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However, even looked at on a long-term basis, this amendment would not undermine fiscal stability for three reasons. First, the state pension age would still rise in response to increasing life expectancy. Secondly, the reduction in savings arising from the slower increase in the pension credit qualifying age, assuming current take-up rates, would be of the order of £0.75 billion. This figure has to be seen in the context of the Government's proposals for accelerating equalisation and the introduction of the state pension age of 66, producing a reduction in expenditure on pension age benefits of £33.4 billion. We are talking about £0.75 billion in a total savings aspiration of £33.4 billion. These amendments simply do not fundamentally challenge the Government's plans for fiscal sustainability post-2016, which so concerned the noble Lord, Lord Boswell.
The timing of all future increases in the state pension age will be revisited, as we have heard in the Budget Statement. Adjustments in private pensions are already happening through annuity rates or other measures. The report prepared by my noble friend Lord Hutton has set the direction for the changes to public service pensions. We have seen the move from RPI to CPI. It is all these matters that will make the big contribution to fiscal sustainability of the pension system over the long term. It is not necessary to treat unfairly the poorest men and women, born in certain years in the 1950s, by having them make such a major contribution.
The Government's impact assessment shows that men and women with interrupted careers and dependent on pension credit throughout retirement will suffer the greatest percentage loss in lifetime pension income as a result of the accelerated timetable and will lose proportionately more than higher earners. If allowance is made for the reduced life expectancy of lower socioeconomic groups who will receive pension credit, the loss can rise to as much as 10 per cent of total lifetime pension income. By way of comparison, higher earners can reduce their lifetime pension income loss to 2 per cent because they have the ability to boost their retirement income by making highly tax-advantaged contributions to their pension pot.
The economy faces challenging times. The group of poorest-income people most impacted by the accelerated timetable for pension age equalisation is more likely to have a lower life expectancy and more of it in ill health, to have a disability and to be a carer, and less likely to be able to access the labour market. Given the short notice, the people who are already economically inactive when the policy change is announced will find it very difficult to adjust to the accelerated increase in the age for receipt of pension credit and will have problems rejoining the workforce. We are supported in our view by the Pensions Policy Institute-the PPI-an independent expert in the field with no political bias. In its submission to the DWP on the accelerated increase, the PPI acknowledged that if the SPA is left unchanged:
"There are a number of factors that should be considered when considering the timing of future increases in the SPA. Economic activity rates at older ages, employers' attitudes to employing older workers and inequalities in life expectancy/ healthy life expectancy will all play a role in determining how fast the SPA could be increased without unduly affecting certain cohorts of older people in a negative way".
The PPI suggests a number of safeguards that the Government could consider when accelerating the increase. It recognised that it is unlikely that in the short term the Government could help to improve the healthy life expectancies of those with the shortest life expectancies. It argues that the Government should consider short-term safeguards,
Many low-income people in their late 50s have no prospect of adjusting to the accelerated time period, particularly those in certain ethnic groups. People of black and black British origin have the lowest levels of private pension and investment income: £46 per week compared to £155 for white people. Forty per cent of pensioners of Pakistani or Bangladeshi origin, and 29 per cent of black and black British pensioners, are in the bottom fifth income group, compared with 14 per cent of white pensioners. A person from a minority ethnic group is less likely to save for retirement,
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"However, we consider this is justifiable in the wider context of the need to ensure that the state pensions system (including Pension Credit) is to be both affordable in the long-term, and provide a decent income in retirement".
I simply do not agree. I do not see that this group of vulnerable people has to take such a disproportionate impact. Having identified that impact, the Government have a duty at least to seek to mitigate it. The purpose of the amendments is to do precisely that: to allow the poorest, the disabled and ethnic minorities who would otherwise be in receipt of pension credit other than because they had the misfortune as a result of the Bill to be born in certain months in the 1950s to be able to receive the pension credit in line with the existing timetable set out in the 1995 Act.
Lord Freud: My Lords, this group of amendments in effect aims to provide mitigations to the state pension age timetable. I thank the noble Baroness, Lady Turner, for giving us the opportunity to discuss the issues surrounding those in ill health and those in arduous or dangerous employment. Similarly, I thank the noble Baroness, Lady Drake, for her proposed changes to the pension credit qualifying age timetable.
The amendments were tabled with the intention of helping those people who might be described as vulnerable, as noble Lords pointed out. I very much agree with the principle that we should assist those who require additional support. However, a balance must be struck between doing the right thing for those people and making the system more complex and harder to understand when it comes to delivering that support.
As I said, Amendment 9 allows for mitigations to the proposed change to the state pension age timetable for those in ill health and those in arduous or dangerous employment. While I have great sympathy for the people these amendments aim to help, the arguments against accepting them that I set out in Committee have not changed. The changes would make the system too complex.
I will pick up a point made by the noble Baroness, Lady Drake, about the life expectancy of people on low incomes. There is good news here. Male manual workers saw a two-year increase in life expectancy at the age of 65 between the 1992 to 1996 and the 2002 to 2005 assessment periods. Women manual workers saw a one-year increase. When one drills down into the
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As I said, we have already made strides on the value of the state pension by introducing a triple lock. As we discussed, we are looking to reform and simplify the state pension, which has become unbelievably complex.
Baroness Drake: Perhaps I should have intervened a sentence or two earlier, but I was not sure whether the Minister had finished on the longevity point. I accept his point that the life expectancy of certain lower socioeconomic groups has also improved. However, the evidence of the Marmot review and of a recent NAO report also shows that inequalities are increasing in healthy life expectancy, and that this group is less likely to be healthy and therefore less able to re-enter the workforce at short notice in the accelerated timetable. I accept the general proposition about improving the state pension age.
Lord Freud: I thank the noble Baroness, Lady Drake. We could get into a long debate here that perhaps would not be hugely valuable. The figures for life expectancy, healthy life expectancy and disability-free life expectancy are all moving up. They are moving up at slightly different rates for different people, but the general movement is in an encouraging direction. Healthy life expectancy is moving up almost as fast as life expectancy-just slightly slower.
I come back to the point about the state pension age and the amendment of the noble Baroness, Lady Turner. A state pension age that is different for different groups would take us further away from the goal of a new flat-rate, single-tier pension based on contributions, which is simple to understand. It is important for the state to be clear how much someone will receive in retirement, and it should be equally clear about when they can receive it. A variable state pension age will not help this. Now is not the time to bring in further complexity by introducing bespoke state pension ages for individuals.
Adding to the complexity of this concept is the problem of defining prolonged ill health or arduous and dangerous employment. It might seem straightforward to produce a list of health conditions and occupations, but our direction with welfare reform is precisely the opposite, away from categorisation of people towards individualising and looking at how they can function and what they are doing. We are looking towards assessing each person's appropriate pension age. Then we begin to get into very difficult territory, which we will discuss under the personal independence payment and the capability assessment. I need not spell out for a third time how difficult that is.
People are working longer and are living longer and healthier lives. We need a system that takes into account
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We need to ensure the sustainability of the state pension system and our proposals strike the best balance between the impact on individuals and fairness to the taxpayer. I should make one slightly technical point, to which I think many noble Lords will be sympathetic. Changes to the state pension age should be made only following agreement in this place and another place. For the Government to be able to vary the provisions of the schedule through regulation is a significant power, and one which should not be treated lightly.
I turn to Amendments 11 and 14. The arguments remain the same. It is vital that our system strikes that balance. I thank the noble Baroness, Lady Drake, for tabling the amendments and allowing us to consider the role of income-related support for those over a specified age. The amendments would keep the pension credit qualifying age in line with the existing legislative timetable for women's state pension age. Their effect would be that the pension credit qualifying age would diverge from the women's state pension age from 2016, as proposed by the Bill. The amendments, while seeking to ensure that the pension credit qualifying age cannot be higher than the state pension age, also leave the door open to retaining a pension credit qualifying age below the state pension age-possibly permanently. That seems to me to be based on a fundamental misapprehension. The underlying assumption seems to be that by keeping the pension credit minimum qualifying age pegged to state pension age, we seek to attack the incomes of older people. That is just not the case. We think that, for all people of working age, the appropriate form of support is a working-age benefit.
The Government introduced the Welfare Reform Bill, which sets out the proposals for universal credit by 2016. There is widespread support for the principles underpinning universal credit-in particular, the principle that work should always pay. We should define people of working age by using the state pension age, not that of pension credit. We have used that only because state pension age has not been equal between men and women. The upper age limit for universal credit will be set at the pension credit qualifying age. That ensures that the appropriate work-focused and work-related support is targeted at those of working age. Providing an arbitrary age for pension credit which breaks the
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Baroness Drake: I must correct the noble Lord, because I think that he is misrepresenting my amendment. It asks the Government only to commit to separating pension credit qualifying age from the women's state pension age for four years, from 2016 to 2020, to mitigate the impact on a particular group. It does not ask them to commit to a policy beyond 2020; that is for the Government to decide. We already have a precedent for separating state pension age from the qualifying age for pension credit, which is that of men. The amendment would not by the back door set a formula for the future; it simply provides that for a four-year period from 2016 to 2020 there is a separation to mitigate disproportionate impact. It does not require the Government to commit beyond that.
Lord Freud: Let me accept that that is the intention behind the noble Baroness's amendment-although when we costed it, we had to make an assumption about how we then bring it back up to pension age. We need not be technical. It is important when we debate these matters that we debate the underlying intention and not worry about precise things.
I reinforce my point: if we divorce the minimum qualifying age for pension credit from the state pension age, with the exception that the noble Baroness pointed out, the minimum age for pension credit becomes arbitrary, and people would well ask why it is at that age, not one year sooner or one year later. As life expectancy increases, more and more people will want to improve their incomes by working for longer. We should celebrate and encourage that. The amendment goes completely against that principle. We are clear that we want people below state pension age to work if they possibly can. The point of the proposals is not to take money away from people, as some noble Lords have said, but to encourage people to go on working longer, which should leave them with more income. We cannot give up on those people. They deserve our help and support in their endeavours to support themselves.
The other misapprehension is that there is inadequate provision in the universal credit for those who cannot work-people in ill health or people who have worked in manual jobs, who may not be able to continue working as state pension age increases. Again, that is simply not the case. Universal credit is intended to provide appropriate levels of support for those of working age, including those who, for whatever reason, are unable to work or have limited capacity for work.
The amendment will give no comfort to those who want to make entitlements much clearer and more transparent in an effort to ensure that they reach those who need them. It would mean providing complex and confusing information to customers. Unfortunately, it would come into place just when we are introducing universal credit, which is designed to have a pure, simple messaging to people to convince them of how they need to interact with the state. By producing this new, complicated system, we would undermine that simple messaging.
Quite apart from the messages, it would also add significantly to the complexity of the benefits system, confusing the people it is designed to help and the organisation delivering it. In order to deliver that confusion, which would obscure entitlements and potentially discourage people from working in the years before they get their state pension, the amendment would present the taxpayer with an unaffordable bill. For the financial years 2016-25, we estimate that it would be around £1.9 billion, and there would be further costs in the years to follow, depending on when it is withdrawn.
The amendment would add complexity to the system and have the effect of withdrawing valuable in-work support for people below state pension age. It would obscure entitlements for those who need them most and incur a very substantial increase in expenditure. I think I have clearly set out the rationale for the Government's position. It is simply impractical to assume that the system will be improved by adding further complications to an already complex beast. For these reasons, I urge the noble Baroness to withdraw the amendment.
