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In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.

I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.

The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.

To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that

“good consultation and a good period to execute”

improved the chances of legislation being successful.

However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.

I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.

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However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:

“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”

The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.

I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:

“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]

Perhaps the Minister will be able to respond to that question when he sums up the debate today.

In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.

Mr Gauke: As ever, the hon. Lady is making a thoughtful and probing speech. It would be fair to say, however, that her tone is not one of great enthusiasm for greater flexibility and choice in the pensions system. Will she tell the House whether her party is considering reversing the changes that we are introducing today?

Cathy Jamieson: I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise

“complex, opaque and overpriced products”

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that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.

Mr Love: Does my hon. Friend acknowledge that we already have experience in this regard, especially with pensions? The personal pensions fiasco took place not long ago, and it is incumbent on Members of Parliament to ensure that we do not go down that road again.

Cathy Jamieson: I agree with my hon. Friend. That fiasco is a recent memory for many of us, and it is our responsibility to ensure that all the risks, as well as all the upsides, are explored.

I should like to quote the ABI, which has stated:

“Giving customers more choice is welcome but it is also imperative to recognise that good guidance and advice is vital to prevent people making decisions which could lead to retirement poverty and/or to them giving up valuable benefits.”

That is a very important point. People in the industry also recognise that we need to have some caution and ensure that we do the right thing.

That brings me neatly to the fraught issue of the guidance guarantee. The Minister talked a bit about that in responding to interventions, and although I recognise that it is not within the specific ambit of the Bill, it has a great bearing on it. That guarantee is integral to the measures in the Bill, because if the Bill is to be a success, the guidance must be fit for purpose. It is not unfair to say that the continuing concerns and confusion over the guidance guarantee do not give confidence to people who are worried about how they are going to access the guidance. It seems as though the guidance was a secondary consideration. As I have said, the pension reforms were announced without the prior consultation with the industry that we might have expected. Some of the confusion was added to when the Chancellor stated that his reforms would be accompanied by advice, given that we know that what he really meant to say, and what was promised in the Budget, was unregulated guidance.

We then had the unedifying and unhelpful intervention by the Pensions Minister, who appeared to make light of the need for guidance by saying:

“If people…get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”

That is not helpful at all and has not been during the process. On Second Reading of the Pension Schemes Bill, the hon. Member for Reigate (Crispin Blunt), who is in his place, asked for clarification on how the guidance guarantee would be funded. The Pensions Minister answered by saying that

“the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off seedcorn, getting-the-thing-going fund…if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so.”—[Official Report, 2 September 2014; Vol. 585, c. 198-99.]

That is a bit vague and non-specific. Less than a year from when this Bill comes into force, surely he should know exactly what the guidance will look like.

We now know that the Government propose to deliver the guidance across three platforms, only one of which will be face to-face guidance—that was what was initially

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promised. We also know that the Money Advice Service will not be involved in the delivery. The three agencies involved will be: the Pensions Advisory Service, which will provide over-the-phone guidance; Citizens Advice, providing face-to-face guidance; and gov.uk, to which this Minister referred. That raises the question of how the Government will ensure that guidance delivered across three different mediums will be of a consistent standard.

The crux of the matter, and what the consumer needs to understand, is: what will the guidance consist of? Will it be an interactive exchange, or will it be a list of questions that must be asked and areas that must be covered? The Financial Conduct Authority appears to think it will be the former, saying it should cover:

“the key facts and consequences of each”—


including financial consequences, e.g. tax implications.”

The Pensions Minister, however, seems to think it will be the latter. He has said that there is a “world of difference” between

“a guidance conversation to get people to base camp”

and a

“sophisticated, individualised, tailored piece of…financial advice recommending products.”

The Pensions Minister has, however, been keen to assure us that the guidance is not being offered on the cheap—his preferred epithet is “budget”. The levy on the pensions industry will not be set at the level required to pay for

“full-blown, regulated, independent, tailored financial advice.”—[Official Report, 2 September 2014; Vol. 585, c. 199.]

Rather, it will be designed to generate only so much as is required to pay for what he terms the “cost-efficient” guidance version. To summarise, the guidance guarantee seems to amount to the following: it will not be regulated, personalised, or product-specific; it will be “cost efficient”, “substantially cheaper” than advice and funded by a “modest” levy on the industry—enough to get people to “base camp.”

That was what was said almost two months ago, but, sadly, judging by the evidence given to the Pension Schemes Bill Committee, things have not progressed much since. So bereft has been the Government’s approach to information gathering and analysis that we still do not know how many people are likely to take advantage of the new flexibilities. In evidence to the Work and Pensions Committee in April, the Pensions Minister was unable to give any firm indication. He said:

“I am not sure there is much point in me guessing. As I say, HMRC assumed that about 30% would take the cash...some of the annuity providers are saying it might be 70%- odd. We do not know.”

We are also reduced to guessing because, despite a freedom of information request from the shadow Pensions Minister, the Government have refused to publish any analysis they have conducted of the behavioural impact of these reforms. We do not know how many people are likely to make use of the new guidance, but a guidance pilot conducted by Legal & General found that only 2.5% of those offered guidance accepted it. The Pensions Advisory Service has estimated that take-up in the first year will be about 25%, so what happens in respect of the 75% who do not take the guidance? What backstop measures, or second line of defence, will be in place for

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those who do not take up the offer of guidance? In the first year at least, the answer appears that there will be none at all.

Again, the FCA has raised concerns about that, saying,

“we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose not to take the guidance, they choose not to take the guidance.”

That means that, potentially, up to 75% of people using the flexibility in the first year will access their pensions and use the money without taking any guidance at all. I do not know whether the Minister finds that concerning, but I do, and I am not the only one. Just Retirement has described the lack of a backstop as

“a massive threat to the pensions freedom reforms.”

The need to install a second line of defence was endorsed by others within the pensions industry, including the ABI, which also expressed doubt about the rigour of the FCA’s consultation on guidance.

The ABI’s head of policy said:

“We have discussed it with our members. We are a little concerned the FCA consultation…was narrowly drawn, which is understandable because it didn’t have much time.”

Why did it not have much time? Is it because the Government are in such a terrific hurry to force these reforms through? We are being left in a situation where the first tranche of people taking advantage of these reforms could be seen to be the guinea pigs in this process, and that is not acceptable.

Let me deal with a point that my colleague raised about the Ipsos MORI research. The extent of the concern has been laid bare by that, because it found that up to 200,000 pension investors could take advantage of the new flexibility in the first year alone. It is estimated that that would generate an additional £1.6 billion of pension income for Treasury coffers, which is why I was asking the Minister what estimate he had made as to what the Treasury would receive. It might be seen as good news for the Treasury, but perhaps not as such great news for savers, because only 38% of these pension investors were able to state accurately how much tax would be deducted from a medium-sized pot and only 6% could accurately predict what rate of tax would be applied to large pension pots.

Sammy Wilson: I know that the shadow spokesperson is not as cynical as I would be about some of this, but does she accept that HMRC’s own figures indicate that over the next budget period there will be a £4 billion windfall to the Treasury as a result of these changes? Of course, in the much longer term tax revenues will fall because there will be less income from the tax on annuities.

Cathy Jamieson: I would never suggest that the hon. Gentleman is cynical. He raises an important point, which again shows why I was trying to press the Minister on some of that.

I realise that I have taken up a considerable amount of time, and I want to give opportunities for other hon. Members to speak. However, I wish to raise just one other issue as I draw to a conclusion. I have mentioned the areas of uncertainty about the guidance versus

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advice debate, but I ask the Minister also to comment on the announcement about the abolition of the 55% tax on pensions at death—the so-called “death tax announcement”—made at the conference recently. I think that, at the time, the Minister said that annuities would not benefit from the tax cut. But it was certainly my understanding—the Minister can correct me if I have misunderstood—that the so-called value protected annuities will certainly so benefit, and that is still on the Treasury website. I have written to the Chancellor to ask for information, but I have not yet had a response. Clearly, uncertainty remains over the added potential for tax avoidance, which has been produced by the Bill.

In order to deter avoidance, the Government have introduced money purchase annual allowance rules, which, as the Minister said, places a £10,000 limit on the annual amount that can be saved tax free through money purchase agreements. The intention is to ensure that individuals do not use the new flexibilities to avoid tax on their current earnings. However, the rules still allow for £2,500 a year of salary to be “washed” tax free through salary sacrifice arrangements. I am interested to hear what the Government have done to address that risk and what further action they plan to take to guard against the new flexibilities being used in such a way.

Mr Love: When it was suggested to the Pension Schemes Bill Committee that there would be ways in which people, especially those over the age of 55, could use the new flexibilities to avoid taxation, the Minister did not seem to be at all concerned. Is the shadow Minister concerned, and will it be an issue for the Bill?

Cathy Jamieson: Yes, the shadow Minister is concerned as, I am sure, are the Ministers on the Front Bench, who will have to say something in response as they wind up the debate this afternoon. It is a matter that we will have to explore further in the Bill.

In conclusion, we are serious about getting pension reform right. We want people to have the freedom to choose the retirement product that works for them, and we want them to have good products from which to choose. It would have been better if the Government had consulted further on the reforms and conducted a full and thorough analysis of all the tax implications before they announced the Bill. None the less, we still have the opportunity to look at the Bill in greater detail and on that basis we will not be opposing it today.

2.22 pm

Crispin Blunt (Reigate) (Con): I am obliged to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) for her reference to my intervention on Second Reading of the Pensions Schemes Bill. Much of her speech was about the guidance, which is covered in that Bill. Obviously, there is a significant amount of overlap between the two pension Bills.

I represent four of the most significant players in the United Kingdom pensions market: Just Retirement, Legal & General, Partnership, and Fidelity, all of which provide a significant proportion of the jobs in my constituency. As specialist annuity providers, Partnership and Just Retirement have grown like Topsy over the past decade. They are creative and entrepreneurial companies that have found ways of providing different classes of annuitants with significantly enhanced value.

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The changes that the Bill introduces and that were announced in the Budget caught the whole market by surprise and have led to a particularly challenging six months for these two companies. Understandably, as more options will soon be available, there has been a significant reduction in the number of people buying annuities. Consumers and financial advisers are continuing to assess the best options for individuals as these reforms are developed.

Despite this difficult time, the very reasons that allowed those two companies to succeed so spectacularly over the past decade are the same as those that are enabling them to weather this sudden strategic change in the operating environment. The companies are well-led and fleet-footed and are now in the business of identifying new products to meet the new environment. However, they deserve certainty about the regulatory framework as soon as reasonably practicable so that they can bring new products to the market as soon as possible.

The Budget announcements made earlier this year were the culmination of a drive by both coalition partners towards greater consumer autonomy in the pensions market. For anyone who believes in freedom and responsibility, such a reform can only be right. The paternalistic status quo has long been out of step with a society that is happy with financial self-determination before retirement. Moreover, with annuity rates having dropped significantly over the past two decades, diversification, many hope, may be just what the market needs to invigorate it and produce the most innovative and well-suited options for consumers.

However, the pensions market has long been distorted by a deficit of consumer awareness. The 2012 survey of the Department for Work and Pensions, “Attitudes to Pensions”, found that 49% had no knowledge of the need to annuitise. Financial self-determination is an honourable and desirable goal, but the transition may be very bumpy if people purchasing pension products are unable to approach the open market with the requisite knowledge to plan for their retirement.

