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Lord Low of Dalston: My Lords, on that point, the Minister will recall that in a recent debate on the treatment of women in prison I asked him whether the Government would apply the single equality duty, when it comes in, to prisons. He replied that, if and when it is enacted, it will apply to the National Offender

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Management Service. Can he confirm that it will also apply to individual prisons in the way that the existing duties in education apply not just to umbrella bodies but to individual schools?

Lord Bach: My Lords, I am afraid that I cannot inform the noble Lord that that will happen. The single equality scheme will be published in April 2009 and a single impact assessment is being developed to cover all the seven diversity strands. However, there is no single equality scheme for each police station, for example. This matter was debated at length in this House a couple of years ago. I believe that there is general support for a single equality scheme along with a much strengthened Prison Service order.



11.30 am

Asked By Baroness Gardner of Parkes

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): My Lords, the Government have taken a number of steps to support good quality pension provision and are committed to helping scheme sponsors through this difficult time. We will continue to work with groups representing pension schemes, employers and scheme members to consider what further steps can be taken to support schemes.

Baroness Gardner of Parkes: My Lords, I thank the Minister for the reply. I do not have any particular interest to declare but I do have small shareholdings in a number of FTSE 100 companies. Is the Minister aware that there has been publicity about the danger to pension schemes invested in these companies, not only from the authority quoted in the Question but also from Pension Capital Strategies, which says that if there is a collapse in corporate bond levels, the liabilities of firms such as British Airways, which was in the worst position, would increase to nearly two and a half times the company’s market value? What would be the position then for people in those pension schemes and for the shareholders?

Lord McKenzie of Luton: My Lords, it is important that we focus on the fact that pension schemes are about long-term investment and that short-term fluctuations in markets have to be worked through in this context. In terms of the debt instruments that are out there and available to trustees—I think that that was the thrust of the noble Baroness’s point—we are aware that the Government are being pressed in relation to long-dated gilts, for example, to help support pension schemes. The UK Debt Management Office is consulting on supplementary methods of distributing gilts in the

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face of strong demand for long-dated, conventional and index-linked gilts. That consultation will inform the formulation of plans for gilt issuance during next year. It is important that we focus on the long term. In relation to schemes where employers do not survive and the schemes are underfunded, we have put in place the Pension Protection Fund, which makes sure that pensions are protected to a certain level.

Lord Oakeshott of Seagrove Bay: My Lords, I declare an interest as a pension fund investment manager for the past 32 years. I point out to the noble Lord that the great shrinkage in the number of pension funds that were open and contributing to the Pension Protection Fund since it was set up in 2004 means that it will no longer be sustainable; there will be too few funds paying in and too many people needing to be rescued. Will the Minister revisit the exchanges in Committee between me and the noble Baroness, Lady Hollis, in 2004, and the assumptions that she said were being made about the rate at which pension funds and companies could go bust? After he looks at it, I hope the Government will conduct a review. Perhaps they will see that the disaster scenario has arrived.

Lord McKenzie of Luton: My Lords, the Pension Protection Fund is designed to work both in a benign environment and in a downturn. The DWP, the PPF and the Pensions Regulator keep a watchful eye on these issues, and the PPF has tested its model against a range of scenarios, including very severe ones. The important point to remember about the PPF is that it is like a pension scheme: it pays out as and when sums fall due. Currently it is paying out about £3.7 million a month in compensation but has assets of £3 billion. So, even if the pay-outs were to increase significantly, the liquidity is there to support that for a considerable period of time.

Lord Taylor of Holbeach: My Lords, I declare an interest as chairman of the Conservative Party agents’ superannuation fund. I want to bring this back to final salary schemes. During the passage of the last Pensions Act these Benches proposed a number of amendments to bring in risk-sharing arrangements which were designed by the industry to give a future to such final salary schemes. Why were they rejected? Has not the inevitable happened?

Lord McKenzie of Luton: My Lords, the amendments proposed by Members opposite were principally focused on conditional indexation schemes. Certainly, the consultation we undertook with stakeholders indicated that there was no great appetite for that—it would create a greater regulation, not less, and its impact on schemes would be quite limited. One of the strands of work we are undertaking at the moment is to look, together with the Pensions Regulator, at how we can better spread the word about flexibility on risk-sharing available within the existing framework. Along the way we also considered changes to mandatory indexation. However, there is no consensus around that; in particular, there is no consensus on whether it would really reinvigorate defined benefit schemes. I should make the point that when we are talking about risk-sharing, we are not talking about reducing risks but about

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changing the balance of risks between scheme sponsors and members. Therefore, it is important that we drive a consensus when changes are made.

Lord Forsyth of Drumlean: My Lords, is not the truth of the matter that, as a result of the tax-and-spend policies of this Government, private and public sector final salary pension schemes are no longer affordable?

