TRANSPORT BILL

HL Deb 06 June 1980 vol 409 cc1732-60

11.8 a.m.

Further considered on Report.

Clause 52 [Unfunded proportion of relevant pension obligations]:

Lord MISHCON had given notice of his intention to move Amendment No. 58:

Page 48, line 34, at end insert— ("() Before confirming or varying the said determination the Minister shall consult the persons administering the pension scheme concerned about the proportion he proposes to specify in the said order in respect of the scheme, and in the event of those persons giving notice in writing to the Minister within two months that they object to the said proportion, the Minister shall appoint an independent actuary, to be nominated by the president for the time being of the Institute of Actuaries, to report before the end of the second financial year on the proportion which would be appropriate and the Minister shall thereupon by order confirm or vary the proportion so as to give effect to the said report.")

The noble Lord said

My Lords, as your Lordships will see, the purpose of this amendment is to provide for independent arbitration if there is disagreement about the unfunded proportion of the British Railways Pension Funds. This amendment will not be necessary if the amendment immediately following it and an amendment to be put before the House by myself and my noble friends are successful, because they seek a review of the unfunded proportion at future dates. In order to save the time of the House, I shall not move the amendment now, but I reserve the right to bring it forward at Third Reading if necessary.

Lord MORRIS moved Amendment No. 58A:

Page 49, line 13, at end insert— ("(6) Either the Minister or the persons administering a BR pension scheme shall have the right to require a review of the unfunded proportion from time to time, provided that no such review shall be made before 31st December 1986 or before the expiry of 5 years after the previous review under this subsection unless the Minister and the persons administering the scheme consent. Within 2 years after such a review is required the Minister, after consulting with the persons administering the scheme and the Board, shall make the best possible estimate of the proportion of the pensions corresponding to the relevant pension obligations which cannot then be met by the assets held by the scheme in respect of such obligations and shall make an order to replace the proportion referred to in subsection (1) by the said estimate, which order shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.")

The noble Lord said

My Lords, I fear that I have been left holding a baby. It is not only both sensible and just, but weighty. I can only hope that with the help and the support of your Lordships I shall not drop it. My noble friend Lord Selsdon expresses his deep regret that he is unable to attend your Lordship's House today, particularly as his amendment has no party political bias and seeks to ensure that there may be no inequity to either a pensioner of British Rail or to the British taxpayer at a date in the future.

This amendment was first moved during the Committee stage and my noble friend Lord Bellwin undertook to examine the position, and this he has now done. The amendment has therefore been tabled again in the hope that my noble friend Lord Bellwin will be able to give your Lordships' House, the taxpayer and the British Rail pensioner the reassurance that I believe they require and to which they are entitled.

Following the Committee stage my noble friend Lord Bellwin and his advisers met with my noble friend Lord Selsdon after an exchange of letters, and my noble friend Lord Selsdon has asked for answers to two questions. First, as the Bill at present stands, is it possible that the once-and-for-all assessment could be incorrect and that the taxpayer could be saddled with a higher contribution in future than would be either equitable or necessary?

Secondly, are the Government completely satisfied that no circumstances could arise whereby the individual pensioners might suffer in the future? We must recognise that over the past five years inflation has averaged some 16 per cent., and over the five years prior to that some 8 per cent. If over the next 10 years we see similar movements either upwards or downwards, it is possible either that the taxpayer will have made an excessive contribution—perhaps even as much as —250 million more than necessary—or that the Railways Board will have to find up to a further —250 million to fund pensions.

I know that the Government would not wish to find themselves in a position where they wasted public funds. Equally, I submit that neither this Government nor a future Government would wish a British Rail pensioner to suffer as a result of support being kicked from under him in the future. But British Rail is in a very sorry financial state. If it were a private sector company it would be near bankruptcy. If, in the future, it had insufficient financial resources to meet pension requirements, would the Government support it, and will they give an undertaking now so to do? If my noble friend Lord Bellwin can give the assurances for which my noble friend and other noble Lords on all sides of the House are asking then this amendment would be unnecessary and there would be no need for a review mechanism.

I would also ask noble Lords on the Front Benches opposite that, if they propose to speak to the amendment, they will give assurances that their parties will respect the position of British Rail pensioners and support the protection of their rights should a once-and-for-all assessment prove in the future to have been inequitable. I know that my noble friend Lord Selsdon is expecting the Minister to give the necessary reassurances and satisfy the House. I hope it will prove unnecessary to press the amendment.

11.11 a.m.

Lord MISHCON

My Lords, it may be convenient if I inflict upon your Lordships one speech, certainly one of any length, on this matter, and in doing that on this amendment I reserve my right to make a few remarks on my amendment which follows. This is an opportunity for this House to show itself at its best. It does so—I say this respectfully as a comparatively new Member—if it is dealing with a matter where justice, equity and judgment are required and where no political considerations enter into it. If my noble friends are not convinced by the arguments contained in the amendment or by any observations I make, I do not ask for their support. And in facing noble Lords opposite, I say precisely the same to them, hoping that, similarly, if they are favourably inclined towards the arguments I wish to put forward, they will regard this as not a matter of loyalty to party or Government but loyalty to principle.

The facts of this matter can be put in a very complex way, but lawyers are supposed to have the ability, not always exercised, to put complex matters simply. If I let my profession down this morning I know your Lordships will forgive me, but I am trying to put the matter in very simple terms. The railway companies, in now what are historic times, when they were run by private enterprise—this applies similarly after nationalisation—found that their pension funds were being employed in the running of the railways, not necessarily the type of investment which investment advisers would have given had they been consulted. Indeed, it was a question of having to lend money at low rates of interest to the railways, and the result of all that—I come immediately to 1974—was that the pension funds were in a mess. To use a technical phrase, they were substantially unfunded.

