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30 Jun 2008 : Column 61
Lord McKenzie of Luton moved Amendments Nos. 92A to 92F:
“( ) if the contributions are payable to a money purchase scheme, a hybrid scheme or a personal pension scheme, a requirement to pay interest on the amount required by the notice to be paid in respect of unpaid relevant contributions, at a rate and in respect of a period determined in accordance with regulations.”(a) in the case of a compliance notice, such date as may be specified in the notice;(b) in the case of an unpaid contributions notice, the due date within the meaning of section 33(4).(6) In this section, “employer” in relation to a worker means the person by whom the worker is or, if the employment has ceased, was employed.”
On Question, amendments agreed to.
Clause 34, as amended, agreed to.
Lord McKenzie of Luton moved Amendment No. 92G:
(a) in relation to a jobholder, employer contributions payable to a qualifying scheme in relation to the jobholder;(b) in relation to a worker to whom section 8 applies, employer contributions payable to a pension scheme which satisfies the requirements of that section.(a) on the employer’s own account (but in respect of the worker), or(b) on behalf of the worker out of deductions from the worker’s earnings.”On Question, amendment agreed to.
Clause 35 [Fixed penalty notices]:
Lord Skelmersdale moved Amendment No. 92GA:
“(4) The amount of any financial penalty imposed under subsection (1)(a), (b) or (d) must not exceed £5,000.
(4A) The amount of any financial penalty imposed under subsection (1)(c) is, subject as follows, to be 50% of the total of the amounts referred to in subsection (4B).
(4C) If a financial penalty as calculated under subsection (4A) would be less than £100, the financial penalty specified in the notice shall be that amount.
(4D) If a financial penalty as calculated under subsection (4A) would be more than £5,000, the financial penalty specified in the notice shall be that amount.
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(4F) If the employer on whom the notice is served, within the period of 14 days beginning with the day on which the notice was served—
The noble Lord said: I shall speak also to Amendments Nos. 92JA, 93, the Question whether Clause 36 should stand part, 106ZA and 106ZB. The operative part of all this is Amendment No. 92GA.
It is unusual for a Member of the Opposition to produce quite as detailed a piece of drafting as I have done, but my amendments are based on a provision in the Employment Bill, which recently passed through this House and is proceeding through another place. I make it very clear for the avoidance of doubt that I will not press the amendments; they are intended to probe DWP Ministers’ approach to compliance and contrast it with that of their colleagues in a different department.
6.15 pm
In the Employment Bill, the Government seek to amend legislation dealing with employers’ compliance with the national minimum wage, as the Department for Business, Enterprise and Regulatory Reform apparently feels that the current penalty is unclear and not a sufficient deterrent. On these Benches, we had no strong objections to the Government’s plans. There is evidence of wilful non-compliance; the measures were consulted on fully; and the result is a clearly defined penalty with an incentive for employers to make good their arrears quickly.
Unfortunately, none of the good practice evident in the Employment Bill seems to have made an appearance in the Pensions Bill. Clauses 35, 36 and 51 represent a marked departure from the principles on which DBERR based its compliance legislation. My amendment therefore brings forward those aspects of the Employment Bill that the Minister would do well to consider in this case.
DBERR agreed with many of the respondents to its consultation, including the CBI, chambers of commerce and the Forum of Private Business, that using a multiple of arrears was a sensible, proportionate way to enforce compliance, hence my new subsection (4A). This Bill, under DWP’s aegis, has failed to ensure proportionality and does not provide clarity. Its provisions instead would allow penalties to be arbitrary, inconsistent and disproportionate to the non-compliance.
I have no doubt that the Minister will bring forward his favourite word, “flexibility”, when defending the non-specific nature of these penalties. Perhaps he will suggest that in cases where it was clearly a mistake on the part of the employer rather than wilful non-compliance there should be no penalty at all. If he were to make that argument, I would be in complete agreement, but my amendment would in no way force the regulator to impose a penalty in the event of any non-compliance.
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I sincerely hope that it is the regulator’s intention to be very light handed when imposing financial penalties. The employer duties set out in the Bill will be many and varied and, as we have heard, are not even close to being fully defined. The number of unintentional breaches may be very high as employers, particularly in small businesses, struggle to absorb the burden that the legislation will place on them. To impose penalties on them for breaches that they have every intention of rectifying would be both unfair and counterproductive to the long lasting success of auto-enrolment. For this reason, DBERR, and my amendment, would ensure an incentive for prompt repayment: a 50 per cent discount for making good any arrears or paying any penalty promptly.
