We know that some people will do that; we do not know how many and we hope that the number will be relatively low. The Government assume that very few will do so, but a survey by the respected pensions expert Ros Altmann—whom the Government appointed in July as their business champion for older workers—suggests

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that currently about 7% say they would spend it all. The truth is that it is impossible to accurately predict this. I expect that people with small sums would be most likely to spend the whole lot, but that the tax system itself will act as a disincentive to others to take the money and run. However, if too many people do it—the rising cost of living will put pressure on them to do so—there will be increasing numbers in poverty in future, which will also be a drag on the whole economy as the baby boomers get older and have less and less money to spend.

The new flat-rate state pension mitigates some of the risk of people falling back on the state having spent all their pension savings, but there will still be about 20% of pensioners on means-tested benefits even after the new system starts. That is partly because many people will not receive the full state pension during the early years, and also because there are other means-tested benefits aside from pension credit. Those who do not own their own home would still be potentially entitled to means-tested benefits in retirement, via council tax benefit and, of course, housing benefit.

People might try to game the system by taking all their pension money and then recycling it into a new pension fund, getting more tax-free cash and another lot of tax relief. That would be of most benefit to those who are reasonably well off with high incomes in later life, and it could be costly in terms of extra Exchequer spending on tax relief.

The new system could cause great confusion for people. These points have been made by Members who have spoken before me. If people are suddenly faced with new choices at retirement, they may not know what to do and end up at the mercy of pushy salesmen selling unsuitable products. In the old system, people pretty much had to buy an annuity unless they had substantial amounts of pension savings—perhaps £100,000 or more, but certainly at least £50,000. That meant there was no choice to be made, and there was no guarantee of receiving a secure income for life: the annuity may have given people very little, it might have been the wrong type of annuity for them and usually had no inflation protection. That was partly because insurers did not treat customers fairly and were left to regulate themselves, without having to offer suitable products or good value, but with the chance of taking about 2% of each customer’s pension fund without their realising.

Few dispute that the old system clearly did not work for customers, and the Financial Conduct Authority and the Financial Services Consumer Panel uncovered some disgraceful practices that were very detrimental to consumers. I recognise the Minister’s sincerity in seeking to address some of those problems.

Annuities were not value for money. In fact, someone retiring last week with savings of £100,000 and the intention of buying a pension annuity that kept pace with inflation could expect to be paid only about £3,600 annually. Assuming they are 65 years old, they will need to live to the age of 93 to get their money back; 15 years ago, they would have received much more.

That was partly a market issue, and it should perhaps have been possible to reform the market without the draconian retreat from annuities that this Government are proposing in the Bill. Would it not have been possible to insist that insurers were obliged to treat customers fairly by ensuring that they would be liable if they did not carry out suitability checks to identify which type of

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annuity was best and if they did not offer a good rate? Would it not have been possible to reform the way annuities worked, and to allow more but not complete freedom?

What protections will be built into the new system to ensure that unsophisticated consumers are not left at the mercy of product providers offering poor product choices or higher risk products that people do not understand and on which they will end up losing significant sums? The FCA needs to be on top of that right from the start. Judging by past form, can we be confident of that? I have very serious doubts.

What will the Government do to ensure that people are given proper, impartial and professional help before they make their retirement decisions? Half an hour of free guidance will not be enough. Such guidance must be delivered by those who are qualified and can be relied on to ensure that people ask the right questions before they buy a product or make a decision that, for lots of them, will be a life-changing one.

Ideally, guidance to help people to make a financial plan should start to be given well before retirement. We have underestimated the complexity and confusion that people face compared with what was faced by their predecessors, who were simply in an annuity scheme that came and went with their working life. Although it might be hard for the very young to take such advice on board, would it not still be worth expanding some of the guidance for potential savers?

If the guidance is delivered by product providers, they are liable to entice their customers into poorer-value products. Experience shows that they will do whatever they can to try to keep customers’ money, or to give them poor value and make extra profit. The annuity market has worked poorly for years, with rising profits to insurers and reducing value for customers, who ultimately are pensioners. What will the Government do to ensure that the new products developed finally offer good value, and that charges are fair and terms reasonable? The Bill does not adequately address those questions.

Will the Government ensure that people get signposted to full advice as well as just guidance? In the new, more complex world, a much wider array of choices will be on offer and people need to understand them all. They also need to understand the tax implications of cashing in their pension fund, so the guidance must make that clear.

Why did the Government not consult on these radical measures before introducing them as a bombshell earlier this year? My view is that if they had done so, the industry lobby would have been so fierce that their introduction would have become too difficult. Only shock therapy will really wake up the industry.

Now that all or a substantial part of a person’s savings can be taken out on the day of retirement, a pension plan is more like a golden handshake for leaving work. Let us say that a person reaches their late 80s and finds that they are fast running out of money. Where is their safety net, except to fall back on the welfare state, which is certainly not the Chancellor’s favoured outcome, even for those already in desperate need? Choice is good but structured choice is better, especially when the issue at stake is people’s hard-earned futures.

We need a pension system that works not for the market, but for pensioners and taxpayers. According to the RSA, most people want to

“give their money away to someone whom they can trust will use it wisely to generate an income when they retire”.

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We need a comprehensive private pension system. That is not something that exists in the UK, but it must exist in the future. That point is not addressed seriously by the Bill or any of the Government’s policies.

There has been a lot of talk about the Dutch model of mega-funds. In Holland and Denmark, people put money aside each year and receive a pension in retirement. That seems simple and it is. However, if a typical British pensioner and their Dutch counterpart each had the same amount saved, had the same life expectancy and retired on the same day, the pension that the Dutch saver received would be 50% higher than that of the British pensioner—that is half as much again. With the same amount of money saved, there is a huge increase in peace of mind and quality of life.

The Pension Schemes Bill will enable employers to offer collective defined-contribution schemes—versions of mega-funds—at their discretion, but few employers have expressed enthusiasm. According to the Minister, CDC schemes offer higher and more stable returns by pooling risk. Employees will all pay into one common pot, instead of braving market risks on their own, so that years where losses occur can be offset by those that see a profit.

The Government are right to legislate to permit collective defined-contribution pensions, but I urge Ministers not to over-hype the benefits. In principle, such schemes ought to be better for employers than traditional final salary schemes and better for workers than traditional defined-contribution schemes. In practice, they still suffer from market and actuarial risks. Ros Altmann points out that lower earners might subsidise higher earners and that younger members might subsidise older members. The new pension freedom provided for in the Bill to take most, if not all, of the pension pot in a lump sum might also mean that people will prefer pure defined-contribution schemes that they can access in retirement if they wish to, because collective defined-contribution schemes usually mean that people cannot just take the cash, which might well make them less attractive to members.

My challenge to the Minister is, rather than leaving the private pension system to market providers and their whims, to build a new system that works—a system with longevity that savers will understand and find confidence in. A lack of confidence in the Government’s approach to pensions is something that I imagine savers and I share.

There seems to be some ideological confusion within the Government about the structure of pension reform. On the one hand, the Bill allows pensioners to withdraw their savings in a lump sum at retirement, doing away with annuities, which may be flawed, but which are important for older people and especially for vulnerable people who need to ensure a continuous income stream. On the other hand, the Minister has championed the idea of allowing employers to offer Dutch-inspired collective defined-contribution schemes. It is the individual versus the collective—which is it? The two ideas are not entirely incompatible, but they are far from ideological bedfellows. The Chancellor’s plan has serious appeal to providers of pension products, who until now have been limited to annuities, but who will now diversify and probably profit hugely from the move, as they usually

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do, at the expense of pensioners. It would be interesting to know whether the Chancellor consulted his City friends ahead of the policy announcement.

As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East argued, the biggest long-term issue with the end of compulsory annuitisation is efficiency. The returns for savers will be lower because pension funds will have to assume that an individual will exit the scheme at 55 and, 10 years before that exit date, will have to move the individual’s pension savings into low-risk, low-return assets—that is, bonds—to ensure that there is no possibility of a reduction in the size of the pension pot in the run-up to exit. That is known as a lifestyling investment strategy and it is standard.

Before the taxation of pensions Bill, the fundamental critique of individual DC pensions was that they prevented savers from getting the higher returns that come from pooled investment, where greater risks for greater rewards can be taken because there are enough assets to hedge against those risks. The Government now risk making the problem even worse by ensuring that the shift to low-risk, low-return assets takes place even earlier in the pensions savings cycle, at age 45 rather than 55 as now. While the Chancellor’s right hand further fragments and individualises pensions, the pensions Minister’s left hand legislates for collective defined-contribution pensions. Why should any employer move to that collective system when they can see the Treasury going down precisely the opposite route? I doubt, sadly, whether many will do so.

There are other issues such as the nature and provider of financial guidance, who foots the bill for it, and the impact on eligibility for means-tested benefits and social care. The issue of efficiency, however, is fundamental: greater freedom might come at the expense of bigger pension pots.

In conclusion, I have considerable concerns about the Bill, and do not think the Government are doing anything like enough to face up to the time bomb of our ageing society, and the required pensions and social care needed to underpin the new life rapidly overtaking us. The whole Government philosophy of leaving private pensions to the market, and saying to the citizens, “You are on your own”, has failed abysmally in the past, just as—sadly—I believe it will fail abysmally in the future, at terrible cost to us all.

4.26 pm

John Hemming (Birmingham, Yardley) (LD): I start with an apology to the House because I had to attend two Committees earlier so could not attend most of this debate. I refer Members to my declaration in the Register of Members’ Financial Interests. My company, John Hemming & Company Systems, provides software to financial services organisations, including those running pension schemes.