In order that justice could then be done it was decided, after great consideration and by Act of Parliament, that the proper way for the Government to behave in those circumstances, in justice to the pensioners—the people who had loyally served the railways whether under private enterprise or nationalisation—was by way of a capital contribution to the pension funds, which would make up for the unfunded portion. For that purpose they took an assessment of the assets and liabilities as at that date, did an actuarial exercise in regard to what the liabilities were likely to be in the future, and then a sum was quantified and, if my recollection is correct, that sum was as large as —575 million paid up to this year, with —1¼ billion still to be paid over the next seven years. That is a frightening exercise for any Government who are trying to secure some economy, and that would apply to a Government of whatever complexion.

This Government looked at the matter, and it is not in any way from my point of view grounds for a quarrel that this matter should be looked at; the Public Accounts Committee in another place cast some grave doubts on the wisdom of having this very large capital expenditure as a commitment for the future. Then, having reviewed the situation, they said,

"We had better substitute for the capital funding, an obligation to pay year by year whatever the deficiency may be", and the calculation in regard to the deficiency was to be done in the following way. A Government actuary was to look at the state of the funds now and take a look at what inflation was likely to be in the future (a somewhat deterring task for anybody), take into account what investment rates might be in the future (a frightening task for anybody); then do the normal actuarial calculation in regard to lifespan and so on, look at the proportion that the unfunded part of the pension funds related to those matters, fix that proportion and make that the proportion year by year that the Government would be liable to pay out for the current pensions and any increases there might be.

I said that it was an exercise that could deter anybody, and your Lordships might feel that the pension fund trustees looked upon this exercise with great trepidation. They did so for the obvious reason that the calculation could turn out to be sorely inaccurate, and if the inaccuracy was against them in the future, they would of course be in great difficulty. The Government might well say that no pensioners would be worse off, but from where would the railway pension fund get the money—as we all know, its finances are already in enough of a parlous state—in order to pay the pensioners who obviously ought to be paid and who are entitled to be paid?

The trustees said to the Government, "We don't quarrel with the exercise that you are carrying out, but, please, if you turn out to be wrong—either way—what will happen?" If too optimistic a view, or too pessimistic a view were taken by the actuary in regard to matters of inflation, investment return and interest rates, either the pension fund or the taxpayer would suffer.

So that your Lordships will be aware of the extent of this question, may I say that literally hundreds of millions of pounds could be involved if the exercise goes the wrong way. That was the burden of an article in the Economist,to which I took the liberty of referring, on I believe Second Reading, though it may have been at Committee stage. That article stated that it was sorely unjust for there to be one fixed review by a Government actuary without even agreement with the pension fund actuary, or without procedure for arbitration; a once-and-for-all commitment.

It has been argued—and not very strongly—that this is all very well, but that one should look at the 1974 Act, to which I referred a few moments ago, which dealt with a once-and-for-all capital apportionment. It has been said that the unfunded portion was taken at that time, and that again it might have been wrong. The answer to that argument is very simple. If the pension fund trustees had had that capital sum at that time, their advisers would have so invested that capital sum, so lent it out at high interest rates which are now current, that they could be expected to be able to deal with the frightening factors that indeed face all pension funds' trustees and all trustees of settlements, wherever they may be at this moment, when trying to provide for beneficiaries. But the trustees are not going to get that opportunity. It is to be done on the basis of a year by year payment; to put it in simple terms, by means of a cheque, issued year by year, which will immediately be paid out to pensioners, with no opportunity at all for investment, for cover, or for a safety net.

In these circumstances the amendment that we are now considering speaks in the following terms. It says—my amendment is a different one, and I shall concentrate on this amendment—that nobody need be troubled by a review in future if the Government actuary was roughly correct, but if the Government find that the actuary was miles out and the taxpayer is suffering while the pension fund is gaining—possibly unjustly gaining—then by notice let there be a review at stated intervals. Then after the review takes place—and it will take place only if there is this transparent injustice, if something has gone wrong—the matter can be rectified and the proportions can be adjusted. That is a very just and sensible thing to ask for.

But if the Government say—and this is the only brief reference I wish to make to the amendment in my name and in the names of my noble friends—that we cannot have an open-ended commitment like that, with reviews that might take place, following notice from the pension fund trustees, at any time over the next 20 years, then my amendment endeavours to answer any objection that there might be in that regard by saying, let there be but two, and only two, review dates in the future, and then the Government will not be faced with an open-ended commitment. The reviews can take place at only two fixed times, and that would be an end to it.

I could weary your Lordships with many arguments which would, I hope, convince you about the case of the pension fund trustees, and I cannot over-emphasise how terribly concerned they are and how greatly they rely upon your Lordships this morning. In this instance your Lordships are not the ultimate court of appeal, but you are sitting as a court of appeal on no political matter, but merely on a matter of principle, honesty, and justice concerning people who have worked hard, who deserve this justice from your Lordships, and who indeed also deserve to have a fair substitution for the 1974 Act.

I noticed that the noble Lord, Lord Morris, asked for an assurance from the Government, and indeed at the Committee stage the noble Minister Lord Bellwin could not have been more fair. If I may paraphrase his remarks, he said that he could see much merit and considerable justice in the speech—and it was a very moderate speech—that had been made by the noble Lord, Lord Selsdon. He said that it merited much sympathetic consideration, and he suggested that he should confer with his ministerial colleagues to see what could be done in the interim period.

I gathered from the remarks of the noble Lord, Lord Morris, that some assurance was being sought from the Government and that it might be forthcoming. I must say this because otherwise I should not be doing justice to my case, nor to the pensioners for whom I am trying to plead. The noble Lord the Minister is serious enough and is experienced enough not only in governmental fields, but in other fields which possibly both of us think are even more glorious than national government fields, and I am sure he will realise that any assurance given—if it is given—must be binding.

Such an assurance must be directed, by means of a memorandum or letter, to the pension fund trustees, or must be written into the Bill. It would be quite wrong, and I should not have done my duty, nor would your Lordships have done yours, if we were to accept some general observation about it not being the habit of Governments to let down nationalised industries if they happen to have liabilities. Any general assurance of that nature would be an empty one in the letterbox of every pensioner of British Railways. I hope that this amendment will commend itself to your Lordships and that I shall be forgiven if I have to address your Lordships again should by some perchance this amendment be defeated, or if, indeed, the assurance we have called for is not a satisfactory one.