Baroness Turner of Camden: My Lords, I thank the Minister for his response. I think he agrees that there is a problem here, but what he is telling me is that it is too complicated to resolve in the way that I have suggested. I will read very carefully what he said about it because I got the impression that he understands that there are problems about people who do dangerous and difficult work-people on whom we all depend in a modern environment. We do not notice that they are doing it until they cease to be there to do it, and we are not expecting that to happen very soon.
I thank my noble friend Lady Drake for what she said about pension credit. It is quite clear that her amendment on pension credit is intended to deal with the less well off. In that respect, it has to do with my amendment, which is concerned with poorer people. I therefore support what she said.
On my amendment, as time goes on, we may well see, although I hope it does not happen, that if you have accidents or incidents at work, there will be pressure for changes in that respect. I do not think we have finished with the argument about dangerous and difficult work. People do not expect to have to go on working in that kind of environment without any reasonable prospect of an earlier retirement. I shall read with interest what has been said about my amendment. What my noble friend does about her amendment is, of course, entirely up to her. I think it should be supported. I beg leave to withdraw the amendment.
(2) The qualifying age for pension credit from 6th March 2011 until 6th March 2020 shall be set so that the timetable in Schedule 6 (Graduated timetable: qualifying age for pension credit) has effect.
Baroness Drake: This amendment has been debated, but I want to restate that the cost of this amendment, based on the department's figures, is £0.75 billion because we are looking at the period 2016-20. I am conscious of the business of the House, so I do not have the time to go into this, but universal credit does not match the generosity of pension credit for those who cannot re-enter the workforce in the accelerated timetable arising from the more rapid move to equalisation. I do not think that complexity is a defence against protecting the poor. I wish to test the opinion of the House.
Baroness Drake: My Lords, I rise to move Amendment 15 and speak to Amendments 16 and 19. The definition of the workforce who will be automatically enrolled into a workplace pension and benefit from the employer compulsory contribution and the tax relief or credit is a very important matter. The reforms captured in the Pensions Act 2008 were intended to achieve very wide coverage of the working population to facilitate them saving from a relatively early age, and for the private pension system to work for women.
Our concern with this Bill is twofold. First, Clause 5 excludes 600,000 people from auto-enrolment into a workplace pension by raising the earnings threshold a worker would need to reach, referred to as the earnings trigger, from £5,715 to £7,475. Secondly, Clause 8 gives too great a power to the Secretary of State to raise that earnings threshold and so reduce even further, by potentially some 1.4 million, the size of the working population who will, or could, benefit from automatic enrolment into a workplace pension. Amendments 15 and 16 seek to retain the earnings trigger at £5,715. The purpose of Amendment 19 is to limit the Secretary of State's power on the extent to which he can raise the level of earnings threshold, once set, to no more than the higher of the increase in prices or earnings.
I turn to the reasoning behind our amendment. The Johnson review, commissioned by the Government on the automatic enrolment policy, concluded that the earnings trigger for a worker to be automatically enrolled into a pension should be aligned with the tax threshold, which will be £7,475 from April, and will rise to £8,105 from April next year. As we know, the aspiration of the Government is to raise it to £10,190. The Government accepted the Johnson recommendation and had committed to a figure of £7,475. The presumption of the Johnson review was that the earnings trigger would remain allied and track the tax threshold.
Although the Minister has stated that the Government will not necessarily automatically chase the tax threshold when setting the earnings trigger for automatic enrolment, Clause 8 of this Bill amends Section 14 of the 2008 Act and gives the Secretary of State unfettered discretion to do just that and increase this earnings trigger in line with the increase in the income tax threshold. Given the Government's aspiration, if the earnings trigger chased a future income tax threshold of £10,190-in 2011-12 earnings terms-a further 800,000 workers would be excluded in any one year from automatic enrolment. Seventy-six per cent of these people would be women. Consequently, of the group targeted to benefit from workplace pension reform, 66 per cent would be men, but only 34 per cent women.
So many workers should not be excluded. Excluding a further 1 million people and losing £40 million per annum of employer pension contributions does not support the overarching objective of enabling low to moderate earners to save. It would have a disproportionate impact on those working part-time, of whom 5.87 million are women and 1.94 million are men. Recent labour market figures revealed that some 27 per cent of the workforce is now part-time. These figures also show two peaks in part-time working by women, one which straddles the 30s and 40s age group and one which is
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The Government's impact assessment and the findings of the Johnson review confirm that such people should not be excluded from being enrolled into a workplace pension, notwithstanding that Clause 8 would allow that to happen. I shall repeat a quote that I used in Committee from the Johnson review. It states:
"Many or most very low earners are women, who live in households with others with higher earnings and/or receive working tax credits. These may well be exactly the people who should be automatically enrolled".
If the threshold for enrolling people into a pension is raised to £10,190, it is not sufficient to say that the impact could be mitigated by those earning below this being allowed voluntarily to opt in. It is not credible to expect the lower paid to have to overcome the barriers of inertia but those earning higher incomes can benefit from automatic enrolment. It defies logic.
The European part-time workers directive gave many women who work part-time access to their employer's workplace pension scheme for the first time. It would be a truly retrograde step if Clause 8 allowed the earnings threshold to rise to a level at which it introduced a barrier to so many women participating in workplace pensions. Increasingly, women approaching retirement will not be part of an ongoing relationship. They need to save in their own right. The key principle of pension reform is that it should work for women. The higher the threshold of earnings for auto-enrolment into a workplace pension, the less the reforms will work for women.
Raising the earnings threshold too high, and certainly to £10,190, affects the persistency of savings for men, too. Earnings are not static and for many workers, including men, can change significantly over their lifetime. Most low earners go on to earn more, so saving would still be very beneficial because of the enhanced persistency of saving and continuing to contribute to their pension pot over their working life. Relatively few people have persistently low earnings over their lifetime, so it is quite arbitrary to exclude them by reasons of setting a tax threshold at a high level.
In Committee, the Minister argued that the Government wish to retain the ability to raise the earnings trigger as high as their aspiration for the tax threshold, of £10,190, on the basis that £7,475 may not be right in the future and the shape of the state pension may change. If the Government proceed to accelerate the flat rating of the state second pension and integrate it with the basic state pension to bring forward a single-tier flat-rate state pension of, say, £140 in today's terms, subject to the accrual rates and the indexing of that single-tier pension, the number of people who should definitely not be saving will become even fewer. Thus, the argument for significantly increasing the earnings trigger becomes weaker.
The Minister has argued that automatic enrolment has to be sustainable and he fears scooping up people who cannot afford to take a hit on their pay packet.
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I do not wish to argue against changes to the income tax system that would benefit those on low and modest incomes, but it is not necessary for what may be considered meritorious reforms to the tax system to result in an unfairness or inefficiencies in the design of the private pension system. Raising the earnings trigger in line with a significantly increased income tax threshold puts barriers in the way of access to incentives to save for men and women.
In Committee, the Minister made a commitment to provide an impact assessment for the next five years up to the 2017 review and shortly afterwards. I welcome that commitment. It is very important for the Government to show that they are not amending the proposed workplace pension system so that it ceases to work effectively for women part-time workers and arbitrarily excludes workers from the benefits of auto-enrolment at particular phases of their working lives when it would still pay to save.
I have no doubt that the Minister will argue that the earnings trigger for automatic enrolment into a pension should not be set in isolation from the tax threshold. But I argue that it should because they are intended to achieve different things. What might be meritorious in a tax system does not necessarily drive what is sound in the design of a private pension system. It cannot be right that changes to the tax system intended to improve the net income position of low and moderate earners must lead to a reduction in workplace saving by 1 million or 2 million or more people because the earnings threshold for automatic enrolment to a workplace pension has been raised to a much higher level.
In Committee, through the Minister, the Government argued that, in uprating the earnings trigger for automatic enrolment, they want flexibility to consider a wider range of economic measures, that pensions law has to last for the long term and that it is prudent to build in flexibility. I absolutely agree that the issue of pensions is a long-term project, which is why stability is so important. Unfortunately, all post-war Governments in the UK have a history of making what they feel, or felt, to be good incremental adjustments to the design of the pensions system for short-term considerations. Inevitably, 10, 20 or 30 years downstream there were sub-optimal outcomes in the strategic sense and a rush around to find measures to deal with that. I worry that the ease with which the earnings threshold for automatically enrolling workers into a pension scheme could be raised so high under the terms of Clause 7 that we would thereby have another example of such an error being made in the current period, which would have a major negative effect in terms of outcomes in the future.
Amendments 15 and 16 seek to retain £5,715 as the earnings trigger for auto-enrolment. Amendment 19 seeks to keep broadly constant the proportion of the population covered by automatic enrolment by giving the Secretary of State the power to uprate the value of
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If there is to be a major change in the earnings trigger, which will exclude perhaps 1 million or even 2 million people from the advantages of auto-enrolment into a workplace pension, I do not believe that that should be done by an order, even an affirmative order. It is of such significance to the outcome of the pension reform programme over time that there should be a high level of awareness of the consequences. People should understand the impact and all interest groups should be involved in that decision. I beg to move.
Baroness Hollis of Heigham: My Lords, I strongly support my noble friend's amendment. The Government are essentially following the proposals of the Johnson report. I see red copies of it all around the House-I am sure that noble Lords have not consulted it for the first time as we now come to debate it. Having read that report, on which, as my noble friend said, the Government are basing their proposals to lift the trigger, I was completely unpersuaded. I thought that it was thin on everything except, possibly, employers' preferences, which, left to them, would have no doubt pushed the earnings threshold to £10,000 or more. I am surprised, of course, by such a conclusion.
The Johnson report offers two reasons for raising the earnings trigger. The first is that such low earners are involved that even without NEST they would have a very high replacement income based on their state pensions in retirement, so they do not need an additional pension such as NEST. The second argument run by Johnson, and therefore presumably supported by the Government since it was relayed by the Minister in Committee, is that such people are so low paid that the sums they would achieve are not worth while. For example, if someone is earning £7,500 and the trigger is set at £5,700, they would bring in only about £130 a year for their pension pot.
Let us look at those two arguments. My response to the first argument, about high replacement, is, frankly, "So what?". There is nothing to say that just because you are poor in your working life, you would break some golden Treasury rule by being at least as well off if not better off in retirement. It is simply an irrelevant argument. I shall make two points in response to the second argument about the small size of the pot. First, as the Johnson report acknowledges and as the Minister has rightly told us, many women will go on to higher-paid jobs, and even small sums started early enough will be valuable and increase persistency of saving and the savings habit. If someone has not enrolled, it will be that much harder for them to do so later on when a pay rise seems to be eaten up by auto-enrolment, and it will not happen.
From my quick calculations over the weekend, even if there was only the very modest figure of £130 a year in real terms going into a pension pot, I estimate that over 30 years that would none the less allow a woman to build up a pot of £8,000 to £10,000. Given a decent state pension, it obviously would not be sensible to annuitise that pot, since it would be below the trivial commutation limit, but it would mean that she would
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In other words, a few years back the consensus around the House was that we thought it important to encourage people, mostly men, to build a modest capital sum for retirement by not drawing down their state pension at the age of 65 but deferring it for one or two years. Indeed, we so much wanted this to happen that we ring-fenced those savings by not allowing them to count against pension credit taper. When it comes to NEST and women, however, we do not seem to think that the same argument runs. I disagree with that. The one argument that was not run by Johnson, but might have been valid, was the means-test trap. But even that depended on a woman's household income and on whether she was partnered. Given the single state pension in prospect-alleluia-that problem evaporates. We are allowing women to do this voluntarily, but as my noble friend Lady Drake said so rightly, these are precisely the women for whom voluntary enrolment is least likely to happen, is the least suitable, and for whom auto-enrolment is appropriate.