Essentially, we are discussing how we can give people security with the tax advantage of payments into pensions from employers over the years, so that they can retire in reasonable comfort and expect a good outcome. The difficulty with anything is always who underwrites the outcomes, and we have obviously had difficulties with defined-benefits schemes. Those have been difficult to maintain because of the swing that can occur with the finances; hence employers have lost enthusiasm globally

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for that. With technological changes and the fact that the employment market has been different, it has been possible to attract employees without necessarily offering them defined-benefits pensions. That is why it has tended to happen across the world; it is not necessarily because of the different political structures of different countries. The idea that this is an ideological solution is not true; it is a technological solution, and many of the economic shifts we have seen are technological rather than ideological. That has driven a lot of things in the employment market, which has gone on to drive issues in the pension market.

The right hon. Member for Neath (Mr Hain) said that had the industry got wind of such shifts, it would have lobbied like billy-oh to stop them happening. I would have thought that that was because the industry did not think that such things were in its interests, and not because they were not in the interests of pensioners. I find it rather strange that the argument that the annuities industry hates such measures is also an argument that they are bad for people who are now no longer trapped having to buy annuities. We have actuarial problems and the difficulty of managing risk. As somebody who buys and sells shares and bonds and so on, I deal with such things from time to time on my account or those of other people. It is a complex area, and there are issues of how cost-efficiently it can be managed for small schemes. Larger schemes generally get a better result because the people managing them are able to do so more effectively. There is a inherent difficulty, however, which are that these areas are complex and will need guidance.

What I look for from the Financial Conduct Authority and such bodies is that they hunt out on a day-to-day basis the people who are offering bad advice. There are obviously boiler shop operations that have gone on for years, with people saying, “Here is a Canadian share. It is a $5 dollar share, but to you $4.75”. As soon as we hear that we know it is a boiler shop operation. That is not proper share trading; it is just trying to con people into buying something that is basically useless on the assumption that there is a lot of money to be made. Even wealthy people can be trapped by that, as Bernie Madoff showed when he made off with lots of people’s money.

Unquestionably, there are those difficulties, and I worry sometimes that the regulatory process adds a lot of complication, rather than hunting out people who are basically committing fraud on a day-to-day basis. There are a few people whose business model is to con people, and there are good examples of Ponzi schemes throughout the world. These schemes will never go away because some people will always be persuaded to misuse their finances; the challenge for the regulatory authorities is to look for them, stop them operating on a large scale and offer sufficient guidance so that people understand that if it seems too good to be true, it probably is—that is always a good lesson.

There are things the Government can do that are already being done in some areas—for example, websites saying, “Slot in these figures, see what happens, work it all out and see the long-term consequences.” That could be done on an objective, trusted basis, giving people the information to make their own decisions. People retire in different circumstances: some will have a mortgage they want to get rid of, which would give them greater stability and make it much easier for them to manage

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things on a day-to-day basis. Having the flexibility to draw a large sum of money out of their pension fund at the start to pay down certain things would be a great advantage compared with being trapped in a particular scheme. I have encountered retired people who are in a financial mess, with debts in one place and assets in another, and they cannot handle it. We cannot design a system for people who are all the same because people are not all the same—they and their circumstances vary greatly in many different ways—so introducing a flexible system is a positive way forward. For that reason, I was pleased to hear this announcement.

There will always be priorities, and unquestionably we need to keep an eye on charges. Members like the right hon. Member for Neath believe the industry really does not want this flexibility because of the impact on its bottom line, but, at the end of the day, the money has to come from somewhere. The money invested comes out in dividends, charges, payments to pensions and that sort of stuff—no magic money can be created in the process—and if less money goes in charges to the industry, more money goes to people getting pensions, which has to be a positive thing.

I am pleased to support the Government’s proposals to introduce flexibility and move forward on what people accept is a damaged annuity market. Obviously, there is market risk, and interest rates have fallen so low that annuity rates are much lower too, which is depressing for people locked into a situation where they are forced to accept something that everyone says in the long term is of low value. I think, therefore, that the Government have got this right, and the Opposition, in criticising them, are getting it wrong, and I will support the Government on Second Reading.

4.32 pm

Mr Mark Hoban (Fareham) (Con): I apologise to my right hon. Friend the Minister for missing some of his speech and to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for missing his. I had hoped to be here for both, but owing to the length of the urgent question and another engagement outside the House, I could not be. Nevertheless, I am delighted to be here in time to make a contribution.

On the Government’s legacy, as my right hon. Friend said, our pension reforms have been one of our key acts in government. We have done a huge amount to reform the pensions system we inherited and to implement auto-enrolment. The Chair of the Work and Pensions Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), gives the previous Government credit for auto-enrolment, but my right hon. Friend was right to talk about the practical changes we have made to make it work. He also made the powerful and important point that the take-up rate for smaller businesses during roll-out has exceeded expectations. A lot of people expected the rate to fall, but it should now be recognised that many people currently not saving for retirement see auto-enrolment as a key way of protecting themselves and their families in retirement.

The changes that my right hon. Friend the Chancellor announced in the Budget to give people control over their pension pots in retirement are also important and fit in with other reforms, such as raising the state retirement age, introducing the triple lock and uprating the state

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pension. We provided a state pension that is both fair and affordable in the long term. We made a change to pension tax relief, too, ensuring that it is both fair and affordable as well. The cumulative effect of those reforms is to ensure that people will save more towards their retirement, that more people will indeed save for it and that they will be rewarded for doing so. We are treating those who retire as grown-ups, able to manage their own money.

The work we have done so far is important, but I do not think the job is done. That is why the Bill is so important. We know that under defined-benefits schemes, those who worked knew that every year of their employment helped to build up a guaranteed pension income—a fraction of their final salary—thus providing certainty. In building up that guaranteed income, once the employee had made a contribution, the cost of providing the guarantee rested with the employer. If the investment return fell, the employers had to increase their contributions; if employees and pensions lived longer, the cost of the changes were again borne by the employer. In a way, of course, that guarantee sowed the seeds of the decline of defined-benefits contribution schemes, as it became increasingly expensive to provide that guarantee to employees. That accounts for the decline in DB schemes over a number of decades.

Under a defined-contributions scheme, it is of course the employee who bears the longevity risks in building up the pension pot. It is the employee who bears the investment risk, too. Certainty in retirement in return for a fixed contribution by the employee has been replaced by uncertainty, the cost of which is borne by employees.

The impact of the switch from DB to DC would have been mitigated if contribution rates had remained unchanged, but the impact of the transfer of risk has been compounded by the reduction in the level of contributions. The most recent Office for National Statistics figures I have seen show that the total contribution rate for DB schemes is 19.2%. The rate for DC schemes is under half that, at 9.4%. What does that mean in practice? As the Department’s own figures show, 11 million people between the age of 22 and state pension age will not save enough to deliver an adequate replacement income in retirement. Employees have thus seen a reduction in contributions to their pension schemes; they bear risks previously borne by their employer; and they bear uncertainty about the income they will enjoy in retirement.

Where does this Bill fit into that picture? Defined ambition can, through guarantees, help to provide greater certainty in retirement. I think the second area where these schemes can have merit is in maximising the return on pension contributions for members. The collective nature of defined-ambition schemes creates economies of scale on the costs of running a pension scheme, which should help to improve the overall returns for employees. Furthermore, the open-ended nature of a collective scheme can change the investment strategy of a fund. For an individual scheme, as the employee moves towards retirement, the fund’s objectives move from seeking capital growth towards locking in gains already made, providing greater certainty about the size of the member’s pension pot. An open-ended scheme and particularly a collective scheme should shift the

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investment strategy towards capital growth and away from simply locking in growth—a point to which I shall return in a minute.

The second area where defined ambition will help is through the use of guarantees to deliver more certain outcomes for employees. As I said, one of the merits of DB schemes for employees is that they guarantee an income. Depending on the scheme, people will know after a year’s service that they will have “banked” an 80th or a 60th or a 40th of a year’s salary or the salary on retirement. With a DC scheme, all people know, in effect, is that they have made contributions of X and made net investment gains of Y; and while the pensions statement will project a monthly income in retirement, it will be based on how much more they will contribute, the investment gains between now and retirement and the annuity rates at the point of retirement. The only thing known for certain about that projection is that it will be wrong.

The contrast between DC and DB schemes is stark; the question is whether we can bridge the gap between the certainty of DB and the uncertainty of DC. The Government’s vision of DA or shared-risk schemes is, to quote the Government response to the consultation,

“to secure a guarantee on the income that will be received in retirement, that builds up gradually during the savings period”.

There is a great deal of merit in that. The employee has visibility and certainty of income in retirement. That is one of the great assets of DB schemes. That helps people to see how much they will have in retirement and, crucially, helps them plan for retirement. However, the crucial distinction is that, in defined-ambition schemes, the employer’s contribution is fixed. Therefore, if the income is guaranteed, the cost of that guarantee must be borne by the scheme members.

I would like to understand a bit more what the Financial Secretary expects those guarantees to look like and how he expects them to be financed. What proportion of the pension does he expect to be guaranteed? Presumably, in the same way that insurance companies have to provide solvency reserves for the guarantees that they issue, defined-ambition schemes will need to provide reserves to fund the guarantees.

I think it will be the case that the higher the guaranteed element, the greater the shift in asset allocation away from risk seeking and capital growth towards capital protection—in effect the challenge facing individual DC schemes but on a collective basis. Who will design the rules for determining the reserves to be held against the guarantees? Will it be the Pensions Regulator or the Prudential Regulation Authority? Will it depend on whether the scheme is trust or contract-based?

I believe that these measures create opportunities for a new model of pension scheme. That model will smooth some of the rough edges of the transition from DB to DC schemes. It should help to reduce the risk for employees. However, it is not without its challenges. For it to work effectively, schemes will need to reach a critical mass in terms of membership to enable the economies of scale to work their way through and to ensure that there is a sufficient flow of people coming into and out of the scheme—that there are new members and those new members balance the number of members ceasing to be active members. The formula that drives the payouts from the scheme will need to be carefully thought through to ensure intergenerational fairness, so that younger members are not subsidising pensioners.

