Draft Financial Assistance Scheme (Miscellaneous Amendments)Regulations 2006

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James Purnell indicated assent.
Mr. Laws: I am pleased to see that the Minister was paying homage to the Prime Minister, as Ministers should. I thought that I heard the Prime Minister say, when questioned by a Government Member, that he agreed that we should keep the terms of the scheme under review. That is encouraging, but I was not entirely sure whether the Prime Minister was fobbing off a friendly Labour Back Bencher or whether the Government really were intent on keeping the terms of the scheme under review, as was their clearly stated position prior to the announcement about the improvements that we are discussing.
My first request to the Minister is to find out how much the financial assistance scheme will be under review in future. Was today’s statement from the Prime Minister news to the Minister or was it entirely in line with departmental policy? If so, was the Minister therefore encouraged to hear the Prime Minister repeating the Government’s position? People out there need to know whether we have reached the end of the road, with the Government no longer being willing to make concessions towards greater generosity, or whether they are still approaching the issue in the relatively helpful way that they approached it before making the announcements. At that time they acknowledged that the previous scheme was almost fantastically ungenerous and unquestionably needed improvement, although that had to be set in the context of the spending review.
We heard further announcements from the Chancellor in today’s pre-Budget report about the amount of money that will be available to each Department in the next spending review period. However, most of that seemed to relate to administrative expenditure. It is possible that there is still some uncertainty about aspects of the budget for the Department for Work and Pensions in the next spending review period, so I should be grateful to know whether, once that has been set, in the middle of next year, the Government will be willing to look again at the financial assistance scheme—in the sort of time that they initially indicated would be needed for the review to take place.
I want to raise three issues that relate to our concerns about the regulations. The first is speed of payment, which the Minister has touched on and the hon. Member for Eastbourne also mentioned. Then there are the holes that exist in the financial assistance scheme, even with these changes. Finally, I should like to ask about the way in which people who have terminal illnesses are going to be dealt with, because that, too, is touched on by the regulations.
It was reassuring to hear the news that additional payments have been made to people since the Government made their announcements at the beginning of this year and in May, indicating that almost no individuals were benefiting from the scheme. During this debate, we have heard four separate figures from the Minister relating to the total payments. I hope that that reflects a fast-moving situation, in whichhis departmental colleagues are stepping on the accelerator in the knowledge that this debate is taking place. Perhaps he can give us an update at the end of our proceedings, in case anybody else has received a payment during this exchange.
Notwithstanding the big increase in percentage terms since May, the overall figures are still risibly low in light of the number of people who are affected by the problems. I know that Ministers do not always like to make predictions on such issues, but could the Minister give us some idea where he thinks he will be at the end of the year in relation to the payments? He indicated that some of the payments were close to being made. Can he give any estimates, or set any targets, for progress in the first couple of quarters of next year? Has he any idea how many payments he expects to have been made by the end of March 2007 and by the mid-year point? Can the information that he is receiving from scheme managers and the pace at which it is coming in offer any clue as to how rapidly the numbers will build up?
The second big area of debate is the generosity,or lack of it, of the scheme. The hon. Member for Eastbourne touched on a number of the points that I wish to make, and I should like to reinforce some of them. They concern matters that will undoubtedly be aired in our debate in the Chamber tomorrow. At the beginning of this debate, the Minister helpfully indicated the scale of the cost of the scheme. He was talking about a total over 50 years of some £2.3 billion, and the net present value of the cost increasing from £243 million for the old scheme to £783 million for the new one.
Will the Minister indicate whether those figures include the consequent impact on means-tested benefit entitlements? Have any offsets been assumed in the figure that the Government have prepared, and has he made any estimate of the cost in relation to the offsets that will be made through tax revenues? I understand that the payments will, on the whole, subject to people’s normal personal allowances, be subject to taxation. If those two factors—means-tested benefit offsets and taxation—were taken into account, would that offset the figures that the Minister has given us, or has he given us merely the gross cost without netting off the benefits that will be made?
The hon. Member for Eastbourne made an important point—I must not go too far, but he made one important point at the very least—about the Government’s possible exaggeration or people’s misunderstanding of what the financial assistance scheme’s levels of compensation add up to. Although the impression given to many who see only the headline figures is that compensation is quite large—80 per cent. figures have been bandied around so that peoplewill get the impression that they will receive in compensation a large amount of the pension that they would have received—it seems in reality to be only a portion of the core pension entitlement.
