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“under section 58 of this Act shall commence operation with effect from 1st April 2012.”
If it is to be that year, that seems to be the logical date to start. If we investigate a little more closely, however, we find that there is some doubt as to whether that date will be the due date.
We had a lengthy debate in Committee, following the interview given by the chief executive of the Personal Accounts Delivery Authority, Mr. Tim Jones, with Mr. Paul Lewis of “Money Box” in December. In that interview, Mr. Jones hinted for the first time at the possibility that personal accounts would not be ready in time. Paul Lewis asked him the rather direct question:
“This scheme is scheduled to start in April 2012, just over four years away. Is that a realistic target?”
“The honest answer is I do not know yet.”
When put to him later that it might be another date in the future, he said:
“There is that possibility, yeah, and that’s the purpose of bringing somebody like me from the private sector in to look at what is a realistic balance of the desire to get started as quickly as reasonably possible with the need to manage risks to make sure this starts with quality when it starts.”
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On the Opposition side of the House, not least because Conservative Members have some slight ambitions that we might be in the driving seat in 2012, we accept, of course, that a bungled launch of personal accounts
would not be ideal, but the prospect of the start date being postponed is almost as difficult to contemplate. The Secretary of State, who is sadly no longer in his place, made a rather good speech a while ago about the sort of planning blight that affects people’s saving for their retirement; they may have read that something is going to happen in 2012, which might be taken as a reason for not doing something now. On any view, a gap of several years, which can never be redeemed, for some people who could and should be saving for their retirement, is unfortunate.
One particularly interesting thing that emerged from Committee debates was that a review was going on, as Mr. Jones accepted in the Radio 4 interview. Having been brought into the new job, he was carrying out a review, as we would expect, of how practical all this would be. There was some to-ing and fro-ing between the Minister and myself about whether Mr. Jones would produce a report at the end of the process. We know that PADA currently employs some 100 different consultants, presumably trying to get the right answers to these questions, but there seemed to be some doubt—at least in the Minister’s mind—as to whether, by the end of these deliberations, Mr. Jones would actually produce a report on how likely it was that personal accounts would be up and running in 2012.
I say in passing that it was my first experience of a Public Bill Committee taking oral evidence, and I thought that it was an extremely helpful procedure—certainly in respect of this Bill. That view was held generally by members of the Committee of all political parties. When I asked Mr. Jones in the Public Bill Committee
“Will this new scheme be up and running in 2012, or is there a plan B?”
“The policy intention”—
which I assume is a polite way of expressing a distance between himself and Ministers,
“is that the personal accounts scheme will launch in 2012, and it is my job, and the delivery authority’s job, to meet that intention. We have no evidence at this stage that that is unachievable.” ——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 7, Q11.]
That is hardly the most ringing endorsement of how likely it is to be ready. We ended up having a Division in Committee simply because the Minister was unwilling to bring himself to agree to let us have a copy of any report that he received from Mr. Jones on the matter.
Having reflected on the issue since, I still take the view that it is inconceivable that Mr. Jones, in view of his meticulous nature and experience in these matters, will not produce a pretty hefty report for somebody—presumably his chairman and/or Ministers—at the end of the review process. We are simply saying, as part of the general air of amity and consensus that has been evident throughout most of the Bill’s passage so far, that we should be privy to those conclusions. We all have a problem if there are real, practical difficulties—with IT or other systems or for any other reason—in delivering the project on time. None of us should underestimate the significance or the size of the challenge facing Mr. Jones and his team. I am quite sure that, because of his past experience, he is up to the job, but that is really why we wanted the matter out in the open on Report.
Mr. Redwood: Is my hon. Friend a little worried that if a Conservative Government were not elected until May 2010 and inherited a mess or confusion, it would be very difficult to introduce the scheme in time if we legislate in this way?
Mr. Waterson: My right hon. Friend has put his finger on the nub of the problem. It would be extremely unfair on an incoming Pensions Minister, whoever it might be, to find at the top of his in-tray or in his first red box a report, already some months or years old, saying “We’re sorry, mate, this can’t happen in 2012.” It is overwhelmingly important to all of us for whom personal accounts are the only game in town to know almost as quickly as Ministers if there is a problem, and how it can be fixed.
The other new clauses and amendments in this group are largely self-explanatory, so I will not go through them in enormous detail. The central issue is that of the level playing field. It has always been an absolute principle—in fairness, for the Government as well—that apart from some seedcorn for PADA to set itself up and perform its initial task, the personal accounts system should wash its own face in financial terms. The costs should be recovered not from the taxpayer but from the scheme itself and its members, possibly over a period of years.
What worried us in Committee was loose wording in the Bill about grants, advances and loans from the Treasury to PADA and, perhaps, its successor body, and the lack of provision for a commercial rate of interest or terms for repayment. We firmly believe that a clear line must be drawn between the set-up costs envisaged not in this Bill but in its predecessor, the Pensions Act 2007. If I remember rightly, that Act provided for an initial £21 million for PADA to set itself up and get organised. If more funds are needed thereafter, either the issue must return to the House or the scheme must pay its own way when it is up and running.