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In the Netherlands, schemes have been established on a sectoral basis reflecting the social model there. That helps to deliver the critical mass needed for the schemes to obtain economies of scale and smooth investment returns. How does my right hon. Friend the Minister think schemes in the UK will achieve that scale? Does he envisage that schemes will be built on a sectoral basis, or does he envisage some master scheme being set up that will be open to all businesses?

Steve Webb: I am enjoying my hon. Friend’s characteristically well-informed speech. To reassure him on industry schemes, when we visited the Netherlands to look at how the system is run there, we came across the Dutch tulip growers scheme. I can reassure him that we do not have such narrow definitions in mind.

Mr Hoban: I am not sure that tulips and the Netherlands are necessarily an appropriate model. One of the earliest financial crashes was in the price of tulip bulbs, so it may not be a model to follow. However, the point about sectoral and non-sectoral schemes is important. Other countries have had success where they have had a social model—a relationship between employers and employees—that we do not necessarily see in the UK. There will be questions about how to encourage more employers to come together to create these schemes. Perhaps there is a role for insurers in that regard.

Although these schemes aim to boost returns and offset some of the impact of under-saving, we need to do more to help people save more towards retirement. Auto-enrolment will help to ensure that more people are saving, but as I pointed out earlier, the DWP’s figures estimated that some 11 million people would not save enough to meet the recommended replacement income for retirement. If we look at contribution rates to pension schemes in other countries, we will see that the 8% auto-enrolment rate lags behind the rate in other countries that have established innovative pension schemes. In Australia, the contribution rate to the Super scheme is heading towards 12%, and in the Netherlands—the Minister mentioned the Netherlands, so I feel at liberty to talk about it—the contribution rate to the scheme is over 20%, which is significantly higher. We have some way to go before we match those contribution levels.

I think it would be wrong to contemplate increasing contribution rates before the roll-out of auto-enrolment has been completed, but we should not ignore the fact that people are not saving enough towards their retirement and we need to find ways to help people to build higher contributions. There are ways in which we can do that. We have not done enough to draw on the insights from behavioural economics and initiatives such as Save More Tomorrow, which has been adopted in some parts of the United States, which encourage people to increase their contribution rates when their pay rises, making a commitment today to secure increased contributions in the future. I think we can look at the way in which fiscal incentives encourage those on low incomes to save more towards their retirement, and I certainly think we can support people to make better choices on retirement. That is a significant area that we need to focus on, and it is the last point I want to touch on in my speech.

As I said at the start, we have introduced a series of radical reforms to the pensions system over the past four and a half years. However, to make the most of the

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freedoms that we need, we must make sure people have the necessary support to make the right choices both when they are building up their pension pot and when they choose to use it. That is why I am very supportive of the guidance guarantee. I know the Government are going to introduce amendments to this Bill, either in Committee or on Report, to introduce the guidance guarantee, and it is an important part of the package of legislation, but we must also think about how we can encourage the industry to go further to provide better guidance both before the point of retirement and afterwards. The decisions we make at the point of retirement are ones we would want to come to as individuals to revisit later on.

We need to find a service that will help those who feel they cannot afford independent financial advice without crowding out independent financial advisers, and we need to give people support to think about draw-down, annuities and the other products that are out there, to help them maximise their income over their retirement, and also to think, while they are saving, about what sort of lifestyle they want in retirement. Too often, people do not think about what they aspire to in retirement. They tend to shape their retirement around how much they have saved, rather than thinking before they retire, “This is what I would like to do. These are the holidays I’d like to have. This is the sort of lifestyle I’d like.” We need to give people more support in that regard.

I also believe we should be harnessing technology to draw together details of people’s savings—not just their pensions, but their individual savings accounts and bank savings—to end the complicating fragmentation of data. That should encourage people to look at the totality of their financial assets and use that information to engage with their retirement planning.

Nigel Mills: The one asset my hon. Friend did not mention is the house a person owns, which I suspect people will, as years go on, increasingly have to consider using for their own retirement, rather than passing that on to their children, as perhaps we all hope to do at the moment.

Mr Hoban: My hon. Friend makes an important point and he is right to pick up on that omission. When we think about retirement, we should be thinking not just about pensions, but about a person’s income in retirement. Some of that will take the form of state pension; some will be interest on savings accounts; and some may come through work—depending on what age we retire at, and how we phase in our retirement. Certainly housing is a valuable asset, too, and very good work is being done by a number of organisations to look at how housing can be used, but we are still some way off having something that people will recognise as a good way to use their housing assets. As I say that, I feel a letter coming on from my former colleague Nigel Lawson on this point, but there is more work to be done in respect of how people view housing as an asset and how they can utilise that asset in retirement to supplement their income. We need to build out from the guidance guarantee, and more work will need to be done on that in the coming months.

I want to mention a point that has been raised with me and that I will probably talk about in more detail when the complementary tax Bill to this comes through

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later in the year: we must think about what sort of outcomes we expect people to see in retirement. My right hon. Friend the Minister for Pensions referred to a decade of innovation, but he will recollect that when we introduced reforms to liberalise the open market option, and to make that more of the default, there were some unforeseen challenges from that, and we have seen some of the consequences and the report published by the Financial Services Consumer Panel. I do think there is a responsibility on industry, the Government and the regulator to do some thinking about what good looks like under the new reforms and how we can help shape that post-retirement market. That would form an important part of the work.

I commend the Government on this comprehensive package of pension reforms. They will form a key part of our legacy, and they are an important way of expressing what we have achieved as a Government in setting down long-term foundations to help people to take more responsibility for their savings in retirement, to help them to save more in their retirement and to give them the freedom and choice that they need in their retirement. The Bill is part of that package, and I look forward to seeing how the schemes develop to help to provide people with more certainty in regard to their future pension incomes, when all they have seen up to now is increased uncertainty.

4.50 pm

Shabana Mahmood (Birmingham, Ladywood) (Lab): It is a pleasure to wind up this relatively short but interesting and important debate. Despite points of difference and disagreement, it has provided some thoughtful and wide-ranging speeches from both sides of the House, proving that it is quality, not quantity, that counts. Two excellent examples were provided by my hon. Friend the Member for Aberdeen South (Dame Anne Begg) and my right hon. Friend the Member for Neath (Mr Hain).

My hon. Friend the Member for Aberdeen South made an important point about complexity and expressed her fear that increasing complexity as a result of the Government’s changes to pensions might hamper efforts to get younger people to engage with their pensions. She also rightly highlighted the increased risk of mis-selling that could result from any such complexity. I shall come back to that issue later. She also highlighted the importance of governance in relation to the collective defined-contributions schemes that are being introduced by the Bill. She was right to say that there was no obvious reason to omit those governance arrangements from the Bill and to leave them instead to be dealt with in secondary legislation. It is difficult to understand why the Bill is vague on that point, and I hope that the Financial Secretary to the Treasury will be able to illuminate the House further on that when he responds to the debate.

My right hon. Friend the Member for Neath, who is not in his place at the moment, made a powerful contribution to the debate, in which he set out the challenges posed by a rapidly ageing population. They are one reason why so much attention has been focused on pension arrangements. He also noted the challenges posed by the greater need for adult social care that

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results from a rapidly ageing population, the interplay between those changes, and the increasing burden on the present younger generation and future generations. He talked about our expectation of what those burdens would be like in the coming years. He was right to give us an historical perspective, particularly in relation to mis-selling during the years before 1997.

Pensions are an important issue for people. They worry about their retirement and their personal social care needs, and about whether they will be able to cope with those needs as and when they arise. They also worry about whether they will be able to leave anything behind for their children. As people live longer, it is more important than ever that they should make the best possible choices for themselves. As legislators, politicians need to ensure that the range of options available to people and the breadth of the arrangements they can make for their retirement are fit for purpose, especially as we are all living much longer. That poses great challenges for us all.

In that context, the Bill’s establishment of collective defined-contributions schemes—CDC schemes—is a welcome step in increasing the range of options available to people as they plan for their retirement. We will therefore not oppose the Bill on Second Reading, although there are areas in which we might seek to extend or strengthen it in Committee or on Report.

As I said, we support CDCs in principle. In sharing risk, they have the potential to give people a more adequate and reliable retirement income than individual defined-contributions schemes, because, unlike those schemes, CDCs can pool risk across and between generations. Given the difficulties and anxiety that many people feel about their living standards at the moment, we want to support working people who are struggling to set money aside for the future. We need to ensure that they have access to pension schemes that they can trust to give good value for money and a decent income in retirement.

CDCs are also well supported by the public. Research by the Institute for Public Policy Research carried out at the end of 2013 found that there was strong public support for a collective pension. It was the most popular of the options the IPPR tested and it appealed across those with different income levels, life stages and ages. If CDCs are to be well taken up and succeed, strong governance arrangements clearly need to be in place—that point was made by my hon. Friend the Member for Aberdeen South. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said, the Bill is currently silent on governance arrangements for CDCs. The highest standards of governance are needed for schemes that are even more opaque than defined-contributions schemes because they have to manage pooled assets and conduct smoothing.

The silence in the Bill occurs despite the Government’s consultation “Reshaping workplace pensions for future generations”, which stated:

“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products.”

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Failure to require all schemes to have trustees means that we will potentially have some CDCs run by trustees and others offered by private firms that seek to maximise their short-term returns.

The Minister will know that we have consistently argued that all workplace pension schemes must be run by trustees and have a legal duty to prioritise savers’ interests. Governance arrangements remain an issue for other defined-contributions schemes, which make up the majority of what is available. The Government could have taken more steps in the Bill to strengthen the governance of those schemes. The Government have declined to impose trustee boards, but have instead opted to require independent governance committees. We are concerned that they will be neither independent, nor governing in nature. In any event, IGCs contain serious conflicts of interest, so we will argue in Committee that the Government should instead follow Labour’s lead and require all pension schemes to have trustees and a legal duty to prioritise the interests of savers above all others.

