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Once again, I thank the noble and learned Lord, Lord Lloyd, for allowing us to discuss this important issue. I am sure that we will take careful note of the many constructive comments made by noble Lords tonight.

Lord Evans of Temple Guiting: My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 pm.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.29 to 8.30 pm.]

Pensions Bill

Consideration of amendments on Report resumed.

Schedule 6 [The Personal Accounts Delivery Authority]:

Baroness Noakes moved Amendment No. 13:

The noble Baroness said: My Lords, I shall also speak to the other amendments in the group. They concern the conflict of interest provisions in paragraph 2 of Schedule 6.

Paragraph 2 says that the chairman and non-executive members cannot be appointed if they have conflicts of interest, and that the Secretary of State has to keep this under review. My Amendments Nos. 13 to 16 would make paragraph 2 applicable to all directors. If it is appropriate not to appoint a non-executive director because of a conflict of interest, it must surely be inappropriate for an executive director with a conflict of interest to be debarred from appointment.

The Minister batted this away in Committee, saying that the executive members were public sector employees and hence subject to what she described as,

She also said that executive directors have to declare interests in accordance with paragraph 13 of Schedule 6. I regard that as a red herring, as the declaration of an interest applies to all directors and the declaration of an interest is something less than a conflict of interest.

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The Minister said that because non-executive directors could have other directorships the issue of conflict of interest could arise, but that this would not arise for executives because they were public sector employees. She seemed to imply that public sector employees would not have other directorships and hence no conflicts of interest. I do not believe that it is axiomatic that a public sector employee can never be a director of something, for example, a non-profit body. If the Minister believes otherwise, will he state the chapter and verse for that? Indeed, will he go further and state how this Bill ensures that any such rules for public sector employees will apply to the employees of the delivery authority? I have looked at the Bill and could find no reference in the schedule or elsewhere to the importation of any such rules, whatever they are.

More importantly, a conflict of interest will be capable of arising in other ways. In Committee in another place, the Minister cited a member of someone's family running a company which could be affected by the introduction of personal accounts as an example of a conflict of interest. I can see that; but surely that is just as likely to arise for an executive member as it is for a non-executive member because the existence of the activities of the spouse will be unrelated to the status of the director.

That neatly leads me to Amendment No. 17, which amends sub-paragraph (6) of paragraph 2 so that a conflict of interest is defined as a conflict of interest of a director or a person connected with him. Amendment No. 18 adds a new sub-paragraph after sub-paragraph (6). That imports the definition of connected person from Section 252 of the Companies Act 2006, which the Minister will doubtless recall from the many hours we spent on that Act when it was a Bill. He will be aware that that definition is already being used for the declaration of interest provisions in paragraph 13.

In Committee, we debated whether the reference to “financial or other interest” was sufficiently clear to pick up all indirect conflicts of interest. The Minister was certain that it was, but I remain unconvinced about that. I remain concerned that while paragraph 13 has a very clear delineation of the extent of indirect interests using the well known Companies Act formula, no such certainty exists for these conflicts of interest which might arise indirectly and fall foul of paragraph 2.

I hope that the Minister will look more favourably on these amendments than the ones I moved in Committee. I beg to move.

Lord McKenzie of Luton: My Lords, I thank the noble Baroness, Lady Noakes, for tabling these amendments. It gives us a chance to review again the matter she raised in Committee. I do not believe that we are apart in what we believe should be the outcome of these arrangements.

I understand the noble Baroness’s concerns, but I can reassure her that the Government recognise how vital it is that the authority is seen as independent, that it operates with integrity, and that its processes are transparent to help build trust and credibility in

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personal accounts. We have obviously taken that very seriously when drafting the provisions in the Bill, and, in particular, in relation to the appointment of the non-executive members of the authority.

The non-executive directors are the custodians of the Government’s process. They represent an independent check on the Executive. Part of their role is to ensure that the body, as a whole, is run with probity. In making such appointments, we are therefore following all appropriate guidance, ensuring that candidates declare any conflicts of interest at the earliest possible stage of the recruitment exercise to ensure the independence of the non-executive members. Paragraph 2 of Schedule 6 makes this process very transparent.

The noble Baroness asked whether there should be one rule for the non-executives and another for the executives. If we accepted her amendments, we could equally ask why there was one rule for the executive members, who were employees of the authority, and another for other employees of the authority.

The executive members of the authority are public sector employees, working full time for the delivery authority. While it will still be necessary for executives to declare a conflict of interest—indeed, the information pack for candidates makes that very clear—the issue is not the same as that of non-executives. As with all other authority employees, the contract of employment for executives will cover such things as conflicts of interest, and they will need to comply with the authority’s code of conduct for staff. That is the mechanism.