Lord SANDFORD

My Lords, I wonder whether I may say a brief word on this amendment. I have taken an interest in the subject for some time, although I have not hitherto spoken to it. I should like to start by thanking my noble friend Lord Bellwin for the letter he sent me on this matter explaining the position of the Government, but I have to say to him and to the House that, having thought about it a good deal, I am still of the opinion that my noble friends Lord Selsdon and Lord Morris are better advised than my noble friend Lord Bellwin in this matter.

That is not to say that I am yet fully persuaded that it is necessary to press either this amendment or the one that succeeds it. But, as the noble Lord, Lord Mishcon, has just been saying, I believe it would be a mistake for the House to leave this matter unless my noble friend Lord Bellwin is able to give us all, and more particularly the pensioners concerned, extremely firm assurances to the effect that their interests will not be impaired but rather will be secured by this Bill and the measures that the Government intend to take in default of either of these amendments to ensure that the Bill does not operate in any way to impair their pension rights and their pension interests.

I hope my noble friend will be able to give these assurances, because if he does and it is then possible for my noble friend Lord Morris to withdraw this amendment and for the noble Lord, Lord Mishcon, and his noble friends not to press theirs, I think this may be a satisfactory way out; and I would urge my noble friend to do the very best he can to respond to the last point that the noble Lord, Lord Mishcon, was making. It will then of course be necessary for noble Lords opposite to give similar assurances, in some way or another, about what successive Governments of another party might do, in circumstances in which we might find ourselves later on, should there be a change of Government; but the point today is for my noble friend Lord Bellwin to give the best assurances he possibly can.

Viscount AMORY

My Lords, the arguments adduced by my noble friend Lord Morris and other noble Lords who have spoken on this amendment seem to me to carry a good deal of weight, both in the interests of the pensioners and in the interests of public funds. If open-endedness is the difficulty my noble friend senses, then I think the suggestion made by the noble Lord, Lord Mishcon, might be worth looking at there, with the limitation of the reviews that he mentioned.

I therefore hope very much that when my noble friend comes to reply he will be able to give the kind of assurances that my noble friend Lord Morris has asked for, which seemed to me very reasonable; but I do agree that, in these circumstances, these assurances would require to be pretty specific if they are to be effective. May I ask my noble friend, if he can, to be as sympathetic as possible to a case which seems to me to be a pretty good one?

The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin)

My Lords, may I say immediately to my noble friend Lord Amory—and, indeed, this is the stance I took when this was raised in Committee—that, of course, one is very sympathetic, because this is a matter which concerns the life and the future livelihood of many people. Therefore, one has to take this as seriously as I assure your Lordships both I and my ministerial colleagues in the Department of Transport, and even beyond that, do. My Lords, when my noble friend Lord Selsdon moved this amendment at Committee stage, I said that, in the light of that importance, we would take it away and think about it again, not least because we are talking of a very complex and difficult technical subject—and, if I may say so, I think that the noble Lord, Lord Mishcon, fully merits a pat on the back from his profession. I thought he put the matter very clearly and very explicitly, and I gladly pay that tribute to him.

My Lords, my noble friend Lord Morris made very clear that his amendment was prompted by concern (and perhaps noble Lords will bear with me if I, too, go through this rather carefully; I think it also merits that) that the position of members and pensioners of the various railway pension schemes might be at risk by the Bill. I say immediately that I share that concern. So does my right honourable friend the Minister, who, after all, is responsible for the Bill in another place. I want to make it absolutely clear—and I say this as emphatically as I am able—that we are not seeking to remove or to reduce the pension entitlements of members and pensioners of the railway pension scheme. The Bill does not affect pension entitlements in any way. Nor does it affect—and this is equally important—the legal obligations of the board to the pension schemes. Indeed, it expressly preserves those obligations.

I know that fears have been expressed in some quarters, and indeed again today, that the Bill puts members and pensioners of railway pension schemes at risk, but I believe that those fears spring from misunderstandings of the Bill and of the Government's intentions. I firmly believe that these fears are groundless, and I would not have the temerity to stand here and say so if my thoughts were otherwise. If the noble Lord, Lord Mishcon, says he is new to the House, what should I say? And if that is a reason for undue deference and care, then in my case it is even more so. So when I say, as I do with the conviction which I hope your Lordships will take from me, that those fears are groundless, then I do so with the utmost sincerity. I must say yet again that it is no part of our policy to worsen the position of railway pensioners.

As I have said, my Lords, the Bill does not make any difference at all to the pension entitlements of individual pensioners. The Bill is concerned with the arrangements whereby the cost of meeting the pensions is divided between British Rail with its pension fund and its railway business, on the one hand, and the Government and the general taxpayer, on the other. The pensions in question are railway pensions, and not Government pensions; and, as usual, are the responsibility of British Rail. But the Government are committed (I repeat that: the Government are committed) to giving financial support to British Rail to help with the payments. What this Bill does is that it changes the form of that help, although—and this is a key point—it does not change the extent of that help.

In fact, the arrangements proposed under the Bill are in many respects very similar to those which were envisaged under the 1974 Act. Under both, the responsibility for the historic pensions liabilities would remain with the board, though Government support for those liabilities would be provided. We are contemplating a similar approach to the calculation of the amount of support. Under the Act there would have been an actuarial valuation of the assets and liabilities of each scheme. As a result of that valuation it would have been decided how much of the liabilities of each scheme—what proportion of the liabilities—could not be met from the assets of the scheme. Funding debt would then have been created to cover that proportion. Under the Bill, the same proportion—no more, no less; the same proportion—of the liabilities would be met directly by Government support payments.

Perhaps I may turn to some of the particular points which my noble friend Lord Morris raised. He asked whether there was any risk of overpayment by the taxpayer. Before I answer that question, I ought to repeat one point. I say again that the pensions which we are discussing are railway pensions, being the responsibility of the British Railways Board and the railway pension schemes. But the Government have not taken over the management of these pensions. We are providing support. It may not technically be what is called a grant-in-aid, but many of the same principles apply. Let it by all means be said that the amount paid by the Government might in the event be less than the eventual cost of the board's obligations. Conversely, it might equally be more, and to that extent it can be said there might be overpayment. However, I do not believe that there is a real prospect of significant overpayments.