Another issue discussed in the debate, which the Opposition will continue to press the Government on in Committee, is scale. The issue was raised by one Government Member and the Minister did engage with it when the point was made about whether small and medium-sized enterprises might be able to introduce CDCs or whether this would be the preserve of larger employers. He rightly said that it was going to depend primarily on scale and how popular these schemes end up being. The Bill, however, contains no measures that will help promote the scale which most independent observers believe is necessary for CDCs, and workplace pensions in general, to do the best they can for employees. We have long argued that measures to promote scale are vital to ensure the best possible outcomes for savers. So the Government could, for example, require that automatic transfers default into aggregators and the criteria necessary for qualifying as an aggregator should include scale. One or more of those schemes which met the qualifying criteria to be aggregators under our approach may then opt to be a CDC pension scheme.

As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East noted, the House of Commons briefing note on the Bill also says that

“certain conditions, such as large scale and strong governance, appear necessary for—


“to operate successfully.”

Three-quarters of respondents to the consultation prior to the Bill thought that Government intervention would be needed to create the scale necessary for schemes to offer guarantees. We will look in detail at issues around scale and governance when the Bill is considered in Committee.

We will also look at the National Employment Savings Trust, which is a trusted body for providing workplace pension schemes. It could potentially offer retirement income products or CDC and in doing so help constrain the industry and ensure that it provides decent products to all savers. However, to do so most efficiently, it would need to have its restrictions lifted. As was mentioned earlier, the Government said in July 2013 that they would legislate to lift the restrictions as soon as possible, but they have not yet done so. It would be helpful if the

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Minister told us whether that is something that will be taken forward by the Government, and when it will be discussed in Committee.

The second part of the debate dealt with the new arrangements around flexibility. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East stated at the outset, we have supported greater flexibility in relation to pension arrangements, but we have set out three tests for the new flexibility. First, is there robust advice for people who are saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want a secure retirement income? Thirdly, are the Government sure that the changes will not result in extra costs to the state either through social care or by increasing housing benefit bills?

In relation to the first test, the expectation is that the Government will propose an amendment to the draft Bill around the guidance guarantee. As it has not yet been published, it is not clear whether it will be robust enough. It would be helpful if the Minister gave additional information to the House now so that we are not waiting until the Bill reaches Committee before we know what is happening about guidance.

As many Members noted, guidance will have to be well thought through and reflect the practical steps that people take as they move towards retirement. To be effective in practice, guidance will need to include a discussion of the effects of drawdown on the individual’s tax situation. It will also need to explain the consequences of decisions regarding the different forms of saving on the extent to which local authorities can seek to recover sums for long-term care. The Government’s response to the consultation “Freedom and Choice in Pensions” indicates that drawdown is likely to be treated similarly to annuities in that income and not capital is assessed. Again, that is something that we will have to look at and examine further in Committee.

Some specific questions arise as well. For example, if guidance is a single event, how will it assist an individual seeking the necessary later event, perhaps 20 years later, of switching from a drawdown product to an annuity? Draw-down products are likely to be insufficient on their own for savers and individuals will need to insure against longevity risk to ensure that they do not run out of money during their retirement. Will there be a requirement for products to include a regular review of when the optimal moment for switching to an annuity should occur?

We have had a number of debates, both on the Floor of the House and in Committee, around the issue of advice and guidance and the very clear difference that there is between the two. There is a fear among many Members across the House that guidance on pension changes alone might not be enough to help people make the best possible choice. Ultimately, the course that the Government choose will have to be carefully scrutinised and reviewed. As I have said, this matter is of great interest to Members on both sides of the House.

Mr Hoban: Will the hon. Lady make her position clear? Is she saying that what should be offered to every person retiring is regulated advice?

Shabana Mahmood: No, we have not called for regulated advice, but I am sure that the hon. Gentleman will agree that these are big decisions for people. We must ensure

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that what the Government envisage will be up to the job of ensuring that they have all the information they need before then to make the best possible choice. As I have said, we have had a number of debates on this subject and the Government have given us some idea of the guidance they envisage, but I think we will have to return to these issues in Committee to ensure that that guidance is as robust as it can possibly be.

Mr Hoban: I am grateful to the hon. Lady for giving way, as she is being very generous. If she does not want to see regulated advice given, what is she looking for?

Shabana Mahmood: To the extent that we have this debate about advice and guidance, I am sure that the hon. Gentleman will recall that it was the Chancellor who said in his Budget speech that advice would be provided to people about making their decisions. We then moved quickly into the world of guidance and the two are, as I am sure the hon. Gentleman will acknowledge, very different. That is why we are concerned that the guidance on offer will not be quite as good as we might expect if advice were on offer. That is why it will be important that Members on both sides of the House stress test the final package that the Government come up with.

The TUC has rightly questioned whether guidance on its own is sufficient. It states:

“Independent guidance is clearly better than that provided by company sales teams, but half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot… Expecting the market to deliver retirement income solutions that work for the great majority is unrealistic. The annuities market was broken, but what we need is the same careful consideration of policy, consumer preference and evidence that led to pensions auto-enrolment.”

It is clear that a number of very complex factors will play against each other, with some inherent tensions that were noted by Members on both sides of the House in their speeches. It is important that we stress test the measures properly in Committee.

The Bill introduces a number of measures that we support, and as I have highlighted, there are some issues on which we think that the Bill could be strengthened. We look forward to picking up those issues with the Minister in Committee.

5.7 pm

The Financial Secretary to the Treasury (Mr David Gauke): It is a great pleasure to respond to this Second Reading debate. As we have heard, it has perhaps been shorter than it might have been, but none the less I thank all those who have contributed to it from the Back Benches: my hon. Friend the Member for Cities of London and Westminster (Mark Field), the hon. Member for Aberdeen South (Dame Anne Begg), who is the Chair of the Select Committee, my hon. Friend the Member for Amber Valley (Nigel Mills), the right hon. Member for Neath (Mr Hain), my hon. Friend the Member for Birmingham, Yardley (John Hemming) and my hon. Friend the Member for Fareham (Mr Hoban), who takes a very close interest in these matters. By and large it has been a thoughtful and constructive debate and the most heated areas of controversy have been when we have considered the pensions records of previous Governments.

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I reiterate the points made by my hon. Friend the Member for Fareham and my right hon. Friend the Minister for Pensions about this Government’s proud record on pension reform. We have implemented the triple lock, which has meant that pensions are uprated by earnings, prices or 2.5%, whichever is highest. That means that the full rate of the basic state pension is £440 a year higher in 2014-15 than if it had been uprated by earnings since the start of this Parliament. We have introduced auto-enrolment. I acknowledge the point that has been made that the previous Government intended to introduce it in the end, but as my right hon. Friend the Minister for Pensions set out, we as a Government have taken a number of steps to make the policy workable and successful. The number of those who will benefit and who are benefiting from that is considerable. The introduction of the single-tier pension has made our state pension simpler and clearer. The single-tier pension has enabled us to go forward with some of the reforms that we are discussing today which will allow greater pension flexibility.

The debate today and the debate on the Bill has essentially focused on two areas: first, defined ambition in terms of risk sharing, and secondly, pensions flexibility —particularly, in the context of the Bill, on issues related to the guidance guarantee. Let me turn first to the case for defined ambition, which, as we have heard, is to find a middle way—greater flexibility within our pension system, which has traditionally been somewhat binary, with defined-contributions schemes and defined-benefits schemes but nothing really in between. The Bill redefines the framework to recognise explicitly the middle ground and encourage provision of shared-risk pensions where risks are shared more equitably between employers and employees. Let me respond to the various points and questions that have been raised in respect of that area.

My hon. Friend the Member for Fareham asked to what extent and how defined-ambition schemes are guaranteed. The Bill does not prescribe benefit design and that is intentional. Our consultation presented a number of ways in which that could be done and our measure is intended to encourage a variety of designs. So there is no one set answer; indeed, one could argue that that is the point. In response to my hon. Friend’s question about guarantees and the cost to the individual, it is not always the case that the member bears the cost of the guarantee. Some employers may choose to stand behind the promise. Capital requirements and scheme funding requirements already apply to pension vehicles and will continue to apply to schemes called defined ambition in respect of the promises.

A number of contributors to the debate, including the shadow Pensions Minister, asked to what extent there is an indication that there is employer interest in defined ambition. DWP research found that more than a quarter of employers are already interested in offering a pension involving greater risk sharing between members and employers. Over half of employers—52%—said that they would like to set up a scheme where the employer pays fixed contributions and where there is more certainty for the employee, such as DC plus. The response to our “Reshaping workplace pensions for future generations” consultation also demonstrated a strong desire from unions for collective models.

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In terms of that demand, the DWP has had discussions with interested employers, but I am sure the House will understand that employers will want to see the detail and communicate with their work force. We do not want to pre-empt those processes, but we believe that the addition of a defined ambition of risk sharing to our pension framework is advantageous.

On inter-generational risk sharing and whether a risk transfer is desirable, we do not want to disallow all inter-generational risk sharing within schemes offering collective benefits, but we want to ensure that it is open and transparent. That is a lesson that we have learned from the way in which such schemes have operated in other jurisdictions.

On governance of collective defined-ambition schemes, we will use governance powers from the Pensions Act 2014 and make regulations using those powers. On issues around making decisions about retirement income in collectives, we want to create innovation. We do not want to constrain or prevent part of the market, and insurance firms or schemes that are not occupational schemes, from offering such scheme. Of course it would always be a fiduciary making a decision about the retirement income, but the measures in the Bill provide for requirements around the specific features of collectives.

We heard questions about collective investment strategies and the risk of an over-cautious strategy, so it is worth highlighting the example of a New Brunswick scheme that is required to operate with a 97.5% probability that base benefits will not reduce. The scheme has 40% investment in assets and 20% investment in real estate and other assets, so the probability requirement has not led to an over-cautious investment strategy.