It is also important to remember that the delivery authority will be run in line with the principles of good corporate governance, which includes ensuring that any conflicts of interest are properly declared, considered and recorded. Schedule 6(13) ensures that during all meetings of the authority, anyone who has an interest in any matter to be discussed must declare it, and that the declaration will be recorded. In addition, the authority will be required to have a register of members’ interests. Those measures offer reassurance that any interests will be dealt with appropriately by the authority.

I hope that that has reassured the noble Baroness on that point. Clearly, conflicts of interests must be avoided in relation to executive and non-executive directors alike, but the route to tackle them for executive directors is through contracting arrangements, as for the rest of the employees of the authority.

Turning to what constitutes a conflict of interest for the purposes of paragraph 2 of Schedule 6, we have defined a conflict of interest in sub-paragraph (6) as any interest, financial or otherwise,

The inclusion of other interests allows a wide range of factors to be taken into account when considering whether a conflict of interest exists. We consider that that would also include circumstances in which a conflict of interest may arise in relation to a person

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connected with a non-executive. We believe that the description in the Bill automatically encompasses that but goes further.

Amendments Nos. 17 and 18 specify further what might constitute a conflict of interest for non-executive members. The former dictates that the interest of a person connected with a non-executive can constitute a conflict of interest. The latter refers to Section 252 of the Companies Act 2006 to provide a definition of “connected persons”. Although I agree with the spirit of those amendments, which seeks to ensure that the most vigorous criteria are applied when assessing conflicts of interest, the Government’s approach achieves that better—or equally. The paragraph will require the delivery authority, in making any future non-executive appointments, to follow the same procedure regarding potential conflicts of interests—under paragraph 2(5). So as it stands, in each case, that could include the interests of a person connected with a non-executive.

I hope that that explanation will assure the noble Baroness that the existing provisions in the Bill concerning appointments and conflicts of interest are perfectly adequate. I have heard nothing in what she said that suggests that we are seeking a different outcome on this, but I believe that the way that the Bill is drafted is one route to achieving that objective.

Baroness Noakes: My Lords, I thank the Minister for that reply. He is absolutely right to say that there is nothing between us of substance on this; I was probing how it will work in practice.

I dislike the distinction that the Government have drawn between the executives and non-executives. Normally, when the Government propose structures involving executive and non-executive members of the board, they do so claiming the virtues of the unitary system. The whole idea of the unitary system is that directors, whether they are executive or non-executive, are working on the same terms, in effect—it is just that some work there full time and some part time. It is unsatisfactory that the Government have diluted the concept of the unitary board. I have drawn attention to what I think is vague and lacking in clarity; for example, the extent of “other interest” in the Bill. The Minister thinks that it is adequately dealt with; I must let the Government live to rue the day if they have made a mistake in their drafting and not pursue it further today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 14 to 18 not moved.]

Baroness Noakes moved Amendment No. 19:

“(d) is unfit for office by reason of misconduct,”

The noble Baroness said: My Lords, noble Lords will see that the amendment has the support of the noble Lord, Lord McKenzie, so I am very hopeful that it will be accepted by the House.

In Committee, I raised the question of what the words, “is guilty of misbehaviour”, meant. That is

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one of the grounds for removing a chairman or non-executive from office—although, interestingly, not an executive, but we will not pursue that further. I gave various examples which attracted a certain amount of interest outside your Lordships' House, which I shall not repeat today.

I then proposed the form of words which the Government proposed in the Statistics and Registration Service Bill, and Amendment No. 19 is a repeat of that amendment. I am delighted that the Minister, who was encouraging in its response in Committee, has joined me in the amendment today. I beg to move.

Lord McKenzie of Luton: My Lords, I am very happy to accept the amendment.

On Question, amendment agreed to.

The Deputy Speaker (Lord Lyell): My Lords, I advise the House that if Amendment No. 20 is accepted, I cannot call Amendment No. 21.

Lord McKenzie of Luton moved Amendment No. 20:

(a) pay to the chairman and other non-executive members such remuneration, and(b) pay to or in respect of the chairman and other non-executive members such sums by way of or in respect of allowances and gratuities,as the Secretary of State may determine.”

The noble Lord said: My Lords, I made it clear in Committee that we would look again at the provisions that enable the authority to pay non-executive pensions. The provisions were included originally because the remuneration requirements for delivery authority members had not been finalised, and it was therefore prudent to ensure that the provisions had maximum flexibility while the remuneration proposals were being developed. The existing provisions ensure that the authority can, but does not have to, pay non-executive members sums in respect of pensions. The noble Baroness rightly pointed out in our earlier debates that it is unusual for non-executives to receive pension provision, and the Cabinet Office guidelines in Making and Managing Public Appointments also make it clear that most public appointments are not pensionable. On reflection, we agree with the noble Baroness. Amendments Nos. 20, 22, 24 and 25 therefore remove the provisions for non-executive pensions and tidy up the remaining remuneration provisions.