My noble friend asked what would happen if inflation were to fall to a much lower figure than is now being forecast?

Equally, what would happen if things got worse? Would the taxpayer on the one hand, or the pensioners on the other, lose out? Those are very proper questions, I hope I can give my noble friend some reassurance. Most of the current burden of indexation is borne by the BR (1974) Pension Fund. The principal purpose of this fund is to pay increases in line with the cost of living to pensioners of the old railway pension schemes, which pay flat rate pensions which do not rise with inflation. Under the Bill, the payments made to this fund will move in line with the payments that it stands to make to pensioners. If inflation rises, the support payments will rise by an equal amount, and vice-versa. To a considerable extent, the same will 6e true for other funds. If inflation increases their liabilities, the unfunded proportion of the increase will be met by increased support payments, and vice-versa.

My noble friend asked what would happen if the Government support payments proved to be insufficient, and the funds had to look to the Railways Board for further funds to make good their obligations. I would answer by repeating that the Bill does not affect the pension entitlements of pensioners or the obligations owed by the board to the funds. Members and pensioners could only be at risk if the board were to default on their legal obligations to their creditors. The House will know that there have been a number of occasions in which nationalised industries have run into financial difficulties. Indeed, this has happened to British Rail on three occasions. On each such occasion, British Rail has been put in a position in which it could discharge its obligations. The noble Lord, Lord Mishcon, hoped that I would not put the point this way, but I feel it is in order so to do by saying that everybody deals with nationalised industries on the basis that their credit is as good as that of the Government. Whatever the technical legal distinction, this is the practical position and there is no reason whatsoever why they should not continue to do so. Railway pensioners can be confident that the board will be able to honour their legal obligations.

The suggestion that there should be an express guarantee is rather a different matter. As I have said, there is no realistic prospect that the board will not discharge their obligations. However, the effect of such a specific guarantee would be to transfer the obligations to the taxpayer. If the board ran into further difficulties to which the historic pensions obligations were a contributory factor, it would mean that the other assets and obligations of the board—in other words, the remainder of the board's finances—would not be brought into account. The 1974 Act did not transfer the board's obligations to the Government and we do not think that it would be right for there to be such a transfer now.

The noble Lord, Lord Mishcon, suggested that the actuarial assumptions may be wrong. This is true, of course. I think that he has a very fair point, I agree that there could be a measure of uncertainty about the actuarial assumptions. However, I cannot accept that this is a risk introduced by the Bill. The 1974 Act depended on actuarial assumptions. Every funded pension scheme depends on actuarial assumptions. Indeed, anyone who buys a life insurance policy depends on actuarial assumptions. I accept that there is some risk that these actuarial assumptions might to some extent be wrong and that the board might have to make further payments into their pension schemes over and above the payments to be made by the Minister. That risk also existed under the 1974 Act and, indeed, was considerably greater. On any given divergence between actuarial assumptions and experience the deficiency that would have emerged under the Act would have been substantially larger than under the Bill.

My Lords, I have spoken at some length but, because of the importance that the Government attach to this matter, I feel that it has been necessary, just as I feel that the subject merits it. I conclude by saying that the Government are committed to helping British Rail's pension fund. I repeat that what this Bill does is to change the form and not the extent of that help. As I hope I have sufficiently emphasised, I do sincerely believe and re-state the assurance that the technical changes in the Bill do not put pensioners and railway employees at risk.

Lord UNDERHILL

My Lords, before the noble Lord sits down, will he answer the point which my noble friend Lord Mishcon put strongly—which was the question that if there had been cash payments previously there would have been substantial investments accruing to the fund? That important point has not been answered. Will the noble Lord answer it?

Lord BELLWIN

My Lords, with the leave of the House, by itself I am sure that that may be true but it is only an assumption that there would have been the funds available. What we are talking about here is the contribution from the Government, from the taxpayer, to the fund. As I said, and as Lord Mishcon said, it is the form that contribution should take which is in question. Yes, of course, it is possible the pension fund could have had these huge capital sums and invested them and had their income. But the figures that we were talking about and which the noble Lord mentioned—the —578 million already paid, and the proposal that from 1979 onwards the additional —1.4 billion be paid over seven years in capital sums—is only one side of the balance sheet. The other side of the balance sheet says, I think, that the average figure at the moment is —73 million to make good the Government's contribution. But it is taxpayers' money that would go in that form, and the Government say that the basic object of the exercise is not to give the British Rail fund capital sums to invest but to ensure that the historic obligations can be met—and they can be met, the Government say, by making these annual support payments. You can argue that one is a better way than another, but the Government say that looking at the totality of the sums, as long as there is the assurance we are giving, namely, to support the ability to pay the historical obligations (and that is the key to it) that is what matters.

Lord MORRIS

My Lords, I am grateful to my noble friends and to noble Lords opposite for their intervention, and to my noble friend Lord Bellwin for his sensitive and understanding reply. While I accept that my noble friend's statement may technically have no legal binding commitment whatsoever, I believe that it indicates the strongest possible moral obligation by the Government to ensure that pensioners should not suffer in the future. However, I am slightly puzzled as to why the Government object to a mere review—which is what this amendment is all about. Furthermore, I am not quite so confident about the possibility of the taxpayer paying too much. On balance, I believe that my noble friend Lord Selsdon would not wish me to press this amendment since both he and I respect and hold in honour the promise of my noble friend Lord Bellwin, who would expect any future Government to do the same. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord MISHCON moved Amendment No. 59: After Clause 52, insert the following new clause: ("Review of B.R. pension scheme .—(1) Not later than 18 months after each review date the actuary of a B.R. pension scheme shall certify the extent to which the proportion determined under section 46(1)(b) should be increased or decreased, with effect from the date which is 2 years after the review date, in order to place the scheme in as nearly as possible the same financial position as it would have been in at the review date if the proportion determined under section 46(1)(b) had been based on the modified assumptions referred to in subsection (2). (2) The modified assumptions are:—

1. (a) in respect of the period from 1st April 1980 up to the review date, the same assumptions as were made by the Minister in determining the proportion under section 46(1)(b) except that the assumed rates of pay, prices and dividend increases for the United Kingdom economy in general and the assumed rates of investment returns for United Kingdom pension funds in general will be replaced by the corresponding rates actually experienced by the United Kingdom economy and United Kingdom pension funds during the said period;
2. (b) in respect of the period after the review date, such assumptions about the future experience of the scheme as appear to the Minister to be appropriate as at the review date.