Ministers are able to give evidence to Committees as well, which is great. In his evidence to our Committee, this Minister said:
“Indeed, it is the role of the members to pay for the operation of that pension scheme”,
by which he meant personal accounts. He went on to say:
“Once we move into the new system, our aim is that it should operate on a self-funding basis.”
When I mentioned the money voted under the 2007 Act, he said:
“We are not planning to increase it at the moment; it is about £21 million for 2007—08. We will look at what costs PADA will need in the future, and it has an ability to raise funds if it needs to do so.” ——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 113-4, Q138-9.]
Now let us fast-forward to the Reuters report of 12 March about the spiralling costs of the project. That report states:
“The government’s new ‘personal accounts’ regime will cost an estimated 2 million pounds to set up, a four-fold increase on an initial budget of 500 million pounds, two sources close to the situation told Reuters... the total cost of... PADA... has mounted as management has gone back to the drawing board.”
I assume that that is a reference to Mr. Jones’s review, which I mentioned a few moments ago. One of Reuters’s sources is quoted as saying
“they've got dozens and dozens and dozens of expensive consultants working on nothing other than devising a plan and supporting the passage of a Bill, which is wrapped up in red tape and time-consuming government process.
In line with that, the costs are rising astronomically. Value for money is the big thing. It's scandalous.”
It then talks about a management team led by chief executive Tim Jones. It says the team
“started re-planning the work in October when Jones took the reins.”
The final comment from the sources that I wish to quote is as follows:
“Around 100 consultants are working on the project, earning anything between 800 and 2,500 pounds each per day”.
If that is true, or even partially true, we need to know from the Minister—if not today, then soon—precisely how PADA’s costs are developing. What are they projected to be? Have we passed the £21 million figure already? How much will this project cost before it hands over to the board and trustees who will run the operation?
Miss Julie Kirkbride (Bromsgrove) (Con): As my hon. Friend knows, I served on the Public Bill Committee, and I have also been present today, and I have not previously heard the figures he has just announced. I find them shocking and alarming. Given his knowledge of what has been going on, will he speculate on why the original costs envisaged have risen to such enormous sums? Is that just to do with management consultancy fees, or is something much more complicated leaving us in this position, which could undermine the whole purpose of the Bill?
Mr. Waterson: I am grateful to my hon. Friend, and I am delighted to see that she is present today following her sterling service in Committee. The short answer to her question is that I do not know. I hope that the Minister does, however, and that he will share that with the House. Once Report and Third Reading are out of the way, I hope to organise a meeting—which has been envisaged for some time—with Mr. Jones and his chairman, Paul Myners, and perhaps we can get to the bottom of some of this. However, if costs are running at such a level, it can mean only two things. The first of them is that the overall projected costs will be much higher than forecast. It also suggests—unless the consultants are, heaven forfend, not earning their keep—that there are practical problems to do with the time scale for delivery of personal accounts by 2012 about which we are currently ignorant, and I do not think we should remain so for much longer.
Let me return to the fundamental question. The situation is perfectly plain from what Ministers have said, and also from the impact assessment of the Bill, which states in paragraph 3.80 that
“in the long run, the personal accounts scheme is intended to be self-financing”.
We all know what John Maynard Keynes said about the meaning of the “long run”, but how long is this long run and how much will all this cost?
I commend this group of amendments to the House, because it tries to pin down the Government and PADA on recouping the costs of set-up over five years,
in terms of grants not being made by the Treasury, and in terms of repayment over a set period and on the basis of a commercial rate of interest for any loans advanced to PADA by the Treasury. If the Minister is aware of any such proposals or plans, it will be helpful if he shares them with the House now.
Paul Rowen (Rochdale) (LD): I pay tribute to members of the Public Bill Committee—some of them are present—such as the Minister and, in particular, my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), and to the Clerks for their assistance in the preparation of amendments.
The measures tabled by the hon. Member for Eastbourne (Mr. Waterson) fall into three categories: the timing of the introduction of personal accounts, reporting on that introduction, and costs—what he termed the level playing fields. No one can underestimate the complexity of the introduction of personal accounts. Even the largest occupational pension scheme is unlikely to have more than 10,000 members. However, we are talking about a scheme that could have up to 5 million members and, as the Minister said, that could include the local hairdresser and their staff as well as large companies, so this is a mammoth undertaking. The Government have committed themselves to a commencement date in 2012. It is right that there should be a lead-in period and that an organisation such as PADA has the task of getting things under way.
4.30 pm
We require an answer from the Minister on where we are with the development of the process and we need him to assure us that there will be regular reporting back. Amendment No. 9 would require the production, within 12 months, of a report analysing the financial position, take-up and different options and costs. When introducing something so complex, it is right and proper that we have an undertaking from the Minister that we will be given a regular report on how the scheme is developing.
