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Similarly, the claimed precedent of PAYE requirements does not stand up to scrutiny. The Finance Act 1994 limits the escalating penalty to the terrifying sum of £60 a day. It also caps this escalating penalty at the total tax liability. The noble Lord, being an accountant, would know that only too well. I would be perfectly happy with an uncapped escalating penalty if it were limited to £60 a day rather than the £10,000 we are looking at instead.
I hope that these amendments meet with better success than their predecessors did in Committee. I beg to move.
Lord McKenzie of Luton: My Lords, I am grateful to the noble Lord for raising this matter and for giving us the chance to discuss the important issue of the penalty regime. As is common with other penalty regimes, we have set the maximum penalty ceilings in the Bill, with details of the regime to be set in regulations. We will make regulations following further analysis of levels in existing regimes and consultation with stakeholders.
We are considering a range of options which include scaling the level of penalties to employer size, as well as other approaches. This work includes, importantly, establishing that the processes for setting penalty levels are workable in practice.
The amendments to Clauses 39 and 40 propose to limit the total amount of a fixed or escalating penalty dependent on the size of the employer by turnover. The notion of scaling maximum penalties by employer turnover, as suggested in the amendments, presents a number of challenges. It could lead to significant operational difficulties because the Pensions Regulator would require additional financial information about an employer before a penalty notice could be issued. For some employers the regulator may obtain this information from Companies House. However, smaller, micro-employers may not be registered with Companies House—they may not be corporates—therefore the regulator would have to contact them directly. This would create a burden on such businesses, as they would be required to provide the financial information. It could also impede the imposition of a penalty, therefore slowing the processes of ensuring employers meet their obligations. As the noble Lord acknowledged, we have already set the ceiling for fixed penalties at £50,000, in line with the regulator’s current limit. An additional cap at 10 per cent would be inconsistent with the regulator’s existing regime.
We see any ceiling on an escalating penalty as potentially problematic. The essence of an escalating penalty is that its value directly reflects how long an employer continues not to comply. Capping the level to which it may rise could significantly limit its impact and incentives for employers to comply.
It might be helpful if I gave two hypothetical examples of how much money non-compliant employers could withhold to illustrate that having a large maximum penalty is necessary for the success of the reforms. A
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As I say, the essence of an escalating penalty is that its value directly reflects how long an employer continues not to comply. Capping the level to which an escalating penalty may rise could have a significant impact on the escalating penalties and incentives for employers to comply. I reiterate that we are exploring options to ensure that penalty levels are proportionate. This detail will be set out in regulations and we will consult fully employer groups and other interested parties. The draft regulations will be published for consultation in due course and we will welcome further input at that point.
Reference was made to how escalating penalties differ from those provided for by HMRC. HMRC can impose a daily penalty of up to £60 for the late return of income tax self-assessment papers. The Bill sets a daily limit of £10,000 per day. However, as we explained, the actual daily penalties will be set out in regulations. While the principle of the deterrent is the same, the level of penalty needed is completely different.
I hope that that explanation has persuaded the noble Lord to withdraw his amendment. There is still work in progress and we need to have meaningful consultation to ensure that, within the maximums that are set down here, we come up with a regime which does the job and is proportionate.
Lord Skelmersdale: My Lords, the Minister reminds me of an incident many years ago when a noble Lord who had a stutter addressed the House. That stuttering space, while he managed to get the next word of his sentence out, meant “actually”. The Minister reiterates a whole phrase again and again. However, he can set his mind at rest because I have no intention of dividing the House on these amendments. I appreciate that Clause 40 sets out the maximum and that it is very unlikely—I hope impossible—that they will ever be reached. Indeed, I pointed out that the £50,000 has not been reached in the past 13 years. However, I make no apologies whatever for tabling these amendments as, if I had not done so, I would not have discovered that the Government were considering setting penalties depending on the size of the employing firm. That is the underlying idea behind these two amendments. I am very pleased to hear that, as I am sure employers will be. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 40 [Escalating penalty notices]:
Lord Skelmersdale moved Amendment No. 38:
38: After Clause 41, insert the following new Clause—
“Guidance on the appropriate level of a penalty
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(1) The Regulator must prepare and publish guidance as to the appropriate amount of any penalty under sections 39 and 40.
(2) The Regulator may at any time alter the guidance.
(3) If the guidance is altered, the Regulator must publish it as altered.
(4) No guidance is to be published under this section without the approval of the Secretary of State.
(5) The Regulator may, after consulting the Secretary of State, choose how he publishes his guidance.
(6) If the Regulator is preparing or altering guidance under this section, he must consult such persons as he considers appropriate.
(7) When setting the amount of a penalty under sections 39 and 40, the Regulator must have regard to the guidance for the time being in force under this section.”