(3) Not later than 3 months after the review date the Minister shall notify the persons administering the scheme of the assumptions which he proposes to specify for the purpose of subsection (2)(b). (4) In the case of the second review date, if the persons administering the scheme shall inform the Minister in writing not later than 3 months after the notification referred to in subsection (3) that they object to the specified assumptions, the Minister shall forthwith appoint an independent actuary, to be nominated by the President for the time being of the Institute of Actuaries, to determine the assumptions which are appropriate for the purpose of subsection (2)(b), and the decision of the actuary shall be binding on the Minister and on the persons administering the scheme. (5) Following receipt of the actuary's certificate referred to in subsection (1) the Minister shall make an order to increase or decrease the proportion determined under section 46(1)(b) in accordance with the certificate. An order under this subsection shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament. (6) If the actuary of a B.R. pension scheme shall certify prior to the second review date that the assets held by the scheme in respect of the relevant pension obligations are likely to become exhausted within 2 years, the date of the certificate shall be treated as the second and final review date.

CONTENTS
Amherst, E.	Gosford, E.	Peart, L.
Amory, V.	Granville of Bye L.	Phillips, B.
Ampthill, L.	Grey, E.	Ponsonby of Shulbrede, L. [Teller.]
Ardwick, L.	Hale, L.
Balogh, L.	Halsbury, E.	Porritt, L.
Banks, L.	Hampton, L.	Reilly, L.
Barrington, V.	Hanworth, V.	Ritchie-Calder, L.
Birk, B.	Hatch of Lusby, L.	Robbins, L.
Blease, L.	Henderson, L.	Roberthall, L.
Boothby, L.	Hughes, L.	Ross of Marnock, L.
Boston of Faversham, L.	Kirkhill, L.	Sainsbury, L.
Brockway, L.	Leatherland, L.	Sefton of Garston, L.
Collison, L.	Leonard, L.	Segal, L.
Cooper of Stockton Heath, L.	Llewelyn-Davies of Hastoe, B. [Teller.]	Spens, L.
Crook, L.		Stamp, L.
De Freyne, L.	Lovell-Davis, L.	Stewart of Fulham, L.
Elwyn-Jones, L.	McCarthy, L.	Strabolgi, L.
Gaitskell, B.	Mishcon, L.	Underhill, L.
Gladwyn, L.	Morris, L.	Wallace of Coslany, L.
Gordon-Walker, L.	Oram, L.	Wigoder, L.
Goronwy-Roberts, L.	Pargiter, L.	Winstanley, L.

NOT-CONTENTS
Abinger, L.	Dundee, E.	Mancroft, L.
Ailesbury, M.	Eccles, V.	Marley, L.
Airey of Abingdon, B.	Effingham, E.	Merrivale, L.
Auckland, L.	Ellenborough, L.	Mowbray and Stourton, L.
Barnby, L.	Evans of Hungershall, L.	Northchurch, B.
Bellwin, L.	Faithfull, B.	Orr-Ewing, L.
Belstead, L.	Ferrers, E.	Pender, L.
Bessborough, E.	Fraser of Kilmorack, L.	Polwarth, L.
Burton, L.	Gainford, L.	Redmayne, L.
Caithness, E.	Greenway, L.	Reigate, L.
Cathcart, E.	Hailsham of Saint Marylebone, L. (L. Chancellor)	Sandford, L.
Chelwood, L.		Sandys, L. [Teller.]
Chesham, L.	Henley, L.	Savile, L.
Clancarty, E.	Hives, L.	Sempill, Ly.
Clwyd, L.	Home of the Hirsel, L.	Soames, L. (L. President.)
Cockfield, L.	Kinnaird, L.	Teviot, L.
Cottesloe, L.	Lindsey and Abingdon, E.	Trefgarne, L.
Cullen of Ashbourne, L.	Long, V.	Trenchard, V.
Davidson, V.	Lucas, B.	Vaux of Harrowden, L.
Denham, L. [Teller.]	Lucas of Chilworth, L.	Vickers, B.
Digby, L.	Lyell, L.	Vivian, L.
Drumalbyn, L.	Mackay of Clashfern, L.	Westbury, L.
Resolved in the negative and amendment disagreed to accordingly.

(7) "Review date" means 31st December 1991 or 31st December 1996.")

The noble Lord said: My Lords, your Lordships will know that fixed review dates are made in this amendment and I do not propose to weary the House with another speech. I beg to move.

11.50 a.m.

On Question, whether the said Amendment (No. 59) shall be agreed to?

Their Lordships divided: Contents, 61, Not-Contents, 64.

11.58 a.m.

Clause 54 [Reduction of payments in respect of certain supplementation schemes]:

Lord BELLWIN moved Amendments Nos. 59A and 59B: Page 49, line 39, leave out (" an obligation ") and insert ("obligations"). Page 50, line 1, leave out from ("If") to second (" the ") in line 2.

The noble Lord said: My Lords, it would be convenient for the House to take together all the Government amendments on Clause 54, that is to say Amendments Nos. 59A, 59B, 60A, 61A, and 62A. I apologise to your Lordships for having to trouble the House with yet more amendments to this clause. I cannot pretend that we have found it easy to get the drafting right.

The noble Lord, Lord Mishcon, made some very pertinent remarks when he replied to the amendments which I moved at Committee stage. He postulated two interpretations of the clause; namely, interpretation A and interpretation B. I confirmed that the latter interpretation was intended. In other words, when a surplus emerges, it will be used to pay a small proportion of all schemes of supplementation, rather than a large proportion just of next year's scheme. Amendment Nos. 59A, 59B, and 60A are intended to put this beyond doubt.

