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I should like to take this opportunity to raise some wider issues arising from the need for the order. What went wrong in this particular case and is there something more fundamentally wrong with the pensions system? On the specifics, can the Minister say anything about how this error arose when the original measure went through both Houses of Parliament? It is easy to say that it is a simple case of human error, and we accept the Minister’s apologies. But I assume that the Minister’s department has checking and oversight procedures which are designed to counter a fairly obvious risk in the context of very complex social security legislation. Those systems have failed. Does the Minister know why and have any investigations taken place? If the department did not have oversight procedures that were adequate to deal with the situation, will he tell us whether any learning has been taken from this error in terms of the way in which legislation is handled?

Secondly, is the pensions system just too complicated? I expect that few people have an understanding of how the graduated benefit component of their pension is expected to work. I speak as somebody who has probably accrued a bit from the early 1970s and I freely confess that I have not the faintest idea how it will affect my pension entitlement or that of my husband.

We know that one of the reasons for the bad take-up statistics in pensions credit is the complexity of the system. It is so complicated that it was not surprising that the Pensions Commission concluded that 9 million pensioners were not saving enough for their retirement. The Government recently introduced something they called pensions simplification, but anyone who has had to wrestle with the Finance Act provisions and the volumes of regulations needed to underpin them will know that it will not result in simplification for a very long time.

I could go on at length about the complexity of public and private pension provisions, but today is not the time for that. I freely concede that this is not a feature merely of the past nine years but has a much longer pedigree under Governments of all parties.

The Government’s recent White Paper referred to a possible pensions law rewrite project. It would be helpful if the Minister could update the House on that. Rewriting the law, as has been found with the Tax Law Rewrite Project, does not reduce its volume or its underlying complexity. Simplification is a different mindset. Is there any hope that the Government would start to address a reduction in complexity in any meaningful way in our pensions system?

Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches also support the order, but I have two or three short and simple questions. Ironically, the original proposals for the introduction of the lump sum payment were contained in the Government’s

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Green Paper Simplicity, security and choice. Sadly, they have not proved simple enough for the Department for Work and Pensions to get them right first time.

How was the oversight or lacuna, as I gather it is now called, spotted? As one of probably not all that many people who did Latin and learnt what a lacuna was, I suggest that “gap” or “hole” are perfectly good words that it might do no harm to use in future. In any case, why did it take two years to come to light? For my own information, why is equivalent provision for Northern Ireland made by statutory rules, while it is done by order for Great Britain?

Finally, and perhaps more significantly, this will be uprated in line with the retail prices index. Will the Minister take on board the fact that the retail prices index is proving a very unreliable measure of the real cost of living as it affects pensioners? Essentials such as housing, fuel and light in particular are now rising in price much faster than the general retail prices index. Indeed, I estimate that for the average pensioner the cost of living has risen something like6 per cent over the past year, which means that if we just stick to the retail prices index uprating it will be a real cut in the standard of living for the average pensioner. Could he comment on that, as it is also relevant to this order?

Lord Hunt of Kings Heath: My Lords, I am grateful for the overwhelming support that I have received tonight for this order. In response to the noble Baroness, Lady Noakes, we think that very few people are likely to be involved, if any, but we are enabled to make extra-statutory payments to any person affected, and the change that the order will make will enable us to ensure that that cannot occur in future. So we hope that no one has been affected, although the sum involved is of course relatively minor.

I did prefer the word “lacuna”, although I had to give up Latin after one year due to not being very good at it. In the course of the work of officials in the DWP, the oversight was identified, which is why the order was brought here today. Noble Lords will know that I have taken a lot of Bills through this House, though not a pensions Bill, and I have had considerable contact with officials who have dealt with pension legislation, so I can say that they are a first-rate group of people who are extremely thorough. Clearly it is regrettable that this oversight occurred, and we need to do everything to ensure that oversights are sorted out before legislation is brought to the House. I have no hesitation in accepting the responsibility of ensuring that that is to happen.

The noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott, made rather more general points about the complexity of pension legislation, and implied that because it is so complex mistakes are more likely to happen. There is no question but that pension legislation is very complex. Something that I have discovered in the work of the Department for Work and Pensions in relation to not only pensions but benefit legislation is that there will clearly always be a trade-off between simplicity and fairness. One

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reason why the existing state pension legislation is extremely complex is because of a wish to make changes to the state pension system that are equitable, to meet social obligations. For that, additional rules are often introduced. The graduated retirement pension benefit is a case in point, owing to its preserved nature.

I would always want to see the legislation simplified—and, as I can tell the noble Baroness, Lady Noakes, we are continuing to work on that matter. But the key outcome is not so much to the legislation but in helping the public to understand the rules and trying to ensure that they are as simple as possible. I hope that one outcome of the pension White Paper following the Turner commission leading to legislation will be a system that the public understand much more clearly than the current system. When simplification in the law can help that, we need to look at that—and we shall continue to do so. The efforts that my department has made to provide statements to members of the public who are coming closer to receiving their state pension have been extremely helpful, and clearly we need to build on that. It is also clear that in relation to deferral or the potential receipt of a lump sum as a result of the changes made in the 2004 Act, a considerable effort has been put into advertising through leaflets and phone lines the availability of this option to the public. Again, I accept that we need to do better in future and shall continue our efforts to ensure that the benefit of this change is made known to as many potential recipients as possible.

As for Northern Ireland, my understanding is that the reason why it is being treated in this way is the suspension of Stormont. Let us hope that we see progress in that area.

Finally, I do not think it is the first time that the noble Lord, Lord Oakeshott, has raised the matter of the RPI with me. We are following current practice. At this stage we have no plans to change it, but we will keep the matter under review.

On Question, Motion agreed to.

Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006

7.56 pm

rose to move, That the draft regulatory reform order laid before the House on 5 July be approved[24th Report from the Regulatory Reform Committee].

The noble Lord said: My Lords, the order amends the Agricultural Holdings Act 1986 and the Agricultural Tenancies Act 1995. The amendments will foster tenant farmer diversification; give tenants and landlords greater flexibility to come to their own agreements; ensure decisions on restructuring are business-led; improve the viability of the tenanted sector; maintain the balance between landlord and tenant interests; and enable landlords and tenants to adapt to the agricultural climate of the 21st century.

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The amendments were developed in collaboration with the Tenancy Reform Industry Group—TRIG—and the proposals have cross-industry support.

Article 5 removes the barrier to tenant farmer participation in diversified activities by amending the criteria for the “livelihood test” for succession to a tenancy. Articles 6 and 8 ensure no loss of compensation or disruption to the rent review cycle when adding to or removing land from a holding, provided that the new holding forms a substantial part of the old holding. Articles 7, 9 and 10 replace the arbitration procedures in the Agricultural Holdings Act 1986 with the procedures in the Arbitration Act 1996 in line with the Agricultural Tenancies Act 1995.

Article 12 also relates to the 1995 Act. It clarifies provisions that have confused industry and professionals since the introduction of the 1995 Act on circumstances in which the 1986 Act continues to apply. It encourages restructuring by introducing new provision to allow parties to agree in writing that, when a tenant holds a 1986 Act tenancy, the 1986 Act will apply, provided that the old holding is a whole or substantial part of the new holding.

Article 13 gives landlords and tenants freedom to set their own maximum notice period for a farm business tenancy and retains the protection of the 12-month minimum notice period. Articles 14 and 15 give landlords and tenants greater freedom to reach agreement on rent reviews. Articles 16 and 17 make it easier for landlords and tenants with farm business tenancies to reach agreement on improvements to a holding by providing an option to agree a maximum limit for the end-of-tenancy compensation.

The order will promote a healthy and competitive tenanted sector without removing tenant protection or disrupting the landlord/tenant balance. The Government have given commitments to monitor the effectiveness of the regulatory reform order, particularly in relation to the impact on tenant farmer diversification, and to keep under review whether future legislative measures might be necessary. I am happy to repeat that commitment here, but I cannot be precise about how it will be done, as changes are always being made to the scope and level of surveys that we undertake. We will carry out this commitment through our close links with industry and the Tenancy Reform Industry Group and through analysis of available statistics and research.

