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The hon. Member for Eastbourne (Mr. Waterson) has tabled an amendment to amendment No. 150 that would require loans to the delivery authority to be paid at commercial rates. We have been clear that we have no intention of unfairly subsidising the authority or the scheme. However, the scheme will be in the unique position of performing a public service obligation to
accept all eligible employees irrespective of the cost of doing so. That will be essential in ensuring that everyone has a scheme into which they can be automatically enrolled. In the long term, the scheme’s scale will enable it to act in that way while offering low charges to members, but in the short term it could add to the burdens of establishing the scheme. We will understand the issue more once the procurement process reveals the actual cost of establishing the scheme. However, before then we cannot accept an amendment that locks the scheme into a fixed period of repayment or to commercial loan rates without knowing whether that would undermine our aim of delivering a low-cost scheme available to all.
We are committed to a review of some aspects of the personal account scheme in 2017, and amendment No. 147 places that requirement in the Bill. This will be an independent review of those features of the personal accounts scheme that are designed to focus it on the target market of moderate to low earners, specifically the annual contribution limit and the prohibition of pension fund transfers. Again, the Opposition made that proposal, and we have accepted it following debate.
The majority of these amendments are minor, while others strengthen the Government’s commitment to ensuring that more people are able to save for their retirement. With the exception of the Opposition amendment, which I think was tabled yesterday, I commend the amendments to the House.
Mr. Waterson: Again, the Minister is correct to say that a number of these Lords amendments are minor drafting and technical ones. I do not intend to bang on through every single one of them, but I wish to pick out the ones that are important from our perspective—in particular, our proposed amendment (a) to Lords amendment No. 150.
The Minister rightly said that Lords amendment No. 139 was an Opposition amendment, giving the Secretary of State the obligation, rather than just the power, to set up personal accounts. We are all slightly bemused as to why the Secretary of State wanted to give himself wriggle room in respect of not setting up personal accounts. Although there are arguments to be had on the architecture and design of those accounts, it seemed to us eccentric, to say the least, that there should not be such an obligation, and I am delighted that the amendment has been accepted by the Government.
The next big issue for Conservatives concerns Lords amendment No. 150 and related amendments. They deal with the public subsidy or level playing field argument, which is familiar to those of us who were fortunate enough to be selected to serve on the Public Bill Committee. As the Minister has said, the procurement process for personal accounts is still in its early stages. We are talking about a brand new design that will perhaps have to deal with 1 million employers and several million new employees, and will involve a major IT contract, leaving aside any other design considerations. It is perhaps an eccentricity of the procurement process that it will be part way through before the personal accounts delivery authority knows exactly how much it will all cost. There are clearly some i’s to dot and some t’s to cross, because the authority does not yet know, and will not know for some time, how much the scheme will cost, how many customers it will have and how many customers will be
left after two or three months, when people who have been auto-enrolled suddenly realise that their pay packet is a bit light and head for the exit.
In those circumstances, I concede that it is difficult for PADA to work out its costs, let alone its unit costs. It has always been our approach that this project should not attract any public subsidy, so that there is a proper level playing field between personal accounts—the new kid on the block—and existing provision. We are obsessed with the problem of potential levelling down. We do not see any reason for any provision in the legislation that would appear to give even the hint of an unfair advantage to personal accounts over existing and competing pension provision.
Something that has crept into the ministerial rhetoric relatively recently—I do not remember it ever featuring in our debate in this Chamber or in Committee, although I am happy to be challenged on that—is the phrase “public service obligation”. An attempt is being made to apply it to PADA and its successor, the trustee corporation. Of course, we are familiar with the concept of PSO, perhaps the best and most familiar example of which is the Royal Mail. The basis of its PSO, and therefore of the zillions of pounds that the organisation receives in public subsidy every year, is that I could post a letter today and the Royal Mail would guarantee to deliver it to the far north of Scotland or to anywhere else in the country quite soon; it would perhaps not nowadays be able to deliver my letter the next day. That is a true public service obligation. We do not think—my colleagues in the Lords made this abundantly clear—that there is any justification for applying that concept to PADA or the trustee corporation.
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That is, in part, the thrust of my amendment (a) to Lords amendment No. 150, which makes it clear that any loan should be repaid at a commercial rate over a period of 10 years. At different times in the debates, we have also tried to make it clear that there should be no basis on which PADA or its successor receive anything by way of grant or subsidy; they should not receive anything but a repayable commercial loan.
The PSO justification or excuse is of recent vintage. No mention was made of possible subsidy in the Turner report, which is where this all started, or in the December 2006 White Paper. We are concerned not only about the possibility of unfair competition with existing provision, but about whether we are seeing the beginning of a worry on the part of those who are charged with making personal accounts work that they cannot deliver at 0.3 per cent.—that figure is no longer referred to by anybody—or even at 0.5 per cent. without significant subsidy.
