SUPPLEMENTARY PROVISIONS AS TO RESERVE SCHEME PREMIUMS (Hansard, 9 May 1973)

§ Mr. Dean
I beg to move Amendment No. 130, in page 178, line 46, at end insert: — '5A. Regulations may in relation to reserve scheme premiums provide—

(a) for treating a premium paid at or after any prescribed time as paid at some other time (whether earlier or later);

(b) for enabling a premium to be treated as paid in an income tax year earlier or later than that in which it was actually paid;

(c) for treating a premium wrongly paid, or paid as to the wrong amount, as paid (wholly or in part) in discharge of a liability for another premium, or for reserve scheme contributions;

(d) for the return of premiums paid in error or, in prescribed circumstances, of premiums as to which the Secretary of State is satisfied that they ought to be repaid;

(e) for any other matters incidental to the payment, collection or return of premiums'.

This is a technical amendment.

§ Mr. William Clark
We are here dealing with the reserve scheme premiums. Throughout the earlier stages of the Bill, I have been worried about whether the premiums will retain the value that employees have put in. I raised this matter on Second Reading.
Unless the reserve fund is completely free of political manipulation, the pensions of reserve scheme pensioners could be in jeopardy. I will not weary the House with the facts and figures. Suffice it to say that by the end of this century the reserve fund, especially with the credit for tax which unfortunately is now in the political cockpit, probably will add up to £10,000 million.
706 I remind my right hon. Friend the Secretary of State that the total equity capital in this country is some £50,000 million in quoted companies and about £12,000 million in unquoted companies. In other words, in respect of our main industry we have a total equity, quoted and unquoted, of £62,000 million. Under the reserve scheme—and this is vital to the value of the premiums—the board can invest up to 10 per cent. in the equity of any one company. It is easy to see that, after some time——

§ Mr. Dell
The hon. Gentleman is wrong. The limitation is in respect only of quoted companies. If they are not quoted, the board can take up to 100 per cent.

§ Mr. Clark
That adds weight to my point. I am grateful for the right hon. Gentleman's support. But even a 10 per cent. holding will mean that the Government, indirectly, will have control of the country's industry. In the view of the Opposition, of course, that is good. They like the fact that this avoids the need for any further act of nationalisation.
It is wrong for the reserve scheme to be used for political purposes. I remember too well how a previous Labour Government used such a fund in that way. The unemployment fund had total assets of about £700 million. When Mr. Dalton was Chancellor of the Exchequer the investment policy of the unemployment fund changed simply because of the cheap money policy being run by the Government of the day. I do not necessarily argue with that. But £250 million of the unemployment fund was invested in Dalton 2½s. Hon. Members on both sides of the House will realise how serious this could be for the reserve fund when they consider the price of Dalton 2½s today. In real terms Daltons today are probably worth £6 compared with £100 when they were issued. This is the fear I have.
My right hon. Friend has been kind enough to correspond with me and discuss this. I am still not convinced that the Government, particularly a Conservative Government, should put all this amount of money into the control of any one fund. Any Government have the right to tax but taxation goes from year to year. One Government will think that 707 they must improve welfare services, another will concentrate on something else, and so on. That is fair enough and is the prerogative of any Government. What is not the prerogative of any Government is to take contributions from employees and then use them for political ends.
Perhaps it is too late, but I will certainly pursue this point. May be in another place we can make some amendment to the running of the reserve fund. This fund could easily be fragmented by the issue of franchises to different consortia of insurance companies which would be regulated. They must pay the right pension and all the rest of it. The management could easily be controlled. This is done with unit trusts. There is nothing difficult about it. It would mean that the investment policy of the reserve fund would be fragmented, in different hands. This would be good because there would be no one single large investor.
As my right hon. Friend knows, any large investor who gets a 10 per cent. holding in any one company effectively controls that company. If this money in the reserve fund is not invested wisely the premiums paid into it by contributors could be eroded. With franchises and fragmentation I am certain that the premiums of the contributors would be worth more. If we had a huge fund the investment policy of which was in the hands of a board under the nomination of the Government of the day it would lead to complications. I hope my right hon. Friend will take this point seriously. I do not accept the administrative argument. I do not accept that it is impossible to fragment this huge fund. I beg my right hon. Friend to think again——

Mr. Deputy Speaker
Order. I am sorry to interrupt the hon. Member. I am trying to be as lenient as I can to make up for my rough treatment of him earlier. He is straying somewhat from the point. He has made his point, and I think that the Minister is apprised of it. I hope that he will help me.

§ Mr. Clark
May I in conclusion thank you, Mr. Deputy Speaker, for your tolerance. I am delighted that you are convinced my right hon. Friend has taken the point. I hope that he will take some action.

§ Mr. Dean
I very much understand the point made by my hon. Friend the Member for Surrey, East (Mr. William Clark). I hope he will be reassured by what I have to say. To deal first with his fears about political manipulation, I remind him that the Reserve Pension Board will have a clear statutory duty laid upon it in Clause 71 to exercise its functions with paramount regard to the interests of existing and future pensioners. I hope he will feel that that is a clear directive.

§ Mr. Clark
My hon. Friend will surely accept that no Government can commit a future Government. The stipulation in the Bill is not irrevocable. It can be changed by any Government.

§ Mr. Dean
I accept that. My hon. Friend will equally accept that this would be so with any arrangement. Any future Parliament can unmake what an earlier Parliament has made.
Another safeguard that will be of considerable importance is that the Reserve Pension Board will have pretty extensive powers and because of this we should be able—I am confident we shall be able— to get men of considerable calibre to run the scheme—people who will use their independent judgment, as the statute provides. Under the proposals, they will be free to decide, apart from the limitation on voting capital in companies, the way in which the investment will be made and the form of the investment, and if they wish, as they may well—it is not for me to say—to fragment the investment or to use the established institutions for the investment, they will be able to do so. The statute leaves them free to use their judgment as to the best way in which this should be done.
My hon. Friend mentioned the question of the size of the fund. It is difficult to say what the size will be because we do not know with precision how many people there will be in it. However, I accept that the chances are that it will be a fairly large sum going for investment from one source. But equally he will accept that, compared with the total money being invested by occupational pension schemes, it will be a comparatively small sum.
We have given a good deal of thought to the question whether, instead of assiging the whole responsibility for investing 709 the reserve pensions fund to a single board, we should legislate for dividing up the investment between a number of different bodies. We have concluded that this would be against the interests of reserve scheme members whose pensions will depend in amount upon the success of the investment policies pursued. If we laid down in the statute the way in which the reserve pension fund was to be divided between different sectors of investments—gilt-edged securities, equities, property, and so on—this would introduce a rigidity into the arrangements which would inhibit the adaptation of investment spread in the light of the circumstances at the time and would therefore be prejudicial to successful investment. If, on the other hand, we gave power for the Government to issue directives on investment strategy we should be failing to insulate the board from political pressures and would again be prejudicing their prospects of success.
Having given a good deal of thought to this matter, we felt that the best way to safeguard the interests of the members and to insulate the board from what would be wholly undesirable political pressures was to give substantial powers to them under the statute and to leave it to their judgment to decide the way and form in which the investment should be made in the interests of the members of the scheme.