Perhaps the Minister will criticise my amendment and, therefore—I presume—his colleagues in DBERR, for not providing a suitably large deterrent. The upper limit specified in my amendments is £5,000 rather than the astronomical £50,000 in the Bill. DBERR’s consultation specifically addressed this issue. It pointed out that only 3 per cent of cases investigated in 2005-06 would have required a penalty higher than £5,000, and it felt that they were so serious as to be better dealt with by criminal prosecution. Moreover, the government documentation also highlights concern that a disproportionate civil penalty would breach Article 6 of the ECHR. Why is this concern not felt by Ministers in the DWP?
For those reasons, DBERR also considered carefully, and then rejected, any thought of an escalating penalty. The best way to deter the worst offenders was again stated to be through criminal prosecution. Clause 36 of this Bill instead sets out an extraordinarily open-ended escalating penalty.
My two amendments to Clause 36 highlight two aspects of this flexibility. First, the clause does not limit the regulator to using the escalating penalty only in proven cases of non-compliance. My amendment would make certain that a fixed penalty had been ignored before allowing its use. Secondly, there is no upper limit whatever in this clause. For the daily limit of £10,000, we could be seeing enormous sums, easily capable of bankrupting a business, becoming due in a very short period. My amendment therefore follows my line of thinking about Clause 35—that it would be sensible to involve the courts in extreme cases of non-compliance.
As I said at the beginning, these are essentially probing amendments designed to give the Minister an opportunity to explain his approach. We have not heard so much about joined-up government in recent months as we used to, but I assume that the Government would still wish to be thought of as reasonably consistent across their departments. I look forward to hearing his response. I beg to move.
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Lord Oakeshott of Seagrove Bay: I congratulate the noble Lord, Lord Skelmersdale, on his hard work in drafting this, and for the extensive evidence of what is going on in DBERR. I am sorry that I am not as au fait with that as I should be. However, I am bound to say that this seems a pretty light slap on the wrist—or, should I say, half a slap on the wrist with the 50 per cent discount. I look forward to hearing what the Minister says, but the Conservative approach is rather lenient here.
Lord McKenzie of Luton: I thank the noble Lord, Lord Skelmersdale, for this amendment. I understand that it is by way of a probing operation. He has raised issues about the penalty provisions in Clauses 35, 36 and 51. I shall also respond to his request for a clause stand part debate on the escalating penalty provision in Clause 36.
These are important provisions, and I thank the noble Lord for giving the Committee the opportunity to examine them more closely today. It may assist our consideration of these amendments if I begin with an overview of the compliance regime and the role of penalties within it. While we are confident that the majority of employers will meet their new duties, we need an efficient and effective compliance regime to maximise compliance. The proposed approach comprises three stages: educating, enabling and enforcing. The emphasis is on educating and enabling employers to meet their duties; only when that fails will the Pensions Regulator take proportionate, graduated enforcement action. That action will start with statutory notices, moving to fixed and escalating penalties if non-compliance persists. The availability of financial penalties will therefore play a small but significant role in securing compliance and enabling jobholders to access pension saving.
I understand that the noble Lord has tabled some of these amendments to explore why we have not adopted the same legislative approach and penalty structure as in the revised national minimum wage regime set out in the Employment Bill. Before addressing each of his amendments, it may be helpful to set out why our approach differs from the proposals for the minimum wage.
I reassure noble Lords that the compliance regime for the reforms in this Bill will accord with good practice and available evidence. We are building on analysis of other regulatory regimes, not only the minimum wage regime but also the compliance approach for PAYE requirements; the Companies House regime for ensuring that corporations file their accounts; and, internationally, the approach taken for the superannuation scheme in Australia. We are further developing the penalty regime in line with the recommendations of the Macrory review and with regard to the regulatory principles of transparency, accountability, proportionality and consistency.
There is no doubt that we are at a different stage from the national minimum wage regime, which is now in a position to place more specific provisions in the Bill in the light of practical experience and the data accumulated on the enforcement approach. That approach cannot be replicated for an entirely new regime. We have been clear on the maximum penalty
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On the specific amendments tabled by the noble Lord to Clauses 35 and 51, since the provisions of the Employment Bill were carefully tailored to meet the needs of the national minimum wage regime, some problems arise when they are translated into the context of our new regime. For example, reducing the £50,000 fixed-penalty ceiling to £5,000 in Clauses 35 and 51 would make the regime out of step with the regulator’s current powers. Under Section 10 of the Pensions Act 1995, the regulator has the power to impose fines of up to £50,000. We believe that it is important to ensure that complying with the new duty is seen to be as important as complying with existing legislation. Several stakeholder groups, including the CBI, have indicated their broad support for this decision.