The Financial Conduct Authority, in its consultation “CP14/11: Retirement reforms and the guidance guarantee”, has identified that people who make large withdrawals from their defined contribution pension savings are at risk of not understanding the income tax implications of their decisions. Unsurprisingly, most people will be completely unaware that their tax may not be settled until a year after they have accessed their funds through a self-assessment process. There are a number of other equally important decisions that people must make, and if, through inertia or misunderstanding, they make a poor decision, it will be to their and their family’s material and financial detriment.

During the evidence presented to the Pensions Schemes Public Bill Committee last week, a number of experts called on the Financial Conduct Authority to use its existing powers to mandate those firms that hold people’s pensions savings to be required actively to engage with their customers who do not take up the Government’s guidance guarantee and to ask a small number of questions that would prompt them to consider the choices they are making. Hopefully, that will avoid the most common errors that have led to poor consumer outcomes. With current estimates of the guidance uptake veering from 4% to 92%, a range of basic security questions will be a necessity, not a luxury.

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The Pensions Schemes Bill will have a major impact on the successful outcome of this legislation and vice versa. These reforms could provide an unhappy example of the costs of liberalisation if consumers are not aware of the freedoms that they now have.

Mr Love: There is a lot of debate in the Committee and on the Floor of the House today about a second line of defence. Would it not be appropriate that when an individual approaches a pension company and asks to take out either some or all of their pension pot, they are asked whether they have received the guidance guarantee? If they have not, they should be referred back to the guarantee before they take an irrevocable decision on their pension.

Crispin Blunt: The hon. Gentleman tempts me down the path of discussing what is in the Pension Schemes Bill, which, although not the subject of today’s debate, is closely linked with the Taxation of Pensions Bill. I presume by his presence that he is on the Committee, as is the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop). I sincerely hope that the Committee will carefully examine this matter. It is subject to a current consultation by the FCA, to which I have submitted my evidence. This is an immensely important issue. To make the reforms in the Bill successful, we have to make a success of the guidance. We will not get it right first time. It will have to be capable of being improved in the light of experience, so that we do not end up with a mis-selling disaster or simply consumers not being informed enough to make appropriate choices.

We are giving people freedom, and with freedom comes responsibility. Sadly, that means that some people will make poor choices. The hon. Member for Edmonton (Mr Love) has spoken about people making poor choices, or taking a holiday; at least, that was the implication behind his remarks. I think taking a holiday is probably a thoroughly good choice, but he and I may differ. His Scottish Presbyterian background may be coming into play there. I will leave that as speculation.

Ian Swales (Redcar) (LD): The hon. Gentleman raised a point that I had not thought about, which is the tax consequences during payment. Normal annuities are paid out against a pre-determined tax code, and people have their tax deducted at source when they receive their payments. I know this from personal experience. Under the flexible rules, he suggests that the tax will be payable only at the time of self-assessment, much later. Does he believe that providers of these products should be looking at tax deductions at source?

Crispin Blunt: I would concede that this is not an area on which I feel a total authority. Hon. Members who have served on the Pension Schemes Bill Committee and made themselves authorities in this area must also take seriously the advice of experts and industry to address precisely the kind of question that my hon. Friend raises. We cannot afford to leave consumers adrift while we make the transition from a highly regulated, paternalistic and rather depressingly inefficient market to one that provides much better returns and is much more competitive, but which needs better informed consumers to drive it.

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Chris Evans (Islwyn) (Lab/Co-op): Having worked in the industry myself, I share many of the hon. Gentleman’s frustrations. Does he believe that half an hour of independent guidance is enough for people on the journey of managing a pension pot that has to last them 30 years? How does he see that relationship developing so that they make the right decisions along that 30-year journey?

Crispin Blunt: Obviously, the precise mechanism that ends up being set up by the FCA is immensely important. If it is as the hon. Gentleman characterises, and it does not lead people to come to a proper assessment of their situation, we will be left where we are now. Companies such as Partnership and Just Retirement, operating in the annuities industry, have been brilliantly successful because when people examine their situation it usually makes sense for them to move to such companies when they annuitise, rather than stay with their existing provider. The only problem is that people have been subject to consumer inertia and have not been aware that at that point they should be making the decision in the current market. The great thing about this liberalising reform, and the anxiety shared across the House to make sure that the guidance works, is that we will now be waking people up to the opportunities presented to them. If we have many tens of thousands of pounds in our retirement fund, a half-hour chat is probably insufficient. Many people will have hundreds of thousands of pounds available to them after a lifetime of saving into a pension fund, and it will pay them to take serious, proper, independent advice. They will need to pay for that, but it will represent serious value for money if they get proper advice. If the guidance can push people in that direction, to properly regulated and properly informed independent financial advisers, we will have properly informed consumers making proper choices.

The Financial Secretary and the Treasury will need to assure themselves that the FCA is alert to the needs of all consumers with direct-contribution pension benefits ahead of April 2015, and ensure that their delivery is closely monitored as these important reforms are made. As I said, we will not get this right first time, and whatever system is set up will need the capacity to improve as we learn how to improve the capacity of consumers to take informed decisions.

Additionally, the companies in my constituency continue to be concerned that the regulatory rules affecting a number of key changes in the Bill are still not clear. The Association of British Insurers is discussing these points with the Government and the FCA, but without clarity soon there is a risk of some customers not being able to access flexibility and there could be an uncertain environment and an uneven playing field between different types of product and providers. This is not solely the role of the FCA. It requires coherent and achievable measures from the Treasury, Her Majesty’s Revenue and Customs, the Department for Work and Pensions, the FCA and the Pensions Regulator.

For instance, the regulatory position on accessing a pension pot in one lump sum, whether through flexi-access drawdown, or an uncrystallised funds pension lump sum—I am grateful to the Financial Secretary for UFPLS. I had a go at “golden annuity uncrystallised kapital enhancement” fund, a GAUKE, which would rely on “capital” being spelled as in “Das Kapital”, which may

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mean it loses some of its attraction, but I guess we will have to settle for UFPLS. I am sorry that the imagination of Her Majesty’s Treasury officials was not able to produce a real GAUKE for him, to leave his impact on these highly important, liberalising measures for all time.

To return to the substantive point, the regulatory position around those two funds remains unclear, making it very difficult for providers to plan and develop requisite systems. This is despite taking a pension pot in this way being a key expectation raised as a result of the Budget reforms. Indeed, the whole regulatory regime around the uncrystallised funds pension lump sum route, which forms the basis of the Government’s pension bank account analogy, has yet to be resolved. In addition, there could be gaps in regulation between contract-based and trust-based schemes in two areas: how drawdown in trust-based schemes will be regulated, as well as protection for customers and expectations of providers if a customer wants to transfer out of a defined-benefit scheme after receiving advice not to do so.

My constituents welcomed the sensible reduction of the 55% tax charge on death, which the ABI had previously asked the Government to consider, which overtly conflicted with the wider Government policy of making pension saving more popular by giving people more options on how to use their retirement savings. However, without further clarification it creates an advantage for drawdown customers over annuity customers, which will change behaviour. To ensure that the policy is not skewed against income, tax on pension payments to a beneficiary after the customer’s death must be treated equally, whether paid through an annuity or drawdown, as income or as a lump sum.

I want to use the occasion of the Second Reading of this rather technical Bill, which in concert with the Pension Schemes Bill is a profoundly liberalising measure, to draw attention to other associated reforms that are interdependent. Our country has an obsession with investing in property, and there are vast reserves of wealth tied up in household equity. We face a growing crisis in our ability to provide decently for a rapidly growing older population. Failure to enable the equity release industry to grow in a competitive way to produce value-for-money products that look after the interests of the elderly and their families, rather than those of the estate agency industry, when we force people to realise their assets by expensively selling their homes when they do not need to do so and when they deserve stability in their lives with regard to their homes, will be critical to the well-being of every family in this country.

Last year, I led a delegation from the European equity release industry to lobby the European Parliament, the European Commission and the Council of Ministers, to seek changes in the trialogue stage of Solvency II to protect this industry. Under the leadership of my right hon. Friend the Member for Tunbridge Wells (Greg Clark), then the Paymaster General, the British team in Brussels helped to secure some useful space in the interpreting recitals to Solvency II that would help to ensure that the capitalisation demands placed on the equity release industry are significantly in the hands of national regulators. That is immensely important to this Bill, because the successful advance of the equity release industry and the successful development of freedom

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around pension provision go hand in hand. That relies on a sensible interpretation of the European Union’s Solvency II regime.

I am profoundly concerned that the hard-won space to enable the British equity release industry to advance, achieved by Ministers and their officials, alongside work done by the Equity Release Council, under the chairmanship of our former colleague Nigel Waterson, will, in the classic tradition of British gold-plating of European regulations and directives, be entirely undone by the implementation and regulation imposed by the FCA.

The Economic Secretary has assured me that the FCA is under thoroughly sensible and business-like leadership, and I believe that is the case, not least because last night I met the splendid Robert Taylor, who earlier this year became an excellent addition to the FCA’s senior leadership team. However, I have to say to the Financial Secretary that there are regrettable early signs, as the policy is being developed, that the overriding need to advance the equity release industry to support the reforms being implemented in the Bill, and unrealistic proposals around the matching adjustment that would apply to property as an asset, could seriously hamper the necessary growth of that industry.

If the FCA persists in its unnecessary programme of gold-plating, it will be all of us who have to pick up the bill, and it will be a profound missed opportunity for the United Kingdom, and not only for our citizens; it will be a missed opportunity for the industry to advance around the world, as many of our financial services industries have done, to the immense benefit of the people of the United Kingdom.

I joined the overwhelming tide of opinion that identified that measure as one of the most profound and welcome changes being made by this Administration. The Chancellor of the Exchequer is rightly winning the admiration of his fellow Finance Ministers for the remarkable transformation of the British economy under his leadership. That measure will be a profound part of his and his Treasury colleagues’ legacy. It remains up to them to ensure that it is delivered effectively in detail so that it can be an unalloyed adornment to their golden record.

2.42 pm

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): As has been mentioned, I am a member of the Pension Schemes Bill Committee, as are a number of colleagues who are present today. We are here to find out about the technical elements that will affect that Bill, because some taxation issues have been brought to our attention during the Committee’s evidence sessions. I want to refer to the evidence given by Mr John Greenwood, who is editor of Corporate Adviser magazine—it is given out to pension professionals—author of the “Financial Times Guide to Pensions and Wealth in Retirement” and a freelance journalist for national newspapers.

The issue emerged between May and July this year and concerns how individuals can avoid national insurance contributions by using the Government’s newly announced scheme to divert their income through a pension fund, rather than receiving it in a traditional salary. I will dip in and out of the evidence Mr Greenwood gave during the Committee’s fourth sitting, on Thursday 23 October,

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because I think that it is pertinent to the Pension Schemes Bill Committee’s considerations and to the debate on the Taxation of Pensions Bill, both here and in Committee. Mr Greenwood, elaborating on his concerns, told the Pension Schemes Bill Committee:

“The new easy access rules create a huge risk of widespread tax avoidance. If everyone over 55 takes full advantage of them, the Treasury could lose £20 billion in 2015-16—obviously, that is a massive number. That will not happen, but if even a tenth of people do, that is still a £2 billion loss. That seems to make quite a hole in the Treasury’s optimistic projection of making £3 billion of profit out of the policy over the five years of the next Parliament.”––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 117, Q249.]