The hon. Gentleman said that even those in different bandings can therefore expect much lower amounts in terms of actual scheme values than the headline rates indicated. I think that he mentioned that although it might appear that some people will get 50 per cent. of their scheme entitlement, by the time the Government pays 50 per cent. of the core entitlement, it might only be one quarter of the scheme value. One quarter sounds, and is, very different from 50 per cent., 60 per cent. or 80 per cent.
Will the Minister confirm the figures that the hon. Member for Eastbourne cited and tell us whether he has made any similar calculations, so that he can put on record what the various percentages will relate to—core value or scheme value? The point about generosity, or lack of generosity, is reinforced by the fact that scheme payments under the financial assistance scheme will be fully taxed in the normal way. They will not be the tax-free lump sums that schemes would generally pay, and their value therefore diminishes.
The hon. Gentleman then listed a number of other aspects of the scheme’s lack of generosity, and it is worth putting them on the record: different tax treatment; the necessity of waiting till age 65 to receive compensation, even where the scheme’s pension age is earlier; the fact that the payments are not inflation-linked, which will erode them over time; the fact that the cap is set very low at £12,000 and is not inflation-linked; the fact that spouse benefits will not be as generous as they would be in schemes; and the important fact that although the Government have been quite helpful in moving the previous very mean cut-off of a few years before pension age to 50 years, a lot of people who may have been in schemes for many years will receive no compensation whatever.
The point that Ros Altmann and others have made—I pay tribute to her for all the work that she has done in leading the debate outside this place—is that some of the people who do not get assistance from the financial assistance scheme will lose out from its operation, as the cost of administering it will fall on the schemes themselves, which will have to be withdrawn. Some of the people who do not receive FAS assistance might lose out as a consequence of a scheme designed to deliver compensation.
For all those reasons, although this is a better scheme, it is better only than a very low base. I took some comfort from the fact that the Prime Minister is so keen to keep the scheme details under review, and I look forward to the Minister’s confirmation of that and of whether there is a timetable for triggering that review. Will it be triggered by the spending review announcements next year?
Will the Minister comment in a bit more detail on the very sensitive issues touched on by some of the regulations that relate to people with terminal illnesses? That is of particular concern. Although it will affect only a relatively small number, I hope that the Government are seeking to do everything that they can for people in that particularly difficult position. Members who are more than 15 years from the scheme pension age and who have a terminal illness will get no compensation whatever, as I understand the scheme. I should be grateful to know whether that is one of the issues under review if, as the Prime Minister said today, the scheme might still be considered. In addition, terminally ill people might in some cases receive interim payments, but those are at a lower level than ordinary scheme payments.
The regulations cover appeal rights for people with terminal illness, and it would be helpful to know a little more about how that matter will be dealt with, particularly in the case of people expected to live for a short time. The idea that they would have to go through a stressful or prolonged appeal process would concern all hon. Members.
We shall return to the issue tomorrow, and Ilook forward to hearing the Minister’s comments, particularly on the Prime Minister’s commitment today to keep the details of the scheme under review.
3.15 pm
James Purnell: I thank both Opposition parties for their support for the regulations. We shall debate the matter again tomorrow. It is worth saying that the quote that the hon. Member for Eastbourne gave about the ombudsman’s view of the FAS related to the previous version of the scheme. I recognise that the ombudsman does not believe that the current version is sufficient either, but we took her views into account when we decided to extend the scheme. However, as the Committee will know, we do not accept that we were liable or responsible for the losses incurred.
I shall try to deal with as many as possible of the points raised. If I fail to answer particular questions, there will be an opportunity to ask them again tomorrow, or I will happily write to hon. Members. The financial assistance scheme payments are making a significant difference—some people are getting thousands of pounds of extra support through the scheme, which is important. That was welcomed by my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne), who questioned the Prime Minister today. The hon. Member for Yeovil tried to tempt me to go from saying that the policy is under review to saying that there is a formal review of the policy, which I do not think is what the Prime Minister said, as Hansard will show. We keep all policies under review, and if there are further ways in which to help people we shall continue to examine them as well as the operation of the scheme. However, we believe that the taxpayer’s contribution to the scheme strikes the right balance between our duty of helping people who have lost out and our duty to the House to use public finance properly.
Mr. Laws: I am grateful to the Minister for his patience in giving way so early. I noted down what the Prime Minister said today as soon as he said it. He said that the Government would keep the terms of the scheme under review. That seems to indicate that the change in its terms provided in the regulations is not necessarily the last change that the Government will make. Will the Minister confirm that?