I would ask the Minister to remind us why it is acceptable to encourage men to build a small capital sum by delaying taking their state pension for a year or so, even protecting it against pension credit, but when it comes to NEST and where a woman might have a similar small capital sum, apparently it is not so desirable, even though her finances may be infinitely more strained. I hope that the Government will reconsider this. The Johnson arguments are simply invalid. They may give the Government a hook to hang on, but they do not run. The Government seem to be signing up to the notion that if you are poor in your working life, it is morally acceptable to be poor in retirement. I do not accept that and neither should the Government. If they are saying that the capital sum is not worth having, since we do not allow that argument to run on the state pension, we should not allow it on NEST. On both of those grounds, I hope that the Minister will offer his favourable support to my noble friend's amendment.
Lord Stoneham of Droxford: I support the proposal in the Bill that the threshold should be reviewed in line with the Johnson report. I do so particularly in the light of the reassurance given by the Minister in Committee that there is no proposal from the Government to link the increase in the thresholds to the increase in tax thresholds.
Lord Stoneham of Droxford: Perhaps the Minister can clarify that, and I am sure he will. I do not know what the noble Baroness is quoting from since we remain committed to raising the tax threshold to £10,000, but we do not want this particular proposal undermined.
I shall come back to a further point that I think is important. The other interesting development is the new basic state pension. I am sure that my honourable friend the Minister in the other place will have had in mind his proposals on the threshold to align with what we are now proposing for the new basic pension. That makes sense. Too low a threshold, as we discussed in Committee, gives rise to considerable administrative problems and the issue of very small pension pots. I am sorry, but they are very small. They will be insignificant in the context of the improvement we will be making in the new basic state pension.
It is all very well for the noble Baroness to shake her head, but it is extremely dishonest to encourage people on low earnings to make contributions to their pensions which actually result in a low rate of return when they come to receive the benefit. Not only will they get that low return until we introduce the new state pension, but if they were in receipt of housing benefit they would actually lose income that they would have achieved through any increased pension.
Finally, it is important to understand that too low a threshold may well encourage more lower income people to opt out than would a more realistic one. For those reasons, I support the proposal set out in the Bill.
Lord Freud: My Lords, there is clearly a lot of consensus in the House around auto-enrolment, but I am afraid that one of the areas where there is genuine disagreement-there are not many of them-concerns the right earnings triggers for it. The amendments in the name of the noble Baroness, Lady Drake, seek to introduce a lower entry point for automatic enrolment, and we need to look at them with the amendment which seeks to cap annual rises in the automatic enrolment trigger to the higher general level of earnings and prices. Let me take a few moments to explain why it is our view that the threshold we are proposing is right and why reverting to a lower trigger would not be right. As the noble Baroness, Lady Hollis, pointed out, we reached a recommendation on the level by leaning on the Johnson review, which considered a number of factors: earnings dynamics, family characteristics, and the replacement rate which the noble Baroness finds distasteful.
Let me explain why the replacement rate is an important factor. If you are earning a certain level of income through your working life, it does not necessarily make sense to take money out of that to have a better income later. That should be a choice for the individual-that is the theory of replacement rates. When you are looking at asymmetric paternalism and encouraging people to do things that they might not do if they
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If we only consider replacement rates, then the analysis done by the review shows that individuals with earnings in the £10,000 to £15,000-a-year range throughout their working life would, through the combination of the state pension and income-related benefits, receive replacement rates that are often in excess of 100 per cent. If it had been replacement rates alone that guided the setting of the threshold, it would have been set somewhere between £10,000 and £15,000. However, that clearly is not the whole story and the review recognised that. It recognised the importance of dynamic earnings, which mean that some of those who have low earnings today will still benefit from saving as they are likely to go on and earn more in the future, a point made by the noble Baroness, Lady Hollis. However, even that is not straightforward either-when a person's earnings are low there is a genuine question about whether it is right to encourage them to save at particular times when they may very well have a pressing need to use all their income to meet present living costs.
That led the review team to consider individuals' family circumstances. These may well mean that a low-earning individual with a higher-earning partner might benefit from saving even when their earnings are low, as it would help provide a decent replacement rate for the family as a whole. In the vast majority of families with both partners working, their total earnings are significantly higher than the earnings of just one individual. Bearing all these complicated and interrelated factors in mind, the aim of the independent review was to set a threshold which maximises pension saving for those for whom saving is valuable, while minimising the number of those brought in for whom it is not. In doing this and making its recommendations, the review team struck a very careful balance.
It is simply not correct to assert that all low earners will benefit from pension saving throughout their working life due to dynamic earnings, receipt of working tax credits or the fact that they live with partners who earn more; nor is it correct to say that all low earners will not benefit from saving. That is why we have the opt-in to allow those who will benefit from saving to choose to do so. Individuals who opt in and have qualifying earnings will of course still benefit from an employer contribution.
No earnings threshold will ensure that automatic enrolment is perfectly targeted, encouraging saving among all those who need to save while excluding all those who should not-unfortunately, the world is not that simple. That is why the review team sought to identify the correct balance between all these factors. The Government accepted its findings, including the adoption of a higher earnings threshold; this was widely welcomed by stakeholders. We believe that the starting point that we have proposed in the Bill on the basis of the review recommendation strikes
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We all agree that setting an appropriate earnings threshold for auto-enrolment is absolutely central to the success of the reforms. The arguments that I have heard today and during Committee have not persuaded me that there is sufficiently compelling evidence in favour of setting a lower threshold in the Bill when this is compared with what the review team has already considered in detail in reaching its recommendation.
Let me turn to the second element of the issue: the mechanism for revaluing the automatic enrolment thresholds year on year. The aim of the independent review was to set a threshold for automatic enrolment which maximises pension saving for those for whom saving is valuable, while minimising the number of those brought in for whom it is not. In doing this, the review team recommended that the automatic enrolment earnings trigger should be aligned with the tax threshold, currently £7,475. The presumption of the Johnson review was that the trigger would remain aligned with the tax threshold, unless future action by Government resulted in a fundamental change in its purpose or the relationship between them. The Johnson review is clear about its view on the right direction of travel.
The Chancellor has now announced the personal tax threshold for 2012-13 as £8,105. It is logical that this announcement has prompted the question, which my noble friend Lord Stoneham raised, as to whether it is our intention to uprate the automatic enrolment trigger to this figure for live running in 2012. We will want to undertake detailed work over the coming weeks and months to assess the impact of aligning the earnings trigger with that threshold of £8,105. We will look in particular at whether the right balance continues to be struck in terms of who is brought into auto-enrolment using this trigger, especially with regard to low earners and women.
It is appropriate to share with the House the figures that demonstrate the impact of moving up to £8,105. It would remove around 100,000 individuals from automatic enrolment. It is also appropriate to share with the House the fact that the bulk of those are likely to be women-our figure is 79 per cent, a proportion consistent with the impact of the rise to £7,475.
It is too early to say definitively that because £8,105 is the personal tax threshold for next year this will also be the auto-enrolment trigger. However, I can say that our expectation is that we would align with this figure, unless the evidence suggested that this was the wrong thing to do. It is therefore worth my repeating here the commitment I made at Committee that as well as the uprating order being subject to an affirmative debate, we will prepare an impact assessment to accompany the uprating order for each of the first five years up to and until shortly after the 2017 review. This will give us the opportunity to explain in detail to the House how and why we are proposing to uprate the auto-enrolment trigger and inform the affirmative debates that we will have annually.
Times are changing-as we debate these issues, the Chancellor has announced not only a new personal tax threshold but a major review of the operation of tax and national insurance contributions. It is vital therefore that we retain for the long term the flexibility in the uprating power to allow us to consider a number of factors.
First, we need to consider the possibility in the future that the earnings trigger could end up being within a few pounds of the tax threshold. What if, in such a situation, having anchored in all relevant criteria under the flexible provisions and taken into account all the evidence, the impact assessment suggests that the auto-enrolment earnings trigger should be £30 or less below the PAYE threshold? In that circumstance, it would be ridiculous to have different thresholds, separated by only 58 pence a week, given the burden on employers. Our priority must be to ensure that the reforms are credible and auto-enrolment works in practice. If it does not then we risk losing employer support and the reforms will not work.
We also need a level of flexibility as we consider the overall emerging financial landscape. At this point we do not know with any certainty what level state pensions will be or where earnings and prices are moving to. This is a policy for the long term, and we live in an increasingly uncertain world. We need to retain flexibility so that we can respond to changing circumstances.
Our primary aim in setting the earnings threshold that will trigger auto-enrolment must to be to ensure that we target the right group. The work that we will be undertaking over the next weeks and months will ensure that the threshold strikes the right balance between maximising pension savings for those for whom saving is valuable, while minimising the number captured for whom it is not worth while.
The flexibility that this uprating power provides, and the ultimate decision to increase thresholds for automatic enrolment, will not sit in my hands. It ultimately sits in this House and in another place through the affirmative uprating debates and the accompanying impact assessments that I have committed to, which provide significant protection against unwanted changes. I beg the noble Baroness to withdraw her amendment.
I have sympathy with the point my noble friend Lady Hollis made that, if one spends time on the evidence compiled in the Johnson review, one can see that it can be deployed for not raising the threshold as persuasively as it can for raising it. That is one of the problems. Certainly, there is some persuasive evidence in that review that the earnings trigger should not rise above the order of £7,475 in today's terms. Even looking at that evidence and listening to the Minister's arguments, I can understand-I may not accept-the argument that runs that if one is moving to a single-tier flat-rate pension of £140, then an auto-enrolment figure of £7,465 may be appropriate,
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When it comes to the issue of replacement rates or who should be smoothing their income over their lifetime, and who needs to firmly hold on to their income over their lifetime because they are not well off enough to let it go and smooth it, we have to be very careful what is said. Again, I go back to the Johnson review; most people are not persistent low earners. Their aspirations on their replacement rates will not be determined by the low earnings they may have at a particular point in time; and those low earnings should not interrupt their persistency of savings. Equally with women, one has to look at household income, because one of the principal points of the pension reforms was that they work for women. As the Johnson review itself said, they may be in a household with someone who is working full-time or earning much more; they may be precisely the people who should be saving and their period of lower earnings as a part-timer may not be at that level over all their working life. Equally, to get the desired replacement rate, one has to have persistency of saving; one will not get there on five or six or seven years of saving. If one sets a trigger for auto-enrolment which interrupts that persistency of saving when someone moves to a lower level of earnings, that is not very efficient. Also, for those on lower and more modest incomes, no reference was made to how the tax credit system can make it pay to save, providing tax relief as high as 50 per cent or 60 per cent for some individuals, which when taken with the employer contribution should not necessarily be income forgone.
We will look with interest at the impact assessment that will be brought forward in each of the next five years, because I have expressed our concerns on this issue. Flexibility for changing circumstances is often driven by short or medium-term considerations: having a successful pension system is a long-term project and it needs people to be engaged in saving over a very long period. Having expressed those reservations, and recognising that there will be an impact assessment, I am sure that others will return to this issue. I beg leave to withdraw the amendment.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham): My Lords, today we are considering the draft Code of Recommended Practice on Local Authority Publicity, which is largely a simplification and re-presentation of the codes which are currently in place.
It is a simplification in that if the draft is approved by this House, it will replace in a single code the two documents that currently apply to different tiers of local government in England. One such document, which was issued in 1988, applies to parish councils and suchlike bodies. The other such document is a code which is identical but includes revisions made in 2001. This latter document applies to principal councils-that is, to unitary, county and district councils, and to London boroughs.
The draft code is also a significant re-presentation, since a matter which is in the current documents is now grouped around seven principles. These principles are not new, but the draft code improves their presentation and clarifies them. I shall say more on this later.