The Financial Secretary said earlier that the Treasury had not yet given a forecast of how much it expects to make or lose on this policy, but we already know from Mr Greenwood’s inquiries that the Treasury had initially estimated a £3 billion profit. I think that is pertinent to today’s debate, because it is about the tax implications of the legislation and how they will affect the autumn statement, the Budget and what a future Government will be able to plan for with regard to incomings and outgoings.

Mr Greenwood went on to say:

“In layman’s terms, the Government’s position is that you can take your money as cash from 55. If you are an employee, you have two options. You could be paid into your current account through salary, which is taxed at 13.8% employer national insurance on everything over about £8,000 and the employee pays national insurance of 12% on everything above that figure, and then everything is taxed above the nil rate band. Obviously, you have to be paid the minimum wage of £11,500-ish, but above that, why would you be paid through your salary when you can pay into a pension and take it all out the next day? For payments into a pension, there is no employer or employee NI at all, and only three quarters of it is subject to income tax. The Bill effectively gives everyone over 55 a £10,000 NI-free allowance—four times that in the first year, if they draw their money early.

When the penny drops, people will suddenly realise how much loss there is there. If you are on £40,000 and you maximise this—there are currently no rules to say you cannot do this—the loss to the Treasury is 62% of the revenue they would have got from that person’s employment. That is quite a chunky amount. It is clear from the Budget documents that the Treasury had not spotted this, because if you look at the documents published alongside, and the risk assessment, there was no mention of national insurance at all. They have moved with a reduced annual allowance of £10,000 for those who take benefits early, which reduces it but does not stop it altogether.”––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 117, Q250.]

I raised that point earlier with the Financial Secretary and asked whether he could tell me what percentage of people the £10,000 threshold would affect. He did not give me a response, so I told him that Mr Greenwood valued it at about 2% of the population, so 98% of the population would be exempted. The Financial Secretary responded that that was Mr Greenwood’s suggestion, but Mr Greenwood was actually referring to a response from the Treasury. That is deeply worrying, because we do not know the implications of the policy.

What we do know is that the Treasury’s policy at the moment is not to respond to Mr Greenwood, because he has written to the Treasury six or seven times without receiving a response. I understand that he has written to the Office for Budget Responsibility once to request a forecast but, as of last Thursday, has not yet received a reply—he might have had a phone call by now. I do not

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know about other colleagues in the Chamber, but I find that profoundly worrying, if we are potentially losing a considerable amount of money from the Treasury’s coffers—potentially £2 billion to £3 billion, if it is just 10%.

Mr Love: The most deeply worrying thing about the evidence presented to the Committee was the attitude of the Pensions Minister, who did not seem to think that there was a problem. Will my hon. Friend confirm that he spoke lightly about the potential consequences of this loophole?

Tom Blenkinsop: I thank my hon. Friend, who, as a fellow member of the Committee, attended those evidence sessions. The Pensions Minister confirmed that people can already use this tax scheme—there is no legislation to stop them doing so. The only difference is that the industry is gearing up for next April, and getting the HR processes in place, so that it can give people advice all at once, rather than employer by employer. Mr Greenwood said that he has talked with several people in the industry and that one company had already talked with 192 employers that are looking at that.

The ability to avoid NI in that way already exists, and the Government have a threshold of only £10,000 and nothing planned until after July as a response. That gives them a big headache, because the Prime Minister’s £7 billion tax give-away has been blown out of the water due to borrowing fears. Now another £2 billion or £3 billion is missing. That is £10 billion. The Government like to call the Opposition the debt party, but in fact it is they who have doubled the national debt. Now they will considerably increase borrowing because of the very fact that their own figures are out by a minimum of £10 billion.

2.49 pm

Nigel Mills (Amber Valley) (Con): I speak as a member of the Pension Schemes Bill Committee; for me, this has been a week of complicated pension rules.

I welcome the freedoms that the Taxation of Pensions Bill provides. We want people to save for pensions to provide for their own retirements; it has to be right to give them the freedom to use the money they have saved as they want to, without there being penal tax charges that might force their behaviour into certain directions. It is absolutely right for these choices to be added to the whole landscape.

We should bear the context of the current situation in mind. Basically, we force people with relatively small and medium-sized pension pots to take an annuity. The tragic thing is that in many cases those annuities are not suitable—people are mis-sold them, do not understand them and do not shop around or get the best deal for themselves. People cost themselves large amounts of their retirement money because the market simply does not work in a fair manner.

The Work and Pensions Committee and others have been trying to find various ways in which to reform the annuity market, to make it fairer and make it work better for people—to encourage shopping around, to

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stop mis-selling and to get people to think about whether their life expectancy might be shorter than the average. We need people to think about what will happen if they predecease their spouse. Will the product that they are buying provide for that person?

Of all the solutions brought forward, the Government’s is by far the most radical. It effectively says, “You don’t need to buy an annuity any more if that is not right for you. You can draw down in a much simpler, cheaper way and try to live off and control the savings that you have produced for yourself.” That sounds a fairer approach. If people have chosen to save money for their retirement, they can now choose how and when they spend that, in a flexible way. We should all want that to be available. That is not to say that that would be right for everyone; it might be entirely wrong for many people. There is absolutely no reason why we should take products away, but we need people to make informed choices about what they want in their retirement—how much income they want, how they want to spend it and over how many years. In that way, they will not be locked into a totally unsuitable situation.

There are various nightmare scenarios. One is when someone has run out of money—they have drawn down and spent too much. They never thought they would live past 75, but live until they are 93. They run out of money in their later years and do not have the standard of living that they wanted. We absolutely do not want that to happen. The flip side, of course, is that if someone buys an annuity at 66 and dies at 67 and has no protection, they have burned their whole pension pot for them and their family.

We need to find a way of taking those two extremes out of the situation. We want new products to smooth the situation out. People should be able to say that they want a product that not only guarantees a certain income for life—so they know they can pay the heating and food bills, have the annual holiday and treat the grandchildren—but allows the flexibility to spend money on a cruise or an active lifestyle when they first retire. They might want funding for care costs in their very late life; during the previous years, their income could dip a bit as they would not be so active or have such big bills. How do we get people to understand that they can make those choices? How do we get the products that fit those choices? Those questions are key.

I entirely agree with the comments made so far: getting people to understand the choices—what they need, want to do and can do—at the point of retirement is the secret, but also probably the hardest bit. That is why we need to get the guidance guarantee to work. I have tabled amendments to the Pension Schemes Bill to try to strengthen how that guidance will work. But we need to be careful: it is not when someone is 65 and a half and about to retire at 66 that they need to understand what is going on. Under the rules as they are today, that might be fine—the person saves into a pension scheme, which will assume that funds will move into an annuity when retirement age comes so plans can be made on the basis that the person will need their pot at 66. Funds can start to de-risk when the person gets to 56 on the central assumption that they will want a safe pot when they retire.

Once the changes come in, however, people might not want to do anything with their pots at age 66; they might stay in work until they are 70. They may want to

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use other savings or defer their pensions for a while. Do they want their pension scheme by default to start de-risking and reducing investment return 15 years before they want to retire? That would be disastrous for the pension pot.

Choices will have to be made about which pension scheme to join, about risk profile and about when de-risking should start. People will have to understand that when they are 40 or perhaps 35, not 65 and a half. There needs to be clear guidance to which people can be signposted. Pension funds need to say to people, “You have important choices to make all the way along the process. Here is what you need to know, here is how you can find it and here is what you should be doing.” If people do not get the message earlier, the guidance for those aged 65 and a half might well be, “Here is what you could have won, but sadly you have not won it because you did not do the right things earlier on.” When the guidance providers come in, they need to provide clear, web-based guidance that people can access at any age, rather than being locked out until they are 65 and a half.

We also need the regulator to think carefully about what pension schemes will do with people who just do not engage. Some people will be enrolled automatically; they do not really understand the system but they do not opt out. They are saving money and get to 55. They are asked whether they want to de-risk, but there is no reply. They get to 65 and are told that they can draw their pensions, but there is still no reply. What should be done with the pension pot in that situation? An annuity will not be bought, so what should the default be? Should there be some kind of drawdown so that the money is left sitting somewhere for a while under some strange investment profile?

In this landscape, we need to think about a lot of things on behalf of those who have choices to make and a pension pot about which it is worth making choices. I suspect that a sizeable number of people will have relatively small pension pots and that taking the cash, tax-free, will remain their best option. Those who have the pension choices but are not so well off that they can afford expensive advice are the ones who will need to understand the options and try to pick the right ones.

I am left thinking that guidance is the right answer and advice is the wrong one. The risk with advice is that it is incredibly expensive; it would cost several hundred pounds at best to give people advice. The last thing we want someone who has been auto-enrolled into a pension pot to do is spend a large percentage of their pension on advice that they really do not need, because they do not have enough money to take advice on. We have to try to keep the cost of the guidance scheme low and make it a way of getting people to their first understanding and thought process about what they could do, rather than trying to put in place a gold-plated system that everyone has to pay for, even though most people would not be taken that far forward. We have the right idea, although we probably have a long journey before people have anywhere near the knowledge and understanding that they need, and that we need them to have.

Mr Love: We have to keep guaranteed guidance at a reasonable cost, but for that guidance to be effective there has to be personalisation to the individual circumstances of the person involved. All the evidence

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suggests that. The one balances against the other. The challenge is to find a way to make the guidance both cheap and effective.

Nigel Mills: The hon. Gentleman has to be right. The issue was raised in the Pension Schemes Bill Committee evidence sessions last week, and we will get to it again when we discuss the provisions on guidance. It is hard to work out the line between advice, which might say, “The best thing for you is to do x,” and guidance, which just says, “Here are the options and the various things to think about. Make sure you shop around. Thanks for calling.” Guidance such as that will not help people, who will forget it by the time they put the phone down or walk out of the meeting room.

We need the people getting the guidance to have worked out their financial situation—their pension pots, their debts, their other income, their state pensions and other employer provisions—so that when they go to get their guidance, they can set out their circumstances to the person guiding them, and that guidance can be focused on the sorts of choices they could reasonably make. That is probably about as far as we could get, because once someone says, “You should pay off your debts first”, they are getting into giving advice, and that may not always be right; it risks creating liabilities and people being mis-sold things. This will be an extremely hard balance to strike.

Lady Hermon: I apologise for having to leave the Chamber briefly to go to the Select Committee on Northern Ireland Affairs; duty called. I entirely agree that this is a radical and fundamental change to pensions entitlement, as regards when people can benefit from and draw down their pensions. Given that it is such a radical and fundamental change, does the hon. Gentleman share my disappointment that the Bill, which runs to 54 pages, I think, and has three clauses and a schedule, is so highly technical that no ordinary person in the street could possibly understand their pension entitlement?

Nigel Mills: It is certainly interesting that the Bill is 57 pages long and has only three clauses, with the rest dropped into a schedule at the back. However, complicated rules are being changed, to take away some penal tax charges, among other things, and I guess it does not matter how the provisions are drafted; whether they are in a schedule or a clause, we get to the same position in the end. One of the problems with pensions is that everything is so fiendishly complicated that almost nobody can understand what all the rules are.

I am concerned about the provision in which the Government seem to be repealing the requirement that people must, before buying an annuity, have had a chance to check the open market situation. Clearly, we are not taking away the chance for people to compare annuity rates, because we are not compelling them to buy an annuity, so that option will still be there. A fall-back is written into the rules that says that before somebody defaults into buying an annuity from their pension provider, they must, under regulations, have had the chance to shop around and to be given advice. That looks like a sensible provision that should perhaps be kept. Repealing it strikes me as being a little too optimistic about how well this market might work in the early years.

