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29 Jan 2015 : Column GC169

Grand Committee

Thursday, 29 January 2015.

National Employment Savings Trust (Amendment) Order 2015

National Employment Savings Trust (Amendment) Order 201517 Report from the Joint Committee on Statutory Instruments

Motion to Consider

2.01 pm

Moved by Lord Bourne of Aberystwyth

That the Grand Committee do consider the National Employment Savings Trust (Amendment) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Lord Bourne of Aberystwyth (Con): My Lords, I am pleased to be introducing this instrument, which was laid before the House on 16 December 2014. Subject to the approval of this instrument, the Government also intend to lay before Parliament the Transfer Values (Disapplication) (Revocation) Regulations 2015, which follow the negative procedure. From 1 April 2017, these instruments together will remove the annual contribution limit and the transfer restrictions on the National Employment Savings Trust, commonly known as NEST. I am satisfied that the order is compatible with the European Convention on Human Rights.

As noble Lords know, NEST was established to support automatic enrolment, which ensures that all employers have access to a low-cost workplace pension scheme with which to meet their duties. NEST was specifically designed for, and targeted at, low to moderate earners and smaller employers that the pensions market failed to serve adequately. So far, only large and medium-sized employers—those with over 50 workers—have implemented automatic enrolment, and NEST already has in excess of 1.8 million members and more than 10,500 participating employers. As is acknowledged by us all, I think, this has been a tremendous success. However, we must not be complacent. Around 1.2 million small and micro employers will start to enrol automatically around 4 million workers from June 2015. It is this segment of the market where there is most likely to be a supply gap. This underlies the rationale for establishing NEST and is one of the reasons why NEST is afforded state aid approved by the European Commission. Between 45% and 70% of small and micro employers are expected to use NEST during the period June 2015 to February 2018. For automatic enrolment to be successfully implemented, NEST must focus on ensuring that supply gaps have been addressed for this large number of small and micro employers. As the Government set out in the Command Paper, evidence shows that the constraints are not preventing NEST delivering its public service obligation for its target market during the rollout of automatic enrolment, although there is a perception that this is the case.

The annual contribution limit is £4,600 for 2014-15 and is uprated annually in line with average earnings. The evidence showed that 70% of small and medium-sized

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employers expect to contribute no more than the legal minimum contributions. Until October 2017 minimum contributions are 2% on a band of qualifying earnings—between £5,772 and £41,865 for 2014-15—and 84% of workers in the target group for automatic enrolment earn under £30,000. Based on contributions above the lower limit of qualifying earnings a low to median earner—that is, a worker earning between £15,000 and £26,000 per annum—would need contribution levels of between 48% and 22% to breach NEST’s annual contribution limit. A median earner on £26,000 whose employer makes a minimum total contribution level of 2% would contribute £405 per annum. This leaves a substantial amount of headroom for individuals to make voluntary contributions before breaching the annual contribution limit.

I turn now to transfers. The restrictions on transfers limit the circumstances in which transfers into and out of NEST can take place. But even where they can do so, individuals in other schemes rarely make transfers. More than 80% of workers fail to transfer pension funds when they change employer. This is why the Government intend to introduce automatic transfers to facilitate the consolidation of small pots. Further, the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 only allow what are commonly known as “bulk” transfers; that is, transfers without a member’s consent in certain limited circumstances. Evidence shows that only around 14,000 of small and medium-sized employers are currently providing trust-based, workplace pension schemes that could be transferred to another scheme. Of these, around 5,000 would consider a transfer to NEST—less than 1% of all firms.

I shall explain what the order actually does. Together with the Transfer Values (Disapplication) (Revocation) Regulations 2015, which as I said earlier are subject to the negative resolution procedure, the main changes this order makes from 1 April 2017 are as follows: removal of the annual contribution limit, allowing NEST members to contribute at the same levels as other schemes; provision of discretion for the trustee of NEST to allow individuals to initiate a transfer of their accrued pension rights into NEST; reinstatement of the right of a member of NEST to transfer their accrued pension rights out of NEST and into another pension scheme, replacing the limited circumstances in which a member of NEST can transfer their rights in and out of NEST at the moment; and, lastly, provision of discretion for the trustee of NEST to bulk transfer a member’s accrued rights into or out of NEST without the member’s consent in the same way as other occupational pension schemes.

I turn now to why we consider the date of 1 April 2017 to be the right time. Even though the evidence demonstrated that these two constraints were not in practice a barrier for NEST’s target market, there was, as I mentioned at the outset, a perception that these constraints might complicate scheme choice for small and micro employers. However, removing these two constraints as the result of a perception and the potential consequences flowing from this would not, in the Government’s view, be a proportionate response. Conversely, leaving the constraints in place beyond

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2017 would not be consistent with the Government’s long-term policy objectives of encouraging increased saving and the consolidation of pension pots.

At the start of this Government’s term, we commissioned an independent review of automatic enrolment and NEST, the Making Automatic Enrolment Work review. The review recommended the following: that NEST should go ahead as planned to support the successful implementation of automatic enrolment; removal of the contribution limit once staging of employers is complete and legislating for this at the earliest opportunity; and lastly, that by 2017 the general issue of pension transfers should have been addressed and NEST able to receive transfers in and pay transfers out. This order does what that independent review recommended, and therefore legislating now to remove these two constraints in 2017 is a balanced approach. It will ensure that NEST can focus on its mission of successfully supporting the introduction of automatic enrolment while reassuring employers and signalling now that NEST will be put on a similar footing to other providers in just over two years’ time.

I know that noble Lords are interested in the implications for the state aid provided to NEST. This issue came up during our consideration of the Pension Schemes Bill. It has been suggested that the subsidy provided to NEST no longer qualifies as state aid because NEST now meets all four of the Altmark criteria. I believe that this point was made on Report on the Pension Schemes Bill. The Commission considered whether the Altmark criteria were met in its original decision in 2010 approving the state aid for NEST. In its decision, the Commission indicated that NEST did not meet all the criteria.

The second Altmark criterion requires that the undertaking receives no economic advantage which may favour the recipient over competing undertakings. The Government’s view is that we would be unlikely to meet this criterion, and the Commission’s decision said that there was an advantage because NEST would not exist without government support. In any event, we would need to make the case to the Commission that the Altmark conditions are met, as we have an existing state aid case and decision. This process is likely to take considerable time and would require persuasive evidence. The annual contribution limit and transfer restrictions were clearly cited by the European Commission in its approval of state aid afforded to NEST as important to reducing market distortion.

The department’s call for evidence suggested that the constraints were working to focus NEST on its target market during the rollout of automatic enrolment. Following just over a year of negotiations, the Commission confirmed that removing these constraints from 1 April 2017 would be compatible with the state aid provided to NEST. The Commission also confirmed that the restrictions on individuals initiating transfers could be lifted earlier to align with the introduction of automatic transfers. Again, that is a point that we discussed at some length on Report on the Pension Schemes Bill.

If we wanted to lift these constraints sooner, we would need to refer back to the Commission because this would be outside the terms of the Commission’s

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decision. Without the Commission’s agreement, there is a risk that the state aid provided to NEST would be unlawful. I commend this instrument to the Committee.