The noble Lord said: My Lords, I hope that when considering making penalties appropriate for the size of the relevant firm, as the Minister just mentioned, he will also consider issuing guidance on the appropriate level of a penalty. It is only right that firms should know what they may be in for should they disobey pensions law.
This amendment is a last-ditch attempt to put one of the safeguards in the Bill that the Minister promised would apply. The proposed new clause is based on the Competition Act 1998, which explains its rather lengthy drafting. In Committee, the noble Lord prayed in aid the Macrory review to justify the penalty regime the Bill sets up. One of the recommendations of that review, which the Government claim to have implemented in full, was transparent enforcement. The advantage of such transparency is clear: better information about penalties will lead to better compliance. Therefore, I cannot see any objection that the noble Lord might have to the principle behind my amendment or, indeed, the amendment itself. What possible situation could justify withholding guidelines on the penalty regime from employers, or what could excuse arbitrary deviation from such guidelines?
Since my previous group of amendments failed to win the Government’s total approval, I hope that they will accept this one as a palliative measure. With such flexibility and the potential for such enormous penalties built into the Bill, clear and binding guidance is critical. I look forward to hearing the Minister’s response. I beg to move.
6.15 pm
Lord McKenzie of Luton: My Lords, the amendment gives us the opportunity to touch upon transparency, which is at its heart. We agree that it is crucial for employers to be aware of penalty levels and how the regime operates. That is why we are setting out the actual penalty levels and structure of the regime in secondary legislation. This will provide the official framework, and the regulator will not have discretion on deciding penalty levels once the regulations are set. Detailed penalty guidance is more appropriate in regimes where penalties are decided at the regulator’s discretion. In such regimes the regulated community will need to be aware of the mitigating and aggravating factors which will influence the level of the penalty.
The regulator will, of course, communicate to employers how the sanctions regime could affect them. We appreciate that, as statutory instruments are necessarily
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Regulations under this clause will be subject to consultation in the normal way. The content of these regulations will be developed following further analysis and full consultation with stakeholders. These regulations will, of course, be subject to scrutiny via the parliamentary process. I hope that has assured the noble Lord that we will communicate with employers to ensure that they are aware of the regime and how it affects them.
Perhaps I can say something about the statutory code of practice for regulators, since the noble Lord referred to Macrory. The code supports the Government’s better regulation agenda and is based on the recommendations in the Hampton report. It promotes efficient and effective approaches to regulatory inspection and enforcement, which includes recommendations that regulators enforce in a transparent manner and publish an enforcement policy as appropriate. Regulators are not bound to follow the code if they properly conclude that the provision is either not relevant or outweighed by another consideration.
The Pensions Regulator is transparent in its approach to enforcing existing duties and, as previously mentioned, it is developing a strategy for communicating the new requirements and enforcement actions to employers. One of the communication options that it might consider is an enforcement policy, but there are other ways in which it could meet the transparency objective. I absolutely agree with the noble Lord about the need for transparency. That will clearly be the case. We consulted on the regulations before we reached the final position. I hope that that will reassure the noble Lord.
Lord Skelmersdale: My Lords, I was amazed—absolutely struck dumb—by the noble Lord’s opening paragraph. He gave the impression that the average employer would have on his desk a statutory instrument describing the penalties. The noble Lord in the past must have visited many employers up and down the country, and I wonder—
Lord McKenzie of Luton: My Lords, I am sorry to interrupt the noble Lord, but I did not say that. I said that we appreciate that, as statutory instruments are necessarily rather technical documents, employers may not want to engage directly with the legislation to learn about the penalty regime. That is precisely the reverse of what the noble Lord has just said.
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Lord Skelmersdale: My Lords, I think that I am right that earlier he said something rather different. Whether he did so or not, there is no doubt that the employer will not get any information directly from a statutory instrument. He might well get it from a trade organisation or by various other means. That is all very well, but when a matter of non-compliance arises, it is up to the regulator, in telling the employer that that non-compliance is being investigated, to warn him what he is in for. I do not see anything whatever wrong with that. I shall not pursue this today, but I will look with great care at both paragraphs that the noble Lord read out. I may well come back to this at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 42 [Review of notices]:
Lord Tunnicliffe moved Amendment No. 39:
39: Clause 42, page 22, line 1, leave out subsection (4) and insert—
“( ) On a review of a notice, the effect of the notice is suspended for the period beginning when the Regulator determines to carry out the review and ending when the review is completed.”