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Moving on to the general principle of the Bill, these changes reopen the debate about how we use the tax system to encourage pensions. There is a huge annual bill for allowing people to put untaxed income into their pension scheme. According to the latest figure I have seen, the net cost is about £22.8 billion in income tax, plus £15 billion in national insurance, so we are talking about £38 billion of taxpayers’ money being used to incentivise pensions saving each year. Okay, some of that money comes back when pensions start to be drawn, but it is still a large amount. The more flexible we make savings arrangements, so that people can choose when they draw down their pension and can do so 10 years before they retire, the weaker we make the justification for saying, “We should do this pre-tax”, because we are distorting the savings market.

I suspect that the only reason most people would choose to save into a defined contribution pension, locking their money away at the whim of some unscrupulous pension provider who charges them for things they do not understand and finally getting their money back 30 years later, is that they get this huge tax advantage. If we are going to start enabling people to have large amounts of that money, tax-free, a long time before they retire, does that change the equation? Perhaps we should be thinking about these things. Is this the right way to distort the pensions market? Should we not equally incentivise people to put money into an individual savings account every year and have a bit more control over it and a bit more visibility? Is that better protection for them?

We desperately want people to save money for their retirement, and we want it locked away so that they cannot spend it each year, and I suspect that using the tax system to achieve that is still very much the right answer. However, we probably need to think again about how much we are spending on higher-rate tax relief on pension contributions in order to make the system more flexible.

Mike Freer (Finchley and Golders Green) (Con): I am blessed with articulate constituents who understand pensions issues. One of the issues raised with me is that we are allowing people to take out the tax benefit that they have been given for free by the Government. Does my hon. Friend think it is worth looking at putting the tax relief into something like the protected rights pot that used to, or still may, be in place for personal pensions, so that the tax relief element could not be withdrawn, and only the contributions could be withdrawn?

Nigel Mills: That is an interesting idea. I am not sure how we would hypothecate part of a pension pot, and do I really care whether the 25% I am taking out is the tax bit, the bit I paid in, or the bit my employer paid in? If my hon. Friend means that I could not take out the 25% of tax benefits—I could take out only 18% of the pension pot, rather than 25% tax-free in a lump sum—I can see a certain logic to that. In effect, it would just reduce the tax-free lump sum that people can have.

The flipside of rethinking how much tax relief we allow for pension contributions is that it is probably unfair not to give people full tax relief on the way in and then still subject them to higher-rate or top-rate tax

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when they start drawing their pension. That is an interesting double charge for the Chancellor. If people do not get relief on the higher rate, should they have to pay tax at a higher rate when they draw the pension contribution back out? Frankly, why would somebody who was in that situation pay that amount each year? They would be far better off using the cash—probably to drive up property prices.

At some point after these changes, there will need to be a debate about how we are using the tax system to incentivise pensions. Is that still the right thing to do? Is it worth the cost incurred? Is it encouraging the right behaviours? Is the tax relief really getting more people to save for pensions? Is there evidence of that, and should we continue with it? I suspect that the answer will clearly be yes—we should. However, we are making such radical changes to the pensions landscape that once we have got through this flurry of activity it is worth taking a step back to look at the situation and ask whether we are really in the right place, in terms of how we encourage people to save for their retirement. Are pensions uniquely the best thing for everybody, or could people take up other options that might encourage them to save even more, because they had more control over their funds during their lifetime?

This Bill is absolutely the right thing to do. There are clearly issues to do with making the system work and ensuring that people who need to make choices are not disadvantaged by making the wrong ones. We are moving from a situation where people have, in effect, been forced by the law into choosing something that, sadly, was often wrong for them, towards a situation in which they can choose what they think is right for them. We need them to do that on an informed and fair basis; they must not be ripped off by the next round of mis-selling. I fear that somewhere in these freedoms there is the possibility that that will happen in the next decade, but there are things we can do to try to mitigate that.

3.8 pm

Ian Swales (Redcar) (LD): I should start by declaring an interest: I am well over 55 and have a pension pot that is subject to these provisions. I very much welcome the Bill because its measures are undoubtedly needed. I praise my right hon. Friend the Member for Thornbury and Yate (Steve Webb), who has been campaigning on these issues since 1999 and has done a terrific job in reforming pensions in his years as Pensions Minister.

The Bill is a revolution in terms of freedom. I am glad that defined-benefit schemes are excluded, because they were the source of much of the mis-selling that took place during the scandals that occurred, with people who had very secure local authority or teachers’ pensions, for example, being encouraged by unscrupulous advisers to cash them in and take out risky products. We have to try to avoid that.

People arrive at the time when they want to take their pension in many different circumstances. They may want to spend their money at different rates depending on their view of how they want to spend their retirement. They may have health issues that determine how they spend their money. They may make various different choices. Even though I was brought up as a Presbyterian

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by my Scottish parents, I have nothing against holidays, which are a perfectly good choice when one initially retires.

I know from talking to constituents that one of the main things people do these days is make a capital transfer to their children, particularly to buy a property. I can well understand why people whose income is okay might want to do so, and given that the new rules on inheritance are much less penal in cases of early death, funds that they have saved up will still be available to their family.

However—there are quite a few howevers about this Bill—annuities have a deservedly bad name in terms of value, mainly because low gilt rates mean that annuity providers can only offer low rates. Annuities do have a purpose. They are a pool, which is one of the things that I find constituents have difficulty in understanding. Perhaps even the hon. Member for Amber Valley (Nigel Mills) has difficulty in understanding that, given what he said; I know he does not, because he is an expert in this area. When people die soon after taking out an annuity, the insurance company does not get the money; the person who gets the money is someone who is lucky enough to live to be 100. That is what pooled annuities are all about.

By demonising annuities, we have caused people to forget that they do not know how long they are going to live. On average these days, somebody aged 65 will live until they are 83, but a lot live longer and quite a lot live less than that. The whole point about annuities is that they are a pool, and people bet against how long they are going to live. I think that the industry will come up with annuity-type products to meet the desire of many people for a secure income for as long as they live.

In financial services, it is always worth asking what is the worst that could happen, because it usually does happen. That is why we need to think about some of the unintended consequences, difficulties or gaps. Several speakers have mentioned the world of guidance. I was disturbed to hear the hon. Member for Reigate (Crispin Blunt), who is not in his place, say:

“We will not get it right first time.”

Let us remember that guidance in this area will be given only once for each individual. They cannot keep going back for more guidance: it happens once. If we do not get it right first time and the cohort of people in the first year do not get good advice, they will suffer for the rest of their lives. From our point of view, it might take a while to get the guidance right, but for the people getting the advice it must be right when they get it. The whole area of standards and regulation in relation to the Bill would bear more examination.

Advice needs to be impartial and transparent, and it should be based on straightforward products, but I worry about the level of knowledge of the people receiving advice. A few weeks ago, a constituent came to see me who had taken out a finance deal for some solar panels. It turned out that the combination of the savings on the solar panels and the finance deal meant that she had an overall penalty in her budget. The savings on the panels in no way paid for the cost of the finance, although she had been told that it would.

Barbara Keeley: The hon. Member for Amber Valley (Nigel Mills) spoke about someone who left work and needed their care costs to be covered at a certain point.

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In my view, that is another thing for which constituents do not plan. I have lost count of the number of my constituents who did not even know that they had to pay for social care and did not understand the thresholds. I am concerned that a lot of people will be tripped up if they draw down money and increase their savings, because they will suddenly find that they fall within the threshold at which they have to pay for social care. People commonly do not understand that, and it will not be covered by the guidance.

Ian Swales: That is a very good point. The guidance needs to be much more in the round on what may happen to people after retirement, but I suspect that that will not be mentioned in the guidance unless we can do something about it.

To go back to my example about the lady with the solar panels, I went through the documents with her, and they very clearly showed the numbers. There was no doubt: she had not been scammed. What she had signed up to was absolutely clear, and her signature was on all the documents. She said, “Oh, I just didn’t realise. I’ve an A-level in maths, so I should have realised.” What worries me is that we do not have to speak to many constituents before we realise that levels of knowledge about pensions are extremely low. As the hon. Member for Worsley and Eccles South (Barbara Keeley) has said, other consequential issues of getting older are sometimes even less clearly understood.

I am worried about the guidance, and I think that there will be concerns about whether it is appropriate and whether people have the financial awareness necessary to understand it. That goes back to the need to make people more financially literate from school onwards, but we will not solve that problem overnight. The industry is talking about having a second line of defence, and it needs to be listened to. It is a clear case of “They would say that, wouldn’t they?”—it is designed to get people to move towards the type of products that the industry is offering—but such a second line of defence might serve to protect people from themselves, as it were.

We need to watch out for scams. I listened carefully when the hon. Member for North Down (Lady Hermon) mentioned criminality in relation to people losing their pension savings. Pension release companies already impose extremely high charges for unlocking pension schemes and doing very little work. I am prepared to take an intervention from her if she so wishes, but I am a bit concerned about how to define criminality. People may make a bad decision, but that is not necessarily criminal. I agree with her, but I wonder what kind of products or service she means when she talks about criminalising those who end up losing their pension pots.

Lady Hermon: It is awfully nice of the hon. Gentleman and so kind of him to invite me to intervene. I absolutely do not want to criminalise people who draw down their pension. I am a huge fan of Radio 4, and I listen very carefully to its finance programmes. As has already been mentioned, we and many people—certainly constituents in my patch—are worried about unscrupulous so-called pension advisers who set themselves up so that people can go on to the internet, press a button and commit their life savings to them. I do not want to

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criminalise the person involved; I want to put into the Bill a deterrent against unscrupulous tax or pension advisers.

Ian Swales: I thank the hon. Lady for her clarification. I am sure that the Exchequer Secretary would be interested to hear more about how she defines “unscrupulous”. I agree with her, but there is more to do to be clear what that means or about conduct that the Financial Conduct Authority would regard as unscrupulous.

All this liberalisation of pensions, as the hon. Member for Amber Valley mentioned, makes pension savings more like other kinds of savings. We are also providing a big tax advantage. Removing restrictions on when pensions are taken and removing some of the tax charges and restrictions on death means that we are moving closer and closer to a simple tax-free savings market. Such a market is especially attractive for people who are very close to retirement. I have done some sums, and if one is about to take one’s pension pot, there is quite an incentive—because of the tax-free 25%—to throw in the maximum possible amount of money in the months before retirement. Somebody paying tax at the basic rate who puts a lot into their pension pot in March and starts their pension in April or May would make a 6% return on their money simply by putting it in and taking it back out again. A higher rate taxpayer would make a 16% return on their money simply by putting a lump sum into their pension pot immediately before they retire and then drawing it out again. There will therefore be clear consequences of the flexibility that we are creating. People will be more inclined to put their money in if they know that they will be able to get it out quickly. There are clear benefits to getting the tax-free amount very quickly.

We have heard about the possible later costs to the state in respect of care and so on. By definition, if people take more out of their pension pots earlier, more people will need state assistance later in life with health or care costs. I know that the Minister is aware of that issue, but I do not know whether the possible costs have been calculated or estimated.

I am more confident than most that the responsible part of the industry will come up with new products and innovations. As I said to somebody from Just Retirement last week, what people need is plain language. Even the word “annuity” is not plain language. People want a secure income in retirement. The vast majority of people who retire do not want to buy a sports car, but to have a certain income throughout their retirement. The more the industry wraps things up in mumbo-jumbo that people do not understand, the more suspicious people are of its motivations.