8.45 pm

In Committee, the noble Baroness also expressed concern about the inclusion of gratuities. Her amendment seeks to remove the provisions that enable gratuities to be paid to non-executive members. We have carefully considered the points that she made, and I am inclined to agree with her that the language sounds a little Victorian. I assure her, however, that we will not be tipping the non-executive members, as she suggested in Committee. The language may seem old-fashioned,

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but I assure her that the term “allowances and gratuities” is used frequently in legislation for statutory bodies of this kind, such as the Serious Organised Crime Agency in the Serious Organised Crime and Police Act 2005, the Strategic Rail Authority, Natural England, the Pension Protection Fund, the Pensions Regulator, the Commission for Equality and Human Rights, and the Olympic Delivery Authority—also to my surprise. Gratuities in this sense are taken as payments that are not covered by the terms and conditions of the appointment of non-executives. A gratuity might, for example, be a payment for additional work that has not been specified, or it might cover a settlement in respect of actual or prospective legal claims that the office holder may bring against the appointing body on grounds, for example, of personal injury.

In these circumstances, there is merit in retaining the flexibility for payment of gratuities to non-executives. I hope that the noble Baroness is reassured that we have listened carefully to the points that she has made and that, although we have removed pension provision for non-executives, we seek to retain the provisions for the payment of allowances and gratuities. I beg to move.

Lord Oakeshott of Seagrove Bay: My Lords, I listened carefully to that explanation. The fact that the word does not mean what most people think it means in a great string of other public bodies is neither here nor there. I was not impressed by that explanation, and I invite the Minister to think a little more carefully about it. “Gratuity” has a very clear meaning in English, and we should stick to the normal meaning when we are making legislation.

Baroness Noakes: My Lords, I agree with the noble Lord, Lord Oakeshott. Many statutes are simply lifted from previous statutes and made according to the Victorian parliamentary draftsman’s handbook, which has not been updated to move with the times. The term “gratuity” is extremely old-fashioned. I would have been quite happy to concede previously that it has been used in other legislation.

I am grateful to the Minister for considering the points that I made in Committee and responding on the pensions issue, which is extremely helpful. I simply suggest that some day someone must get parliamentary draftsmen to use modern language in today’s Bills when drafting corporate structures, which have moved on quite considerably from those that parliamentary draftsmen used to create even 10 or 15 years ago. I will not pursue that point today, but the Minister might like to do so. I am grateful to him for tabling the amendment.

On Question, amendment agreed to.

[Amendment No. 21 not moved.]

Baroness Noakes moved Amendment No. 22:

On Question, amendment agreed to.

Baroness Morgan of Drefelin moved Amendment No. 23:

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The noble Baroness said: My Lords, government Amendment No. 23 relates to provisions for the deputy chairman of the delivery authority. In our earlier debates, the noble Baroness, Lady Noakes, questioned the provision that enabled the Secretary of State and the chairman to give directions to the deputy chairman about the discharge of the chairman’s duties. It is not our intention to enable the Secretary of State to interfere in, or indeed micromanage, the work of the authority. Rather, the provisions are included as a helpful measure to ensure that the deputy chairman can discharge the functions of the chairman in appropriate cases to ensure the smooth running of the authority. It was envisaged that this may be helpful if, for example, the chairman was incapacitated for some time due to ill health.

We have considered carefully the concerns of the noble Baroness. I agree with her that these provisions appear a little heavy-handed and could imply that the independence of the delivery authority would be compromised. I wish to reassure her that this was not our intention, so the government amendment removes the ability of the Secretary of State or the chairman to issue directions to the deputy chairman. Instead, provision is made for the deputy chairman to undertake the duties of the chairman only when the chairman is unable to do so, such as when he is on holiday or unwell. We have also added a provision that gives the chairman a discretionary power to issue guidance to the deputy on how the functions should be exercised. The deputy can discharge functions whether or not guidance is issued, but he must have regard to any guidance that has been issued when deciding how to discharge those functions. Any guidance issued by the chairman is to have no effect on whether the deputy can discharge the functions. When the chairman is unable to discharge the functions, the deputy is to be entitled to discharge any of the chairman’s functions.

I hope that the noble Baroness will be able to support the amendment and I beg to move.

Baroness Noakes: My Lords, I am delighted to support the amendment proposed by the noble Baroness.

On Question, amendment agreed to.

Baroness Noakes moved Amendments Nos. 24 and 25:

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