On behalf of the Government, I thank the members of the Delegated Powers and Regulatory Reform Committee for confirming that the present proposals are appropriate to be made under the Regulatory Reform Act 2001, and for recommending them to the House. The committee in another place has also considered these proposals. It concluded that they remove burdens within the meaning of the Regulatory Reform Act 2001 without removing any necessary protections or preventing the exercise of any existing rights or freedoms. Both committees have unanimously recommended that the order be approved. I beg to move.

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Moved, That the draft regulatory reform order laid before the House on 5 July be approved [24th Report from the Regulatory Reform Committee]—(Lord Rocher).

Baroness Byford: My Lords, I thank the Minister for bringing this order before us today. My only disappointment, and I am sure his as well, is that we could not get it in before the Recess. We did try, but I think that time in another place precluded it. One or two of the tenancy agreements have come up, so there has been a delay, but I thank him for explaining it.

I have one query from the point of view of the NFU and then I have one or two directly. The Tenancy Reform Industry Group took its bearing back in November 2002 and reported its recommendations in June 2003. This coincided with the CAP reforms, and the recommendations were made without the benefit of knowing the detailed implication of those reforms. Defra then took a long while to get the RRO drafted, missing, as I have just said, the autumn slot. Although this order is welcome, there may well be some more desirable adjustments to be made in agricultural tenancy law to take account of changes within the CAP. Perhaps the Minister could clarify that. It would be helpful if we could get an assurance that the Government will look sympathetically on any further recommendations that the industry may wish to bring forward in the future. I do not think that that is controversial; it is plain common sense.

We welcome this order. We are particularly pleased that the Government have responded to the way in which farming has changed in recent years, including contracting and other activities that are carried out on the holding. The Minister has, rightly, explained to us tonight that there had been confusion among the industry professionals and practitioners over whether Section 4(1)(f) of the 1995 Act applies only narrowly. I think that I have understood from what he said that that is not true. I hope that I am correct. Hansard records of the debates during the passage of the Agricultural Tenancies Bill suggest that the then Government’s intention was that the provisions would apply narrowly where parties had unwittingly surrendered the status under the 1986 Act.

The effect of the legislation is that when a landlord is asked by a tenant to give his consent to an improvement on the holding, he has no means of knowing the extent of that liability at the end of the tenancy. That could mean that some landlords are reluctant to give their consent to a tenant’s proposals simply because they do not know how much compensation they will be required to pay. Will the Minister comment on that?

I turn to the amendment to the provisions on notices to quit in the 1995 Act. Under that Act, a notice to terminate a farm business tenancy must be given in writing at least 12 months, but not more than 24 months, before the date on which it is to take effect. The current legislation prevents landlords and tenants from agreeing to a longer notice period than 24 months. There is therefore no flexibility to agree a notice period of, say, up to five years, which would

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give both landlords and tenants greater security and enable long-term planning. That is a small issue, but again I would be grateful for some comment.

On the timing of consent, when the noble Lord, Lord Whitty, was the Minister responsible for these tenancies, he promised to monitor the responses of landlords when faced with requests from tenants for renewed consent. He suggested that if the Government had evidence that landlords were reluctant to grant consent, they would consider what further measures were necessary. It would be enormously helpful if the Minister were to reiterate those comments on the Floor.

Finally, I turn to fiscal change. In order not to perpetuate a disincentive for landlords to grant tenants consent to diversify, all land, including buildings, let by a landlord under the 1986 Agricultural Holdings Act or the 1995 Agricultural Tenancies Act should be added directly to the definition of “agricultural property” for inheritance tax agricultural property relief to the extent that it is used for business purposes under consent from the landlord. Agricultural landlords should be able to defer payment of capital gains tax on gains to the extent that they are used to make improvements that increase the economic value of the land subject to agricultural tenancies that are used for business purposes. The business asset taper relief from capital gains should be available to all let land for business purposes, irrespective of the business of the occupier. Again, I would be grateful if the Minister could clarify that.

While we welcome this order, I have raised one or two specific issues, and would be grateful if the Minister responded to them. We hope that the order will make it much easier for those who have tenancies to get on and diversify and make a little bit more money than they have been able to in the past, and at the same time give landlords a certain amount of security, which they also need.

Lord Livsey of Talgarth: My Lords, a lot of the ground that I was going to cover has been covered already, and I do not wish to delay the House too much. However, I wish to make one or two points.