Secondly, the noble Lord’s amendment to Clause 35 would calculate penalties associated with unpaid contributions based on the amount unpaid, just as the Employment Bill calculates penalties based on the amount of underpaid wages. However, in the pensions context, we have a series of related duties, and there are practical implications of different breaches carrying different penalties. For example, an employer who does not automatically enrol one of their workers into a qualifying scheme inflicts much the same harm as an employer who does not pay over the relevant contributions to a scheme. It is therefore unclear why they should be treated differently. We are not ruling out the possibility of tying penalties in certain circumstances to the nature of the contravention. However, we would like the opportunity to conduct full preparatory research and engage in formal consultation first.
Thirdly, the noble Lord’s amendments to Clauses 35 and 51 place an early-payment discount in the Bill. Such a discount is a common feature of penalty-based regimes, and is a strong candidate for inclusion among the options to be brought forward in our consultation and regulations. Early-payment discounts promote rapid compliance, which is why the Government felt that it was crucial to place this in the Bill in the national minimum wage context. Time is of the essence when we are talking about remedying shortfalls in the pay packets of some of the most vulnerable workers in our society. The implications are not identical with reference to late payment of pension contributions—but, again, this is a strong candidate for inclusion in our regulations.
I hope that I have reassured the noble Lord with regard to the amendments tabled to Clauses 35 and 51. On the amendments to Clause 36, a similar question of penalty caps is raised in relation to escalating penalty notices. The amendment would cap the total amount payable for a single breach at £50,000. I shall explain why we chose to cap the amount of the daily escalating rate at £10,000 but not to cap the total amount payable under these notices. The essence of an escalating penalty is that its value directly reflects how long an employer continues not to comply. Such penalties
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As for the noble Lord’s second amendment to Clause 36, the intention is to ensure that daily escalating penalties are issued only if an employer effectively ignores a preceding fixed penalty. I assure him that we have always envisaged a sequential issue of penalties as part of the wider graduated approach. However, there may be cases where the recipient of a fixed penalty notice may pay the penalty but does not put right the situation that caused it. In these circumstances, the regulator will require the option of issuing escalating penalties to ensure compliance.
I hope that I have reassured the noble Lord, and that he will withdraw these amendments, which I understand are probing in nature. I have set out the background to why these provisions are in the Bill in this form.
6.30 pm
Lord Skelmersdale: I am grateful for that long and fairly explanatory answer. I accept that there are already powers in previous legislation to allow the regulator to impose fines of up to £50,000. Can the Minister tell me whether the regulator has any powers to use escalating fines thereafter?
A compliance regime must be both efficient and practical. There will be small differences with the national minimum wage. However, the regulator having the power to impose £50,000 in certain circumstances does not mean that we could not take the opportunity of the Bill to review whether that has been effective, and whether £50,000 is the right level. How many times has the regulator used the maximum fine? If he has not, that is a good reason to look at the whole thing again. I am glad that the Government are prepared to look at a 50 per cent reduction for paying the fine early and consult upon it—the least that they could do under the circumstances.
I said this was a probing amendment and I meant it. Unless the Minister wants to come back to me, I shall withdraw it now.
Lord McKenzie of Luton: I do not want to deter the noble Lord from withdrawing his amendment, but it might be helpful if I deal with a couple of points that he has raised. He asked whether there are currently escalating penalties. I understand that there are not. Penalties in the Bill should not generally signal a review of the Pensions Regulator’s powers. I presume that consultation and discussion of these powers might at least butt up against that.
On the argument that a system of penalties would put firms out of business, the primary aim of the compliance regime is to encourage the employer to
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Lord Skelmersdale: I am grateful. Clearly, however, the Bill contains a ratcheting-up of the compliance regime that already exists within the pensions framework, albeit for a slightly different purpose. I will have to look at that extremely carefully. I said that I would withdraw the amendment, and I will. However, I certainly reserve the right to bring back the issue in one form or another, perhaps one not directly relevant to the national minimum wage, at the next stage of the Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton moved Amendment No. 92H:
On Question, amendment agreed to.
Lord Tunnicliffe moved Amendment No. 92J:
Clause 35, page 17, line 23, leave out “appeal” and insert “referral to the Pensions Regulator Tribunal”
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