Lord McKenzie of Luton: No, my Lords, I would not accept that proposition. Given the issues around longevity—which is probably the principal driver of this—and longer-term views of market returns from equities in particular, the challenges to defined benefit schemes are clearly increasing. That is happening not only in the UK but across the world. That is why we need to continue to engage and why we have engaged. We have reduced the revaluation cap to 2.5 per cent and the indexation cap to 2.5 per cent and frozen administration charges into the PPF and for the Pensions Regulator. We are helping where we can. We are looking at issues around Section 75, employer debt and statutory overrides whereby current scheme rules make it difficult to take advantage of these deregulatory matters. We are looking at Section 67, which is about future accrual. A big work programme is under way, and we are doing all that we can. However, the Government cannot stop the march of longevity. Well, they could, but I do not think that that would be a palatable policy initiative.

House of Lords: Conduct of Members


11.38 am

The Lord President of the Council (Baroness Royall of Blaisdon): My Lords, on Monday I answered a Private Notice Question on matters arising from the allegations made by the Sunday Times this week about certain Members of this House. I want today to update the House on these issues.

The Sub-Committee on Lords’ Interests, chaired by the noble Baroness, Lady Prashar, has now met and its investigations into the allegations are under way. The sub-committee is dealing with these issues as a matter of urgency. In parallel, the Committee for Privileges is considering issues relating to the rules of the House. It may be helpful to update the House on developments on a complaint which has been made to the police in relation to the allegations.

On Monday, the Metropolitan Police service received a request to consider investigating whether an offence had been committed by certain Members of the House. The police have considered this request, and they have now decided to review the relevant material in this matter to assist them in deciding whether it would be appropriate to carry out an investigation.

I have met the Metropolitan Police on this matter and they have informed me of their decision. I should stress that the police are not investigating this matter at this stage. The police are reviewing the material in relation to the allegations to decide whether such an investigation would be appropriate.

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While the police are carrying out this review, it remains appropriate for the Sub-Committee on Lords’ Interests to continue with its inquiry. The chairman of the sub-committee is aware of the police decision.

I am sure that the House will appreciate that at this point there is nothing further that I can add to this statement. I shall, of course, continue to keep the House informed of developments in relation to these allegations.

Arrangement of Business


11.39 am

Lord Bassam of Brighton: My Lords, with the leave of the House, my noble friend Lord Carter of Barnes will repeat the Statement on Digital Britain: The Interim Report immediately after the debate in the name of the noble Lord, Lord Browne of Madingley.

Welsh Ministers (Transfer of Functions) (No. 2) Order 2009

Copy of the Order

Motion to Refer to Grand Committee

11.39 am

Moved By Baroness Royall of Blaisdon

Motion agreed.

Business of the House

Timing of Debates

11.39 am

Moved By Baroness Royall of Blaisdon

Motion agreed.

Climate Change


11.39 am

Moved By Lord Browne of Madingley

Lord Browne of Madingley: My Lords, I declare my interests. I am managing partner and managing director of Riverstone Holdings. This manages several energy-focused private investment funds, which hold stakes in two UK companies. I am also chairman of the Accenture

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Global Energy Board, a member of the advisory board of Sustainable Forestry Management Limited and a member of the climate change advisory board of Deutsche Bank.

The time for talking about climate change is over; it is time to get things done. I should like to make four points. First, climate change cannot, and should not, be tackled in isolation. It must be placed at the heart of society, integrated with other priorities. Secondly, we have in front of us an opportunity to create a 21st-century green industry in the UK. We should seize the moment. Thirdly, the UK’s energy policy needs to be retooled to deliver new, more diversified infrastructure; and, fourthly, we must strengthen international institutions so as to ensure that developing countries are tied into global climate change efforts.

The IPCC’s fourth assessment report provides us with a clear call to action: we must halve global emissions compared with current levels by 2050. The Committee on Climate Change recommends that the UK’s contribution to this goal should be an 80 per cent reduction in the same period, a target now enshrined in the Government’s pioneering Climate Change Act. I believe that both goals are appropriate and achievable.

A great deal of economic analysis and policy thinking has been done, and there is a remarkable consensus on what it takes to get there: taking energy out of global GDP by revolutionising energy efficiency; taking carbon out of energy by transforming the energy mix in favour of renewable and nuclear energy and by deploying carbon capture and storage; preserving carbon sinks through improved forest and land management; and helping vulnerable people to adapt to climate change. We also know, in theory, the policies necessary to achieve those ends in the long run, the most important being pricing carbon, incentivising technology R&D and deployment, and removing barriers, such as the widespread subsidisation of fossil fuels.

When it comes to implementation, however, our track record is decidedly patchy. The Kyoto Protocol has created a global market for carbon. Many parts of the world have adopted climate change targets, the most ambitious being the EU’s 20/20/20 package. National mandates and incentives have stimulated significant investment in alternative energy. Pioneering work has been done by scientists and engineers, many of them based in the UK. New low-carbon technologies have been created, and the costs of proven technologies have fallen. The business community has also stepped up, signalling its willingness to take action in a flurry of initiatives.