The hon. Member for Aberdeen South cited several questions that have been raised by the Law Society of Scotland. Shared-risk schemes will cover existing and new schemes. If a scheme shares longevity risk, it will be a defined-ambition scheme. She asked about the definition of a promise made during the savings period, as well as whether a promise made at

“times before the benefit comes into payment”

relates to when the annuity is set up or the repayment is made. The intention is that a promise made at a time before the benefit comes into payment describes a promise made by a scheme during the savings phase, rather than a separate promise made at retirement. She also asked whether a third-party promise would include an arrangement whereby the promise is made by an insurer, rather than the scheme, and the answer is yes. If she wishes to raise further queries on behalf of the Law Society of Scotland, we will be happy to respond to them.

Let me turn to the freedoms that the Chancellor set out in the Budget, which will be implemented by this Bill and the pensions taxation Bill that I am sure we all look forward to debating in the not-too-distant future. Although Labour Members appeared to reserve their judgment about whether they support the policy, the tone of the contributions of Labour Front and Back Benchers suggested that they were far from enthusiastic about the reforms announced in the Budget, to put it mildly. This was not just the questioning and scrutiny that any Opposition would undertake; it seemed to me that, philosophically, the Labour party was uncomfortable with the reforms.

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The shadow Pensions Minister asked whether flexibility and guidance would address inertia in the annuities market, but prior to the Budget announcements, consumers were not incentivised to shop around for annuities. They will have more options and more reasons to engage with the market as a result of greater flexibility, and access to impartial, good-quality guidance will be key to having better informed and more empowered consumers. They will be equipped to look for products that work for them, and the decumulation market, including the annuities market, will be incentivised to respond to the demands of more empowered consumers and will have the freedom to do so.

It is sometimes said that people simply will not be able to make good choices, but leaving aside concerns that that view is somewhat patronising, I argue that the existing system restricts choice at the point of retirement, and the Government do not believe that that is right. The Government recognise that with more choices at retirement, consumers’ decisions will become more complex, so we have introduced the guidance guarantee to help consumers to understand their options.

The shadow Pensions Minister referred to the apparent contradiction between auto-enrolment, which is predicated on inertia, and the Turner proposals and giving greater choice to savers. It is always right that people save and that we put in place a regime that encourages saving, but when savers reach retirement it is right that they have the opportunity to engage and have a full range of choices available to them. We believe that it is sensible to set out the detailed technical requirements in secondary legislation, which will allow time for consultation and to respond to evolving risks in the market.

The right hon. Member for Neath said that flexibility will result in people spending all their money at once, which is risky, but those people who have worked hard all their lives should be free to decide how to use their savings. At present the system allows those with the smallest and largest pension pots complete flexibility, but restricts those in the middle of the distribution who have worked hard and saved all their lives. The Government do not dictate how people spend their other money, so why should they do so for pension savings? However, we recognise that people do need support in making these decisions and that is why we are introducing the guidance guarantee.

Mr Gregory Campbell (East Londonderry) (DUP): Many of the large number of people in the middle, as the Minister puts it, will be looking forward to retiring in 2015 and 2016. How clear is he that they understand the implications that will face them in six or seven months’ time that did not face previous generations?

Mr Gauke: That is why we are bringing in the guidance guarantee. That is why we want to ensure that people can make informed decisions. That is what drives everything we are doing here and that will be an important part of the Bill. My hon. Friend the Member for Cities of London and Westminster asked whether the guidance would undermine or replace financial advice. The Government intend that the guidance will be a critical first step for consumers at the point of retirement. It will be designed to help consumers navigate the options available and it is not intended to replicate the services of professional financial advisers. The Government expect

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that many consumers will go on to seek further advice and will ensure that the guidance equips consumers to choose the advisory service that suits their needs.

The guidance service will not stray into areas such as specific product or provider recommendations, which would be better handled by an authorised independent financial adviser. Guidance will signpost consumers to other sources of guidance and advice as appropriate, including professional financial advice. The Government expect that many consumers will go on to seek further advice and will ensure that the guidance equips consumers to choose the advisory service that suits their needs.

The Government believe that it is right that those firms that are likely to benefit from better informed consumers who are more confident about engaging with the financial services industry should help to fund the service. The FCA has proposed that advisers should be included in the cohort of firms paying the guidance levy, as they stand to gain from the better informed consumers who understand how regulated advice can help and protect them in their retirement needs. It is also worth pointing out that the FCA has committed to a proportionate approach. The levy will reflect the size of the firm and the nature and extent of its business.

My hon. Friend the Member for Cities of London and Westminster asked about the Australians’ system and to what extent they were looking to reverse their move to end the obligation to annuitise. The interim report from the Murray review suggests that a variety of different policy options should be considered to improve the Australian retirement income system. These options include maintaining the current system where individuals have access to their pension savings as they wish but with improved provision of financial advice and removal of impediments to product development. As for whether annuities are dead under the new regime, we do not believe so. The Government are clear that annuities will remain the right choice for many at some point during their retirement and believe that many people will still value the security of an annuity.

The right hon. Member for Neath asked how the FCA will protect consumers through regulation. The FCA has a statutory objective to protect consumers. It requires pension companies to comply with its rules and principles, including the principle of treating customers fairly. In creating the FCA, the Government gave it new powers in relation to financial products that it can use to restrict features or products or to prescribe how products must be sold.

I was asked whether the guidance will ensure that people understand the tax implications of flexibility. Guidance will cover the tax implications of accessing pensions in different ways in retirement. This is covered in the standards for guidance on which the FCA is currently consulting. As for whether the guidance will be delivered by qualified people, the FCA is currently consulting on the standards that providers of guidance will need to meet, one of which is that they are suitably trained and qualified.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) and the right hon. Member for Neath asked about flexibility increasing welfare and social care spending. We do not expect the impact to be significant in the context of the steps that this Government have taken to

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improve the sustainability of pensions spending. For example, regarding the changes to the state pension age and reforms to public service pensions, the estimated net impact of the Government’s key pension policy is a saving of about £17 billion in 2030 in today’s terms.

My hon. Friend the Member for Cities of London and Westminster asked me to explain the principles behind the Government’s pension reforms. We are putting the interests of savers first, but we also believe that people should be free to make their own choice about how to use their savings. Individuals who have worked hard and saved responsibly throughout their adult lives should be trusted to make their own decisions with their pension savings. The reforms announced in the Budget will deliver this, and it is an important part of the Bill. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Pension Schemes Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Pension Schemes Bill:


(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 6 November 2014.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Dr Thérèse Coffey.)

Question agreed to.

Pension Schemes Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise the payment out of money provided by Parliament of:

(1) any expenditure incurred under or by virtue of the Act by a Minister of the Crown;


(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Dr Thérèse Coffey.)

Question agreed to.

2 Sep 2014 : Column 249

Pension Schemes Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise:

(1) the imposition of charges for the purpose of meeting expenses incurred by–

(a) persons involved in giving pensions guidance, and

(b) persons having oversight of the giving of pensions guidance; and

(2) the payment of sums into the Consolidated Fund.—(Dr Thérèse Coffey.)

Question agreed to.

Business without Debate

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),


That the draft Copyright and Rights in Performances (Extended Collective Licensing) Regulations 2014, which were laid before this House on 23 June, be approved.—(Dr Thérèse Coffey.)

Question agreed to.


Traffic calming measures on Broadway in Morecambe

5.29 pm

David Morris (Morecambe and Lunesdale) (Con): I am pleased to be able to present this petition on behalf of more than 100 people who live in Bare in Morecambe. The campaign has been spearheaded by Judith Fletcher,

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who has organised all of her neighbours to sign the petition. I have had the pleasure of meeting a large number of them to discuss the traffic problems in the area.

The petitioners started their campaign in the light of a recent housing development on the site of the former Broadway hotel in Morecambe. The development means that traffic is predicted to rise in the area and will create strain on an already busy junction on Marine Road East and Broadway. The petitioners are concerned for the safety of pedestrians and motorists using this area and would like to see a roundabout at the junction and more pedestrian crossings to allow residents to cross safely. At a meeting last week, the petitioners told me of several near misses in the area and I do not think that we should wait for a casualty before enacting these measures.

I therefore urge the House to support my call on Lancashire county council to act and introduce some traffic calming measures in this area.

Following is the full text of the petition:

[The Petition of members of the community in Morecambe,

Declares that the Petitioners believe that there should be traffic calming measures introduced at the junction between Broadway and Marine Road East in Morecambe as the junction is dangerous and further that the Petitioners believe that this should be in the form of a roundabout.

The Petitioners therefore request that the House of Commons urges the Government to encourage Lancashire County Council to take steps to support the residents in Morecambe and to ensure traffic calming measures are introduced at the junction between Broadway and Marine Road East.

And the Petitioners remain, etc.]


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Coventry City Football Club

Motion made, and Question proposed, That this House do now adjourn.—(Dr Thérèse Coffey.)

5.30 pm

Mr Jim Cunningham (Coventry South) (Lab): May I first take the opportunity to thank Mr Speaker for granting me this debate? I also thank the hon. Member for Folkestone and Hythe (Damian Collins), who has been very helpful over a long period and has made some very interesting proposals to reform the Football League. In fact, he has proposed a Bill and I thank him again for allowing me to put my name on it. I also thank my right hon. Friend the Member for Coventry North East (Mr Ainsworth), who, like the hon. Member for Folkestone and Hythe, has been pushing for some changes to the practices of the Football League, particularly in relation to Coventry City football club. Both of them deserve a little recognition for the work they have done in this area.

My aim in this debate is to raise two key points. The first is the latest situation with Coventry City football club, and the second is what the story has shown us about the future of football governance and the need for urgent reform.

Two weeks ago saw a major development in the saga of Coventry City football club, with the announcement that the club is finally to return to Coventry after a year at Northampton. It follows a decision by the Football League that the club should pay Arena Coventry Limited, the stadium owners, just over £470,000. The club and ACL have agreed a two-year deal, which can be extended until 2018. Coventry will play their first game back at the Ricoh this week and I offer them my best wishes. Obviously, we want Coventry to win, to say the least.