We need a response to the point made by the hon. Member for Eastbourne about the Reuters report on costs. When Mr. Jones came to the evidence sessions, we were not given an indication that the costs had escalated so much. It is worrying if costs have rocketed to such an extent at this early stage, so I hope that the Minister will assure us that there will be regular reporting back, as envisaged under amendment No. 9, and that any escalation of costs will be properly reported. I do not underestimate the complexity of the task, but I am concerned that Reuters is reporting such an escalation of costs when we have not even finished considering the Bill.
On the other proposals tabled by the hon. Member for Eastbourne, I should point out the importance of a level playing field. We all made it abundantly clear in Committee that personal accounts are not to be in competition with existing pension schemes; they are primarily designed for a large section of the community who are not saving for their pension and who will end up in a poor financial position when they are pensioners.
We thus have a duty and a responsibility to ensure that money contributed by employees and employers, or through a tax rebate from the taxpayer, will not be eaten up in consultants’ costs. Although I agree that we should keep an eye on costs, I cannot agree with the hon. Gentleman’s proposal that they should be set at 0.3 per cent. right from the start. That should be the long-term objective, but it is probably right and understandable that in the initial years, when the scheme is growing, costs will be greater. For the same reason, I cannot support him when he says that we should restrict the trust’s ability to borrow money. If the long-term objective is for the scheme to be self-funding, money will have to be borrowed in the initial stages and then recouped as the fund grows. If that is not done, the people who are contributing at the beginning when the scheme is set up will pay a much higher proportion in respect of what they are putting into the pot than those who are involved later on, which is why it is inflexible to set an upper limit. That might well be a long-term objective, but it will not be achievable to start with. Restricting the ability to borrow money—albeit that it will be expected to be paid back—is not a sensible option.
Mr. Waterson: Presumably the hon. Gentleman accepts the principle that loans should be repayable over an agreed period and subject to commercial rates of interest.
Paul Rowen: I agree entirely, but I have a problem with the provision for repayment within five years, when people might be saving into a personal account for 20 or 30 years, because that would up the cost. We need flexibility, at least in the initial stages.
Mr. Waterson: Does the hon. Gentleman agree, therefore, that the PADA consultation document about the possible different charging structures for personal accounts might well be affected significantly by the cost overrun that we are talking about, because it could affect the pros and cons of an initial charge, an annual management charge, or whatever other option is considered?
Paul Rowen: I agree. It is important that the Minister answers the point about cost overrun and addresses how it will be met. My point was made in response to the totality of the amendments and the fact that the Bill allows grants or loans to be made—or at least provides for some flexibility within the consultation that is taking place. Rather than Parliament imposing a structure on the industry, which is far more expert on such issues than we are, it is important that the industry is allowed to suggest the most cost-effective approach. I accept some of the amendments—the hon. Member for Eastbourne is right to want to ensure that we have a proper understanding of the start date and the costs—but I do not support their overall thrust, which would be too restrictive.
John Penrose:
The hon. Gentleman says that it might be appropriate to allow grants or loans to be made, but those two things are very different. He has explained his position on loans clearly, but the implication of grants is that the money given does not have to be repaid. That might cross a boundary in terms of providing unfair
subsidy in comparison with other providers of pensions. Did he mean to use both those words, or was it a slip of the tongue?
Paul Rowen: I was about to come to the distinction between grants and loans. There is only one area in which a grant may be appropriate. We had some discussion in Committee about the provision of information and advice, but such advice would be generic, not specific to particular saving. There is an argument for saying that the Government should encourage the provision of generic information and advice, and it might be appropriate for a grant to be made to set that up. It would not be set up to compete with existing provision, nor would it provide information that would allow someone to make a choice between an existing private scheme and personal accounts.
Mr. Mike O'Brien: The hon. Gentleman is right. I would also add that because of the nature of personal accounts PADA will give some advice to the Pensions Regulator on how the compliance regime will be set up. Such advice is not something that other, commercial pension schemes would be required to provide.
Paul Rowen: I am grateful to the Minister for that intervention and his point is right. We are setting up a whole new structure that does not have to be in competition with what already exists. It is clearly new, and some aspects will be specific to what personal accounts are trying to do, in which case it is appropriate to have grants.
I hope that the Minister can answer the concerns raised by the hon. Member for Eastbourne and me about costs and how we will ensure that the date is set. I hope that he can give us some assurances, or a breakdown of how the costs will be recouped as PADA develops its work. Once the consultation is finished, I hope that he will tell us how the chosen model will be used to deliver the funds that the trust will need to deliver the service.
Mr. Mike O'Brien: Some of the issues under discussion are complex and important, so I am afraid that it will take me some time to go through them.
On the start date, our intention has always been that the reports should be introduced in 2012. That has not changed, but, quite naturally, Tim Jones wanted to assure himself that the plans that he inherited as chief executive were deliverable. He has now completed his review. I am afraid that it was not the sort of hefty report that the hon. Member for Eastbourne (Mr. Waterson) may expect, but Tim Jones met me and produced his report bang on time. He now has a credible set of plans that are consistent with starting to deliver the scheme from 2012.
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