We are already seeing warning signs. For example, Fidelity is saying, “All this flexibility means complexity, which means higher costs, because we are not set up to run bank accounts.” I am concerned that the industry will see the changes as a new way to levy high charges. It will say that the very flexibility that the Government want to see is expensive to provide. I hope that we see the right level of competition in the market and that people come in who do not levy those high charges.

We have seen a huge fall in the number of annuities that have been taken out recently. Just Retirement has seen a 50% fall in demand for annuities. I suspect that

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that is partly due to uncertainty. People want to be clear what the new rules are before making a decision. Demand may pick up again, particularly if there are new products. However, there is no doubt that fewer people will take out annuity-type products.

Cathy Jamieson: I am listening carefully to what the hon. Gentleman is saying. Does he agree that there are concerns for people who have relatively small pots, because companies might feel that it is not in their financial interest to offer them products? How can we ensure that there is equality?

Ian Swales: The shadow Minister makes a good point. If we create a spectrum of products that is genuinely complex, the charges might be inappropriate even for those with medium-sized pots because of the flexibility that is offered. We need to hear more from the industry about that.

Finally, on timing, I know from personal experience that when the date that one has defined as a potential pension date is approaching, the industry offers what it calls warm-up packages. I have had my first warm-up package for next year. The industry is not waiting until April next year. It has to get on with this right now. If there is any uncertainty in the minds of Ministers, they had better get moving pretty quickly, because the industry has to get all its systems, documentation, regulations and new products in place so that it can offer them to the cohort that is approaching retirement in just a few months’ time—from April onwards. The ABI is already concerned that it is getting towards the eleventh hour, when clarity on all this will be needed.

Despite all the reservations that I have expressed, I very much support the Bill and commend it to the House. I am sure that when it emerges in its finished form, it will be an excellent piece of work.

3.24 pm

Shabana Mahmood (Birmingham, Ladywood) (Lab): It is a pleasure to close this debate for the Opposition.

There have been only a few Back-Bench speeches, but they have all been insightful and valuable. The hon. Member for Reigate (Crispin Blunt) was spot on when he spoke about a deficit of consumer awareness and said that the FCA will have to be alert to the needs of all consumers across the spectrum.

My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) sits on the Pension Schemes Public Bill Committee. He spoke at length about the evidence that was given by Mr Greenwood. I am not on that Committee, but I found the points he made about that evidence telling and concerning. I hope that the Exchequer Secretary will respond to those issues.

In particular, my hon. Friend highlighted the potential opportunities for tax avoidance. I am sure that Members across the House will want to interrogate the measures in this Bill and the Pension Schemes Bill in detail to ensure that revenues to the Exchequer are protected. I hope that the Exchequer Secretary will say more about the Government’s view of the number of employers—my hon. Friend gave the figure of 192 from the evidence that was given to the Pension Schemes Public Bill

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Committee—who are looking at mechanisms to exploit the changes to the pension taxation rules as a ruse to reduce employer’s national insurance contributions.

The hon. Member for Amber Valley (Nigel Mills) was right to say that we want to avoid the two extremes that he highlighted. He was also right to speak about the importance of getting the guidance to work properly. He raised an important point in asking what will be the default setting for people who have been auto-enrolled and have a pot of money, but who simply do not engage with the process. It is important to get into the nitty-gritty of what will happen in practice in such scenarios. Again, I hope that the Exchequer Secretary will respond to those issues.

The hon. Member for Redcar (Ian Swales) was right to begin his speech by reminding us of previous scandals and the lengths to which unscrupulous individuals have gone, and he concentrated our minds on ensuring that such issues do not arise again. He was right to say that we must get the guidance right first time because it only happens once for each person. That should concentrate the minds of all Members on ensuring that we get the guidance absolutely right.

The shadow Financial Secretary, my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), made it clear that we support the principle of increased flexibility for people in retirement and the reform of the pensions market so that people get a better deal. We are therefore not against the principle that people should be allowed to exercise choice. However, this is a big Bill that contains big changes that will affect tens of thousands of people, if not more, immediately. Just this week, research published by Ipsos MORI suggested that 200,000 people may choose to take their entire pension in one go next April, creating a potential tax windfall for the Treasury of £1.6 billion.

It is fair to say that some issues that are debated in this place appear to be removed from the outside world. This is not one of those occasions, as the figures show. We therefore have a bigger immediate responsibility on this occasion to get the Bill absolutely right. Although I reiterate our support for increased flexibility, I do so with a word of caution, because that flexibility will be exercised by people who have a deeply variable understanding of the marketplace in which they are operating.

The Ipsos MORI poll also showed that only a third of those planning to take out their pension pot were aware of the tax that they would pay should they take out their entire sum in one go. The 2012 Department for Work and Pensions attitude to pensions survey noted that half the respondents had no prior knowledge of annuities before being asked the questions in the survey. The Financial Services Consumer Panel also published a report, in December 2013, which said that the

“market does not work well for the majority of consumers.”

One of its key findings was that consumers were poorly placed to drive effective competition among providers and distributers of annuities. It said:

“There are many barriers inhibiting consumers’ full engagement when they decide to annuitise: low financial capability; fear of product complexity and of making an irreversible, high-cost mistake; general distrust of professional advisers, and inability to find appropriate advice at acceptable cost.”

The Bill will operate in that context, not in some fantasy world in which the majority of the electorate has an

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in-depth understanding of the pension marketplace. That is not to say that a greater understanding cannot be fostered, because, as we know, the same DWP survey shows an increase in the awareness of annuities between 2012 and the previous survey in 2009. However, in some cases we start from a very low base.

We also have a social responsibility to get this right. This policy needs to be fair. Successive Governments have invested in pension relief to support people in retirement. As the Government have said, it is an annual investment of £22.8 billion, and it is important that we ensure that the taxpayer gets good value for money for that. It is money that belongs to all taxpayers, even those for whom a private pension or a workplace pension are out of reach. We must ensure that the relief given generates the consequences intended, the main one of which is income in retirement, not income for other things.

Ian Swales: The shadow Minister raises a good point about the relief, but pensions are taxable when they are paid out, so it is important not to suggest that £22.8 billion is the net cost of the pension system. The money may be taxed at a different rate, but it will be taxed when it comes out.

Shabana Mahmood: I was simply making the point that the reliefs are there for a reason and we have to ensure that they work for the benefit of all taxpayers, but the hon. Gentleman is right.

There is also the hard-nosed political test of making sure it is not the Government who are picking up the pieces if this all goes wrong. I reiterate our support for increased flexibility, but we have to acknowledge that this particular system has built-in risks. Under the new arrangements, a pension pot of £100,000 could be used to secure an annuity of about £6,500 that, added to the state pension, would yield the recipient a little over the UK’s national pension income, according to HMRC’s 2013 figures. Of course, it could be drawn out in one lump sum to buy the proverbial Lamborghini—it would probably have to be a second-hand one because they cost closer to £250,000 than £100,000. But what would happen then? If the recipient in question has not made the necessary contributions to receive the single-tier pension, when it comes in, will their pension be topped up to the accepted minimum level? That is not yet clear. This potentially leaves us in a dubious ethical position as well as a financially precarious one.

Our responsibilities to get this right are clear. It will affect many people, and we have both a social and financial responsibility to make sure that the changes work properly. Given that those changes are so significant, I would have expected extensive consultation by the Government before the announcements were made, but unfortunately that was not the case. As my hon. Friend the Member for Kilmarnock and Loudoun said, despite beginning well, with work on the single-tier pension and auto-enrolment—policies based on evidence, consultation and consensus, which built on the work of the previous Government—these reforms have been rushed and somewhat erratic. The Government did not consult before making the announcements, either with consumers or with the industry. Nor have the Government allowed sufficient time for the changes to be executed.

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Despite the enormity of the change and the change of emphasis from the importance of accumulation to the ease of access, we are left in a situation in which outside experts are lamenting the lack of time to get this right. Regarding the need for proper guidance for consumers, the ABI’s director general said:

“The guidance guarantee is a crucial part of the Government’s pension reform, and the industry fully supports the Government’s intention to provide free, impartial guidance to savers on their options as from next April. But time is not on our side. No one should under-estimate the work that needs to be done to make this a reality, which is why the Government have some urgent decisions to make.”

We have to ask why the Government are in such a hurry to push through reforms when some of the essential underpinning to make them work seems to be missing. I have to say I am glad that I will not be in the first tranche of retirees to experience these reforms, unlike the hon. Member for Redcar.

That brings us to the issue of good guidance, or lack thereof. We know that changes of this magnitude will bring a significant number of new products to the market. That is not in itself a bad thing, as some products will be better than others; that is the nature of the marketplace. It is also well recognised that on the whole there is a requirement to ensure that consumers are far better informed—I have already outlined the evidence provided by the Financial Services Consumer Panel. However, in addition to extensive consultation, we would expect the Government to have done significant work on the guidance mechanisms before making the announcement in the Budget, but unfortunately that was not the case. From the start, a significant level of confusion has surrounded what the Government meant when they said that reforms would be accompanied by “advice”. It later transpired that it was not “advice” that would be provided, but rather “guidance”. That is an important distinction, as we have heard, since guidance carries none of the same legal protections as advice, which is regulated and therefore considerably more expensive to provide.

When the Government have been pushed on the matter, I am afraid their language has been far from reassuring, to the extent that the measure looks like a mere add-on to the whole pension reform programme. In my opinion, that suggests a slightly cavalier attitude, which may prove to be short-sighted. The Financial Conduct Authority’s consultation, “Retirement reforms and the Guidance Guarantee”, stated that,

“to be effective the guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement choices.”

We appear to be getting something far less useful. In evidence to the Work and Pensions Committee in April, the Pensions Minister suggested that guidance will be more general in nature:

“The thing we are talking about is free to the customer. There is no charge for it. It is what we call ‘guidance’, rather than independent financial advice, so it is not formal, detailed or product-specific; you can go and buy that if you want to, but this is familiarising people with the options they have, and some of the concepts, even. Most people do not know what an annuity is.”

There is much that we do not know. We do not know the detail of what will be funded, the level of levy used

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to pay for it, what the guidance will be expected to cover, or what it is expected to achieve. Even at the end of the debate, we appear to have more questions than answers—questions that go to the heart of issues that will be central to ensuring that the programme works. We will be picking up on those issues of detail, fairness and guidance when the Bill reaches Committee.

Michael Fabricant (Lichfield) (Con): On a point of order, Madam Deputy Speaker. This is nothing to do with the debate—I apologise to my hon. Friend the Minister for interrupting it—but I was due to attend an event this evening at which I was, I believe, to receive an award. I understand at very short notice that I have been banned, along with a number of national journalists. The person who banned me was Mr Speaker, and I was wondering whether that is normal behaviour for a Speaker.

Madam Deputy Speaker (Mrs Eleanor Laing): The hon. Gentleman has made his point most eloquently and the House has heard it. I confess to having no knowledge whatsoever of the matter to which he refers, and while I am certain that Mr Speaker would never wish any discourtesy to any Member of this House, the hon. Gentleman will understand that the matter he raises is not something on which the Chair can take any action at this moment.

3.38 pm

The Exchequer Secretary to the Treasury (Priti Patel): This has been a wide-ranging and constructive debate; it has been engaged and informed, and I thank everybody who has participated. Before I address some of the specific points raised, I wish to reiterate the main purpose of the Bill.