We are all very pleased that the club is coming home. It is good news and nobody wants to be a killjoy. The supporters in the city are obviously very happy about the situation. I thank all those who played a part in making the breakthrough happen. However, in my opinion there is a distinct danger that, because Coventry City have finally returned to the Ricoh, it will be thought that it is a case of problem solved, but that is not true at all: it is only a short-term solution. The past few years have shone a harsh light on the realities of football in this country and exposed many problems. Although the most immediate problem has been resolved, we must not disregard the deeper, underlying problems that have been exposed.

Let us be clear: Coventry City football club should never have been moved to Northampton in the first place. That the Football League allowed it to happen was disgraceful and demonstrates that it is simply not fit for purpose.

The first criticism is that Sisu Capital Ltd and, subsequently, Otium Entertainment Group have prompted doubts that they are fit to own or run a football club. They have clearly not acted in the best interests of the club and have had a total disregard for the supporters, the wider supply chain in Coventry and, of course, the people of Coventry itself. In my opinion, they wanted to bankrupt the Ricoh from the start, and even went to the lengths of seeking judicial review when they were unsuccessful and the Ricoh had survived as a result. They could not care less about the club itself, and see it purely as some sort of cash cow. How can we feel

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confident that the same thing will not happen again in two years’ time, or even sooner, if the agreement breaks down for some reason? Therefore, although I am happy to see the club return, let us remember that we are not seeing a demonstration of good will and responsibility.

My second main criticism concerns the role of the Football League in this saga. I believe that it has simply not shown leadership and has not proved an effective governing body. It has finally taken notice and told the club to pay back some—not all, of course—of the money owed. Where was the Football League a year ago, when negotiations were at a standstill? Where was it when Sisu stopped paying rent? Where was it when Sisu called for judicial review, saying the council had acted unlawfully by keeping the Ricoh afloat? It was only in June that the judge threw the case out, and Sisu said that the ruling “removed any prospect” of its long-term return to the stadium.

The Football League has been conspicuous by its absence throughout. It can take little credit for intervening at this late stage. Its chief executive, Shaun Harvey, has made an incredible statement:

“When The Football League Board gave its consent to Coventry City playing its matches in Northampton, it did so with this outcome in mind.”

He went on:

“While we understand that the Board’s decision led to a significant amount of dissatisfaction amongst Coventry supporters, we would not be where we are today without it. On this basis alone, this very difficult decision has now been justified.”

I find that astonishing. How can the move to Northampton have been the reason for the return to Coventry? It is as though he is claiming that the Football League had some sort of master plan all along and knew from the start that this would happen, which I find very hard to believe. Quite simply, the Football League has not shown any leadership on this issue and has waited an unacceptably long time before intervening. This situation could have been dealt with years ago before it ever reached such a conflict.

Several problems therefore need to be addressed. The Select Committee on Culture, Media and Sport published a report back in 2011 that outlined some of the reforms that are needed. I will not go into them in detail, as we have raised them on many occasions, but I want to give an idea of the sort of reforms that I believe are needed to protect clubs such as Coventry in the future.

First, we need reform of the Football Association, the leagues and their structures. For example, we do not believe that the current board membership is conducive to a democratic and well-functioning system. Secondly, we need an independent regulatory body with a licensing system that will ensure clubs live within their means and protect their long-term futures, avoiding short-termism and speculative spending. Supporters Direct have been making strong proposals in this area, and they are well worth considering.

Thirdly, we need to abolish the football creditors rule. We have already discussed it at length in the House. It is indefensible: if a club goes bust through irresponsibility, only the interests of players and other clubs are protected, not those of local businesses or the taxman. This is outrageous, and it encourages recklessness. Fourthly, we need to make drastic changes regarding club ownership. It is almost comical how weak the fit and proper person test is. We need a far higher and more consistent bar.

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Fifthly, I am very keen to make it easier for supporters groups to establish trusts and to encourage supporter ownership. I am open to considering incentives for supporters groups to run a club and to reinvest profits back into the club. I would mention Supporters Direct’s call for a community-owned sports club scheme, creating a special status and incentives for clubs owned by their fans. The proposal is very much worth the Minister’s attention. Those are just a few of the reforms that might help to prevent what has happened in Coventry from happening again, and that might help to re-establish the central importance of supporters in football.

We cannot keep seeing such disputes and disasters again and again. Coventry is not an isolated case. We could discuss Brighton, Wimbledon or Portsmouth, to name a few. Owners are changing the identities of clubs such as Cardiff City and Hull City on a personal whim. Nearly 100 times, clubs have collapsed because of overspending and bad management. The Football League is not up to the tasks of governing, ensuring that there is proper management and ensuring the future of clubs.

What action might the Government consider taking? The Select Committee report was clear that the Football Association was in need of urgent reform. The Committee urged the industry to take the opportunity to reform itself and said that, if it did not, there should be legislation. The football authorities made proposals for reform, but they simply did not address the key problems. The then Minister for Sport, the right hon. Member for Faversham and Mid Kent (Sir Hugh Robertson), wrote to the Committee agreeing with its recommendations and describing them as “much needed”. He continued:

“I have already been given drafting authority by the Parliamentary Counsel, and my officials have started working up a draft Bill and supporting documentation, should football fail to deliver. This Bill will reflect the conclusions of your report.”

I therefore want to ask the Minister at what point the Government changed their mind. Why has there been such a U-turn? There was hope that the Government might take on board the reforms that were suggested by the Select Committee, but that hope has dwindled. Finally, I ask the Minister whether there is any hope for legislation in this Parliament or in the future.

5.41 pm

Damian Collins (Folkestone and Hythe) (Con): I congratulate the hon. Member for Coventry South (Mr Cunningham) on securing this debate. I thank him for giving me notice of it and asking whether I would like to participate, which I am pleased to do. All the Coventry MPs have been fantastic local champions of their football club in its plight. My hon. Friend the Member for Nuneaton (Mr Jones), who is a Coventry fan, is in his place and has also taken a strong interest in the matter. I will not seek to add anything to their local knowledge and expertise but will speak of my grave concerns about the governance of football in this country.

Coventry City is one of the worst examples of poor governance in football. It is right that the House should look at what has happened to Coventry City and resolve that it should never be allowed to happen again to Coventry or to any other football club. Very strong lessons have been learned. The hon. Member for Coventry South was absolutely right when he said that there is currently nothing to prevent what Coventry has been through from happening again either to that club or any other club.

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The Culture, Media and Sport Committee looked at the ownership model under Sisu in its inquiry three years ago, when I was a Committee member. I was shocked at the time. We considered the case of Leeds United. I remember asking the chief executive of Leeds United whether he knew who owned Leeds United and he said he did not. He is now the chief executive of the Football League. The Football League did not require the public disclosure of the ultimate beneficial owners of a football club at that time and it does not do so now. It requires private disclosure, but not public disclosure. The Football League admitted during that inquiry that it has no resources to investigate properly who is the ultimate owner of a club. It largely has to take it on face value that the owner is who the club says it is.

There are many good reasons why we might want to know who owns a football club. We might want to know what other interests they have in the game or what other business interests they have in this country or around the world that might prejudice their ownership of the club. We have seen examples of very poor ownership at other clubs, including in the west midlands. In particular, the chief executive of Birmingham City was found guilty of money laundering in Hong Kong. He had to withdraw from running the club, but his son is still able to. There is no restriction on that. I know that a lot of Leeds fans are pleased to see anyone inject money back into their club, but should someone with fraud convictions in another country be allowed to take over the club? The Football League seemingly has no powers to intervene or else has a grave reluctance to do so.

The first lesson is that opaque ownership structures such as the Sisu model, where the investors sit behind a public face and no one knows who they are or what their real motivation or interest is, should never be allowed in British football. Fans should always have the right to know who owns their club, what their other interests are and what financial stake they have in the club and the facilities that the club shares. I do not think there has ever been an example of a club with that sort of opaque ownership model that has done well. The hon. Gentleman said he was concerned that the owners sought to strip the assets of the club and run it into the ground. Well, we may not know their motivation, but that is what happened and that is what it looks like. We are therefore right to be fearful and concerned about those ownership models.

The hon. Gentleman also touched on the fit and proper person test, which must be applied much more rigorously. He mentioned my private Member’s Bill in which I proposed giving the FA discretionary powers to oversee the regulation of that test. I think the FA should have subjective power to intervene and say, “We don’t believe that the owners of this club are upholding or intend to uphold the letter and spirit of the rules of the game.” I do not believe that would create a separate model just for football; in many ways it would follow the Broadcasting Act 1990, and there is an existing power for Ofcom regarding broadcasters in this country. Ofcom has a subjective power to interpret that Act and say whether it believes that an organisation holding a UK broadcasting licence is fit and proper to hold that licence and likely to live within the spirit and letter of the broadcasting code. I do not see why the Football Association could not be given the same power so that it could intervene when it feared that someone about to

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acquire a club might not be a fit and proper person or, as in the case of Sisu and Coventry, where a club was being run so badly that it was against the interests of the game for owners to be allowed to continue to do so.

I completely agree with the hon. Gentleman that the way the Football League allowed Coventry City to be moved to Northampton was against the interests of the club and its fans. We must consider why that decision was made so easily, and why there was no intervention sooner.

The hon. Gentleman rightly touched on the football creditors rule, which I have long campaigned against. The Select Committee recommended its abolition, and Ministers have stood at the Dispatch Box in this Chamber and Westminster Hall and said that it has had its day and should go. During the Committee’s inquiry, the then chairman of the Football League said that there was no moral justification for the creditors rule, and the Coventry case is a good example of the problems it creates. The rule means that as long as football clubs pay their football debts in full when they go into administration, they can get away with paying as little as 1p in the pound or even less to other creditors, and local businesses lose out. Those local businesses will get nothing whereas a football club that is owed transfer fees, or a player, will see every penny they are owed. There can be no moral justification for that. Everyone should be in the same boat when a club gets into difficulty.