As has been said, it was hoped that this regulatory reform order would come to us before Michaelmas, this September. We all know why it did not. I know that the Minister tried very hard to get it in place in time, but the general clogging up of the legislative process seems to have made that impossible.

The work done by the Tenancy Reform Industry Group made an invaluable contribution to this order. It straightened out much tenancy law and policy that was not entirely satisfactory in the previous legislation. I shall consider the livelihood test towards the end of my remarks.

The regulatory reform order introduces amendments to ensure that agricultural work done away from the holding as well as other work can be approved in writing by the landlord. I shall make further points on that. One needs to be an expert in land law to deal with this order. It is complex but it is a very good attempt to overcome some of the

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anomalies to which the noble Baroness referred, particularly the problem that the original holding must remain a substantial part of a new holding. That appears to have been sorted out in the order, as does compensation, which is a difficult area on which to legislate.

The arbitration procedures in the Agricultural Holdings Act 1986 were very inflexible. The order seems to introduce much more flexibility in settling disputes. That can only be a good thing. The amendment to provisions of rent reviews in the regulatory reform order, which amends Section 9 of the Agricultural Tenancies Act 1995, as the Minister said, and allows parties to opt out of rent review provisions by express agreement, is a good solution to that problem.

As regards notice to quit, the removal by the regulatory reform order of the upper limit of 24 months is a desirable outcome. I hope that I have interpreted that correctly and that the process could go on for much longer than 24 months. If that is the case, it is a good thing.

I refer to one of the concerns of the Tenant Farmers Association and, indeed, of the Tenancy Reform Industry Group. TRIG proposed that non-agricultural income earned on or from the holding should be able to be considered where the landlord had consented to the non-agricultural use at any time, whether before or after the introduction of the regulatory reform order. At a late stage, it was discovered that the provision in the RRO would be able to apply only if the consent from the landlord came after the introduction of the RRO. That means that, even where a tenant is involved in an established non-agricultural use of the holding previously consented by the landlord, he will have to seek the landlord’s consent again if any of the income from that activity is to be eligible to be counted in the livelihood test of the potential successor. There is a risk that landlords may decide not to give that consent and perhaps not to be helpful either. The noble Baroness made the point that the noble Lord, Lord Whitty, had promised to monitor the responses of landlords when faced with requests from tenants for renewed consent. That is an important point on which both the noble Baroness and I agree.

The noble Baroness mentioned the fiscal changes, with which I agree. However, TRIG has raised structural issues. The Government were asked by TRIG to consider various structural issues, including barriers to tenants’ retirement, lack of support for new entrants and the risk of the loss of county council smallholding farms. I know that far too many of those farms have been lost. They provide the first rung on the farming ladder. I have been, and continue to be, very closely associated with the young farmers movement. These are very important issues. As we know from many surveys that have been carried out, in most areas of the country the average age of farmers is between 55 and 60. There are many very good young farmers with plenty of good ideas who are just champing at the bit to get a holding. The Government would find a very good response in

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the agricultural industry if they paid attention to the structural issues that TRIG highlighted in its evidence to the Government.

On the whole, there is a welcome for the order. It is certainly quite an improvement on what went before, and we only regret that it did not come forward sooner.

8.15 pm

Lord Rooker: My Lords, at the outset, I apologise to the industry about that delay. To be honest, in the summer I would like to have pushed it. With all the other things that the House was doing in that period in July, there was no way that the business managers could slot this in, and one had to weigh up the balance. This was just one of the things that got squeezed. I realise the effect—maybe I did not so much to start with, but I soon had it brought home to me—of the Michaelmas changes.

I will have to write about some of the issues that the noble Baroness asked me about, such as inheritance and capital gains tax. There are Treasury matters there. The other thing is—I do not use this in any way as an excuse—that the order is made under the regulatory reform legislation, so there are certain constraints. It is not a free-for-all where you can do anything that you want; there are constraints about regulatory reform. It has taken an inordinate length of time. My officials apologised to me and said that it had taken a lot longer than was planned when the committee was set up following the foot and mouth outbreak. Nevertheless, we have got the order, and that is crucial.

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