The Bill is intended to put in place the most radical reform to the way people take their pensions for nearly a century. It is a fundamental principle for this Government that those who have worked hard and saved all their lives should be free when they reach retirement to choose how they spend those savings. That is because we believe in personal responsibility, and that the money someone has earned is their money.

The Bill will remove the limits on withdrawals from drawdown and the restrictions on the shape of annuities, and it will create new and more flexible ways for someone to put the money in their pension pot to good use and provide for their future as they wish. As a result of the reforms, people will rightly have the freedom to choose how to spend their savings. That, in turn, will incentivise the pension industry to provide real choice through a range of innovative new products.

I would like to address points raised by the Opposition; first, the myth that the Government have not consulted. The Government have consulted extensively on implementation and legislation, and we have received wide support from consumer groups and the industry. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) quoted the chief executive of the ABI. He has also said that the ABI

“welcomed the reforms as good for those who were faced with the double challenges of increased longevity and very low interest rates when they came to make retirement decisions. The industry is behind these reforms. We want them to be a success and our members are working flat out to get everything ready for April 2015.”

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The Government are putting in place comprehensive guidance. There has been discussion on guidance—I will come on to it in more detail—and I want to make it abundantly clear that we have brought forward an amendment to the Pension Scheme Bill to achieve just that.

On fairness, the old system was unfair and it disadvantaged those with a moderate amount of savings. Our Government reforms will make the system more flexible and fairer for all. On cost, as the Financial Secretary has clearly stated, we set out the costings at the Budget. Since the Budget, and as a result of consultation, we have introduced further changes and the OBR-certified update will be provided at the autumn statement.

There have been a number of positive views from the industry. It is wrong and misleading to imply that there is no support from the industry. The consultation has been extensive. There has been a 12-week consultation on the best way to implement the changes, followed by consultation on the Bill itself. It is important to move quickly, because people are making binding decisions every day with what are, frankly, limited choices in the current marketplace.

Cathy Jamieson: I am sure the Minister did not intend to suggest that I, or any other Opposition Member, said there was no support from industry. For the record, that is not what we said. We recognised that concerns had been expressed. That is different from saying there was no support.

Priti Patel: I am grateful for that clarification. There is extensive support from the industry. I pay tribute to the industry for the way it has worked with us through the consultation to bring the changes together in such a constructive and supportive way.

Crispin Blunt: On that point, two companies in my constituency, Partnership and Just Retirement, are specialist annuity providers and will be significantly affected. They contributed to the consultation and I know that the Government moved in response to that. I am grateful to the Minister and her officials for the attention they paid in the consultation process.

Priti Patel: I thank my hon. Friend for acknowledging that work and for his thoughtful contribution. He has many pension providers in his constituency. Those insights have helped to inform the debate and shape the Bill.

The aim of guidance is to empower consumers to make informed and confident decisions on how to use their pension savings in retirement. Information alone is not enough to change consumer behaviour. The Government are committed to maximising awareness of the guidance service. Key to that will be the regulatory requirements on providers and schemes to signpost to guidance at key points when individuals are trying to access their pension pot. In its recent consultation on the changes surrounding new pension flexibilities, the FCA has been clear about requiring genuine signposting, including rules that ensure firms cannot circumvent consumers’ right to guidance. An essential part of the development of the guidance will be determining what engages consumers effectively. The Government are assessing engagement and take-up rates, and testing

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different engagement strategies informed by behavioural insight teams as part of piloting work beginning this autumn. Again, this is about getting it right. My hon. Friend the Member for Redcar (Ian Swales) made an important point about that. We are getting one bite of the cherry and we need to make sure we get it right.

Ian Swales: Can the Minister say a little more about the timing? She said that a consultation is under way; presumably its outcome will affect what the Government do. People who are due to take pensions in April will be considering their options from January and February onwards, so when will we be clearer about the nature of the guidance and the universality of provision, and when will people be told about that?

Priti Patel: Let me assure my hon. Friend that guidance will be available in good time. It is also imperative that we get the guidance right, so we are working assiduously to do exactly that.

The scope of the high-level content of the guidance was set out in the FCA consultation that it ran in anticipation of its standard-setting role. The Treasury and its delivery partners, the Pensions Advisory Service and Citizens Advice, are working up the operational details and the context of the guidance while adhering to the FCA standards.

I will come to some of the other points raised by colleagues, but I would like first to touch on the Ipsos MORI poll that has been referred to. The poll also found that 88% of people would not draw down their entire fund. People said that rather than just spend their funds on a range of things, they would use them for good financial planning. That is exactly what these reforms are all about: trusting people with their money.

David Mowat (Warrington South) (Con): The Minister talked about guidance a few moments ago. In the event that guidance is found to be inadequate or not to have been offered properly, would that potentially void any transaction made subsequently?

Priti Patel: The guidance that is provided will not make specific recommendations. Information will be provided to individuals not to make specific decisions, but to signpost and guide them through the areas I have touched on.

David Mowat: I thank the Minister for that answer, but if a supplier sold a product without offering any guidance and without checking whether that had happened—notwithstanding the question of its not being specific—would that be a problem and could it void the transaction?

Priti Patel: The FCA will be clear in setting out standards. However, I will come to that point shortly, because we have also discussed the consequences of mis-selling and fraud.

I would like to reply to a number of points made in the debate. The hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) talked about the tax revenue implications of the annual allowance and highlighted the evidence given before the Pension Schemes Bill Committee on 23 October. As my hon. Friend the Financial Secretary outlined earlier, the assumptions

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made in that evidence generated a huge overestimation of the likely cost of the reforms to the Exchequer. The Government believe that the introduction of a £10,000 annual allowance is the appropriate approach to allow people the flexibility to withdraw or contribute to their pensions as they choose from age 55, while ensuring that individuals do not use the new flexibilities to avoid paying tax on current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into place in April 2015.

I would like briefly to touch on the two other contributions. We heard from my hon. Friend the Member for Amber Valley (Nigel Mills), who I understand celebrated his 40th birthday yesterday. He seems far too young to be contributing to pensions debates, although I know he has specialist knowledge in this area. He made a thoughtful contribution and raised a number of points. He mentioned the open market option. To be clear, the open market option will continue to be highlighted in the information that pension schemes are required to provide to their members at retirement. We have simply removed the requirement under the tax rules for the member to have chosen the annuity provider in order for the annuity to be an authorised payment. It is not appropriate for the member to be charged tax because they have been deprived of the opportunity to select an annuity provider.

Other points were raised about a proposed criminal offence for mis-selling. FCA rules are clear and require the responsible sale of products to consumers in a way that is clear, fair and not misleading. The FCA also has powers to take action against firms engaged in authorised business, and is able to prosecute a number of criminal offences. I hope that clarification reassures the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who was very explicit in her points. We are very clear on that. It goes without saying that the FCA and the Pensions Regulator will monitor this whole area to ensure that fraudsters do not use the reforms to take advantage of vulnerable people.

My hon. Friend the Member for Redcar touched on annuities, as did my hon. Friend the Member for Amber Valley. The Government are clear that annuities will remain the right choice for many at some point during their retirement. We believe that many people will still value the security of an annuity, but that is something that individuals—not the state—should decide. As all contributions have made clear, this is about individual choice and opening up the marketplace. As retirement changes, many people may, for example, opt to buy an annuity later in life, allowing them to benefit from higher annuity rates. It is for individuals to buy products that are best suited to their particular circumstances.

In response to my hon. Friend the Member for Redcar—who was firm on the need to get on with this—we understand the scale of the challenge. That is why we have appointed an implementation team in the Treasury for the guidance guarantee, and we are working closely with the industry to ensure that it is ready for April 2015.

Finally, the risk of people spending all their money at once was briefly mentioned. I would like to reiterate that the Government believe that people who have worked hard all their lives should have the freedom to decide how to use their savings and, importantly, should

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be trusted to do so. The Government do not dictate how people should spend their money generally, so why should it be any different when it comes to their pension savings?

I am grateful to have had the opportunity to explain the issues that have arisen today. We have had a good debate and look forward to more in Committee. A number of important points have been raised. I think all hon. Members have sensed that the main issue is the principle of empowerment and allowing individuals to make choices that are right for them, especially when they come to assess their pensions. The Bill is about choice and it will make that choice possible. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Taxation of Pensions Bill (programme)

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

That the following provisions shall apply to the Taxation of Pensions 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 20 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 any message from the Lords) may be programmed.—(Mr Gauke.)

Taxation of Pensions Bill (Ways and Means)


That, for the purposes of any Act resulting from the Taxation of Pensions Bill, it is expedient to authorise the making of provision in connection with the taxation of pensions.—(Gavin Barwell.)


NHS health services in Guisborough, Skelton, Brotton, Park End and Hemlington

3.53 pm

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): I wish to present a petition.

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The petition states:

The Petition of residents of the UK,

Declares that the Petitioners believe in fighting to defend the NHS, believe in fighting to defend the NHS services in East Cleveland and Park End, Middlesbrough, and oppose cuts inflicted by the Conservative-led government’s Health and Social Care Act 2012; further that the Petitioners believe that proposals to scrap GP services at Skelton Medical Centre should be abandoned; further that proposals to scrap GP services at Park End Medical Centre should also be abandoned; further that the Petitioners believe that South Tees clinical commissioning group’s plans to close East Cleveland Hospital’s and Guisborough Hospital’s minor injuries units is short-sighted given the £30 million deficit of South Tees Hospitals NHS Foundation Trust; and further that the Petitioners condemn South Tees clinical commissioning group’s decision to close Skelton’s NHS walk-in centre.

The Petitioners therefore request that the House of Commons urges the Government to encourage NHS England and South Tees clinical commissioning group to reverse plans to close Park End Medical Centre, Skelton Medical Centre, its NHS walk-in centre and East Cleveland and Guisborough Hospital’s minor injury units.

And the Petitioners remain, etc.


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Callum Wark (Sentencing of Foreign Drivers)

Motion made, and Question proposed, That this House do now adjourn.—(Gavin Barwell.)

3.54 pm

Alec Shelbrooke (Elmet and Rothwell) (Con): Members on both sides of the House will have experienced incredibly difficult cases in their constituency advice surgeries, but for me, few experiences have been as difficult as meeting my constituents Joanne and Robert Wark from Swillington in May this year.

Joanne and Robert came to talk to me about their son Callum. They described 3 March 1994, the day Callum was born, as the proudest day of their lives; he was a gift that completed their world. People say that a baby’s character shines a light on the adult whom the baby will become, and that was certainly true of Callum. This happy, well- behaved toddler grew up to be a kind, gentle person, and a thoughtful young man who loved his parents and grandparents dearly. As a child, Callum would regularly visit his gran and granddad, and was always eager to help with jobs around their house and garden. Joanne and Robert did a first-rate job in bringing up a child of whom any parent would be proud, a child of compassion and profound generosity.

Callum’s school reports talk of a child who did not always find school work easy, but always worked hard for every educational achievement. The phrase “a pleasure to teach” appeared regularly in his school reports. His family told me of a school sports day when a five-year-old Callum, already sports mad, stood on the starting line of a race that he was the favourite to win. After the klaxon had fired and halfway through the race, he turned around to see his friend—a friend with learning difficulties—standing rigid on the starting line. Callum turned around, ran back, and helped his friend to the finishing line. He lost that race, but he won many more after that.

