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Amendment No. 58 would empower the Secretary of State to direct that the NDPB accounts must contain information about the financial position of the scheme. Amendment No. 61 would require the audited accounts of the scheme to be laid before Parliament. Schedule 1 already contains provision for the Secretary of State to direct the trustee corporation to include information in the annual report. That power refers to information relating to the financial position of the trustee corporation or any other matter. That power would therefore already allow the Secretary of State to direct that the report must include information related to the scheme—for example, if PADA recommends, after detailed consideration, that this is appropriate. Therefore, Amendment No. 58 would simply duplicate existing provision.
I explained in Committee that the requirement for an auditor's statement about all contributions to the personal account scheme would be very costly and difficult to compile, due to the sheer number of employers and members participating in the scheme. I think that we agreed on that and that we need alternative assurance arrangements based on the principles of openness,
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Baroness Noakes: My Lords, the Minister said that, when considering the information that would be included in the annual report of the trustee corporation, the Government were going to wait for what PADA recommended. I was making a point about parliamentary accountability, on which PADA is not an expert. It might be an expert on very many things to do with setting up a personal accounts pension scheme, but I would not expect the information flows to Parliament to be within its competence. I would expect it to be within the competence of the Minister’s officials, so I would have expected him to give me a clearer assurance. Will he do that today?
Lord McKenzie of Luton: My Lords, I hope that I have given as clear an assurance as I can that both sets of accounts, whether they are part of the same document or separate, will be laid before Parliament.
On the question of what PADA may recommend, obviously it could offer advice to the Secretary of State on a range of issues, particularly the ones that might need to be identified. That does not negate the issue that I have tried to identify; there will be two sets of accounts that are inextricably linked, and you need to see both to make sense of the arrangements. Both those accounts will be available to Parliament.
Baroness Noakes: Again, my Lords, I am talking not about the accounts but about the annual report. The Minister said that my amendment was unnecessary because there was already a power in paragraph 17 of Schedule 1, which I accept, but he did not go on to say whether the annual report would contain information about the personal accounts pension scheme as opposed to the trustee corporation. That is the assurance that I seek. I understand that the power is there; my question is whether it will be used.
Lord McKenzie of Luton: My Lords, the power would and should be used. I qualify that by saying only that the whole design of the scheme and all the arrangements that surround it are still being developed, but I see no reason why it should not be as the noble Baroness wishes. No one is trying to hide anything here—she is looking askance at me. We need to ensure that there is transparency, which is clearly the objective here. Indeed, to do otherwise would in a sense be quite impossible, given the information from the scheme that would need to be available to members in any event.
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Baroness Noakes: My Lords, that is not entirely the satisfactory conclusion that I had hoped I would get to these amendments. The Minister might like to look again at what he has said and whether he can improve on it in relation to the annual report. Instead of seeking acceptance of my amendments, I sought positive assurances that these perfectly reasonable information requirements would flow without any intermediation by PADA. I did not quite get that, but I got a lot. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 59:
59: Schedule 1, page 81, line 10, leave out sub-paragraph (2) and insert—
“( ) The assistance may take the form of—
(a) loans subject to repayment with interest at a commercial rate, or
(b) guarantees or indemnities issued on commercial terms.
( ) Interest is at a commercial rate if it is at least equal to the rate set by the Treasury under section 5 of the National Loans Act 1968 (c. 13) for an equivalent loan.”
The noble Baroness said: My Lords, we come to a slightly more difficult area. In moving Amendment No. 59, I will also speak to Amendments Nos. 60 and 64. These amendments concern the costs of personal accounts and whether those costs should be subsidised.
Amendment No. 59 amends paragraph 18 of Schedule 1 and replaces sub-paragraph (2), which says that the Secretary of State can give financial assistance to the trustee corporation in any way he likes. This is clearly intended to cover the possibility of subsidy to the trustee corporation. My replacement sub-paragraph would allow financial assistance only on commercial terms. The noble Lord, Lord Oakeshott, said in Committee that “commercial terms” was rather difficult in the context of political funding. I defer to his experience on that rarefied subject but, to meet his point, I have extended my amendment to use the National Loans Act formulation of interest rates as the threshold for a commercial rate.
While the financial arrangements surrounding personal accounts seem set to remain a mystery for some time—we will return to that in a later amendment—it seems clear that the trustee corporation will incur expenditure in the early years which will not be matched by income from charges from members. The gap between income and outgoings will be particularly marked if the annual management charge method is adopted for charging on an exclusive basis. The trustee corporation will therefore need money to fund those costs until charges catch up with expenditure. We have no issue with that, but we believe that this money should be by way of loan and should bear a commercial rate of interest in order to avoid a covert subsidy being conferred on the personal accounts pension scheme.
Of even more concern to the insurance industry, which will have to compete with personal accounts, is the possibility of a subsidy being paid to the personal accounts pension scheme to support some of its activities on an ongoing basis. In Committee, the Minister revealed—I think, for the first time—the novel contention that the personal accounts scheme will have a public service obligation to accept members into the scheme
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We do not accept that the personal accounts scheme involves any element of public service obligation. We accept that EU rules permit the subsidy of public service obligations, but they do not require such subsidy. Furthermore, we are far from clear on whether the personal accounts scheme would qualify as a public service organisation as it is quite unlike any of the public services that generally fall within this term. In the absence of competitively testing the level of subsidy, I believe that the Government would rightly struggle to justify any particular level of subsidy.