The Coventry case is a good example of that, and the hon. Gentleman was right to ask, “What is to say that Coventry won’t be in this position again in two years’ time?” The club could get into financial difficulty, turn to the stadium and say, “We owe you lots of money but we’re not going to pay you”. It could go into administration under the rules of the Football League and get away with paying virtually nothing back to the ground and other debtors they may have in the city. As long as it meets its football debts it can just carry on, and nothing can stop that happening. That is morally wrong and should not be allowed. The local community and businesses that support their club deserve decent recompense in such situations, as that would stop irresponsible behaviour.

Getting rid of the creditors rule will create a more responsible attitude between clubs. If a clubs gets into a position where another club owes it money, it will think about whether that club can afford to pay it back. It may want more disclosure about the finances of that club before entering into a financial relationship that might put it at risk, just as other businesses would do when trading with each other. In getting rid of the creditors rule, we are not looking to impose new draconian laws that deal with football club insolvency; we wish to abolish a loophole that football exploits for its own interests—I do not believe it is in the long-term financial interest of the game for clubs to be allowed to do that. Getting rid of the rule would help the Coventry case and be good for football in the long term.

Other hon. Members wish to speak in the debate, so I will draw my remarks to a close. Local Coventry newspapers have done an excellent job in promoting this case, and I have been happy to talk to them over the past couple of years. After a recent interview with the Coventry Telegraph, the owners of Coventry City said that I was wrong in my assertions and that they would be happy to discuss

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them with me, but I have received no direct offer from the club for that discussion. I would be happy to discuss the issue, however, once they conduct their affairs not behind closed doors but in public. I would welcome and invite Coventry MPs to join me at that meeting, and the

Coventry Telegraph

and fans’ groups and anyone else who wants to come along. Let us have that discussion in the open. If the club thinks we are wrong in our assertions about the way Coventry City has been run into the ground, let us have that meeting in public and discuss the matter in detail. Under Sisu’s management Coventry City football club has been a disgrace, and that must never be allowed to happen again.

5.49 pm

Mr Bob Ainsworth (Coventry North East) (Lab): I thank my hon. Friend the Member for Coventry South (Mr Cunningham) for securing this debate. I think that he and I would be agreeable to the kind of proposal that the hon. Member for Folkestone and Hythe (Damian Collins) made: to use him as part of a cross-party assault on what has gone on in Coventry, which is an indication of the wider and very dangerous disease that exists within our national game.

It is good news, of course, that the Sky Blues are playing in Coventry again. It would be amusing if it was not so offensive to see the Football League clamouring to take some credit for that decision. It has shamelessly sought to do so, but it deserves no credit whatsoever for the fact that Coventry City are coming back to play in the city of Coventry. The people who deserve the credit are many, but the Football League is not among them, I am afraid. The fans have to be congratulated, having organised a pretty effective boycott of the alternative home venue. They have attended away matches, but starved the club of attendance and support at Northampton, and they have done so in a fairly effective way. They must be congratulated for organising that boycott. Many different organisations, the Sky Blue Trust among them, have come together to help the boycott, but the fans in general deserve our congratulations on the campaign they have kept up most effectively.

The people of Coventry in general deserve congratulations and credit for the fact that the football club is coming back to the city, because they have never, with very few exceptions, been conned by the spin and the lies put out by the football club’s owners, Sisu Capital, about what it has been doing and why it has been doing it. The people of Coventry have seen through this pretty clearly, and it has been impossible, despite strenuous efforts and all kinds of expertise being employed, for the football club’s owners to get a grip on public opinion locally. It has singularly failed in that regard. In itself, that is indicative of the kind of people they are and the problems they bring on themselves.

Generally speaking, football clubs are fairly well-supported organisations, whereas local authorities and councils are not usually that well thought of, but I have to say that the council has not come under any real pressure as a result of this dispute, because the people of Coventry have seen through the nonsense and the spin they have been subjected to.

Mr Jim Cunningham: As the House and most politicians will appreciate, this shows the level of support that the people of Coventry, particularly the fans, gave. Tell me

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where it is possible to get 8,000 people demonstrating in a city on such an issue. It is utterly amazing to see 8,000 fans demonstrating. Not only that; there were thousands of them doing it week after week. I therefore agree with my right hon. Friend that if anybody pushed for this, it was the fans and the people of Coventry. We agree 100% on that.

Mr Ainsworth: I think that they have been the main agents of this partial victory.

Other people who deserve congratulations include the Higgs Charity, which has an interest in the stadium and has been steadfast in the face of intimidation and attempts to distress and bully it. I have got evidence that the Football League effectively joined in that bullying. This local children’s charity has stood fast and refused to get out of the way of Ms Joy Seppala’s ambition to get the Ricoh Arena on the cheap. That was its only crime—it stood in the way of that ambition to gain control of the stadium on the cheap, for next to nothing. We have seen a well-funded Cayman Islands hedge fund seek to take on, intimidate and distress both the trustees and a well-thought-of local children’s charity to achieve its ends, and it has failed to do so. All strength to their elbow for the tenacity shown in resisting that pressure!

Coventry city council, too, should be congratulated. Labour and Conservative councillors have stood together, and I have been able to detect no politicking. Nobody has been point scoring. The entire council—the Labour majority and the Conservative minority—has stood shoulder to shoulder to resist this attempt to gain control of the city’s asset provided for by the taxpayer at great expense. Officers of the council, some of whom have been traduced by this appalling organisation, were congratulated on their work by the High Court judges in their judgments in complete condemnation of what the football club had done. The councillors have done a tremendous job and the council deserves to be congratulated.

Local journalists should be congratulated, too. The hon. Member for Folkestone and Hythe (Damian Collins) talked about the Coventry Telegraph. It has a first-class local journalist, Simon Gilbert, who has brought straight, unbiased reporting to this issue, which has done great credit to him personally, to his newspaper and to journalism in general. He should be congratulated on his in-depth reporting over a long period.

Damian Collins: I, too, would like to pay tribute to Simon Gilbert’s work on this story. Does the right hon. Gentleman agree that because of how insolvency law works with football clubs, in such a case, where there is a financial dispute between a club and a non-football organisation, all the power lies with the football club, which can threaten administration, knowing that the other body is likely to get virtually none of its money back?

Mr Ainsworth: I was coming on to that. The hon. Gentleman clearly has more expertise on football governance than I have; I come at this issue from a Coventry point of view. The hon. Gentleman is absolutely right. The football club creditors rule cannot be justified in moral terms; it does not apply in any other area of business, where following administration, creditors get treated in a proper fashion—but not in football. People are there to be ripped off by a system that was set up to protect the game. It really needs to be looked at further.

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Some credit is due, too, to Mr David Conn of The Guardian, who fearlessly reported what was going on in Coventry and got threatened with legal action for his troubles. He was totally and fully vindicated in the subsequent High Court judgment, which made exactly the same claims as he had made in his reporting—that the fans and the Sky Blue Trust had been threatened with legal action by the club’s owners simply for providing a link to The Guardian article. That shows the kind of people we have had to deal with—people who have threatened their own fans with legal action for providing a link to a national newspaper.

One of my worries is that David Conn has been the only national journalist to look at this issue and to seek to expose what is an absolute scandal. In 2014, an offshore hedge fund has sought to attack the taxpayers of Coventry and gain control of an asset, attacking a local children’s charity in the process. So where were the rest of the media? Why have they not been as probing and as fearless as Mr Conn? We have had good local newspaper reporting, as the hon. Member for Folkestone and Hythe said, but we could have done with more from the national media to sort the problem out. What has happened in Coventry is indicative of a malaise in the game, as has been said repeatedly.

We must congratulate the two High Court judges, who made devastating comments about the club’s owners, Sisu, in their judgments. Coventry City are now playing back in Coventry. Ms Joy Seppala, the chief executive officer, said that she would never return to the Ricoh arena unless she owned it lock, stock and barrel. Well, she is back and she does not. She said she does not negotiate but tells people what she needs. As soon as the second High Court judgment was delivered, her right-hand man, Mr Fisher, was saying, “Let’s negotiate.” Therefore, there have been some U-turns and progress, but it has been off the back off some stern British justice that has seen through what has been going on.

Therefore, those are the people who deserve the credit for Coventry City coming back. I congratulate them. It is a good day. However, I want to give a warning, as my hon. Friend the Member for Coventry South did, against thinking that that is the end of it and this is victory. I do not think that it is.

Sadly for the people of Coventry—I am not just talking about the fans; I represent not the fans, but a third of the city; my hon. Friend represents another third and the hon. Member for Nuneaton (Mr Jones), who is sitting opposite, represents an adjacent constituency —the Ricoh Arena will never be able to reach its full potential, which is massive. It is on the Coventry to Nuneaton railway line. It is on the motorway network. It is a fantastic arena in the poorest part of the city capable of huge regeneration. That is the only thing that justified the taxpayer investment in that facility in the first place. However, it will never be able to reach its full potential until there are football club owners or partners in the stadium who are interested in creating value.

That is the thing that some people have not been able to understand. The owners of Coventry City football club have not been interested in creating value. They have destroyed the football club not through incompetence but through their deliberate actions. Their interest has been in destroying value to get their hands on the asset at a knockdown price. That is the problem, which is still

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there, because those owners are still there. I do not believe that they have changed and will now become partners in the local economy, working with the city council and other partners to create a good sporting culture and economic regeneration in my constituency. I do not believe they are that kind of people.

That brings me to the points that the hon. Member for Folkestone and Hythe made so well. What is it that brings that kind of owner to our national game? I have not been a football fan for many years. I used to be when I was younger but the money interest put me off hugely. Mostly these owners are flamboyant, rather extraordinary people—we see them at other clubs—with rather dodgy backgrounds. There are many of them. Up and down the country, there are many examples of the kind of owner who has been attracted to the game. The Coventry City owners are different. This is a hard and ruthless hedge fund operation prepared to destroy a children’s charity to make money. Something wrong in our national game attracts that kind of person. I think that it is the football creditors rule and the total lack of governance. I do not believe that the Football League genuinely acts as a governing body looking after the interests of the game, the fans and the British people at large. It is effectively a self-interested club for owners. The new chief executive officer of the Football League put his own club, Leeds United, into administration twice while he was there.