Yet, despite all this activity, global emissions have grown faster than even the worst-case scenario projected by the IPCC in 2000. Here in the UK, we will almost certainly miss our original ambition of reducing emissions by 20 per cent by 2010 compared with 1990 levels, and we have made slow progress in scaling up renewables. Halving global emissions by 2050 will require what has been described as “an industrial revolution in a third of the time”. It is clear from every analysis that I have read that the greatest obstacles to getting there are not scientific or technological, nor are they related to macroeconomic cost; the greatest challenges are political.

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My first point is that climate change cannot, and should not, be compartmentalised or pushed into the long grass. It is essential that climate change efforts are integrated with other social priorities—that environmental integrity is made a tangible part of economic prosperity and national security, at the centre of society. That means that all levels of government and all government departments need to be involved in the solution. It means making a much more determined appeal to hearts as well as minds. Environmental integrity is not an option or a luxury; it is fundamental for society to flourish. There are trade-offs between climate change and other priorities, which are felt particularly keenly by some interest groups. An example is the auctioning of carbon permits which are essential in imposing a meaningful carbon price under the EU ETS. Auctioning will impose additional costs on fossil-fuel-intensive industries and their customers. Yet I am convinced that these costs will be manageable.

This is not the first time in my career that a proposed policy change has prompted fears about competitiveness. As long as all players in the industrial sector are eventually treated equally, such concerns nearly always turn out to be exaggerated. There are also other trade-offs, such as whether to build new coal-fired power plants which would enhance energy security but harm the environment. There are also many areas of activity where economic prosperity, national security and environmental integrity come together. Building green energy infrastructure and improving energy efficiency are two examples. This is now being recognised in the United States where President Obama has promised to double clean energy capacity as part of his plan to stimulate the economy. A similar approach is called for by other Governments.

This is my second point. Here in the UK a green revolution in our offshore waters is a prize waiting to be seized. As the Government have affirmed, this is an area of activity where this country could differentiate itself by building on our world-class wind, wave and tidal resources and our expertise in marine engineering. New wind turbine plants, transmission lines, installation vessels and substations would create thousands of jobs that might otherwise find their way elsewhere. Enhanced clean-energy infrastructure, coupled with widespread deployment of smart meters and smart grids, would bolster energy efficiency. Current policies are not creating enough bite. To those who say that it is not the job of government to kick-start the industries, I say that it has been done before with great success.

The UK’s offshore oil and gas industry was created from virtually nothing during the 1970s and 1980s. I remember how, in the early days, companies such as BP had to rely on hourly workers from America because the UK did not have enough qualified technicians. Now around 300,000 people resident in this country are employed in the oil and gas industry. High oil prices provided a strong market pull, but Governments gave industry a helping hand, creating generous tax incentives and a supportive, regulatory environment in helping to build strategic infrastructure. There is even more cause for government intervention today because energy security and climate change mitigation are public goods. They would not otherwise be recognised by the free market. The alternative would be to leave

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new technologies to the vagaries of fossil-fuel derived power prices before they can stand on their own two feet.

That leads to my third point. We must fundamentally rethink the objective of energy policy in this country. As the Oxford economist, Dieter Helm argued in a recent report, competition—the guiding star of UK energy policy since the 1980s—worked well while there was a surplus of energy infrastructure capacity. But price competition will not deliver the new, more diversified infrastructure that we urgently need to bolster energy security and reduce carbon-dioxide emissions. I remain convinced that the market is the most effective delivery unit available to society, but it will need a new strategic direction and a new framework of rules laid down by government. That starts with gaining a better understanding of how investment decisions in energy are made. The up-front capital outlay of a typical project is paid back over 20 or 30 years. That means that policies must possess above all else long-term certainty and stability. Policies must be clear, transparent and accessible to all players, not just specialists.

A good example is offshore wind. By insisting on a decentralised competition-based model, the proposed regime for offshore transmission licences risks falling short of the certainty, stability and clarity needed. A simpler, more strategic approach, such as the one adopted by Germany, should be considered as an alternative, at least for round 3 projects, with deliverability at the forefront of policymakers’ minds. Government must also recognise that the combination of high capital costs, falling power prices and scarcer, more expensive debt finance is leading to inadequate returns. There is a real risk that offshore wind farms will be cancelled. One way to help mitigate that risk would be for state-controlled banks to provide loan guarantees for green infrastructure projects, an approach similar to the loan scheme for small businesses recently announced by the Government.

All this willcome at a cost, although the net impact on consumers is likely to be significantly less than the impact of the rise in fossil fuel prices that occurred between 2004 and 2007, and the costs could be mitigated by improving energy efficiency. Harnessing the very large potential to improve energy efficiency in the residential and transportation sectors is proving difficult, even though many of these savings would be at low or negative cost. New financing mechanisms, developed in partnership with energy companies, will be needed to unlock these savings, in tandem with targeted regulations and public education programmes to change consumer behaviour.

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