Baroness Drake (Lab): My Lords, while all progress towards allowing transfers into NEST and removing the contribution limit is to be welcomed—and it is—and even if some of us would prefer a greater speed of progress, I rise not to make a political point but to raise my concerns about inefficiencies that will remain in the private pension system because of the rules around transfer into NEST.

This statutory instrument will allow bulk transfers of members’ assets only where the employer is a participating employer in NEST for the purpose of contributing to employees’ contributions. This excludes bulk transfers where the employer is not a NEST participating employer; that is, it is discharging its new employer duties through another scheme. This restriction produces two inefficiencies. The first is that employers will increasingly have closed DC schemes. As companies merge or take over, they will close DC schemes, or they may set up less generous new DC schemes in the light of the coverage of the workforce that flows from auto-enrolment, or they may set up new trusts that set the rules giving the employer more powers. Whatever the reason, there will be some employers who will look to bulk transfer out a DB scheme that is closed to new members. I do not make these up as hypothetical examples; I have experience of all these issues, and I think that they are a growing phenomenon.

Employers may transfer out the assets in these closed schemes into a product proposition that is not covered by the charges and quality standards set for auto-enrolment schemes because, of course, they are no longer being used for auto-enrolment purposes. Such employers will be denied access to NEST, so what could have been an efficient, quality-controlled means of bulk transferring the assets of closed DC schemes is denied because of the way in which the transfer rules are set.

2.15 pm

The second inefficiency is that, increasingly, employers will default ex-employees out of their workplace schemes if they, the ex-employees, do not effect a voluntary transfer themselves within, say, six or 12 months of leaving the company. Again, that is not a hypothetical; I have practical experience and knowledge of those practices. These ex-employees may well be defaulted by their employer into a personal pension with weaker charge and quality standard controls.

“Pot follows member” will not of itself solve the totality of this problem. If there is a £10,000 limit, there will be a large population of people. It takes only 10% of contributions from the £25,000 pensionable pay over four years to reach that limit. It will not affect the workforce that has already left and been caught up in these situations. Small pots are being created all the time now, and even when the Government introduce pot follows member, it will be trialled with the largest providers, so there will be a tail of time. I also understand that it will not cover trust schemes. For a variety of reasons, pot follows member will not provide a complete

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solution to the increasing incidence of employers saying, “When you leave my employ, you leave my scheme. If you do not arrange your own transfer, I will default you into a personal pension”.

I appreciate that this statutory instrument will stand, but I ask the Government to reflect on what is happening in the workplace and how the inefficiencies that I have identified could be more efficiently addressed if more employers were allowed to transfer ex-employees or assets in closed DC schemes into NEST. I do not think that that would fall foul of the argument that it gives economic advantage to NEST, but it would certainly give merit to the argument that it would give greater protection to a particular group of ex-employees or employees in closed schemes where it is an area of the private pension system where there are still quite significant inefficiencies.

I genuinely do not make a political point, because I know that the SI will stand, but I ask whether, between now and whenever the full freedoms come into place, more could be done to reflect on these inefficiencies.

Lord German (LD): My Lords, as always, the noble Baroness, Lady Drake, raises interesting issues in great detail which are always worthy of further examination. I hope that my noble friend will reflect on them. This is a bit of replay from the debate that we have had in the Chamber on the Pension Schemes Bill on an amendment that was simply about the date. It is the date issue that I want to say a few words about. The two arguments evinced to support an earlier date are that it will affect transfers in and that we do not have to worry too much about the European Commission and state aid rules. I am not a lawyer but I know my noble friend is a lawyer and I hope he will be able to rebut that argument.

However, the debate around the European Commission issue relates to the Altmark judgment, which my noble friend has just mentioned, and the second criterion, which is that NEST receives no economic advantage that may favour the recipient undertaking over competing undertakings. It is my understanding that NEST received quite a substantial degree of financial assistance from the Government. If it had not been for that financial assistance, NEST would not have existed. Therefore, the role played by that financial assistance is still important for the task set out, which is yet incomplete. My noble friend mentioned it: 1.2 million of what we call small and micro companies to be auto-enrolled by 2018 is a substantial task. That is one of the tasks for which NEST was set up. Many of the small companies that I have spoken to—this may be anecdotal—have in the past paid no consideration whatever to a pension scheme for their employees. This will be the first time that they are doing it. That is probably the case for nearly the whole lot. If so, the exceptions—the people already enrolled who may want to transfer in—will be an almost invisible statistic. If that is the case, surely the challenge facing NEST is to deal with that huge array of small companies that are going to need more help from NEST in order to undertake the work.

Noble Lords who have talked to NEST will know that their advisers go out and talk to companies, and it is more difficult to talk about these issues to companies with only three or four employees. They do not necessarily

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have the time to slot it in, and it is much more difficult for smaller companies to work towards a solution. For most of these employers NEST will be the easiest, most competent, most reliable and most appropriate source for their pension scheme. Surely, therefore, that task is one of the tasks set in train by this application to the European Commission. If the reason for providing state aid was to give a financial inducement that would allow it to undertake that job, and that job is not complete and a huge number of companies are still to be engaged with, that, surely, is the challenge that NEST has.

In relation to the European issue and the year, perhaps my noble friend could indicate in his response whether, if it took more than a year to make an application—based on the information provided by the previous Labour Government on the date at which the restrictions on NEST would be lifted—will it be more difficult to do it in advance of that date? Would it be any easier than the more than a year that it has taken so far to get approval for 2017? If it is going to be the same period or longer, we are not talking about this year whatever happens. Even if the Government were to go back right now and start this process all over again, even if they thought that they had a strong case and that no economic advantage was being provided, it would still take until 2016—some way into 2016—and then until the appropriate start date for this. So, even if that were the case, we would probably be talking about, I guess, a gap of 10 or 11 months. It is my understanding, however, from the criteria that my noble friend read out in his opening remarks, that NEST has been given economic advantage, which is continuing, because they are the doing the same job as the one described to the European Commission at the start.

In conclusion, it might be interesting to ask whether the timetable for this activity of NEST in the original submission to the European Commission is roughly the same as the curent activity—in other words whether it was anticipated that this range of companies would be coming in towards this final period of the original application to the European Commission. If the timetable was right then, surely it is right now.

Baroness Sherlock (Lab): My Lords, I thank the Minister for his explanation of this order, and the noble Lord, Lord German, and my noble friend Lady Drake for their contributions.

As the Minister indicated, and the noble Lord, Lord German, reminded us, we had a fairly good canter around this issue on Tuesday, on Report stage of the Pension Schemes Bill. Therefore, noble Lords may be relieved to hear that I will not rehearse all the arguments at the level of detail we went into on that occasion. That said, we cannot allow this order to go through without challenging the core point we made then. I want to look at two things in particular. I would like to push the Minister a bit further as to whether he really believes that there is no problem caused for NEST by the restrictions on transfers remaining until 2017. He suggested that there would not be a problem; he will be unsurprised to know that we disagree. We are concerned that NEST would be unable to sign up employers if any of their employees already

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have pensions, given that most will not want to use two pension providers or more. Of course, if the company cannot bring everybody in the company into NEST—those already in the workplace pension scheme and those coming in under auto-enrolment—that is a huge deterrent to go in with NEST at all. The DWP’s research suggested that 80% of employers will want one pension provider. Does this not mean inevitably that the ban on transfers in will hold NEST back? The argument against is that DWP research in 2013 that found that 84% of employers with fewer than 250 employees do not provide a workplace pension and would not be affected—a point indicated by the noble Lord, Lord German.