Amendments Nos. 61A and 62A are intended to make sure that we get the payments right. Suppose the actuary certifies that 85 per cent. of a surplus will meet 30 per cent. of future cost of living increases. If in future, the supplementation scheme pays the remaining 70 per cent., the cost will be reimbursed under Clause 50 and no deduction will be made. If, however, the supplementation scheme were to pay 100 per cent., as if the surplus and the actuary's certificate had never existed, the formula in the new subsection (3A) will secure that the taxpayer will still only pay 70 per cent., which is in the circumstances the proper figure. I beg to move.

Lord MISHCON

My Lords, to save the time of the House, I propose to address my very few remarks not only to Amendments Nos. 59A and 58B but to 60A, 61A and 62A. I appreciate what the noble Minister has said and the clarification that he has brought to this clause so that there is no doubt about it that interpretation B, as we have called it, is the one to be adopted. I know that he will forgive me if I say that I am not yet convinced that there are not some technical defects even in the amendment. I therefore direct his attention to this because it would appear to me that all future schemes of supplementation are not necessarily now safeguarded in regard to this amendment. There is no dispute on interpretation; it is purely a matter of draftsmanship. Possibly the Minister and I can exchange some correspondence, and that will save your Lordships' time.

12 noon

Lord MISHCON moved Amendment No. 60: Page 50, line 3, leave out (" exceed its liabilities") and insert (" exceeded its liabilities on 31st December 1979").

The noble Lord said

My Lords, again I shall be brief. Unless this amendment is passed, the pensioners' position, in my submission, will be worse off than under the 1974 Act. This is because the funding debt created under the 1974 Act could have taken account of surpluses existing at 31st December 1979 but there is no way it could have taken account of surpluses arising after that date. If I may give a quick example, suppose there is a surplus in the GWR Widows and Orphans Pension Society at a future date because mortality has been higher than expected. Under the Bill, 85 per cent. will be clawed back by the Government whereas under the 1974 Act the whole of the surplus would have been available to increase the small pensions provided for the widows and orphans concerned. That is the purpose of this amendment, and I beg to move it. I hope it will be acceptable to the Minister and to the House.

Lord BELLWIN

My Lords, despite the arguments advanced by the noble Lord, I am not persuaded that the Bill represents a worsening of the position that would have existed under the 1974 Act. It is in relation to supplementation—the subject matter of the present clause—that the method of support contemplated by the Bill differs most markedly from the method that would have been adopted under the 1974 Act. It is necessary to compare the overall picture.

A pensioner of any of the schemes to which the clause applies receives his or her pension from two different pension schemes. The basic pension is debited to one scheme—the basic scheme—and the increases on that pension are debited to another scheme—the supplementation scheme. The pensioner will only receive one cheque, but two entries are made in the books. So we ought to consider together the sources from which that payment stands to be made.

Under the 1974 Act, a fixed amount of funding debt would have been allocated to each supplementation scheme. The basic schemes would also have received the appropriate amount of funding debt. In determining how much funding debt was to be allocated to the supplementation scheme, explicit account would have been taken of all surpluses which existed or could be foreseen at the time of the allocation. The question then is what would have happened to the supplementation scheme if new surpluses had in due course emerged in the basic schemes. The most likely scenario for the emergence of new surpluses would be a scenario in which inflation ran ahead of what had been assumed when the funding debts were fixed. If that happened, a deficiency would in all probability emerge in the supplementation scheme. The 1974 Act would not have obliged the board to introduce further schemes of supplementation, or to maintain full index-linking, if the funding debt proved inadequate. So there would have been a reduction in the supplementation paid by the supplementation scheme.

There is much more that I have before me to say on this matter. As your Lordships will have gathered, it is really quite complex and very difficult—most of all difficult to absorb mentally without having it before one to read and to consider. Therefore, if your Lordships will allow, I will not proceed further with the detail, other than to say that I invite the noble Lord, Lord Mischon, in view of what I have said, and not least in view of what I might further have to say, to consider withdrawing his amendment.

Lord MISHCON

My Lords, I remain in pleasant intellectual ignorance of what the Minister might have said but is not going to say. In those circumstances, since he may be able to communicate those thoughts to me and a useful exchange may take place between now and Third Reading, I ask the leave of the House to withdraw the amendment. I do not, of course, withdraw the principle, but merely seek an opportunity of reaching an accommodation.

Amendment, by leave, withdrawn.

Lord BELLWIN moved Amendment N0.6OA: Page 50, line 4, leave out from ("scheme") to end of line 9 and insert (" any obligation arising after the date of the actuary's certificate to pay or secure the payment of any increases of pensions payable under the basic scheme or, if less, the relevant proportion of any such increases shall not be regarded as a relevant pension obligation for the purposes of any determination under section 53(1)").

The noble Lord said

My Lords, I have already spoken to this amendment and I beg to move.

12.8 p.m.

Lord MISHCON moved Amendment No. 61:

Page 50, line 9, at end insert— ("(2A) If the actuary to the basic scheme certifies at any time following the giving of a certificate under subsection (2) that the liabilities of the scheme exceed its assets, then, in relation to the supplementation scheme, subsection (2) shall not operate in relation to the increases or, if less, the relevant proportion of the increases, in respect of the period after the date of the certificate given under this subsection.").

The noble Lord said: My Lords, with your Lordships' permission, it may be convenient, if I take with Amendment No. 61, Amendment No. 63. These amendments are new to the House since they relate to Clause 54 in the new form as it appeared after the substantial Government amendments introduced at the Committee stage. The purpose of the amendments still stands in spite of the new form of Clause 54, as now presented to the House.