Callum attended Brigshaw high school, an outstanding comprehensive school near Allerton Bywater in my constituency. On reaching the age of 16, he secured a part-time job at the well-known Strikes garden centre on Swillington Common, and decided that he wanted to go on to do an apprenticeship—to learn a skill for life, and then begin a career. He later secured a job locally, at the Wincanton warehouse. That job was a stop-gap, and while doing it he applied for many apprenticeships. He did not do too well in maths at school, but he needed it for the apprenticeships for which he was applying, so he took it upon himself to enrol on additional maths courses, which he attended on his days off.

I am sure the House will agree that Callum’s work ethic and self-motivation were qualities that we would wish to see in all young adults in Britain today. Just as I had to, Callum worked hard and saved up so that he could afford and insure his first car. He cherished that new-found freedom, as new drivers do, and his new car became his pride and joy. When I met Joanne and Robert for the first time, I noted that Callum’s placid, permanently selfless nature seemed quite uncommon among teenagers today. They were quick to assure me

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that Callum had “the usual teenage tantrums”, but they were equally quick to add that “he never caused us or anyone else any trouble.”

At 2.47 in the afternoon of 1 March this year, two days before his 20th birthday, Callum was killed when his Renault Clio was hit by a heavy goods vehicle on the A162 between Ledsham and Fairburn, just outside my constituency. The driver of that heavy goods vehicle, a Bulgarian national called Stoyan Andonov Stoyanov, was found to be under the influence of alcohol. He was jailed for just seven years, but is likely to serve only half that sentence, and was banned from driving in the UK for 10 years. Let me put that in context. In 2024, when Callum should have been celebrating his 30th birthday—perhaps with a family of his own, and a good career—his killer could be driving on UK roads again, enjoying all the freedoms of life that his reckless actions took away from Callum.

At the end of my initial meeting with Callum’s parents in Garforth library last May, Joanne turned to me and, with little hope left in her voice, thanked me—not for my offer of support, but for doing something that no one else had done. No one else had asked to hear about Callum the individual: the son, the grandson, the much-loved friend, the innocent teenager enthusiastic about the excitements of the life that he had yet to experience. Callum was not merely a number, nor is he now merely a road traffic fatality statistic. Those who knew him had little doubt that he would one day go on to great things, and today we can create a legacy in his memory. We can give his parents justice, and give a meaning to his untimely death by making an amendment to the law in the name of Callum Wark.

Stoyan Andonov Stoyanov was found to be more than three times over the legal drink-drive limit and admitted to drinking a full bottle of spirits in the 24 hours before the crash. Despite this, he knowingly placed himself behind the wheel of his heavy goods vehicle. There may have been no malice aforethought in his actions, but my constituents and hundreds of campaigners who have signed a petition believe that such actions certainly constitute unlawful act manslaughter. Those calling for stricter sentencing for drink-drivers who kill argue that the deterrent is not great enough. According to the west Yorkshire-based road safety charity, Brake, evidence suggests that the current system to tackle repeat drink-driving is not working: one in eight drink-drivers does it repeatedly, and as many as three in 10 high-risk offenders reoffend. Repeat offending is one of the major drink-driving issues, yet the penalties are the same no matter how many times an individual reoffends.

In 2004, the maximum penalty for causing death by dangerous driving when under the influence of alcohol or drugs was increased to 14 years. However, criminal justice statistics recently published by Brake show that fewer than three in five drink-drivers who kill receive a sentence of more than five years in prison. It is my understanding that a Sentencing Council review is soon to take place and therefore, on behalf of my constituents and all victims of death by drink-driving, I call on the Ministry of Justice to review charges under the Road Traffic Act 1991 and introduce a strict minimum sentence—an amendment to the law, in the name of

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Callum Wark—to ensure that those guilty of causing death while under the influence of alcohol or drugs serve a stricter minimum sentence in custody.

I dare say that nobody can begin to understand the emotional torment and heartbreak of the families of victims of road traffic fatalities. There is little one can say to offer comfort in those circumstances, but for my constituents, the difficulty of that experience was only made worse by the insensitivity of the Crown Prosecution Service, which, more than anything else, affirmed to my constituents that in the eyes of the CPS—and certainly of their CPS solicitor, Sarah Nelson—Callum was just another number, a statistic. Charities such as Brake offer fantastic support services to the victims of crime, and I know Members across the House will want to support their 17th annual road safety week on 17 November. However, although charities perform a vital role in bereavement support, from the experiences of my constituents, the same cannot be said for the CPS. This may not be the case across the board, and Members might know of cases where their constituents received excellent support from CPS lawyers, but I can only speak from the information relayed to me by my constituents, which showed that support for and understanding of victims’ families is desperately deficient. Perhaps the CPS might therefore look at additional training for those acting on behalf of those in bereavement.

Justice is often sought as a comfort. It is sought after the most horrific of events, but it rarely delivers the sense of closure that those who seek it desire. Justice is not about compensation; real justice is knowing that the killer of one’s child receives a custodial sentence befitting their crime. More than that, justice should be about triggering change: it should be a deterrent to prevent these terrible incidents from happening to another innocent victim.

Callum’s killer was a Bulgarian national, a European citizen. In recent months, there has been much discussion in this House and across my constituency of the advantages and disadvantages of the European Union. For now, at least, Britain is a member of that Union, and my constituents would expect the UK to use its position within it to bring about new measures to protect British citizens in the UK and in Europe. At present, there is no mutual recognition of driving disqualifications between EU member states, other than that between the UK and Ireland. In short, despite a 10-year ban from driving on UK roads, in three years’ time Mr Stoyanov could return to Bulgaria and resume driving anywhere within the European economic area. With 1.8 million Britons living and working in Europe, he will remain a threat to British citizens abroad, despite a 10-year driving ban in the UK.

On the top left-hand corner of my UK driving licence is the flag of the European Union. It suggests that it is an EU-wide driving licence, in a standard format recognisable by officials in all EU member states. That symbol is meant to make it harder for drivers banned in one country to carry on driving undetected in another, yet in practice it is meaningless.

According to the European Union’s mission statement, its second priority is

“to promote and protect democracy and universal rights in Europe”,

but with rights must come responsibility, and it cannot be right that a foreign national sentenced in the UK and banned from driving here can return to his native

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country—a country within the European Union—and avoid a ban imposed in UK courts. If the EU sees fits to protect universal rights in Europe, surely there must be an obligation on member states to ensure that responsibilities are universal, too. For without collective responsibilities, what is the Union but a talking shop of ideologies? On behalf of my constituents, I urge Ministers to open renegotiations with the European Commission, with a view to reaching mutual recognition of driving disqualifications across member states.

When sentencing Stoyan Andonov Stoyanov at York Crown court earlier this year, the judge indicated that the court would apply for a deportation order on completion of a custodial sentence. My constituents expect that this order will be granted and the individual deported, yet guidelines on the deportation of foreign national offenders under section 32 of the UK Borders Act 2007 highlight a discrepancy between nationals of countries within and nationals of countries outside the European economic area. For example, under present deportation threshold criteria, non-EEA nationals sentenced to 12 months or more are considered for deportation by the UK Border Agency, whereas deportation is considered for EEA nationals only if they are sentenced to 24 months or more, unless the offence relates to drugs, sex, violence or “other serious criminal activity”.

For the purposes of protecting British citizens at home, what is the difference between a foreign national offender from Bulgaria and, for example, a foreign national offender from a few miles over the border in Turkey? Is a criminal from Burgas any less of a criminal than one from Dereköy? Does membership of the European economic area suddenly make a member state’s criminals a lesser threat to UK citizens than those from another country? I think not. A foreign national convicted in a UK court should be subject to the same deportation threshold criteria irrespective of whether their home country is a member state of some international economic community. My constituents and I therefore urge Ministers to review deportation criteria for EEA foreign national offenders and decrease the deportation threshold to a sentence of 12 months, thereby removing the nepotism toward nationals from within the European economic area.

I make that request because it was evident from the court case that Callum’s killer had no better understanding of British law or customs merely because he was a foreign national from within the European Union. In court, it was evident that Mr Stoyanov knew little English, either to speak or understand. He claimed to know nothing about the highway code or about UK drink-driving laws. A broader political debate arises from these issues, but this debate is not the place to air those thoughts. It is evident that Mr Stoyanov and the foreign haulage company he worked for had no knowledge of, and had made no effort to understand, the UK highway code and our drink-drive laws before he entered the UK.

Let us be clear that the foreign haulage firm sending its heavy goods vehicles across Europe and into the United Kingdom has a duty of care to ensure that its employees understand the laws of the road in the UK. It says much about the kind of company that Mr Stoyanov worked for that the only interest it showed as regards the death of my constituent was in its repeat inquires about securing the return of its expensive heavy

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goods vehicle. Perhaps when Ministers next meet with Commissioners in the European Union, they might wish to address this issue and encourage member states to look at the effectiveness and content of assessments for the distribution of large goods vehicle licences across Europe.

Finally, for reasons that I have discussed, my constituents believe a review of sentencing of convicted foreign drivers is desperately needed. I do not believe that stricter custodial sentencing in the UK is enough to deter others from driving while drunk. For convicted foreign drivers such as Mr Stoyanov, driving is their livelihood. Sentencing guidelines, together with the absence of restrictions preventing those subject to a deportation order from one day reapplying for entry to the UK, mean that there is no reason why Callum’s killer cannot be back driving his HGV on UK roads in 10 years’ time. The United Kingdom needs to send a strong message to foreign nationals who choose to ignore, or plead ignorance of, our drink-drive laws. My constituents therefore ask Ministers to consider, when they review sentencing guidelines, imposing a lifetime ban on driving in the UK for foreign nationals convicted of causing death while driving under the influence of alcohol or drugs.

Jim Shannon (Strangford) (DUP): I thank the hon. Gentleman for giving way, and I apologise for not being here at the beginning of the debate. I had a similar experience in my constituency; one of my constituents was killed by a foreign driver who had no insurance and was over the drink-drive limit. The hon. Gentleman has highlighted the need for legislative change, for punishment through the courts, and for Europe to work with the Minister here in the United Kingdom to ensure that those things happen. For those reasons, I wholly support what he says.

Alec Shelbrooke: I am most grateful for the hon. Gentleman’s support, and I know that the Minister will have heard his comments as well.

Joanne and Robert asked me to share these words with the House today:

“Callum was our only child; he was our world and our lives are now meaningless with no future to look forward to. We will never know if Callum would have been blessed with a family of his own, or if one day we could be a Grandma and Granddad ourselves. We will never get the chance to see Callum grow into the fine young man we know he would have been and we will never see our child achieve his goals and dreams. Next year was going to be a big year for family celebrations; Callum would have been 21 and we are celebrating our 25th wedding anniversary, but now our hearts and world have been torn apart and our lives destroyed. Yet in a few years, Callum’s killer will return to his family in Bulgaria and his life will carry on. Our lives stopped on 1 March.”

As their Member of Parliament, nothing I can do or say in this Chamber today will restore happiness for my constituents Joanne and Robert Wark, but we can restore their faith in the criminal justice system by making Callum’s death the reason for a stricter minimum sentence for causing death while under the influence of alcohol; for better victim support and understanding of bereavement within the Crown Prosecution Service; for the mutual recognition of driving disqualifications within the European Union; for the regulation of foreign haulage companies driving in the UK; for the deportation of convicted

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foreign nationals; and for a lifetime UK driving ban for foreign nationals convicted of causing death while driving under the influence of alcohol. It is too late to change what happened to my constituent on 1 March this year, but it is not too late to bring about justice for Callum Wark and make his untimely death the motivation for change.