I imagine that the Minister would say in her defence that any such subsidy would have to pass the relevant EU rules on state aid, as may well be the case, but our view is that we do not want to go there at all. Her comments echo, almost uncannily, those of Lord McKenzie in the other place. He spoke about
“the Government’s intention that the personal accounts scheme will be self-financing in the long term, through charges on members, and delivered at nil cost to taxpayers.”
“One possible source of financing for these costs could be borrowing”.—[ Official Report, House of Lords, 2 July 2008; Vol. 703, c. 343.]
Even so, we are not happy with that as a possibility. Even at an early stage, the corporation will be pulling in significant contributions from its members. There is a clear consensus that personal accounts should wash their own face within a reasonable period, although there might be arguments as to how long that period will be. Crucially, it depends on the consultation, which recently ended, as to the charging structure for personal accounts; I can see that that might affect the period for repayment and so on. We are adamant that any such subventions should be made by way of a proper loan involving a period for repayment and a commercial rate of interest. I hope that I have made it abundantly clear that we reject the suggestion that the personal service obligation applies in this instance. As I said, there was never any suggestion, until recently, that it would apply to personal accounts.
The other issue that I wish to discuss for a few minutes is Lords amendment No. 147 and related amendments to do with the review. It has been fairly clear almost from the outset in dealing with the legislation that Ministers were intending—as, indeed, they still are—to have a review of the operation of personal accounts five years after the start date. Of course, that prompts the question whether 2012 will be the start date. I understand that it remains the firm view of the Minister and of Mr. Tim Jones, the chief executive of PADA, that personal accounts will start in 2012. There is to be an element of the phasing in of personal accounts—we do not want a terminal 5 moment, so I suppose we will start with the short-haul flights and work our way upwards. Of course, that worked really well in the context of terminal 5.
Lord McKenzie wrote a letter dated 6 November to my colleague, Lord Skelmersdale, in which he made the point about the review. He said:
“We have publicly committed to review in 2017 two of our key measures designed to minimise the impact of the personal accounts scheme on the existing pensions market—the ban on transfers and contribution limits.”
He also makes the point that there will be a person appointed by the Secretary of State—I am not sure exactly what sort of “person” the Minister has in mind—who would prepare the report and have a duty to lay a copy of it before both Houses of Parliament. We do not have any problem with that, although I hope it is not churlish to say that if there is an election in 2010 and we are fortunate enough to win it, we will probably have a review then and there, just to see whether everything is going to plan.
The review needs to be as wide as possible. I am pleased that it will look at ways of retaining a barrier between personal accounts and existing provision. We have always favoured putting the £3,600 annual contribution cap on the face of the Bill. We have never understood why Ministers, despite declaring that that was their firm intention, have always resisted putting it in the Bill. That is the policy, and we think that it should be applied. Equally, transfers in and out of personal accounts and lump sum payments in would not be permissible. That would be the case for all sorts of reasons, including not just helping to maintain existing provision, but helping Mr. Jones and his colleagues at PADA for whom simplicity is the key word in preparing for the start date in 2012.
I hope that, as part of the review, a serious body of work will be carried out—it certainly will be if the Conservatives are in government—on the effects of
personal accounts, even in their early days, on levelling down and on existing provision. I do not think that there will be a big bang effect immediately, but there may well be a period of attrition of existing provision in favour of personal accounts. For example, new employees joining a company may find that the existing scheme is closed to them and that they are pointed towards personal accounts. I hope that such a trend will not occur, but if it does, I hope that the Government of the day will take urgent action to deal with it.
The massive issue of means-testing is being examined, as I suggested in an earlier debate, and we need to continue to examine it right up to the starting date for personal accounts. It should be monitored regularly. We are keen on a review. If it happens in 2017, as the Bill provides, so be it, but it may well come earlier, depending on the electoral cycle.
Broadly speaking, we are content with the amendments, save that we have tabled amendment (a) to amendment No. 150.
Paul Rowen: I welcome the Minister’s acceptance of Lords amendments Nos. 139 to 145. I certainly could not understand at the time why the Government could not commit themselves to using the word “shall” instead of “may” when it came to setting up a scheme. It would call into question what we had all been spending all this time doing if we were not going have a scheme in the end, so that is a sensible move by the Government. I also welcome the Government’s acceptance of amendment No. 147, because in Committee we pressed for a review with a time frame. I am glad that that has been agreed.
On amendment No. 150, we made it clear in Committee that conditions should be set down. However, unlike the Conservatives, we were not opposed to the Government making grants. Indeed, that has been done to enable the setting up of PADA, and we do not oppose it obtaining loans. The original wording in the Bill was that the Secretary of State may give financial assistance to the authority, which may or may not include interest. I am grateful that in the other place Lord McKenzie realised that PADA, as a public body, has a job to do in setting up a delivery authority before it hands over to a set of trustees. It will have to build up funds over several years. Therefore, it is proper that, if need be and subject to Treasury rules, it is given a loan to enable it to carry out that job. It is also proper that if that loan is to be repaid, it should be repaid under normal conditions for a public body. If the Minister wanted to transfer that arrangement to the trustees when the scheme was up and running, that would be a different matter, but given that PADA is a delivery authority, it is right and proper for the Government to be able to lend it money and for it to be paid back at normal public service rates.
