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Viscount Chandos: My Lords, again we wish to thank the Minister for introducing these two orders, and we acknowledge that the belated introduction of a paperless settlement system is central to the continued success of London as a financial centre. There has been a long history of abortive attempts to do this, and 10 years ago when exchanges such as Milan in Italy were seen as hugely inefficient the project in London
The introduction of CREST and the efficient operation of participants in it is entirely welcomed by noble Lords on these Benches. At the same time we acknowledge that it is absolutely proper to ensure that any entity that is inputting instructions to CREST should be brought under the provisions of the Financial Services Act, and thereby add this activity to the list of investment businesses. We have noted after a long list of unhappy incidents--most recently the collapse of Barings--the paramount importance of efficient and properly run settlements and of protecting investors from any abuse of that. Will the Minister confirm that he believes that the exceptions to the definitions under Notes 1(a) and (b) of the order still leave investors adequately protected in the circumstances of both a takeover offer and a new issue?
As regards disclosure of interests in shares, we would agree absolutely that there would be no advantage in unnecessary information being provided as to the routine operation of CREST which may stop lenders being put over the 3 per cent. or any of the other normal limits for disclosure provided under the Companies Act. We would be concerned about a risk of inadvertently opening new loopholes whereby companies can build stakes in other companies without immediately disclosing the level of their shareholding. For instance, at the moment when a company offers a rights issue a predator can build a stake through buying the nil paid rights in the shares when they are separately traded and delay disclosing the effective interest that that entity has until after the rights issue is completed. There are exemptions for market makers and their requirement to disclose stakes above 3 per cent. I think the Minister confirmed that it is only through the automatic operation of CREST that this exemption can occur, but can he confirm that when a gap of one business day might quite possibly cover four or five calendar days over a holiday weekend there is not a way that this exemption can be used to enable an undisclosed stake to be built in a target company?
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Viscount for his support for the orders before us. Coming from the background he does, he knows a good deal more about these matters than I. He echoes what the Government feel strongly; namely, that a paperless system is essential to the success of London as a financial centre. He pointed to Italy, which has progressed from a market which I think he described as chaotic to one which is now a paperless system. That suggests that we have to keep looking to our laurels. I am pleased that the noble Viscount echoed the point I made in my introductory remarks that it is absolutely right to ensure that those people and companies inputting information into CREST via terminals are registered under the Financial Services Act.
On the point about an undisclosed stake, I believe I said at the end of my speech that this concerns only the electronic system, as the noble Viscount, rightly pointed out. I explained the reasons why we needed to bring forward this order as regards stock lending. The regulations will provide an exemption from the disclosure requirements which, as the noble Viscount rightly pointed out, are important where a person receives shares selected by CREST and those shares are returned the following day. The noble Viscount made an interesting point as regards the following day and the weekend.
Lord Mackay of Ardbrecknish: My Lords, I was about to come to that. The noble Viscount asked how a holiday weekend would affect that. As regards a holiday weekend, a transaction could be carried out on Friday and the next business day would be Tuesday. He asked whether someone could therefore use the system in a way that we do not intend. I shall consider that matter and write to him, although I am confident that we have dealt with it. However, it is a point that I should consider.
I believe that we are in total agreement about the importance of the introduction of the CREST system to the City and about the various regulations and orders which will be needed to run it effectively and efficiently. As regards my assurance that I shall consider the point about holidays, I did not think that important money-men took holidays. However, I accept that they do. I shall consider that point and write to the noble Viscount.
The noble Earl said: My Lords, the order is being introduced as part of the Government's drive to improve the quality of public services and to develop better, more efficient methods of delivering those services. The Government's Competing for Quality programme has produced a sea-change in the way public services are delivered.
Competition has led to better value for money for the taxpayer. In the three years since the Competing for Quality programme has been operating, departments have reviewed, in all, £2.6 billion worth of activities. If managed well and performance matches expectations, the annual cost savings should be around £540 million. Competition has also produced higher standards of service for the customer.