When this order was debated in another place my honourable friend Gregg McClymont pointed out that recording based on employers is not a good proxy for the number of employees who cannot access NEST on that basis. He made a powerful case that the number of employees potentially excluded from going into NEST because of the ban on transfers in is in fact closer to 11.5 million. Will the Minister not accept now that the ban on transfers in is a significant drag on NEST? Also, can the Minister clarify if lifting the ban on transfers will apply to pots accumulated before auto-enrolment or only to auto-enrolment pots?

We are delighted that the Government have continued Labour’s policy of auto-enrolment. We want it to be as successful as possible and it is clear to us that lifting restrictions as rapidly as possible is the best way to achieve that. It would ensure that millions more employees could access NEST, a body we all regard as a success and which is leading the way in driving the cost of pensions down while driving up quality. Why can it not happen now? I am not going to open up a lengthy debate about the degree to which the Altmark criteria will apply. As the Minister will know, in a debate in another place my honourable friend Gregg McClymont said that in practice the Altmark judgment makes clear that once NEST is up and operational its target market no longer counts as state aid, in any case. He is welcome to come back to that but we will not resolve it today.

I want to know more clearly what efforts the Government have made to find out if they could have brought in these restrictions earlier. Whether or not they wish to do it now, they still need to account for their decision to go only in 2017 and not earlier. The Government blame the EU and pray in aid state aid rules and say they are waiting until 2017 because otherwise there would be a legal challenge. Surely the Government have not been told by the European Commission not to lift restrictions until 2017. Rather they asked not to lift them until 2017 and were told they could do so. This was a point I did not feel came out adequately on Report. There is a difference between being told you can do X and claiming that you have been told that you cannot do Y. The Minister indicated that it was the Government’s own judgment that they would be unlikely to get permission for an earlier date. Can the Minister tell the Grand Committee whether the Government went to the European Commission and asked for the restrictions to be lifted before 2017, and if not, why not?

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In terms of legal challenge, can the Minister clarify that if the Government amend the Pensions Schemes Bill that is still going before Parliament to lift the restrictions it would not be open to a UK court to challenge that? That is another argument that has been made against doing so. Surely any speculative attempt to mount such a case would be struck out. I would be interested in his reply.

Finally, can the Minister tell the Committee when he responds to the noble Baroness, Lady Drake, whether the Government have addressed these points in the past? She raised a very interesting point about the position of employers with closed schemes or, of course, ex-employees. Is that something the Government have addressed in their deliberations or reviews and what evidence do they have on that point? I will be interested to hear his response to the noble Baroness’s questions, and the points made by the noble Lord, Lord German and me.

2.30 pm

Lord German:My Lords, it was remiss of me not to declare an interest in this matter in that my wife is a pension saver with NEST.

Baroness Sherlock: I am not sure it is relevant but, in case it is, I remind the Grand Committee of my interest as the senior independent director of the Financial Ombudsman Service.

Lord Bourne of Aberystwyth: I was just waiting in case the noble Baroness, Lady Drake, had anything to declare, but I am sure all her interests are in the register.

I thank noble Lords for participating in the debate on this order. I shall try to deal with the points made. I shall try to address them in the order in which they were made. I thank the noble Baroness, Lady Drake, who has massive, almost unparalleled experience in our House on pensions, and therefore I take seriously anything that she raises. She was a member of the Turner commission. I accept the point she made in a non-party-political way. We are keen to look at the two specifics that she raised—she referred to them as inefficiencies, but we reserve judgment on that, although they are certainly challenges—and I will get a detailed response to her on the question of the bulk transfer of closed DC schemes and the default of employees into personal schemes by employers.

As things go forward, the aim of all this legislation, which is shared across the House, is to get as many people as possible enrolled in pension schemes. As people live longer, pensions clearly become a more important part of the legislative landscape, and that is one reason for NEST. We want NEST to fulfil its core function. We are very much focused on that task, and that remains very much the name of the game, as it were.

I turn to the points made by my noble friend Lord German in relation to what was the key issue when we looked at this on Report on the Pension Schemes Bill: the 2107 date and the Altmark case. The noble Baroness,

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Lady Sherlock, also raised points on this, and I will try not to cover it twice, so some of this will be in relation to her points.

My noble friend Lord German was right that the smaller the company, the greater the challenge in terms of auto-enrolment, so that remains our key focus. In relation to the date, it is true that because we were given permission for a particular date, that does not mean that we cannot seek another date, but it means that if we were to seek another date, we would have to go back to the Commission to get clearance. The noble Baroness, Lady Sherlock, rather than my noble friend Lord German, put forward the hypothesis that it could not be struck down by a UK court. I am not sure about that. I am not expert in EU law, and I will write to the noble Baroness if I am wrong on this, but I think EU law is very much a part of domestic law, so I think it would stand a chance of being referred, at least, to the European court by a domestic court. While we are a member of the European Union, we are obliged to follow its law. I will write if I am wrong on that point, but I appreciate it was not the core point that she was making.

I come back to a point that I made on Report, which is that we have two key concerns about an earlier date. One is that we want NEST to focus on its core mission, which it is fulfilling brilliantly. I accept that there is support for NEST from around the House, as there is in another place. I appreciate there is no difference between the three major parties on this issue. We are all very pleased with what NEST is doing, we applaud it and we want it to do more of it, but at the same time we do not want to distract it from that. That is why when we had a call for evidence, which was initiated by the Department for Work and Pensions in 2012-13, the subsequent Command Paper in June 2013 found that there was no compelling evidence that the key constraints were distracting NEST from its functions, but there was a perception that they were. Faced with that, we had to decide what to do. We thought that 2017 was the date to go for to ensure that NEST had fulfilled its core function and then to seek to list the constraints, believing, as was borne out by the finding of the Commission, that that constituted state aid.

There is no doubt that the Commission found that it did then and that we did not satisfy the Altmark conditions of not being state aid. We as a department remain of the view—as does BIS, it is not just DWP—that this still does constitute state aid. We could of course go back to the Commission to seek clarification on the issue, but again that would take a long time. As my noble friend Lord German has said, the initial process took more than a year and it could take as long again. Given the timings that we are up against, and given that we will publish a timetable on the transfer which would allow us some room for manoeuvre earlier than 2017—although I hasten to add that we have not as yet published a timetable on that—in our view, it simply distracts from the key focus of NEST, which is that of continuing to do what it has been doing absolutely brilliantly so far.

That, I hope, deals with the particular points, but if I have missed any details, I shall be happy to write to the noble Baroness.