Finally, the draft code also makes two changes of substance. The first of these is designed to fulfil a mandate from the general election manifestos of both the Liberal Democrat and the Conservative parties-now a coalition commitment-
The second change seeks to toughen up the rules on the use of lobbyists by local authorities. Before saying more about the detail, I would like to say something about the nature of the publicity code and the processes that have been followed in drawing up the draft before the House today.
In 1986 the Government enacted legislation, the Local Government Act 1986. That legislation tackled the whole question of local authority publicity. It provided for a code of recommended practice on publicity and required local authorities to have regard to such a code. The code is therefore a statutory document, so councils are obliged to consider it when taking decisions about their publicity. It is a code, though, not regulations or an order, so it does not contain binding requirements. There is an obligation to have regard to it. This means that if a council is not to be challenged successfully in the courts or by its auditor for any departure from the code, there must be reasoned and rational grounds supporting such a departure.
That is the nature of the rules on local authority publicity that have been in place since the 1986 Act. The Merits Committee has questioned just how effective such rules, based in a statutory code, can be. The evidence is that over the years successive Governments have seen these rules as appropriate and effective. There is no reason why this should be different in future with the latest revisions.
Underpinning the 1986 legislation and the codes made under it, including the revisions made in 2001, is the firm belief that good, effective communication between a local authority and its communities is key to developing the understanding necessary for a healthy local democracy. Local authorities should use local publicity, not just to keep their communities informed of the services that they provide but to encourage greater civic participation. Councils up and down the country do this and it is right that they should.
However, publicity can be a sensitive matter because of the costs associated with it and the impact that it can have. That is why it is essential that decisions about local authority publicity are properly made. The purpose of the publicity code is to ensure that this will be the case.
At the end of last September we launched our consultation on proposed revisions to the publicity code. The consultation ended on 10 November. We received over 350 responses, all of which were carefully considered before finalising the text of the draft. At the end of last year the Communities and Local Government Committee held an inquiry into our proposals to revise the publicity code. That committee concluded that it was right to have a code to regulate the production of local authority publicity and went on to make a number of recommendations.
We carefully considered the Select Committee's conclusions and recommendations before laying the draft code before Parliament on 11 February. In parallel with that, we also published the Government's response to both the consultation and the Select Committee's report.
I turn to the draft code. Its content, as I have said, is grouped around seven principles. These are that local authority publicity is to be lawful, cost-effective, objective, even-handed and appropriate, is to have regard to equality and diversity and is to be issued with care during periods of heightened sensitivity-that is, during periods before elections or referendums.
In addition there are, as I made clear earlier, two substantive changes. The first is that there is now specific reference to the maximum frequency, content and appearance of local authority newsletters, news sheets or similar publications. That is to address the problem of unfair competition by taxpayer-funded local authority newspapers. Such competition can have a detrimental effect on commercial local newspapers. Local authority publicity is important but the freedom of the press is also important in providing information to the public to hold their local authority to account. It is equally important that the readers of a newspaper can readily tell whether what they are reading is part of the independent press or a publication by the council about the council and setting out the council's message.
In its report the Merits Committee has echoed the views of the Select Committee, which suggested that the evidence of this unfair competition is slight, and has questioned why the draft code should specify a maximum frequency for publication. The Government's position is that there is a good case for action to be taken and that the action achieved through the draft code is right. There have been consistent representations from those who should know-the newspaper industry itself-that there is an issue with certain local authority newspapers creating unfair competition. That matters. An independent press holding councils to account is an essential element of any effective local democracy. If the freedom of the press is or feels threatened, then that is not something about which we should simply agree to look at in the long term, to seek more statistical evidence about or to review in the light of further experience. It is something on which we should act now, in support of genuine localism.
The fact that the action that we are taking chimes with the practice of the great majority of councils already should give confidence that what we are doing is right. The Local Government Association's research shows that the great majority of local authorities publish newsletters quarterly or less frequently. As a result of the consultation, the draft code suggests that parish councils can have monthly newsletters and other such publications, reflecting that in a parish such communication is often part of local community life and does not cut across the local independent press in any way. What the draft code underscores is already the practice of the majority of councils, but not all.
The second substantive change is about the use of lobbyists by local authorities. Under the draft code, local authorities should not retain lobbyists with the intention of publishing any material designed to influence public officials, Members of Parliament, political parties or the Government to take a particular view on any issue. The reason is that it is a waste of public money for local authorities to hire political lobbyists to contact Ministers and Members of this House. If a council wants to make a point to a Minister or its Member of Parliament, then all it needs to do is address them directly.
A code of publicity, with these two changes, and the streamlined and clarified presentation of the draft before us will be of benefit to councils, local taxpayers and communities across the country in ensuring that councils promote themselves in a fair and uncompetitive way. It will stop waste and unnecessary spending, and will bring about consistency between authorities in understanding the actions that they can take to promote themselves and their message. I beg to move.
Lord Beecham: My Lords, your Lordships will be familiar with the old saw about an ambassador being a good man sent abroad to lie for his country. From my short time in this House, it seems to me that a Minister in this House is a good Peer sent to this place to defend the indefensible. I congratulate the Minister on the customary charm and thoroughness with which she has moved the adoption of the publicity code.
The Secretary of State often reminds us that in his younger days he read Marx before he joined the Conservative Party; indeed, in a debate in the other place on Monday he referred, albeit not approvingly, to Lenin and Stalin. The Secretary of State's brand of localism seems to come very close to Stalin's democratic centralism, in as much as it seems to amount to a situation in which councils can do anything they like so long as the Secretary of State approves of it.
As the Minister has said, there has long been a code of practice on publicity. The consolidation and simplification elements are absolutely acceptable, while the seven principles are perfectly correct and welcomed by all in local government. The other points, though, particularly the restrictions on publicity and the number of publications, like so many other policies enunciated by the Department for Communities and Local Government, really reflect the Secretary of State's own obsessions. We have had a series of pronouncements around waste collection, chief executive pay, the roles of mayors and chief executives being combined and compulsory referendums, all reflecting the Secretary of State's somewhat unique view of the world and his determination to enforce that view upon local government in general. He seems to suffer from a political variant of that rather distressing condition, OCD, in his case the letters perhaps standing for obsessive compulsion disorder. He seems to wish to compel everyone to reflect and act on his obsessions.
The ostensible reason for the restriction of publication of communications to four a year is to protect the local press so that it can hold councils to account-a function that it certainly ought to exercise and ought to be encouraged to exercise. One might find this somewhat ironic from a Government who, if they have not bent over backwards to accommodate the Murdoch dynasty's extension of its influence over the media, have at any rate inclined in that direction, but let us leave that aside.
I have been a member of Newcastle City Council for 44 years, 24 of those as either chairman or leader of the council. In the early days it was certainly true that the local media held the city council to account. They regularly attended meetings of all kinds and were regularly in touch with leading members of the council. Several journalists in the north-east went on to achieve national prominence, which reflected the quality of their work. However, over time-I ceased being leader of the council in 1994-the degree to which council affairs were covered dropped remarkably. Indeed, at one point I challenged the local press to do more, asking why it was not covering council activities more. In summary, the reply was, effectively, "It doesn't sell newspapers". The press had conducted a survey that found it was not something that sold newspapers. I understand that a commercial decision was therefore taken to cut back. Whereas for many years I would receive a telephone call from the municipal correspondent of the local press every day, by the time my term finished such calls were much less frequent. They have become less so since. Latterly, although there is some coverage of council meetings, there is virtually no coverage of the scrutiny committees-the very committees
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The Government complain that there is unfair competition because some councils incorporate adverts in their publications. Around one-third do not; others do. However, many of these adverts are there for the fulfilment of statutory requirements-statutory planning notices, for example. Councils will sometimes use their own newspapers as a medium for these notices because it is a more cost-effective way of publishing them. They reach every citizen, whereas local newspapers do not, and it is often cheaper to do that. In any case, is this not consistent with the oft-proclaimed belief of the Government-perhaps of all of us-in the virtues of value for money and, in the case of the Government in particular, of competition and the market?
"Very scant evidence has been presented to this inquiry, and to previous inquiries, which would sustain the claim that local authority publications have contributed significantly to the decline of local newspaper advertising ... or sales ... There is no evidence of a widespread problem of unfair competition".
It is not surprising that it should say that. Less than 1 per cent of councils publish a weekly newsletter. Less than 3 per cent publish one fortnightly. Thirty-six per cent publish a quarterly newsletter. A council with which the noble Baroness is very familiar-the Royal Borough of Kensington and Chelsea-publishes six newsletters a year of 16 full-colour pages, which are full of information. That is perfectly correct. It would be constrained from doing so by the terms of this order. The Merits Committee said:
It was interesting that the Select Committee heard from the general secretary of the National Union of Journalists, one Jeremy Dear. He said that 68 per cent of editors believed that there was less coverage of council functions than there was when he was a working journalist. He said:
There are significant reasons for the decline of the local press. One of the early ones was perhaps the development of local commercial radio, itself funded by advertising. The second is the widespread use of the internet. The third-again, ironically, your Lordships might think-is the existence of free newspapers, sometimes published by the very local press that is apparently pressing the Government to impose these
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Councils often join up with the National Health Service, the police and others to provide information. Many councils reckon that this is a more cost-effective way of conveying that information. For example, the Liberal Democrat-controlled council in Portsmouth not only publishes its own newspaper, which reaches all 85,000 households in Portsmouth, but spends £970,000 advertising in the local press. Many councils continue to advertise. However, the local press in Portsmouth reaches only 30,000 of those 85,000 houses. If the council wants to reach everyone, it has little option but to distribute its newsletter more widely. Around £40 million is spent nationally on advertising planning notices alone in the paid-for press.
The code proscribes, as the Minister has pointed out, the engagement of lobbyists to influence public officials or government. I would be sceptical about the value of employing lobbyists, but it does not seem necessary for the Government to proscribe their use if a democratically elected council chooses to use that resource. Nor is it necessary for them to prohibit the production of stands or displays at party conferences to influence members or political parties-something which, frankly, I would like to see a little more of from certain political parties at present. On lobbying, it should be noted that the Select Committee suggested that a code of practice should be developed. The Government have rejected that outright.
That goes to the heart of the matter before us tonight. Decisions on these issues should be made by elected councillors answerable to their electorate. It is interesting that the Minister rightly points out that the legislation requires councils to have regard to the code, which is essentially unenforceable, although a district auditor may make a report on a complaint by an aggrieved resident or, presumably, an aggrieved local newspaper in this case.
Like the Minister, I hope that councils will have regard to the code and that they will make their decisions on the basis of their judgment of the local circumstances, and not simply defer to the prejudices of the Secretary of State. They should also, perhaps, consider the following statement:
"If the Department for Communities and Local Government was truly committed to localism it would not be introducing draconian rules dictating to councils how often they are allowed to share information with residents. It is extremely disappointing that ministers have failed to make any significant amendments to the code following consultation, and appear to have ignored the advice of their own MPs. Newsletters delivered to people's homes have consistently proved to be the cheapest way for councils to directly communicate with residents and keep people informed about local services. The Communities and Local Government select committee found there was scant evidence of council publications competing unfairly with local newspapers. Most are distributed
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Those words were not my words; they were the words of the noble Baroness, Lady Eaton, the chair of the Local Government Association and long-standing associate and colleague of the Secretary of State. She was the leader of Bradford council in her day, after the Secretary of State had departed to higher, perhaps greater, things.