The order is to be made under Section 69 of the Deregulation and Contracting Out Act 1994. It specifies administration of the Principal Civil Service Pension Scheme and associated schemes as a function which contractors may be authorised to undertake. At present under the Superannuation Act 1972 only public servants may undertake the administration function.
Section 1(1) of the Superannuation Act 1972 provides that the Minister of the Civil Service may make, maintain and administer superannuation schemes for persons employed in the Civil Service and related organisations. Administration covers such activities as scheme induction, answering inquiries, maintenance of personnel data, processing applications to buy added years or pay additional voluntary contributions, the calculation of benefits and paying pensions. The administration of the PCSPS and associated schemes is largely decentralised as far as serving members are concerned.
Responsibility for day-to-day administration of Civil Service pension and compensation arrangements is formally delegated under the 1972 Act to employing departments and agencies. They can either perform the full administration function in-house or buy in services from providers within government. The administration of the pension entitlements of retired members of the PCSPS, including those whose pensions are deferred, is undertaken centrally. The Cabinet Office (Office of Public Service) buys the pensioner payroll and associated customer care and banking services from the Paymaster Agency at Crawley.
Lest there be any doubt on the point, I confirm that the order will have application to the Paymaster Agency's role in pensions administration, as this point may not be indisputably clear from the course of the debate in another place.
The order will enable private sector providers as well as existing service providers to compete for the business, and thus extend the choice available to employing departments and agencies. The Civil Service unions and the Civil Service Pensioners' Alliance have been formally consulted over the terms of the draft order.
An efficiency scrutiny of the administration of the Civil Service pension schemes recommended that departments should be encouraged to market test their pension administration operations. Approval of this order will permit departments to test this area of activity against alternative sources in the market. The aim is to give improved quality of service to scheme members and to provide better value for money for the taxpayer.
Decisions on the timing and other arrangements for market tests will be the responsibility of individual departments. It will be open to existing service providers to compete on a value for money basis. Such bids will be
I invite noble Lords particularly to note that the order relates solely to administration of the Civil Service schemes. Concern has been expressed in the Civil Service community, including local branches of the Civil Service Pensioners' Alliance, over the implications of this order for both the active and retired membership of the schemes. Perhaps I may reassure your Lordships on this point.
Occupational pension arrangements for civil servants will continue to be provided through the Civil Service pension scheme. The pensions of scheme members will not be affected. Competitive tendering of the administration function involves no changes in the benefits provided by the scheme, and the pensions of retired members will continue to be increased annually in accordance with the Pensions (Increase) Acts. The Minister for the Civil Service will remain responsible for the development of the scheme and also for the rules setting out the benefits and entitlements of scheme members. There is no pension fund--so there are no fund assets which could be put at risk. Cabinet Office Ministers will continue to account to Parliament for expenditure on the Civil Superannuation Vote.
A contractor would not be allowed to advise civil servants whether to join or leave the scheme or on the merits of individuals making additional voluntary contributions or buying added years. Explanatory booklets for scheme members would continue to be published by the OPS. Steps would be taken to maintain the confidentiality of personnel records. Computerised records would, of course, be covered by the Data Protection Act.
In any market test appropriate service standards for scheme administration of the PCSPS would be set. Any contract would require a standard of service that will be at least as high as that under existing arrangements. Those standards will apply from the outset.
A new pensions administration software package, tailored to the requirements of the Civil Service schemes, is being procured by the Office of Public Service. It will initially become available later in the summer. The new software will enable more efficient and innovative approaches to scheme administration to be adopted--for example, a one-stop shop for serving scheme members. It will enable service levels to scheme members to be raised while significantly reducing costs. The software will be portable between providers, enabling new players, including small businesses, to enter the market place. It will make market testing particularly effective.
A series of competitive tendering exercises will offer the work in manageable parcels. This will encourage new and existing third party administrators to compete effectively for the business and so offer departments and agencies a number of alternative suppliers from which to
I believe that, by exposing administration of Civil Service pension and compensation arrangements to competition, it will be possible to raise service standards to scheme members and secure best value for money in the delivery of the administration function. The pension entitlements of scheme members will not be affected. I commend the draft order to the House. I beg to move.