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Baroness Sherlock: I thank the Minister for his courtesy in giving way. I have just a small point to raise. I accept that the Government could go back and ask for an earlier date, but obviously they could have done that some time ago. I did ask specifically whether they ever did approach the Commission, and if not, why not? It is obviously because they did not want to, but did they ever do so?

Lord Bourne of Aberystwyth: I am not aware that we have gone back to the Commission about that. Clearly, I do not think that there is a difference between us for there to be a need to go back in some shape or form to the Commission for an earlier date. I do not believe that we have done that because, as I say, we believe that the key focus of NEST should be on auto-enrolment. So there are, as it were, two strands to the Government’s position, and the first of those is that we should focus on the key function of NEST.

If I have missed anything in relation to the three helpful contributions from noble Lords, I will ensure that of course they receive full responses.

Baroness Drake: Perhaps I may take advantage of the noble Lord’s kind reminder to declare my interests. I made a full confession at the start of the Pension Schemes Bill, but I realise that it does not travel over to the statutory instrument. I am a trustee of the Santander pension scheme and the Telefónica O2 pension scheme. I sit on the board of the Pensions Advisory Service and that of the Pension Quality Mark.

Lord Bourne of Aberystwyth: That underlines the great experience that the noble Baroness has in this area. I commend the order to the Committee.

Motion agreed.

Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015

Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015 17 Report from the Joint Committee on Statutory Instruments

Motion to Consider

2.37 pm

Moved by Lord Bourne of Aberystwyth

That the Grand Committee do consider the Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Lord Bourne of Aberystwyth (Con): My Lords, I confirm that, in my view, the order is compatible with the European Convention on Human Rights.

Administrative penalties are financial penalties that may be offered to people in certain cases as an alternative to prosecution for benefit fraud or attempted benefit fraud. The conditions for when an administrative penalty may be offered and the amount of penalty to be paid are set out in Section 115A of the Social Security Administration Act 1992. Currently, the amount of administrative penalty that may be offered is £350 or 50% of a recoverable benefit overpayment, whichever is the greater, subject to a maximum penalty of £2,000. This order provides for a new maximum amount of

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administrative penalty of £5,000 which can be offered in cases where prosecution is deemed not to be appropriate in the first instance.

This means that in the future, depending on the size of the overpayment, an administrative penalty of up to £5,000 may be given. This is in addition to recovering the overpayment and applying a four-week loss of benefit penalty. For example, under the proposed order, where there is a benefit overpayment of £8,000 and there are grounds for instituting proceedings for a benefit-related offence, a penalty of £4,000 could be offered. If accepted, this would need to be repaid on top of the overpaid benefits. Currently, the maximum penalty restriction that could be applied in that example is £2,000. As noble Lords will see, the new maximum penalty of £5,000 can therefore be applied only to cases where the recoverable overpayment is £10,000 or more, so we are not talking about a £500 overpayment attracting a £5,000 penalty; that simply cannot happen. The increased maximum amount of administrative penalty could be applied only in cases where the act or omission that gives rise to grounds for instituting proceedings for the offence to which the penalty relates occurs on or after the coming into force of the order. In other words, it is prospective and not retrospective.

When the current maximum amount of administrative penalty of £2,000 was set in the Welfare Reform Act 2012, we knew that it was important to keep the amount under review. Since then, too many people still continue to ignore warnings and flout the rules to steal from the benefit system. The monetary level of benefit fraud, which is currently estimated to be around £1.2 billion, is unacceptable and unaffordable. In one year alone, there were more than 29,000 penalties for benefit fraud, including convictions. People must do the right thing and ensure that their benefit claims are correct. Clearly, a significant number of people are still not doing this and deliberately defrauding the benefit system. This is why we are taking action now by setting the maximum administrative penalty at £5,000. This will act as a better deterrent and highlight the significant financial consequences which can result from defrauding the benefit system.

I recognise that if the maximum penalty amount were set excessively high, there would be a risk that no one would be prepared to accept it or alternatively they might rather risk being prosecuted for their actions. I come back to the point that this is consensual in the sense that a person does not have to accept the administrative penalty. It is not our intention to prosecute people routinely for lower-level benefit fraud, which would result in them incurring a criminal record that may harm their future job prospects. That would be in nobody’s interests. At the same time, we believe that it is right that where a person incurs a higher overpayment, where prosecution is not being considered in the first instance, the amount of the penalty given should also be higher. For these reasons, I consider £5,000 strikes the right balance.

The department’s general policy is to offer administrative penalties as an alternative to prosecution in fraud cases deemed not to be so serious that prosecution should be considered in the first instance and where

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there are no aggravating features present. The driver for raising the maximum amount of administrative penalty is further to strengthen the range of measures we have to address and tackle benefit fraud. It also allows for greater flexibility, offering tougher but proportionate financial punishments where prosecution is not considered in the first instance.

Let me reassure noble Lords that we will continue to consider the individual circumstances of a case when deciding whether to offer a penalty or to refer a case for prosecution. In addition, administrative penalties carry their own safeguards. Where a person accepts the offer, they have a cooling-off period of 14 days in which they can change their minds. This ensures that they do not feel pressured into accepting the penalty.

If the offer of an administrative penalty is refused, the case would then be referred for prosecution. The department also has a well established debt recovery process for the recovery of administrative penalties, which can be recovered from benefit payments, deduction from earnings or through other means if appropriate. If evidence emerges that the penalty does not operate as intended, we will look closely at that.

The order aims to change claimants’ behaviour and deter people from committing benefit fraud. It also ensures that the penalties available remain appropriate to address the serious and costly nature of benefit fraud. In conclusion, losing £1.2 billion a year through fraud shows that far too many fraudsters continue to steal from the benefit system. Such offensive behaviour has no place in today’s society and should not be tolerated. The order before the Committee today and its purpose is straightforward. To avoid risk of an administrative penalty, claimants should just be truthful and accurate when making claims and tell the department promptly when their circumstances change. The £5,000 maximum limit for an administrative penalty reminds claimants of the need to do this, and where they do not it reflects the serious nature of benefit fraud. I seek noble Lords’ support for the order today, and I commend it to the Committee.

2.45 pm

Baroness Sherlock (Lab): My Lords, I thank the Minister for his explanation of the order. The Opposition has no objection to the increase in penalties and therefore to this order. Benefit fraud, like any fraud, is a serious matter and certainly the scale necessary to trigger this increased penalty is one that requires action. However, I would like to take the opportunity to ask the Minister a few questions.

First, the Secondary Legislation Scrutiny Committee commented that since the current £2,000 maximum penalty has been in force for some time—almost two and a half years—it had expected to see a more evidence-based explanation for the increase. It asked the department to issue a revised Explanatory Memorandum—which it did, and I am grateful for that—but as far as I can see its main argument seems to be that:

“the Government considers there are still too many people committing benefit fraud”.

