Clause 139 ordered to stand part of the Bill.
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