4.12 pm

The Parliamentary Under-Secretary of State for Justice (Andrew Selous): I thank my hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke) for securing this important debate and highlighting the issues surrounding the tragic death of Callum Wark. In particular, I thank him for putting on record his comments about Callum’s personality in the House of Commons today. I am sure that others will also have been particularly touched by the story of Callum turning back during a race that he probably would have won to help a friend with learning disabilities. That speaks volumes about the kind of fine young man he clearly was.

Any death on our roads is a tragedy. Road deaths lead to unimaginable pain for the families and relatives of the victims. Such deaths are made worse when they are caused by bad driving under the influence of alcohol and could have been avoided. It is particularly troubling that Callum was only 19 and had his whole life ahead of him. Most Members will know of similar cases in their own constituencies—we have already heard from the hon. Member for Strangford (Jim Shannon) in that regard—but I hope that they will appreciate that I do not want to go into the details of their individual cases during this short debate.

As my hon. Friend the Member for Elmet and Rothwell has said, Callum Wark was killed by a lorry driver, a Bulgarian national, who was found to be driving dangerously and well over the drink-drive limit. The lorry driver entered a guilty plea to a number of offences including causing death by dangerous driving. He was sentenced to seven years and eight months’ imprisonment on 20 March this year. He was also banned from driving for 10 years.

My hon. Friend raised a number of issues that arise from this case and other similar cases, which I will try to deal with in my remarks. It is, of course, right that our independent courts should decide on the sentence for an offence. It is the court that has the full knowledge of the case and the offender, and it is best placed to decide on a just and appropriate sentence. It is also important to remember that we have sentencing guidelines that the courts are required to follow—unless it would be unjust to do so—which lead to greater transparency in the level of sentence likely to be imposed and increased consistency in sentencing practice. For certain offences, the Attorney-General can refer a case to the Court of Appeal on the basis that the sentence is unduly lenient—that includes cases involving causing death by dangerous driving. Anyone can make representations to the Attorney-General to consider making such a reference. There is a 28-day time limit to appeal against an unduly lenient sentence, and in this case no appeal was lodged.

In keeping with the current law and guidelines, the driver in this case had his sentence reduced for pleading guilty to the offence at an early stage. The reduction for

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an early guilty plea is not just about saving money and court time; it is designed to ensure that victims, their families and witnesses are not required to relive dreadful events in court. I pay tribute to North Yorkshire police and others in the criminal justice system in North Yorkshire for enabling this case to be concluded with sentencing occurring less than three weeks after the incident. As the police themselves have noted, the family were spared the trauma of sitting through a protracted court hearing.

My hon. Friend also raised concerns that the offender in this case will be released at the halfway point in his sentence. As my hon. Friend will know, release before the end of sentence is not new. Since legislation was introduced in 1967, successive Governments have maintained that approach, and the current arrangements are contained in the Criminal Justice Act 2003. In most driving cases, a standard determinate sentence will be imposed by the court, and the 2003 Act provides that such prisoners must be released automatically as soon as they have served half their sentence. The second part of a custodial sentence—the licence period—is an important part of the sentence, as it provides for the supervised transition of an offender into the community and the prospect of recall to prison for breach of the licence. If there were no licence period, offenders could be in prison for many years and then be released with no support or supervision, which would increase the risk of reoffending. If a foreign national prisoner is to be removed from the UK, it would make little sense to impose licence conditions to ensure an offender could be supervised in the community, given that they will not be released into our community. That is why after the period spent in custody for the purpose of punishment of the offence, we seek, where possible, to remove foreign national prisoners to their own country.

The driver in this case is a foreign national and, as a convicted offender, may be subject to deportation at the end of his sentence. I am aware that the judge in this case made a recommendation that the offender be deported after serving his sentence. The Government are committed to ensuring that foreign national offenders, including those committing serious driving offences, should be removed from the UK whenever possible. In some cases, offenders may serve some of their prison sentence in their own country under a prisoner transfer agreement. In other cases, an offender may be released from custody in order that they can be removed from the UK. A foreign national prisoner can be returned to their home country up to 270 days before the halfway point of their sentence, and we need to strike a balance between ensuring that foreign nationals are removed to their own country and ensuring that they are properly punished for the offences committed in this country.

On the wider issues of penalties, it is worth stressing that although sentencing is a matter for the courts, setting the framework that the courts work within is for Parliament. This Government want to see maximum penalties that allow the courts to respond to the full range of cases they are likely to face. The offence in this case, causing death by dangerous driving, already has a maximum penalty of 14 years’ imprisonment. The same maximum is available for causing death by careless driving while under the influence of drink or drugs. Where there is a failing in the law we have moved to remedy it. In the Legal Aid, Sentencing and Punishment

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of Offenders Act 2012 we created a new offence of causing serious injury by dangerous driving, with a five-year maximum penalty.

More recently, in response to the awful case of Paul Stock who was killed by a disqualified driver, we have, in the Criminal Justice and Courts Bill, proposed an increased maximum penalty for those disqualified drivers who kill or cause serious injury. The current maximum sentence is two years for causing death, but will increase to 10 years when those provisions become law.

Jim Shannon: I welcome what the Minister has said about more stringent and stronger penalties. I also want to hear whether he has had any correspondence or discussions with the relevant Minister in Northern Ireland as it is a devolved matter, but I want to ensure that there is some consistency in punishment and that we are, across the whole United Kingdom, Great Britain and Northern Ireland, working towards the same goal. Will the Minister tell us whether that is happening?

Andrew Selous: I am not aware of any communication between UK Ministers and Ministers in Northern Ireland. I will ask the Minister for Policing, Criminal Justice and Victims, within whose responsibilities this issue lies, to respond directly to the hon. Gentleman.

We recognise that it is important to respond quickly where there is a clear gap in the law or where a maximum penalty is clearly inadequate. We also need to ensure that there is a consistent and proportionate sentencing framework. That is why earlier this year we announced our intention to look, across the board, at the maximum penalties for offences involving bad driving. That review, which looks at a number of issues that many Members of this House have already raised, is currently under way and being conducted by the Ministry of Justice working with the Department for Transport. I am particularly pleased that the Under-Secretary of State for Transport, my hon. Friend the Member for Scarborough and Whitby (Mr Goodwill), is here on the Bench with me this afternoon. The review will focus on the maximum penalties and gaps in current offences. It will soon be taking the views of victims, families of victims, road users and criminal justice professionals. I do not want to pre-empt any findings, but I hope that the review will lead to recommendations that the next Government can act on in the early stages of the next Parliament.

In addition to the custodial sentence imposed in this case, the offender was also banned from driving for 10 years. He was also ordered to complete an extended driving test before he can regain a licence to drive in the UK. Driving disqualification and extended testing requirements are an important element of dealing with drivers who kill and are a mandatory requirement.

The length of a driving ban is for the court to set. Guidance already makes it clear that the court should consider the time spent in custody so that the ban is not extinguished or severely diminished by the time the offender is released. Provisions in the Coroners and Justice Act 2009 reinforce that message by placing a statutory duty on courts to extend driving bans when imposing a custodial sentence. We have recently sought to make amendments to that legislation in the Criminal Justice and Courts Bill to enable those important provisions to be commenced as soon as possible.

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My hon. Friend raised concerns about the Crown Prosecution Service and its understanding of bereavement. Let me say that in any case involving a death, the CPS should be sensitive to the need to minimise the extra distress criminal proceedings are likely to cause the victim’s family and friends. The CPS guidance on that is very clear. In murder, manslaughter and fatal road traffic cases, the CPS will provide an enhanced service to family members. In such cases, the prosecutor should offer to meet the victim’s family from an early stage to explain how the case will be handled and what is expected to happen at each court hearing. The prosecutor will also explain the likely sentence should the defendant be convicted. The prosecutor will inform the victim's family that they can make a victim personal statement, and he will bring the statement to the attention of the court. If my hon. Friend has a specific concern about the handling of this case, I would be happy to pass that on to the Director of Public Prosecutions who has responsibility for the CPS.

On the question of mutual recognition of driving bans across the EU, I should say that such a system is in place with the Republic of Ireland, but not, as my hon. Friend says, for other countries in the EU. We agree, in principle, that co-operation over disqualifications between member states, other than Ireland, is desirable. Any EU member state may wish to enter into similar arrangements to those we have with Ireland in the future. It is important to understand that a practical and effective system of mutual recognition across the EU would have to be ratified by the vast majority of member states. In the case of the existing 1998 convention, only a small number of states have ratified. I should stress that the offender in this case will not be able to drive in the UK as a result of the driving disqualification for a decade.

My hon. Friend also raised the question of deportation of foreign national offenders. The Home Office considers for deportation all foreign national offenders who are sentenced to a period of imprisonment following a criminal conviction. For European economic area nationals, the deportation consideration process takes account of the Immigration (European Economic Area) Regulations 2006. Deportation will normally be pursued where the person is sentenced to two years’ imprisonment or more, as in this case, or 12 months’ imprisonment for a sexual, drug or violent offence. Where an EEA offender receives a shorter sentence, deportation will be pursued where it can be justified in accordance with the Immigration (European Economic Area) Regulations, taking into account the particular circumstances of the case. For non-EEA nationals, there is a duty for the Secretary of State to deport a non-EEA foreign national who is sentenced to a period of imprisonment of 12 months or more.

My hon. Friend will know that the regulations covering cross-border haulage firms are detailed, and are governed in the UK by the Department for Transport. In short, those who operate commercial vehicles on international journeys will need a number of authorisations and permits. The authorisations will depend on the countries in which the vehicle is to travel, but include driver certificates of professional competence, community licences and a standard international operator’s licence. These requirements include regulating the amount of time a driver spends at the wheel through the EU drivers’ hours rule, as well as a requirement for an EU driver to have undertaken the certificate of professional competence.

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The principal aim here is to ensure better trained drivers across the EU, who are up to date with current legislation. As my hon. Friend will realise, this is a technical area of regulation, and I would be happy to pass on specific concerns raised by my hon. Friend to my colleagues in the Department for Transport.

My hon. Friend also raised the question of the length of a driving ban and suggested that there should be a lifetime ban for those who cause death. The length of a driving ban is a decision for the judge in the individual case. In some cases a driving ban of a specific length provides an incentive for offenders to comply with their sentence in order that in time they can regain their licence. Where offenders are given a life ban, they may be more likely to flout that ban and drive illegally and irresponsibly. But I do recognise the point that my hon. Friend makes in regard to those who cause death, especially by dangerous drink-driving. We will be looking at the current sentencing practice and driving ban lengths as part of the driving penalties review, which will report early next year. I suggest that my hon. Friend sends a copy of this debate and a submission to that review, and that will be most welcome.

Let me conclude by again thanking my hon. Friend for securing this short but important debate, and by offering my own condolences to the family and friends

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of Callum Wark. Mercifully, the number of people dying on our roads continues to fall, aided by better cars, better roads, more awareness of road safety, better policing and advances in emergency medicine. But I know that that will be of no consolation to the family of Callum and his many friends.

But the criminal justice system also has an important role to play in dealing with those who continue to drive badly and put themselves and others at risk. The Government have already shown their willingness to ensure that the courts have the powers they need to deal effectively with drivers who kill or cause serious injury to other road users. We have created new offences where there was a gap in the law, and we have increased maximum penalties where the courts were frustrated by a lack of sentencing power. We are now actively reviewing the sentencing framework for the range of driving offences. We want to ensure that sentences are consistent and proportionate, but that the law also ensures that those who kill innocent people, such as Callum Wark, are punished appropriately.

Question put and agreed to.

4.30 pm

House adjourned.