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That obviously is true: if one person is committing benefit fraud, too many people are committing benefit fraud. However, the realities of cause and effect are slightly more complicated. The deterrent effect of penalties will be affected by the likelihood of people understanding that they are committing an offence, their belief that they are likely to get caught and the severity of the penalty if they are caught. Can the Minister tell the Committee what evidence he considered when deciding what the right maximum would be in terms of the deterrent effect? The Explanatory Memorandum very candidly states:

“Whilst we cannot estimate the deterrent impact of the measure in terms of the number of frauds committed in the future, the measure still remains an important part of our overall package of measures”.

How do the Government know? If they have no idea what effect it will have, how do they know that it is an important part of their package of measures? It might be a wholly unimportant part. What was the evidence for that?

Secondly, has the department done any research to assess the level of awareness of the level of penalty in order to understand its deterrent effect? If the presumption is that it will be a deterrent but people do not know about it, it will not. What evidence do the Government have about that?

Thirdly, and in some ways most interestingly, what would success look like? Is the aim to pursue more people who have committed benefit fraud, and, if so, does the Minister expect to see investigations and/or prosecutions rise or fall after this introduction?

Although we support the increase in the maximum penalty, the Government need to do more to convince us that they have an effective strategy to counter fraud. When this order was being debated in another place, my honourable friend Helen Goodman expressed concern that the measure might have been put forward simply so that the Government could be seen to be doing something. Since it affects at most 250 people, it would seem to be only a limited contribution. The Government’s Explanatory Memorandum makes it clear that 250 cases a year is the maximum, so what are the Government doing to tackle the bigger problem? There clearly is a problem: in 2013-14 the department overspent by £3.3 billion on error and fraud, some 2.1% of benefits expenditure. This month, the Public Accounts Committee published a very critical report that highlighted the Government’s failures on tackling fraud and error, especially in housing benefit, where overpayments have risen very significantly, from £980 million to £1.4 billion. The same report also concluded that the department’s handling of housing benefit error and fraud did not deliver value for money.

The National Audit Office has also been critical of how the department is dealing with fraud and error. In October, its report said:

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“The Department has a target to reduce total fraud and error overpayments to 1.7% of benefit expenditure by March 2015. In his report on the Department’s accounts for 2013-14, the Comptroller and Auditor General noted the Department was unlikely to achieve its 1.7% target”.

The report described the problem as “escalating”. Can the Minister tell the Committee whether the department expects to hit the 1.7% target by that date and what action it is taking to do so?

Finally, the Explanatory Memorandum indicates that DWP fraud investigations resulting in an administrative penalty fell by three-quarters between 2009-10 and 2013-14, from 7,249 to 1,501. Can the Minister explain why he believes that fall took place and on what evidence he bases his answer?

Lord Bourne of Aberystwyth: My Lords, I thank the noble Baroness, Lady Sherlock, for her contribution and I will do my best to cover her points.

It is common ground between us that if there is one person fraudulently claiming a benefit, that is one too many. I agree with that. By the same token, I think she would accept that if one increases the penalty for a particular crime, it acts as a greater deterrent. We must of course ensure that it is publicised, and the department will be seeking to do that. This is certainly upping the penalty, and as I understand their position, the Opposition accept that.

In relation to the progress made in tackling this, I should stress that I am referring to benefit fraud rather than benefit error, which means that if a case goes to court, fraud has to be proven. We are not talking about a slight mistake, but fraud, which in court would have to be proved beyond reasonable doubt. It is true to say that the level of fraud as set against benefit expenditure has come down only slightly from 2.2% under the previous Government to 2.1% under this one. I accept that it is certainly true that more work needs to be done.

The noble Baroness asked why we picked this particular figure. The reason is that overpayments between £4,000 and £10,000 in relation to fraud are the second largest single category of fraud overpayments—the most at the lower scale of fraud, as it were. That is why we have sought to focus resources on that particular group. Also, freeing the system up by allowing people to choose administrative penalties means that a matter does not go to court and is less work for the department, which means that we are able to focus resources on the most serious frauds. Numerically, they may be fewer but there are significant fraudsters at the top end of the scale where we feel resources should be focused.

The driver for raising the maximum amount is broadly to strengthen the range of measures that the department has to tackle benefit fraud. I am sure that it is not a silver bullet; we are not claiming that. But we feel that it should make better use of resources and act as a deterrent in relation to that particular group where there is a significant bubble of fraudsters for whatever reason, and it will enable us to focus resources on the most serious fraud cases. That is the scheme.

I will write to the noble Baroness in regard to the particular point of how we are aiming to get to 1.7%. Can she refresh my memory on the target date that we have given for that?

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Baroness Sherlock: March.

Lord Bourne of Aberystwyth: March of this year. I accept that to get from 2.1% to 1.7% is a significant challenge. Perhaps I can write to the noble Baroness on the measures that the Government are taking. Clearly, this is one of them. The support of the Opposition both here in another place, which we are grateful for, shows that we have common cause in trying to ensure that benefit expenditure is focused on those people who really need it. Everyone who steals from the benefits system is effectively stealing from those who really need the benefit. We are committed to driving that figure further down, but I will write to her with the details, if I may.

Baroness Sherlock: I am grateful to the Minister for offering to write to me. As I have said, there is nothing between us on this order because we support it, but there are one or two other small questions that he has not been able to respond to. Could he pick those up and include them in the letter so that we do not detain the Committee today?

Lord Bourne of Aberystwyth: I am most grateful to the noble Baroness, Lady Sherlock, on that point and of course I will respond fully.

Motion agreed.

Misuse of Drugs Act 1971 (Amendment) Order 2015

Misuse of Drugs Act 1971 (Amendment) Order 2015 17 Report from the Joint Committee on Statutory Instruments

Motion to Consider

2.53 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Misuse of Drugs Act 1971 (Amendment) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Baroness Williams of Trafford (Con): My Lords, the draft order, which was laid before Parliament on 17 December 2014, supports the Government’s ongoing efforts to disrupt the supply of new psychoactive substances where the evidence and expert advice from the Advisory Council on the Misuse of Drugs—the ACMD—indicate that they are dangerous drugs. This House recently approved an order updating the UK’s drug controls to protect the public from the serious risks associated with a number of such substances, which came into force on 7 January.

Today’s order will bring under class A control two substances: one being MT-45 and the other 4,4’-DMAR, which I will refer to under its street name, Serotoni, because it is easier to pronounce. I commend our expert adviser, the ACMD, for its ongoing and intensive work on monitoring the available evidence and advising the Government on actions to take against any number of new psychoactive substances that have the potential to cause serious harm, including legislative intervention necessary to protect the public.

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The ACMD advises that MT-45 is a potent analgesic similar to morphine. It was developed by a Japanese pharmaceutical company in the 1970s and subsequently abandoned. It has similar health risks to already controlled opioids, including respiratory depression, coma and death. In some instances, loss of hearing was also reported. Although this compound has not been detected through the UK’s early-warning mechanisms, it has been identified in other EU countries and linked to a number of fatalities in Sweden.

Serotoni is a synthetic stimulant drug which has been detected in a number of EU countries, including the UK, and linked to harms including agitation, convulsions and hyperthermia. In a number of cases, these symptoms were followed by death. In late 2013, there were reports of sudden deaths from substance abuse in Northern Ireland. It was not obvious that they were related due to incidences of polysubstance use and drug bingeing or to users simply not knowing what drug they took, but following the completion of 20 inquests into these fatalities in the summer of 2014 they were linked to Serotoni.