The purpose of the amendments is to ensure that if a pension scheme is in surplus at one point of time but then runs into unforeseen financial difficulties the claw-back will cease to operate. At Report stage in another place—and I refer to col. 1346 of Hansard—the Parliamentary Secretary stated that he could not meet a somewhat similar point which was raised then, based on the clause as it then stood. The reasons he gave, if I may paraphrase them, are as follows—but perhaps it is better that I should actually quote what he said. The Parliamentary Secretary said: Summarised, the argument is that if we were to accept this amendment, or anything along the lines proposed, it would be possible, as soon as the basic scheme got into surplus, for the fund managers hastily to rearrange matters, to start giving out improvements in benefits to their members, and to make sure that they were in deficit again fairly smartly to prevent the Treasury from taking its 85 per cent. We would have to takes powers to control the scheme to prevent that temptation arising, and we would rather not do that".

I end the quotation and I ask that somebody at ministerial level asks the Parliamentary Secretary to take a somewhat kinder view of those who follow their task of being pension fund managers and who do so with the greatest of integrity and the greatest of effort on behalf of those they represent. Having quoted him, I now have to deal with the argument as such and I can only define it as a spurious argument. It overlooks the fact that if a scheme did distribute surplus, the members and the pensioners would retain only 15 per cent. of it. If a scheme then went back into deficit, the additional support payment from the Government would be limited to 85 per cent. of the amount by which the liabilities of the scheme exceeded its assets. In other words, the scheme would have gained nothing by its premature distribution of surplus.

In the Committee stage in this House, the noble Lord, Lord Bellwin, claimed that the clause is largely self-correcting and that an amendment along these lines was therefore unnecessary. However, he illustrated his remarks with a case which, if I may say so, was specifically designed to suit his very purpose, where a deficit arising in a scheme was assumed to be accompanied by a reduction in the burden of supplementation. There are other circumstances which could arise where this would not be the case and where the amendment would not be unnecessary; for example, if a deficit was caused by a change in the demographic experience of a scheme.

I hope, therefore, that now the Government are clearer about the effect of their own clause—and I do not say this in any spirit of sarcasm, although they have had several goes at drafting it—they may be able to see their way clear to accepting the amendment, which would give a small but useful safeguard to the pension schemes. My Lords, I beg to move.

Lord BELLWIN

My Lords, I am grateful to the noble Lord, Lord Mishcon, for the care which he has taken to study the arguments which I put forward in Committee. However, I am sure that the House needs no reminding that it was late in the evening when the corresponding amendment was reached at Committee stage, and not all the arguments were fully deployed on that occasion. Perhaps I may develop an argument on which I touched briefly at the end of my remarks in Committee.

I mentioned in Committee that it would always be open to the actuary to hold back a contingency reserve. This is, in fact, a very important point. I would suggest to your Lordships that it is the key to this amendment, and the reason why, with respect, the amendment is not necessary. The analogy of a "with-profits" life insurance policy may be helpful. A pension scheme is, after all, a form of group life insurance policy. Indeed, some of the corporations' pension schemes—if I may digress—were insured with life offices. Every so often, a bonus is declared on a with-profits policy out of the profits of the company. The profits are analogous to a surplus; they represent the surplus in the insurance company's life fund. At the end of the policy, a terminal bonus is declared. Yet the normal rule is that a bonus once declared is irrevocable. How can the insurance company enter into such a commitment? Obviously, the reason is that there is a substantial contingency reserve. If the actuary's forecast turns out to have been somewhat optimistic, the bonuses that have already been declared will be safeguarded.

I would expect the actuary to a British Rail pension scheme to adopt the same approach. That is what he would have done, regardless of the Bill or of the 1974 Act if a surplus had emerged. He would have held back some of the surplus against future contingencies. When the next actuarial valuation came, he would review the position and consider whether any of the contingency provision could be disclosed. I would underline one more point that I made in Committee. The clause does not compel any or all of a surplus to be distributed. All that it says is that 85 per cent. of any distribution should be available to meet the cost of supplementation. I hope that the noble Lord, Lord Mishcon, may feel that that, at least, takes him sufficiently far not to press the amendment.

Lord MISHCON

My Lords, it takes me to the beginning of the road and, unfortunately, not to the end of it. But these are technical matters, as the noble Lord so rightly said. Again, I think that the best course for me to adopt, since I feel that the Minister has not dealt with the points that I tried to make, which were fresh points as against those advanced at the Committee stage, is to beg leave to withdraw the amendment, on the basis that the Minister and I can exchange views in the meantime, again, hoping that some kind of accommodation can be reached.

Amendment, by leave, withdrawn.

Lord BELLWIN moved Amendment No. 61 A. Page 50, line 11, after ("means") insert (" subject to subsection (3A)").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

12.15 p.m.

Lord MISHCON moved Amendment No. 62: Page 50, line 14, leave out ("85") and insert ("60").

The noble Lord said

My Lords, happily I can be extremely brief, because I can put this amendment very simply. It has been the practice to offset about 60 per cent. of the surplus in the past, and 85 per cent. is obviously a worsening of the position. The figure of 85 per cent. has no known theoretical justification, and the purpose of the amendment is to ensure that the Government's "no worsening" promise is honoured. My Lords, I beg to move.

Lord BELLWIN

My Lords, yet again, I have before me a long and quite technical dissertation on this whole subject and the problem is to avoid going into it here and now. I have to say that we cannot accept this amendment, because we could not justify arrangements under which the taxpayer funded any of the cost of indexation if substantial post-retirement improvements in pensions were also being made. To leave 40 per cent. of any surplus for improvements would be too much, particularly as no contributions towards the cost of supplementation have ever been paid. If the noble Lord, Lord Mishcon, wishes to develop the argument further, I shall be glad to try, with the leave of the House, to come back again. But I fear that this is another amendment that we are not able to accept.

Lord MISHCON

My Lords, I think that the development of the argument could much more usefully take place in the intervening period, and not at the risk of wearing your Lordships' patience at 12.15 on a Friday afternoon. This is of such importance to the pensioners and the fund that it would be just to them to adopt that procedure. On that basis, I beg leave to withdraw the amendmnt.

Amendment, by leave, withdrawn.

Lord BELLWIN moved Amendment No. 62A:

Page 50, line 15, at end insert— ("(3A) Where any obligation arising after the date of a certificate under subsection (3) is an obligation to pay or secure the payment of a proportion only of any increases to which the certificate relates, then, in relation to that obligation, the relevant proportion for the purposes of subsection (2) shall be given by the formula— A+B-1/A where A is the first mentioned proportion and B is the proportion certified by the actuary.").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

[Amendment No. 63 not moved.]