The noble Baroness is not in her place tonight, which I do not for a moment criticise. I warned her that I was going to be quoting her. She might feel somewhat conflicted, which I quite understand. I have no criticism at all of her. Indeed, I admire her for having the forthrightness and courage to speak on behalf of local government over this issue.
Lord Fowler: My Lords, the noble Lord's fierce denunciation was backed by the serried ranks of his fellow Peers sitting tightly behind him. As my noble friend said, the changes in the rules on local authority publicity that affect council newspapers were a manifesto pledge, but I do not intend to argue it on that ground. I declare an interest as an ex-journalist. I am a life member of the National Union of Journalists. In my view, this debate raises something absolutely fundamental. The role of the regional and local press is to report independently on the news, to owe no obligation to any vested interest and not to take any line unquestioningly from officialdom. They need to be fair and above all they need to be independent in judgment. I do not claim for a moment that those values are always maintained, but I do claim that the regional and local press have a proud record in this country of exposing injustice and, at times, corruption. That is very much in the local public interest and should be maintained.
We deceive ourselves if we believe-slightly as the noble Lord suggested-that local councils, whether they are Labour or Conservative, have the same interest and join together in applauding the role of the free press. They want their policies to be supported, they often resent criticism, and they are not always particular in the means that they use to have their way. I give one example from my own experience in Birmingham, where I was the chairman of Midland Independent Newspapers. We published the Birmingham Evening Mail, apart from other newspapers. It was a management buyout and our policy was that the editor edited and the board simply did not get involved in editorial policy. Sadly, the Labour council objected to the reporting on local government issues and the leading articles of the editor, Ian Dowell. The result was that they withdrew all their public notice recruiting advertising from our evening paper, started their own local paper and handed out the print content to our commercial competitor. Let us recognise that not all councils recognise and appreciate the importance of free comment.
We should also recognise the development of local authority newspapers, to which my noble friend referred. These again have one main purpose, which is to promote the policies of the council in power. It has nothing to do with independent journalism. Their role is certainly not to investigate and inquire into what is going on in the local council. They would get into terrible trouble if they tried to do that. This is bad enough, but, by exploiting their local monopoly position, they attract to themselves advertising that is necessary for any independent newspaper to survive. Independent local newspapers are already impacted, but this simply puts the final nail in the coffin.
The advertising feature-of a Thai restaurant-is spread over four pages. Inside, there are no fewer than 44 pages of houses and flats for sale by local estate agents. There is a full-page advertisement for the Metro Bank and other advertisements for double glazing and carpet companies. Perhaps this is an exception; I do not know. I hope that my local council will perhaps change its policy. The Kensington local paper-this might be the first time that we agree-actually pursues its policies in an extremely sensible manner. It does not take advertising or do these kinds of things.
Too often, councils try to take over the role of local independent newspapers but without the necessary qualification of independent judgment. They use their local monopoly power to take advertising when they cannot conceivably call that advertising council business. They certainly help to drive out of business genuine local papers and prevent new independent local papers developing. No one in their right mind would try to take on a monopoly advertiser in their own local area. Perhaps worst of all for me, an ex-journalist, they are training a new generation of public relations executives who take press releases and send them out. This country does not need more public relations people. We need a few good, honest reporters to report the news at both national and local level.
Frankly, I am amazed that the noble Lord is putting his opposition to this. I am totally amazed that he is speaking from the Front Bench on this. In the few minutes that I have been speaking, the crowds behind him have not welled up either. There seems to be a remarkable lack of enthusiasm on his own side for the case that he is putting. This is a fundamental issue. This House and this country should be about encouraging free and good local independent journalism. The council newspapers that we see at the moment are not examples of that. The Government are entirely right in the action that they have taken.
Lord Shipley: My Lords, first, I declare my interest as a member of Newcastle City Council. Our democracy is underpinned by four principles: the right to vote, freedom of speech, an independent judiciary and a free press. In the context of having a free press, I agree entirely with my noble friend Lord Fowler. The Government should not be the publisher of newspapers and-for that reason-nor should local government. This is not what governments exist for.
The Code of Recommended Practice on Local Authority Publicity was introduced to prevent party political literature masquerading as official council newsletters. In my time, I saw enough of them to know that a code was necessary and that some limitations needed to be applied. I continued to support that position and the need for a code to exist. However, we should be aware that there are already restrictions in the existing code. The current one says that local authority publicity should seek to raise public awareness of the services provided by the council and the functions it performs, explaining to electors and council tax payers the reasons for particular policies and priorities and enabling them to have an informed say about issues affecting them.
As for subject matter, councils have a very wide range of statutory powers to produce and circulate publicity and to explain statutory matters to the general public, as the noble Lord, Lord Beecham, pointed out. Some of those powers relate specifically to the work of the council whereas others are discretionary, enabling the council to publicise matters which go beyond its primary responsibilities. However, in the context of localism, the drive to localism and the Localism Bill, it is very hard to see why councils should in future be restricted from pursuing a wider agenda in terms of public service provision in their localities. Indeed, councils should always seek to ensure that publicity is relevant to their functions and does not duplicate unnecessarily the publicity produced by other agencies, which of course includes newspapers.
It seems to me that the existing code is pretty reasonable, which begs the question of exactly why the changes are being introduced. Some of them we can agree with. I agree entirely with the view of my noble friend Lady Hanham on lobbyists. However, it is claimed that in recent years there has been a growth in the number and frequency of council newsletters and publications, and that 92 per cent of councils publish such newsletters. I think that that is a very good thing. I am very surprised that 8 per cent can deliver their statutory functions and not produce some kind of newsletter. In the context of localism, that is the direction of travel. If the general public do not like what is being said in these publications, they can vote out the councils at the ballot box.
I accept that some council publications have become like commercial newspapers, although I am not aware of them being issued weekly; but the vast majority of council publications are simply not like that. However, there is an issue around advertising and commercial newspapers, and concerns have been expressed about frequency of publication and content. Councils are constantly being encouraged to earn income. Therefore, it is no surprise to learn that councillors of all parties have encouraged council newsletters to accept advertising to pay for their distribution and other costs. However, as the noble Lord, Lord Beecham, reminded us, only 1 per cent of councils have a weekly publication; most print quarterly. At the moment, one-third have no advertising at all. Therefore, the jury is out on the evidence base for saying that council magazines pose a threat to the local newspaper industry. In principle, I
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Is it really the job of the Government to stipulate in the code whether crosswords, horoscopes and competitions should or should not be published in a quarterly council newspaper? Surely the whole thrust of localism is that we should let councils get on with it.
As I say, I agree absolutely with the view expressed on lobbyists. I believe that that is correct, and I have not been happy when I have seen them being deployed-not in my own authority but elsewhere. However, I ask the Government to ensure that they follow the same practice as local councils are being asked to implement in this regard. Can we be reassured that the DCLG is not employing any lobbyists or PR companies elsewhere in the Government, given that local councils are to be banned from doing so?
I turn to "purdah" and the two rules that apply within this code, about which no proposals are coming forward. Local government went into purdah at the end of last week in connection with the local elections in England that will take place on the first Thursday of May. Central government have a purdah date, three weeks before the official polling date, of 14 April. I have never understood why central Government can make major announcements, say on project investment, only a few days before postal votes go out. That will occur this year in around the third week of April. That does not seem to be right. I propose that purdah should begin for all government agencies on the date of the publication of the notice of a poll, not on the publication of the notice of an election.
I and, I hope, my noble friends support this measure as it is contained in the coalition agreement, and it is right that we should do so. However, I hope that this matter will be carefully reviewed. No timescale is given in the impact assessment of when it will be reviewed but I do not think that it is the business of government
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Lord Black of Brentwood: My Lords, as a former local councillor in Brentwood, Essex, and now as a director of a newspaper company, the Telegraph Media Group-I declare an interest accordingly-I appreciate that there are two sides to this issue. Weighing them both in the balance, I strongly support the proposed code of recommended practice because of the damaging impact of some local authority publicity on the local press. I do not need to dwell too much on this because I agree almost entirely with everything that my noble friend Lord Fowler said.
I do not think that anyone in this House would disagree with the proposition that a free and vibrant local press is the cornerstone of a properly functioning democracy. Local newspapers foster a sense of local and community spirit, scrutinise those in power, help ensure that taxpayers' money is being used efficiently, and, at a time of increasing secrecy in council decision-making, help shed some light on the workings of local government. The local press is the best example we have of localism in action. People respect and trust the regional press, which, we should not forget, employs 10,000 journalists across the UK-that is more reporters on the ground than any other medium in this country-to act independently in the public interest in a way that council publications never can. I appreciate, as the noble Lord, Lord Beecham, said, that there are pressures on the reporting of local government issues. However, independent research from Ofcom in 2009 found a general increase in high-quality local investigative journalism over the past five years. That is much more the image of the local press that I have as opposed to that reflected in some of the things that the noble Lord said.
However, as with national newspapers, such high-quality journalism-I believe that it is high-quality journalism-is expensive. Working in a newspaper company, I know that even in a benign commercial climate that places a considerable burden on publishers. However, it is infinitely more difficult during a period not just of economic downturn but of structural change within the industry, the combination of which has created a perfect economic storm for the regional press over the past few years. If we value a free local press, then we have to do everything we can to ensure that it operates on a level commercial playing field. It cannot do that if it is competing with local authority publications not just for readers-we should not forget the readers in this-but, crucially, for the advertising which funds it. Using taxpayers' money to compete for that increasingly scarce revenue-none of us should be in any doubt about how difficult the advertising market is-is unfair, anti-competitive and damaging to the local press. The more frequent the publication, the more advertising spend is drained from the private sector.
A recent survey by the Newspaper Society showed that nearly half the local authorities surveyed in London publish a newspaper or magazine on a monthly basis or even more frequently, with 90 per cent of those accepting advertising. Examples, as we have heard,
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The noble Lord, Lord Shipley, raised the issue of crosswords and so forth. I looked at a copy of East End Life, a newspaper which, in an investigation in 2009, the Evening Standard showed to have twice the number of pages as the independent newspaper in that area, the East London Advertiser. It is not just crosswords; it has TV listings, news items and sports pages at the back-this is, in effect, a local newspaper in shape and in displaying classified adverts. That cannot be right.I amall in favour, as a former local councillor, of local authorities being able to communicate to the public the information they need, but they have that in the A to Z of local service; the occasional, objective council publications, which will not be stopped by the code; material in public libraries; a constructive dialogue with the local media, which is so important; and, of course, websites. In a digital age, there is no end of ways for a council to communicate with people.
I live in the London Borough of Islington. Its website tells me how to claim benefits, what books are in the library, what jobs I can apply for, how to get involved in the council and so on; it is all there. I believe that the code will help correct the balance. It is a simple solution which will not stop local authorities communicating professionally, objectively and cost-effectively with their electorates across a range of issues; but it will help stop some of the unfair competition with the local press, which is so dependent on advertising, and, in some extremes, help stop the public being misled into believing that a council publication is an independent newspaper, with all the profound implications that that has for local democracy. On every count I believe that the code is good; it is good for local taxpayers, good for local democracy and good for the independent local press which is a vital part of the civic fabric of our country.
Baroness Miller of Chilthorne Domer: My Lords, as the daughter of the proprietor of three local newspapers in Hampshire and Surrey, I grew up with the words "threats to local newspapers" ringing in my ears. In those days, in the 1960s, as the noble Lord, Lord Beecham, says, it was from commercial radio. The threats have been talked about ever since. The threats now are from websites. I do not believe that the younger generation listening to this debate would believe that the threat to local newspapers is actually coming from council newspapers. I do not recognise the world that the noble Lord, Lord Black of Brentwood, spoke of when he said that councils are increasingly secret. Actually, over the past 20 years, when I was involved as a councillor and latterly council leader in Somerset, councils opened up their meetings considerably; they were no longer held behind closed doors. We live in a world now of much greater openness. Indeed, a lot of future exposure is likely to come through the world of the Huffington Post and WikiLeaks, not through the traditional print media.