The Government further intend to make two statutory instruments to complement the order, as recommended by the ACMD. These instruments, subject to the negative resolution procedure, will designate and schedule MT-45 and Serotoni as drugs which have no known legitimate uses beyond the research sector in order that they will remain available for research purposes under Home Office licence. I also wish to bring to noble Lords’ attention that these two substances are being considered for EU-wide control. Having received the ACMD’s advice and considered the evidence on harm as required under our laws, we are in a position to ban these drugs to protect the British public at the earliest opportunity. I commend the order to the Committee.

Baroness Smith of Basildon (Lab): My Lords, I am grateful to the Minister for that explanation. We welcome the order. It is one of a series of orders we have considered on which we have discussed issues around so-called legal highs. I know that neither she nor I like that term but, unfortunately, it is the one used in the Explanatory Notes. It is in inverted commas, so perhaps that justifies it, and “new psychoactive substances” clearly does not roll off the tongue in the same way. However, such terms are one of the things that cause young people to misunderstand and think they are doing something funny and safe when that is the last thing they are doing. I also thank the Advisory Council on the Misuse of Drugs for its work. Its explanation of the dangers is very helpful. We are not the experts on this; we rely on the experts. The council’s expertise leads us to only one conclusion: that these drugs should be banned.

Perhaps I may check one thing that the Minister said. She said that this drug has not been seen in the UK—I think that that is in the Explanatory Notes as well—but is available in Europe. In fact, it is available online, which means that it is quite likely that it could be in the UK. I come back to a point that I have made many times. Unless we tackle and get to grips with online sales—which means looking internationally but also at head shops and other suppliers of drugs— we are not going to be able to tackle this. The order

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therefore has our full support. I simply add the rider that I am very worried about this increase: you just have to go online and Google some of these drugs and you can find out where to get them. We support the order.

Baroness Williams of Trafford: I thank the noble Baroness for her helpful comments. I fully agree with her points about glamorising these drugs by using the unhelpful term “legal high”, the online availability of some of these drugs and the head shops continuing to try to race ahead of where the legislation has got up to. I commend the order to the Committee.

Motion agreed.

Legal Services Act 2007 (The Law Society) (Modification of Functions) Order 2015

Legal Services Act 2007 (The Law Society) (Modification of Functions) Order 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3 pm

Moved by Lord Faulks

That the Grand Committee do consider the Legal Services Act 2007 (The Law Society) (Modification of Functions) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, as noble Lords may know, and by way of background, the Law Society of England and Wales is an approved regulator under the 2007 Act. The Solicitors Regulation Authority, the SRA, is the independent regulatory arm of the Law Society, which regulates all forms of solicitors’ practices and alternative business structures—ABSs.

Recognised bodies and ABSs are subject to the same authorisation process by the SRA, which is a one-off authorisation followed by ongoing supervision. In contrast, because of the requirements of the Solicitors Act 1974, sole practitioner solicitors are required to have annual endorsement of their practising certificates. This difference results in regulatory inefficiencies and increased costs for both sole practitioner firms and the SRA. The current differences in regulation also make it more difficult for solicitors to move between one type of practice and another. There are also differences in the way in which the SRA can take regulatory action where difficulty arises with a sole practitioner firm as compared with other firms.

This order therefore removes the requirement in the Solicitors Act 1974 for a solicitor who is a sole practitioner to obtain an annual endorsement on their practising certificate. The order therefore establishes a single method of authorisation and regulation of all solicitors. The effect of the order is to remove the concept of a sole practitioner from both the Solicitors Act 1974 and the Administration of Justice Act 1985 and instead create the concept of a “recognised sole solicitor’s practice”.

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Recognised sole solicitors’ practices will be subject to the same type of authorisation and ongoing supervision process as recognised bodies and alternative business structures. This order is therefore a welcome deregulatory measure. It comes before the Committee following a public consultation by the Legal Services Board. No objections were raised during this process. The order was welcomed by the Sole Practitioners Group, which advised that it welcomed efforts to reduce the current burden of regulation of sole practitioners and welcomed the harmonising effect of the order.

In conclusion, the Legal Services Board is satisfied that there will be no lessening of consumer protection as a result of this order which will make it easier for the SRA to regulate solicitors more effectively and proportionately. I commend the order to the Committee, and I beg to move.

Lord Kennedy of Southwark (Lab): My Lords, I do not intend to detain the Grand Committee for long on any of the orders before us today.

As the noble Lord, Lord Faulks, has explained, this order removes the requirement on a solicitor who is a sole practitioner to obtain an annual endorsement on their practising certificate and so establishes a single method of authorisation and regulation for all solicitors. That is welcome and we are very happy to support it from these Benches.

I notice from the impact assessment that there is a small financial saving to solicitors as a consequence of this change. It is not huge and would not be the dominant consideration in making these changes. However, I see the benefits of making the change in the methods of authorisation and regulation.

I note from the impact assessment that the proposal was originally consulted on between December 2010 and March 2011, but nothing was taken forward. Three years later a policy statement was issued, which again attracted support. Here we are at the end of January 2015 with the measure finally being brought into effect. Can the noble Lord shed some light on why four years have passed since this measure was first suggested and subsequently enacted? However, I am content to support the order.

Lord Faulks: I am grateful to the noble Lord for his observations. On his second point, these measures were, as he said, first proposed in 2010. Following a detailed consultation, the SRA stopped work on these proposals as it had to concentrate on various other priorities, including preparing to be designated as the licensing authority for alternative business structures which was, as he will appreciate, a fairly major piece of work. The SRA took up this work again last year in conjunction with my officials, and this order has been brought before the House at the earliest opportunity. The delay was because of other priorities rather than for any sinister reason. As to the noble Lord’s question on cost, this measure will remove some costs and bureaucracy. One hopes that that will be passed on in due course in some way to the client. I am grateful for those observations and I beg to move.

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Lord Kennedy of Southwark: I would never think anything sinister at all. I had just noticed the four-year gap.

Motion agreed.

Judicial Pensions Regulations 2015

Judicial Pensions Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.05 pm

Moved by Lord Faulks

That the Grand Committee do consider the Judicial Pensions Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, the regulations before us today create the New Judicial Pension Scheme 2015—NJPS—establishing the pension scheme itself and also providing for its governance structure and the operation of its employer cost cap. The NJPS is a defined benefit scheme which provides a guaranteed pension based on average pay over a judge’s career. Each year, a percentage of a judge’s salary is notionally put aside. On retirement the cash value of all these annually calculated percentage pots is added up and that is the annual pension. To protect the accumulating pension against inflation, each individual’s notional pension is uprated each year. Employee contributions remain the same and there is transitional protection for those closest to retirement. Unlike previous judicial pension schemes this scheme will not have an automatic lump sum and will be registered for tax purposes in line with the practice elsewhere in the public sector.