The Government have said that they want to encourage the continuation and expansion of existing workplace pensions and to encourage auto-enrolment into those schemes, which we have debated in the context of earlier amendments. The commercial pension providers will almost certainly accept a wider range of member, including those at the lower end of the income scale, those who change jobs more often and those who, inevitably therefore, lead to higher servicing costs. Is it fair that the Government could subsidise the personal accounts scheme for accepting such members, but not the alternative auto-enrolment methods of saving?
I went back to the Pensions Commission’s report and found no suggestion of subsidy. Its suggestion of charges of no more than 0.5 per cent and possibly 0.3 per cent was made in the full knowledge of the target group of members and their financial characteristics. More importantly, the Government’s White Paper published in December 2006, Personal Accounts: A New Way to Save, while suggesting that short-term costs might be higher than anticipated by the Pensions Commission, asserted at paragraph 4.8:
“The Government is confident that charges in the scheme can be radically lower than those currently offered to ... our target group”.
There was no mention of subsidy or finance complying with state aid rules, to which the Minister referred in Committee.
We suspect that talk of subsidy has arisen only because the costing for personal accounts, about which we know absolutely nothing because of the Government’s obsessive secrecy, is showing that the task of delivering the scheme within the 0.5 per cent charging limit proposed by the Pensions Commission is proving difficult. Rather than own up to that and re-examine whether the PADA-led personal accounts scheme is viable in those terms, the Government are hiding behind hints of subsidy. We do not think that that is the right way to go.
Amendment No. 60 is related to paragraph 19 of Schedule 1 under which the,
My amendment says that it “shall” do so. The trustee corporation will incur costs and it needs income to cover them. The current drafting assumes that it might not need to make charges. Clearly, if it receives subsidy,
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Amendment No. 64 deals with PADA’s costs and how they are to be financed. In Committee, the Minister invited me to see the DWP’s estimates as the basis of transparency of PADA’s costs, which I have done. PADA and costs are mentioned, but that is about all. We know that PADA has already been financed by grant-in-aid which will amount to £49 million by the end of this financial year. I do not believe that any accounts for PADA’s first year spend of £13 million have yet been made public; at least, I could not find them. We will clearly not find anything about this year’s £36 million until PADA’s accounts come out some time in the second half of next year. These delays are simply not conducive to transparency both for Parliament and for outside bodies which have an interest in what PADA spends taxpayers’ money on.
Amendment No. 64 requires the Secretary of State to lay a report before Parliament in advance of giving further grant-in-aid or indeed any other non-commercial method of funding to PADA. This goes beyond the technical process of supply via approved estimates, which is a largely meaningless formal parliamentary process since it would require the Secretary of State to give his reasons for subsidising PADA’s work. Unlike the trustee corporation, we accept that a level of subsidy of PADA’s activities might be necessary, and I conceded that in Committee. We recognise that some of its work is related to broader public policy development, and it would be reasonable for the Government to use taxpayers’ money for that. But most of its expenditure will relate to the delivery of an operational personal accounts pension scheme, which we do not consider should attract public subsidy. It would be difficult to formulate a “no public subsidy position for PADA’s work on personal accounts” rule in this Bill, as some of its activities are almost certainly mixed, so we have instead chosen transparency, which brings with it the possibility of early parliamentary scrutiny as an alternative route. I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, I am flattered that the noble Baroness has taken the little joke about loans on commercial terms that admittedly I had completely forgotten about so seriously.
Baroness Noakes: My Lords, I always take the noble Lord, Lord Oakeshott, very seriously.
Lord Oakeshott of Seagrove Bay: My Lords, more than I do myself, but I thank the noble Baroness. However, although I am flattered that my joke has been used to frame the amendment, I am afraid that I still think she is making rather a meal of this and that the amendment is unnecessarily restrictive because it takes away the flexibility necessary to establish a major undertaking of vital national importance. If I could somehow throw in the word “stakeholders”, I could be made a Minister. That is what I think and I do not support the amendment.
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Lord McKenzie of Luton: My Lords, with these amendments we turn to funding, an issue that was debated at length in Committee. The purpose behind Amendment No. 59 appears to be to restrict financial assistance to the trustee corporation to assistance on commercial terms, while Amendment No. 64 seeks to place a similar restriction on the funding of PADA unless the Secretary of State provides a report explaining his reasons for providing financial assistance on non-commercial terms. Amendment No. 60 would require the trustee corporation to charge for all its functions.