I do feel nostalgic for print and I understand why the noble Lord, Lord Fowler, made the impassioned speech that he did. I hope that local newspapers continue to fight another day, but I am not certain that they will. Technology is moving so fast that that produced on paper is almost irrelevant. It saddens me that the Government have chosen this moment to renew a code in these terms. It extends a code that was already adequate to counter what my noble friend described so well as a situation from days gone by, when party political publications masqueraded as newspapers. That is not the case now. The code covered it, the code is complied with and councillors understand very well, as do council officials, what the code means.
I am disappointed that our Government have chosen to micromanage in this way. When we talk of unfair competition in addressing this, it seems very strange. The rest of the time we talk about competition and a free market being healthy. I understand the difference, which is that it is taxpayers' money producing a council newspaper, but the rest of the time councils are urged to be as commercially viable as possible. However, it is not that that offends me, it is the micromanagement. Are we really going to have a code that dictates content? The noble Lord quoted competitions. I can remember my own council newspaper running competitions along the lines of, "Get to know your local area. Can you recognise where this is?", with a photo of the local area. The next time it was published it would talk about the projects that were going to happen there. That is a competition and it certainly should not be caught by the code.
Frequency is certainly not a matter for central government; it is a matter that the council will decide according to its finances and, indeed, according to its residents' wishes. Councils have been urged for ages to take into account their residents' wishes, and survey after survey that my council did always came back with a request from residents for more information in a more digestible form. The public are very happy with the appearance of newspapers; that is why newspapers have evolved as they have. There is nothing wrong with a local authority taking on what is a very popular appearance and publishing its material in that form. It is not by chance that a newspaper has evolved into the form it has; it is because that is the form that the public like.
Finally, I do not like lobbyists any better than anybody else, but we need to be careful about this in the code. A lobbyist might be taken to be a person who has particular expertise in publicising a fairly technical issue. In the 1990s I remember that quite specialist help was needed to deal with what we were forced to do then, housing stock transfer. Noble Lords will be able to think of other very specialist issues now; say, flood defence and managed retreat, which you need quite specialist people to talk about. Would you not be allowed to employ them in your newspaper to write an article? So there is even a question hanging over the question of lobbyists. I wish that the Government would think again and quietly drop this proposal.
Earl Cathcart: My Lords, when looking at the two Motions before us this evening, I asked myself, what it is that most council tax payers want from their council?
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The code deals with two main issues; new or tougher rules for local authority newsletters and the use of lobbyists by local authorities. Dealing with the use of lobbyists first, I ask myself the question, as a council tax payer: do I want my council paying tens of thousands of pounds to an outside firm to lobby MPs, public officials, political parties and government Ministers? The answer is an emphatic no, for two reasons. First, councillors and officers of the council already have open-door access to their MPs, Ministers and public officials. Why on earth do councils, therefore, need to pay good money to lobbyists to do their job for them? This leads me to my second point: it is a waste of taxpayers' money, money that would be better spent in improving or maintaining front-line services.
The other issue is that of newsletters. I listened carefully to the arguments put forward by the noble Lord, Lord Beecham, and I have to say that I cannot understand the position he has taken. It does not seem logical to me. If the Minister had come to the Dispatch Box to say that all restrictions for local council publications were to be removed, I could perhaps understand the noble Lord's position if he opposed that. Indeed, there might well be opposition from all around the House, and understandably so.
Imagine the outcome if there was this free-for-all. There would be editors' comments, opinion pages, hand-picked letters, all peddling the politics and policies of that particular council. I, for one, would find that undesirable, as, I suspect, would the noble Lord, Lord Beecham, especially as his party controls only less than 15 per cent of councils in the country. He would rightly argue that the Conservatives would have an unfair advantage, because they currently control more than 50 per cent of councils. Some rules need to be laid down to ensure an even-handed approach.
The second issue is whether some local authorities create unfair competition for local commercial newspapers. I should stress that the vast majority of local councils publish no more than a quarterly newsletter, as has been mentioned, and the content is largely confined to making the electorate aware of the services provided by the authority, highlighting local concerns, and informing people how they might respond to them. That is perfectly right and proper. This code of conduct will not affect any of those authorities' newsletters. Unfortunately, a small minority of councils go far beyond that, and feature TV guides, entertainment listings, puzzle pages, sporting news, commercial advertisements, and film and theatre reviews. This clearly strays into direct conflict with the commercial local newspaper industry.
For instance, Tower Hamlets Council's newspaper employs nearly 50 per cent more staff than its commercial rival, the East London Advertiser, and it has almost double the number of pages. Think of the cost of production, which is probably hundreds of thousands of pounds, all paid for by the poor council tax payer. This money would be far better spent on front-line essential services. Greenwich Council's weekly newspaper costs the taxpayer more than £500,000.
The noble Lord, Lord Beecham, conveniently talks about localism. However, is it really localism to allow councils to produce their own newspapers that will not publish any criticism of themselves, are paid for by the council tax payer who has no say in the matter, and are in direct competition with the local commercial newspaper? Or is it a more healthy localism to have a flourishing independent local newspaper that finances itself, is able to comment on and criticise the activities of the council, and allows the electorate to comment through letters? I think that I know the right answer.
I welcome the provisions introduced by the Minister. Council newsletters should be just that-newsletters, not newspapers-and councils should not pay good money to lobbyists to do a job that councils are perfectly able to do themselves. In both instances, the money would be better spent on front-line services.
Lord Stoneham of Droxford: My Lords, I support the remarks of my noble friend Lord Shipley. Not for me is the rarefied and glamorous world of journalism of my noble friend Lord Fowler and his successful chairmanship of Midland Newspapers, but I am someone who spent a working career in the newspaper industry as a general manager in the nuts and bolts of the industry at a national and local level-including at the Portsmouth News, mentioned by the noble Lord, Lord Beecham, which in my day also printed the local government newspaper.
The local press is vital for communities to speak to themselves and encourage local democratic accountability. I spent a career, as the noble Lord, Lord Fowler, mentioned, fending off advertisers who threatened to run their own newspapers when they were dissatisfied by some coverage in the papers. Market competition and economics normally determine the success of competitive ventures, and that is how it should be. I can understand the concerns of local newspapers, particularly if councils use taxpayers' money, combined with their own advertising, to attract other advertising. However, it is difficult for councils to do this. Newspapers are complex products that have to be read to be effective. Local newspapers are one of the most trusted mediums in the media. Councils, frankly, are not very good at creating their own newspapers, and advertisers rarely want to be associated with their councils.
The noble Baroness, Lady Miller, was correct to say that the real threat to local newspapers is from the web and from underinvestment in content. I accept that there should be some guidance and restraint on unfair competition, because local newspapers have to be protected. However, we also have to accept that in some areas there are no longer any viable local newspapers, apart from free sheets, and that is a problem. It is somewhat heavy handed to insist that councils can publish only quarterly publications. A monthly limit
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We accept that daily and weekly newspapers are under pressure and need to be protected. They need to be safeguarded, not least to allow them to invest in journalism in their local areas. Please, let us limit this measure to unfair competition and not micromanage the sort of publicity material that local councils should put out in their areas-particularly in this age of localism.
Baroness Hanham: My Lords, this short debate drew to a conclusion rather more quickly than I had anticipated. I thank all noble Lords who have taken part in it, including the noble Lord, Lord Beecham, for introducing his Motion in his usual calm way. It is nice to see that on the other side. We have sparred on many occasions, but we always do that, I hope, with considerable grace and good humour. Unfortunately, I do not believe a word of what he said in rejecting our Motion. As has been made clear by many speakers on this side, there remains unfair competition between local council communications and the local press. We have recognised that it is right and timely to review and simplify the code, while bringing forward two changes.
It is interesting that practically no one had anything to say against the provisions on lobbyists. We all understand that local authorities have, and should have, direct access to government. They can do that for themselves. One point was raised by the noble Baroness, Lady Miller, about specialist lobbyists on technical matters. They will not be prohibited by this, because sometimes cases have to be made on technical matters that cannot otherwise be dealt with.
Most of the opprobrium from the noble Lord, the noble Baroness, Lady Miller, and the noble Lord, Lord Stoneham, was regarding the number of publications. We believe that it is right at this stage, by reviewing the code, to suggest that councils should limit the number of publications they put out and that they limit the content. Local councils have a duty to inform their residents in a neutral and straightforward way about what they are doing. They do not have to do it every month or every week. They need to do it occasionally. The Local Government Association survey made it clear that the previous code has been pretty well respected in that regard, and we all recall that the 1986 code came about as a result of some arcane and peculiar practices by local government in what it put forth to the public.
The first issue is the restraint on local government on how often it should use the taxpayers' money to produce publications to put out its views on what is happening. The second issue, which we have debated, is whether it is providing competition to the local press. If you cannot tell the difference between a local government publication that is putting out the local government view and a publication of the local press, something is seriously wrong. Local government is not and should not be acting as a local newspaper in any way at all. I agree with suggestions that local
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I think that the case has been made by many of my noble friends as to why the way in which a minority of local councils deal with their publications should not be allowed to continue. The Government are convinced that this is the right moment to make these two changes to the code.
Some comments have been made about enforcement. As I said at the beginning of this debate, a code is a code. The local authorities have to decide whether they are going to live by the code but, if not, they can be subject to challenge by residents through the auditors. They also might have to consider whether the publicity for being challenged on this is worth the candle.
That this House regrets that the Government's proposed amended Code of Recommended Practice on Local Authority Publicity seeks to impose wide-ranging and unnecessary restrictions on what material democratically elected councils may publish for their citizens; and that this is in direct contradiction of Her Majesty's Government's proclaimed belief in localism.
Lord Beecham: My Lords, to adapt the phrase used by the noble Lord, Lord Fowler, I rise from the serried rank of the Labour Opposition to join the noble Baroness in thanking all noble Lords who have participated in this debate-which of course will go unreported, as, alas, so many of the debates in your Lordships' House are. It is a pleasure to be opposite the noble Baroness. As a young lawyer, I often had to appear before her father, a formidable county court registrar. I have to say that to appear before the noble Baroness is much easier and a much more pleasant experience.
The noble Lord, Lord Fowler, seemed to imply that local government did not wish to see an independent local press. That simply is not the case for much the greater part of local government, nor do local civic newspapers purport to provide independent journalism; that is not their function. Of course, local governments should not promote the politics of their council, as the noble Lord rightly said. In this connection, I am
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"The Coalition Government, in its efforts to rectify the worst financial crisis since World War Two, is making significant reductions in public spending and I believe that it is right that this should happen and right that this borough should play its part in restoring public finances to balance".
One might wonder whether that notion transgresses the policy that the noble Lord rightly advocates that councils should not promote their policies. Be that as it may, the position is much as defined by the noble Lord, Lord Stoneham. I will not, in passing, defend the activities of Hammersmith and Fulham Council in this respect or in any other, but the noble Lord, Lord Stoneham, with his experience of the industry, rightly points out that the prospect of competition from civic newspapers or journals-or whatever they are called-that are published less frequently than daily or weekly, as the vast majority are, is quite unreal. With respect, we have heard nothing from noble Lords in today's debate to provide the evidence on that, which the Select Committee pointed out was signally lacking.