The Government announced at the time of the emergency Budget in 2010 the establishment of an independent review of the provision of public service pensions. The judiciary was included in the scope of this review. The review by the Independent Public Service Pensions Commission, led by the noble Lord, Lord Hutton of Furness, made recommendations for reform to public service pensions in order to make them both affordable and sustainable in the long term as well as offering certainty and fairness to public service pension scheme members and taxpayers. The Government’s response adopted many of the review’s recommendations. This included a guarantee that benefits accrued before the date of the change would be protected. It also introduced protections for those within 10 years of retirement.

On 5 February 2013, the Lord Chancellor announced to Parliament the intention to reform judicial pension arrangements in the form of the NJPS under the statutory framework of the Public Service Pensions Act 2013. The reforms to judicial pension arrangements will apply to eligible members of the judiciary in Scotland and Northern Ireland, as well as those in England and Wales. There are a number of devolved judicial offices in Scotland and Northern Ireland to which these reforms will not apply. The NJPS will be open to eligible fee-paid and salaried judicial office holders. This will be set out in a separate instrument.

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The principles of the Public Service Pension Act 2013 have already been approved by this House; these regulations apply those principles, introducing a new pension scheme for the judiciary. The Government believe that the reforms to judicial pensions constitute a fair balance of costs and benefits between judicial pension scheme members and other taxpayers. I therefore commend these draft regulations to the Committee and I beg to move.

Lord Kennedy of Southwark (Lab): My Lords, as the noble Lord, Lord Faulks, has explained to the Grand Committee, the regulations before us today establish a new and reformed pension scheme for the judiciary. They are one of a number of instruments which are coming before your Lordships’ House on the matter of pensions.

I should say that as a general rule I am always sorry to see the end of final salary pension schemes, but I accept that that has been the trend in recent years, and I fully understand that pension schemes have to be reformed in order to ensure that they are sustainable in the long term. That has involved a change in the distribution of costs between the employer and the members of the scheme, along with a move from final salary schemes to other types of scheme and equalising the normal pension age with the state pension age.

I have only a couple of brief points. On looking at the Explanatory Notes, I see that the Lord Chancellor, after consulting with the judiciary, announced the intention to establish a stand-alone reformed pension scheme open only to the judiciary, although initially he had talked about bringing it into the Civil Service scheme. Can the noble Lord tell us why in the end the other options were not proceeded with, in particular the decision not to include the judiciary within the scope of the reformed Civil Service pension scheme? Further, will there be any additional costs to the taxpayer as a consequence of that decision?

I would appreciate a little more information regarding the tax concerns which have been raised by a number of members of the judiciary here in terms of the sums of money involved and whether that will result in additional costs which will have to be borne by the scheme and/or the taxpayer. Also, looking at the scheme itself, can he tell us a little about the governance arrangements? Will they differ in any material way from the governance of the Civil Service scheme? It would also be helpful to the Grand Committee if the noble Lord could highlight where in particular the scheme differs from the new Civil Service pension scheme? With those points, I am content to support the regulations before the Committee.

Lord Faulks: My Lords, I am grateful to the noble Lord, Lord Kennedy, for his observations. He will know that the judiciary had some concerns about the scheme, one of which turned on the importance of the independence of the judiciary and of attracting appropriate candidates to posts within the judiciary at whatever level. I am sure that Members of the Committee will understand both of those points. A particular concern that was expressed by many in the consultations was about the changes that were to take place to

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ensure that the judiciary came under the scheme which embraces all other senior civil servants. There was a particular provision which followed the judiciary’s own stand-alone scheme that is set out in paragraph 8.2 of the Explanatory Memorandum. It concerned in particular those whose existing arrangements for their pensions were unregistered so that when they came to accept a judicial appointment, they did so on the basis that their then pensions were unregistered, only to find that as a result of these provisions, the pension in their new post became registered. The result of that was a significant disadvantage to them, and therefore after some consideration, it was thought appropriate for there to be a special arrangement for the judges in that particular position.

The result of the special arrangement was that those who had previously had an unregistered pension could opt out of the government scheme and they would not receive the pension to which they would normally be entitled. However, during the time that they sit as judges, they will receive an increased salary to reflect the fact that their employer—the Government—would be paying a proportion of their income for pensions in the same way that they would in ordinary circumstances, and will be doing for judges in all other cases. This means that although there is an advantage to the individual, it is in fact neutral in terms of the effect on the tax take as a whole. That was the position.

Judges choose representatives to the pension board —I am talking now of governance—and make recommendations to the scheme manager on the question of discretion. The scheme was at the judiciary’s request. There is an increase in costs in the administration of that special scheme. On the scheme generally, the Government’s principle was to develop a scheme that is fair and sustainable for public sector workers and the taxpayer generally and, save for this fairly limited exception, the judicial scheme will bring the judiciary in line, for the first time, in fact, with the reformed Civil Service pension scheme Alpha, while there are some differences, which I have explained. There are also some slight differences in ill health provision, but any benefits to the department will be long term in nature due to the transitional protection provisions which apply to a considerable proportion of the judicial office holders in scope. However, there is a long-term financial benefit to the MoJ in the form of savings from the service award. This is a salary payment to judges upon retirement which compensates them for tax liabilities on their retirement lump sum. The cost to the department of the current annual service award is around £17 million per year. As the new scheme requirements will remove the need for service awards in the long term, this cost will be a saving to the department, and thus to the country in general. There is harmonisation. There are one or two exceptions.

We think judges have satisfactory pension arrangements. In the view of judges, they are not quite as satisfactory as they were before, but in view of the recommendations of the noble Lord, Lord Hutton, which were accepted by the Government, all public servants have had to accept some reductions in their entitlement in view of the overall financial situation, and judges are not considered an exception, but there

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is some reflection of their particular circumstances in those special arrangements. I hope that that is a satisfactory answer to the noble Lord’s questions.

Motion agreed.

Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Fines on Summary Conviction) Regulations 2015

Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Fines on Summary Conviction) Regulations 2015 17th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.17 pm

Moved by Lord Faulks

That the Grand Committee do consider the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Fines on Summary Conviction) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, the regulations before us today are needed to accompany the commencement of Section 85 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or LASPO as it is commonly called. Section 85 has not yet been commenced. It provides for all fines and maximum fines in the magistrates’ courts of £5,000 or more to become unlimited. This includes the level 5 maximum on the standard scale of fines and all exceptional summary maxima for environmental and health and safety offences, which can be as high as £50,000. It means that magistrates will be able to impose, if they so choose, a higher fine than they previously could.

I should make it clear that the way in which magistrates calculate the appropriate fine to be imposed in each individual case will not change. Sentencing decisions in individual cases are a matter solely for our independent courts. Parliament sets the maximum penalty for an offence and the courts sentence within that maximum, taking account of all the circumstances of each case. Where the sentence is a fine, the courts are required to take account not only of seriousness, but the known financial means of the offender. How the amount of a fine relates to these factors is covered in some detail by the sentencing guidelines issued by the Sentencing Council, which is also independent of government. None of these things will change.