This is a malaise, and it is important. I am not making a party political point because we were in government for 13 years and we did nothing about this. The present Administration have been in power for almost an entire term and they have not done anything either, and it is not easy because football is glamorous, powerful and moneyed and it is hard for politicians to say, “Wait a minute, there’s something deeply wrong here,” but if we do not do so, then we saw what happened in banking. I am not suggesting that what will happen in football will be as economically disastrous as what happened within British banking, but in some respects it is more important, because this is not just economically important; it is culturally important as well.

After the World cup we are seeing the Americans getting into football in a bigger way than ever before, and there is a huge upsurge in football interest in China, too. Our national game has huge potential for this country if it is properly run and therefore can be properly exploited to project our national culture, our national identity and our national interests, but it cannot do that if it is not properly governed, and Government really must grapple with this.

6.6 pm

The Parliamentary Under-Secretary of State for Culture, Media and Sport (Mrs Helen Grant): I thank the hon. Member for Coventry South (Mr Cunningham) for securing this important debate, and I thank him and others for the valuable contributions they have made this afternoon.

As I have said before, the preservation of football clubs up and down the country remains a matter of great importance to me and to the Government. We

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debated this issue last October in my first few weeks—days, even—as the new Minister for sport. Since then, the Football League and I have maintained a close interest in the resolution of this unfortunate dispute involving Coventry City football club and the return of Coventry to the city. Football clubs remain a very valuable part of local communities, and every care should be taken by all owners and stakeholders to protect their long-term financial futures.

It has therefore been very sad to see Coventry City football club beset by serious financial trouble in recent years. I know the Football League appreciates that its initial decision to allow Coventry City to temporarily relocate to Northampton was not a popular one with Coventry supporters. Although understandably difficult for supporters to accept, the temporary tenancy at Northampton Town’s Sixfields stadium was deemed to be necessary by the Football League to ensure that Coventry could continue to take its rightful place in the football league in the short term.

Allowing the club to play in Northampton has at least ensured that Coventry was capable of playing its home matches in the league while all parties maintained their efforts to resolve the ongoing disputes. The recent case of Rotherham United demonstrates that the continuation of a club’s presence in the football league at another stadium can be a positive step towards a long-term solution. I am therefore delighted to hear today that the club and stadium owners have agreed terms to get Coventry back playing within the city this season—imminently, in fact—at its home ground.

I pay tribute to the hon. Member for Coventry South, the right hon. Member for Coventry North East (Mr Ainsworth), my right hon. and learned Friend the Member for Kenilworth and Southam (Jeremy Wright), my hon. Friends the Members for Nuneaton (Mr Jones) and for Folkestone and Hythe (Damian Collins) and others who have worked tirelessly with loyal supporters. I shall think of them all when Coventry plays Gillingham at the Ricoh Arena this weekend: it will be a special evening indeed.

There is a great deal of focus on the amount of money in the top tiers of football, but I recognise that many clubs competing in the lower divisions operate on a very different scale. Coventry’s problems are rooted in several years of financial issues that unfortunately are ongoing.

The evidence given to the Culture, Media and Sport Committee by the Football League’s chairman acknowledged that debt is the

“single biggest problem for football.”

I share his belief that if football clubs ensure that their debt is genuinely sustainable, transparency of ownership, supporter buy-in and co-operative ownership will be much easier to deliver.

I share the frustrations of supporters and hon. Members at the football authorities’ slow progress in implementing some of the long promised and much needed reforms to the game, a key part of which is improved supporter engagement at club level.

The football authorities must find ways to improve supporter engagement beyond the customer relationship and recognise supporters as an integral part of clubs’ success. That is why my Department is working very hard on Supporters Direct’s proposal for an expert

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group on the barriers to supporter ownership in football. We hope to launch the group in the near future. It will include representatives from across football, relevant professional experts and representatives from a variety of supporter-owned clubs and supporters trusts. I am pleased that the proposal retains support across football’s authorities, demonstrating a critical continuing commitment to supporter engagement within the sport.

Supporter representatives on boards and better engagement could and will in many cases lead to fans being better informed about a club’s activities, such as its financial standing and the identity of its owners, and to their being genuinely consulted, as they should be, as part of the club’s decision-making process on matters of real importance, whether financial or cultural. I look forward to the expert group’s recommendations on how more help can be offered to supporters now and in the future.

Having said all that, I must acknowledge the progress made by the football authorities in introducing new rules in recent years, such as a strengthening of the owners and directors test, which has been mentioned and about which I shall say a little more in a moment, as well as a new means and abilities test that requires proof of funds from prospective new owners, an early warning system with Her Majesty’s Revenue and Customs on tax returns, transfer embargoes, salary caps and the adoption of financial fair play principles across the 92 professional clubs.

Club insolvency has been declining, but it has remained a common problem in recent years. At the same time, TV revenues and match attendances are as high as ever. The implementation of financial fair play principles should lead to responsible spending by clubs and, as a result, I hope, fewer incidents of club insolvency at the top of the pyramid. The strong intention is that the financial fair play regulations will remove the need for football to rely so heavily on the football creditors rule in club insolvencies.

The football creditors rule has been mentioned by all hon. Members who have spoken.

Governance has also been mentioned by many hon. Members. The hon. Member for Coventry South queried whether the Government were doing a U-turn on their governance plans and I assure him that we are certainly not doing that. Governance is essential; it is the foundation of everything and of all good structures. Without decent governance a structure has no chance of surviving; there will be no chance of there being the strength to support a massive structure. It is very important to me personally. I want the football authorities to do what they need to do. A start has been made: there are smaller boards; there is a new licensing system to deal with financial matters; and various changes have been made on supporter engagement, with the introduction of supporter liaison officers. But I want much, much more to be done. I have regular meetings with the football authorities, and I will continue to raise these issues as a matter of urgency, saying that we need to see progress. If progress is not made, we of course have the option of legislation—we always have that option.

Mr Jim Cunningham: I do not doubt the sincerity of what the Minister has said, but this has been going on for a number of years. Has she set a deadline? A number

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of organisations are looking at football in general terms, but does she have a deadline when she will say, “Look, we have not seen enough progress, so we are going to do something about it”? Across the House, we all think that something has to happen. This is not a reflection on the Minister, because she has not been in her post for very long, but we are reaching the point where a deadline needs to be set, in order to get some real action from the Football League.

Mrs Grant: I have robust and candid conversations with the football authorities. I agree that we need to see some more progress. Some has been made, but we need more. I will be meeting them on Friday, and I will certainly relay to them what has come out of this debate and the crucial need for us to start to see further progress on a number of matters.

The issue of ownership was raised by all hon. Members in the debate and, in particular, by my hon. Friend the Member for Folkestone and Hythe. Again, I reassure him that the football authorities really do take club ownership very seriously, which is why the owners and directors test applies to all clubs in the Premier League, Football League and Football Conference, and in the three leagues below.

Damian Collins: Will the Minister give way?

Mrs Grant: I will, but if my hon. Friend will just let me finish my point, he may find that it deals with the issue he is raising. Given what he and others have said today, and what I have heard—I have been listening very carefully indeed—I am happy to discuss with the authorities on Friday, and at subsequent meetings, whether they could make any improvements to the owners and directors test, or any other test that might help to deal with this situation.

Damian Collins: I am glad to note what my hon. Friend has just said. My concern, and that of other Members, is that the test, as it stands, is totally inadequate. If anything, the recent case at Leeds United demonstrates that the Football League does not have the legal power to apply the test as it might wish. If it sees someone from overseas coming in, as in the case of Mr Cellino, with a fraud conviction which happens to be spent, the Football League is subject to a legal challenge to try to prevent that person from taking over the club. I wonder whether there has to be some sort of statutory underpinning of the fit and proper person test to allow the Football Association or the Football League to enforce it properly.

Mrs Grant: I agree that certain improvements—further improvements—may need to be made to the test. We are in a better place than we were before it was strengthened, but I still have some concerns. As I said to my hon. Friend, I am happy to raise all these issues with the football authorities to see what further improvements can be made. The football creditors rule was raised again by most hon. Members, and I have touched on that. I have to say at this stage that there is no plan to legislate on that rule. The industry is trying to make changes from within. The proper implementation of the financial fair play rules should hopefully make dependency on the football creditors rule much less likely and reduce it considerably. Those were, I think, the main issues that were raised by hon. Members.

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I just want to pick up one point in relation to the Football League, which has come in for a bit of criticism today. I recall Members talking about lack of leadership and the fact that it could have done more. Having looked at this situation carefully and worked with the League closely since being appointed the Minister for Sport, I think it has had to make a difficult decision in difficult circumstances. It came up with a sustainable solution, with the fans, MPs and journalists, which has allowed this great club still to be in the League. It will be back at home very shortly, hopefully focusing on football and continuing to do very well.

In conclusion, now that the differences have hopefully been resolved for the good of the club, the loyal fans and the wider local community, I am delighted that Coventry City football club may return to the city and have the chance to concentrate on football matters and their position in the League, which is important to their fans.

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The Government’s strong expectation, guided by the Select Committee’s recommendations, is that the football authorities will continue to make progress in making the necessary changes and reforms. I will raise these issues with them on every occasion that I meet them in bilateral meetings at the Department for Culture, Media and Sport. My Department will also continue its ongoing dialogue with the football authorities to ensure that the support for clubs continues and that progress on governance reforms is maintained.

In the meantime, I wish the Sky Blues the best of luck for the season ahead, and I look forward to their first fixture playing back in Coventry very soon.

Question put and agreed to.

6.22 pm

House adjourned.