The noble Earl, Lord Cathcart, asked what council tax payers would want. Of course, it is right that council tax payers and residents of an area should have the final say in these matters. They should be the judges at the ballot box of what their council does, whether it involves council publications or any other local service. As I have indicated before, surely the correct approach to these matters is the one strongly advocated by the noble Baroness, Lady Eaton, on behalf of the Local Government Association. She and I are on different sides of the political fence, but she clearly represents the voice of local government. However, as we have already heard from both sides of the Chamber, since this code is not enforceable other than by complaint to the district auditor and since it is a code to which local authorities must have regard-and I absolutely endorse that-there is no particular advantage to be gained in pressing the Motion.
Baroness Drake: My Lords, I shall also speak to Amendment 21. The new pension arrangements that are to apply from 2012 provide a minimum level of pension contributions, based on a band of qualifying earnings, of 8 per cent, of which at least 3 per cent must be met by the employer and the rest from the employee contribution and tax relief or credit. The required minimum contribution levels are set as a
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Although the Government have published the test that they intend to set in regulations, the regulations are still subject to consultation, so we do not know what they will finally look like or how they may change over time. The Johnson review asserts that under the regulatory test that is proposed, 92 per cent of workers would still match the statutory quality criterion on contributions under the qualifying band of earnings. This assertion is based on the ONS survey of hours and earnings. The assertion of 92 per cent is based also on the pattern of earnings before auto-enrolment. Our concern is that after the onset of auto-enrolment, an incentive may have been created that will encourage bad employers to arbitrage between the statutory quality criterion of an 8 per cent contribution on a band of earnings and the alternative requirement, to the detriment of some workers. In a nutshell, our concern is that while trying to accommodate good employers, a compliance loophole is created for bad employers.
The purpose of the amendments is to strengthen the protection afforded to jobholders under the alternative requirement. For the purposes of the amendments, I do not seek to debate the detail of the proposed regulatory test for the alternative requirement, or even whether there should be such a requirement. I want to focus on the powers that are enshrined in Clause 10 and what must be satisfied before the Secretary of State can set the alternative requirement.
The Delegated Powers and Regulatory Reform Committee refers to the Secretary of State's power to set an alternative requirement as "significant", as indeed it is. Clause 10 prescribes the power of the Secretary of State in setting an alternative requirement, but it does not go far enough for the following reasons. In Clause 10, the Secretary of State must, for most schemes, ensure that, for all jobholders or a cohort of the relevant jobholders, the contributions paid into the pension scheme satisfy the quality criterion. However, the clause requires this to be the case only for a majority of the individual relevant jobholders-a majority being 50 per cent plus one. We are concerned that this could lead to a significant number of individual jobholders missing out on what should be their statutory entitlement. In effect, the aggregate requirement could be met by more generous contributions for some jobholders, with less than qualifying amounts, or potentially even none, for others.
The intent of Amendments 20 and 21 is to strengthen Clause 10 such that in all cases-not just most-schemes will be able to satisfy the alternative requirement only if, for no less than 90 per cent of the individual relevant jobholders as distinct from a simple majority, the amount of contributions paid under the pension scheme meets the qualifying amount. As my noble friend Lord McKenzie said in Committee, it is not acceptable that,
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I thank the noble Baroness, Lady Drake, for introducing this debate. The amendments to Clause 10 would require the Secretary of State, before making regulations on certification, to be satisfied that in every single scheme at least 90 per cent of individuals would receive contributions no less than if the scheme had satisfied the relevant quality requirement.
I fully understand that the noble Baroness still has reservations about the breadth of the Secretary of State's regulation-making power and individuals losing out under the proposed certification arrangements. The whole purpose of the reforms is to transform the savings culture by improving the coverage of and participation in workplace pension saving. To succeed, we need to incentivise employers to retain their good-quality schemes. Certification gives employers an incentive to keep their good-quality schemes by simplifying the automatic enrolment requirement. It protects members by discouraging levelling down. The flexibility provided by certification is an important counterbalance to the burdens being placed on them by automatic enrolment. Getting the balance of protection right is crucial because introducing complexity will encourage employers to level down by abandoning good schemes and individual savers will be short-changed.
To help employers plan for the reforms, I should like to put on record that employers using certification will be able to phase in their contributions gradually. That question has been of some concern to the industry and I am pleased to clear it up. I believe that employers using certification will welcome that easement to help with the administrative and contribution costs of increasing enrolment into their schemes. We recognise the advantage that such an approach would bring and so have already kicked off discussion on how we might operate phasing within the certification model. We propose to set out the detail in regulations and guidance. The plan is to consult on secondary legislation informally over the spring, with a more formal consultation after the Bill receives Royal Assent.
However, I recognise and share the noble Baroness's concern about some individuals receiving less than the minimum contributions, for whatever reason, under the certification arrangements. In developing the certification model, we have undertaken some detailed analysis of pay and reward systems using data from the annual survey of hours and earnings. Based on that analysis, we believe that the number of people
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We are committed to finding a pragmatic solution to certification which protects individuals without alienating employers. I believe that the certification test which I have previously described is that solution. However, to address the concerns raised, particularly in relation to the breadth of the regulation-making power, I take this opportunity to commit to looking at how we can reasonably circumscribe the scope of the Secretary of State's powers without compromising his ability to deliver the certification model welcomed by employers. We will be analysing the available data sets on earnings and contribution rates to see how that can be achieved. If it is possible, I should like to return with an update at Third Reading in the shape of an amendment to be introduced in Committee in another place.
Baroness Drake: I note what the Minister said about phasing in contributions gradually. I was not anticipating that. He said that there will be consultation about the regulation on that point, so we will have an opportunity to look at that. I note what he said about the regulatory test. I had stayed off the detail of that test because I was focusing on the powers in the Bill.
I am grateful for the Minister's commitment to look at how the powers of the Secretary of State could be reasonably prescribed in order to address the concerns that we expressed and to return to it at Third Reading. I hope that between now and Third Reading it will be possible to sort out a form of words that would reassure us on that point. If it is not possible, I reserve the right to come back to the matter at Third Reading. On the basis of what the Minister has said this evening, I shall not press the amendment.
Providing that the jobholder has at least £10,000 in his or her pension scheme, upon application to the trustees of the qualifying scheme or automatic enrolment scheme a jobholder may withdraw up to 25% of the total sum accrued at the time of the application in the jobholder's NEST.""
Baroness Hollis of Heigham: My Lords, Amendment 22 is on early access. I had hoped to be able to move it only once, in Committee, but I found myself caught in another pensions obligation at that time. I apologise to your Lordships.
Those of us who can afford it try during our working lives to build three tiers of savings: instant access to about three months of income; ISAs for the medium term; and, finally, a pension pot for the longer term. Some of us may feed our ISAs into our pension pot in our 50s for tax benefits. To do all that and pay off the mortgage and, increasingly, university fees will require earnings probably well above the national average. Men who can hope to have a full working life and a decent occupational pension may be able to do most of that when mortgage pressures, especially, ease off. I rather doubt that any women earning below about £22,000 could begin to.
On this issue, I am asking your Lordships to hold up the gender filter because this is, for me, a gender point. We assume that the key point about saving into pensions is to transfer income from a financially more secure working life to a more insecure and impoverished retirement. That is true for men, but it is not particularly true for women, unless they are in professional jobs. Women who are in and out of the labour market and have unpredictable and fluctuating caring responsibilities may experience more of a financial rollercoaster during their working years than in their retirement when their income, though lower, is predictable and secure so that their experience during their working life is very different from that of men. Women are far less likely to save in any shape or form, hence the need for NEST. We have already been told today that the pensions pots of men in their late 50s are six times greater than those of women.
What stops a woman saving? This is very different from any analysis that you get when you ask the same question of men. It really is. First, she cannot afford it. Her earnings may be very low, part-time or intermittent. Secondly-and this is where you get a specifically female take on it-she regards it as selfish to save. Money is needed for trainers, and she would expect to put the children's needs ahead of her own. In any case, she rather vaguely hopes her husband is looking after all of that. Thirdly, even if she does think about saving for a pension, Tracey's mum who did save is, because of means-tested benefits, no better off than Tracey's aunt who did not. That is one of the reasons one is so pleased about the prospective new state pension. Finally, and this is the point that this amendment addresses, even if she could afford to save modestly into a pension, her life is so unpredictable, given what I have already said, that she does not want to lock money away that she cannot touch for 40 years. She may face divorce, disability, debt or repossession. Through almost all of that, her husband will keep working. She probably will not. She might lose her home, her husband or her health, and through all of that, she cannot touch her money in the pension scheme, even though her need now is greater by far than her need in retirement and she has no alternative savings. Far more than most men, she may need a modest pot of £5,000 or £10,000 that she can access in hard times but cannot afford to build it alongside a pension.
Why is it that people are putting more money into ISAs than into pensions, even though they are forgoing the employer's contribution and more generous tax reliefs? It is about access. We allow better-off men and better-off women to put their ISAs into their pensions. What poorer women need is exactly the opposite: the ability to turn part of their pension, so to speak, back into an ISA. There is no product on the market which allows them to do it. We need what David Willetts and Malcolm Rifkind first floated: a lifetime savings account.
Given this Bill, how would we do it? We already allow people early access to a slice of their pension-the tax-free lump sum-even if they are not drawing the rest of their pension. How might it work? I suggest that to encourage saving, when a woman has built a pot of, say, a minimum of £10,000, she could access a quarter of it-£2,500-and I would cap that right at a pot of about £100,000 so that it does not provide work for fancy accountants. She would not be able to draw any more until she had rebuilt her pension back up to, say, £14,000, at which point she could draw a quarter of the difference between the £10,000 and the £14,000, or a further £1,000. By the time she retires, she would have drawn no more than the equivalent that she would have got with her tax-free lump sum, but she would, if she thought it necessary, have had earlier access to it.
Why? First, it would give women especially the right to a savings slice as part of NEST or indeed any occupational pension. A woman would know that for every pound she put away, 75p would be ring-fenced for a pension, and 25p would be available as a savings slice. Knowing she had that rainy day slice does not mean to say that she would draw it, or need to-but if she did, it would be much cheaper to borrow from herself than from someone else at such extortionate interest rates as would squeeze out her ability to continue to pay into a pension. Allow a woman access to a lump sum within her pension and she is far more likely to continue saving and build, eventually, a larger pension.
Secondly, the tax-free lump sum is already separate, if the saver chooses, from drawing the actual pension. Until recently it was at the age of 50, now it is at 55 that you can draw the lump sum, even though you may not take your pension for another five or more years. So no new principle is involved: there is already a disjuncture between taking the tax-free lump sum if you choose and the pension payment. No fiscal adjustments have to be made. You do not have to fret about repayment; you do not have to have judgments about what is and is not good expenditure. Why is it okay at 55 to use your tax-free lump sum to build a conservatory, but not, at 45, to save your home from repossession?
I am often told that the obstacle or objection to this is that it would cost a woman a bigger pension if she has taken her tax-free lump sum earlier, and that this is not acceptable. That might be true-if the tax-free lump sum was usually added to the pension. It seldom is. Of the 76 per cent of people who drew their tax-free lump sum, nearly half spent much of it on the car or the holiday; 39 per cent used it to pay off mortgage or credit card debts; 31 per cent spent it on home improvements; 17 per cent helped their children; and about half put some of the lump sum into other and
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Finally, and above all, being able to access a tax-free slice of the sum would make saving into a pension more attractive. At 22, a young graduate going into their first job would hope that by the age of 30 he or she might have enough for a deposit on a flat. At 40, she may want it for running away money, following family break-up. At any time, it might help with adaptions to the home where there is sudden disability. In the USA's 401(k) schemes, research shows that those who could access their schemes early-in some you can, in some you cannot-ended up saving up to 3 per cent more into their final pension.