I should also make it clear that dangerous criminals will always belong in prison, and there are others who will need to be made subject to community penalties. However, it is important that magistrates, who sentence the majority of offenders who come through our courts, have the power to hand down the appropriate fine with the severity they see fit for the most serious cases that come before them. They include summary crimes such as making and selling realistic fake guns, assaulting a police officer, using threatening behaviour and not making a property safe before renting it out.

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Other offences that will be liable to unlimited fines in the magistrates’ courts will be harassment without violence, the sale of alcohol to children, and the unauthorised sale of football tickets, an offence introduced to help prevent violence at matches. The Government believe that it is important that magistrates should not be limited in the amount they can fine for serious offences such as these. Where appropriate, the courts will of course continue to be able to impose custodial sentences.

These regulations do not amend the text of every piece of legislation that provides for an offence to be subject to a maximum fine expressed variously as level 5, “the statutory maximum” or “the prescribed sum”, all of which mean £5,000. When Section 85 comes into force all these offences will automatically become fines of an unlimited amount. However, these regulations were needed to amend the text of legislation governing fines expressed as numerical amounts of £5,000 or more. The noble Lord, Lord Kennedy, may have seen the considerable extent of the draft statutory instrument carrying myriad different offences. There was a considerable amount of work for parliamentary counsel to try to tie up these issues.

As well as removing the £5,000 cap, Section 85 allows the Secretary of State to specify any exceptions in regulations. These exceptions are included in the draft regulations that we are debating today. But not only do they exempt certain offences from the general provision removing the £5,000 cap, they need to make additional provision if Section 85 is to work properly in practice. For example, some penalties are currently expressed as a proportion of £5,000. If we commenced Section 85 without amending such provisions, they would become meaningless as we cannot have legislation specifying a proportion of an unlimited amount, so we need to make changes there too.

These regulations achieve a range of objectives that will allow us to commence the LASPO provision. In total they do the following. First, they disapply the removal of the £5,000 cap in some cases, mainly for customs and excise offences, and substitute alternative figures, generally £20,000. These can be found listed in Schedules 1 and 2.

Secondly, they deal with penalties that were previously expressed as a proportion of level 5. These are generally daily fines. The regulations deal with these by setting an alternative figure for them to be calculated against. So, for example, instead of being expressed as a fifth of level 5 they are changed for the time being to a fifth of £5,000, although the provisions are future-proofed so this amount could rise in line with increases to other fines. These changes can be found listed in Schedule 3.

Thirdly, as I have already mentioned, they make specific provision for fines currently expressed as a numerical amount of £5,000 or more by providing for these to become a fine of any amount. Similar provision is made for powers to create offences subject to such fines. These are listed in Schedule 4.

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Fourthly, they deal with certain non-criminal penalty schemes which operate by reference to the amount of a fine on summary conviction. Changes here will make sure these continue to work once Section 85 is in force. These are listed in Schedule 5.

I hope that noble Lords will appreciate that the Government needed to trawl all legislative provisions to check whether changes needed to be made before we could commence Section 85. This was, as is apparent, a significant task, which accounts for the time it has taken to compile the regulations and for their considerable length. I hope that the Committee will consider these regulations, which are necessary in order to commence the provision in LASPO that Parliament has already provided. I appreciate that they are lengthy and complex, but they are essential before we can give magistrates the increased powers that Parliament intended. I therefore commend these draft regulations to the Committee.

Lord Kennedy of Southwark (Lab): My Lords, as the Minister has explained to the Grand Committee, the regulations before us today will, when Section 85 of LASPO is enacted, remove the cap on fines imposed in magistrates’ courts on summary conviction. The regulations are to ensure the section works sensibly, and they provide for some exceptions.

I have a couple of points to raise with the Minister, but generally I am happy to offer our support to these regulations. I noted in paragraph 3.3 of the Explanatory Memorandum that an order was laid and then withdrawn in respect of levels 1 to 4 fines and that there are no plans to reintroduce it in the foreseeable future. It would be useful if the Minister could tell the Grand Committee a little bit more about that.

Paragraph 7.7 in the Explanatory Memorandum explains that magistrates are obliged to follow the sentencing guidelines, unless that would be contrary to the interests of justice. I know this is an aside to the regulations today, but I have recollections from my time as a magistrate sitting in Coventry. I used to do a lot of fines on Thursday mornings. We would spend a lot of time with people who had been fined by other magistrates’ courts and could not pay the fine. It was a ridiculous situation with fines often grossly disproportionate to the person’s means. It was not a proper punishment because they could not pay the fines. We all want to see punishments handed out that actually punish offenders on conviction, but they also have to be realistic to have the required effect. Does the department have any plans to ask the Sentencing Council to look at fines and their suitability as punishment in terms of their scope, size et cetera? With that, I am happy to support the regulations before us today.

Lord Faulks: I am grateful to the noble Lord, Lord Kennedy, for his observations in relation to these regulations and for his agreement on the part of the Opposition in relation to them. It is true that we were responsible for laying regulations in June 2014 and then withdrawing them. They would originally have uprated the amounts of levels 1 to 4 fines as well as level 5 fines. The Government took the view that further consideration was needed in relation to the appropriate amounts at levels 1 to 4, but the priority

29 Jan 2015 : Column GC193

was to give magistrates the power to deal with the most serious level 5 offenders, which is why we have taken the most important step first in removing the £5,000 barrier. We are giving further consideration to levels 1 to 4 fines, which cover the less serious offences. We are also giving consideration, by way of a review, to driving offences and penalties, many of which would be within levels 1 to 4, although an offence such as driving without insurance is a level 5 offence. Any proposal to change these fine levels requires agreement from both Houses of Parliament. It does not mean—if that was the inference, and I am not suggesting it was—that we are taking a soft line on levels 1 to 4 offences, it is simply a question of prioritising level 5.

The noble Lord identified the dilemma that faces many sentencing tribunals in finding the right penalty and, in the case of repeat offenders, the unreality sometimes of having to impose fines that reflect both the seriousness of the offence and the sentencing guidelines. The problem is very often that those who commit these offences do not necessarily have the means to pay, the fines become unrealistic, and whether it is appropriate to continue imposing fines at that level becomes questionable.

Of course, the Government do not purport to tell sentencing tribunals what is appropriate in a particular case, and among the matters taken into consideration

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will be the means of the particular offender, not withstanding the guidelines, which are only guidelines. The courts will sometimes have other options, such as community penalties or even imprisonment, if the imposition of fines that are not being paid is becoming unrealistic. It is a matter for the individual tribunals. The Government respect the independence of the judiciary in this and any other field. I understand the dilemma the noble Lord identifies, but we feel that this change will give magistrates in appropriate cases the power to impose large fines, often on people who are, in fact, in a position to pay them.

The Secretary of State can ask the Sentencing Council to consider amending guidelines on specific matters if necessary, and the council is independent of the Government. Guidelines already cover in detail how fines are set in relation to income, and we like to follow carefully the way the Sentencing Council works and its sentencing guidelines. In fact, I am attending one of its meetings tomorrow, although not on this particular subject. It is important that the Government are at least aware of what it is doing. I hope that the noble Lord is satisfied with the answers to his questions.

Motion agreed.

Committee adjourned at 3.30 pm.