Clause 58 [Interpretation of Part III]:

Lord BELLWIN moved Amendment No. 63A: Page 53, line 7, leave out ("for the time being within ") and insert (" specified or described in").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

Lord BELLWIN moved Amendment No. 63B: Page 53, line 12, leave out (" for the time being within ") and insert (" specified or described in ").

The noble Lord said: My Lords, again, I have already spoken to this amendment. I beg to move.

Lord BELLWIN moved Amendment No. 63C: Before Clause 59 insert the following new clause: ("Insurance or security in respect of private use of vehicle to cover use under car-sharing arrangements. . At the end of section 148 of the Road Traffic Act 1972 (avoidance of certain exceptions to policies or securities, etc.) there shall be added the following subsections— (5) To the extent that a policy or security issued or given for the purposes of this Part of this Act—

1. (a) restricts, as the case may be, the insurance of the persons insured by the policy or the operation of the security to use of the vehicle for specified purposes (for example, social, domestic and pleasure purposes) of a non-commercial character; or
2. (b) excludes from, as the case may be, that insurance or the operation of the security—
1. (i) use of the vehicle for hire or reward; or
2. (ii) business or commercial use of the behicle; or
3. (iii) use of the vehicle for specified purposes of a business or commercial character,

then, for the purposes of that policy or security so far as it relates to such liabilities as are required to be covered by a policy under section 145 of this Act, the use of a vehicle on a journey in the course of which one or more passengers are carried at separate fares shall, if the conditions specified in subsection (6) below are satisfied, be treated as falling within that restriction or as not falling within that exclusion, as the case may be. (6) The conditions referred to in subsection (5) above are—

1. (a) the vehicle is not adapted to carry more than eight passengers and is not a motor cycle;
2. (b) the fare or aggregate of the fares paid in respect of the journey does not exceed the amount of the running costs of the vehicle for the journey (which for the purposes of this paragraph shall be taken to include an appropriate amount in respect of depreciation and general wear); and
3. (c) the arrangements for the payment of fares by the passenger or passengers carried at separate fares were made before the journey began.

(7) Subsections (5) and (6) above apply however the restrictions or exclusions described in subsection (5) are framed or worded; and in those subsections "fare" and "separate fares" have the same meaning as in section 2(4) of the Transport Act 1980." ").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

Lord BELLWIN moved Amendment No. 64: After Clause 60 insert the following new clause: ("Roof signs on vehicles other than taxis. .—(1) There shall not, in any part of England and Wales outside the metropolitan police district and the City of London, be displayed on or above the roof of any vehicle which is used for carrying passengers for hire or reward but which is not a taxi—

1. (a) any sign which consists of or includes the word "taxi" or "cab", whether in the singular or plural, or "hire", or any word of similar meaning or appearance to any of those words, whether alone or as part of another word; or
2. (b) any sign, notice, mark, illumination or other feature which, having regard to the time and place at which it is displayed, may suggest to a person seeking to hire a taxi that the vehicle is a taxi.

(2) Any person who knowingly—

1. (a) drives a vehicle in respect of which subsection (1) is contravened; or
2. (b) causes or permits that subsection to be contravened in respect of any vehicle,

shall be liable on summary conviction to a fine not exceeding —200. (3) In this section "taxi" means a vehicle licensed under section 37 of the Town Police Clauses Act 1847, section 6 of the Metropolitan Carriage Act 1869 or any similar local enactment.").

The noble Lord said: My Lords, again, have already spoken to this amendment. beg to move.

[Amendment No. 64A not moved.]

12.20 p.m.

Lord BELLWIN moved Amendment No. 64B: Page 56, line 19, after ("sections") insert (" Insurance or security in respect of private use of vehicle to cover use under car-sharing arrangements),").

The noble Lord said

My Lords, having already spoken to this amendment, I beg to move.

Lord BELLWIN moved Amendment No. 65: Page 56, line 19, after ("60") insert ("(Roof signs on vehicles other than taxis)").

The noble Lord said

My Lords, I have already spoken to this amendment. I beg to move.

Lord UNDERHILL

My Lords, is it Amendment No. 64 with which we are dealing?

Lord BELLWIN

No, Amendment No. 65.

Lord UNDERHILL

Then we have agreed Amendment No. 64?

Lord BELLWIN

Yes.

Lord UNDERHILL

This is a new clause and I had been waiting for it.

Lord BELLWIN

But we have already agreed Amendment No. 64.

Lord UNDERHILL

Then I shall have to write to the noble Lord the Minister.

Lord MOWBRAY and STOURTON moved Amendment No. 66: Page 56, line 20, leave out (" Part I") and insert (" Parts I and IV ").

The noble Lord said

My Lords, these are very minor amendments consequential on the repeal, in Part IV of Schedule 9 to the Bill, of Section 100 of the Road Traffic Regulation Act 1967 which deals with articulated vehicles. As the provisions relating to articulated vehicles do not apply in Northern Ireland, it is correct that Part IV of Schedule 9 should be inserted in the list in Clause 66 of provisions not extending to Northern Ireland. I beg to move.

Lord MOWBRAY and STOURTON moved Amendment No. 67: Page 56, line 21, leave out (" that Part") and insert (" those Parts ").

The noble Lord said: My Lords, I spoke to this amendment when I dealt with the last amendment. I beg to move.

Lord BELLWIN moved Amendment No.67A:

In the Title, line 6, after ("schemes;") insert ("to amend Part VI of the Road Traffic Act 1972 as regards car-sharing arrangements; ").

The noble Lord said

This amendment is consequential. Therefore, having spoken to it, I beg to move.

Lord BELLWIN moved Amendment No. 68: Line 7 after ("vehicles;") insert (" to prohibit the display of certain roof-signs on vehicles other than taxis;").

The noble Lord said

My Lords, for the last time today, may I say that, having spoken before to this amendment, I beg to move.