On that point, we disagree with the Conservatives and their amendment (a). PADA will be no different from the Post Office or other public body that carries out a public duty.
Ms Rosie Winterton: I thank the hon. Members for Eastbourne (Mr. Waterson) and for Rochdale (Paul Rowen) for their general welcome for these amendments.
On the 2017 review, our commitment is to commission a review of just two of the features of personal accounts—the annual contribution limit and the prohibition of transfers to and from the scheme. We think that a
focused review will be the most straightforward way to meet our commitments in those areas, focusing on the impact of the policies on employers, the pension industry and individual behaviour. The review would examine outcomes in the light of the wider debate on existing pension saving. However, it would be too early after 2012 to commit to a wider review of the reforms, given the phasing in of some features and the long-term nature of pension saving.
With regard to the amendment tabled by the hon. Member for Eastbourne, I stress again that we have no intention of unfairly advantaging the scheme, and we have not discounted the possibility of commercial rate loans. However, in the light of the unique task that we are giving the scheme, and ahead of knowing more about its costs through the procurement process, it is vital that we retain flexibility in how it is funded. Like any other scheme, personal accounts will be targeted on a particular segment of the market. The scheme will also have a public service obligation to accept all eligible employees, irrespective of whether they are loss-making to the scheme.
In the long term, we are confident that the scheme can do that while delivering low costs to members and being self-financing, but in the short term those obligations will add to the challenge of establishing a low-cost scheme. If that is the case, it would be reasonable for the Government to consider whether it was in the public interest to compensate the scheme in some way for the burdens placed on it. Indeed, European state aid rules, whose explicit purpose is to prevent anti-competitive behaviour, recognise that there may be cases in which it is right to compensate a body for performing a public service obligation. These rules are very explicit: it is possible only for the state to recognise the cost of imposing a public service obligation, and it is not possible to go any further. In other words, it is only possible to ensure that the personal account scheme is not disadvantaged by its public service obligations. Therefore, not only do we not want to subsidise the scheme unfairly, but it would be illegal for us to do so. I hope that, with this reassurance, the hon. Gentleman will agree not to press his amendment.
Mr. Waterson: May I probe the Minister further? At what point did the Department decide that the scheme should have a public service obligation? It was not in Turner or in the White Paper, or even in this House. It must have been somewhere between this House and the other place.
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Ms Winterton: Obviously, in the ongoing discussions about the development of the scheme it has been important to ensure that we consider all aspects of the funding. However, as I have said, our view is that we should maintain flexibility in this matter and that is why we do not agree with amendment (a).
Lords amendments Nos. 140 to 151 agreed to [some with Special Entry].
Ms Rosie Winterton: I beg to move, That this House agrees with the Lords in the said amendment.
Madam Deputy Speaker: With this it will be convenient to discuss Lords amendments Nos. 171 to 177, 200, Lords amendment No. 202 and amendments (a) and (b) thereto, Lords amendment No. 203 and amendments (a) and (b) thereto, and Lords amendments Nos. 204 to 206, 215, 216, 219 to 221, 227, 232 to 234, 241 to 246, 279, 283, 284 and 287.
Ms Winterton: The amendments in this group cover a wide range of issues relating to the state and private pension systems. First, on fuel poverty, amendments Nos. 204 and 219 allow the sharing of information about pension credit recipients with energy companies to help energy suppliers provide assistance to poorer pensioners. The regulations that will govern that sharing of information will be subject to full parliamentary scrutiny.
Amendments Nos. 205 and 206 and related amendments in the group will help those who were forced to flee Nazi Germany as children under the Kindertransport arrangements. I pay tribute to the Minister of State, Department for Work and Pensions, my right hon. Friend the Member for Harrow, East (Mr. McNulty) and my right hon. Friend the Secretary of State for their tenacious efforts over many years to champion this worthwhile cause. In particular, my right hon. Friend the Minister of State championed the cause on behalf of his constituent, Hermann Hirschberger. The amendments remove a technicality of British insurance that could reduce or remove the German state pension of a Kindertransportee. It has not been easy to find a solution within UK legislation, but I am pleased that we have managed to do so.
Amendment No. 202 and related amendments are designed to help people who face potential disadvantage because of gaps in their national insurance record. Their cause has been championed by my right hon. and noble Friend Baroness Hollis and I pay tribute to her for all her work campaigning on the issue. I know that the cause has also been supported by a number of hon. Members in this House.
The amendments mean that individuals who are eligible to purchase class 3 national insurance contributions will be able to buy up to six additional years for any tax years from 1975. The offer applies to those who reach state pension age between April 2008 and April 2015 and to those who have 20 qualifying years taking into account full years of home responsibilities protection. The amendments have been warmly welcomed by the many stakeholders who have taken an interest in the issue.
As previously announced, and confirmed in the pre-Budget report, the price of class 3 national insurance contributions has been increased to ensure cost neutrality and to reflect the additional value of the contributions after the Government’s pension reforms take effect in April 2010.
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