James Purnell: As the hon. Gentleman says, we are amending the terms of the scheme as we speak. That is why we are in this Room. His intervention did not show that the Prime Minister had announced a review. The hon. Gentleman spoke about the review that my predecessor had mentioned, which was expedited by the Prime Minister, and the regulations are the culmination of that review. We keep all policies under review and will continue to do so, but we believe that the regulations will provide an appropriate balance. They will help about half the people who have had significant losses, which we believe is the right balance for the taxpayer to be expected to fund.
We have made it clear that we expect schemes to wind up within two years of the publication of our response to the Public Administration Committee’s report. We are serious about that, and we have powers to make schemes wind up if they do not do so, in partnership with the PPF. We have written to a number of schemes under the FAS to encourage them to make faster progress, and we have issued a notice to one organisation to ensure that it does. The pensions regulator has a wide range of powers, for instance to change an independent trustee or to fine people, and we will not be worried about using them if necessary. We do, however, co-operate extremely well with most people who are administering schemes that could benefit from the FAS. We are grateful for all their support.
Most of the payments that we are making are initial payments because the vast majority of schemes that could qualify for FAS have not yet wound up. It is important to make it clear that we can pay people before the scheme is wound up. They can get a payment of 60 per cent., rather than 80 per cent., and anything which they have missed out on can then be backdated at a later stage. Some 519 of our payments are initial payments and if that number increases during this speech, I will let the Committee know. We will continue to monitor that and to work with trustees to get as many people to apply for initial payments as possible. I have made it clear that we would like people to apply for initial payments where that is in the interests of their scheme.
The hon. Member for Eastbourne asked about the cut-off date. I can confirm that we will do everything that we can to ensure that people are aware of it. It is worth remembering that there is a 12-month extension from the previous cut-off date, which was this February. We have had discretion to take applications later than that. We have written to all the schemes. We have had interviews with 75 per cent. of the schemes. A huge amount of work has been done to ensure that people are aware of their potential entitlement, so we would be surprised if many schemes were not aware that they should be looking at whether they were entitled to FAS payments.
The hon. Gentleman mentioned companies that are not technically insolvent. We are not sure that there are any companies in that situation. This is not a widening of the scheme to allow solvent companies in. These companies may have been dormant. They may not have been filing accounts, rather than going through an insolvency event. Their assets may have been so low that they could not afford to go through a formal insolvency event. As I understand it, in those circumstances they may simply not have filed accounts for three years and then found themselves dissolved at the end of that process. The provision acts as belt and braces for people in those circumstances, although we are not aware of any.
The hon. Gentleman also raised the important point about paying survivors before Christmas. We are certainly striving to do that. Obviously we cannot prejudge the process of these regulations going through Parliament, but we have been working with schemes to identify qualifying survivors and, if the date we receive the data allows, we are confident that we will make some payments under these regulations before Christmas. I hope that that gives him the assurance of our intention, which is the most that we can do at this stage.
The cost includes tax, which is deducted at source. We have not been able to model the effect of the means test because the population affected is not necessarily typical of the overall population. Normally, to model the effect of a means test on any future policy, we take a rough proportion of the overall population to map out the overall costs. That may not be statistically appropriate in this case because that section of the population would typically be better off than the rest of the population. Therefore, it has not been possible to model that part of the net cost.
The hon. Member for Yeovil invited me to estimate the proportion of benefits for which the FAS may be able to pay. I am afraid that that is not possible because the whole point about the core expected pension is that it is not a replacement for every single detail of individual schemes. Schemes differ in a variety of ways in terms of the lump sums they make available, the early retirement provisions, health insurance, death insurance and so on. It is not possible for us to replicate all those changes. Given that they vary between schemes, it is not possible to say what proportion of benefits overall the FAS will pay for. The intention of the legislation has always been to pay people a proportion of the core expected pension. That is exactly what the measure does.
I thank the Opposition and my hon. Friends who have been delayed from going for their Christmas shopping. This has been an important debate. It is important that we scrutinise these policies. Clearly, we will have another opportunity to do so tomorrow. I recognise that there are different views about the extent and generosity of the scheme. I do not believe that any of the political parties has a commitment to finding further public funds to extend the generosity of the scheme. I know that the Conservatives have been borrowing the Liberal Democrats’ money tree in making a number of uncosted spending promises, but the hon. Member for Eastbourne confirmed in a recent debate that the Conservatives have not made a commitment in this area.
We recognise the great difficulty that members face and that is exactly why we are extending the provisions today. I commend them to the Committee.
Question put and agreed to.
That the Committee has considered the draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2006.
Committee rose at twenty-five minutes past Three o’clock.
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Prepared 7 December 2006