For a low-paid woman wondering whether to opt out of NEST because she believes she cannot afford the 4 per cent contribution, knowing she was also building an accessible savings pot could encourage her to auto-enrol. We should be developing a savings and pension model for those who cannot afford each of those separately-as most of us can-that best fits their needs.
There is currently a consultation paper from HMT which discusses this model, among other models, for early access. The other models-for example, loans and repayment, or channelling money into ISAs which can then be fed into pensions-have their merits, but they add to the fees and complexity and largely benefit those better-off people who can manage both savings and pensions alongside each other. I am concerned for those who cannot manage both. For women between the earnings threshold and, say, average earnings, only the tax-free lump sum model makes sense.
As I have said several times today, as have others of your Lordships, I am thrilled by the £140 proposals, which would make it safe to save. Access to a tax-free lump sum within your pension would make it even more attractive to save. There is no additional cost to the Treasury, no additional risk to the woman saver as she would not from experience have spent that tax-free lump on adding to her pension, and no increased fees because she is supposed to have a different, parallel and separate sort of product. I believe that it would transform her willingness to save in a pension. Many people in the industry tell me that with such a scheme more people would save and they would save more. I beg to move.
Lord Boswell of Aynho: My Lords, the noble Baroness, Lady Hollis, has performed a signal service to the House in bringing this issue to our attention. She was kind enough to refer to work done by David Willetts and Sir Malcolm Rifkind. I was privileged to be part of their Front Bench team at that time, although I cannot claim any real credit for the genesis of the thinking. As the noble Baroness said in referring to the consultation paper, it is now beginning to sink into the mainstream. I am a strong supporter of greater flexibility in this area so I am glad that she has raised it.
I have some slight reservation as to whether the issue is as gender specific as the noble Baroness feels that it is. I think that she is conceding that point and, indeed, she did not say that it was exclusively so. I can imagine situations where men, for example, perhaps have overlapping earnings and have acquired a certain pension capacity or pot. In Committee, we debated some of the difficulties that can arise as regards smaller sums. It might be quite sensible, as well as convenient, for an individual of whatever gender who perhaps is starting a business or otherwise to access that money in order to provide starting capital. It is a wider and general interest. I very much look forward to the Minister's response to how it is going.
In technical terms-I stress in technical terms, although not in any sense to derogate from it-I have some slight reservations. First, in terms of using this Bill as the vehicle for doing it, it is premature but that is not a reason for not ventilating issues. Secondly, I am not absolutely sure-because it appears annexed to a passage of the Bill which is about auto-enrolment, although I think that the noble Baroness indicated a wider remit-whether it is simply about NEST or more general. I think that it is probably more general and it would be clearly invidious if it was NEST specific.
There is also a technical problem in the wording of the amendment. I understand the point, which was developed during her speech, that there could be some rules which would avoid moral hazard and would get one to the same minimum assured level of pension or pension pot at the end. Nevertheless, the way in which the amendment is worded it seems to me to be at least conceivable that as long as the £10,000 limit were maintained, an individual pensioner could make serial applications to the fund and draw it down to the qualifying level. I know that that is not the noble Baroness's intention. However, it is right that we should be starting to think about this and I hope that it will be even better when we have brought it to effect.
Lord Flight: Perhaps I may add that I think that it is a great advantage that the noble Baroness has raised this issue. I believe that if it were to be taken up it should go across all pensions. In the US, under the 401(k) plan, you can withdraw money only by borrowing it at a fancy rate of interest and you have to repay. Even with that rather unattractive mechanism, as has been pointed out, it still bears fruit. The ISA story illustrates it even more so. Let us remember also that if you take money out of an ISA you cannot put it back and continue with those benefits.
More widely, if we are going to keep the pension structure as a big area for retirement saving, it is a bad brand name which has been damaged by all sorts of things in the past 15 years. Elements need to be added to pensions saving to make it attractive to people, of which this is one of the important ones.
Lord McKenzie of Luton: My Lords, I thank my noble friend for her amendment. I know that she is very committed to this proposition and she has enunciated it with a particular focus on gender issues, which we
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There are few data on how an early access policy might impact on individual behaviour or the pensions industry. Behaviours in other countries-401(k) has been mentioned in respect of the US-give only a limited guide to the UK. The PPI says that for real conclusions for the UK, further research within the UK context is needed. Is there an appetite for early access? Would it encourage savers to save more? What proportion of people would access savings early? These questions need to be considered in the context of other current developments-auto-enrolment, the removal of the requirement to annuitise at 75, changes to taxation, and so on. Where is the balance between encouraging more saving and reducing pensions in retirement?
We need also to think about the application to DB schemes and how that would fit. If we have something that is attractive to DC, what does that mean in terms of DB schemes? I am quite sure that technically something could be provided to work for DB schemes as well, but I think it would be quite complex.
In terms of its application, the noble Baroness focused on pension pots of £10,000. I do not know what data there are about "running away money" at aged 30 or 40; I am not sure whether I was enthused by the concept or not. How many people would have a pension pot of £10,000? When we were debating annuitisation at 75 I remember data that showed that only 5 per cent of people had pension pots in excess of £100,000. Those data may be a little old, but they are illustrative. How many people at the age of 30 have a pension pot? If you are talking about 25 per cent of £10,000, that would not pay for one year's worth of university fees. We have to explore what the appetite would be for this and how it would work, but it seems to me that it is not altogether straightforward.
There is an issue about whether it changes the paradigm with employers. If you have something which is seen more as a saving scheme than a pension scheme, that will impact on employers' willingness to fund. I do not assert that it would, but it is an issue that ought to be explored as part of this journey. We all know the Treasury line-I am sure that the Minister has it in his file that pensions are about long-term savings. That is why there is generous tax relief and any deviation from that should not be contemplated. I do not have to follow that line any more as I am not in the noble Lord's position, but there is an issue about how it would impact on the tax regime for pensions. We also need to be careful about the risks of tax avoidance by
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We should thank my noble friend for introducing the amendment. I hope and believe that it is probing in nature because the time is now right for this to be fully examined and it seems that the Government are on a path to do that. However, we need more information on a number of issues before I or my party would officially be able to say that this is something we support. But it is certainly something that deserves examination for the sort of reasons that my noble friend has advanced.
Lord Freud: I thank the noble Baroness, Lady Hollis, for raising this very important issue of allowing individuals early access to their pension saving. I was more or less as disconcerted as the noble Lord, Lord McKenzie, about the concept of it being "running away money", not least because I thought that if the spouses of Members of this House got to hear of it, they might take advantage as we spent night after night in this place rather than at home with them.
The noble Baroness wishes to allow individuals to access a tax-free lump sum of up to 25 per cent, before the current minimum age of 55, when they have pension savings of at least £10,000. I am conscious that this is an issue to which the noble Baroness has repeatedly drawn our attention, and to which she returned at Second Reading when she asked where the Government's consultation paper on early access to pensions had got to. I can answer that particular question; I can report to my Lords that the Government published their call for evidence on early access to pension saving on 13 December last year. It set out the available evidence around early access and some of the potential benefits and risks, and then sought further evidence from interested parties. That call for evidence closed on 25 February. Drawing on the responses to the call for evidence, we will consider the arguments for and against allowing more flexible access to pension savings, based on firm evidence, before we consider further changes to the pensions tax framework.
It is too early to say what these changes might be. However, we need to bear in mind several principles. First, the purpose of tax-relieved pension saving should be, as the noble Lord would like me to say-I have to say it-primarily to provide an individual with an income in retirement. I think 75 per cent probably makes that point anyway. Secondly, any changes to the pensions tax rules must be affordable and sustainable for the Exchequer, and not, as the noble Lord, Lord McKenzie, pointed out rather vividly, create opportunities for tax avoidance. I was pretty impressed that he was able to knock up a tax avoidance scheme so quickly, but we can see where he is coming from. Thirdly, changes should not create disproportionate complexity or administrative burdens for individuals, pension providers and schemes, or indeed for Her Majesty's Revenue and Customs.
I am sure the noble Baroness will agree with me that it is right for us to examine the evidence submitted before making changes to legislation. On that basis, I urge the noble Baroness to withdraw this amendment.
Baroness Hollis of Heigham: I am very grateful for the support around the House-equivocal support, perhaps, in some cases-on the significance of this issue. Of course, this is not exclusively a women's issue by any means, and if it was attractive to anyone who wished to take it up, as far as I am concerned they would be able to do so with the agreement of their trustees. My noble friend Lord McKenzie anticipated the paragraph that we have all had to repeat-I have had to repeat, my noble friend has had to repeat, the noble Lord, Lord Freud, has had to repeat-about how pensions are designed and so on, but I tried to hold up a gender filter because I firmly believe that it is still an HMT model that is based on male working lives. However, let us not go down the route of asking why the Treasury might not understand.
When we are trying to encourage poor women-women earning possibly well below average earnings-into a savings model, I do not mind very much whether it is saving for their current life or their retirement. I do not mind very much whether it is income or capital. We get hung up on divisions that make sense in the click-in click-off world of conventional male work; the noble Lord, Lord Freud, is absolutely right, in the universal credit, to refuse to accept that simple dichotomy of "in work, out of work" and see it as a dial. The same situation applies to women in pensions. They do not have a male life, where they are in work, they contribute to a pension, they retire, they are then poor and where you have to distribute from one to another-that is not the experience of poorer women in and out of the labour market who may face more turmoil and roller-coaster finance in their working lives than they ever will in retirement.
The question is how we best encourage those women to build some protection for themselves against the contingencies in their working lives, as well as to prepare as best they can for savings in retirement. We want to do this in ways that do not either exploit their naivety or get them into oversaving at a risk to their current living expenses. The more research that I and others in this field have done the more I believe we need a simple single product-probably not called a pension, probably called something else-into which you put your money and where a proportion is ring-fenced for retirement and a proportion is available for savings. We happen to have a very easy way of modelling that based on the tax-free lump sum; the other versions that the Treasury have put out to consultation are more elaborate, possibly more adept, models but will not particularly meet the needs of this client group. We need something that is simple, understandable, attractive, affordable and fairly obvious in what it does.
I fully accept that the amendment is probably technically defective. I was of course never intending to do anything other than trying to focus the issue, given that we have the consultation paper. I was hoping to take your Lordships' views on this so that this might in due course, perhaps, be fed into the Treasury's response to this White Paper.
The provision is not gender-exclusive. It would not exclusively apply to NEST. I would have it available for all pensions and, again, I would not particularly get hung up about what it was used for. Nor would I worry too much about the issue of moral hazard, providing we cap the amount that people can withdraw, which is why I would not go for the 401(k) models, because too many of them run their schemes right down and that is undesirable.
I fear that too many women may opt out of NEST or-this is more likely-fail to continue in NEST when the first financial crisis of many hits them in their lives and they realise they cannot access the money and they have nothing else. At that point the contributions of those individuals will drop off like a stone. How do we prevent that? We prevent it by running the two alongside each other and produce a package for women where it is attractive to save.
Lord McKenzie of Luton: My Lords, it is a great pity that the Minister does not have to face the amendments of the noble Baroness, Lady Noakes. Some of us endured that for a couple of years. It seems to me quite outrageous that he does not have the opportunity to do so tonight.
These amendments relate to Schedule 4, which deals with the Pension Protection Fund. This is a complex area of legislation and further consideration has identified a few small changes that are needed to clarify the legislation. All of them are minor and technical in nature.
Amendments 28 and 29 remove the application of Section 143(9) when the board is obtaining a valuation for a scheme applying for a reconsideration to enter
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