The noble Lord said: My Lords, I will also speak to Amendment No. 40. Noble Lords may be aware that the House of Lords Select Committee on the Constitution wrote to us in June and expressed concern over the discretion afforded to the regulator by the Bill to choose whether to suspend the effect of a notice while an employer is seeking a review. The noble Lord, Lord Skelmersdale, tabled an amendment on this issue in Committee. The committee also asked about the lack of provision for a stay of proceedings where cases were being referred to the Pensions Regulator Tribunal. In light of those concerns, we committed to re-examine the review and appeals processes.
On reflection, we agree that making the stay of proceedings mandatory would strengthen the safeguards offered by both the review and appeal processes. It would also provide further transparency and assurance for the regulated community. The amendments ensure that the effect of a notice will be suspended until any review or appeal of that notice is completed. I thank the noble Lord, Lord Skelmersdale, and the Constitution Committee for drawing our attention to this issue. I beg to move.
Lord Skelmersdale: My Lords, I am extremely grateful to Ministers in the department for thinking through the proposal that the relevant notice should be suspended while the regulator makes his review. I am very pleased by that. I do not know whether the noble Lord, Lord Tunnicliffe, or the noble Lord, Lord McKenzie, will move Amendment No. 40. It strikes me that since the amendments are so similar it would have been appropriate to group them, but grouping of government amendments is in the hands of the Government. I am in the hands of the House; I am happy to speak to the next amendment now while I am on my feet if that is for the convenience of the House.
The noble Lord, Lord Tunnicliffe, has moved Amendment No. 39 to the effect that when a notice, which may be any of the types mentioned in Clause 42(2), is under review, the effect of the notice is suspended
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However, under Section 10 of the 2004 Act, the appellant has 28 days to appeal to the PRT, so there appears to be a lacuna between the two appeals, during which the fine is presumably reinstated. Is that the Government’s intention? If so, is it the case that if the appeal to the PRT is successful, the fine, which may amount to £28,000 if it is an escalating fine, is repaid to the appellant? What is the intention? Most important, does the Bill accommodate that intention?
Lord Oakeshott of Seagrove Bay: My Lords, this is a satisfactory outcome. I am glad that the Government have taken notice of what the Constitution Committee said. It is excellent to see it doing its job.
Lord Tunnicliffe: My Lords, I thank noble Lords for their comments. The point is technical and it would not be helpful to respond now. We will write to the noble Lord. It is certainly not the intention of the amendment to have a situation where a fine is paid and then refunded. I do not believe that that is the intention of our drafting, but we will confirm that in writing, because I do not have the appropriate brief to be able to say now.
On Question, amendment agreed to.
Clause 43 [References to the Pensions Regulator Tribunal]:
Lord Tunnicliffe moved Amendment No. 40:
40: Clause 43, page 22, line 19, at end insert—
“(2A) On a reference to the Pensions Regulator Tribunal in respect of a notice, the effect of the notice is suspended for the period beginning when the Tribunal receives notice of the reference and ending—
(a) when the reference is withdrawn or completed, or
(b) if the reference is made out of time, on the Tribunal determining not to allow the reference to proceed.
(2B) For the purposes of subsection (2A), a reference is completed when—
(a) the reference has been determined,
(b) the Tribunal has remitted the matter to the Regulator, and
(c) any directions of the Tribunal for giving effect to its determination have been complied with.”
On Question, amendment agreed to.
Lord Tunnicliffe moved Amendment No. 41:
The noble Lord said: My Lords, in moving Amendment No. 41, I shall speak also to Amendment No. 42. We have tabled these two minor and technical
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6.30 pm
Lord Skelmersdale: My Lords, these amendments are particularly and peculiarly technical. In Committee I talked about the sanctity of the Northern Ireland statute book. I am pleased that the amendment has been made.
On Question, amendment agreed to.
Lord Tunnicliffe moved Amendment No. 42:
42: Clause 43, page 22, line 41, after “Act” insert “, or any provisions in force in Northern Ireland corresponding to this Act,”
On Question, amendment agreed to.
Clause 49 [Prohibited recruitment conduct]:
Clause 59 [Requirement to keep records]:
Baroness Noakes moved Amendment No. 45:
45: Clause 59, page 32, line 1, at end insert—
“( ) Notwithstanding anything provided for in regulations under subsection (1), there shall be no requirement placed on any person to keep the records of a company which has been wound up.”
The noble Baroness said: My Lords, this amends the record-keeping provisions of Clause 59, which has a regulation-making power to allow the Government to specify record-keeping requirements for up to six years. I tabled a similar amendment in Committee to ask the Government to explain the relationship between this power and the 1994 insolvency regulations, which in general have much shorter periods for record retention following the winding-up of a company. The Minister said that the Government needed to think about this further and I have had a helpful discussion with him. I have tabled my amendment again in order that he may enlighten the House as to the record-keeping requirements for companies that are wound up. I beg to move.
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