Let me begin by reassuring the noble Baroness that the Government have no intention of unfairly advantaging the personal accounts scheme either through the way they fund the Personal Accounts Delivery Authority or if they provide funding to the trustee corporation. The principle that personal accounts should complement not replace existing provision is one that has run throughout the development of our reforms and one that we will continue to follow as we develop the scheme’s funding strategy. At the same time, it should be recognised that we are asking the scheme to operate under restrictions that do not apply to other schemes in the market. In particular the scheme will have a public service obligation—I disagree with the position taken by the noble Baroness on that—to admit anyone eligible to join irrespective of whether the costs of taking them on will be covered by the revenues they bring into the scheme. It will have a public service obligation because it will have to accept any employer who wants to use it to fulfil their auto-enrolment duty by using the personal accounts scheme and it will have to accept any qualifying employee. Unlike any other scheme that can turn business away, the personal accounts scheme cannot do so, regardless of its commercial viability.
The scheme will also be focused specifically on the employers of low to medium earners not provided for by the existing market because they are considered to be uneconomic. In the long term we believe that the scale of the scheme means that it will be able to manage these commercial disadvantages while delivering low charges to members and being self-financing. But before it has achieved that scale, these requirements will make it more challenging to bridge the mismatch that will inevitably occur between costs and revenues in the scheme’s early years.
Ultimately, this could mean that the scheme has to offer a short-term level of charges that undermines our aims to provide low-cost pension provision and to build the scale that it needs to be viable in the longer term. To prevent this, it is reasonable for the Government to consider whether it could be in the public interest to compensate the scheme and its members for the burdens of the real commercial disadvantages, to which I have referred, to be placed upon it.
But let me be very clear that this is not a statement of intent; no decisions have yet been taken on the best way to fund the establishment of personal accounts. Such decisions cannot be taken until near the end of the commercial process when we will better understand its costs. For this reason it is essential that we retain flexibility on how the scheme should be funded.
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However, I hope the House will be reassured that if the Government felt funding on a non-commercial basis was necessary, they would have to show that this was consistent with European state aid rules. This means that our approach would be rigorously tested by the European Commission to ensure that any funding was both necessary and provided the scheme with no unfair advantage. So not only do we not want to unfairly subsidise the scheme, it would be unlawful for us to do so. In addition, if the Government were to provide state aid it would be a matter of public record that the Commission had approved the aid, along with its reasons for why there was no unfair subsidy or anti-competitive element in our approach.
Amendment No. 59 would also prevent the Government giving grants to the trustee corporation. In its role as an NDPB, the trustee corporation may be asked to provide advice or information to the Secretary of State to ensure that we and Parliament can assess the success of our public policy aims. A similar burden is not placed on other occupational pension schemes. As this activity would not directly benefit members, it would be unfair for the trustee corporation to pass these costs on to members through the personal accounts charging regime. We would not, therefore, want to fetter our ability to make grants when appropriate.
Amendment No. 60 uses “shall” rather than “may” in relation to whether the trustee corporation will level charges. The trustee corporation is intended to be independent from government when acting as the sole trustee of the personal accounts scheme. It is therefore right that it should retain some discretion over these matters so long as it operates within the parameters that we have set publicly, including that it be self-financing, and receives no unfair advantage through the way it is funded. However, a permissive power is all that is needed for the trustee corporation to meet these requirements.
I recognise the noble Baroness’s legitimate interest in the issues of unfair subsidy, charging and parliamentary scrutiny, and I know we will have a debate at our next sitting around the issue of costs generally for the scheme. However, I hope I have been able to reassure her—I fear I have not—that we do not want and would not be able to provide an unfair subsidy. Therefore, as the noble Lord, Lord Oakeshott, said, these proposals are unduly and unfairly restrictive.
Baroness Noakes: My Lords, it is a pity that we will end our deliberations today on a less happy note than we have achieved for much of Report to date. We remain concerned that the Government even talk the language of subsidy. The Minister said that it will not be unfair and that it will be subject to rules and so on but, if we go back, the Pensions Commission knew about the financial facts of the scheme it was proposing and it did not mention subsidy. The Government knew the facts when they published their policy in two White Papers in 2006 but they did not mention subsidy; I have checked.
We gave our support to the personal accounts scheme on the basis that there was not subsidy. There are some things that may well challenge the consensus that exists on personal accounts. I will put it no higher at
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It would not be appropriate for me to divide the House because I have already said that I shall not. However, we regard this as an important issue; perhaps it is more important in the context of my party’s policy towards continuing support for personal accounts if this talk of subsidy remains in the Government’s language. It is not part of our concept of personal accounts and we would always resist it.
Lord McKenzie of Luton: My Lords, is the noble Baroness saying that that judgment arises from her belief that there is not a public service obligation? Alternatively, if she accepted that there was a public service obligation, would she then accept at least the potential for subsidy to be appropriate, subject to all the restrictions we have identified?
Baroness Noakes: My Lords, I think the record will show that I said I did not accept that there was a public service obligation and that I did not think that the Government could establish it. Our position is that
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We have to leave it at that. As I said, this is not the way I would have liked to finish today’s proceedings but it is important that we make our initial view clear. We have not been persuaded. With that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 60 and 61 not moved.]
[Amendments Nos. 62 and 63 not moved.]
Lord Tunnicliffe: My Lords, I beg to move that consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
- House adjourned at 9.37 pm.
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